Financial Data and Key Metrics Changes - The company experienced a revenue decrease of 27%, resulting in net sales of $104 million, down from the previous year [10][37] - Adjusted EBITDA was over $13 million, exceeding levels from the first quarter of 2020 and year-over-year from the second quarter of 2019 [10][11] - Gross profit margins increased to 10.4% from 9.8% last year, despite a gross profit decline of $8 million [12][46] - Free cash flow for the quarter was approximately $7 million, with cash levels increasing by nearly $20 million from the previous quarter [11][68] Business Line Data and Key Metrics Changes - Agricultural segment net sales were down $17 million or 10%, with a volume decline of 8.4% and a positive pricing and mix impact of 4.9% [39][47] - Earthmoving and construction segment sales decreased by 39% or $72 million, with a volume drop of 37.5% [51][55] - Consumer segment net sales fell by 36%, with a volume decrease of 25.7% [57] Market Data and Key Metrics Changes - North American wheel sales were down 27%, primarily due to lower OEM volumes [41] - Latin American sales decreased by 37%, with half of the decline attributed to lower currency translation effects [42] - European agricultural sales were down 18%, while Russian agricultural sales increased by 13% [48] Company Strategy and Development Direction - The company is focused on managing costs and maintaining flexibility in operations to navigate the volatile COVID-19 environment [24][25] - There is an emphasis on selling non-core assets and improving working capital management to position for future growth [25][84] - The company anticipates growth in the infrastructure sector post-election, regardless of the election outcome [31] Management's Comments on Operating Environment and Future Outlook - The management expressed uncertainty regarding the second half of the year due to limited visibility from customers and ongoing pandemic impacts [14][23] - There are expectations of pent-up demand in the agricultural sector, which may eventually be released into the marketplace [18] - The management remains committed to navigating the challenges posed by the pandemic while preparing for future recovery [84] Other Important Information - The company completed the sale of its remaining shares in Wheels India, generating approximately $50 million in net proceeds over nine months [29][65] - SG&A expenses were reduced by 20% year-over-year, reflecting efforts to control costs [60][62] - The company recorded a foreign exchange gain of almost $9 million in the second quarter [63] Q&A Session Summary Question: Outlook for the back half of the year - Management indicated that visibility is limited and that typical seasonality is expected, but the order flow is changing rapidly [90][92] Question: Cost structure and raw materials - Raw material prices remain low, and the overall cost structure is stable, with temporary costs expected to return as demand increases [104][108] Question: Structural changes and consolidation - Ongoing discussions regarding structural changes are taking place, with management confident in identifying opportunities for improvement [115][118]

Part I. Financial Information This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis of the company's financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents the unaudited condensed consolidated financial statements, including statements of operations, comprehensive loss, balance sheets, changes in equity, and cash flows, along with detailed notes explaining the basis of presentation, significant accounting policies, and specific financial line items [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's net sales, gross profit, operating loss, and net loss for the specified periods | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | Six months ended June 30, 2020 (in thousands) | Six months ended June 30, 2019 (in thousands) | | :--------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net sales | $286,133 | $390,597 | $627,633 | $800,971 | | Gross profit | $29,867 | $38,308 | $57,111 | $83,572 | | (Loss) income from operations | $(3,101) | $(2,430) | $(12,704) | $1,706 | | Net loss | $(4,643) | $(6,677) | $(32,142) | $(5,670) | | Net loss applicable to common shareholders | $(5,045) | $(7,085) | $(30,531) | $(5,883) | | Basic loss per common share | $(0.08) | $(0.12) | $(0.50) | $(0.10) | | Diluted loss per common share | $(0.08) | $(0.12) | $(0.50) | $(0.10) | [Condensed Consolidated Statements of Comprehensive Loss](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This statement presents net loss and other comprehensive income (loss) components, leading to total comprehensive loss | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | Six months ended June 30, 2020 (in thousands) | Six months ended June 30, 2019 (in thousands) | | :------------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net loss | $(4,643) | $(6,677) | $(32,142) | $(5,670) | | Comprehensive loss | $(3,787) | $(716) | $(63,764) | $(3,622) | | Comprehensive loss attributable to Titan | $(4,680) | $(1,101) | $(60,862) | $(3,939) | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time | Asset/Liability/Equity | June 30, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--------------------- | :----------------------------- | :------------------------------- | | Cash and cash equivalents | $80,160 | $66,799 | | Accounts receivable, net | $192,410 | $185,238 | | Inventories | $294,537 | $333,356 | | Total current assets | $641,201 | $644,262 | | Total assets | $1,031,294 | $1,114,307 | | Short-term debt | $40,784 | $61,253 | | Accounts payable | $136,802 | $158,647 | | Total current liabilities | $298,571 | $327,153 | | Long-term debt | $462,240 | $443,349 | | Total liabilities | $829,637 | $850,319 | | Total equity | $176,657 | $238,988 | [Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) This statement outlines changes in total equity, including net loss, currency translation, and stock-based compensation - Total Titan shareholders' equity decreased from **$234.9 million** at January 1, 2020, to **$175.4 million** at June 30, 2020, primarily due to a net loss of **$25.5 million** and a significant currency translation adjustment loss of **$32.0 million** for the six months ended March 31, 2020[15](index=15&type=chunk) - For the three months ended June 30, 2020, Titan shareholders' equity decreased by **$5.0 million** due to net loss, partially offset by positive currency translation adjustments and stock-based compensation[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement summarizes cash flows from operating, investing, and financing activities | Cash Flow Activity | Six months ended June 30, 2020 (in thousands) | Six months ended June 30, 2019 (in thousands) | | :-------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net cash provided by (used for) operating activities | $5,501 | $(10,001) | | Net cash provided by (used for) investing activities | $11,898 | $(56,490) | | Net cash provided by financing activities | $2,792 | $50,041 | | Effect of exchange rate changes on cash | $(6,830) | $1,131 | | Net increase (decrease) in cash and cash equivalents | $13,361 | $(15,319) | | Cash and cash equivalents, end of period | $80,160 | $66,366 | [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on the company's accounting policies, financial instrument fair values, debt, leases, employee benefits, variable interest entities, restructuring activities, and segment information, offering context to the condensed consolidated financial statements [1. Basis of Presentation and Significant Accounting Policies](index=10&type=section&id=1.%20Basis%20of%20Presentation%20and%20Significant%20Accounting%20Policies) This section details accounting principles, COVID-19 impact, dividend suspension, and new accounting standard adoptions - The COVID-19 pandemic significantly impacted the Company's operations, leading to curtailments in Europe and Latin America from March through May 2020, increased operating costs due to health measures, and an uncertain outlook for returning to historical levels[21](index=21&type=chunk)[22](index=22&type=chunk) - The Board of Directors unanimously approved the suspension of the Company's quarterly common stock dividend until further notice on June 11, 2020[24](index=24&type=chunk) - The Company adopted new accounting standards for credit losses (ASU No. 2016-13) and fair value measurement disclosures (ASU No. 2018-13) on January 1, 2020, neither of which had a material effect on the financial statements[27](index=27&type=chunk)[28](index=28&type=chunk) [2. Accounts Receivable](index=11&type=section&id=2.%20Accounts%20Receivable) This section provides a breakdown of gross accounts receivable and the allowance for doubtful accounts | (Amounts in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Accounts receivable | $195,786 | $188,952 | | Allowance for doubtful accounts | $(3,376) | $(3,714) | | Accounts receivable, net | $192,410 | $185,238 | [3. Inventories](index=12&type=section&id=3.%20Inventories) This section details the composition of inventories, including raw material, work-in-process, and finished goods | (Amounts in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Raw material | $68,894 | $83,569 | | Work-in-process | $42,243 | $48,369 | | Finished goods | $183,400 | $201,418 | | Total Inventories | $294,537 | $333,356 | [4. Property, Plant and Equipment, Net](index=12&type=section&id=4.%20Property%2C%20Plant%20and%20Equipment%2C%20Net) This section outlines fixed assets, accumulated depreciation, asset impairment, and planned facility closures | (Amounts in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Land and improvements | $41,026 | $44,386 | | Buildings and improvements | $257,572 | $265,281 | | Machinery and equipment | $591,561 | $605,743 | | Tools, dies and molds | $112,307 | $113,603 | | Construction-in-process | $11,360 | $16,237 | | Less accumulated depreciation | $(676,180) | $(670,452) |\ | Property, plant and equipment, net | $337,646 | $374,798 | - The Company recorded a **$2.6 million** asset impairment charge for the six months ended June 30, 2020, related to machinery and equipment at Titan Tire Reclamation Corporation (TTRC) due to market declines[36](index=36&type=chunk) - The Company plans to finalize the closure of its wheel operations in Saltville, Virginia, by the end of Q3 2020, with approximately **$0.5 million** of net property, plant and equipment at this location[37](index=37&type=chunk) [5. Intangible Assets, Net](index=13&type=section&id=5.%20Intangible%20Assets%2C%20Net) This section details intangible assets, accumulated amortization, and estimated future amortization expense | (Amounts in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Customer relationships | $12,420 | $12,629 | | Patents, trademarks and other | $10,507 | $11,598 | | Total at cost | $22,927 | $24,227 | | Less accumulated amortization | $(14,391) | $(14,461) |\ | Intangible assets, net | $8,536 | $9,766 | | Estimated Amortization Expense (in thousands) | | :-------------------------------------------- | | July 1 - December 31, 2020: $972 | | 2021: $1,390 | | 2022: $972 | | 2023: $972 | | 2024: $971 | | Thereafter: $3,259 | | Total: $8,536 | [6. Warranty](index=13&type=section&id=6.%20Warranty) This section presents the changes in warranty liability, including provisions and payments made during the periods | (Amounts in thousands) | 2020 | 2019 | | :--------------------- | :------------ | :------------ | | Warranty liability, January 1 | $14,334 | $16,327 | | Provision for warranty liabilities | $3,555 | $1,722 | | Warranty payments made | $(3,784) | $(2,987) | | Warranty liability, June 30 | $14,105 | $15,062 | [7. Debt](index=14&type=section&id=7.%20Debt) This section breaks down debt, including senior secured notes, credit facilities, capital leases, and maturity schedules | (Amounts in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | 6.50% senior secured notes due 2023 | $396,410 | $395,960 | | Titan Europe credit facilities | $51,272 | $43,591 | | Revolving credit facility | $28,000 | $36,000 | | Other debt | $22,742 | $24,171 | | Capital leases | $4,600 | $4,880 | | Total debt | $503,024 | $504,602 | | Less amounts due within one year | $(40,784) | $(61,253) |\ | Total long-term debt | $462,240 | $443,349 | | Aggregate Principal Maturities of Long-Term Debt at June 30, 2020 (in thousands) | | :----------------------------------------------------------------- | | July 1 - December 31, 2020: $25,822 | | 2021: $24,056 | | 2022: $38,612 | | 2023: $406,836 | | 2024: $5,545 | | Thereafter: $5,743 | | Total: $506,614 | - At June 30, 2020, the Company had **$28.0 million** in borrowings under its **$125 million** revolving credit facility, with **$19.7 million** in outstanding letters of credit, leaving **$37.9 million** available for borrowing[48](index=48&type=chunk) [8. Redeemable Noncontrolling Interest](index=16&type=section&id=8.%20Redeemable%20Noncontrolling%20Interest) This section details redeemable noncontrolling interests, including put option exercises and equity impact - RDIF exercised a put option in November 2018, leading to Titan paying **$25 million** in cash and agreeing to issue 4,032,259 shares of restricted Titan common stock, which remained pending regulatory approval as of June 30, 2020[51](index=51&type=chunk) - OEP exercised a put option in January 2019, which was settled by Titan's subsidiary paying OEP **$46.7 million** in cash (**$16.0 million** in Q2 2019 and **$30.7 million** in July 2019), resulting in Titan Purchaser and RDIF owning **64.3%** and **35.7%** of Voltyre-Prom, respectively[52](index=52&type=chunk) | (Amounts in thousands) | 2020 | 2019 | | :--------------------- | :------------ | :------------ | | Balance at January 1 | $25,000 | $119,813 | | Reclassification as a result of Agreement regarding put option | — | $(49,883) | | Payment of interest on redeemable noncontrolling interest | — | $(16,000) | | Loss attributable to redeemable noncontrolling interest | — | $(599) | | Currency translation | — | $749 | | Redemption value adjustment | — | $1,437 | | Balance at June 30 | $25,000 | $55,517 | [9. Leases](index=17&type=section&id=9.%20Leases) This section outlines operating and finance lease assets and liabilities, including maturity schedules | (Amounts in thousands) | June 30, 2020 | December 31, 2019 | | :--------------------- | :------------ | :---------------- | | Operating lease ROU assets | $21,480 | $23,914 | | Operating lease current liabilities | $6,226 | $6,729 | | Operating lease long-term liabilities | $15,918 | $17,360 | | Total operating lease liabilities | $22,144 | $24,089 | | Finance lease, net | $4,855 | $4,490 | | Finance lease current liabilities | $1,391 | $1,110 | | Finance lease long-term liabilities | $3,209 | $3,770 | | Total finance lease liabilities | $4,600 | $4,880 | | Lease Liabilities Maturity at June 30, 2020 (in thousands) | | :------------------------------------------------------- | | **Operating Leases:** | | July 1 - December 31, 2020: $3,960 | | 2021: $6,702 | | 2022: $5,344 | | 2023: $3,511 | | 2024: $2,006 | | Thereafter: $3,577 | | Total lease payments: $25,100 | | Less imputed interest: $2,956 | | **Finance Leases:** | | July 1 - December 31, 2020: $820 | | 2021: $1,615 | | 2022: $1,528 | | 2023: $1,100 | | 2024: $411 | | Thereafter: $191 | | Total lease payments: $5,665 | | Less imputed interest: $1,065 | [10. Employee Benefit Plans](index=19&type=section&id=10.%20Employee%20Benefit%20Plans) This section presents the net periodic pension cost components for the company's employee benefit plans | Net Periodic Pension Cost (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $242 | $205 | $528 | $430 | | Interest cost | $876 | $1,106 | $1,738 | $2,229 | | Expected return on assets | $(1,358) | $(1,188) | $(2,718) | $(2,377) | | Amortization of unrecognized prior service cost | — | $57 | — | $113 | | Amortization of net unrecognized loss | $696 | $765 | $1,392 | $1,530 | | Net periodic pension cost | $456 | $945 | $940 | $1,925 | [11. Variable Interest Entities](index=19&type=section&id=11.%20Variable%20Interest%20Entities) This section describes consolidated and non-consolidated variable interest entities, including assets and liabilities - The Company consolidates two joint ventures (Canada and Australia) for which it is the primary beneficiary, operating distribution facilities for mining products[64](index=64&type=chunk)[66](index=66&type=chunk) - In March 2020, the Company terminated supply agreements with two other manufacturing-related VIEs at its Tennessee facility, ceasing its variable interest in them[65](index=65&type=chunk) | Consolidated VIEs' Assets and Liabilities (in thousands) | June 30, 2020 | December 31, 2019 | | :----------------------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $1,857 | $2,190 | | Inventory | $1,038 | $1,070 | | Other current assets | $786 | $1,027 | | Property, plant and equipment, net | $1,236 | $1,327 | | Total assets | $4,917 | $5,614 | | Current liabilities | $862 | $1,110 | | Other long-term liabilities | $542 | $579 | | Total liabilities | $1,404 | $1,689 | | Non-Consolidated VIEs' Assets and Maximum Exposure to Loss (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------------------------------------------------------- | :------------ | :---------------- | | Investments | $4,786 | $4,973 | | Other current assets | $6 | — | | Total VIE assets | $4,792 | $4,973 | | Accounts payable | $1,231 | $2,006 | | Maximum exposure to loss | $6,023 | $6,979 | [12. Restructuring Activities](index=20&type=section&id=12.%20Restructuring%20Activities) This section details severance costs and inventory impairment from restructuring and plant closures - The Company incurred **$0.4 million** in severance costs for the three and six months ended June 30, 2020, as part of its North American and Corporate Restructuring plan[70](index=70&type=chunk) - An inventory impairment charge of **$1.0 million** was recorded for the three and six months ended June 30, 2020, related to the closure of the Saltville, Virginia wheel operations[70](index=70&type=chunk) [13. Royalty Expense](index=21&type=section&id=13.%20Royalty%20Expense) This section reports the royalty expenses incurred by the company for trademark license agreements | Royalty Expense (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :----------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Royalty expense | $2,400 | $2,400 | $4,900 | $5,100 | [14. Other Income](index=21&type=section&id=14.%20Other%20Income) This section details other income and loss items, including insurance settlements, asset sales, and equity investment | Other Income (Loss) (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Gain on property insurance settlement | — | — | $4,936 | — | | Loss on sale of Wheels India Limited shares | $(2,005) | — | $(703) | — | | Equity investment income | $(236) | $974 | $369 | $1,849 | | Gain on sale of assets | $544 | $397 | $892 | $767 | | Building rental income | $398 | $479 | $714 | $734 | | Interest income | $102 | $301 | $217 | $641 | | Other (expense) | $807 | $(82) | $621 | $(926) | | Total | $(390) | $2,069 | $7,046 | $3,065 | [15. Income Taxes](index=21&type=section&id=15.%20Income%20Taxes) This section presents income tax provision (benefit) and effective tax rates, explaining key drivers | Income Tax (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Provision (benefit) for income taxes | $1,980 | $(3,218) | $2,035 | $(1,303) | | Effective income tax rate | (74)% | 33% | (7)% | 19% | - The Company's income tax rates differed from the U.S. Federal rate primarily due to full valuation allowances on deferred tax assets in the U.S. and certain foreign jurisdictions, and non-deductible royalty expenses[76](index=76&type=chunk) - The CARES Act is not expected to materially impact the Company's financial position or results, except for the deferral of Social Security payroll taxes, which will benefit operating cash flows through 2020[80](index=80&type=chunk) [16. Earnings Per Share](index=22&type=section&id=16.%20Earnings%20Per%20Share) This section reports net loss applicable to common shareholders and basic and diluted loss per share | EPS (in thousands, except per share data) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :---------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss applicable to common shareholders | $(5,045) | $(7,085) | $(30,531) | $(5,883) | | Basic EPS | $(0.08) | $(0.12) | $(0.50) | $(0.10) | | Diluted EPS | $(0.08) | $(0.12) | $(0.50) | $(0.10) | | Basic weighted average shares outstanding | 60,602 | 60,000 | 60,481 | 59,973 | | Diluted weighted average shares outstanding | 60,602 | 60,000 | 60,481 | 59,973 | [17. Litigation](index=23&type=section&id=17.%20Litigation) This section details CERCLA litigation involvement, including liabilities and court rulings - Titan Tire and Dico, Inc. are involved in CERCLA litigation, with a District Court order in September 2017 holding them jointly and severally liable for **$5.45 million** in response costs and Dico liable for **$5.45 million** in punitive damages[88](index=88&type=chunk) - As of June 30, 2020, a **$6.5 million** contingent liability remains outstanding for the CERCLA order, which was affirmed by the U.S. Court of Appeals for the Eighth Circuit in April 2019[88](index=88&type=chunk)[89](index=89&type=chunk) [18. Segment Information](index=24&type=section&id=18.%20Segment%20Information) This section provides detailed financial results and assets for agricultural, earthmoving/construction, and consumer segments | Segment Operating Results (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | **Net Sales:** | | | | | | Agricultural | $147,267 | $164,284 | $320,206 | $356,014 | | Earthmoving/construction | $112,457 | $184,782 | $249,379 | $361,527 | | Consumer | $26,409 | $41,531 | $58,048 | $83,430 | | Total Net Sales | $286,133 | $390,597 | $627,633 | $800,971 | | **Gross Profit:** | | | | | | Agricultural | $15,613 | $14,247 | $29,640 | $36,372 | | Earthmoving/construction | $11,614 | $19,701 | $22,368 | $37,871 | | Consumer | $2,640 | $4,360 | $5,103 | $9,329 | | Total Gross Profit | $29,867 | $38,308 | $57,111 | $83,572 | | **(Loss) Income from Operations:** | | | | | | Agricultural | $6,992 | $4,365 | $2,298 | $18,293 | | Earthmoving/construction | $(1,902) | $5,697 | $(8,897) | $11,225 | | Consumer | $1,425 | $1,228 | $1,131 | $3,349 | | Corporate & Unallocated | $(9,616) | $(13,720) | $(7,236) | $(31,161) | | Total (Loss) Income from Operations | $(3,101) | $(2,430) | $(12,704) | $1,706 | | Segment Assets (in thousands) | June 30, 2020 | December 31, 2019 | | :---------------------------- | :------------ | :---------------- | | Agricultural | $430,894 | $423,955 | | Earthmoving/construction | $447,867 | $496,988 | | Consumer | $107,028 | $123,320 | | Corporate & Unallocated | $45,505 | $70,044 | | Total assets | $1,031,294 | $1,114,307 | [19. Related Party Transactions](index=26&type=section&id=19.%20Related%20Party%20Transactions) This section discloses sales of products and commissions paid to companies controlled by a related party - Sales of Titan products to companies controlled by Mr. Fred Taylor (brother of the Chairman) were approximately **$0.2 million** for Q2 2020 and **$0.5 million** for H1 2020, comparable to 2019[96](index=96&type=chunk) - Sales commissions paid to these related companies were approximately **$0.4 million** for Q2 2020 and **$0.7 million** for H1 2020, compared to **$0.3 million** and **$0.8 million** for the respective periods in 2019[96](index=96&type=chunk) [20. Accumulated Other Comprehensive Loss](index=26&type=section&id=20.%20Accumulated%20Other%20Comprehensive%20Loss) This section details accumulated other comprehensive loss components, primarily currency translation adjustments | Accumulated Other Comprehensive Loss (in thousands) | Balance at April 1, 2020 | Balance at January 1, 2020 | | :-------------------------------------------------- | :----------------------- | :------------------------- | | Currency Translation Adjustments | $(224,511) | $(192,507) | | Gain (Loss) on Derivatives | — | — | | Unrecognized Losses and Prior Service Cost | $(24,836) | $(26,144) | | Total | $(249,347) | $(218,651) | | Balance at June 30, 2020 | $(248,982) | $(248,982) | - The increase in currency translation adjustments for the six months ended June 30, 2020, was due to foreign currency rate fluctuations and the settlement of certain intercompany loans[97](index=97&type=chunk) [21. Subsidiary Guarantor Financial Information](index=27&type=section&id=21.%20Subsidiary%20Guarantor%20Financial%20Information) This section provides condensed consolidating financial statements for parent, guarantor, and non-guarantor subsidiaries - This section provides condensed consolidating financial statements (Statements of Operations, Comprehensive Loss, Balance Sheets, and Cash Flows) for Titan International, Inc. (Parent), Guarantor Subsidiaries, and Non-Guarantor Subsidiaries, along with eliminations to arrive at the consolidated totals[99](index=99&type=chunk)[100](index=100&type=chunk)[101](index=101&type=chunk)[102](index=102&type=chunk)[103](index=103&type=chunk)[104](index=104&type=chunk)[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk)[108](index=108&type=chunk)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk)[114](index=114&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Titan's financial condition, results of operations, and liquidity, highlighting the significant impact of the COVID-19 pandemic, market outlooks for its segments, and detailed analysis of financial performance and cash flows [COVID-19 Pandemic](index=35&type=section&id=COVID-19%20Pandemic) This section discusses the adverse impact of COVID-19 on operations, costs, and uncertain outlook - The COVID-19 pandemic adversely affected the Company's financial results and business operations for the six months ended June 30, 2020, with significant curtailments in European and Latin American operations from March through May 2020[117](index=117&type=chunk) - Operations have resumed with increased sanitary and protective health measures, leading to higher operating costs, and the outlook for returning to historical levels remains uncertain due to the pandemic's evolving nature[117](index=117&type=chunk)[118](index=118&type=chunk) [Forward-Looking Statements](index=35&type=section&id=Forward-Looking%20Statements) This section outlines forward-looking statements and potential risks causing material differences in actual results - This Form 10-Q contains forward-looking statements regarding financial performance, business trends, end-user markets, capital expenditures, cost control, loan compliance, new products, and acquisition opportunities[120](index=120&type=chunk)[121](index=121&type=chunk) - Actual results could differ materially due to various risks, including the COVID-19 pandemic, economic recession, changes in end-user markets, competition, labor relations, legal proceedings, regulatory compliance, raw material availability, operating efficiencies, indebtedness, interest rates, product liability, government actions, geopolitical uncertainties, acquisition risks, currency fluctuations, climate change, facility risks, and financial reporting issues[123](index=123&type=chunk)[124](index=124&type=chunk) [Overview](index=37&type=section&id=Overview) This section describes Titan International, Inc. as a global manufacturer of off-highway wheels, tires, and undercarriage products - Titan International, Inc. is a global manufacturer of off-highway wheels, tires, assemblies, and undercarriage products for agricultural, earthmoving/construction, and consumer markets[127](index=127&type=chunk) - The Company's top customers include global leaders in agricultural and construction equipment manufacturing such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., and Deere & Company[131](index=131&type=chunk) [Market Conditions and Outlook](index=37&type=section&id=Market%20Conditions%20and%20Outlook) This section assesses uncertain market conditions and outlook for agricultural, earthmoving/construction, and consumer segments due to COVID-19 - The outlook for the remainder of 2020 remains uncertain across all segments due to the ongoing effects of the COVID-19 pandemic, which caused production losses and market disruptions in Europe, Asia, and Latin America[132](index=132&type=chunk) - Agricultural market conditions remain uncertain due to low commodity prices, tariffs, trade concerns, and OEM production pullbacks, though small agriculture equipment sales are rebounding faster than large equipment[134](index=134&type=chunk) - The earthmoving/construction market continues to decline due to global economic uncertainty and COVID-19, with demand for larger construction and mining equipment softening, and the outlook dependent on global economic recovery[135](index=135&type=chunk) - The consumer market is expected to remain highly uncertain through 2020, with sales likely suppressed relative to the prior year due to factors like consumer spending and government policies[136](index=136&type=chunk) [Results of Operations](index=38&type=section&id=Results%20of%20Operations) This section analyzes financial performance, including net sales, gross profit, and operating results across various periods [Net Sales](index=39&type=section&id=Net%20Sales) This section analyzes net sales changes, attributing them to volume, price/mix, and currency translation effects | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Net sales | $286,133 | $390,597 | (26.7)% | - Net sales decreased by **26.7%** for Q2 2020 and **21.6%** for H1 2020, primarily driven by a **24.0%** (Q2) and **18.1%** (H1) decrease in volume due to global construction slowdowns and COVID-19 related plant closures (**$31 million** in Q2, **$45 million** in H1)[139](index=139&type=chunk)[140](index=140&type=chunk) - Unfavorable currency translation negatively impacted net sales by **5.1%** in Q2 and **4.1%** in H1, partially offset by favorable price/mix contributing **2.4%** (Q2) and **0.6%** (H1) increases[139](index=139&type=chunk)[140](index=140&type=chunk) [Gross Profit](index=39&type=section&id=Gross%20Profit) This section examines gross profit and margin changes, highlighting impacts from sales volume and cost initiatives | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :--------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Gross profit | $29,867 | $38,308 | (22.0)% | | Gross profit % | 10.4% | 9.8% | 0.6 pp | - Gross profit decreased by **$8.4 million** (**22.0%**) for Q2 2020 and **$26.5 million** (**31.7%**) for H1 2020, primarily due to lower sales volume and a **$1.0 million** inventory impairment for the Saltville, Virginia plant closure[141](index=141&type=chunk)[142](index=142&type=chunk) - Gross profit as a percentage of sales increased to **10.4%** in Q2 2020 (from **9.8%** in Q2 2019) due to strong initiatives to reduce labor and overhead costs and lower raw material prices, despite a decrease to **9.1%** for H1 2020 (from **10.4%** in H1 2019)[141](index=141&type=chunk)[142](index=142&type=chunk) [Selling, General and Administrative Expenses](index=39&type=section&id=Selling%2C%20General%20and%20Administrative%20Expenses) This section details SG&A expense reduction due to cost-cutting, including lower professional fees and payroll | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Selling, general and administrative expenses | $28,441 | $35,746 | (20.4)% | - SG&A expenses decreased by **20.4%** for Q2 2020 and **15.7%** for H1 2020, driven by lower professional fees (related to ERP stabilization), reduced payroll costs, lower marketing expenses, and decreased travel expenses due to company-wide cost reduction initiatives[143](index=143&type=chunk)[144](index=144&type=chunk) [Research and Development Expenses](index=39&type=section&id=Research%20and%20Development%20Expenses) This section reports R&D expense decrease, primarily driven by reduced payroll and professional fees | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :-------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Research and development expenses | $2,132 | $2,544 | (16.2)% | - R&D expenses decreased by **16.2%** for Q2 2020 and **12.0%** for H1 2020, primarily due to lower payroll-related costs and professional fees, reflecting management's initiatives to decrease costs amidst a sales downturn[145](index=145&type=chunk) [Royalty Expense](index=40&type=section&id=Royalty%20Expense) This section discusses the stability of royalty expenses related to trademark license agreements | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :------------- | :--------------------------------------------- | :--------------------------------------------- | :------- | | Royalty expense | $2,395 | $2,448 | (2.2)% | - Royalty expenses remained relatively stable, at **$2.4 million** for Q2 2020 and **$4.9 million** for H1 2020, related to trademark license agreements with The Goodyear Tire & Rubber Company[147](index=147&type=chunk)[148](index=148&type=chunk) [(Loss) Income from Operations](index=40&type=section&id=%28Loss%29%20Income%20from%20Operations) This section analyzes operating loss or income changes, primarily influenced by net sales performance | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------- | | (Loss) income from operations | $(3,101) | $(2,430) | 27.6% | - Operating loss increased to **$3.1 million** for Q2 2020 (from **$2.4 million** in Q2 2019) and to **$12.7 million** for H1 2020 (from income of **$1.7 million** in H1 2019), primarily driven by lower net sales[149](index=149&type=chunk) [Other Profit/Loss Items](index=40&type=section&id=Other%20Profit%2FLoss%20Items) This section covers interest expense, foreign exchange gains/losses, and other non-operating income and expenses [Interest Expense](index=40&type=section&id=Interest%20Expense) This section reports on the stability of interest expense due to consistent long-term debt levels - Interest expense remained comparable at **$8.0 million** for Q2 2020 (vs. **$8.3 million** in Q2 2019) and **$16.0 million** for H1 2020 (vs. **$16.2 million** in H1 2019) due to similar levels of long-term debt[150](index=150&type=chunk) [Foreign Exchange Gain (Loss)](index=40&type=section&id=Foreign%20Exchange%20Gain%20%28Loss%29) This section details foreign exchange gains and losses, influenced by currency rate movements and intercompany loan settlements - The Company recorded an **$8.8 million** foreign exchange gain for Q2 2020 (vs. **$1.2 million** loss in Q2 2019), but an **$8.4 million** foreign exchange loss for H1 2020 (vs. **$4.5 million** gain in H1 2019)[151](index=151&type=chunk) - The H1 2020 loss was primarily due to significant movements in foreign currency exchange rates and the settlement of intercompany loans as part of a restructuring initiative[151](index=151&type=chunk) [Other (Loss) Income](index=40&type=section&id=Other%20%28Loss%29%20Income) This section summarizes other non-operating income and losses, including asset sales and insurance settlements - Other loss was **$0.4 million** for Q2 2020 (vs. **$2.1 million** income in Q2 2019), mainly due to a **$2.0 million** loss on the sale of remaining Wheels India Limited shares[152](index=152&type=chunk) - Other income was **$7.0 million** for H1 2020 (vs. **$3.1 million** in H1 2019), driven by **$4.9 million** from a property insurance settlement and a **$1.3 million** gain from an earlier sale of Wheels India Limited shares, partially offset by the **$2.0 million** loss in June[153](index=153&type=chunk) [Provision (Benefit) for Income Taxes](index=40&type=section&id=Provision%20%28Benefit%29%20for%20Income%20Taxes) This section analyzes income tax provision (benefit) and effective tax rates, noting impacts from valuation allowances and non-deductible expenses - The Company recorded income tax expense of **$2.0 million** for Q2 2020 (vs. **$3.2 million** benefit in Q2 2019) and **$2.0 million** for H1 2020 (vs. **$1.3 million** benefit in H1 2019)[154](index=154&type=chunk) - Effective income tax rates were **(74)%** for Q2 2020 and **(7)%** for H1 2020, primarily due to valuation allowances on deferred tax assets from projected losses and non-deductible royalty expenses[154](index=154&type=chunk)[155](index=155&type=chunk) [Net Loss and Loss per Share](index=41&type=section&id=Net%20Loss%20and%20Loss%20per%20Share) This section reports net loss and corresponding basic and diluted loss per share for the periods - Net loss for Q2 2020 was **$4.6 million** (vs. **$6.7 million** in Q2 2019), with basic and diluted loss per share of **$(0.08)** (vs. **$(0.12)** in Q2 2019)[158](index=158&type=chunk) - Net loss for H1 2020 was **$32.1 million** (vs. **$5.7 million** in H1 2019), with basic and diluted loss per share of **$(0.50)** (vs. **$(0.10)** in H1 2019)[159](index=159&type=chunk) [Segment Information](index=41&type=section&id=Segment%20Information) This section provides detailed financial results for agricultural, earthmoving/construction, and consumer segments [Agricultural Segment Results](index=42&type=section&id=Agricultural%20Segment%20Results) This section analyzes agricultural segment net sales, gross profit, and operating income, highlighting volume and cost impacts | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | :------- | | Net sales | $147,267 | $164,284 | (10.4)% | | Gross profit | $15,613 | $14,247 | 9.6% | | Income from operations | $6,992 | $4,365 | 60.2% | - Agricultural net sales decreased by **10.4%** in Q2 2020 and **10.1%** in H1 2020, primarily due to lower sales volume (**8.4%** in Q2, **4.8%** in H1) and unfavorable currency translation (**6.8%** in Q2, **4.9%** in H1), exacerbated by commodity market weakness and COVID-19[162](index=162&type=chunk)[165](index=165&type=chunk) - Q2 2020 agricultural gross profit increased by **9.6%** to **$15.6 million**, and income from operations increased by **60.2%** to **$7.0 million**, driven by production efficiencies, cost reduction initiatives, and lower raw material costs[163](index=163&type=chunk)[164](index=164&type=chunk) [Earthmoving/Construction Segment Results](index=42&type=section&id=Earthmoving%2FConstruction%20Segment%20Results) This section details significant declines in net sales, gross profit, and operating results for the earthmoving/construction segment | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :------------------------ | :--------------------------------------------- | :--------------------------------------------- | :------- | | Net sales | $112,457 | $184,782 | (39.1)% | | Gross profit | $11,614 | $19,701 | (41.0)% | | (Loss) income from operations | $(1,902) | $5,697 | (133.4)% | - Earthmoving/construction net sales decreased significantly by **39.1%** in Q2 2020 and **31.0%** in H1 2020, primarily due to decreased volume (**37.5%** in Q2, **30.4%** in H1) from a tightening construction market and approximately **$26 million** (Q2) / **$40 million** (H1) direct impact from COVID-19[169](index=169&type=chunk)[171](index=171&type=chunk) - Gross profit decreased by **41.0%** in Q2 2020 and **40.9%** in H1 2020, leading to an operating loss of **$1.9 million** in Q2 2020 and **$8.9 million** in H1 2020, driven by lower sales volume, production inefficiencies, COVID-19 impact, and unfavorable foreign currency translation[170](index=170&type=chunk)[172](index=172&type=chunk) [Consumer Segment Results](index=43&type=section&id=Consumer%20Segment%20Results) This section examines consumer segment net sales, gross profit, and operating income changes, noting volume and currency impacts | Metric | Three months ended June 30, 2020 (in thousands) | Three months ended June 30, 2019 (in thousands) | % Change | | :------------------ | :--------------------------------------------- | :--------------------------------------------- | :------- | | Net sales | $26,409 | $41,531 | (36.4)% | | Gross profit | $2,640 | $4,360 | (39.4)% | | Income from operations | $1,425 | $1,228 | 16.0% | - Consumer segment net sales decreased by **36.4%** in Q2 2020 and **30.4%** in H1 2020, primarily due to lower sales volume (**25.7%** in Q2, **21.9%** in H1) in North America, Latin America, and Australia, unfavorable currency translation, and unfavorable price mix[173](index=173&type=chunk)[176](index=176&type=chunk) - Gross profit decreased by **39.4%** in Q2 2020 and **45.3%** in H1 2020 due to lower sales in light utility truck markets. Income from operations increased by **16.0%** in Q2 2020 but decreased by **66.2%** in H1 2020[174](index=174&type=chunk)[177](index=177&type=chunk) [Corporate & Unallocated Expenses](index=44&type=section&id=Corporate%20%26%20Unallocated%20Expenses) This section reports on the decrease in unallocated corporate expenses due to refined allocation processes - Unallocated loss decreased to **$9.6 million** for Q2 2020 (from **$13.7 million** in Q2 2019) and to **$7.2 million** for H1 2020 (from **$31.2 million** in H1 2019), attributed to a refinement of the allocation process[178](index=178&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses cash flows, debt restrictions, and overall liquidity outlook, including capital expenditure plans [Cash Flows](index=45&type=section&id=Cash%20Flows) This section provides an overview of cash generated or used in operating, investing, and financing activities [Operating Cash Flows](index=45&type=section&id=Operating%20Cash%20Flows) This section details operating cash flows, highlighting changes in inventories and other current liabilities | Operating Cash Flows (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | Change | | :---------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash provided by (used for) operating activities | $5,501 | $(10,001) | $15,502 | - Operating activities provided **$5.5 million** in cash for H1 2020, a **$15.5 million** increase from H1 2019, primarily due to a **$23.1 million** reduction in inventories and a **$19.2 million** increase in other current liabilities[181](index=181&type=chunk)[182](index=182&type=chunk) | Cash Conversion Cycle (in days) | June 30, 2020 | December 31, 2019 | June 30, 2019 | | :------------------------------ | :------------ | :---------------- | :------------ | | Days sales outstanding | 61 | 56 | 63 | | Days inventory outstanding | 111 | 111 | 105 | | Days payable outstanding | (51) | (53) | (57) | | Cash conversion cycle | 121 | 114 | 111 | [Investing Cash Flows](index=46&type=section&id=Investing%20Cash%20Flows) This section describes cash flows from investing activities, including asset sales and capital expenditures | Investing Cash Flows (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | Change | | :---------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash provided by (used for) investing activities | $11,898 | $(56,490) | $68,388 | - Investing activities provided **$11.9 million** in cash for H1 2020 (vs. **$56.5 million** used in H1 2019), driven by **$15.7 million** from the sale of Wheels India Limited shares and **$4.9 million** from a property insurance settlement[185](index=185&type=chunk) - Capital expenditures decreased to **$8.4 million** in H1 2020 (vs. **$16.7 million** in H1 2019) as a direct response to cash preservation activities due to COVID-19[185](index=185&type=chunk) [Financing Cash Flows](index=46&type=section&id=Financing%20Cash%20Flows) This section outlines cash flows from financing activities, including borrowings and debt payments | Financing Cash Flows (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | Change | | :---------------------------------- | :----------------------------- | :----------------------------- | :----- | | Net cash provided by financing activities | $2,792 | $50,041 | $(47,249) | - Financing activities provided **$2.8 million** in cash for H1 2020 (vs. **$50.0 million** in H1 2019), with **$76.8 million** from borrowings offset by **$74.0 million** in debt payments, including a reduction in the domestic revolving credit facility balance[186](index=186&type=chunk) [Debt Restrictions](index=47&type=section&id=Debt%20Restrictions) This section details covenants and limitations from the revolving credit facility and senior secured notes - The Company's revolving credit facility and senior secured notes indenture contain various restrictions, including maintaining a minimum fixed charge coverage ratio (if availability falls below **10%** of commitment), limits on dividends and stock repurchases, and restrictions on additional borrowings, mergers, investments, and asset dispositions[189](index=189&type=chunk) [Liquidity Outlook](index=47&type=section&id=Liquidity%20Outlook) This section provides management's assessment of future liquidity, including available cash, credit, and anticipated cash flows - As of June 30, 2020, the Company had **$80.2 million** in cash and cash equivalents, with **$37.9 million** available under its **$125 million** credit facility[190](index=190&type=chunk) - The Company expects sufficient liquidity for working capital, debt maturities, and capital expenditures from existing cash, anticipated internal cash flows, and available credit facilities, with forecasted full-year capital expenditures of approximately **$20 million** and remaining interest payments of **$15 million** for 2020[191](index=191&type=chunk)[192](index=192&type=chunk) - Despite business disruption from COVID-19, management does not anticipate violating any financial covenants or significant liquidity constraints in the foreseeable future, having taken measures for financial flexibility and cost reduction[193](index=193&type=chunk) [Critical Accounting Estimates](index=47&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section confirms no material changes to critical accounting estimates since the prior annual filing - There were no material changes in the Company's Critical Accounting Estimates since the filing of the 2019 Form 10-K[194](index=194&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes to the quantitative and qualitative disclosures about market risk since the filing of the 2019 Form 10-K - No material changes in quantitative and qualitative disclosures about market risk have occurred since the 2019 Form 10-K filing[196](index=196&type=chunk) [Item 4. Controls and Procedures](index=48&type=section&id=Item%204.%20Controls%20and%20Procedures) This section details the evaluation of the Company's disclosure controls and procedures, confirming their effectiveness, and reports no material changes in internal control over financial reporting during the second quarter of 2020, while acknowledging inherent limitations of control systems [Evaluation of Disclosure Controls and Procedures](index=48&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2020 - The Chief Executive Officer and Chief Financial Officer concluded that Titan's disclosure controls and procedures were effective as of June 30, 2020, providing reasonable assurance that required information is accurately recorded, processed, summarized, and reported[197](index=197&type=chunk) [Changes in Internal Controls](index=48&type=section&id=Changes%20in%20Internal%20Controls) This section reports no material changes in internal control over financial reporting during the second quarter of 2020 - No changes in internal control over financial reporting occurred during the second quarter of fiscal year 2020 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[198](index=198&type=chunk) [Inherent Limitations on the Effectiveness of Controls](index=48&type=section&id=Inherent%20Limitations%20on%20the%20Effectiveness%20of%20Controls) This section acknowledges that control systems provide reasonable, not absolute, assurance due to inherent limitations - The Company acknowledges that its control systems, due to inherent limitations and resource constraints, can only provide reasonable, not absolute, assurance and may not prevent or detect all misstatements or fraud[199](index=199&type=chunk)[200](index=200&type=chunk) Part II. Other Information This section covers legal proceedings, updated risk factors, and a list of exhibits filed with the report [Item 1. Legal Proceedings](index=49&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 17 in the financial statements for details on the Company's routine legal proceedings, including environmental issues, product liability, contracts, and labor and employment matters - The Company is subject to routine legal proceedings, including environmental issues, product liability, contracts, and labor and employment matters, with further details provided in Note 17[203](index=203&type=chunk) [Item 1A. Risk Factors](index=49&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, specifically highlighting the adverse and uncertain impacts of the COVID-19 pandemic on the Company's business, operations, financial results, and the potential to heighten other existing risks - The COVID-19 pandemic has adversely impacted and will likely continue to affect the Company's business, operating results, and financial condition, leading to unpredictable disruption in product demand and potential material impacts on operational and commercial activities, costs, customer orders, and collections[205](index=205&type=chunk)[206](index=206&type=chunk) - The pandemic's effects could exist for an extended period, impacting global economies, foreign currency exchange rates, and interest rates, and could result in asset impairment charges[206](index=206&type=chunk) - The COVID-19 pandemic may also heighten many of the other risks previously described in the 2019 Form 10-K[207](index=207&type=chunk) [Item 6. Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including certifications, XBRL taxonomy documents, and the cover page - Exhibits include certifications (31.1, 31.2, 32), In

Titan International, Inc. (NYSE:TWI) Q1 2020 Results Conference Call May 7, 2020 9:00 AM ET Company Participants Todd Shoot - Senior Vice President, Investor Relations and Treasurer Paul Reitz - President and Chief Executive Officer David Martin - Senior Vice President and Chief Financial Officer Conference Call Participants Joe Mondillo - Sidoti & Company Kirk Ludtke - Imperial Capital Operator Ladies and gentlemen, thank you for standing by, and welcome to this morning's presentation. I would now like to ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) Presents the unaudited condensed consolidated financial statements and related notes for the company [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) Presents Titan International's unaudited condensed consolidated financial statements and detailed notes for Q1 2020 and 2019 [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Condensed Consolidated Statements of Operations (Three months ended March 31) | Metric (in thousands) | 2020 | 2019 | Change (2020 vs 2019) | | :-------------------- | :--- | :--- | :-------------------- | | Net sales | $341,500 | $410,374 | $(68,874) | | Cost of sales | $311,677 | $365,110 | $(53,433) | | Asset impairment | $2,579 | — | $2,579 | | Gross profit | $27,244 | $45,264 | $(18,020) | | (Loss) income from operations | $(9,603) | $4,136 | $(13,739) | | Foreign exchange (loss) gain | $(17,242) | $5,723 | $(22,965) | | Net (loss) income attributable to Titan | $(25,486) | $1,977 | $(27,463) | | Basic EPS | $(0.42) | $0.02 | $(0.44) | | Diluted EPS | $(0.42) | $0.02 | $(0.44) | - Net sales decreased by **$68.9 million (16.8%)** from $410.4 million in Q1 2019 to $341.5 million in Q1 2020[8](index=8&type=chunk) - The company reported a net loss attributable to Titan of **$25.5 million** in Q1 2020, a significant decline from a net income of **$2.0 million** in Q1 2019[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29) Condensed Consolidated Statements of Comprehensive Income (Loss) (Three months ended March 31) | Metric (in thousands) | 2020 | 2019 | Change (2020 vs 2019) | | :-------------------- | :--- | :--- | :-------------------- | | Net (loss) income | $(27,499) | $1,007 | $(28,506) | | Currency translation adjustment | $(33,786) | $(4,379) | $(29,407) | | Pension liability adjustments, net of tax | $1,308 | $466 | $842 | | Comprehensive loss | $(59,977) | $(2,906) | $(57,071) | | Comprehensive loss attributable to Titan | $(56,181) | $(2,838) | $(53,343) | - Comprehensive loss attributable to Titan significantly increased to **$56.2 million** in Q1 2020 from **$2.8 million** in Q1 2019, primarily due to a substantial negative currency translation adjustment[10](index=10&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Condensed Consolidated Balance Sheets (as of) | Metric (in thousands) | March 31, 2020 | December 31, 2019 | Change | | :-------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $60,378 | $66,799 | $(6,421) | | Accounts receivable, net | $211,982 | $185,238 | $26,744 | | Inventories | $306,071 | $333,356 | $(27,285) | | Total current assets | $638,892 | $644,262 | $(5,370) | | Total assets | $1,060,254 | $1,114,307 | $(54,053) | | Short-term debt | $46,275 | $61,253 | $(14,978) | | Accounts payable | $179,933 | $158,647 | $21,286 | | Total current liabilities | $341,952 | $327,153 | $14,799 | | Long-term debt | $444,550 | $443,349 | $1,201 | | Total liabilities | $856,332 | $850,319 | $6,013 | | Total equity | $178,922 | $238,988 | $(60,066) | - Total assets decreased by **$54.1 million**, while total liabilities increased by **$6.0 million**, leading to a **$60.1 million** decrease in total equity from December 31, 2019, to March 31, 2020[13](index=13&type=chunk) [Condensed Consolidated Statements of Changes in Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity) Key Changes in Equity (Three months ended March 31, 2020, in thousands) | Item | Amount | | :-------------------------------- | :------- | | Balance January 1, 2020 | $238,988 | | Net income (loss) | $(27,499) | | Currency translation adjustment, net | $(33,786) | | Pension liability adjustments, net of tax | $1,308 | | Dividends declared | $(302) | | Stock-based compensation | $490 | | VIE deconsolidation | $(559) | | Issuance of stock under 401(k) plan | $282 | | Balance March 31, 2020 | $178,922 | - Total equity decreased from **$238.9 million** at January 1, 2020, to **$178.9 million** at March 31, 2020, primarily driven by a net loss of **$27.5 million** and a significant negative currency translation adjustment of **$33.8 million**[15](index=15&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Condensed Consolidated Statements of Cash Flows (Three months ended March 31, in thousands) | Cash Flow Activity | 2020 | 2019 | Change (2020 vs 2019) | | :----------------- | :--- | :--- | :-------------------- | | Operating activities | $3,972 | $(15,619) | $19,591 | | Investing activities | $5,067 | $(34,259) | $39,326 | | Financing activities | $(8,293) | $36,740 | $(45,033) | | Effect of exchange rate changes on cash | $(7,167) | $(232) | $(6,935) | | Net decrease in cash and cash equivalents | $(6,421) | $(13,370) | $6,949 | | Cash and cash equivalents, end of period | $60,378 | $68,315 | $(7,937) | - Operating activities generated **$4.0 million** in cash in Q1 2020, a significant improvement from a **$15.6 million** cash usage in Q1 2019[16](index=16&type=chunk) - Investing activities provided **$5.1 million** in Q1 2020, a substantial shift from **$34.3 million** cash usage in Q1 2019, partly due to proceeds from property insurance settlement and sale of Wheels India Limited shares[16](index=16&type=chunk) - Financing activities used **$8.3 million** in Q1 2020, compared to providing **$36.7 million** in Q1 2019, reflecting higher debt payments relative to borrowings[16](index=16&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Basis of Presentation and Significant Accounting Policies](index=9&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Details the basis of financial statement preparation, significant accounting policies, and the impact of new accounting standards - The Company declared cash dividends of **$0.005 per share** for both Q1 2020 and Q1 2019[20](index=20&type=chunk) - The fair value of 6.50% senior secured notes due 2023 was approximately **$174.0 million** at March 31, 2020, significantly lower than their cost of **$396.2 million**[19](index=19&type=chunk) - New accounting standards, ASU No. 2016-13 (Credit Losses) and ASU No. 2018-13 (Fair Value Measurement), adopted on January 1, 2020, did not have a material effect on the financial statements[21](index=21&type=chunk)[22](index=22&type=chunk) [2. Accounts Receivable](index=10&type=section&id=2.%20ACCOUNTS%20RECEIVABLE) Provides a breakdown of net accounts receivable, including the allowance for doubtful accounts Accounts Receivable (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :---------------------- | :------------- | :---------------- | | Accounts receivable | $215,633 | $188,952 | | Allowance for doubtful accounts | $(3,651) | $(3,714) | | Accounts receivable, net | $211,982 | $185,238 | - Net accounts receivable increased by **$26.7 million** from December 31, 2019, to March 31, 2020[26](index=26&type=chunk) [3. Inventories](index=10&type=section&id=3.%20INVENTORIES) Details inventory composition, valuation methods, and provisions for slow-moving or obsolete items Inventories (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :------------- | :------------- | :---------------- | | Raw material | $72,597 | $83,569 | | Work-in-process | $49,414 | $48,369 | | Finished goods | $184,060 | $201,418 | | Total | $306,071 | $333,356 | - Total inventories decreased by **$27.3 million** from December 31, 2019, to March 31, 2020, primarily due to a reduction in raw materials and finished goods[27](index=27&type=chunk) [4. Property, Plant and Equipment, Net](index=10&type=section&id=4.%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT%2C%20NET) Presents a breakdown of net property, plant, and equipment, including asset impairment charges Property, Plant and Equipment, Net (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Land and improvements | $41,266 | $44,386 | | Buildings and improvements | $253,949 | $265,281 | | Machinery and equipment | $585,230 | $605,743 | | Tools, dies and molds | $110,692 | $113,603 | | Construction-in-process | $14,725 | $16,237 | | Total at cost | $1,005,862 | $1,045,250 | | Less accumulated depreciation | $(661,784) | $(670,452) | | Net | $344,078 | $374,798 | - The Company recorded a **$2.6 million** asset impairment charge in Q1 2020 related to machinery and equipment at Titan Tire Reclamation Corporation (TTRC) due to market declines[30](index=30&type=chunk) - Depreciation for the three months ended March 31, 2020, was **$12.9 million**, down from **$13.8 million** in the prior year[28](index=28&type=chunk) [5. Intangible Assets, Net](index=11&type=section&id=5.%20INTANGIBLE%20ASSETS%2C%20NET) Details amortizable intangible assets, their useful lives, and estimated future amortization expense Intangible Assets, Net (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Customer relationships | $11,047 | $12,629 | | Patents, trademarks and other | $9,897 | $11,598 | | Total at cost | $20,944 | $24,227 | | Less accumulated amortization | $(12,662) | $(14,461) | | Net | $8,282 | $9,766 | - Amortization expense for intangible assets was **$0.6 million** in Q1 2020, compared to **$0.5 million** in Q1 2019[31](index=31&type=chunk) [6. Warranty](index=11&type=section&id=6.%20WARRANTY) Reconciles warranty liability, calculated based on historical experience for products with limited warranties Changes in Warranty Liability (in thousands) | Metric | 2020 | 2019 | | :------------------------ | :--- | :--- | | Warranty liability, January 1 | $14,334 | $16,327 | | Provision for warranty liabilities | $1,962 | $1,714 | | Warranty payments made | $(2,028) | $(1,795) | | Warranty liability, March 31 | $14,268 | $16,246 | - The warranty liability remained relatively stable at **$14.3 million** at March 31, 2020, with provisions for new liabilities largely offset by payments made[33](index=33&type=chunk) [7. Debt](index=12&type=section&id=7.%20DEBT) Details the Company's long-term debt, including senior secured notes, credit facilities, and maturity schedules Long-term Debt (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | 6.50% senior secured notes due 2023 | $396,184 | $395,960 | | Titan Europe credit facilities | $40,009 | $43,591 | | Revolving credit facility | $30,000 | $36,000 | | Other debt | $19,830 | $24,171 | | Capital leases | $4,802 | $4,880 | | Total debt | $490,825 | $504,602 | | Less amounts due within one year | $46,275 | $61,253 | | Total long-term debt | $444,550 | $443,349 | - Total debt decreased from **$504.6 million** at December 31, 2019, to **$490.8 million** at March 31, 2020[35](index=35&type=chunk) - The Company had **$62.3 million** available under its **$125 million** revolving credit facility at March 31, 2020, with $30.0 million in borrowings and an $11.5 million letter of credit[39](index=39&type=chunk) [8. Redeemable Noncontrolling Interest](index=13&type=section&id=8.%20REDEEMABLE%20NONCONTROLLING%20INTEREST) Describes redeemable noncontrolling interest in Voltyre-Prom, detailing put option settlements and remaining obligations - As of March 31, 2020, the redeemable noncontrolling interest held by RDIF was recorded at **$25 million**, representing the value of restricted stock to be issued[44](index=44&type=chunk)[46](index=46&type=chunk) - In Q1 2019, Titan paid RDIF **$25 million** in cash and agreed to issue **4,032,259 shares** of restricted common stock to satisfy a put option[42](index=42&type=chunk) - In Q2 2019, Titan paid OEP **$46.7 million** in cash to fully satisfy its put option, resulting in Titan and RDIF owning 64.3% and 35.7% of Voltyre-Prom, respectively[43](index=43&type=chunk) [9. Leases](index=14&type=section&id=9.%20LEASES) Provides supplemental balance sheet and cash flow information for operating and finance leases under ASC 842 Lease Information (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Operating lease ROU assets | $20,117 | $23,914 | | Total operating lease liabilities | $20,595 | $24,089 | | Finance lease, net | $4,104 | $4,490 | | Total finance lease liabilities | $4,802 | $4,880 | | Weighted average remaining operating lease term (years) | 4.6 | N/A | | Weighted average remaining finance lease term (years) | 3.9 | N/A | - Operating lease ROU assets and liabilities decreased from December 31, 2019, to March 31, 2020[50](index=50&type=chunk) - Operating cash flows from operating leases were **$2.1 million** for the three months ended March 31, 2020[50](index=50&type=chunk) [10. Employee Benefit Plans](index=16&type=section&id=10.%20EMPLOYEE%20BENEFIT%20PLANS) Details defined benefit pension plans and defined contribution plans, including net periodic pension cost components Net Periodic Pension Cost (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | | :------------------------------------ | :--- | :--- | | Service cost | $286 | $225 | | Interest cost | $862 | $1,123 | | Expected return on assets | $(1,360) | $(1,189) | | Amortization of net unrecognized loss | $696 | $765 | | Net periodic pension cost | $484 | $980 | - Net periodic pension cost decreased to **$0.5 million** in Q1 2020 from **$1.0 million** in Q1 2019[54](index=54&type=chunk) - The Company contributed approximately **$0.4 million** to pension plans in Q1 2020 and expects to contribute **$1.4 million** for the remainder of 2020[53](index=53&type=chunk) [11. Variable Interest Entities](index=16&type=section&id=11.%20VARIABLE%20INTEREST%20ENTITIES) Discusses the Company's involvement with Variable Interest Entities (VIEs), including consolidated and non-consolidated entities Consolidated VIEs' Assets and Liabilities (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Total assets | $5,035 | $5,614 | | Total liabilities | $1,409 | $1,689 | Non-Consolidated VIEs' Assets and Maximum Exposure to Loss (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------------- | :------------- | :---------------- | | Total VIE assets | $4,694 | $4,973 | | Accounts payable | $1,548 | $2,006 | | Maximum exposure to loss | $6,242 | $6,979 | - In March 2020, the Company terminated supply agreements with two manufacturing-related VIEs at its Tennessee facility and no longer holds a variable interest in them[56](index=56&type=chunk) [12. Royalty Expense](index=17&type=section&id=12.%20ROYALTY%20EXPENSE) Details royalty expenses incurred under trademark license agreements with The Goodyear Tire & Rubber Company Royalty Expense (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | | :------------- | :--- | :--- | | Royalty expense | $2,480 | $2,606 | - Royalty expenses slightly decreased to **$2.5 million** in Q1 2020 from **$2.6 million** in Q1 2019[60](index=60&type=chunk) [13. Other Income](index=18&type=section&id=13.%20OTHER%20INCOME) Provides a breakdown of other income, including gains from insurance settlements and asset sales Other Income (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | | :------------------------------ | :--- | :--- | | Gain on property insurance settlement | $4,936 | — | | Gain on Wheels India Limited share sale | $1,302 | — | | Equity investment income | $605 | $875 | | Total other income | $7,436 | $996 | - Other income significantly increased to **$7.4 million** in Q1 2020 from **$1.0 million** in Q1 2019, primarily due to a **$4.9 million** gain from a property insurance settlement and a **$1.3 million** gain on the sale of Wheels India Limited shares[62](index=62&type=chunk) [14. Income Taxes](index=18&type=section&id=14.%20INCOME%20TAXES) Details income tax expense, effective tax rates, and factors influencing tax rate differences, including the CARES Act Income Tax Expense and Effective Rate (Three months ended March 31) | Metric | 2020 | 2019 | | :-------------------- | :--- | :--- | | Income tax expense | $0.1 million | $1.9 million | | Effective income tax rate | (0.2)% | 66% | - The effective income tax rate for Q1 2020 was **(0.2)%**, a significant change from **66%** in Q1 2019, primarily due to valuation allowances on deferred tax assets from projected losses and a reduction in unrecognized tax positions[63](index=63&type=chunk)[64](index=64&type=chunk) - The CARES Act is not expected to materially affect the Company's financial position or results, except for the deferral of Social Security payroll taxes, which will benefit operating cash flows through 2020[67](index=67&type=chunk) [15. Earnings Per Share](index=19&type=section&id=15.%20EARNINGS%20PER%20SHARE) Presents basic and diluted earnings per share calculations and weighted average shares outstanding Earnings Per Share (Three months ended March 31, in thousands, except per share data) | Metric | 2020 | 2019 | | :------------------------------------ | :--- | :--- | | Net (loss) income attributable to Titan | $(25,486) | $1,977 | | Net (loss) income applicable to common shareholders | $(25,486) | $1,201 | | Weighted average shares outstanding (basic) | 60,360 | 59,946 | | Weighted average shares outstanding (diluted) | 60,360 | 59,946 | | Basic and diluted EPS | $(0.42) | $0.02 | - Basic and diluted EPS shifted to a loss of **$(0.42)** in Q1 2020 from a gain of **$0.02** in Q1 2019, reflecting the net loss attributable to common shareholders[69](index=69&type=chunk) [16. Litigation](index=20&type=section&id=16.%20LITIGATION) Describes ongoing environmental litigation involving Titan Tire Corporation and Dico, Inc., detailing liabilities and appeals - Titan Tire and Dico, Inc. were found jointly and severally liable for **$5.45 million** in response costs and **$5.45 million** in punitive damages (Dico only) in environmental litigation[76](index=76&type=chunk) - As of March 31, 2020, a contingent liability of **$6.5 million** remains outstanding for this order, and a judgment lien exists over Titan Tire's real property in Iowa[76](index=76&type=chunk)[77](index=77&type=chunk) - The U.S. Court of Appeals for the Eighth Circuit affirmed the District Court's order in April 2019, and settlement discussions are ongoing[77](index=77&type=chunk) [17. Segment Information](index=21&type=section&id=17.%20SEGMENT%20INFORMATION) Provides segmented financial information for agricultural, earthmoving/construction, and consumer markets Segment Operating Results (Three months ended March 31, in thousands) | Segment | Net Sales 2020 | Net Sales 2019 | Gross Profit 2020 | Gross Profit 2019 | (Loss) Income from Operations 2020 | (Loss) Income from Operations 2019 | | :-------------------- | :------------- | :------------- | :---------------- | :---------------- | :--------------------------------- | :--------------------------------- | | Agricultural | $172,938 | $191,730 | $14,027 | $22,125 | $(4,694) | $13,928 | | Earthmoving/construction | $136,922 | $176,745 | $10,754 | $18,170 | $(6,994) | $5,528 | | Consumer | $31,640 | $41,899 | $2,463 | $4,969 | $(295) | $2,121 | | Corporate & Unallocated | — | — | — | — | $2,380 | $(17,441) | | Total | $341,500 | $410,374 | $27,244 | $45,264 | $(9,603) | $4,136 | - All three segments (Agricultural, Earthmoving/Construction, Consumer) experienced decreases in net sales, gross profit, and a shift from operating income to loss in Q1 2020 compared to Q1 2019[81](index=81&type=chunk) - Corporate & Unallocated expenses shifted to an income of **$2.4 million** in Q1 2020 from an expense of **$17.4 million** in Q1 2019 due to a refinement in the allocation process[81](index=81&type=chunk) [18. Related Party Transactions](index=23&type=section&id=18.%20RELATED%20PARTY%20TRANSACTIONS) Discloses transactions with related parties, including sales of products and sales commissions paid Related Party Transactions (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | | :-------------------- | :--- | :--- | | Sales of Titan products | $0.1 million | $0.3 million | | Sales commissions paid | $0.2 million | $0.4 million | - Sales to related parties and sales commissions paid to related parties both decreased in Q1 2020 compared to Q1 2019[84](index=84&type=chunk) [19. Accumulated Other Comprehensive Loss](index=23&type=section&id=19.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) Reconciles accumulated other comprehensive loss, detailing currency translation and pension plan impacts Accumulated Other Comprehensive Loss (in thousands) | Metric | January 1, 2020 | March 31, 2020 | | :------------------------------------ | :-------------- | :------------- | | Currency Translation Adjustments | $(192,507) | $(224,511) | | Unrecognized Losses and Prior Service Cost | $(26,144) | $(24,836) | | Total | $(218,651) | $(249,347) | - Accumulated other comprehensive loss increased by **$30.7 million** from January 1, 2020, to March 31, 2020, primarily due to a **$32.0 million** negative currency translation adjustment[85](index=85&type=chunk) [20. Subsidiary Guarantor Financial Information](index=23&type=section&id=20.%20SUBSIDIARY%20GUARANTOR%20FINANCIAL%20INFORMATION) Provides condensed consolidating financial statements for the Parent, Guarantor, and Non-Guarantor Subsidiaries - The senior secured notes are fully and unconditionally guaranteed, jointly and severally, by certain wholly-owned subsidiaries: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois[86](index=86&type=chunk) Consolidated Net Sales (Three months ended March 31, 2020, in thousands) | Entity | Net Sales | | :-------------------- | :-------- | | Guarantor Subsidiaries | $159,969 | | Non Guarantor Subsidiaries | $341,685 | | Consolidated | $341,500 | Consolidated Total Assets (March 31, 2020, in thousands) | Entity | Total Assets | | :-------------------- | :----------- | | Guarantor Subsidiaries | $149,490 | | Non Guarantor Subsidiaries | $959,818 | | Consolidated | $1,060,254 | [21. Subsequent Events](index=29&type=section&id=21.%20SUBSEQUENT%20EVENTS) Discusses post-March 31, 2020 events, including COVID-19 impacts and the planned closure of Saltville operations - COVID-19 continued to significantly impact Titan's workforce and operations, leading to curtailments in European and Latin American locations during March 2020 and potentially beyond[99](index=99&type=chunk) - The Company is taking steps to finalize the closure of its wheel operations in Saltville, Virginia, by July 2020, expecting to incur disposal costs for assets totaling approximately **$5 million**[100](index=100&type=chunk) - The duration and severity of the COVID-19 pandemic's impact on economic conditions, customer demand, and the Company's financial results remain uncertain[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's discussion of financial condition, operations, liquidity, and future outlook, highlighting COVID-19 impacts [COVID-19 Pandemic](index=29&type=section&id=COVID-19%20Pandemic) - The COVID-19 pandemic adversely affected the Company's financial results and business operations in Q1 2020, with significant curtailment of operations in Europe and Latin America[102](index=102&type=chunk) - The duration and severity of the pandemic's impact on operations, customer demand, and the overall economy are highly uncertain and may continue indefinitely[103](index=103&type=chunk)[106](index=106&type=chunk) [FORWARD-LOOKING STATEMENTS](index=30&type=section&id=FORWARD-LOOKING%20STATEMENTS) - This section contains forward-looking statements regarding financial performance, market trends, capital expenditures, cost control, business strategies, product performance, and potential acquisitions/divestitures[107](index=107&type=chunk) - Actual results could differ materially due to risks including the COVID-19 pandemic, economic recession, changes in end-user markets, competition, labor relations, legal proceedings, raw material availability, and geopolitical uncertainties[109](index=109&type=chunk) [OVERVIEW](index=31&type=section&id=OVERVIEW) - Titan International, Inc. is a global manufacturer of off-highway wheels, tires, assemblies, and undercarriage products for agricultural, earthmoving/construction, and consumer markets[112](index=112&type=chunk) - The Company's top customers include global leaders in agricultural and construction equipment manufacturing such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., and Deere & Company[116](index=116&type=chunk) [MARKET CONDITIONS AND OUTLOOK](index=31&type=section&id=MARKET%20CONDITIONS%20AND%20OUTLOOK) - The COVID-19 pandemic led to curtailed and suspended operations in certain geographies (China, Europe, South America) and is expected to impact the future outlook for the remainder of 2020[119](index=119&type=chunk) - Agricultural market outlook is volatile due to low commodity prices, tariffs, trade concerns, and OEM production pullbacks, though aftermarket demand remained relatively stable in Q1 2020[120](index=120&type=chunk) - Earthmoving/construction market is experiencing declines due to global economic uncertainty and COVID-19, with the largest impact expected in Q2 2020; mining demand is anticipated to be generally flat[121](index=121&type=chunk) - The consumer market is expected to see flat growth in 2020, affected by consumer spending and macroeconomic drivers[122](index=122&type=chunk) [RESULTS OF OPERATIONS](index=33&type=section&id=RESULTS%20OF%20OPERATIONS) Key Financial Performance (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | % Change | | :------------------------------------ | :--- | :--- | :------- | | Net sales | $341,500 | $410,374 | (16.8)% | | Gross profit | $27,244 | $45,264 | (39.8)% | | Gross profit % | 8.0% | 11.0% | (3.0) pp | | 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)% | | Interest expense | $8,035 | $7,933 | 1.3% | | Foreign exchange (loss) gain | $(17,242) | $5,723 | (401.3)% | | Other income | $7,436 | $996 | 646.6% | | Provision for income taxes | $55 | $1,915 | (97.1)% | | Net (loss) income | $(27,499) | $1,007 | (2830.4)% | | Basic and diluted EPS | $(0.42) | $0.02 | (2200.0)% | - Net sales decreased by **16.8%** due to lower volume, especially in earthmoving/construction, and the direct impact of COVID-19 plant closures in Europe and China[126](index=126&type=chunk) - Gross profit declined by **39.8%** to **8.0%** of net sales, impacted by lower sales volume, production inefficiencies, unfavorable foreign currency, and a $2.6 million asset impairment[127](index=127&type=chunk) - The Company shifted from an operating income of **$4.1 million** in Q1 2019 to an operating loss of **$9.6 million** in Q1 2020[133](index=133&type=chunk) - A significant foreign exchange loss of **$17.2 million** was recorded in Q1 2020, compared to a gain of **$5.7 million** in Q1 2019, due to negative movements in foreign currency exchange rates and intercompany loan settlements[135](index=135&type=chunk) [SEGMENT INFORMATION](index=34&type=section&id=SEGMENT%20INFORMATION) Segment Performance (Three months ended March 31, in thousands) | Segment | Net Sales 2020 | Net Sales 2019 | % Change Net Sales | Gross Profit 2020 | Gross Profit 2019 | % Change Gross Profit | (Loss) Income from Operations 2020 | (Loss) Income from Operations 2019 | % Change (Loss) Income from Operations | | :-------------------- | :------------- | :------------- | :----------------- | :---------------- | :---------------- | :-------------------- | :--------------------------------- | :--------------------------------- | :------------------------------------- | | Agricultural | $172,938 | $191,730 | (9.8)% | $14,027 | $22,125 | (36.6)% | $(4,694) | $13,928 | (133.7)% | | Earthmoving/construction | $136,922 | $176,745 | (22.5)% | $10,754 | $18,170 | (40.8)% | $(6,994) | $5,528 | (226.5)% | | Consumer | $31,640 | $41,899 | (24.5)% | $2,463 | $4,969 | (50.4)% | $(295) | $2,121 | (113.9)% | - Agricultural segment net sales decreased by **9.8%** due to lower sales volume in North America, Europe, and Australia, unfavorable currency translation, and price/mix, leading to an operating loss[143](index=143&type=chunk)[144](index=144&type=chunk) - Earthmoving/construction segment net sales decreased by **22.5%** primarily due to decreased volume in the construction market and **$11.9 million** direct impact from COVID-19 plant shutdowns[147](index=147&type=chunk) - Consumer segment net sales decreased by **24.5%** due to lower sales volume in North America, Latin America, and Australia, and unfavorable currency translation and price mix[149](index=149&type=chunk) - Corporate & Unallocated expenses showed an income of **$2.4 million** in Q1 2020, a significant improvement from a **$17.4 million** expense in Q1 2019, attributed to a refinement of the allocation process[151](index=151&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=37&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Cash Flow Summary (Three months ended March 31, in thousands) | Activity | 2020 | 2019 | Change | | :-------------------- | :--- | :--- | :------- | | Operating activities | $3,972 | $(15,619) | $19,591 | | Investing activities | $5,067 | $(34,259) | $39,326 | | Financing activities | $(8,293) | $36,740 | $(45,033) | | Net decrease in cash and cash equivalents | $(6,421) | $(13,370) | $6,949 | | Cash and cash equivalents, end of period | $60,378 | $68,315 | $(7,937) | Cash Conversion Cycle (Days) | Metric | March 31, 2020 | December 31, 2019 | March 31, 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 | - Operating cash flows improved significantly, providing **$4.0 million** in Q1 2020 compared to using **$15.6 million** in Q1 2019, despite a net loss[154](index=154&type=chunk)[155](index=155&type=chunk) - Investing activities provided **$5.1 million** in Q1 2020, a substantial increase from using **$34.3 million** in Q1 2019, driven by proceeds from asset sales and insurance settlements[158](index=158&type=chunk) - The Company had **$60.4 million** in cash and cash equivalents at March 31, 2020, with **$62.3 million** available under its **$125 million** revolving credit facility[162](index=162&type=chunk) - Total capital expenditures for 2020 are expected to be significantly lower than originally forecasted, and the Company is taking actions to obtain additional financial flexibility and reduce discretionary spending[163](index=163&type=chunk)[165](index=165&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=39&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) - There were no material changes in the Company's Critical Accounting Estimates since the filing of the 2019 Form 10-K[166](index=166&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Refers to 2019 Form 10-K disclosures on market risk, noting no material changes - No material changes to quantitative and qualitative disclosures about market risk have occurred since the 2019 Form 10-K filing[169](index=169&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Details the evaluation of disclosure controls and procedures, confirming effectiveness and no material changes in Q1 2020 - Management concluded that Titan's disclosure controls and procedures were effective as of March 31, 2020, providing reasonable assurance for accurate and timely reporting[170](index=170&type=chunk) - No material changes in internal control over financial reporting occurred during Q1 2020[171](index=171&type=chunk) - The Company acknowledges the inherent limitations of control systems, which can only provide reasonable, not absolute, assurance against misstatements or fraud[172](index=172&type=chunk) [PART II. OTHER INFORMATION](index=41&type=section&id=Part%20II.%20Other%20Information) Contains disclosures on legal proceedings, risk factors, exhibits, and official signatures [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) Refers to Note 16 for detailed legal proceedings, including routine matters in the normal course of business - The Company is subject to routine legal proceedings, including environmental issues, product liability, contracts, and labor matters[176](index=176&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) Highlights the adverse impact of the COVID-19 pandemic as a significant additional risk factor - The COVID-19 pandemic has adversely impacted, and will likely continue to affect, the Company's business, operating results, and financial condition, leading to significant disruptions in workforce and operations[178](index=178&type=chunk) - The pandemic has caused unpredictable disruption in product demand, and its duration, ultimate impact, and timing of recovery remain uncertain, potentially leading to material adverse impacts and asset impairment charges[178](index=178&type=chunk)[179](index=179&type=chunk) - The COVID-19 pandemic may heighten many of the other risks previously disclosed in the 2019 Form 10-K[180](index=180&type=chunk) [Item 6. Exhibits](index=41&type=section&id=Item%206.%20Exhibits) Lists exhibits filed with the Form 10-Q, including certifications and XBRL taxonomy documents - Exhibits include certifications by the Principal Executive Officer and Principal Financial Officer (Sections 302 and 906 of Sarbanes-Oxley Act) and Inline XBRL Taxonomy Extension documents[183](index=183&type=chunk) [Signatures](index=43&type=section&id=Signatures) Contains signatures of authorized officers, certifying the report - The report is signed by Paul G. Reitz, President and Chief Executive Officer, and David A. Martin, SVP and Chief Financial Officer, on May 6, 2020[187](index=187&type=chunk)

Financial Data and Key Metrics Changes - In Q4 2019, net sales were $302 million, a decline of 17% or $62 million from the prior year, with December sales being the lowest since December 2015 [39][44] - Gross profit for Q4 was $18 million, down from $37 million in Q4 2018, resulting in a gross profit margin of 6.1%, a drop of 400 basis points year-over-year [44][45] - The company reported an EBITDA margin of 2.6% for 2019, significantly lower than the 7.4% margin in 2018 [12][28] Business Line Data and Key Metrics Changes - Agricultural segment sales were $140 million, down 6.6% year-over-year, with volume down 15% but a favorable price and mix of 10.3% [47] - Earthmoving/construction segment sales decreased by $42 million or 24%, with volume down 23% and negligible price and mix impact [49] - Consumer segment sales were $30 million, down from $40 million in Q4 2018, with a gross profit of $2 million, reflecting a decline in volume and mix [52][54] Market Data and Key Metrics Changes - North American wheel volume was down 16%, and North American tire sales were down 15%, primarily due to reduced OEM production [42] - Latin America sales were down 12% from Q4 2018, with all segments showing weakness [42] - Russian market conditions improved slightly, with price and mix positively impacting sales by over 3% despite a slight volume decline [43] Company Strategy and Development Direction - The company aims to improve financial performance in 2020 with a target EBITDA of $75 million on flat sales of $1.45 billion [28][31] - Internal initiatives include operational cost structure actions expected to drive $10 million to $12 million in improvements, and a focus on strategic pricing to enhance margins [18][70] - The company is exploring divestitures of underperforming businesses, which could generate additional cash beyond the $30 million to $50 million from noncore asset sales [17][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledged 2019 as a challenging year due to various external factors, including trade wars and market volatility, impacting financial results [7][8] - There is cautious optimism for 2020, with expectations of improved market conditions and better sales volumes compared to Q4 2019 [27][36] - The management emphasized the importance of product development and market intelligence in driving future growth [26][24] Other Important Information - The company generated operating cash flow of $45 million for the year and reduced debt by $31 million in Q4 [58][63] - Capital expenditures for 2019 were $36 million, with plans to hold capital expenditures around $35 million for 2020 [62] - The company has made significant progress in working capital management, targeting another $25 million reduction in 2020 [61] Q&A Session Summary Question: Guidance on flat revenue despite OEM production rates down - Management explained that flat revenue expectations are supported by strong aftermarket business and improved dealer and farmer sentiments, with potential for growth in the second half of the year [78][80] Question: Breakout of OEM versus aftermarket in major segments - Management indicated a roughly 50/50 split between aftermarket and OEM in the U.S. tire business, with variations in South America and Europe [81][82] Question: Changes in pricing strategy in the Ag segment - Management stated that pricing intelligence has improved, allowing for better pricing strategies despite volume declines [85][86] Question: Capacity utilization and potential consolidation plans - Management acknowledged low capacity utilization and indicated that they are exploring various steps to address this issue [88][89] Question: Status of noncore asset sales and liquidity - Management confirmed that $30 million of noncore asset sales have been completed, with another $20 million expected, ensuring adequate liquidity [90][101] Question: Impact of weather on the first half of the year - Management expressed optimism for better weather conditions compared to the previous year, which could positively influence planting cycles and demand [107] Question: OEM order rates and impact of coronavirus - Management noted an uptick in OEM order rates, particularly in agriculture, while acknowledging more volatility in construction due to supply chain issues related to coronavirus [113]

PART I This section provides an overview of Titan International's business, including its global operations, strategic priorities, competitive landscape, and associated risk factors, along with details on properties, legal proceedings, and mine safety disclosures [Item 1. Business](index=5&type=section&id=Item%201.%20Business) Titan International, Inc. is a global manufacturer and supplier of wheels, tires, and undercarriage industrial products for agricultural, earthmoving/construction, and consumer markets - Titan International, Inc. is a global manufacturer and supplier of wheels, tires, and undercarriage systems for agricultural, earthmoving/construction, and consumer markets, tracing its roots back to 1890[16](index=16&type=chunk) - The company has expanded its global footprint and product offerings through major acquisitions, including Goodyear's North American and Latin American farm tire assets, Continental Tire's OTR tire assets, and a controlling interest in Titan Australia and Voltyre-Prom[16](index=16&type=chunk)[20](index=20&type=chunk) - Titan manufactures and sells tires under the Goodyear Farm Tire and Titan Tire brands, offering complete wheel and tire assemblies to OEM and aftermarket customers[17](index=17&type=chunk)[19](index=19&type=chunk)[21](index=21&type=chunk) - Key competitive strengths include a strong market position in the global off-highway market, comprehensive wheel and tire manufacturing capabilities, and long-term relationships with core customers like AGCO, Caterpillar, CNH Global, and Deere & Company[23](index=23&type=chunk)[24](index=24&type=chunk)[25](index=25&type=chunk)[26](index=26&type=chunk) - Strategic considerations include enhancing LSW tire technology for improved performance and fuel economy, increasing aftermarket tire business for higher margins and less cyclicality, improving operating efficiencies, and developing new products in collaboration with customers[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk) - The company operates manufacturing facilities in Latin America (**18% of 2019 net sales**), Europe (**22%**), and Russia (**6%**), with **4,200 of its 6,200 employees** located outside the United States as of December 31, 2019[47](index=47&type=chunk)[54](index=54&type=chunk) Research and Development Expenses (2017-2019) | Year | R&D Expenses (Millions) | | :--- | :----------------------:| | 2019 | $9.9 | | 2018 | $11.1 | | 2017 | $10.3 | - Deere & Company accounted for **11% of Titan's consolidated revenues** in 2019, making it the largest single customer, while the top 10 customers represented **38% of net sales**[50](index=50&type=chunk) [Item 1A. Risk Factors](index=11&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including volatile commodity prices, reliance on limited suppliers, restrictive debt covenants, and cyclical industry dependence - The Company is exposed to price fluctuations of key commodities (steel, natural rubber, synthetic rubber, carbon black, bead wire, and fabric) and relies on a limited number of suppliers for these materials, which could impact margins and operations if price increases cannot be passed on or supply is disrupted[63](index=63&type=chunk)[64](index=64&type=chunk) - Titan's business is highly dependent on cyclical industries (agricultural, earthmoving/construction, consumer products) and is subject to general economic downturns, which can lead to significant fluctuations in profits and cash flow[66](index=66&type=chunk)[67](index=67&type=chunk) - Revenues are seasonal, with typically lower sales in the second half of the year, leading to potential volatility in profit margins due to fixed overhead expenses[68](index=68&type=chunk) - Customer concentration is a risk, with the top ten customers accounting for **38% of net sales** in 2019, and Deere & Company alone representing **11%**[69](index=69&type=chunk) - International operations, which accounted for **54% of net sales** in 2019, expose the company to risks such as currency exchange rate fluctuations, economic and political destabilization, restrictive foreign government actions, and changes in trade laws[82](index=82&type=chunk)[83](index=83&type=chunk)[84](index=84&type=chunk) - The company faces substantial competition from domestic and international companies, some with greater resources, and competes on price, quality, service, design, and delivery time[74](index=74&type=chunk)[75](index=75&type=chunk) - Other risks include potential unfavorable outcomes of legal proceedings (e.g., environmental litigation), challenges in integrating acquisitions or executing divestitures, and disruptions to information technology systems, including ongoing ERP system upgrades[78](index=78&type=chunk)[79](index=79&type=chunk)[87](index=87&type=chunk) [Item 1B. Unresolved Staff Comments](index=16&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - There are no unresolved staff comments[95](index=95&type=chunk) [Item 2. Properties](index=17&type=section&id=Item%202.%20Properties) Titan International owns and leases manufacturing and distribution facilities globally, with significant square footage in North America, Europe, and South America Major Properties by Location (Square Footage in Thousands) | Location | Approximate Square Footage (Owned) | Use | Segment | | :------------------ | :--------------------------------- | :------------------------ | :---------- | | Volzhsky, Russia | 2,153 | Manufacturing, distribution | All segments| | Union City, Tennessee | 2,149 | Manufacturing, distribution | All segments| | Des Moines, Iowa | 1,930 | Manufacturing, distribution | All segments| | Sao Paulo, Brazil | 1,282 | Manufacturing, distribution | All segments| | Quincy, Illinois | 1,205 | Manufacturing, distribution | All segments| | Freeport, Illinois | 1,202 | Manufacturing, distribution | All segments| Total Properties by Continent (Square Footage in Thousands) | Location | Owned | Leased | Use | Segment | | :------------ | :---- | :----- | :------------------------ | :---------- | | North America | 8,596 | 535 | Manufacturing, distribution | All segments| | Europe | 3,910 | 19 | Manufacturing, distribution | All segments| | South America | 2,929 | 104 | Manufacturing, distribution | All segments| | Australia | | 1,205 | Manufacturing, distribution | All segments| | Asia | 646 | 281 | Manufacturing, distribution | All segments| - Management believes its facilities are in good condition and have sufficient capacity to meet current market demand[96](index=96&type=chunk) [Item 3. Legal Proceedings](index=17&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in routine legal proceedings, including environmental issues and product liability claims, arising from its normal business operations - The Company is subject to various legal proceedings and claims in the normal course of business, covering environmental issues, product liability, contracts, and labor matters[97](index=97&type=chunk) - Further discussion on legal proceedings can be found in Note 24 to the Company's consolidated financial statements[97](index=97&type=chunk) [Item 4. Mine Safety Disclosures](index=17&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no mine safety disclosures to report - There are no mine safety disclosures[98](index=98&type=chunk) PART II This section details Titan International's common stock market performance, selected financial data, management's discussion and analysis of operations, market risk disclosures, and internal controls [Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=18&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Titan International's common stock is traded on the NYSE under the symbol TWI, with approximately 350 holders of record as of February 25, 2020, and showed underperformance against key indices over the past five years - Titan International, Inc. common stock is traded on the New York Stock Exchange (NYSE) under the symbol TWI[100](index=100&type=chunk) - As of February 25, 2020, there were approximately **350 holders of record** of Titan common stock[100](index=100&type=chunk) Cumulative Total Return (December 31, 2014 = $100) | Index | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | | :------------------------------------- | :------ | :------ | :------- | :------- | :------- | :------- | | Titan International, Inc. | $100.00 | $37.18 | $106.07 | $122.09 | $44.29 | $34.58 | | S&P 500 Index | $100.00 | $101.38 | $113.51 | $138.29 | $132.23 | $173.86 | | S&P 600 Agricultural & Farm Machinery Index | $100.00 | $94.38 | $129.33 | $153.70 | $123.57 | $119.70 | [Item 6. Selected Financial Data](index=19&type=section&id=Item%206.%20Selected%20Financial%20Data) Titan International's selected financial data for 2015-2019 shows declining net sales, a shift to net loss in 2019, and general decreases in gross profit, income from operations, working capital, and total equity Selected Financial Data (Amounts in Thousands, Except Per Share Data) | Metric | 2019 | 2018 | 2017 | 2016 | 2015 | | :------------------------------------ | :------------ | :------------ | :------------ | :------------ | :------------ | | Net sales | $1,448,666 | $1,602,408 | $1,468,922 | $1,265,497 | $1,394,771 | | Gross profit | $129,004 | $198,266 | $160,311 | $141,415 | $136,583 | | (Loss) income from operations | $(28,432) | $42,244 | $(11,151) | $(22,400) | $(25,505) | | Net (loss) income attributable to Titan | $(48,425) | $16,087 | $(60,042) | $(37,605) | $(75,174) | | Net (loss) income per share – basic | $(0.84) | $0.06 | $(1.12) | $(0.87) | $(1.73) | | Dividends declared per common share | $0.02 | $0.02 | $0.02 | $0.02 | $0.02 | | Working capital, excluding cash | $250,310 | $322,728 | $266,701 | $215,250 | $246,279 | | Total assets | $1,114,307 | $1,251,256 | $1,290,112 | $1,265,896 | $1,273,793 | | Long-term debt | $443,349 | $409,572 | $407,171 | $408,760 | $475,443 | | Total equity | $238,988 | $270,097 | $310,084 | $292,879 | $351,246 | [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=19&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's Discussion and Analysis provides an overview of Titan's financial performance, market conditions, and liquidity, highlighting a significant decline in 2019 net sales and a shift to operating loss due to challenging market conditions, offset by improved operating cash flow from working capital management [Business](index=20&type=section&id=Business) This section refers to Part I, Item 1 for a description of the Company's business and segments - The Company's business and segments are described in Part 1, Item 1 of this Form 10-K[107](index=107&type=chunk) [Market Conditions and Outlook](index=20&type=section&id=Market%20Conditions%20and%20Outlook) Titan anticipates soft market conditions for North American and European agriculture in 2020, with modest growth in Russia and Latin America, while earthmoving/construction is expected to decline modestly and the consumer market to see modest growth - Agricultural market conditions for North America and Europe are expected to remain soft in 2020, while Russia and Latin America are anticipated to experience modest growth[108](index=108&type=chunk) - The earthmoving/construction market is projected to see modest declines for small and medium-sized equipment in 2020, with mining industry demand generally flat compared to 2019[109](index=109&type=chunk) - Overall, the consumer market is expected to experience modest growth in 2020[110](index=110&type=chunk) [Summary of Results of Operations](index=21&type=section&id=Summary%20of%20Results%20of%20Operations) In 2019, Titan's net sales decreased by **9.6%** to **$1.45 billion**, leading to a significant drop in gross profit margin from **12.4%** in 2018 to **8.9%**, and a net loss of **3.5%** of net sales, with all segments experiencing sales decreases Statement of Operations as a Percentage of Net Sales | Metric | 2019 | 2018 | 2017 | | :------------------------------------ | :------ | :------ | :------ | | Net sales | 100.0 % | 100.0 % | 100.0 % | | Cost of sales | 91.1 | 87.6 | 88.4 | | Gross profit | 8.9 | 12.4 | 10.9 | | Selling, general and administrative expenses | 9.5 | 8.4 | 10.3 | | Research and development | 0.7 | 0.7 | 0.7 | | Royalty expense | 0.7 | 0.7 | 0.7 | | (Loss) income from operations | (2.0) | 2.6 | (0.8) | | Interest expense | (2.3) | (1.9) | (2.0) | | Foreign exchange gain (loss) | 0.3 | (0.7) | (0.1) | | Other income | 0.7 | 1.2 | 0.6 | | (Loss) income before income taxes | (3.3) | 1.2 | (3.6) | | Income tax provision | 0.2 | 0.4 | 0.8 | | Net (loss) income | (3.5)% | 0.8 % | (4.4)% | | Net (loss) income attributable to Titan | (3.3)% | 1.0 % | (4.1)% | Net Sales by Segment (Amounts in Thousands) | Segment | 2019 | 2018 | 2017 | | :---------------------- | :------------ | :------------ | :------------ | | Agricultural | $652,558 | $694,268 | $690,238 | | Earthmoving/construction | $648,753 | $741,733 | $608,894 | | Consumer | $147,355 | $166,407 | $169,790 | | Total | $1,448,666 | $1,602,408 | $1,468,922 | [Fiscal Year Ended December 31, 2019, Compared to Fiscal Year Ended December 31, 2018](index=22&type=section&id=Fiscal%20Year%20Ended%20December%2031%2C%202019%2C%20Compared%20to%20Fiscal%20Year%20Ended%20December%2031%2C%202018) In 2019, Titan's net sales decreased by **9.6%** to **$1.45 billion**, primarily due to lower sales volume and unfavorable currency translation, resulting in a **34.9%** decline in gross profit and a significant operating loss of **$28.4 million** Key Financial Highlights (2019 vs. 2018, Amounts in Thousands) | Metric | 2019 | 2018 | % Change | | :---------------------------- | :------------ | :------------ | :--------- | | Net sales | $1,448,666 | $1,602,408 | (9.6)% | | Cost of sales | $1,319,662 | $1,404,142 | (6)% | | Gross profit | $129,004 | $198,266 | (34.9)% | | Selling, general and administrative expenses | $137,697 | $134,789 | 2.2 % | | Research and development expenses | $9,859 | $11,146 | (11.5)% | | Royalty expense | $9,880 | $10,087 | (2.1)% | | (Loss) income from operations | $(28,432) | $42,244 | 167.3 % | - Net sales decreased by **9.6%** due to a **10.0%** decrease in volume and a **3.4%** unfavorable currency translation, partially offset by a **3.8%** favorable price/mix[115](index=115&type=chunk) - Gross profit margin decreased from **12.4%** in 2018 to **8.9%** in 2019, primarily due to lower sales volume, production inefficiencies, and approximately **$15 million** in higher material costs in North American wheel operations[116](index=116&type=chunk) - SG&A expenses increased by **2.2%** to **$137.7 million**, driven by higher technology expenses for ERP platform stabilization and corporate systems investments, and **$2.7 million** related to a postponed public listing of the ITM subsidiary[117](index=117&type=chunk) - R&D expenses decreased by **11.5%** to **$9.9 million**, mainly due to lower salaries, benefits, and facility costs from more focused efforts[118](index=118&type=chunk) - The company reported a net loss of **$51.5 million** in 2019, compared to a net income of **$13.0 million** in 2018, resulting in a basic EPS of **$(0.84)** versus **$0.06**[126](index=126&type=chunk) Segment Performance (2019 vs. 2018, Amounts in Thousands) | Segment | Net Sales 2019 | Net Sales 2018 | % Decrease | Gross Profit 2019 | Gross Profit 2018 | % Decrease | Income (Loss) from Operations 2019 | Income (Loss) from Operations 2018 | % Decrease | | :---------------------- | :------------- | :------------- | :--------- | :---------------- | :---------------- | :--------- | :--------------------------------- | :--------------------------------- | :--------- | | Agricultural | $652,558 | $694,268 | (6.0)% | $55,971 | $94,217 | (40.6)% | $10,991 | $62,065 | (82.3)% | | Earthmoving/construction | $648,753 | $741,733 | (12.5)% | $57,678 | $80,056 | (28.0)% | $(1,892) | $31,141 | (106)% | | Consumer | $147,355 | $166,407 | (11.4)% | $15,355 | $23,993 | (36.0)% | $1,849 | $11,994 | (84.6)% | [Fiscal Year Ended December 31, 2018, Compared to Fiscal Year Ended December 31, 2017](index=25&type=section&id=Fiscal%20Year%20Ended%20December%2031%2C%202018%2C%20Compared%20to%20Fiscal%20Year%20Ended%20December%2031%2C%202017) The comparison of 2018 results to 2017 has been omitted from this Form 10-K and can be found in the Company's Form 10-K for the fiscal year ended December 31, 2018 - The comparison of 2018 results to 2017 is omitted from this Form 10-K and is available in the Company's Form 10-K for the fiscal year ended December 31, 2018[136](index=136&type=chunk) [Liquidity and Capital Resources](index=25&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2019, Titan had **$66.8 million** in cash, a **$14.9 million** decrease from 2018, with operating activities providing **$45.4 million** in cash due to working capital management, while investing activities used **$92.6 million** and financing activities provided **$32.1 million** - Cash and cash equivalents decreased by **$14.9 million** to **$66.8 million** as of December 31, 2019[137](index=137&type=chunk) Summary of Cash Flows (Amounts in Thousands) | Cash Flow Activity | 2019 | 2018 | Change | | :----------------------------- | :------------ | :------------ | :------------ | | Net cash provided by (used for) operating activities | $45,442 | $(36,176) | $81,618 | | Net cash used for investing activities | $(92,591) | $(36,931) | $(55,660) | | Net cash provided by financing activities | $32,122 | $17,536 | $14,586 | - Operating cash flows improved significantly by **$81.6 million** in 2019, driven by decreases in inventories (**$63.7 million**) and accounts receivable (**$56.8 million**) due to strategic inventory management[137](index=137&type=chunk)[138](index=138&type=chunk) - Investing activities included **$36.4 million** in capital expenditures and **$71.7 million** in payments for redeemable noncontrolling interest, partially offset by **$19.0 million** from the sale of Wheels India Limited shares[140](index=140&type=chunk) - As of December 31, 2019, the company had **$30.8 million** available under its **$125 million** revolving credit facility, with **$36 million** in borrowings[143](index=143&type=chunk) - Forecasted capital expenditures for 2020 are approximately **$35 million**, and cash payments for interest are expected to be around **$30 million**[144](index=144&type=chunk) - The company plans to pursue sales of non-core or idle assets to generate cash flow and improve working capital, and may consider strategic acquisitions[145](index=145&type=chunk)[146](index=146&type=chunk) [Contractual Obligations](index=28&type=section&id=Contractual%20Obligations) As of December 31, 2019, Titan's total contractual obligations amounted to **$699.1 million**, with **$122.5 million** due within one year, primarily comprising senior secured notes due 2023 and other debt/capital leases Contractual Obligations as of December 31, 2019 (Amounts in Thousands) | Contractual Obligations | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :-------------------------------- | :-------- | :--------------- | :-------- | :-------- | :---------------- | | 6.50% senior secured notes due 2023 | $400,000 | $— | $— | $400,000 | $— | | Other debt and capital leases | $108,642 | $61,253 | $44,204 | $1,636 | $1,549 | | Interest expense (a) | $107,002 | $30,379 | $52,790 | $23,833 | $— | | Operating leases | $28,487 | $8,244 | $11,261 | $5,399 | $3,583 | | Purchase obligations | $22,731 | $17,853 | $4,610 | $268 | $— | | Other long-term liabilities (b) | $32,200 | $4,800 | $16,400 | $11,000 | $— | | Total | $699,062 | $122,529 | $129,265 | $442,136 | $5,132 | [Off-Balance Sheet Arrangements](index=28&type=section&id=Off-Balance%20Sheet%20Arrangements) As of December 31, 2019, Titan International did not have any off-balance sheet arrangements - As of December 31, 2019, the Company did not have any off-balance sheet arrangements[150](index=150&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) Titan's critical accounting policies involve significant management estimates and judgments in areas such as asset acquisitions, inventory valuation, income taxes, retirement benefits, product warranties, and asset impairment, where changes could materially impact financial statements - Critical accounting policies include asset and business acquisitions, inventories, income taxes, retirement benefit obligations, product warranties, and impairment of long-lived assets, all requiring significant management estimates and judgments[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[154](index=154&type=chunk)[155](index=155&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - A future change in estimates, assumptions, or judgments related to these policies could have a material impact on future financial statements[151](index=151&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures about Market Risk](index=30&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) Titan is exposed to market risks from foreign currency fluctuations, commodity price volatility, and interest rate changes, using derivatives for currency risk and attempting to pass on commodity price changes to customers - The Company is exposed to foreign currency risk due to international operations, with a hypothetical **10% adverse change** in foreign currency exchange rates potentially resulting in a **$28.7 million loss** in net investment value as of December 31, 2019[160](index=160&type=chunk) - Titan is exposed to commodity price risk (steel, natural rubber, synthetic rubber, carbon black) as it does not generally use long-term contracts or derivatives to hedge, attempting to pass price changes to customers[161](index=161&type=chunk) - The company faces interest rate risk on its variable debt, specifically its **$125 million** revolving credit facility; a **100 basis point increase** in interest rate would change interest expense by approximately **$0.8 million** if fully drawn to available funds[162](index=162&type=chunk) [Item 8. Financial Statements and Supplementary Data](index=30&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section refers to Part IV, Item 15 for the company's financial statements and supplementary data - Financial statements and supplementary data are referenced in Part IV, Item 15 of this report[164](index=164&type=chunk) [Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=30&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reported no changes in or disagreements with accountants on accounting and financial disclosure - There were no changes in or disagreements with accountants on accounting and financial disclosure[164](index=164&type=chunk) [Item 9A. Controls and Procedures](index=30&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2019, Titan's management concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting, and an unqualified opinion from Grant Thornton LLP on the effectiveness of internal control over financial reporting - As of December 31, 2019, Titan's CEO and CFO concluded that the company's disclosure controls and procedures were effective[165](index=165&type=chunk) - No material changes in internal control over financial reporting occurred during the fourth quarter of fiscal 2019[166](index=166&type=chunk) - Management assessed and concluded that the company maintained effective internal control over financial reporting as of December 31, 2019, based on the COSO framework[168](index=168&type=chunk) - Grant Thornton LLP, an independent registered public accounting firm, audited and expressed an unqualified opinion on the effectiveness of Titan's internal control over financial reporting[169](index=169&type=chunk)[204](index=204&type=chunk)[210](index=210&type=chunk) [Item 9B. Other Information](index=31&type=section&id=Item%209B.%20Other%20Information) The company reported no other information required to be disclosed in this item - There is no other information to report[172](index=172&type=chunk) PART III This section outlines Titan International's corporate governance, including information on directors, executive officers, executive compensation, security ownership, related party transactions, and principal accounting fees [Item 10. Directors, Executive Officers and Corporate Governance](index=32&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) This section provides information on Titan's directors and executive officers, including Paul G. Reitz (President and CEO), David A. Martin (CFO), and Michael G. Troyanovich (General Counsel), along with details on the company's business conduct policy and corporate governance guidelines - Paul G. Reitz serves as President and Chief Executive Officer, appointed in December 2016[176](index=176&type=chunk) - David A. Martin joined as Chief Financial Officer in June 2018, previously serving as CFO at Aegion Corporation[177](index=177&type=chunk) - Michael G. Troyanovich is the General Counsel and Secretary, appointed in June 2013[178](index=178&type=chunk) - The Company has adopted a business conduct policy and corporate governance guidelines applicable to directors, officers, and employees, available on its website[179](index=179&type=chunk) [Item 11. Executive Compensation](index=32&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation is incorporated by reference from the company's 2020 Proxy Statement - Executive compensation information is incorporated by reference from the Company's 2020 Proxy Statement[180](index=180&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=32&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information concerning security ownership of certain beneficial owners and management is incorporated by reference from the company's 2020 Proxy Statement - Security ownership information is incorporated by reference from the Company's 2020 Proxy Statement[180](index=180&type=chunk) [Item 13. Certain Relationships, Related Transactions, and Director Independence](index=32&type=section&id=Item%2013.%20Certain%20Relationships%2C%20Related%20Transactions%2C%20and%20Director%20Independence) Information on certain relationships, related party transactions, and director independence is incorporated by reference from the company's 2020 Proxy Statement and Note 27 of the Consolidated Financial Statements - Information on relationships, related party transactions, and director independence is incorporated by reference from the Company's 2020 Proxy Statement and Note 27 of the Consolidated Financial Statements[181](index=181&type=chunk) [Item 14. Principal Accounting Fees and Services](index=32&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's 2020 Proxy Statement - Information on audit fees and services is incorporated by reference from the Company's 2020 Proxy Statement[182](index=182&type=chunk) PART IV This section details the financial statements, financial statement schedules, and exhibits included in the Form 10-K, providing comprehensive disclosures on accounting policies, financial instruments, debt, equity, employee benefits, and other financial details [Item 15. Exhibits and Financial Statement Schedules](index=33&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements, extensive notes, and supporting schedules, including the statements of operations, comprehensive income (loss), balance sheets, changes in equity, and cash flows, along with an exhibit index - The section includes consolidated financial statements: Statements of Operations, Comprehensive Income (Loss), Balance Sheets, Statements of Changes in Equity, and Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017[184](index=184&type=chunk)[217](index=217&type=chunk)[220](index=220&type=chunk)[223](index=223&type=chunk)[226](index=226&type=chunk)[230](index=230&type=chunk) - It also contains detailed Notes to Consolidated Financial Statements (Notes 1-32) providing extensive disclosures on accounting policies, financial instruments, debt, equity, employee benefits, and other financial details[184](index=184&type=chunk)[234](index=234&type=chunk) - An Exhibit Index lists various corporate documents, agreements, and certifications incorporated into the report[184](index=184&type=chunk)[186](index=186&type=chunk)[187](index=187&type=chunk) - A Financial Statement Schedule (Schedule II) for Valuation and Qualifying Accounts is provided[184](index=184&type=chunk)[409](index=409&type=chunk) [Notes to Consolidated Financial Statements](index=48&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The Notes to Consolidated Financial Statements provide detailed explanations of Titan's accounting policies, financial statement line items, and significant transactions, covering business description, valuation methods, revenue recognition, debt obligations, equity changes, employee benefits, litigation, and recent accounting standard adoptions - Note 1 details the Company's business as a manufacturer of wheels, tires, and undercarriage systems for off-highway vehicles and outlines significant accounting policies including principles of consolidation, cash equivalents, accounts receivable, inventories, fixed assets, fair value measurements, investments, foreign currency translation, revenue recognition, cost of sales, SG&A, R&D, advertising, warranty costs, income taxes, EPS, environmental liabilities, stock-based compensation, use of estimates, and the adoption of new accounting standards (e.g., ASU 2016-02 Leases, ASU 2018-02 Tax Effects, ASC 606 Revenue from Contracts with Customers)[235](index=235&type=chunk)[236](index=236&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk)[239](index=239&type=chunk)[240](index=240&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk)[246](index=246&type=chunk)[247](index=247&type=chunk)[248](index=248&type=chunk)[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk)[256](index=256&type=chunk)[257](index=257&type=chunk)[258](index=258&type=chunk)[259](index=259&type=chunk)[260](index=260&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - Notes 2-9 provide details on specific balance sheet accounts: Accounts Receivable (**$185.2 million** net in 2019), Inventories (**$333.4 million** in 2019), Prepaid and Other Current Assets (**$58.9 million** in 2019), Property, Plant, and Equipment (**$374.8 million** net in 2019), Other Long-Term Assets (**$69.0 million** in 2019), Intangible Assets (**$9.8 million** net in 2019), Other Current Liabilities (**$107.3 million** in 2019), and Warranty Liability (**$14.3 million** in 2019)[271](index=271&type=chunk)[272](index=272&type=chunk)[274](index=274&type=chunk)[275](index=275&type=chunk)[278](index=278&type=chunk)[279](index=279&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - Note 10 details Revolving Credit Facility and Long-Term Debt, including **$400 million** in **6.50%** senior secured notes due 2023, Titan Europe credit facilities (**$43.6 million**), and a **$125 million** revolving credit facility with **$36 million** borrowed and **$30.8 million** available as of Dec 31, 2019[284](index=284&type=chunk)[286](index=286&type=chunk)[287](index=287&type=chunk)[288](index=288&type=chunk)[289](index=289&type=chunk)[290](index=290&type=chunk)[291](index=291&type=chunk) - Note 13 describes the Redeemable Noncontrolling Interest related to Voltyre-Prom, where Titan acquired additional interest, increasing its ownership to **64.3%** in 2019, and settled put options with RDIF and OEP for **$25 million** cash and restricted stock, and **$46.7 million** cash, respectively[295](index=295&type=chunk)[296](index=296&type=chunk)[297](index=297&type=chunk)[299](index=299&type=chunk)[300](index=300&type=chunk)[301](index=301&type=chunk) - Note 21 on Income Taxes shows a 2019 effective tax rate of **(7.2)%** on a pre-tax loss, with a valuation allowance of **$164.7 million** primarily related to net operating losses in the U.S., Italy, Australia, and Luxembourg[319](index=319&type=chunk)[320](index=320&type=chunk)[324](index=324&type=chunk) - Note 22 on Employee Benefit Plans details pension plans with an unfunded status of **$(32.2) million** in 2019 and 401(k) plans, with **$1.2 million** in common stock matching contributions in 2019[336](index=336&type=chunk)[351](index=351&type=chunk) - Note 24 on Litigation highlights an ongoing environmental legal proceeding where Titan Tire and Dico were found liable for **$5.45 million** in response costs and Dico for **$5.45 million** in punitive damages, with a **$6.5 million** contingent liability accrued[362](index=362&type=chunk)[366](index=366&type=chunk)[367](index=367&type=chunk) - Note 28 on Segment and Geographical Information provides detailed revenues, gross profit, income from operations, capital expenditures, and depreciation/amortization by agricultural, earthmoving/construction, and consumer segments, and by geographic area (United States, Europe/CIS, Latin America, Other international)[377](index=377&type=chunk)[379](index=379&type=chunk)[382](index=382&type=chunk) - Note 31 on Subsequent Events reports the sale of Wheels India shares in February 2020 for **$6.9 million**, reducing ownership to **20.0%** and using proceeds to pay down debt[387](index=387&type=chunk) [SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS](index=85&type=section&id=SCHEDULE%20II%20%E2%80%93%20VALUATION%20AND%20QUALIFYING%20ACCOUNTS) Schedule II presents the changes in the allowance for doubtful accounts for the years ended December 31, 2019, 2018, and 2017, showing an increase to **$3.714 million** in 2019 from **$3.404 million** in 2018 Allowance for Doubtful Accounts (Amounts in Thousands) | Year Ended December 31, | Balance at beginning of year | Additions to costs and expenses | Deductions | Balance at end of year | | :---------------------- | :--------------------------- | :------------------------------ | :--------- | :--------------------- | | 2019 | $3,404 | $821 | $(511) | $3,714 | | 2018 | $2,974 | $541 | $(111) | $3,404 | | 2017 | $3,344 | $(362) | $(8) | $2,974 | [Item 16. Form 10-K Summary](index=35&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company did not include a Form 10-K summary in this report - There is no Form 10-K Summary[189](index=189&type=chunk)

Titan International, Inc. (NYSE:TWI) Q3 2019 Results Conference Call November 7, 2019 9:00 AM ET Company Participants Todd Shoot - Senior Vice President, Investor Relations Paul Reitz - President and CEO David Martin - Senior Vice President and CFO Conference Call Participants Stephen Volkmann - Jefferies Joseph Mondillo - Sidoti & Company Larry De Maria - William Blair Operator Good morning, ladies and gentlemen, and welcome to the Titan International Incorporated Third Quarter 2019 Earnings Conference C ...

[Part I. Financial Information](index=3&type=section&id=Part%20I.%20Financial%20Information) This section presents the unaudited financial statements and management's discussion and analysis for the period ended September 30, 2019 [Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The unaudited financial statements for Q3 and YTD 2019 reveal a performance decline, shifting from net income to a net loss, with reduced assets and improved operating cash flow [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2019 | Q3 2018 | YTD 2019 | YTD 2018 | | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $345,905 | $384,719 | $1,146,876 | $1,239,005 | | **Gross profit** | $27,100 | $43,704 | $110,672 | $161,577 | | **(Loss) income from operations** | $(12,616) | $4,823 | $(10,910) | $43,169 | | **Net (loss) income attributable to Titan** | $(19,144) | $2,295 | $(23,590) | $28,378 | | **Diluted EPS** | $(0.33) | $(0.03) | $(0.43) | $0.29 | [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Balance Sheet Summary (in thousands) | Account | Sep 30, 2019 | Dec 31, 2018 | | :--- | :--- | :--- | | **Total current assets** | $732,394 | $779,481 | | **Total assets** | $1,189,602 | $1,251,256 | | **Total current liabilities** | $365,948 | $375,068 | | **Long-term debt** | $464,827 | $409,572 | | **Total liabilities** | $916,426 | $861,346 | | **Total Titan shareholders' equity** | $244,231 | $279,048 | [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | **Net cash provided by (used for) operating activities** | $31,212 | $(32,706) | | **Net cash used for investing activities** | $(96,622) | $(25,014) | | **Net cash provided by financing activities** | $63,956 | $17,069 | | **Net decrease in cash and cash equivalents** | $(3,082) | $(46,771) | | **Cash and cash equivalents, end of period** | $78,603 | $96,799 | [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) - The company adopted new accounting standards, including ASU No. 2016-02 for leases (Topic 842), which resulted in the recognition of operating lease right-of-use assets and corresponding liabilities on the balance sheet as of January 1, 2019[26](index=26&type=chunk) - The company settled put options exercised by partners OEP and RDIF related to the Voltyre-Prom joint venture. The OEP settlement involved cash payments totaling **$46.7 million**. The RDIF settlement involved a **$25 million** cash payment and an agreement to issue **4,032,259 shares** of restricted Titan common stock[58](index=58&type=chunk)[59](index=59&type=chunk) - A subsidiary, Titan Tire, is involved in environmental litigation and has a contingent liability of **$6.5 million** accrued as of September 30, 2019, related to a U.S. District Court order[91](index=91&type=chunk) - Subsequent to the quarter end, on October 3, 2019, the company sold a portion of its shares in Wheels India Limited, receiving net proceeds of approximately **$19 million** which were used to pay down debt. A gain of **$4.7 million** was recorded in Q3 2019 based on the trade date[126](index=126&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q3 2019 net sales decline due to market challenges, a sharp gross profit drop from lower volume and inventory issues, and sufficient liquidity despite a net loss [Market Conditions and Outlook](index=40&type=section&id=Market%20Conditions%20and%20Outlook) - **Agricultural Market:** Low commodity prices, tariffs, and poor weather have reduced farmer investment in new equipment. OEMs forecast flat sales for the remainder of 2019[141](index=141&type=chunk) - **Earthmoving/Construction Market:** After a strong start to 2019, the market declined in Q2 and Q3 due to global economic uncertainty. Demand is expected to be flat for the rest of 2019, with potential slight decreases in small/medium equipment[142](index=142&type=chunk) - **Consumer Market:** The company expects flat to modest growth for the remainder of 2019 across its various consumer product lines[143](index=143&type=chunk) [Results of Operations](index=40&type=section&id=Results%20of%20Operations) Q3 2019 vs Q3 2018 Performance (in thousands) | Metric | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | **Net sales** | $345,905 | $384,719 | (10.1)% | | **Gross profit** | $27,100 | $43,704 | (38.0)% | | **(Loss) income from operations** | $(12,616) | $4,823 | (361.6)% | - Q3 net sales decreased **10.1% YoY**, driven by a **6.9% decline in volume** due to challenges in the North American agriculture economy and a slowing global construction market[146](index=146&type=chunk) - Q3 gross profit margin fell to **7.8%** from **11.4%** in Q3 2018. The decline was driven by lower sales volume, production inefficiencies, and a negative impact of approximately **$7 million** from reducing steel inventory purchased at higher prices[148](index=148&type=chunk) - SG&A expenses increased in Q3 2019, primarily due to **$2.3 million** in costs related to the postponed public listing of the ITM undercarriage business[150](index=150&type=chunk) [Segment Information](index=43&type=section&id=Segment%20Information) Net Sales by Segment - Q3 (in thousands) | Segment | Q3 2019 | Q3 2018 | % Change | | :--- | :--- | :--- | :--- | | **Agricultural** | $156,625 | $163,367 | (4.1)% | | **Earthmoving/construction** | $155,659 | $180,362 | (13.7)% | | **Consumer** | $33,621 | $40,990 | (18.0)% | - The Agricultural segment's gross profit was compressed by approximately **$6 million** in Q3 due to the reduction of high-cost steel inventory in North American Wheel operations[169](index=169&type=chunk) - The Earthmoving/Construction segment's **13.7% sales decrease** was driven by a **9.3% drop in volume**, primarily from a tightening in the undercarriage business across most geographies[172](index=172&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) - As of September 30, 2019, the company had **$78.6 million** in cash and **$37.3 million** available under its **$125 million** revolving credit facility[191](index=191&type=chunk) - Cash flow from operations was a source of **$31.2 million** in the first nine months of 2019, a significant improvement from a use of **$32.7 million** in the same period of 2018, primarily due to decreases in inventory (**$36.9 million**) and accounts receivable (**$16.1 million**)[183](index=183&type=chunk) - Investing activities used **$96.6 million**, largely due to a **$71.7 million** payment related to the settlement of the redeemable noncontrolling interest put option[187](index=187&type=chunk) - Total capital expenditures for 2019 are forecasted to be approximately **$40 million**[193](index=193&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=49&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company reports that there have been no material changes in its market risk exposures since the disclosures provided in its Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes in quantitative and qualitative disclosures about market risk from the company's 2018 Form 10-K[200](index=200&type=chunk) [Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of September 30, 2019, and concluded they were effective, with no material changes to internal control over financial reporting during the third quarter of 2019 - Management concluded that as of September 30, 2019, the company's disclosure controls and procedures were effective[201](index=201&type=chunk) - There were no changes in internal control over financial reporting during the third quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the company's internal controls[202](index=202&type=chunk) [Part II. Other Information](index=50&type=section&id=Part%20II.%20Other%20Information) This section covers legal proceedings, risk factors, and a comprehensive list of exhibits filed with the report [Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings, with specific details regarding ongoing environmental litigation provided in Note 17 of the financial statements - The company is subject to routine legal proceedings. For details on significant litigation, refer to Note 17 in Part I, Item 1 of this report[207](index=207&type=chunk) [Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2018 - There have been no material changes from the risk factors disclosed in the 2018 Form 10-K[208](index=208&type=chunk) [Exhibits](index=50&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including a Sale Purchase Agreement and certifications from the Principal Executive Officer and Principal Financial Officer as required by the Sarbanes-Oxley Act - Exhibits filed include the Sale Purchase Agreement with OEP dated July 30, 2019, and CEO/CFO certifications pursuant to Sarbanes-Oxley Sections 302 and 906[209](index=209&type=chunk)[211](index=211&type=chunk) [Signatures](index=51&type=section&id=Signatures)

Financial Data and Key Metrics Changes - Net sales in Q2 2019 were $391 million, representing a decline of almost 9% year-over-year, with a constant currency basis decline of approximately 5% [44] - Gross profit for Q2 2019 was $38 million, down from $58 million in Q2 2018, resulting in a gross margin of 9.8% compared to 13.6% last year [48][66] - The company anticipates 2019 sales to be flat to down 3% compared to 2018, with expected gross margin improvement to be in the range of 11.2% to 11.6% for the full year [23] Business Line Data and Key Metrics Changes - Agriculture segment net sales were $164 million, down 12% year-over-year, with North American tire sales down 15% primarily due to sector issues [55][56] - Earthmoving/construction segment sales decreased by 7% to $184 million, with a slight sequential improvement from Q1 [60] - Consumer segment sales were approximately $41 million, down 3.6% from the previous year, with gross profit declining to $4.4 million [64][65] Market Data and Key Metrics Changes - North American tire aftermarket business experienced a significant drop in demand, particularly in the last month of Q2 [14] - Russian agriculture sales were down 35% due to market challenges, while South American agriculture sales increased by 2.5% [57][58] - European agriculture sales lagged behind the previous year by about 22% due to negative currency impacts and volume declines [58] Company Strategy and Development Direction - The company is focused on managing through the current cycle, protecting the balance sheet, and building for the future through innovation and product development [25][30] - Titan plans to pursue the sale of non-core assets to improve working capital and protect the balance sheet, with expected cash inflows between $30 million and $50 million [28][82] - The board has postponed the potential AIM listing of ITM due to unfavorable market conditions, but remains optimistic about its future growth [40][41] Management's Comments on Operating Environment and Future Outlook - Management noted that the second quarter was disappointing due to global trade battles and poor conditions in the U.S. farming sector [10][21] - The company expects to see improvements in gross margins in the second half of the year, driven by lower production costs and improved market conditions [23][27] - Management acknowledged the challenges faced in the agriculture sector but remains optimistic about pent-up demand being released later in the year [24][25] Other Important Information - The company has settled the Russian put option with One Equity Partners, fully satisfying the obligation [35][36] - Titan's cash position remained steady, with efforts to reduce receivables and inventory balances [73][74] - Capital expenditures for the year are anticipated to be at or below $40 million, down from the original expectation of $40 million to $50 million [77] Q&A Session Summary Question: Guidance for topline revenue - Management expects a slight improvement in agriculture and construction segments, with careful consideration of downside risks [87][89] Question: Wheel inventory build and OEM visibility - The inventory build was based on expectations of favorable market conditions and the need to prepare for specific orders [95][96] Question: ITM business and potential monetization - The board is pleased with ITM's performance and believes in its future growth, but the AIM listing has been postponed due to market conditions [99][100]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=Part%20I.%20Financial%20Information) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for Titan International, Inc [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20%28Unaudited%29) This section presents Titan International's unaudited condensed consolidated financial statements and accompanying notes for Q2 and H1 2019 and 2018 [Condensed Consolidated Statements of Operations (Unaudited)](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20%28Unaudited%29) This section presents unaudited consolidated statements of operations for the three and six months ended June 30, 2019 and 2018 **Condensed Consolidated Statements of Operations (Amounts in thousands, except per share data)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $390,597 | $428,904 | $800,971 | $854,286 | | Cost of sales | $352,289 | $370,592 | $717,399 | $736,413 | | Gross profit | $38,308 | $58,312 | $83,572 | $117,873 | | (Loss) income from operations | $(2,430) | $18,964 | $1,706 | $38,346 | | Net (loss) income attributable to Titan | $(6,424) | $8,436 | $(4,446) | $26,083 | | Basic EPS | $(0.12) | $0.06 | $(0.10) | $0.32 | | Diluted EPS | $(0.12) | $0.06 | $(0.10) | $0.32 | - Net sales for Q2 2019 decreased by **8.9% YoY to $390.6 million**, and for the six months ended June 30, 2019, decreased by **6.2% YoY to $801.0 million**[8](index=8&type=chunk) - The company reported a **net loss of $6.7 million** for Q2 2019, compared to a **net income of $8.5 million** in Q2 2018. For the six months, **net loss was $5.7 million** in 2019, compared to **net income of $24.4 million** in 2018[8](index=8&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20%28Loss%29%20%28Unaudited%29) This section presents the unaudited condensed consolidated statements of comprehensive income (loss) for the three and six months ended June 30, 2019 and 2018 **Condensed Consolidated Statements of Comprehensive Income (Loss) (Amounts in thousands)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(6,677) | $8,476 | $(5,670) | $24,444 | | Currency translation adjustment | $5,423 | $(38,338) | $1,044 | $(30,276) | | Comprehensive loss attributable to Titan | $(1,101) | $(26,987) | $(3,939) | $(1,034) | - Comprehensive loss attributable to Titan for Q2 2019 was **$(1.1) million**, a significant improvement from **$(27.0) million** in Q2 2018[10](index=10&type=chunk) - Currency translation adjustment showed a **gain of $5.4 million** in Q2 2019, reversing a **loss of $38.3 million** in Q2 2018[10](index=10&type=chunk) [Condensed Consolidated Balance Sheets](index=5&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets as of June 30, 2019, and December 31, 2018 **Condensed Consolidated Balance Sheets (Amounts in thousands, except share data)** | Metric | June 30, 2019 (Unaudited, Thousands) | December 31, 2018 (Thousands) | | :------------------------------------ | :------------------------ | :---------------- | | Total current assets | $786,213 | $779,481 | | Total assets | $1,269,528 | $1,251,256 | | Total current liabilities | $392,622 | $375,068 | | Total liabilities | $925,920 | $861,346 | | Redeemable noncontrolling interest | $55,517 | $119,813 | | Total equity | $288,091 | $270,097 | - Total assets increased to **$1,269.5 million** as of June 30, 2019, from **$1,251.3 million** at December 31, 2018[13](index=13&type=chunk) - Redeemable noncontrolling interest significantly decreased to **$55.5 million** from **$119.8 million**[13](index=13&type=chunk) [Condensed Consolidated Statements of Changes in Equity (Unaudited)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Equity%20%28Unaudited%29) This section presents the unaudited condensed consolidated statements of changes in equity for the six months ended June 30, 2019 **Condensed Consolidated Statements of Changes in Equity (Amounts in thousands, except share data)** | Metric | Balance January 1, 2019 (Thousands) | Balance June 30, 2019 (Thousands) | | :------------------------------------ | :---------------------- | :-------------------- | | Total Titan shareholders' equity | $279,048 | $282,934 | | Noncontrolling interests | $(8,951) | $5,157 | | Total equity | $270,097 | $288,091 | - Titan shareholders' equity increased from **$279.0 million** at January 1, 2019, to **$282.9 million** at June 30, 2019[17](index=17&type=chunk)[18](index=18&type=chunk) - Redeemable noncontrolling interest activity included a reclassification of **$(49.9) million** and a payment of interest of **$(16.0) million**[17](index=17&type=chunk)[18](index=18&type=chunk) [Condensed Consolidated Statements of Cash Flows (Unaudited)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20%28Unaudited%29) This section presents the unaudited condensed consolidated statements of cash flows for the six months ended June 30, 2019 and 2018 **Condensed Consolidated Statements of Cash Flows (Amounts in thousands)** | Metric | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | | Net cash used for operating activities | $(10,001) | $(29,927) | | Net cash used for investing activities | $(56,490) | $(17,532) | | Net cash provided by financing activities | $50,041 | $14,953 | | Net decrease in cash and cash equivalents | $(15,319) | $(37,079) | | Cash and cash equivalents, end of period | $66,366 | $106,491 | - Net cash used for operating activities was **$(10.0) million** for the six months ended June 30, 2019, an improvement from **$(29.9) million** in the prior year[21](index=21&type=chunk) - Net cash used for investing activities increased significantly to **$(56.5) million** in 2019 from **$(17.5) million** in 2018, primarily due to a **$41.0 million** payment related to redeemable noncontrolling interest[21](index=21&type=chunk) [Notes to Condensed Consolidated Financial Statements (Unaudited)](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining accounting policies and specific financial line items [1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=1.%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section outlines the basis of presentation and significant accounting policies applied in the condensed consolidated financial statements - The Company adopted ASU No. 2016-02, "Leases (Topic 842)," on January 1, 2019, recognizing operating lease right-of-use assets and corresponding lease liabilities, with a net credit adjustment to retained earnings of **$0.6 million**[27](index=27&type=chunk) - ASU No. 2018-02 was adopted, resulting in a **$4.9 million** reclassification to decrease accumulated other comprehensive income and increase retained earnings as of January 1, 2019, due to stranded tax effects from the 2017 TCJA[28](index=28&type=chunk) - The Company early-adopted ASU No. 2018-15, capitalizing an aggregate of **$7.4 million** of implementation costs for cloud computing arrangements for the year ended December 31, 2018, previously expensed as selling, general and administration[33](index=33&type=chunk) [2. ACCOUNTS RECEIVABLE](index=13&type=section&id=2.%20ACCOUNTS%20RECEIVABLE) This section details the composition of accounts receivable and the allowance for doubtful accounts **Accounts Receivable (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :-------------------- | :------------ | :---------------- | | Accounts receivable | $275,508 | $245,236 | | Allowance for doubtful accounts | $(3,502) | $(3,404) | | Accounts receivable, net | $272,006 | $241,832 | - Accounts receivable, net, increased to **$272.0 million** at June 30, 2019, from **$241.8 million** at December 31, 2018[41](index=41&type=chunk) [3. INVENTORIES](index=14&type=section&id=3.%20INVENTORIES) This section provides a breakdown of inventory components, including raw material, work-in-process, and finished goods **Inventories (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :-------------------- | :------------ | :---------------- | | Raw material | $103,185 | $110,806 | | Work-in-process | $54,524 | $55,543 | | Finished goods | $227,659 | $229,386 | | Total inventories | $385,368 | $395,735 | - Total inventories decreased to **$385.4 million** at June 30, 2019, from **$395.7 million** at December 31, 2018[43](index=43&type=chunk) [4. PROPERTY, PLANT AND EQUIPMENT, NET](index=14&type=section&id=4.%20PROPERTY,%20PLANT%20AND%20EQUIPMENT,%20NET) This section presents the net property, plant, and equipment, including total cost and accumulated depreciation **Property, Plant and Equipment, Net (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :------------------------------------ | :------------ | :---------------- | | Total at cost | $1,036,036 | $1,020,349 | | Less accumulated depreciation | $(660,039) | $(635,477) | | Property, plant and equipment, net | $375,997 | $384,872 | - Net property, plant and equipment decreased to **$376.0 million** at June 30, 2019, from **$384.9 million** at December 31, 2018[44](index=44&type=chunk) - Depreciation on property, plant and equipment for the six months ended June 30, 2019, totaled **$26.1 million**, down from **$28.3 million** in 2018[44](index=44&type=chunk) [5. INTANGIBLE ASSETS, NET](index=15&type=section&id=5.%20INTANGIBLE%20ASSETS,%20NET) This section details the net intangible assets, including total cost and accumulated amortization **Intangible Assets, Net (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :------------------------------------ | :------------ | :---------------- | | Total at cost | $24,083 | $24,323 | | Less accumulated amortization | $(13,287) | $(12,676) | | Net intangible assets | $10,796 | $11,647 | - Net amortizable intangible assets decreased to **$10.8 million** at June 30, 2019, from **$11.6 million** at December 31, 2018[47](index=47&type=chunk) - Amortization related to intangible assets for the six months ended June 30, 2019, totaled **$1.1 million**, down from **$1.3 million** in 2018[47](index=47&type=chunk) [6. WARRANTY](index=15&type=section&id=6.%20WARRANTY) This section outlines the changes in warranty liability, including provisions and payments made **Warranty Liability (Amounts in thousands)** | Metric | 2019 (Thousands) | 2018 (Thousands) | | :------------------------------------ | :------------ | :------------ | | Warranty liability, January 1 | $16,327 | $18,612 | | Provision for warranty liabilities | $1,722 | $4,213 | | Warranty payments made | $(2,987) | $(3,818) | | Warranty liability, June 30 | $15,062 | $19,007 | - Warranty liability decreased to **$15.1 million** at June 30, 2019, from **$16.3 million** at January 1, 2019[49](index=49&type=chunk) - Provision for warranty liabilities for the six months ended June 30, 2019, was **$1.7 million**, significantly lower than **$4.2 million** in 2018[49](index=49&type=chunk) [7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT](index=16&type=section&id=7.%20REVOLVING%20CREDIT%20FACILITY%20AND%20LONG-TERM%20DEBT) This section details the company's revolving credit facility and long-term debt obligations **Long-Term Debt (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :------------------------------------ | :------------ | :---------------- | | Total debt | $516,754 | $461,457 | | Total long-term debt | $445,388 | $409,572 | | Revolving credit facility borrowings | $41,000 | — | - Total debt increased to **$516.8 million** at June 30, 2019, from **$461.5 million** at December 31, 2018[51](index=51&type=chunk) - The company had **$41.0 million** in borrowings under its **$125 million** revolving credit facility at June 30, 2019, with **$57.3 million** available[55](index=55&type=chunk) [8. DERIVATIVE FINANCIAL INSTRUMENTS](index=17&type=section&id=8.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) This section describes the company's use of derivative financial instruments to manage foreign currency exchange rate volatility - The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates, which are not designated as hedging instruments[57](index=57&type=chunk) - Currency exchange gains related to these derivatives were **$0.1 million** for Q2 2019 and **$0.0 million** for the six months ended June 30, 2019, compared to **$0.4 million** and **$0.2 million** for the respective periods in 2018[57](index=57&type=chunk) [9. REDEEMABLE NONCONTROLLING INTEREST](index=17&type=section&id=9.%20REDEEMABLE%20NONCONTROLLING%20INTEREST) This section provides a reconciliation of the redeemable noncontrolling interest, including reclassifications and payments **Reconciliation of Redeemable Noncontrolling Interest (Amounts in thousands)** | Metric | 2019 (Thousands) | 2018 (Thousands) | | :------------------------------------ | :------------ | :------------ | | Balance at January 1 | $119,813 | $113,193 | | Reclassification as a result of Agreement regarding put option | $(49,883) | — | | Payment of interest on redeemable noncontrolling interest | $(16,000) | — | | Balance at June 30 | $55,517 | $117,546 | - The redeemable noncontrolling interest decreased significantly to **$55.5 million** at June 30, 2019, from **$119.8 million** at January 1, 2019, primarily due to a **$49.9 million** reclassification and a **$16.0 million** payment[65](index=65&type=chunk) - RDIF exercised its put option in November 2018, leading to a **$25 million** cash payment and an agreement to issue 4,032,259 shares of restricted Titan common stock (pending regulatory approval). OEP exercised its put option in January 2019, resulting in a **$16 million** payment during Q2 2019, with a subsequent payment of **$30.7 million** in July 2019 to fully satisfy the obligation[59](index=59&type=chunk)[60](index=60&type=chunk) [10. LEASES](index=18&type=section&id=10.%20LEASES) This section presents supplemental balance sheet information related to leases, following the adoption of ASC 842 **Supplemental Balance Sheet Information Related to Leases (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | | :------------------------------------ | :------------ | | Operating lease ROU assets | $24,422 | | Total operating lease liabilities | $24,613 | | Finance lease, net | $2,696 | | Total finance lease liabilities | $2,757 | - The Company adopted ASC 842 on January 1, 2019, recognizing operating lease ROU assets of **$24.4 million** and total operating lease liabilities of **$24.6 million** at June 30, 2019[69](index=69&type=chunk) - The weighted average remaining lease term for operating leases is **4.9 years**, and for finance leases is **3.6 years**[69](index=69&type=chunk) [11. EMPLOYEE BENEFIT PLANS](index=20&type=section&id=11.%20EMPLOYEE%20BENEFIT%20PLANS) This section details the components of net periodic pension cost and contributions to employee benefit plans **Components of Net Periodic Pension Cost (Amounts in thousands)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net periodic pension cost | $945 | $488 | $1,925 | $942 | - Net periodic pension cost for the six months ended June 30, 2019, was **$1.9 million**, an increase from **$0.9 million** in 2018[73](index=73&type=chunk) - The Company contributed **$1.2 million** to pension plans during the first six months of 2019 and expects to contribute an additional **$1.6 million** for the remainder of 2019[72](index=72&type=chunk) [12. VARIABLE INTEREST ENTITIES](index=20&type=section&id=12.%20VARIABLE%20INTEREST%20ENTITIES) This section provides information on the company's consolidated and non-consolidated variable interest entities (VIEs) **VIEs' Assets and Liabilities (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :------------------------------------ | :------------ | :---------------- | | Consolidated VIEs Total assets | $99,658 | $91,612 | | Consolidated VIEs Total liabilities | $47,941 | $42,599 | | Non-consolidated VIEs Maximum exposure to loss | $7,116 | $7,535 | - The Company consolidates three joint ventures and five other entities as primary beneficiary VIEs, with total assets of **$99.7 million** and liabilities of **$47.9 million** at June 30, 2019[79](index=79&type=chunk) - For non-consolidated VIEs, Titan's maximum exposure to loss was **$7.1 million** at June 30, 2019, down from **$7.5 million** at December 31, 2018[80](index=80&type=chunk) [13. ROYALTY EXPENSE](index=21&type=section&id=13.%20ROYALTY%20EXPENSE) This section presents the royalty expenses incurred for the three and six months ended June 30, 2019 and 2018 **Royalty Expense (Amounts in thousands)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Royalty expenses | $2,448 | $2,634 | $5,054 | $5,297 | - Royalty expenses were **$2.4 million** for Q2 2019 and **$5.1 million** for the six months ended June 30, 2019, slightly down from **$2.6 million** and **$5.3 million** for the comparable periods in 2018[81](index=81&type=chunk) [14. OTHER INCOME](index=22&type=section&id=14.%20OTHER%20INCOME) This section details the other income recognized for the three and six months ended June 30, 2019 and 2018 **Other Income (Amounts in thousands)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Other income | $2,069 | $2,477 | $3,065 | $10,227 | - Other income decreased to **$2.1 million** for Q2 2019 from **$2.5 million** in Q2 2018, primarily due to lower equity investment income[84](index=84&type=chunk) - For the six months ended June 30, 2019, other income was **$3.1 million**, a significant decrease from **$10.2 million** in 2018, mainly due to a non-recurring legal settlement in 2018 and lower equity investment income[84](index=84&type=chunk) [15. INCOME TAXES](index=22&type=section&id=15.%20INCOME%20TAXES) This section presents the income tax benefit or provision and effective tax rates for the periods presented **Income Taxes (Amounts in thousands)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | (Benefit) provision for income taxes | $(3,218) | $1,683 | $(1,303) | $897 | | Effective income tax rate | 33% | 17% | 19% | 4% | - The Company recorded an income tax **benefit of $3.2 million** for Q2 2019, compared to an **expense of $1.7 million** in Q2 2018[85](index=85&type=chunk) - The effective income tax rate for Q2 2019 was **33%**, up from **17%** in Q2 2018. For the six months, the rate was **19%** in 2019, up from **4%** in 2018[85](index=85&type=chunk) [16. EARNINGS PER SHARE](index=23&type=section&id=16.%20EARNINGS%20PER%20SHARE) This section provides details on net income (loss) applicable to common shareholders and basic and diluted earnings per share **Earnings Per Share (Amounts in thousands, except per share data)** | Metric | Three months ended June 30, 2019 (Thousands) | Three months ended June 30, 2018 (Thousands) | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income applicable to common shareholders | $(7,085) | $3,758 | $(5,883) | $19,062 | | Basic and diluted EPS | $(0.12) | $0.06 | $(0.10) | $0.32 | - Basic and diluted EPS for Q2 2019 was **$(0.12)**, compared to **$0.06** in Q2 2018[91](index=91&type=chunk) - For the six months ended June 30, 2019, basic and diluted EPS was **$(0.10)**, compared to **$0.32** in 2018[91](index=91&type=chunk) [17. LITIGATION](index=24&type=section&id=17.%20LITIGATION) This section outlines the company's involvement in routine legal proceedings, including environmental litigation - The Company is involved in routine legal proceedings, including environmental litigation concerning CERCLA violations by Titan Tire and Dico, Inc[94](index=94&type=chunk)[96](index=96&type=chunk) - A contingent liability of **$6.5 million** was accrued as of September 30, 2017, for response costs and punitive damages, which remains outstanding as of June 30, 2019[98](index=98&type=chunk) - The U.S. Court of Appeals affirmed the District Court's order in April 2019, and a petition for rehearing is pending. A **$6.0 million** supersedeas bond has been obtained to stay enforcement[99](index=99&type=chunk) [18. SEGMENT INFORMATION](index=25&type=section&id=18.%20SEGMENT%20INFORMATION) This section provides financial information broken down by the company's operating segments: Agricultural, Earthmoving/Construction, and Consumer **Segment Net Sales (Amounts in thousands)** | Segment | Q2 2019 (Thousands) | Q2 2018 (Thousands) | 6M 2019 (Thousands) | 6M 2018 (Thousands) | | :------------------------------- | :----------- | :----------- | :----------- | :----------- | | Agricultural | $164,284 | $186,870 | $356,014 | $381,037 | | Earthmoving/construction | $184,782 | $198,963 | $361,527 | $387,696 | | Consumer | $41,531 | $43,071 | $83,430 | $85,553 | | Total Net Sales | $390,597 | $428,904 | $800,971 | $854,286 | **Segment Gross Profit (Amounts in thousands)** | Segment | Q2 2019 (Thousands) | Q2 2018 (Thousands) | 6M 2019 (Thousands) | 6M 2018 (Thousands) | | :---------------------------------- | :----------- | :----------- | :----------- | :----------- | | Agricultural | $14,247 | $27,270 | $36,372 | $57,231 | | Earthmoving/construction | $19,701 | $24,260 | $37,871 | $46,722 | | Consumer | $4,360 | $6,782 | $9,329 | $13,920 | | Total Gross Profit | $38,308 | $58,312 | $83,572 | $117,873 | - Net sales decreased across all segments for both the three and six months ended June 30, 2019, compared to 2018[103](index=103&type=chunk) - Agricultural segment net sales decreased by **12.1%** in Q2 2019 and **6.6%** for the six months, while gross profit decreased by **47.8%** and **36.4%** respectively[103](index=103&type=chunk) [19. FAIR VALUE MEASUREMENTS](index=26&type=section&id=19.%20FAIR%20VALUE%20MEASUREMENTS) This section discloses assets measured at fair value on a recurring basis, primarily derivative financial instruments **Assets Measured at Fair Value on a Recurring Basis (Amounts in thousands)** | Metric | June 30, 2019 (Thousands) | December 31, 2018 (Thousands) | | :------------------------------------ | :------------ | :---------------- | | Derivative financial instruments asset | $0 | $902 | - The Company had no derivative financial instruments asset measured at fair value as of June 30, 2019, compared to **$0.9 million** at December 31, 2018, which was classified as Level 2[106](index=106&type=chunk) [20. RELATED PARTY TRANSACTIONS](index=26&type=section&id=20.%20RELATED%20PARTY%20TRANSACTIONS) This section details transactions with related parties, including sales and payments related to put options **Related Party Transactions (Amounts in millions)** | Metric | Q2 2019 (Millions) | Q2 2018 (Millions) | 6M 2019 (Millions) | 6M 2018 (Millions) | | :------------------------------------ | :------ | :------ | :------ | :------ | | Sales to related parties | $0.2 | $0.3 | $0.5 | $0.6 | | Sales commissions paid | $0.3 | $0.5 | $0.8 | $1.0 | - Sales of Titan products to related parties were **$0.2 million** for Q2 2019 and **$0.5 million** for the six months, down from **$0.3 million** and **$0.6 million** respectively in 2018[107](index=107&type=chunk) - The Company made a **$16 million** payment to OEP during Q2 2019 related to the Voltyre-Prom put option, with a subsequent **$30.7 million** payment in July 2019[108](index=108&type=chunk) [21. ACCUMULATED OTHER COMPREHENSIVE LOSS](index=27&type=section&id=21.%20ACCUMULATED%20OTHER%20COMPREHENSIVE%20LOSS) This section presents the changes in accumulated other comprehensive loss, including currency translation adjustments **Accumulated Other Comprehensive Loss (Amounts in thousands)** | Metric | Balance at January 1, 2019 (Thousands) | Balance at June 30, 2019 (Thousands) | | :------------------------------------ | :------------------------- | :----------------------- | | Accumulated other comprehensive loss | $(203,571) | $(207,996) | - Accumulated other comprehensive loss increased to **$(208.0) million** at June 30, 2019, from **$(203.6) million** at January 1, 2019[111](index=111&type=chunk) - This change includes a currency translation adjustment of **$4.8 million** for Q2 2019 and a reclassification of **$(4.9) million** to retained earnings due to ASU 2018-02 adoption[111](index=111&type=chunk) [22. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION](index=27&type=section&id=22.%20SUBSIDIARY%20GUARANTOR%20FINANCIAL%20INFORMATION) This section provides condensed consolidating financial statements for the parent company and its guarantor and non-guarantor subsidiaries - The section provides condensed consolidating financial statements for the parent company, guarantor subsidiaries, and non-guarantor subsidiaries, reflecting the full and unconditional guarantees of the senior secured notes by certain wholly-owned subsidiaries[112](index=112&type=chunk) **Net (Loss) Income by Entity (Amounts in thousands)** | Entity | Three months ended June 30, 2019 (Thousands) | Six months ended June 30, 2019 (Thousands) | | :-------------------------------------- | :------------------------------- | :----------------------------- | | Titan Intl., Inc. (Parent) | $(6,677) | $(5,670) | | Guarantor Subsidiaries | $(1,533) | $3,744 | | Non Guarantor Subsidiaries | $(4,153) | $2,168 | | Consolidated | $(6,424) | $(4,446) | [23. SUBSEQUENT EVENTS](index=34&type=section&id=23.%20SUBSEQUENT%20EVENTS) This section discloses significant events that occurred after the balance sheet date, including a put option settlement - On July 30, 2019, Titan Purchaser entered into an agreement with OEP subsidiaries to fully satisfy the settlement put option for Voltyre-Prom[133](index=133&type=chunk) - A payment of **$30.7 million** in cash was made on July 31, 2019, in addition to the **$16 million** paid in Q2 2019[133](index=133&type=chunk) - Following the closing, OEP ceased ownership, and Titan Purchaser and RDIF owned **64.3%** and **35.7%** of Voltyre-Prom, respectively[133](index=133&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Titan's financial condition, operational results, liquidity, and outlook, covering market conditions and segment performance [FORWARD-LOOKING STATEMENTS](index=35&type=section&id=FORWARD-LOOKING%20STATEMENTS) This section highlights that the report contains forward-looking statements subject to various risks and uncertainties - The report contains forward-looking statements regarding financial performance, market trends, capital expenditures, cost control, new products, and acquisition/divestiture opportunities[138](index=138&type=chunk)[140](index=140&type=chunk) - These statements are subject to risks and uncertainties, including economic recession, market changes, labor relations, legal proceedings, regulatory compliance, raw material availability, and geopolitical factors[139](index=139&type=chunk)[140](index=140&type=chunk) [OVERVIEW](index=36&type=section&id=OVERVIEW) This section provides an overview of Titan International, Inc. as a global manufacturer of off-highway wheels, tires, and undercarriage products - Titan International, Inc. is a global manufacturer of off-highway wheels, tires, assemblies, and undercarriage products for agricultural, earthmoving/construction, and consumer markets[143](index=143&type=chunk) - The Company serves OEMs and aftermarket customers, producing products under brands like Goodyear Farm Tire and Titan Tire[143](index=143&type=chunk) - Key customers include global leaders such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., and Deere & Company[148](index=148&type=chunk) [MARKET CONDITIONS AND OUTLOOK](index=37&type=section&id=MARKET%20CONDITIONS%20AND%20OUTLOOK) This section discusses current market conditions and the outlook for the agricultural, earthmoving/construction, and consumer segments [AGRICULTURAL MARKET OUTLOOK](index=37&type=section&id=AGRICULTURAL%20MARKET%20OUTLOOK) This section provides an outlook on the agricultural market, noting commodity prices, farmer caution, and OEM forecasts - Agricultural commodity prices have recently rebounded somewhat, but remain low as a result of ongoing tariffs and trade concerns[149](index=149&type=chunk) - North American farmers are becoming more cautious about large equipment purchases due to a delayed planting season caused by extraordinarily bad weather[149](index=149&type=chunk) - Most major OEMs are forecasting flat to modest growth (**0% to 5%**) in agricultural equipment sales during 2019 within most regions, while after-market spending has been reduced[149](index=149&type=chunk) [EARTHMOVING/CONSTRUCTION MARKET OUTLOOK](index=37&type=section&id=EARTHMOVING/CONSTRUCTION%20MARKET%20OUTLOOK) This section provides an outlook on the earthmoving/construction market, noting moderation after a strong start and steady demand for larger equipment - The earthmoving/construction market had a strong start in early 2019, but the second quarter experienced some moderation due to global economic volatility[150](index=150&type=chunk) - Demand for larger construction equipment and mining industry equipment continues to steadily increase within certain regions in 2019[150](index=150&type=chunk) - Demand for Titan's products in this market is anticipated to be steady and modestly improve throughout the remainder of 2019[150](index=150&type=chunk) [CONSUMER MARKET OUTLOOK](index=37&type=section&id=CONSUMER%20MARKET%20OUTLOOK) This section provides an outlook on the consumer market, including product categories and expected growth - The consumer market consists of bias truck tires in Latin America, light truck tires in Russia, and select products for ATVs, turf, and golf cart applications[151](index=151&type=chunk) - Overall, the Company expects flat to modest growth within this market during 2019[151](index=151&type=chunk) [RESULTS OF OPERATIONS](index=37&type=section&id=RESULTS%20OF%20OPERATIONS) This section analyzes the company's financial performance, including net sales, gross profit, and operating expenses [Net Sales](index=38&type=section&id=Net%20Sales) This section analyzes the changes in net sales for the three and six months ended June 30, 2019 - Net sales for Q2 2019 decreased by **8.9% to $390.6 million**, driven by sales decreases in all segments, lower volume (**4.3%**), unfavorable price/mix (**0.8%**), and unfavorable currency translation (**3.8%**)[154](index=154&type=chunk) - Net sales for the six months ended June 30, 2019, decreased by **6.2% to $801.0 million**, due to lower volume (**3.9%**) and unfavorable currency translation (**4.8%**), partially offset by favorable price/mix (**2.5%**)[155](index=155&type=chunk) [Gross Profit](index=38&type=section&id=Gross%20Profit) This section analyzes the changes in gross profit and gross margin for the three and six months ended June 30, 2019 - Gross profit for Q2 2019 decreased by **34.3% to $38.3 million** (**9.8%** of net sales) from **$58.3 million** (**13.6%** of net sales) in Q2 2018[156](index=156&type=chunk) - The decrease in gross profit was driven by lower sales volume across most geographic regions, effects of currency devaluation (especially in Europe, Latin America, and Russia), and impacts from higher production costs on elevated inventory in the North American wheel business[156](index=156&type=chunk) - For the six months, gross profit decreased by **29.1% to $83.6 million** (**10.4%** of net sales) from **$117.9 million** (**13.8%** of net sales) in 2018, due to lower volume and unfavorable currency impact[157](index=157&type=chunk) [Selling, General and Administrative Expenses](index=38&type=section&id=Selling,%20General%20and%20Administrative%20Expenses) This section analyzes the changes in selling, general, and administrative expenses for the three and six months ended June 30, 2019 - SG&A expenses for Q2 2019 increased by **5.3% to $35.7 million** (**9.2%** of net sales) from **$34.0 million** (**7.9%** of net sales) in Q2 2018, primarily related to investments in information technology in North America and an increase in legal fees[158](index=158&type=chunk) - For the six months, SG&A increased by **4.4% to $71.7 million** (**8.9%** of net sales) from **$68.6 million** (**8.0%** of net sales) in 2018, due to similar factors[158](index=158&type=chunk) [Research and Development Expenses](index=38&type=section&id=Research%20and%20Development%20Expenses) This section analyzes the changes in research and development expenses for the three and six months ended June 30, 2019 - R&D expenses for Q2 2019 decreased by **7.6% to $2.5 million** (**0.7%** of net sales) from **$2.8 million** (**0.6%** of net sales) in Q2 2018[159](index=159&type=chunk) - For the six months, R&D expenses decreased by **8.3% to $5.2 million** (**0.6%** of net sales) from **$5.6 million** (**0.7%** of net sales) in 2018[159](index=159&type=chunk) [Royalty Expense](index=38&type=section&id=Royalty%20Expense) This section analyzes the royalty expenses incurred for the three and six months ended June 30, 2019 - Royalty expenses for Q2 2019 were **$2.4 million** (**0.6%** of net sales), down from **$2.6 million** (**0.6%** of net sales) in Q2 2018[161](index=161&type=chunk) - For the six months, royalty expenses were **$5.1 million** (**0.6%** of net sales), down from **$5.3 million** (**0.6%** of net sales) in 2018[161](index=161&type=chunk) [Income (Loss) from Operations](index=39&type=section&id=Income%20%28Loss%29%20from%20Operations) This section analyzes the income or loss from operations for the three and six months ended June 30, 2019 - Loss from operations for Q2 2019 was **$(2.4) million**, a significant decline from **income of $19.0 million** for Q2 2018[163](index=163&type=chunk) - Income from operations for the six months ended June 30, 2019, was **$1.7 million**, down from **$38.3 million** for the six months ended June 30, 2018[163](index=163&type=chunk) [OTHER PROFIT/LOSS ITEMS](index=39&type=section&id=OTHER%20PROFIT/LOSS%20ITEMS) This section analyzes other profit and loss items, including interest expense, foreign exchange, other income, and income taxes [Interest Expense](index=39&type=section&id=Interest%20Expense) This section analyzes the changes in interest expense for the three and six months ended June 30, 2019 - Interest expense increased to **$8.3 million** for Q2 2019 from **$7.7 million** in Q2 2018, and to **$16.2 million** for the six months from **$15.2 million** in 2018[164](index=164&type=chunk) - The increase was primarily due to increased borrowings under Titan's revolving credit facility and increases in borrowing rates[164](index=164&type=chunk) [Foreign Exchange Gain (Loss)](index=39&type=section&id=Foreign%20Exchange%20Gain%20%28Loss%29) This section analyzes the foreign exchange gains or losses for the three and six months ended June 30, 2019 - Foreign exchange loss was **$(1.2) million** for Q2 2019, an improvement from a **loss of $(3.6) million** for Q2 2018[165](index=165&type=chunk) - For the six months, a foreign exchange **gain of $4.5 million** was recorded in 2019, reversing a **loss of $(8.0) million** in 2018[165](index=165&type=chunk) [Other Income](index=39&type=section&id=Other%20Income) This section analyzes the changes in other income for the three and six months ended June 30, 2019 - Other income decreased to **$2.1 million** for Q2 2019 from **$2.5 million** in Q2 2018, mainly due to lower equity investment income[166](index=166&type=chunk) - For the six months, other income decreased significantly to **$3.1 million** from **$10.2 million** in 2018, primarily due to a non-recurring legal settlement in 2018 and lower equity investment income[167](index=167&type=chunk) [Provision (Benefit) for Income Taxes](index=39&type=section&id=Provision%20%28Benefit%29%20for%20Income%20Taxes) This section analyzes the income tax provision or benefit and effective tax rates for the periods presented - The Company recorded an income tax **benefit of $3.2 million** for Q2 2019 (effective rate **33%**) compared to an **expense of $1.7 million** (effective rate **17%**) in Q2 2018[168](index=168&type=chunk) - For the six months, an income tax **benefit of $1.3 million** (effective rate **19%**) was recorded in 2019 compared to an **expense of $0.9 million** (effective rate **4%**) in 2018[168](index=168&type=chunk) - Tax rate differences are attributed to valuation allowances on deferred tax assets from projected losses, reduction of unrecognized tax positions, non-deductible royalty expenses, and statutory income adjustments in foreign jurisdictions[169](index=169&type=chunk) [Net Income (Loss) and Earnings (Loss) per Share](index=39&type=section&id=Net%20Income%20%28Loss%29%20and%20Earnings%20%28Loss%29%20per%20Share) This section analyzes the net income or loss and basic and diluted earnings per share for the periods presented - Net loss for Q2 2019 was **$(6.7) million**, compared to **net income of $8.5 million** in Q2 2018. Basic and diluted EPS was **$(0.12)** for Q2 2019, down from **$0.06** in Q2 2018[170](index=170&type=chunk) - Net loss for the six months ended June 30, 2019, was **$(5.7) million**, compared to **net income of $24.4 million** in 2018. Basic and diluted EPS was **$(0.10)** for the six months, down from **$0.32** in 2018[171](index=171&type=chunk) [SEGMENT INFORMATION](index=40&type=section&id=SEGMENT%20INFORMATION) This section provides a detailed analysis of the financial results for each of the company's operating segments [Agricultural Segment Results](index=40&type=section&id=Agricultural%20Segment%20Results) This section analyzes the net sales, gross profit, and income from operations for the Agricultural segment **Agricultural Segment Results (Amounts in thousands)** | Metric | Q2 2019 (Thousands) | Q2 2018 (Thousands) | 6M 2019 (Thousands) | 6M 2018 (Thousands) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Net sales | $164,284 | $186,870 | $356,014 | $381,037 | | Gross profit | $14,247 | $27,270 | $36,372 | $57,231 | | Income from operations | $4,365 | $19,002 | $18,293 | $40,323 | - Net sales decreased by **12.1% to $164.3 million** in Q2 2019 (**6.5%** volume, **3.6%** currency, **2.0%** price/mix) and by **6.6% to $356.0 million** for the six months (**4.4%** volume, **4.7%** currency, offset by **2.5%** price/mix)[176](index=176&type=chunk)[178](index=178&type=chunk) - Gross profit decreased by **47.8% to $14.2 million** in Q2 2019 and by **36.4% to $36.4 million** for the six months, primarily due to lower sales volume, adverse weather, and unfavorable currency translation[177](index=177&type=chunk)[179](index=179&type=chunk) [Earthmoving/Construction Segment Results](index=41&type=section&id=Earthmoving/Construction%20Segment%20Results) This section analyzes the net sales, gross profit, and income from operations for the Earthmoving/Construction segment **Earthmoving/Construction Segment Results (Amounts in thousands)** | Metric | Q2 2019 (Thousands) | Q2 2018 (Thousands) | 6M 2019 (Thousands) | 6M 2018 (Thousands) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Net sales | $184,782 | $198,963 | $361,527 | $387,696 | | Gross profit | $19,701 | $24,260 | $37,871 | $46,722 | | Income from operations | $5,697 | $11,575 | $11,225 | $21,528 | - Net sales decreased by **7.1% to $184.8 million** in Q2 2019 (**3.0%** volume, **4.0%** currency, **0.1%** price mix) and by **6.7% to $361.5 million** for the six months (**3.5%** volume, **4.7%** currency, offset by **1.5%** price/mix)[180](index=180&type=chunk)[183](index=183&type=chunk) - Gross profit decreased by **18.8% to $19.7 million** in Q2 2019 and by **18.9% to $37.9 million** for the six months, mainly due to lower sales volume, production inefficiencies, and unfavorable foreign currency translation[181](index=181&type=chunk)[184](index=184&type=chunk) [Consumer Segment Results](index=42&type=section&id=Consumer%20Segment%20Results) This section analyzes the net sales, gross profit, and income from operations for the Consumer segment **Consumer Segment Results (Amounts in thousands)** | Metric | Q2 2019 (Thousands) | Q2 2018 (Thousands) | 6M 2019 (Thousands) | 6M 2018 (Thousands) | | :-------------------- | :----------- | :----------- | :----------- | :----------- | | Net sales | $41,531 | $43,071 | $83,430 | $85,553 | | Gross profit | $4,360 | $6,782 | $9,329 | $13,920 | | Income from operations | $1,228 | $3,651 | $3,349 | $7,598 | - Net sales decreased by **3.6% to $41.5 million** in Q2 2019 (**4.2%** currency, **1.0%** volume, offset by **1.6%** price/mix) and by **2.5% to $83.4 million** for the six months (**6.1%** currency, **3.0%** volume, offset by **6.6%** price/mix)[185](index=185&type=chunk)[187](index=187&type=chunk) - Gross profit decreased by **35.7% to $4.4 million** in Q2 2019 and by **33.0% to $9.3 million** for the six months, primarily due to the mix of products sold[186](index=186&type=chunk)[188](index=188&type=chunk) [Corporate & Unallocated Expenses](index=42&type=section&id=Corporate%20%26%20Unallocated%20Expenses) This section details corporate and unallocated expenses for the three and six months ended June 30, 2019 and 2018 - Corporate expenses were **$13.7 million** for Q2 2019 and **$31.2 million** for the six months ended June 30, 2019, compared to **$15.3 million** and **$31.1 million** for the comparable periods in 2018, respectively[189](index=189&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=43&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's cash flows, debt, and overall liquidity position and outlook [Cash Flows](index=43&type=section&id=Cash%20Flows) This section provides an overview of the company's cash and cash equivalents as of June 30, 2019 - As of June 30, 2019, the Company had **$66.4 million** of cash, a decrease of **$15.3 million** from December 31, 2018[192](index=192&type=chunk) [Operating Cash Flows](index=43&type=section&id=Operating%20Cash%20Flows) This section analyzes the net cash flows from operating activities for the six months ended June 30, 2019 and 2018 **Summary of Cash Flows from Operating Activities (Amounts in thousands)** | Metric | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | Change (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net (loss) income | $(5,670) | $24,444 | $(30,114) | | Accounts receivable | $(27,193) | $(70,633) | $43,440 | | Inventories | $14,258 | $(47,612) | $61,870 | | Cash used for operating activities | $(10,001) | $(29,927) | $19,926 | - Net cash used for operating activities was **$(10.0) million** for the six months ended June 30, 2019, an improvement of **$19.9 million** compared to **$(29.9) million** in 2018[193](index=193&type=chunk) - This improvement was driven by increased cash flows from inventories (**$61.9 million**) and accounts receivable (**$43.4 million**), despite a decrease in net income[193](index=193&type=chunk) [Investing Cash Flows](index=44&type=section&id=Investing%20Cash%20Flows) This section analyzes the net cash flows from investing activities for the six months ended June 30, 2019 and 2018 **Summary of Cash Flows from Investing Activities (Amounts in thousands)** | Metric | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | Change (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Capital expenditures | $(16,725) | $(18,416) | $1,691 | | Payments related to redeemable noncontrolling interest | $(41,000) | — | $(41,000) | | Cash used for investing activities | $(56,490) | $(17,532) | $(38,958) | - Net cash used for investing activities increased to **$(56.5) million** for the six months ended June 30, 2019, from **$(17.5) million** in 2018, primarily due to a **$41.0 million** payment related to redeemable noncontrolling interest[196](index=196&type=chunk) - Capital expenditures decreased slightly to **$16.7 million** in 2019 from **$18.4 million** in 2018[196](index=196&type=chunk) [Financing Cash Flows](index=44&type=section&id=Financing%20Cash%20Flows) This section analyzes the net cash flows from financing activities for the six months ended June 30, 2019 and 2018 **Summary of Cash Flows from Financing Activities (Amounts in thousands)** | Metric | Six months ended June 30, 2019 (Thousands) | Six months ended June 30, 2018 (Thousands) | Change (Thousands) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Proceeds from borrowings | $92,723 | $40,078 | $52,645 | | Payment on debt | $(42,083) | $(24,527) | $(17,556) | | Cash provided by financing activities | $50,041 | $14,953 | $35,088 | - Net cash provided by financing activities increased to **$50.0 million** for the six months ended June 30, 2019, from **$15.0 million** in 2018, driven by **$92.7 million** in proceeds from borrowings, partially offset by **$42.1 million** in debt payments[197](index=197&type=chunk) [Debt Restrictions](index=44&type=section&id=Debt%20Restrictions) This section outlines the various restrictions and covenants associated with the company's credit facility and senior secured notes - The Company's credit facility and senior secured notes indenture contain various restrictions, including a minimum fixed charge coverage ratio (**1.0 to 1.0**) if availability falls below **10%** of total commitment (**$12.5 million**)[198](index=198&type=chunk)[200](index=200&type=chunk) - Other restrictions include limits on dividends, stock repurchases, additional borrowings, investments, dispositions of assets, and guarantees of indebtedness[200](index=200&type=chunk) [Liquidity Outlook](index=45&type=section&id=Liquidity%20Outlook) This section provides the company's outlook on its liquidity, including available cash, credit facilities, and future capital needs - As of June 30, 2019, the Company had **$66.4 million** in cash and cash equivalents, with **$57.3 million** available under its **$125 million** revolving credit facility[202](index=202&type=chunk) - Total capital expenditures for 2019 are forecasted at approximately **$40 million**, and cash payments for interest are forecasted at **$20 million** for the latter half of 2019[203](index=203&type=chunk) - The Company expects current cash, internal cash flows from operations, and utilization of remaining available borrowings to provide sufficient liquidity for working capital needs, debt maturities, and capital expenditures[207](index=207&type=chunk) [CRITICAL ACCOUNTING ESTIMATES](index=45&type=section&id=CRITICAL%20ACCOUNTING%20ESTIMATES) This section states that there were no material changes to critical accounting estimates since the 2018 Form 10-K filing - There were no material changes in the Company's Critical Accounting Estimates since the filing of the 2018 Form 10-K[208](index=208&type=chunk) - The preparation of consolidated financial statements requires management to make estimates, assumptions, and judgments that affect reported amounts, and actual results may differ[208](index=208&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=46&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the disclosures about market risk provided in the Company's 2018 Form 10-K, indicating no material changes since that filing - There have been no material changes in quantitative and qualitative disclosures about market risk since the 2018 Form 10-K[211](index=211&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This section evaluates the effectiveness of the company's disclosure controls and internal control over financial reporting, noting inherent limitations [Evaluation of Disclosure Controls and Procedures](index=46&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section concludes on the effectiveness of the company's disclosure controls and procedures as of June 30, 2019 - As of June 30, 2019, management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures were effective[212](index=212&type=chunk) - These controls provide reasonable assurance that information required to be disclosed is accurately recorded, processed, summarized, and reported in a timely manner[212](index=212&type=chunk) [Changes in Internal Controls](index=46&type=section&id=Changes%20in%20Internal%20Controls) This section states that there were no material changes in internal control over financial reporting during Q2 2019 - There were no changes in internal control over financial reporting that occurred during the second quarter of fiscal 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[213](index=213&type=chunk) [Inherent Limitations on the Effectiveness of Controls](index=46&type=section&id=Inherent%20Limitations%20on%20the%20Effectiveness%20of%20Controls) This section acknowledges the inherent limitations of control systems, which may not prevent or detect all misstatements or fraud - The Company's disclosure controls and procedures or internal control over financial reporting have inherent limitations and may not prevent or detect all misstatements or fraud[214](index=214&type=chunk) - Control systems provide only reasonable, not absolute, assurance, and can be circumvented by individual acts, collusion of two or more people, or by management override of the controls[214](index=214&type=chunk)[215](index=215&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=Part%20II.%20Other%20Information) This section covers other information, including legal proceedings, risk factors, exhibits, and signatures [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This section notes the company's routine legal proceedings and claims, with further details provided in Note 17 - 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[218](index=218&type=chunk) - Further discussion on legal proceedings is provided in Note 17 - Litigation in Part I, Item 1, Notes to Condensed Consolidated Financial Statements[218](index=218&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section indicates that there have been no material changes to the risk factors previously disclosed in the Company's 2018 Form 10-K - There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors to the 2018 Form 10-K[219](index=219&type=chunk) [Item 6. Exhibits](index=47&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Form 10-Q, including certifications, XBRL taxonomy documents, and amendments to agreements - Includes certifications of the Principal Executive Officer (**31.1**) and Principal Financial Officer (**31.2**) pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, and a certification pursuant to Section 906 (**32**)[222](index=222&type=chunk) - Lists XBRL Taxonomy Extension Schema, Calculation, Definition, Label, and Presentation Linkbase Documents (**101.SCH**, **101.CAL**, **101.DEF**, **101.LAB**, and **101.PRE**)[222](index=222&type=chunk) - References a Second Amendment to Credit and Security Agreement dated May 17, 2019[222](index=222&type=chunk) [Signatures](index=48&type=section&id=Signatures) This section contains the signatures of the President and Chief Executive Officer and the Senior Vice President and Chief Financial Officer, certifying the filing of the report - The report was signed on July 31, 2019, by Paul G. Reitz (President and Chief Executive Officer) and David A. Martin (SVP and Chief Financial Officer)[226](index=226&type=chunk)