Titan International(TWI) - 2020 Q2 - Quarterly Report

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) 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 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 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 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 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] - 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] Condensed Consolidated Statements of Cash Flows 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 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 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][22] - The Board of Directors unanimously approved the suspension of the Company's quarterly common stock dividend until further notice on June 11, 2020[24] - 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][28] 2. Accounts Receivable 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 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 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] - 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] 5. Intangible Assets, Net 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 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 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] 8. Redeemable Noncontrolling Interest 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] - 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] | (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 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 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 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][66] - 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] | 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 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] - 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] 13. Royalty Expense 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 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 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] - 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] 16. Earnings Per Share 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 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] - 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][89] 18. Segment Information 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 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] - 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] 20. Accumulated Other Comprehensive Loss 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] 21. Subsidiary Guarantor Financial Information 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][100][101][102][103][104][105][106][107][108][109][110][111][112][113][114] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][118] Forward-Looking Statements 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][121] - 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][124] 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] - 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] Market Conditions and Outlook 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] - 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] - 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] - 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] Results of Operations This section analyzes financial performance, including net sales, gross profit, and operating results across various periods Net Sales 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][140] - 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][140] Gross Profit 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][142] - 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][142] Selling, General and Administrative Expenses 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][144] Research and Development Expenses 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] Royalty Expense 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][148] (Loss) Income from Operations 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] Other Profit/Loss Items This section covers interest expense, foreign exchange gains/losses, and other non-operating income and expenses Interest Expense 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] Foreign Exchange Gain (Loss) 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] - 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] Other (Loss) Income 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] - 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] Provision (Benefit) for Income Taxes 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] - 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][155] Net Loss and Loss per Share 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] - 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] Segment Information This section provides detailed financial results for agricultural, earthmoving/construction, and consumer segments Agricultural Segment Results 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][165] - 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][164] Earthmoving/Construction Segment Results 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][171] - 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][172] Consumer Segment Results 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][176] - 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][177] Corporate & Unallocated Expenses 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] Liquidity and Capital Resources This section discusses cash flows, debt restrictions, and overall liquidity outlook, including capital expenditure plans Cash Flows This section provides an overview of cash generated or used in operating, investing, and financing activities Operating Cash Flows 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][182] | 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 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] - 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] Financing Cash Flows 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] Debt Restrictions 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] Liquidity Outlook 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] - 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][192] - 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] Critical Accounting Estimates 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] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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 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] Changes in Internal Controls 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] Inherent Limitations on the Effectiveness of Controls 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][200] 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 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] Item 1A. Risk Factors 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][206] - 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] - The COVID-19 pandemic may also heighten many of the other risks previously described in the 2019 Form 10-K[207] Item 6. Exhibits 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