TITAN INTERNATIONAL INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarterly Period Ended:
March 31, 2017
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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Commission file number 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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36-3228472
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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2701 Spruce Street, Quincy, IL 62301
(Address of principal executive offices, including Zip Code)
(217) 228-6011
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
þ
No
o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
¨
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Accelerated filer
þ
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Emerging growth company
¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
o
No
þ
Indicate the number of shares of Titan International, Inc. outstanding:
59,657,340
shares common stock, $0.0001 par value, as of
April 25, 2017
.
TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
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Page
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TITAN INTERNATIONAL, INC.
(All amounts in thousands, except per share data)
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Three months ended
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March 31,
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2017
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2016
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Net sales
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$
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$
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Cost of sales
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Gross profit
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Selling, general and administrative expenses
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Research and development expenses
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Royalty expense
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Loss from operations
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(
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(
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Interest expense
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(
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(
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Foreign exchange gain
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Other income
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Loss before income taxes
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(
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(
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Provision for income taxes
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Net loss
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(
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(
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Net income attributable to noncontrolling interests
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Net loss attributable to Titan
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(
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(
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Redemption value adjustment
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(
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Net loss applicable to common shareholders
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$
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(
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$
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(
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)
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Earnings per common share:
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Basic
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$
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(
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)
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$
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(
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)
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Diluted
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$
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(
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)
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$
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(
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)
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Average common shares and equivalents outstanding:
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Basic
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Diluted
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Dividends declared per common share:
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$
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$
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See accompanying Notes to Consolidated Condensed Financial Statements.
1
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
(All amounts in thousands)
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Three months ended
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March 31,
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2017
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2016
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Net loss
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$
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(
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)
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$
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(
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)
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Currency translation adjustment
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Pension liability adjustments, net of tax of $(14) and $(171), respectively
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Comprehensive income
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Net comprehensive income attributable to redeemable and noncontrolling interests
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Comprehensive income (loss) attributable to Titan
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$
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(
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)
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$
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See accompanying Notes to Consolidated Condensed Financial Statements.
2
TITAN INTERNATIONAL, INC.
(All amounts in thousands, except share data)
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March 31, 2017
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December 31, 2016
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(unaudited)
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Assets
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Current assets
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Cash and cash equivalents
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$
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$
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Certificates of deposit
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Accounts receivable, net
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Inventories
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Prepaid and other current assets
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Total current assets
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Property, plant and equipment, net
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Deferred income taxes
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Other assets
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Total assets
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$
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$
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Liabilities
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Current liabilities
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Short-term debt
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$
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$
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Accounts payable
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Other current liabilities
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Total current liabilities
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Long-term debt
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Deferred income taxes
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Other long-term liabilities
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Total liabilities
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Redeemable noncontrolling interest
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Equity
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Titan shareholders' equity
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Common stock ($0.0001 par value, 120,000,000 shares authorized, 60,715,356 issued, 59,643,711 outstanding)
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Additional paid-in capital
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Retained earnings
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Treasury stock (at cost, 1,071,645 and 1,083,212 shares, respectively)
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(
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(
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Stock reserved for deferred compensation
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(
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(
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Accumulated other comprehensive loss
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(
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(
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Total Titan shareholders’ equity
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Noncontrolling interests
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(
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)
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(
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)
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Total equity
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Total liabilities and equity
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$
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$
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See accompanying Notes to Consolidated Condensed Financial Statements.
3
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
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Number of
common shares
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Additional
paid-in
capital
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Retained earnings
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Treasury stock
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Treasury stock
reserved for
deferred compensation
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Accumulated other comprehensive income (loss)
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Total Titan Equity
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Noncontrolling interest
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Total Equity
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Balance January 1, 2017
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$
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$
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$
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(
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$
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(
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$
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(
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$
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$
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(
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$
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Net income (loss) *
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(
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(
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(
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Currency translation adjustment, net *
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(
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Pension liability adjustments, net of tax
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Dividends declared
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(
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(
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(
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Note conversion
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Redemption value adjustment
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Stock-based compensation
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VIE distributions
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(
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(
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Issuance of treasury stock under 401(k) plan
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Balance March 31, 2017
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$
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$
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$
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(
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)
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$
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(
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)
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$
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(
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)
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$
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$
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(
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$
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* Net income (loss) excludes
$
620
of net gain attributable to redeemable noncontrolling interest. Currency translation adjustment excludes
$
2,337
of currency translation related to redeemable noncontrolling interest.
See accompanying Notes to Consolidated Condensed Financial Statements.
4
TITAN INTERNATIONAL, INC.
(All amounts in thousands)
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Three months ended
March 31,
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Cash flows from operating activities:
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2017
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2016
|
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Net loss
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$
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(
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)
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$
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(
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)
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Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
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Depreciation and amortization
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Deferred income tax provision (benefit)
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(
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Stock-based compensation
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Issuance of treasury stock under 401(k) plan
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Foreign currency translation loss
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(
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)
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(
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)
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(Increase) decrease in assets:
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Accounts receivable
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(
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)
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(
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Inventories
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(
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Prepaid and other current assets
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Other assets
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(
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(
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Increase (decrease) in liabilities:
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Accounts payable
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Other current liabilities
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Other liabilities
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(
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Net cash provided by (used for) operating activities
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(
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Cash flows from investing activities:
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Capital expenditures
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(
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)
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(
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Other
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Net cash used for investing activities
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(
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)
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(
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Cash flows from financing activities:
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Proceeds from borrowings
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Payment on debt
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(
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(
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Dividends paid
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(
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(
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Net cash provided by (used for) financing activities
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(
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Effect of exchange rate changes on cash
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Net decrease in cash and cash equivalents
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(
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)
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(
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)
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Cash and cash equivalents, beginning of period
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Cash and cash equivalents, end of period
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$
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$
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Supplemental information:
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Interest paid
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$
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$
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Income taxes paid, net of refunds received
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$
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$
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Noncash investing and financing information:
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Issuance of common stock for convertible debt payment
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$
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$
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See accompanying Notes to Consolidated Condensed Financial Statements.
5
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
1.
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In the opinion of Titan International, Inc. (Titan or the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments which are normal and recurring and necessary for a fair statement of the Company's financial position as of
March 31, 2017
, and the results of operations and cash flows for
three months
ended
March 31, 2017
and
2016
.
Accounting policies have continued without significant change and are described in Note 1: Description of Business and Significant Accounting Policies contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. These interim financial statements have been prepared pursuant to the Securities and Exchange Commission's rules applicable to Form 10-Q and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.
Inventories are valued at the lower of cost or net realizable value. The Company’s inventories are valued under the first in, first out (FIFO) method or average cost method. Market value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory.
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Three Months Ended March 31, 2016
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As originally reported
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Effect of change
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As adjusted
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Cost of sales
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$
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$
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$
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Loss from operations
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(
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(
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(
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Net Loss
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(
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(
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(
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Basic and diluted loss per share
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$
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(
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)
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$
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(
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$
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(
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)
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The Consolidated Balance Sheet at December 31, 2016, was adjusted as follows:
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December 31, 2016
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As originally reported
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Effect of change
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As adjusted
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Inventories
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$
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$
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$
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Retained Earnings
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6
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Cash dividends
The Company declared cash dividends of
$
0.005
per share of common stock for each of the
three months
ended
March 31, 2017
and
2016
. The
first
quarter 2017 cash dividend of
$
0.005
per share of common stock was paid April 13, 2017, to shareholders of record on March 31, 2017.
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosure about the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update were deferred by ASU No. 2015-14, "Revenue form Contracts with Customers (Topic 606) Deferral of Effective Date," and are now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is in the process of comparing its current revenue recognition policies to the requirements of ASU No. 2014-09. For the majority of Titan’s revenue arrangements, no significant impacts are expected as these transactions are not accounted for under industry-specific guidance that will be superseded by ASU No. 2014-09 and generally consist of a single performance obligation to transfer promised goods or services. While the Company has not identified any material differences in the amount and timing of revenue recognition related to ASU No. 2014-09, the evaluation is not complete and Titan has not concluded on the overall impacts of adopting ASU No. 2014-09. The guidance provides for adoption either retrospectively to each prior reporting period or as a cumulative-effect adjustment as of the date of adoption. The Company plans to make a determination as to its method of adoption once it more fully completes its evaluation of the impacts of the standard on its revenue recognition and it is better able to evaluate the cost-benefit of each method. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation, and disclosure upon adoption in the year beginning on January 1, 2018.
In April 2016, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations and Licensing." This ASU clarifies the following aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, "Narrow-Scope Improvements and Practical Expedients." This ASU affects only narrow aspects of Topic 606 related to assessing the collectability criterion; presentation of sales tax; noncash consideration; and contract modifications and completed contracts at transition. The amendments in these updates affect the guidance in ASU No. 2014-09, and the effective dates are the same as those for ASU No. 2014-09.
In December 2016, the FASB issued ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers." The amendments in this update affect narrow aspects of the guidance issued in ASU No. 2014-09, and the effective dates are the same as those for ASU No. 2014-09.
7
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets other than Inventory." This update requires the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company early adopted this guidance effective January 1, 2017. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
2.
ACCOUNTS RECEIVABLE
|
|
March 31,
2017 |
December 31,
2016 |
|||||
|
Accounts receivable
|
$
|
|
|
$
|
|
|
|
|
Allowance for doubtful accounts
|
(
|
)
|
(
|
)
|
|||
|
Accounts receivable, net
|
$
|
|
|
$
|
|
|
|
8
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
3.
INVENTORIES
|
|
March 31,
2017 |
December 31,
2016 |
|||||
|
Raw material
|
$
|
|
|
$
|
|
|
|
|
Work-in-process
|
|
|
|
|
|||
|
Finished goods
|
|
|
|
|
|||
|
|
$
|
|
|
$
|
|
|
|
4.
PROPERTY, PLANT AND EQUIPMENT
|
|
March 31,
2017 |
December 31,
2016 |
|||||
|
Land and improvements
|
$
|
|
|
$
|
|
|
|
|
Buildings and improvements
|
|
|
|
|
|||
|
Machinery and equipment
|
|
|
|
|
|||
|
Tools, dies and molds
|
|
|
|
|
|||
|
Construction-in-process
|
|
|
|
|
|||
|
|
|
|
|
|
|||
|
Less accumulated depreciation
|
(
|
)
|
(
|
)
|
|||
|
|
$
|
|
|
$
|
|
|
|
Depreciation on fixed assets for the
three months ended
March 31, 2017
and
2016
, totaled
$
13.5
million
and
$
14.2
million
, respectively.
Capital leases included in property, plant, and equipment consisted of the following as of the dates set forth below (amounts in thousands):
|
|
March 31,
2017 |
December 31,
2016 |
|||||
|
Buildings and improvements
|
$
|
|
|
$
|
|
|
|
|
Less accumulated amortization
|
(
|
)
|
(
|
)
|
|||
|
$
|
|
|
$
|
|
|
||
|
Machinery and equipment
|
$
|
|
|
$
|
|
|
|
|
Less accumulated amortization
|
(
|
)
|
(
|
)
|
|||
|
$
|
|
|
$
|
|
|
||
9
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
5.
INTANGIBLE ASSETS
|
Weighted Average Useful Lives (in Years) March 31, 2017
|
March 31,
2017 |
December 31,
2016 |
|||||||
|
Amortizable intangible assets:
|
|||||||||
|
Customer relationships
|
|
$
|
|
|
$
|
|
|
||
|
Patents, trademarks and other
|
|
|
|
|
|
||||
|
Total at cost
|
|
|
|
|
|||||
|
Less accumulated amortization
|
(
|
)
|
(
|
)
|
|||||
|
$
|
|
|
$
|
|
|
||||
Amortization related to intangible assets for the
three months ended
March 31, 2017
and
2016
, totaled
$
0.7
million
and
$
0.7
million
, respectively. Intangible assets are included as a component of other assets in the Consolidated Condensed Balance Sheet.
|
April 1 - December 31, 2017
|
$
|
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
|
$
|
|
|
6.
WARRANTY
|
|
2017
|
2016
|
|||||
|
Warranty liability, January 1
|
$
|
|
|
$
|
|
|
|
|
Provision for warranty liabilities
|
|
|
|
|
|||
|
Warranty payments made
|
(
|
)
|
(
|
)
|
|||
|
Warranty liability, March 31
|
$
|
|
|
$
|
|
|
|
10
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
March 31, 2017
|
|||||||||||
|
Principal Balance
|
Unamortized Discount
|
Net Carrying Amount
|
|||||||||
|
6.875% senior secured notes due 2020
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||
|
Titan Europe credit facilities
|
|
|
|
|
|
|
|||||
|
Other debt
|
|
|
|
|
|
|
|||||
|
Capital leases
|
|
|
|
|
|
|
|||||
|
Total debt
|
|
|
(
|
)
|
|
|
|||||
|
Less amounts due within one year
|
|
|
|
|
|
|
|||||
|
Total long-term debt
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||
|
December 31, 2016
|
|||||||||||
|
Principal Balance
|
Unamortized Discount
|
Net Carrying Amount
|
|||||||||
|
6.875% senior secured notes due 2020
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||
|
5.625% convertible senior subordinated notes due 2017
|
|
|
(
|
)
|
|
|
|||||
|
Titan Europe credit facilities
|
|
|
|
|
|
|
|||||
|
Other debt
|
|
|
|
|
|
|
|||||
|
Capital leases
|
|
|
|
|
|
|
|||||
|
Total debt
|
|
|
(
|
)
|
|
|
|||||
|
Less amounts due within one year
|
|
|
(
|
)
|
|
|
|||||
|
Total long-term debt
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||
|
April 1 - December 31, 2017
|
$
|
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
|
$
|
|
|
6.875% senior secured notes due 2020
The senior secured notes are due October 2020. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois.
11
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
5.625% convertible senior subordinated notes due 2017
In January 2017, the Company converted
97.1%
of the principal balance of its
5.625
%
convertible senior subordinated notes (Notes), which matured on January 15, 2017, into shares of Titan common stock. Prior to maturity,
$
60.2
million
in aggregate principal amount of the Notes was outstanding, of which holders of
$
58.5
million
in aggregate principal amount of the Notes, or
97.1%
, converted their Notes into shares of Titan common stock pursuant to the terms of the indenture governing the Notes. The
$
58.5
million
in principal amount of converted Notes were converted into
5,462,264
shares of Titan common stock, representing approximately
10%
of Titan’s outstanding common stock prior to conversion. Each
$
1,000
principal amount of the Notes was convertible into
93.436
shares of Titan common stock. The remaining
$
1.7
million
principal amount of the Notes that was not converted was paid in cash at maturity.
Titan Europe credit facilities
The Titan Europe credit facilities contain borrowings from various institutions totaling
$
35.9
million
at
March 31, 2017
. Maturity dates on this debt range from less than one year to nine years and interest rates range from
5
%
to
6.9
%
. The Titan Europe facilities are secured by the assets of its subsidiaries in Italy, Spain, Germany, and Brazil.
Revolving credit facility
On February 17, 2017, the Company entered into a credit and security agreement with respect to a new
$
75
million
revolving credit facility (credit facility) with agent BMO Harris Bank N.A. and other financial institutions party thereto. This credit facility replaced the Company's
$
150
million
revolving credit facility which was previously scheduled to terminate in December 2017. The credit facility is collateralized by accounts receivable and inventory of certain of the Company’s domestic subsidiaries and includes a maturity of the earlier of five years or six months prior to maturity of the Company’s senior secured notes. Titan's availability under this credit facility may be less than
$
75
million
as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At
March 31, 2017
, an outstanding letter of credit under the credit facility totaled
$
11.6
million
and the amount available under the facility totaled
$
63.4
million
based upon eligible accounts receivable and inventory balances. During the first three months of 2017 and at
March 31, 2017
, there were no borrowings under the credit facility.
Other debt
Titan Pneus do Brasil Ltda has working capital loans for the Sao Paulo, Brazil, manufacturing facility totaling
$
8.1
million
at
March 31, 2017
. Maturity dates on this debt range from less than one year to two years and interest rates range from
5.5
%
to
8
%
.
Voltyre-Prom had working capital loans totaling
$
15.1
million
at
March 31, 2017
. Maturity dates on this debt range from less
8.
DERIVATIVE FINANCIAL INSTRUMENTS
12
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
9.
REDEEMABLE NONCONTROLLING INTEREST
The Company, in partnership with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF), owns all of the equity interests in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. The Company is party to a shareholders' agreement with OEP and RDIF which was entered into in connection with acquisition of Voltyre-Prom. The agreement contains a settlement put option which is exercisable beginning in July 2018 through December of 2018 and may require Titan to purchase the indirect equity interests in Voltyre-Prom of OEP and RDIF with cash or Titan common stock, at a value set by the agreement. The value set by the agreement is the greater of: (i) the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%; or (ii) the last twelve months of EBITDA times 5.5 less net debt times the ownership percentage. The value of the redeemable noncontrolling interest held by OEP and RDIF has been recorded at the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%, which was greater than the result of the calculation in clause (ii) above at March 31, 2017.
The redemption features of the settlement put option are not solely within the Company’s control and the noncontrolling interest is presented as redeemable noncontrolling interest separately from total equity in the Consolidated Condensed Balance Sheet at the redemption value of the settlement put option. If the redemption value is greater than the carrying value of the noncontrolling interest, the increase in the redemption value is adjusted directly to retained earnings of the affected entity, or additional paid-in capital if there are no available retained earnings applicable to the redeemable noncontrolling interest.
In the first quarter of 2016, the Company acquired
$
25
million
of additional shares in the consortium owning Voltyre-Prom, increasing Titan's ownership to
43
%
from
30
%
. The acquisition of shares was transacted through the conversion of an intercompany note previously held by Titan. As a result of the ownership change, the balance of the redeemable noncontrolling interest increased by
$
12
million
at the time of such conversion of the intercompany note, which is comprised of a
$
3.5
million
reclassification of currency translation and an
$
8.5
million
reclassification of other equity.
|
2017
|
2016
|
||||||
|
Balance at January 1
|
$
|
|
|
$
|
|
|
|
|
Reclassification as a result of ownership change
|
|
|
|
|
|||
|
Income attributable to redeemable noncontrolling interest
|
|
|
|
|
|||
|
Currency translation
|
|
|
|
|
|||
|
Redemption value adjustment
|
(
|
)
|
|
|
|||
|
Balance at March 31
|
$
|
|
|
$
|
|
|
|
13
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
10.
LEASE COMMITMENTS
The Company leases certain buildings and equipment under operating leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance, and insurance by the Company.
|
April 1 - December 31, 2017
|
$
|
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Thereafter
|
|
|
|
|
Total future minimum lease payments
|
$
|
|
|
|
April 1 - December 31, 2017
|
$
|
|
|
|
2018
|
|
|
|
|
2019
|
|
|
|
|
2020
|
|
|
|
|
2021
|
|
|
|
|
Total future capital lease obligation payments
|
|
|
|
|
Less amount representing interest
|
(
|
)
|
|
|
Present value of future capital lease obligation payments
|
$
|
|
|
11.
EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately
$
0.5
million
to the pension plans during the
three months ended
March 31, 2017
, and expects to contribute approximately
$
2.7
million
to the pension plans during the remainder of 2017.
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
2017
|
2016
|
||||||
|
Service cost
|
$
|
|
|
$
|
|
|
|
|
Interest cost
|
|
|
|
|
|||
|
Expected return on assets
|
(
|
)
|
(
|
)
|
|||
|
Amortization of unrecognized prior service cost
|
|
|
|
|
|||
|
Amortization of net unrecognized loss
|
|
|
|
|
|||
|
Net periodic pension cost
|
$
|
|
|
$
|
|
|
|
14
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
12.
VARIABLE INTEREST ENTITIES
The Company holds a variable interest in three joint ventures for which the Company is the primary beneficiary. Two of the joint ventures operate distribution facilities which primarily distribute mining products. One of these facilities is located in Canada and the other is located in Australia. The Company’s variable interest in these joint ventures relates to sales of Titan product to these entities, consigned inventory, and working capital loans. The third joint venture is the consortium which owns Voltyre-Prom. (See Note 9 for additional information.) Titan is acting as operating partner with responsibility for Voltyre-Prom’s daily operations. The Company has also provided working capital loans to Voltyre-Prom.
As the primary beneficiary of these variable interest entities (VIEs), the entities’ assets, liabilities, and results of operations are included in the Company’s consolidated financial statements. The other equity holders’ interests are reflected in “Net income attributable to noncontrolling interests” in the Consolidated Condensed Statements of Operations and “Noncontrolling interests” in the Consolidated Condensed Balance Sheets.
|
|
March 31,
2017 |
December 31, 2016
|
|||||
|
Cash and cash equivalents
|
$
|
|
|
$
|
|
|
|
|
Inventory
|
|
|
|
|
|||
|
Other current assets
|
|
|
|
|
|||
|
Property, plant and equipment, net
|
|
|
|
|
|||
|
Other noncurrent assets
|
|
|
|
|
|||
|
Total assets
|
$
|
|
|
$
|
|
|
|
|
Current liabilities
|
$
|
|
|
$
|
|
|
|
|
Noncurrent liabilities
|
|
|
|
|
|||
|
Total liabilities
|
$
|
|
|
$
|
|
|
|
All assets in the above table can only be used to settle obligations of the consolidated VIE to which the respective assets relate. Liabilities are nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.
The Company holds a variable interest in certain VIEs which are not consolidated because Titan is not the primary beneficiary. The Company's involvement with these entities is in the form of direct equity interests and prepayments and purchases of materials. The maximum exposure to loss represents the loss of assets recognized by Titan relating to non-consolidated entities and amounts due to the non-consolidated assets. The assets and liabilities recognized in Titan's Consolidated Balance Sheets related to Titan's interest in these non-consolidated VIEs and the Company's maximum exposure to loss relating to non-consolidated VIEs as of the dates set forth below were as follows (amounts in thousands):
|
|
March 31,
2017 |
December 31, 2016
|
|||||
|
Investments
|
$
|
|
|
$
|
|
|
|
|
Other current assets
|
|
|
|
|
|||
|
Total VIE assets
|
|
|
|
|
|||
|
Accounts payable
|
|
|
|
|
|||
|
Maximum exposure to loss
|
$
|
|
|
$
|
|
|
|
15
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
13.
ROYALTY EXPENSE
14.
OTHER INCOME
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2017
|
2016
|
|||||
|
Interest income
|
$
|
|
|
$
|
|
|
|
|
Investment gain (loss) related to investments for deferred compensation
|
|
|
(
|
)
|
|||
|
Wheels India Limited equity income
|
|
|
|
|
|||
|
Building rental income
|
|
|
|
|
|||
|
Discount amortization on prepaid royalty
|
|
|
|
|
|||
|
Gain (loss) on sale of assets
|
(
|
)
|
|
|
|||
|
Other income (expense)
|
(
|
)
|
|
|
|||
|
|
$
|
|
|
$
|
|
|
|
15.
INCOME TAXES
The Company recorded income tax expense of
$
3.4
million
and
$
1.0
million
for the quarters ended
March 31, 2017
and
2016
, respectively. The Company's effective income tax rate was
(
48
)%
and
(
9
)%
for the
three months ended
March 31, 2017
and
2016
, respectively.
The Company’s 2017 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses. In addition, there are non-deductible royalty expenses and statutory required income adjustments made in certain foreign jurisdictions that negatively impacted the tax rate for the period.
The Company’s 2016 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses. In addition, certain profitable foreign jurisdictions have lower statutory rates as compared to the U.S. tax rate.
16
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
16.
EARNINGS PER SHARE
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
2017
|
2016
|
||||||
|
Net loss attributable to Titan
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Redemption value adjustment
|
|
|
(
|
)
|
|||
|
Net loss applicable to common shareholders
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
Determination of shares:
|
|||||||
|
Weighted average shares outstanding (basic and diluted)
|
|
|
|
|
|||
|
Earnings per share:
|
|||||||
|
Basic and diluted
|
(
|
)
|
(
|
)
|
|||
17.
LITIGATION
18.
SEGMENT INFORMATION
The Company has aggregated its operating units into reportable segments based on its three customer markets: agricultural, earthmoving/construction, and consumer. These segments are based on the information used by the chief executive officer to make certain operating decisions, allocate portions of capital expenditures, and assess segment performance. Segment external revenues, expenses, and income from operations are determined on the basis of the results of operations of operating units of manufacturing facilities. Expenses and income from operations are allocated to appropriate segments based on the sales of operating units of manufacturing facilities. Segment assets are generally determined on the basis of the tangible assets located at such operating units’ manufacturing facilities and the intangible assets associated with the acquisitions of such operating units. However, certain operating units’ property, plant and equipment balances are carried at the corporate level. Titan is organized primarily on the basis of products being included in three market segments, with each reportable segment including wheels, tires, wheel/tire assemblies, and undercarriage systems and components.
17
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
T
he table below presents information about certain operating results, separated by market segments for the
three months
ended
March 31, 2017
and
2016
(amounts in thousands):
|
|
Three months ended
|
||||||
|
|
March 31,
|
||||||
|
|
2017
|
2016
|
|||||
|
Revenues from external customers
|
|
|
|||||
|
Agricultural
|
$
|
|
|
$
|
|
|
|
|
Earthmoving/construction
|
|
|
|
|
|||
|
Consumer
|
|
|
|
|
|||
|
|
$
|
|
|
$
|
|
|
|
|
Gross profit
|
|
|
|
|
|||
|
Agricultural
|
$
|
|
|
$
|
|
|
|
|
Earthmoving/construction
|
|
|
|
|
|||
|
Consumer
|
|
|
|
|
|||
|
|
$
|
|
|
$
|
|
|
|
|
Income (loss) from operations
|
|
|
|
|
|||
|
Agricultural
|
$
|
|
|
$
|
|
|
|
|
Earthmoving/construction
|
|
|
(
|
)
|
|||
|
Consumer
|
|
|
(
|
)
|
|||
|
Corporate & Unallocated
|
(
|
)
|
(
|
)
|
|||
|
Loss from operations
|
(
|
)
|
(
|
)
|
|||
|
Interest expense
|
(
|
)
|
(
|
)
|
|||
|
Foreign exchange gain
|
|
|
|
|
|||
|
Other income, net
|
|
|
|
|
|||
|
Loss before income taxes
|
$
|
(
|
)
|
$
|
(
|
)
|
|
|
March 31,
2017 |
December 31,
2016 |
||||||
|
Total assets
|
|
|
|
|
|||
|
Agricultural
|
$
|
|
|
$
|
|
|
|
|
Earthmoving/construction
|
|
|
|
|
|||
|
Consumer
|
|
|
|
|
|||
|
Corporate & Unallocated
|
|
|
|
|
|||
|
|
$
|
|
|
$
|
|
|
|
18
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
19.
FAIR VALUE MEASUREMENTS
Accounting standards for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:
Level 1 – Quoted prices in active markets for identical instruments.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
|
|
March 31, 2017
|
December 31, 2016
|
|||||||||||||||||||||||||||||
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||||||||||||
|
Contractual obligation investments
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Derivative financial instruments asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
|
Total
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||||||
|
Preferred stock
|
|||
|
Balance at December 31, 2016
|
$
|
|
|
|
Total unrealized losses
|
(
|
)
|
|
|
Balance as of March 31, 2017
|
$
|
|
|
20.
RELATED PARTY TRANSACTIONS
The Company sells products and pays commissions to companies controlled by persons related to the Chairman of Board of Directors of the Company, Mr. Maurice Taylor. The related party is Mr. Fred Taylor, who is Mr. Maurice Taylor’s brother. The companies which Mr. Fred Taylor is associated with that do business with Titan include the following: Blackstone OTR, LLC; FBT Enterprises; Green Carbon, INC; Silverstone, Inc.; and OTR Wheel Engineering. Sales of Titan products to these companies were approximately
$
0.5
million
for
three months
ended
March 31, 2017
, as compared to
$
0.3
million
for the
three months
ended
March 31, 2016
. Titan had trade receivables due from these companies of approximately
$
0.4
million
at
March 31, 2017
, and approximately
$
0.1
million
at
December 31, 2016
. Titan had purchases from these companies of approximately
$
0.1
million
for the
three months
ended
March 31, 2017
, as compared to no purchases for the
three months
ended
March 31, 2016
. Sales commissions paid to the above companies were approximately
$
0.4
million
for the
three months
ended
March 31, 2017
, as compared to
$
0.6
million
for the
three months
ended
March 31, 2016
.
19
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
In July 2013, the Company entered into a Shareholders’ Agreement between OEP and RDIF to acquire Voltyre-Prom. Mr. Richard M. Cashin Jr., a director of the Company, is the President of OEP, which owns
21.4
%
of the joint venture. The Shareholder’s Agreement contains a settlement put option which may require the Company to purchase equity interests in the joint venture from OEP and RDIF at a value set by the agreement. See Note 9 for additional information.
The Company has a
34.2
%
equity stake in Wheels India Limited, a company incorporated in India and listed on the National Stock Exchange in India. The Company had trade payables due to Wheels India Limited of approximately
$
0.1
million
at
March 31, 2017
, and approximately
$
0.1
million
at
December 31, 2016
.
The Company has a
19.5
%
equity stake in Titan-Yuxiang Wheel (Liuzhou) Co., Ltd, a company incorporated in China. The Company had trade payables due to Titan-Yuxiang Wheel (Liuzhou) Co., Ltd of approximately
$
1.1
million
at
March 31, 2017
, and approximately
$
0.9
million
at
December 31, 2016
.
21.
ACCUMULATED OTHER COMPREHENSIVE LOSS
|
|
Currency
Translation
Adjustments
|
Unrecognized
Losses and
Prior Service
Cost
|
Total
|
||||||||
|
Balance at January 1, 2017
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Currency translation adjustments
|
|
|
—
|
|
|
|
|||||
|
Defined benefit pension plan entries:
|
|
|
|
|
|
|
|||||
|
Amortization of unrecognized losses and prior
|
|||||||||||
|
service cost, net of tax of $(14)
|
—
|
|
|
|
|
|
|||||
|
Balance at March 31, 2017
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||
22.
SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The senior secured notes are guaranteed by the following wholly-owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. See the indenture incorporated by reference to the Company's most recent Form 10-K for additional information. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales and marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.
20
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Operations
For the Three Months Ended March 31, 2017
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net sales
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Gross profit (loss)
|
(
|
)
|
|
|
|
|
|
|
|
|
|||||||||
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Royalty expense
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Income (loss) from operations
|
(
|
)
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||||
|
Interest expense
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||
|
Intercompany interest income (expense)
|
|
|
|
|
(
|
)
|
|
|
|
|
|||||||||
|
Foreign exchange gain
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other income (loss)
|
|
|
(
|
)
|
|
|
|
|
|
|
|||||||||
|
Income (loss) before income taxes
|
(
|
)
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||||
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Equity in earnings of subsidiaries
|
|
|
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||
|
Net loss
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||||
|
Net income noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net loss attributable to Titan
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Operations
For the Three Months Ended March 31, 2016
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net sales
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Cost of sales
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Gross profit (loss)
|
(
|
)
|
|
|
|
|
|
|
|
|
|||||||||
|
Selling, general and administrative expenses
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Research and development expenses
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Royalty expense
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Loss from operations
|
(
|
)
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
|||||||||
|
Interest expense
|
(
|
)
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||
|
Intercompany interest income (expense)
|
|
|
|
|
(
|
)
|
|
|
|
|
|||||||||
|
Foreign exchange gain (loss)
|
|
|
(
|
)
|
|
|
|
|
|
|
|||||||||
|
Other income
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Income (loss) before income taxes
|
(
|
)
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||||
|
Provision for income taxes
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Equity in earnings of subsidiaries
|
|
|
|
|
(
|
)
|
(
|
)
|
|
|
|||||||||
|
Net income (loss)
|
(
|
)
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
|||||||||
|
Net income noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Net loss attributable to Titan
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
21
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2017
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Currency translation adjustment
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Pension liability adjustments, net of tax
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Comprehensive income (loss)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
|
|||||||||
|
Net comprehensive income attributable to redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Comprehensive income (loss) attributable to Titan
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Comprehensive Income (Loss)
For the Three Months Ended March 31, 2016
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net income (loss)
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||
|
Currency translation adjustment
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Pension liability adjustments, net of tax
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Comprehensive income (loss)
|
|
|
(
|
)
|
|
|
(
|
)
|
|
|
|||||||||
|
Net comprehensive income attributable to redeemable and noncontrolling interests
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Comprehensive income (loss) attributable to Titan
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||||
22
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Balance Sheets
March 31, 2017
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Assets
|
|
|
|
|
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Prepaid and other current assets
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total current assets
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investment in subsidiaries
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total assets
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||||
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Short-term debt
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Intercompany accounts
|
|
|
(
|
)
|
|
|
|
|
|
|
|||||||||
|
Redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Titan shareholders' equity
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Noncontrolling interests
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||
|
Total liabilities and equity
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||||
23
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Balance Sheets
December 31, 2016
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Assets
|
|
|
|
|
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Certificates of deposit
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Accounts receivable, net
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Inventories
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Prepaid and other current assets
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total current assets
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Property, plant and equipment, net
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Investment in subsidiaries
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Other assets
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total assets
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||||
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Short-term debt
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
||||
|
Accounts payable
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other current liabilities
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Total current liabilities
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Intercompany accounts
|
|
|
(
|
)
|
|
|
|
|
|
|
|||||||||
|
Redeemable noncontrolling interest
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Titan shareholders' equity
|
|
|
|
|
|
|
(
|
)
|
|
|
|||||||||
|
Noncontrolling interests
|
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||
|
Total liabilities and equity
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
(
|
)
|
$
|
|
|
||||
24
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Cash Flows
For the Three Months Ended March, 2017
|
||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Consolidated
|
|||||||||||
|
Net cash provided by (used for) operating activities
|
$
|
(
|
)
|
$
|
|
|
$
|
(
|
)
|
$
|
(
|
)
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Capital expenditures
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Other, net
|
|
|
|
|
|
|
|
|
|||||||
|
Net cash used for investing activities
|
(
|
)
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Proceeds from borrowings
|
|
|
|
|
|
|
|
|
|||||||
|
Payment on debt
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
|||||||
|
Dividends paid
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||
|
Net cash provided by (used for) financing activities
|
(
|
)
|
|
|
|
|
|
|
|||||||
|
Effect of exchange rate change on cash
|
|
|
|
|
|
|
|
|
|||||||
|
Net decrease in cash and cash equivalents
|
(
|
)
|
|
|
(
|
)
|
(
|
)
|
|||||||
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|||||||
|
Cash and cash equivalents, end of period
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Cash Flows
For the Three Months Ended March 31, 2016
|
||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Consolidated
|
|||||||||||
|
Net cash provided by (used for) operating activities
|
$
|
(
|
)
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Capital expenditures
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Other, net
|
|
|
|
|
|
|
|
|
|||||||
|
Net cash provided by (used for) investing activities
|
|
|
(
|
)
|
(
|
)
|
(
|
)
|
|||||||
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Proceeds from borrowings
|
|
|
|
|
|
|
|
|
|||||||
|
Payment on debt
|
|
|
|
|
(
|
)
|
(
|
)
|
|||||||
|
Dividends paid
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||
|
Net cash used for financing activities
|
(
|
)
|
|
|
|
|
(
|
)
|
|
(
|
)
|
||||
|
Effect of exchange rate change on cash
|
|
|
|
|
|
|
|
|
|||||||
|
Net increase (decrease) in cash and cash equivalents
|
(
|
)
|
|
|
|
|
(
|
)
|
|||||||
|
Cash and cash equivalents, beginning of period
|
|
|
|
|
|
|
|
|
|||||||
|
Cash and cash equivalents, end of period
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|||
25
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Management's discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of the financial statements included in this quarterly report with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan's financial condition, results of operations, liquidity and other factors which may affect the Company's future results. The MD&A in this quarterly report should be read in conjunction with the condensed consolidated financial statements and other financial information included elsewhere in this quarterly report and the MD&A and audited consolidated financial statements and related notes in Titan's annual report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 15, 2017.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, which are covered by the "Safe Harbor for Forward-Looking Statements" provided by the Private Securities Litigation Reform Act of 1995. Readers can identify these statements by the fact that they do not relate strictly to historical or current facts. The Company tried to identify forward-looking statements in this report by using words such as “anticipates,” “estimates,” “expects,” “intends,” “plans,” and “believes,” and similar expressions or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could.” These forward-looking statements include among other items:
|
•
|
The Company's financial performance;
|
|
•
|
Anticipated trends in the Company’s business;
|
|
•
|
Expectations with respect to the end-user markets into which the Company sells its products (including agricultural equipment, earthmoving/construction equipment, and consumer products);
|
|
•
|
Future expenditures for capital projects;
|
|
•
|
The Company’s ability to continue to control costs and maintain quality;
|
|
•
|
Ability to meet conditions of loan agreements;
|
|
•
|
The Company’s business strategies, including its intention to introduce new products;
|
|
•
|
Expectations concerning the performance and success of the Company’s existing and new products; and
|
|
•
|
The Company’s intention to consider and pursue acquisition and divestiture opportunities.
|
Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s current expectations and assumptions about future events and are subject to a number of risks, uncertainties, and changes in circumstances that are difficult to predict, including, but not limited to, the factors discussed in Item 1A, Risk Factors, of the Company's most recent annual report on Form 10-K, certain of which are beyond the Company’s control.
Actual results could differ materially from these forward-looking statements as a result of certain factors, including:
|
•
|
The effect of a recession on the Company and its customers and suppliers;
|
|
•
|
Changes in the Company’s end-user markets into which the Company sells its products as a result of world economic or regulatory influences or otherwise;
|
|
•
|
Changes in the marketplace, including new products and pricing changes by the Company’s competitors;
|
|
•
|
Ability to maintain satisfactory labor relations;
|
|
•
|
Unfavorable outcomes of legal proceedings;
|
|
•
|
The Company's ability to comply with current or future regulations applicable to the Company's business and the industry in which it competes or any actions by regulatory authorities;
|
|
•
|
Availability and price of raw materials;
|
|
•
|
Levels of operating efficiencies;
|
|
•
|
The effects of the Company's indebtedness and its compliance with the terms thereof;
|
|
•
|
Changes in the interest rate environment and their effects on the Company's outstanding indebtedness;
|
26
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
|
•
|
Unfavorable product liability and warranty claims;
|
|
•
|
Actions of domestic and foreign governments;
|
|
•
|
Geopolitical and economic uncertainties relating to the countries the Company operates or does business in;
|
|
•
|
Risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses:
|
|
•
|
Results of investments;
|
|
•
|
The effects of previously announced processes to explore various strategic transactions, including potential dispositions;
|
|
•
|
Fluctuations in currency translations;
|
|
•
|
Climate change and related laws and regulations;
|
|
•
|
Risks associated with environmental laws and regulations; and
|
|
•
|
Risks related to financial reporting, internal controls, tax accounting, and information systems.
|
Any changes in such factors could lead to significantly different results. Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements. Forward-looking statements included in this report speak only as of the date of this report. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information and assumptions contained in this report will in fact transpire. The reader should not place undue reliance on the forward-looking statements included in this report or that may be made elsewhere from time to time by the Company, or on its behalf. All forward-looking statements attributable to Titan are expressly qualified by these cautionary statements.
OVERVIEW
Titan International, Inc. and its subsidiaries are leading manufacturers of wheels, tires, wheel and tire assemblies, and undercarriage systems and components for off-highway vehicles used in the agricultural, earthmoving/construction, and consumer segments. Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.
Agricultural Segment:
Titan's agricultural rims, wheels, tires, and undercarriage systems and components are manufactured for use on various agricultural equipment, including tractors, combines, skidders, plows, planters, and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers, and Titan's own distribution centers.
Earthmoving/Construction Segment:
The Company manufactures rims, wheels, tires, and undercarriage systems and components for various types of off-the-road (OTR) earthmoving, mining, military, construction, and forestry equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks, backhoe loaders, crawler tractors, lattice cranes, shovels, and hydraulic excavators.
Consumer Segment:
Titan manufactures bias truck tires in Latin America and light truck tires in Russia. Titan also offers select products for ATVs, turf, and golf cart applications.
The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company, and Kubota Corporation, in addition to many other off-highway equipment manufacturers. The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.
27
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The table provides highlights for the
three months
ended
March 31, 2017
, compared to the same period of
2016
(amounts in thousands, except earnings per share):
|
Three months ended
|
||||||||||
|
March 31,
|
||||||||||
|
|
2017
|
2016
|
% Increase
|
|||||||
|
Net sales
|
$
|
357,501
|
|
$
|
321,794
|
|
11
|
%
|
||
|
Gross profit
|
39,729
|
|
28,297
|
|
40
|
%
|
||||
|
Loss from operations
|
(7,061
|
)
|
(11,538
|
)
|
39
|
%
|
||||
|
Net loss
|
(10,585
|
)
|
(12,326
|
)
|
14
|
%
|
||||
|
Basic earnings per share
|
(0.18
|
)
|
(0.33
|
)
|
45
|
%
|
||||
The Company recorded sales of
$357.5 million
for the
first
quarter of
2017
, which were
11%
higher than
first
quarter
2016
sales of
$321.8 million
. Sales improved across all reported segments. Overall sales volume was up 4% for the first quarter of 2017 as compared to the comparable quarter of 2016, driven by higher volumes in both the agriculture and consumer segments, offset by slightly lower volume in earthmoving/construction. Favorable currency translation increased sales by 4% and a favorable change in price mix contributed another 3% of increase to sales.
The Company's gross profit was
$39.7 million
, or
11.1%
of net sales, for the
first
quarter of
2017
, compared to
$28.3 million
, or
8.8%
of net sales, in the comparable period of
2016
. Loss from operations was
$7.1 million
for the
first
quarter of
2017
, compared to loss of
$11.5 million
in the comparable quarter of
2016
. Net loss was
$10.6 million
for the
first
quarter of
2017
, compared to loss of
$12.3 million
in
2016
. Basic earnings per share was
$(0.18)
in the
first
quarter of
2017
, compared to
$(0.33)
in
2016
.
CRITICAL ACCOUNTING ESTIMATES
Preparation of financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of technical accounting rules and guidance, as well as the use of estimates. The Company’s application of such rules and guidance involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the estimates, assumptions, or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.
Asset and Business Acquisitions
The allocation of purchase price for asset and business acquisitions requires management estimates and judgment as to expectations for future cash flows of the acquired assets and business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocations. If the actual results differ from the estimates and judgments used in determining the purchase price allocations, impairment losses could occur. To aid in establishing the value of any intangible assets at the time of acquisition, the Company typically engages a professional appraisal firm.
Inventories
Inventories are valued at lower of cost or net realizable value. Market value is estimated based on current selling prices. Inventory costs are calculated using the first-in, first-out (FIFO) method or average cost method. Estimated provisions are established for slow-moving and obsolete inventory.
28
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Impairment of Long-Lived Assets
The Company reviews fixed assets to assess recoverability from future operations whenever events and circumstances indicate that the carrying values may not be recoverable. Circumstances that could result in an impairment review include, but are not limited to, a current period cash flow loss combined with a history of cash flow losses, current cash flows that may be insufficient to recover the investment in the property over the remaining useful life, or a projection that demonstrates continuing losses associated with the use of a long-lived asset, significant changes in the manner of use of the assets, or significant changes in business strategies. Impairment losses are recognized in operating results when expected undiscounted cash flows are less than the carrying value of the asset. Impairment losses are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the estimated fair value of the asset.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the respective tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply in the years the temporary differences are expected to be settled or realized. A valuation allowance is recorded for the portion of the deferred tax assets for which it is more likely than not that a tax benefit will not be realized. Management’s judgment is required to determine the provision for income taxes, deferred tax assets and liabilities, and valuation allowances against deferred tax assets.
Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates, and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements, and obligations. The Company has three frozen defined benefit pension plans in the United States and pension plans in several foreign countries. During the first quarter of
2017
, the Company contributed cash funds of
$0.5 million
to its pension plans. Titan expects to contribute approximately
$2.7 million
to these pension plans during the remainder of
2017
. For more information concerning these costs and obligations, see the discussion of “Pensions” in Item 7 and Note 23 to the Company's financial statements included in the Company's Form 10-K for the fiscal year ended December 31, 2016.
Product Warranties
The Company provides limited warranties on workmanship on its products in all market segments. The majority of the Company's products are subject to a limited warranty that ranges between less than one year and ten years, with certain products being prorated after the first year. Actual warranty experience may differ from historical experience. The Company calculates an estimated warranty liability based on past warranty experience and the sales of products subject to that experience. The Company records warranty expense based on warranty payments made during the applicable period and changes to the estimated warranty liability. The Company's warranty accrual was
$18.2 million
at
March 31, 2017
, and
$17.9 million
at
December 31, 2016
.
29
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Highlights for the
three months
ended
March 31, 2017
, compared to
2016
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2017
|
|
2016
|
||||
|
Net sales
|
$
|
357,501
|
|
$
|
321,794
|
|
|
|
Cost of sales
|
317,772
|
|
293,497
|
|
|||
|
Gross profit
|
$
|
39,729
|
|
$
|
28,297
|
|
|
|
Gross profit as percentage of Net Sales
|
11.1
|
%
|
8.8
|
%
|
|||
Net Sales
Net sales for the quarter ended
March 31, 2017
, were
$357.5 million
, compared to
$321.8 million
in the comparable quarter of
2016
, an increase of
11%
. Overall sales volume was up 4% driven by higher volumes in both the agriculture and consumer segments, offset by slightly lower volume in earthmoving/construction. Favorable currency translation increased sales by 4% and a favorable change in price mix contributed another 3% of increase to sales.
Cost of Sales and Gross Profit
Cost of sales was
$317.8 million
for the quarter ended
March 31, 2017
, compared to
$293.5 million
for the comparable quarter in
2016
. Gross profit for the
first
quarter of
2017
was
$39.7 million
, or
11.1%
of net sales, compared to
$28.3 million
, or
8.8%
of net sales for the
first
quarter of
2016
. The increase in gross profit percentage was primarily related to the Business Improvement Framework initiatives that focus on lowering costs and increasing efficiencies.
Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the
first
quarter of
2017
were
$41.3 million
, or
11.6%
of net sales, compared to
$35.1 million
, or
10.9%
of net sales, for the
first
quarter of
2016
. The increase in SG&A expenses was primarily due to the anti-dumping and countervailing duties litigation, marketing investments in LSW development, and non-recurring legal and professional fees.
Research and Development Expenses
Research and development (R&D) expenses for the
first
quarter of
2017
were
$2.8 million
, or
0.8%
of net sales, compared to
$2.5 million
, or
0.8%
of net sales, for the
first
quarter of
2016
.
Royalty Expense
The Company has trademark license agreements with The Goodyear Tire & Rubber Company to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. Royalties attributable to sales of farm tires in North America and Latin America were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America.
Royalty expenses for the
first
quarter of
2017
were
$2.6 million
, or
0.7%
of net sales, compared to
$2.3 million
, or
0.7%
of net sales, for the
first
quarter of
2016
. The increase was driven by higher international sales subject to royalty.
Loss from Operations
Loss from operations for the
first
quarter of
2017
was
$7.1 million
, compared to
$11.5 million
in
2016
. This change was the net result of the items previously discussed.
Interest Expense
Interest expense was
$7.7 million
and
$8.5 million
for the quarters ended
March 31, 2017
and
2016
, respectively.
Foreign Exchange Gain
Foreign exchange gain was
$4.5 million
for the
first
quarter of
2017
, compared to
$4.8 million
for the
first
quarter of
2016
.
30
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Other Income
Other income was
$3.1 million
for the quarter ended
March 31, 2017
, as compared to
$3.9 million
in the comparable quarter of
2016
. For the quarter ended
March 31, 2017
, the Company recorded interest income of
$1.0 million
, a gain related to investments for deferred compensation of
$0.9 million
, Wheels India Limited equity income of
$0.8 million
, and rental income of
$0.6 million
. For the quarter ended
March 31, 2016
, the Company recorded a gain on sale of assets of
$2.3 million
, Wheels India Limited equity income of
$0.5 million
, interest income of
$0.4 million
, and a loss related to contractual obligation investments of
$0.2 million
,
Provision for Income Taxes
The Company recorded income tax expense of
$3.4 million
and
$1.0 million
for the quarters ended
March 31, 2017
and
2016
, respectively. The Company's effective income tax rate was
(48%)
and
(9)%
for the
three months ended
March 31, 2017
and
2016
, respectively.
The Company’s 2017 effective income tax rate is different from the U.S. Federal income tax rate mainly due to losses in the U.S. and certain foreign jurisdictions where the Company could not record a tax benefit due to a valuation allowance. The increased negative effective tax rate is also due to non-deductible expenses and income adjustments in taxable jurisdictions that had the effect of increasing the tax rate for the period. The actual cash tax outlay for the quarter was $0.6 million.
The Company’s 2016 effective income tax rate is different from the U.S. Federal income tax rate mainly due to losses in the U.S. and certain foreign jurisdictions that the Company could not record a tax benefit due to a valuation allowance. In addition, profits were incurred in certain lower tax rate foreign jurisdictions which resulted in lower tax expense. The actual cash tax outlay for the quarter was $1.1 million.
The Company continues to monitor the realization of its deferred tax assets and assess the need for a valuation allowance. This process requires management to make estimates, assumptions, and judgments that are uncertain in nature. The Company has established valuation allowances on U.S. and certain foreign jurisdictions and continues to monitor and assess potential valuation allowances in all its jurisdictions.
Net Loss
Net loss for the
first
quarter of
March 31, 2017
, was
$10.6 million
, compared to
$12.3 million
in the comparable quarter of
2016
. For the quarters ended
March 31, 2017
and
2016
, basic and diluted earnings per share were
$(.18)
and
$(.33)
, respectively. The Company's lower net loss and higher earnings per share were due to the items previously discussed.
31
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Agricultural Segment Results
Agricultural segment results for the periods presented below were as follows (amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2017
|
2016
|
|||||
|
Net sales
|
$
|
180,516
|
|
$
|
152,825
|
|
|
|
Gross profit
|
21,716
|
|
16,140
|
|
|||
|
Income from operations
|
12,584
|
|
8,220
|
|
|||
Net sales in the agricultural market were
$180.5 million
for the quarter ended
March 31, 2017
, as compared to
$152.8 million
in
2016
, an increase of
18%
. Agriculture sales experienced higher volumes of 12% and favorable currency translation of 6% with a flat price/mix.
Gross profit in the agricultural market was
$21.7 million
for the quarter ended
March 31, 2017
, as compared to
$16.1 million
in the comparable quarter of
2016
. Income from operations in the agricultural market was
$12.6 million
for the quarter ended
March 31, 2017
, as compared to
$8.2 million
in
2016
.
With increasing sales, the Company's maintained focus on business improvement initiatives within our Business Improvement Framework is showing results. These initiatives focus on lowering costs and increasing efficiencies.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results for the periods presented below were as follows (amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2017
|
2016
|
|||||
|
Net sales
|
$
|
135,619
|
|
$
|
131,704
|
|
|
|
Gross profit
|
12,649
|
|
9,429
|
|
|||
|
Income (loss) from operations
|
812
|
|
(1,016
|
)
|
|||
The Company's earthmoving/construction market net sales were
$135.6 million
for the quarter ended
March 31, 2017
, as compared to
$131.7 million
in
2016
, an increase of
3%
. Change in earthmoving/construction sales price/mix increased sales by 6%, offset in part by a 3% decrease due to reduction in volume. Currency did not have a material impact.
Gross profit in the earthmoving/construction market was
$12.6 million
for the quarter ended
March 31, 2017
, as compared to
$9.4 million
in
2016
. The Company's earthmoving/construction market income from operations was
$0.8 million
for the quarter ended
March 31, 2017
, as compared to a loss of
$1.0 million
in
2016
.
Consumer Segment Results
Consumer segment results for the periods presented below were as follows (amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2017
|
2016
|
|||||
|
Net sales
|
$
|
41,366
|
|
$
|
37,265
|
|
|
|
Gross profit
|
5,364
|
|
2,728
|
|
|||
|
Income (loss) from operations
|
1,454
|
|
(850
|
)
|
|||
Consumer market net sales were
$41.4 million
for the quarter ended
March 31, 2017
, as compared to
$37.3 million
in the comparable quarter of
2016
, an increase of approximately 11%. Sales increases were largely a result of improving economic conditions in Brazil.
32
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Gross profit from the consumer market was
$5.4 million
for the quarter ended
March 31, 2017
, as compared to
$2.7 million
for the comparable quarter of
2016
. Consumer market income from operations was
$1.5 million
for the quarter ended
March 31, 2017
, as compared to a loss of
$0.9 million
in
2016
. Improvements were primarily the result of higher volumes and improved efficiencies in Brazil, but other regions showed improvements as well, with plant efficiencies being the primary driver.
Segment Summary
(amounts in thousands)
|
Three months ended March 31, 2017
|
Agricultural
|
Earthmoving/
Construction
|
Consumer
|
Corporate/ Unallocated
Expenses
|
Consolidated
Totals
|
|||||||||||||||
|
Net sales
|
$
|
180,516
|
|
$
|
135,619
|
|
$
|
41,366
|
|
$
|
—
|
|
$
|
357,501
|
|
|||||
|
Gross profit
|
21,716
|
|
12,649
|
|
5,364
|
|
—
|
|
39,729
|
|
||||||||||
|
Income (loss) from operations
|
12,584
|
|
812
|
|
1,454
|
|
(21,911
|
)
|
(7,061
|
)
|
||||||||||
|
Three months ended March 31, 2016
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net sales
|
$
|
152,825
|
|
$
|
131,704
|
|
$
|
37,265
|
|
$
|
—
|
|
$
|
321,794
|
|
|||||
|
Gross profit
|
16,140
|
|
9,429
|
|
2,728
|
|
—
|
|
28,297
|
|
||||||||||
|
Income (loss) from operations
|
8,220
|
|
(1,016
|
)
|
(850
|
)
|
(17,892
|
)
|
(11,538
|
)
|
||||||||||
Corporate & Unallocated Expenses
Income from operations on a segment basis does not include corporate expenses totaling
$21.9 million
for the quarter ended
March 31, 2017
, as compared to
$17.9 million
for the comparable quarter of
2016
. Corporate expenses were composed of selling and marketing expenses of approximately $8 million and $7 million for the quarters ended
March 31, 2017
and
2016
, respectively; and administrative expenses of approximately $14 million and $11 million for the quarters ended
March 31, 2017
and
2016
, respectively.
MARKET RISK SENSITIVE INSTRUMENTS
The Company's risks related to foreign currencies, commodity prices, and interest rates at March 31, 2017, were consistent with those for 2016. For more information, see the “Market Risk Sensitive Instruments” discussion in the Company's Form 10-K for the fiscal year ended December 31, 2016.
PENSIONS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. These plans are described in Note 23 of the Company's Notes to Consolidated Financial Statements in the Annual Report on Form 10-K for the year ended December 31, 2016.
The Company's recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates and other factors. Certain of these assumptions are determined by the Company with the assistance of outside actuaries. Assumptions are based on past experience and anticipated future trends. These assumptions are reviewed on a regular basis and revised when appropriate. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements, and the carrying value of the related obligations. Titan expects to contribute approximately
$2.7 million
to these pension plans during the remainder of 2017.
33
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of
March 31, 2017
, the Company had
$131.2 million
of cash.
|
(Amounts in thousands)
|
March 31,
|
December 31,
|
|
||||||||
|
|
2017
|
2016
|
Change
|
||||||||
|
Cash
|
$
|
131,158
|
|
$
|
147,827
|
|
$
|
(16,669
|
)
|
||
The cash balance decreased by
$16.7 million
from
December 31, 2016
, due to the following items:
Operating Cash Flows
Summary of cash flows from operating activities:
|
(Amounts in thousands)
|
Three months ended March 31,
|
|
|||||||||
|
|
2017
|
2016
|
Change
|
||||||||
|
Net loss
|
$
|
(10,585
|
)
|
$
|
(12,326
|
)
|
$
|
1,741
|
|
||
|
Depreciation and amortization
|
14,466
|
|
15,249
|
|
(783
|
)
|
|||||
|
Deferred income tax provision
|
715
|
|
(278
|
)
|
993
|
|
|||||
|
Foreign currency translation loss
|
(1,342
|
)
|
(4,000
|
)
|
2,658
|
|
|||||
|
Accounts receivable
|
(48,180
|
)
|
(32,150
|
)
|
(16,030
|
)
|
|||||
|
Inventories
|
(14,547
|
)
|
15,610
|
|
(30,157
|
)
|
|||||
|
Prepaid and other current assets
|
2,641
|
|
3,335
|
|
(694
|
)
|
|||||
|
Accounts payable
|
34,313
|
|
9,747
|
|
24,566
|
|
|||||
|
Other current liabilities
|
7,425
|
|
7,796
|
|
(371
|
)
|
|||||
|
Other liabilities
|
471
|
|
(37
|
)
|
508
|
|
|||||
|
Other operating activities
|
84
|
|
(613
|
)
|
697
|
|
|||||
|
Cash provided by (used for) operating activities
|
$
|
(14,539
|
)
|
$
|
2,333
|
|
$
|
(16,872
|
)
|
||
In the first three months of
2017
, operating activities used
$14.5 million
of cash, including decreases from accounts receivable of
$48.2 million
and inventories of
$14.5 million
, offset by increases from accounts payable of
$34.3 million
. Included in net loss of
$10.6 million
were noncash charges for depreciation and amortization of
$14.5 million
and foreign currency translation loss of
$1.3 million
.
Operating cash flows decreased
$16.9 million
when comparing the first three months of
2017
to the first three months of
2016
. The net loss in the first three months of
2017
was a
$1.7 million
increase from the loss in the first three months of
2016
. When comparing the first three months of
2017
to the first three months of
2016
, cash flows from operating activities decreased in inventories and accounts receivable by
$30.2 million
and
$16.0 million
, respectively, offset by increase of
$24.6 million
in accounts payable.
Summary of the components of cash conversion cycle:
|
March 31,
|
December 31,
|
March 31,
|
||||||
|
|
2017
|
2016
|
2016
|
|||||
|
Days sales outstanding
|
59
|
|
53
|
|
61
|
|
||
|
Days inventory outstanding
|
88
|
|
95
|
|
88
|
|
||
|
Days payable outstanding
|
(56
|
)
|
(52
|
)
|
(45
|
)
|
||
|
Cash conversion cycle
|
91
|
|
96
|
|
104
|
|
||
34
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Investing Cash Flows
Summary of cash flows from investing activities:
|
(Amounts in thousands)
|
Three months ended March 31,
|
|
|||||||||
|
|
2017
|
2016
|
Change
|
||||||||
|
Capital expenditures
|
$
|
(8,389
|
)
|
$
|
(7,149
|
)
|
$
|
(1,240
|
)
|
||
|
Other investing activities
|
574
|
|
771
|
|
(197
|
)
|
|||||
|
Cash used for investing activities
|
$
|
(7,815
|
)
|
$
|
(6,378
|
)
|
$
|
(1,437
|
)
|
||
Net cash used for investing activities was
$7.8 million
in the first three months of
2017
, as compared to
$6.4 million
in the first three months of
2016
. The Company invested a total of
$8.4 million
in capital expenditures in the first three months of
2017
, compared to
$7.1 million
in
2016
. The
2017
and
2016
expenditures represent various equipment purchases and improvements to enhance production capabilities of Titan's existing business and maintaining existing equipment.
Financing Cash Flows
Summary of cash flows from financing activities:
|
(Amounts in thousands)
|
Three months ended March 31,
|
|
|||||||||
|
|
2017
|
2016
|
Change
|
||||||||
|
Proceeds from borrowings
|
$
|
14,635
|
|
$
|
110
|
|
$
|
14,525
|
|
||
|
Payment on debt
|
(10,216
|
)
|
(7,288
|
)
|
(2,928
|
)
|
|||||
|
Dividends paid
|
(271
|
)
|
(270
|
)
|
(1
|
)
|
|||||
|
Cash provided by (used for) financing activities
|
$
|
4,148
|
|
$
|
(7,448
|
)
|
$
|
11,596
|
|
||
In the first three months of
2017
,
$4.1 million
of cash was provided by financing activities. This cash was primarily provided through debt financing, with borrowing providing
$14.6 million
offset with payments of
$10.2 million
.
Debt Restrictions
The Company’s revolving credit facility (credit facility) contains various restrictions, including:
|
•
|
Requirement to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a trailing four quarter basis) when remaining availability under the credit facility is less than 10% of the total commitment under the credit facility, currently $7.5 million;
|
|
•
|
Limits on dividends and repurchases of the Company’s stock;
|
|
•
|
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company;
|
|
•
|
Limitations on investments, dispositions of assets, and guarantees of indebtedness; and
|
|
•
|
Other customary affirmative and negative covenants.
|
These restrictions could limit the Company’s ability to respond to market conditions, provide for unanticipated capital investments, raise additional debt or equity capital, pay dividends, or take advantage of business opportunities, including future acquisitions.
Other Items
The Company’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances. Historically, Titan tends to have higher production levels in the first and second quarters.
35
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity Outlook
At
March 31, 2017
, the Company had
$131.2 million
of cash and cash equivalents and
$50.0 million
invested in certificates of deposit with an original maturity of greater than three months and less than six months, for a total of $181.2 million. At
March 31, 2017
, there were no outstanding borrowings on the Company's
$75 million
credit facility. Titan's availability under this credit facility may be less than
$75 million
as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain domestic subsidiaries. At
March 31, 2017
, an outstanding letter of credit under this credit facility totaled
$11.6 million
and the amount available under the facility totaled
$63.4 million
, based upon eligible accounts receivable and inventory balances. The cash and cash equivalents balance of
$131.2 million
includes
$55.2 million
held in foreign countries. The Company's current plans do not demonstrate a need to repatriate the foreign amounts to fund U.S. operations; however, if foreign funds were needed for U.S. operations, the Company would be required to accrue and pay taxes to repatriate the funds. The Company does have U.S. net operating losses that may be available to offset a portion of the potential cash tax outlay from the repatriation of these foreign funds.
Capital expenditures for the remainder of
2017
are estimated to be approximately $25 million to $30 million. Cash payments for interest are currently forecasted to be approximately $31 million for the remainder of
2017
based on
March 31, 2017
, debt balances. The forecasted interest payments are comprised primarily of the semi-annual payments of $13.8 million (the first payment for 2017 was made on April 3, with the second payment due October 1) for the 6.875% senior secured notes.
The Company's redeemable noncontrolling interest in Voltyre-Prom includes a settlement put option which is exercisable July through December of 2018. If exercised in July 2018, the redeemable noncontrolling interest may be purchased, with cash or Titan common stock, at an amount set by the Shareholder's Agreement, which was estimated to be approximately $117 million at
March 31, 2017
. See Note 9 to the Company's consolidated condensed financial statements regarding the Company's redeemable noncontrolling interest and the settlement put option.
In the future, Titan may seek to grow by making acquisitions which will depend on the ability to identify suitable acquisition candidates, negotiate acceptable terms for their acquisition, and finance those acquisitions.
Subject to the terms of the agreements governing Titan's outstanding indebtedness, the Company may finance future acquisitions with cash on hand, cash from operations, additional indebtedness, issuing additional equity securities, and divestitures.
Cash, cash equivalents, and certificates of deposit, totaling $181.2 million at
March 31, 2017
, along with anticipated internal cash flows from operations, and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, debt maturities, capital expenditures, and potential acquisitions. Potential divestitures are also a means to provide for future liquidity needs.
36
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RECENTLY ISSUED ACCOUNTING STANDARDS
In May 2014, the Financial Accounting Standards Board (FASB) issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosure about the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update were deferred by ASU No. 2015-14, "Revenue form Contracts with Customers (Topic 606) Deferral of Effective Date," and are now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company is in the process of comparing its current revenue recognition policies to the requirements of ASU No. 2014-09. For the majority of Titan’s revenue arrangements, no significant impacts are expected, as these transactions are not accounted for under industry-specific guidance that will be superseded by ASU No. 2014-09 and generally consist of a single performance obligation to transfer promised goods or services. While the Company has not identified any material differences in the amount and timing of revenue recognition related to ASU No. 2014-09, the evaluation is not complete and Titan has not concluded on the overall impacts of adopting ASU No. 2014-09. The guidance provides for adoption either retrospectively to each prior reporting period or as a cumulative-effect adjustment as of the date of adoption. The Company plans to make a determination as to its method of adoption once it more fully completes its evaluation of the impacts of the standard on its revenue recognition and it is better able to evaluate the cost-benefit of each method. The Company believes it is following an appropriate timeline to allow for proper recognition, presentation, and disclosure upon adoption in the year beginning on January 1, 2018.
In April 2016, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations and Licensing." This ASU clarifies the following aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, "Narrow-Scope Improvements and Practical Expedients." This ASU affects only narrow aspects of Topic 606 related to assessing the collectability criterion; presentation of sales tax; noncash consideration; and contract modifications and completed contracts at transition. The amendments in these updates affect the guidance in ASU No. 2014-09, and the effective dates are the same as those for ASU No. 2014-09.
In December 2016, the FASB issued ASU No. 2016-20, "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers." The amendments in this update affect narrow aspects of the guidance issued in ASU No. 2014-09, and the effective dates are the same as those for ASU No. 2014-09.
In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities." This update addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-16, "Intra-Entity Transfers of Assets other than Inventory." This update requires the recognition of income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs. The amendments in this update are effective for fiscal years beginning after December 15, 2017, including interim reporting periods within those annual reporting periods. The Company early adopted this guidance effective January 1, 2017. The adoption of this guidance did not have a material effect on the Company's consolidated financial statements.
37
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
In March 2017, the FASB issued ASU No. 2017-07, "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." This update requires an employer to report the service cost component of defined benefit pension cost and postretirement benefit cost in the same line item of the income statement as other compensation costs arising from services rendered by the pertinent employees during the period. The amendments in this update are effective for annual periods beginning after December 15, 2017, including interim periods with those years. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.
MARKET CONDITIONS AND OUTLOOK
In the first quarter of 2017, Titan experienced higher sales when compared to the same period of 2016. The higher sales levels were primarily the result of increased demand for replacement equipment used in the agricultural market. The market for new equipment, which has been in a cyclical downturn, is beginning to show signs of recovery. In addition, currency translation positively impacted sales.
Energy, natural raw material, and petroleum-based product costs were volatile and negatively affected the Company’s margins. Many of Titan’s overhead expenses are fixed; therefore, lower seasonal trends may cause negative fluctuations in quarterly profit margins and affect the financial condition of the Company.
AGRICULTURAL MARKET OUTLOOK
Farm net income is generally expected to be flat in 2017. Declining income levels have reduced demand for large farm equipment. More specifically, large equipment sales have deteriorated significantly since 2013 after a robust cycle in prior years. The shift to lower horsepower tractors has had a negative impact on revenue and margin performance. This trend is expected to bottom out sometime in 2017. Most major OEMs are forecasting 2017 agricultural equipment sales to be essentially flat relative to 2016 within most regions. North American used equipment levels remained relatively high in the first quarter of 2017 with some decreases recently from peak levels. Excess used equipment inventory and values can also negatively impact the new equipment market; however, with the extended equipment replacement cycle, opportunity exists for higher aftermarket replacement sales. Many variables, including weather, grain prices, export markets, currency, and government policies and subsidies can greatly influence the overall health of the agricultural economy.
EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
Demand for larger products used in the mining industry is expected to improve slightly in 2017, with demand for our products in this market expected to improve nominally as compared to 2016. Demand for small and medium sized earthmoving/construction equipment used in the housing and commercial construction sectors is expected to be flat or up slightly in 2017 relative to 2016. The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and other macroeconomic drivers.
CONSUMER MARKET OUTLOOK
The consumer market is expected to remain highly competitive in 2017. The consumer segment is affected by many variables including consumer spending, interest rates, government policies, and other macroeconomic drivers.
38
TITAN INTERNATIONAL, INC.
See Item 7A - Quantitative and Qualitative Disclosures About Market Risk included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016. There has been no material change in this information.
Evaluation of Disclosure Controls and Procedures
Titan management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this Form 10-Q, Titan's disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by Titan in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported accurately and within the time frames specified in the SEC's rules and forms and accumulated and communicated to Titan management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls
There were no changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the first quarter of fiscal 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Inherent Limitations on the Effectiveness of Controls
Because of its inherent limitations, the Company's disclosure controls and procedures or internal control over financial reporting may not prevent or detect all misstatements or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in a cost-effective control system, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected.
These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur due to simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
39
TITAN INTERNATIONAL, INC.
The Company is a party to routine legal proceedings arising out of the normal course of business. Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes at this time that none of these actions, individually or in the aggregate, will have a material adverse effect on the consolidated financial condition, results of operations, or cash flows of the Company. However, due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of efforts to comply with, or liabilities pertaining to, legal judgments.
There have been no material changes from the risk factors disclosed in Item 1A. Risk Factors to the Company's Annual Report on Form 10-K for the year ended December 31, 2016, filed on March 15, 2017.
|
10
|
Credit and Security Agreement, dated February 17, 2017 (incorporated by reference to Exhibit 10 to Titan International, Inc.'s Current Report on Form 8-K filed on February 23, 2017.)
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18
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Preferability letter from Grant Thornton LLP regarding change in accounting principle.
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31.1
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Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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31.2
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Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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32
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Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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101.INS
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XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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40
TITAN INTERNATIONAL, INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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TITAN INTERNATIONAL, INC.
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(Registrant)
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Date:
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May 3, 2017
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By
:
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/s/ PAUL G. REITZ
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Paul G. Reitz
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President and Chief Executive Officer
(Principal Executive Officer)
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|||
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By
:
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/s/ JAMES M. FROISLAND
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James M. Froisland
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||
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Chief Financial Officer
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||
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(Principal Financial Officer)
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||
41
TABLE OF CONTENTS
Part I. Financial InformationItem 1. Financial StatementsItem 2. Management's Discussion and Analysis Of Financial Condition and Results Of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart II. Other InformationItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 6. Exhibits