10-Q 1 twi-20220930.htm 10-Q twi-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

twi-20220930_g1.jpg

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: September 30, 2022
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12936

TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

1525 Kautz Road, Suite 600, West Chicago, IL
(Address of principal executive offices)

36-3228472
(I.R.S. Employer Identification No.)

60185
(Zip Code)
(217) 228-6011
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading
Symbol
Name of each exchange on which registered
Common stock, $0.0001 par valueTWINew York Stock Exchange


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filer
Non-accelerated filer Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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

Indicate the number of shares of Titan International, Inc. outstanding: 62,843,961 shares of common stock, $0.0001 par value, as of October 31, 2022.




TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

Page



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
 
 Three months endedNine months ended
September 30,September 30,
 2022202120222021
Net sales$530,722 $450,382 $1,659,614 $1,292,539 
Cost of sales443,089 390,090 1,375,599 1,117,512 
Gross profit87,633 60,292 284,015 175,027 
Selling, general and administrative expenses31,410 32,217 102,306 98,811 
Research and development expenses2,434 2,370 7,592 7,451 
Royalty expense3,298 2,805 9,217 7,915 
Income from operations50,491 22,900 164,900 60,850 
Interest expense(7,221)(7,818)(22,835)(23,939)
Loss on senior note repurchase   (16,020)
Foreign exchange gain1,198 416 8,749 9,125 
Other income9,691 648 24,526 1,512 
Income before income taxes54,159 16,146 175,340 31,528 
Provision for income taxes11,446 5,342 39,128 9,927 
Net income42,713 10,804 136,212 21,601 
Net (loss) income attributable to noncontrolling interests(456)(383)1,950 (387)
Net income attributable to Titan and applicable to common shareholders$43,169 $11,187 $134,262 $21,988 
 Income per common share:    
Basic$0.69 $0.18 $2.13 $0.36 
Diluted$0.68 $0.18 $2.11 $0.35 
Average common shares and equivalents outstanding:  
Basic62,803 62,340 63,107 61,844 
Diluted63,229 62,601 63,587 62,523 
 







See accompanying Notes to Condensed Consolidated Financial Statements.
1


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

Three months ended
September 30,
 20222021
Net income$42,713 $10,804 
Derivative gain287 54 
Currency translation adjustment, net(29,517)(16,243)
Pension liability adjustments, net of tax of $(107) and $(42), respectively
241 797 
Comprehensive income (loss)13,724 (4,588)
Net comprehensive (loss) income attributable to redeemable and noncontrolling interests(1,101)51 
Comprehensive income (loss) attributable to Titan$14,825 $(4,639)



Nine months ended
September 30,
 20222021
Net income$136,212 $21,601 
Derivative gain865 319 
Currency translation adjustment, net(23,778)(28,991)
Pension liability adjustments, net of tax of $(451) and $(83), respectively
1,216 2,362 
Comprehensive income (loss)114,515 (4,709)
Net comprehensive income (loss) attributable to redeemable and noncontrolling interests7,352 (323)
Comprehensive income (loss) attributable to Titan$107,163 $(4,386)
























See accompanying Notes to Condensed Consolidated Financial Statements.
2


TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
 September 30, 2022December 31, 2021
(unaudited)
Assets
Current assets  
Cash and cash equivalents$116,581 $98,108 
  Accounts receivable, net282,145 255,180 
Inventories412,967 392,615 
Prepaid and other current assets88,954 67,401 
Total current assets900,647 813,304 
Property, plant and equipment, net287,618 301,109 
Operating lease assets9,528 20,945 
Deferred income taxes16,416 16,831 
Other long-term assets33,270 30,496 
Total assets$1,247,479 $1,182,685 
Liabilities  
Current liabilities  
Short-term debt$32,300 $32,500 
Accounts payable256,715 278,099 
Other current liabilities181,937 140,214 
Total current liabilities470,952 450,813 
Long-term debt414,566 452,451 
Deferred income taxes4,242 3,978 
Other long-term liabilities36,732 48,271 
Total liabilities926,492 955,513 
Equity  
Titan shareholders' equity
  Common stock ($0.0001 par value, 120,000,000 shares authorized, 66,525,269 issued at September 30, 2022 and 66,492,660 at December 31, 2021)
  
Additional paid-in capital564,181 562,340 
Retained earnings (deficit)48,823 (85,439)
Treasury stock (at cost, 3,720,609 shares at September 30, 2022 and 80,876 shares at December 31, 2021)
(23,662)(1,121)
Accumulated other comprehensive loss(273,579)(246,480)
Total Titan shareholders’ equity315,763 229,300 
Noncontrolling interests5,224 (2,128)
Total equity320,987 227,172 
Total liabilities and equity$1,247,479 $1,182,685 
See accompanying Notes to Condensed Consolidated Financial Statements.
3


TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)

  Number of
common shares
Additional
paid-in
capital
Retained (deficit) earningsTreasury stockAccumulated other comprehensive (loss) incomeTotal Titan Equity Non-controlling interestTotal Equity
Balance January 1, 202266,411,784 $562,340 $(85,439)$(1,121)$(246,480)$229,300 $(2,128)$227,172 
Net income23,922 23,922 656 24,578 
Currency translation adjustment, net18,457 18,457 (1,182)17,275 
Pension liability adjustments, net of tax544 544 544 
Derivative gain303 303 303 
Stock-based compensation212,440 (851)1,339 488 488 
Issuance of common stock under 401(k) plan32,609 360 360 360 
Common stock repurchase (4,032,259)(25,000)(25,000)(25,000)
Balance March 31, 202262,624,574 $561,849 $(61,517)$(24,782)$(227,176)$248,374 $(2,654)$245,720 
Net income67,171 67,171 1,750 68,921 
Currency translation adjustment, net(18,765)(18,765)7,229 (11,536)
Pension liability adjustments, net of tax431 431 431
Derivative gain275 275 275
Stock-based compensation122,351 695 761 1,456 1,456 
Issuance of treasury stock under 401(k) plan27,852 230 173 403 403 
Balance June 30, 202262,774,777 $562,774 $5,654 $(23,848)$(245,235)$299,345 $6,325 $305,670 
Net income (loss)43,169 43,169 (456)42,713 
Currency translation adjustment, net(28,872)(28,872)(645)(29,517)
Pension liability adjustments, net of tax241 241 241 
Derivative gain287 287 287 
Stock-based compensation1,169 1,169 1,169 
Issuance of treasury stock under 401(k) plan29,883 238 186 424 424 
Balance September 30, 202262,804,660 $564,181 $48,823 $(23,662)$(273,579)$315,763 $5,224 $320,987 
4


  Number of
common shares
Additional
paid-in
capital
Retained (deficit) earningsTreasury stockAccumulated other comprehensive (loss) incomeTotal Titan Equity Non-controlling interestTotal Equity
Balance January 1, 202161,376,981 $532,742 $(135,025)$(1,199)$(217,254)$179,264 $(2,999)$176,265 
Net income (loss)13,574 13,574 (351)13,223 
Currency translation adjustment, net(26,665)(26,665)(513)(27,178)
Pension liability adjustments, net of tax873 873 873 
Derivative gain40 40 40 
Stock-based compensation146,322 487 82 569 569 
Issuance of common stock under 401(k) plan70,416 340 340 340 
Balance March 31, 202161,593,719 $533,569 $(121,451)$(1,117)$(243,006)$167,995 $(3,863)$164,132 
Net (loss) income(2,773)(2,773)347 (2,426)
Currency translation adjustment, net14,287 14,287 143 14,430 
Pension liability adjustments, net of tax692 692 692 
Derivative gain225 225 225 
Stock-based compensation578,516 787 (4)783 783 
Issuance of common stock under 401(k) plan35,526 341 341 341 
Balance June 30, 202162,207,761 $534,697 $(124,224)$(1,121)$(227,802)$181,550 $(3,373)$178,177 
Net income (loss)11,187 11,187 (383)10,804 
Currency translation adjustment, net(16,677)(16,677)434 (16,243)
Pension liability adjustments, net of tax797 797 797 
Derivative gain54 54 54 
Stock-based compensation97,439 650 650 650 
Issuance of common stock under 401(k) plan41,584 355 355 355 
Balance September 30, 202162,346,784 $535,702 $(113,037)$(1,121)$(243,628)$177,916 $(3,322)$174,594 










See accompanying Notes to Condensed Consolidated Financial Statements.
5


TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
Nine months ended September 30,
Cash flows from operating activities:20222021
Net income$136,212 $21,601 
Adjustments to reconcile net income to net cash provided by (used for) operating activities:  
Depreciation and amortization32,283 36,345 
Loss on sale of the Australian wheel business10,890  
Deferred income tax provision(1,631)(743)
Income on indirect taxes(32,043) 
Gain on fixed asset and investment sale(256)(569)
Loss on senior note repurchase 16,020 
Stock-based compensation3,113 2,029 
Issuance of stock under 401(k) plan1,186 1,036 
Foreign currency gain(4,176)(12,042)
(Increase) decrease in assets:  
Accounts receivable(43,499)(75,456)
Inventories(44,180)(89,496)
Prepaid and other current assets6,361 (14,249)
Other assets(4,352)3,175 
Increase (decrease) in liabilities:  
Accounts payable(9,516)92,384 
Other current liabilities49,885 24,207 
Other liabilities1,963 (6,532)
Net cash provided by (used for) operating activities102,240 (2,290)
Cash flows from investing activities:  
Capital expenditures(32,755)(24,250)
Proceeds from the sale of the Australian wheel business9,293  
Proceeds from sale of fixed assets680 1,139 
Net cash used for investing activities(22,782)(23,111)
Cash flows from financing activities:  
Proceeds from borrowings88,907 482,293 
Repurchase of senior secured notes (413,000)
Payment on debt(120,728)(59,949)
Repurchase of common stock(25,000) 
Other financing activities(720)(2,069)
Net cash (used for) provided by financing activities(57,541)7,275 
Effect of exchange rate changes on cash(3,444)(4,665)
Net increase (decrease) in cash and cash equivalents18,473 (22,791)
Cash and cash equivalents, beginning of period98,108 117,431 
Cash and cash equivalents, end of period$116,581 $94,640 
Supplemental information:
Interest paid$16,813 $15,035 
Income taxes paid, net of refunds received $27,723 $10,766 

See accompanying Notes to Condensed Consolidated Financial Statements.
6



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

1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of Titan International, Inc. and its subsidiaries (Titan or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. The accompanying unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position and the results of operations and cash flows for the periods presented, and should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 3, 2022 (the 2021 Form 10-K). All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.

COVID-19 pandemic
The COVID-19 pandemic impact on the Company was less during the first three quarters of 2022 than in the comparable period in 2021. The Company’s operations continued with additional sanitary and other protective health measures which have increased operating costs. While the Company's operations began to return to historical levels during 2021 and continuing into the first three quarters of 2022, certain geographies (particularly China) continue to remain impacted due to new and emerging variants of COVID-19 resulting in employee absenteeism. Further, global supply chains are experiencing constraints following the COVID-19 pandemic, including availability and pricing of raw materials, transportation and labor. We expect that the post COVID-19 pandemic will continue to have some impact on the Company's operations, though the nature and extent of the impact will depend on the duration and severity of emerging variants of COVID-19.

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals, and notes payable at cost, which approximates fair value due to their short term or stated rates.  Investments in marketable equity securities are recorded at fair value.  Our 7.00% senior secured notes due 2028 were carried at a cost of $395.2 million at September 30, 2022. The fair value of the senior secured notes due 2028 at September 30, 2022, as obtained through an independent pricing source, was approximately $362.8 million.

Russia-Ukraine Military Conflict
In February 2022, in response to the military conflict between Russia and Ukraine, the United States, other North Atlantic Treaty Organization member states, as well as non-member states, have announced targeted economic sanctions on Russia, certain Russian citizens and enterprises. The continuation of the conflict has triggered additional economic and other sanctions enacted by the United States and other countries throughout the world.

The Company currently owns 64.3% of the Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 8% and 7% of consolidated assets of Titan as of September 30, 2022 and December 31, 2021, respectively. The asset increase in the Russian entity was due to foreign currency translation. The Russian operations represent approximately 5% of consolidated global sales for both the three months ended September 30, 2022 and 2021 while representing 6% and 5% of consolidated global sales for the nine months ended September 30, 2022 and 2021, respectively. The impact of the military conflict between Russia and Ukraine has not had a significant impact on global operations. The Company continues to monitor the potential impacts on the business including the increased cost of energy in Europe and the ancillary impacts that the military conflict could have on other global operations.

Sale of Australian wheel business
On March 29, 2022, the Company entered into a definitive agreement (the Agreement) for the sale of its Australian wheel business, to OTR Tyres, a leading Australian tire, wheel and service provider. The closing date of the transaction was March 31, 2022. The Agreement contains customary representations, warranties and covenants for transactions of this type. The sale included gross proceeds and cash repatriated of approximately $17.5 million, and the assumption by OTR Tyres of all liabilities, including employee and lease obligations. Refer to footnote 13 for additional information on the loss on sale of the Australian wheel business.
7



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

Interest Paid Revision
An error was identified in the disclosure of interest paid within the supplemental information of the condensed consolidated statements of cash flow for the nine months ended September 30, 2021.

We evaluated the revision in accordance with Accounting Standards Codification (ASC) 250, Accounting Changes and Error Corrections and evaluated the materiality of the revision on prior periods' financial statements in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 108, Quantifying Financial Statement Errors. We concluded that the revision was not material to any prior period and therefore, amendments of previously filed reports are not required. In accordance with ASC 250, we have corrected the error in the prior period presented. The revision did not have an impact on net income or earnings per share data for the year ended December 31, 2021.

Adoption of new accounting standards
In November 2021, the FASB issued ASU No. 2021-10 Government Assistance (Topic 832), which requires annual disclosures
of transactions with a government that are accounted for by applying a grant or contribution accounting model by analogy.
These required disclosures include information on the nature of transactions and related accounting policies used to account for
transactions, detail on the line items on the balance sheet and income statement affected by these transactions including
amounts applicable to each line, and significant terms and conditions of the transactions including commitments and
contingencies. The ASU is effective for fiscal years beginning after December 15, 2021. The Company receives various forms
of government assistance, primarily through grants associated with continued infrastructure development in certain foreign locations. The Company adopted the impact of this ASU effective January 1, 2022 and incorporated the required disclosures within the notes to condensed consolidated financial statements. The adoption did not have a material impact on our condensed consolidated financial statements.

2. ACCOUNTS RECEIVABLE, NET

Accounts receivable consisted of the following (amounts in thousands):
 September 30,
2022
December 31,
2021
Accounts receivable$289,600 $259,730 
Allowance for doubtful accounts(7,455)(4,550)
Accounts receivable, net$282,145 $255,180 

3. INVENTORIES

Inventories consisted of the following (amounts in thousands):
 September 30,
2022
December 31,
2021
Raw material$138,907 $135,241 
Work-in-process46,245 44,694 
Finished goods227,815 212,680 
 $412,967 $392,615 


8



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (amounts in thousands):
 September 30,
2022
December 31,
2021
Land and improvements$37,996 $41,010 
Buildings and improvements230,389 236,367 
Machinery and equipment584,861 578,816 
Tools, dies and molds111,162 111,169 
Construction-in-process29,936 20,288 
 994,344 987,650 
Less accumulated depreciation(706,726)(686,541)
 $287,618 $301,109 
 
Depreciation on property, plant and equipment for the nine months ended September 30, 2022 and 2021 totaled $31.3 million and $35.1 million, respectively.


5. INTANGIBLE ASSETS, NET

The components of intangible assets, net consisted of the following (amounts in thousands):
Weighted Average Useful Lives
(in years)
September 30, 2022
September 30,
2022
December 31,
2021
Amortizable intangible assets:
     Patents, trademarks and other
10.77$10,084 $10,084 
     Less accumulated amortization(8,699)(8,586)
$1,385 $1,498 
Amortization related to intangible assets for the nine months ended September 30, 2022 and 2021 totaled $0.3 million and $0.6 million, respectively. Intangible assets are included as a component of other long-term assets in the Condensed Consolidated Balance Sheets.

The estimated aggregate amortization expense at September 30, 2022 for each of the years (or other periods) set forth below was as follows (amounts in thousands):
October 1 - December 31, 2022$32 
2023145 
2024132 
2025123 
2026123 
Thereafter830 
 $1,385 


9



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

Changes in the warranty liability during the nine months ended September 30, 2022 and 2021, respectively, consisted of the following (amounts in thousands):
 20222021
Warranty liability at beginning of the period$16,628 $15,040 
Provision for warranty liabilities11,297 7,397 
Warranty payments made(8,419)(6,039)
Warranty liability at end of the period$19,506 $16,398 

Warranty accruals are included as a component of other current liabilities on the Condensed Consolidated Balance Sheets.

7. DEBT

Long-term debt consisted of the following (amounts in thousands):
September 30, 2022
Principal BalanceUnamortized Debt IssuanceNet Carrying Amount
7.00% senior secured notes due 2028$400,000 $(4,818)$395,182 
Titan Europe credit facilities38,287  38,287 
Other debt13,397  13,397 
     Total debt451,684 (4,818)446,866 
Less amounts due within one year32,300  32,300 
     Total long-term debt$419,384 $(4,818)$414,566 
December 31, 2021
Principal BalanceUnamortized Debt IssuanceNet Carrying Amount
7.00% senior secured notes due 2028$400,000 $(5,476)$394,524 
Titan Europe credit facilities44,993  44,993 
Revolving credit facility30,000  30,000 
Other debt15,434  15,434 
     Total debt490,427 (5,476)484,951 
Less amounts due within one year32,500  32,500 
     Total long-term debt$457,927 $(5,476)$452,451 

Aggregate principal maturities of long-term debt at September 30, 2022 for each of the years (or other periods) set forth below were as follows (amounts in thousands):
October 1 - December 31, 2022$13,847 
202320,903 
20246,733 
20252,838 
20262,190 
Thereafter405,173 
 $451,684 
10



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
7.00% senior secured notes due 2028
On April 22, 2021, the Company issued $400.0 million aggregate principal amount of 7.00% senior secured notes due April 2028 (the senior secured notes due 2028), guaranteed by certain of the Company's subsidiaries. Including the impact of debt issuance costs, these notes had an effective yield of 7.27% at issuance. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Wheel Corporation of Illinois, Titan Tire Corporation, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan. The Company is subject to certain covenants associated with the senior secured notes due 2028 and remained in compliance with these debt covenants at September 30, 2022.

Titan Europe credit facilities
The Titan Europe credit facilities include borrowings from various institutions totaling $38.3 million in aggregate principal amount at September 30, 2022. Maturity dates on this debt range from less than one year to five years.

Revolving credit facility
The Company has a $125 million revolving credit facility with BMO Harris Bank N.A., as agent, and other financial institutions party thereto. The credit facility is collateralized by accounts receivable and inventory of certain of the Company’s domestic subsidiaries and is scheduled to mature in October 2026. The credit facility can be expanded by up to $50 million through an accordion provision within the agreement. From time to time Titan's availability under this credit facility may be less than $125 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At September 30, 2022, under the Company's $125 million credit facility there were no borrowings and $7.2 million in outstanding letters of credit, and the amount available for borrowing totaled $117.8 million.

Other debt
The Company has working capital loans at Titan Pneus do Brasil Ltda and Voltyre-Prom at various interest rates, which totaled $10.1 million and $3.3 million at September 30, 2022, respectively. Maturity dates on these loans are one year or less. The Company expects to negotiate an extension of the maturity dates on these loans with the respective financial institutions, as needed.

8. REDEEMABLE NONCONTROLLING INTEREST

The Company and the Russian Direct Investment Fund (RDIF) own all of the equity interests in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. On February 11, 2019, the Company entered into a definitive agreement (the Agreement) with an affiliate of the RDIF relating to the put option included in the Voltyre-Prom Shareholders' Agreement that was exercised by RDIF. Under the terms of the Agreement, in full satisfaction of the settlement put option that was exercised by RDIF, Titan paid $25 million in cash to RDIF at the closing of the transaction, and agreed, subject to the completion of regulatory approval, to issue 4,032,259 shares of restricted Titan common stock to RDIF in a private placement.

In November 2021, Titan received regulatory approval for the issuance of restricted Titan common stock to RDIF. On December 17, 2021, the Company issued 4,032,259 shares of restricted Titan common stock to the RDIF equity holders subject to the Company's right to repurchase the shares for $25 million until February 12, 2022.

On February 1, 2022, the Company entered into a Stock Purchase Agreement with the RDIF equity holders to buy back the restricted Titan common stock for the previously agreed amount of $25 million. The transaction was completed on February 1, 2022. Following the transaction, the Company and RDIF's ownership remained at 64.3% and 35.7%, respectively, of Voltyre-Prom.

11



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

The Company leases certain buildings and equipment under both operating and finance leases.  Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance, and insurance by the Company. Under FASB Accounting Standards Codification Topic 842 "Leases," the Company made an accounting policy election, by class of underlying asset, not to separate non-lease components such as those previously stated from lease components and instead will treat the lease agreement as a single lease component for all asset classes. Operating right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent Titan's obligations to make lease payments arising from the lease. The majority of Titan's leases are operating leases. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of Titan's leases do not provide an implicit interest rate, the Company used its incremental borrowing rate (7.27%), based on the information available at the lease commencement date, in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general and administrative expenses on the Condensed Consolidated Statements of Operations. Amortization expense associated with finance leases is included in cost of sales and selling, general and administrative expenses, and interest expense associated with finance leases is included in interest expense in the Condensed Consolidated Statements of Operations.
Supplemental balance sheet information related to leases was as follows (amounts in thousands):
Balance Sheet ClassificationSeptember 30, 2022December 31, 2021
Operating lease ROU assetsOperating lease assets$9,528 $20,945 
                                
Operating lease current liabilitiesOther current liabilities$4,462 $6,180 
Operating lease long-term liabilitiesOther long-term liabilities2,825 11,352 
    Total operating lease liabilities$7,287 $17,532 
Finance lease, grossProperty, plant & equipment, net$6,920 $5,305 
Finance lease accumulated depreciationProperty, plant & equipment, net(3,446)(2,801)
   Finance lease, net$3,474 $2,504 
Finance lease current liabilitiesOther current liabilities$2,507 $2,384 
Finance lease long-term liabilitiesOther long-term liabilities3,413 3,878 
   Total finance lease liabilities$5,920 $6,262 
At September 30, 2022, maturities of lease liabilities were as follows (amounts in thousands):
Operating LeasesFinance Leases
October 1 - December 31, 2022$1,750 $1,030 
20234,054 2,527 
20241,597 1,472 
2025475 896 
2026263 553 
Thereafter496 5 
Total lease payments$8,635 $6,483 
Less imputed interest1,348 563 
$7,287 $5,920 
Weighted average remaining lease term (in years)2.482.71
12



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Supplemental cash flow information related to leases for the nine months ended September 30, 2022 were as follows: operating cash flows from operating leases were $2.0 million.

10. EMPLOYEE BENEFIT PLANS

The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately $0.4 million to the pension plans during the nine months ended September 30, 2022 and no amounts are expected to be contributed to the pension plans during the remainder of 2022.

The components of net periodic pension (benefit) cost consisted of the following for the periods set forth below (amounts in thousands):
Three months endedNine months ended
September 30,September 30,
2022202120222021
Service cost$43 $168 $1,215 $506 
Interest cost714 702 2,148 2,115 
Expected return on assets(1,518)(1,505)(4,554)(4,519)
Amortization of unrecognized prior service cost(15)(14)(47)(46)
Amortization of net unrecognized (gain) loss(5)697 (18)2,090 
   Net periodic pension (benefit) cost$(781)$48 $(1,256)$146 
Service cost is recorded as cost of sales in the Condensed Consolidated Statements of Operations while all other components are recorded in other income. The change in the net periodic pension (benefit) cost from 2021 to 2022 is due to the disposal of the Australian wheel business.


11. VARIABLE INTEREST ENTITIES

The Company holds a variable interest in two joint ventures for which the Titan is the primary beneficiary. One of these joint ventures operate distribution facilities that primarily distribute mining products. Titan is the 50% owner of the distribution facility located in Canada. Titan is also a 50% owner of a manufacturer of undercarriage components and complete track systems for earthmoving machines in India. The Company’s variable interests in these joint ventures relate to sales of Titan products to these entities, consigned inventory, and working capital loans. As the primary beneficiary of these variable interest entities (VIEs), the VIEs’ assets, liabilities, and results of operations are included in the Company’s condensed consolidated financial statements. The other equity holders’ interests are reflected in “Net loss (income) attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations and “Noncontrolling interests” in the Condensed Consolidated Balance Sheets.
13



TITAN INTERNATIONAL, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The following table summarizes the carrying amount of the VIEs’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets (amounts in thousands):
 September 30,
2022
December 31, 2021
Cash and cash equivalents$1,473 $714 
Inventory2,569 2,459 
Other current assets4,714 5,135 
Property, plant and equipment, net4,602 3,414 
Other non-current assets481 626 
   Total assets$13,839 $12,348 
Current liabilities$2,272 $1,687 
Other long-term liabilities1,187 669 
  Total liabilities$3,459 $2,356 

All assets in the above table can only be used to settle obligations of the consolidated VIE to which the respective assets relate. Liabilities are nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.

The Company holds variable interests in certain VIEs that are not consolidated because Titan is not the primary beneficiary. The Company's involvement with these entities is in the form of direct equity interests and prepayments related to purchases of materials. The maximum exposure to loss represents the loss of assets recognized by Titan relating to non-consolidated entities and amounts due to the non-consolidated assets. The assets and liabilities recognized in Titan's Condensed Consolidated Balance Sheets related to Titan's interest in these non-consolidated VIEs and the Company's maximum exposure to loss relating to non-consolidated VIEs as of the dates set forth below were as follows (amounts in thousands):
 September 30, 2022