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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
logoa07a01a05.jpg
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2018
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
 
36-3228472
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
2701 Spruce Street, Quincy, IL 62301
(Address of principal executive offices)
(217) 228-6011
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Name of each exchange on which registered
Common stock, $0.0001 par value
New York Stock Exchange (Symbol:  TWI)
Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities Act.  Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No þ
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 the 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 o
Accelerated filer þ
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Emerging growth company o
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
The aggregate market value of the shares of common stock of the registrant held by non-affiliates as of June 29, 2018, was approximately $450 million based upon the last reported sale price of the common stock on the New York Stock Exchange on June 29, 2018.
Indicate the number of shares of Titan International, Inc. outstanding: 59,946,387 shares of common stock, $0.0001 par value, as of February 25, 2019.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for the annual meeting of stockholders, to be held on June 13, 2019, are incorporated by reference into Part III of this Form 10-K.


TITAN INTERNATIONAL, INC.
Index to Annual Report on Form 10-K
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2


FORWARD-LOOKING STATEMENTS
This Form 10-K 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. You can identify these statements by the fact that they do not relate strictly to historical or current facts. We have 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, statements relating to the following:
•
The Company's financial performance;
•
Anticipated trends in the Company’s business;
•
Expectations with respect to the end-user markets into which the Company sells its products (including agricultural equipment, earthmoving/construction equipment, and consumer products);
•
Future expenditures for capital projects;
•
The Company’s ability to continue to control costs and maintain quality;
•
The Company's ability to meet conditions of loan agreements;
•
The Company’s business strategies, including its intention to introduce new products;
•
Expectations concerning the performance and success of the Company’s existing and new products; and
•
The Company’s intention to consider and pursue acquisition and divestiture opportunities.
Readers of this Form 10-K 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 those in Part 1, Item 1A of this report, “Risk Factors,” certain of which are beyond the Company’s control.

Actual results could differ materially from those expressed in, or implied by, these forward-looking statements as a result of various factors, including:
•
The effect of a recession on the Company and its customers and suppliers;
•
Changes in the Company’s end-user markets into which the Company sells its products as a result of world economic or regulatory influences or otherwise;
•
Changes in the marketplace, including new products and pricing changes by the Company’s competitors;
•
Ability to maintain satisfactory labor relations;
•
Unfavorable outcomes of legal proceedings;
•
The Company's ability to comply with current or future regulations applicable to the Company's business and the industry in which it competes or any actions taken or orders issued by regulatory authorities;
•
Availability and price of raw materials;
•
Levels of operating efficiencies;
•
The effects of the Company's indebtedness and its compliance with the terms thereof;
•
Changes in the interest rate environment and their effects on the Company's outstanding indebtedness;
•
Unfavorable product liability and warranty claims;
•
Actions of domestic and foreign governments, including the imposition of additional tariffs;
•
Geopolitical and economic uncertainties relating to the countries in which the Company operates or does business;
•
Risks associated with acquisitions, including difficulty in integrating operations and personnel, disruption of ongoing business, and increased expenses;
•
Results of investments;
•
The effects of potential processes to explore various strategic transactions, including potential dispositions;
•
Fluctuations in currency translations;
•
Climate change and related laws and regulations;

3


•
Risks associated with environmental laws and regulations;
•
Risks relating to our manufacturing facilities, including that any of our material facilities may become inoperable; and
•
Risks related to financial reporting, internal controls, tax accounting, and information systems.
Any changes in such factors could lead to significantly different results.  Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements.  Forward-looking statements 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 document 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.


PART I

ITEM 1 – BUSINESS

OVERVIEW
Titan International, Inc., together with its subsidiaries (Titan or the Company), is a global wheel, tire, and undercarriage industrial manufacturer and supplier that services customers across the globe.  Titan traces its roots to the Electric Wheel Company in Quincy, Illinois, which was founded in 1890.  Titan was originally incorporated in 1983 and has increased its global footprint and enhanced product offerings through major acquisitions which include the following:
•
2005 - The Goodyear Tire & Rubber Company’s North American farm tire assets
•
2006 - Off-the-road (OTR) tire assets of Continental Tire North America
•
2011 - The Goodyear Tire & Rubber Company's Latin American farm tire business
•
2012 - 56% controlling interest in Planet Corporation Group, now known as Titan Australia
•
2013/2014 - a noncontrolling interest in Voltyre-Prom, a leading producer of agricultural and industrial tires, which owns and operates an over two million square foot manufacturing facility located in Volgograd Russia; and
•
2018 - the remaining 44% interest in Titan Australia

As a leading manufacturer in the off-highway industry, Titan produces a broad range of products to meet the specifications of original equipment manufacturers (OEMs) and aftermarket customers in the agricultural, earthmoving/construction, and consumer markets.  As a manufacturer of both wheels and tires, the Company is well positioned to offer customers added value through complete wheel and tire assemblies.

BUSINESS SEGMENTS
Titan designs and manufactures products for OEMs and aftermarket customers in the agricultural, earthmoving/construction, and consumer markets. For additional information concerning the revenues, expenses, income from operations, and assets attributable to each of the segments in which the Company operates, see Note 28 to the Company's consolidated financial statements, included in Item 8 of this annual report.

AGRICULTURAL SEGMENT
Titan’s agricultural rims, wheels, tires, and undercarriage systems and components are manufactured for use on various agricultural equipment, including tractors, combines, skidders, plows, planters, and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers, and Titan’s distribution centers.  The wheels and rims range in diameter from nine inches to 54 inches, with the 54-inch diameter being the largest agricultural wheel manufactured in North America.  Basic configurations are combined with distinct variations (such as different centers and a wide range of material thickness) allowing the Company to offer a broad line of products to meet customer specifications. Titan’s agricultural tires range from approximately one foot to approximately seven feet in outside diameter and from five inches to 55 inches in width.  The Company offers the added value of delivering a complete wheel and tire assembly to OEM and aftermarket customers.


4


EARTHMOVING/CONSTRUCTION SEGMENT
The Company manufactures rims, wheels, tires, and undercarriage systems and components for various types of OTR earthmoving, mining, military, construction, and forestry equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks, backhoe loaders, crawler tractors, lattice cranes, shovels, and hydraulic excavators.  The earthmoving/construction market, in general, is often referred to as OTR, an acronym for off-the-road.  The Company provides OEM and aftermarket customers with a broad range of earthmoving/construction wheels ranging in diameter from 15 inches to 63 inches and in weight from 125 pounds to 7,000 pounds.  The 63-inch diameter wheel is the largest manufactured in North America for the earthmoving/construction market. Titan’s earthmoving/construction tires range from approximately three feet to approximately 13 feet in outside diameter and in weight from 50 pounds to 12,500 pounds.  The Company offers the added value of wheel and tire assembly for certain applications in the earthmoving/construction segment.

CONSUMER SEGMENT
Titan manufactures bias truck tires in Latin America and light truck tires in Russia.  Titan also offers select products for ATVs, turf, and golf cart applications. This segment also includes sales that do not readily fall into the Company's other segments.

COMPETITIVE STRENGTHS
Titan’s strong market position in the off-highway wheel, tire, and undercarriage market and its long-term core customer relationships contribute to the Company’s competitive strengths.  Titan's production of both wheels and tires enables the Company to provide a one-stop solution for its customers' wheel and tire assembly needs. These strengths, along with Titan’s dedication to the off-highway equipment market, continue to drive the Company forward.

•
Strong Market Position
As a result of Titan’s offering of a broad range of specialized wheels, tires, assemblies, and undercarriage systems and components, Titan is a leader in the global off-highway market.  Through an extensive dealer network and sales force, the Company is able to reach an increasing number of aftermarket and OEM customers and build Titan’s image and brand recognition.  The Company’s production of the Goodyear Farm Tire brand in North America, Latin America, Europe, Middle East and Africa contributes to overall visibility and customer confidence. Additionally, the 2013 acquisition of Voltyre-Prom expanded Titan's footprint into the Commonwealth of Independent States (CIS) region. Years of product design and engineering experience have enabled Titan to improve existing products and develop new ones, such as Low Sidewall (LSW®), that have been well received in the marketplace.  Titan believes it has benefited from significant barriers to entry, such as the substantial investment necessary to replicate the Company’s manufacturing equipment and numerous tools, dies and molds, many of which are used in custom processes.

•
Wheel and Tire Manufacturing Capabilities
The Company’s position as a manufacturer of both wheels and tires allows Titan to mount and deliver one of the largest selections of off-highway assemblies in North America. Both standard and LSW assemblies are delivered as a single, complete unit based on each customer’s specific requirements. Titan offers this value-added service for wheel and tire assemblies for the agricultural, earthmoving/construction, and consumer segments.  

•
Long-Term Core Customer Relationships
The Company’s top customers, including global leaders in agricultural and construction equipment manufacturing, have been purchasing products from Titan or its predecessors for numerous years.  Customers including AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company, Hitachi, Ltd., Kubota Corporation, Liebherr, and AB Volvo have helped sustain Titan’s market leading position in wheel, tire, assembly, and undercarriage products.

BUSINESS STRATEGY
Titan’s strategy is to become the worldwide leader in manufacturing and distribution of wheels, tires, assemblies and undercarriage products and to serve our customers' needs through product innovation and quality service in our key markets: agriculture, earthmoving/construction, and consumer. Other strategic considerations include:

•
Tire Technology
The Company has developed an LSW tire technology, featuring a larger rim diameter and a smaller sidewall than standard tires. With LSW tire technology, which has been widely adopted within the automotive industry, users experience reduced power hop, road lope, soil compaction, and fuel consumption as well as improved safety and performance. Both power hop and road lope can disturb ride quality and impede equipment performance. The benefits correspond to Titan’s markets through superior comfort, ride and fuel economy. Titan continues to enhance the LSW technology and expand its LSW product and other tire offerings in both the agricultural and construction segments.


5


•
Increase Aftermarket Tire Business
The Company has concentrated on increasing Titan's presence in the tire aftermarket, which historically has been somewhat less cyclical than the OEM market. The aftermarket also offers the potential for higher profit margins and is a larger market. Titan’s strategy to enhance the Company's aftermarket platform focuses on improving the customer experience and product positioning in key sales markets. To support this strategy, the Company has maintained and supported Titan's salesforce for the tire aftermarket throughout the recent industry downturn.

•
Improve Operating Efficiencies
The Company regularly works to improve the operating efficiency of assets and manufacturing facilities. Titan integrates each facility’s strengths through, among others, transfer of equipment and business to the facilities that are best equipped to handle the work, which enables Titan to increase utilization and spread operating costs over a greater volume of products. Titan continues to implement a comprehensive program to refurbish, modernize, and enhance the technology of its manufacturing equipment. Titan has also made investments to streamline processes, increase productivity, and lower costs in the selling, general and administrative areas.

•
Enhance Design Capabilities and New Product Development
Equipment manufacturers constantly face changing industry dynamics. Titan directs its business and marketing strategy to understand and address the needs of customers and demonstrate the advantages of products. In particular, the Company often collaborates with customers in the design of new and enhanced products and recommends modified products to customers based on the Company's own market information. These value-added services enhance Titan’s relationships with customers. The Company tests new designs and technologies and develops manufacturing methods to improve product quality, performance, and cost.

•
Explore Additional Strategic Acquisitions
The Company’s expertise in the manufacture of off-highway wheels, tires, and undercarriage systems and components has permitted it to take advantage of opportunities to acquire businesses that complement this product line. In the future, Titan may make additional strategic acquisitions of businesses that have an off-highway focus. The Company continually explores worldwide opportunities to expand its manufacturing and distribution capabilities in order to serve new and existing geographies.

 COMPETITION
The Company competes with several domestic and international companies, some of which are larger and have greater financial and marketing resources than Titan.  The Company believes it is a primary source of steel wheels and rims to the majority of its North American customers.  Major competitors in the off-highway wheel market include GKN Wheels, Ltd., Trelleborg Group, and Topy Industries, Ltd.  Significant competitors in the off-highway tire market include Alliance Tire Company Ltd., Balkrishna Industries Limited (BKT), Bridgestone/Firestone, Michelin, Mitas a.s., and Pirelli. Significant competitors in the undercarriage market include Berco and Caterpillar.
 
The Company competes on the basis of price, quality, sales support, customer service, design capability, and delivery time.  The Company's position of manufacturing both the wheel and the tire allows Titan to provide innovative assembly solutions for our customers, creating a competitive advantage in the marketplace. The Company’s ability to compete with international competitors may be adversely affected by various factors, including currency fluctuations and tariffs imposed by domestic and foreign governments.  Titan owns the molds and dies used to produce its wheels and tires. However, certain of the Company’s OEM customers could elect to manufacture their own products to meet their requirements or to otherwise compete with the Company.  The Company may be adversely affected by increased competition in the markets in which it operates, or competitors developing products that are more effective, less expensive, or otherwise rendering certain of Titan’s products less competitive.  From time to time, certain of the Company’s competitors have reduced their prices in particular product categories, which has prompted Titan to reduce prices as well.  There can be no assurance that competitors of the Company will not further reduce prices in the future or that any such reductions would not have a material adverse effect on the Company.

OPERATIONS
Titan’s operations include manufacturing wheels, manufacturing tires, combining these wheels and tires into assemblies, and manufacturing undercarriage systems and components for use in the agricultural, earthmoving/construction, and consumer markets.  These operations entail many manufacturing processes in order to complete the finished products.


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•
Wheel Manufacturing Process
Most agricultural wheels are produced using a rim and a center disc. A rim is produced by first cutting large steel sheets to required width and length specifications. These steel sections are rolled and welded to form a circular rim, which is flared and formed in the rollform operation. The majority of discs are manufactured using presses that both blank and form the center to specifications in multiple stage operations. The Company e-coats wheels using a multi-step process prior to the final paint top coating.
 
Large earthmoving/construction steel wheels are manufactured from hot and cold-rolled steel sections. Hot-rolled sections are generally used to increase cross section thickness in high stress areas of large diameter wheels. A special cold forming process for certain wheels is used to increase cross section thickness while reducing the number of wheel components. Rims are built from a series of hoops that are welded together to form a rim base. The complete rim base is made from either three or five separate parts that lock together after the rubber tire has been fitted to the wheel, the parts have been fully assembled, and the assembly inflated.
 
For most wheels in our consumer segment, the Company manufactures rims and center discs from rolled and flat steel. Rims are rolled and welded, and discs are stamped and formed from the sheets. The manufacturing process then entails welding the rims to the centers and painting the assembled product.

•
Tire Manufacturing Process
The first stage in tire production is the mixing of rubber, carbon black, and chemicals to form various rubber compounds. These rubber compounds are then extruded and processed with textile or steel materials to make specific components. These components – beads (wire bundles that anchor the tire with the wheel), plies (layers of fabric that give the tire strength), belts (fabric or steel fabric wrapped under the tread in some tires), tread, and sidewall – are then assembled into an uncured tire carcass. The uncured carcass is placed into a press that molds and vulcanizes the carcass under set time, temperature, and pressure into a finished tire.

•
Wheel and Tire Assemblies
The Company’s position as a manufacturer of both wheels and tires allows Titan to mount and deliver one of the largest selections of off-highway assemblies in North America. Titan offers this value-added service of one-stop solution for wheel and tire assemblies for the agricultural, earthmoving/construction, and consumer segments. Both standard and LSW assemblies are delivered as a single, complete unit based on each customer’s unique requirements.

•
Undercarriage Manufacturing Process
The undercarriage components (track groups, track and carrier rollers, idler assemblies, and sprockets) are all manufactured from steel and produced according to customer specifications.

All of the track groups produced by the Company are built from four major parts: shoes, right and left hand links, pins, and bushings. Shoes are manufactured from steel cast in the Company foundry or obtained from different shapes of hot rolled profiles (depending on application), sheared to length, and then heat treated for high wear bending and breaking resistance. Right and left hand links are hot forged, trimmed, mass heat treated, machined, and finally induction hardened on rail surface for optimal wear and fatigue resistance. Pins are made from round bars that are cut, machined, heat treated, and surface finished. Bushings are generally cold extruded, machined, mass heat treated, and finally carburized or induction hardened for wear resistance and optimal toughness.
 
The lifetime lubricated and maintenance-free track and carrier rollers are assembled with two major components: single or double flange roller shells (typically hot forged in halves, deep hardened, friction or arc welded, and finish machined with metallurgical characteristics depending upon size and application) and shafts (generally cut from bars or forged, mass heat treated, rough machined, induction hardened, and ground).
 
The idler assemblies are also lifetime lubricated, for virtually no maintenance. They are offered with cast (single web or hollow design) or fabricated shells, depending on size and application, and feature induction-hardened tread surfaces for optimal wear resistance.
 
The sprockets, designed to transfer the machine driving loads from the final drive to the track, are produced cast or forged in several geometric options, depending upon size and application. They are also heat treated for wear resistance and cracking resistance.
 
The undercarriage systems, custom designed and produced by the Company, consist of a structured steel fabricated frame, all the undercarriage components mentioned above (track groups, track and carrier rollers, idler assemblies, and sprockets) and a final drive. They are completely assembled in house, for consistent quality.

7



•
Quality Control
The Company is ISO certified at all four main domestic manufacturing facilities located in Bryan, Ohio; Des Moines, Iowa; Freeport, Illinois; and Quincy, Illinois, as well as the majority of the foreign manufacturing facilities.  The ISO series is a set of related and internationally recognized standards of management and quality assurance.  The standards specify guidelines for establishing, documenting, and maintaining a system to ensure quality.  The ISO certifications are a testament to Titan’s dedication to providing quality products for its customers.

•
International Operations
The Company operates manufacturing facilities in Latin America, Europe and Russia. The Latin American, European and Russian operations accounted for 17%, 23%, and 6% of the Company's net sales, respectively, for the year ended December 31, 2018 and 19%, 21% and 7% of net sales, respectively, for the year ended December 31, 2017.

RAW MATERIALS
Steel, natural rubber, synthetic rubber, carbon black, bead wire, and fabric are the primary raw materials used by the Company.  To ensure a consistent steel supply, Titan purchases raw steel from various steel mills and maintains relationships with steel processors for steel preparation.  The Company is not dependent on any single producer for its steel supply; however, some components do have limited suppliers.  Rubber and other raw materials for tire manufacture represent some of the Company’s largest commodity expenses.  Titan has developed a procurement strategy and practice designed to mitigate price risk and lower cost. Titan buys rubber in markets where there are usually several sources of supply.  In addition to the development of key domestic suppliers, the Company’s strategic procurement plan includes international steel and rubber suppliers to assure competitive price and quality in the global marketplace.  As is customary in the industry, the Company does not have long-term contracts for the purchase of steel or rubber and, therefore, purchases are subject to price fluctuations.

RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company’s research, development, and engineering staff tests original designs and technologies and develops new manufacturing methods to improve product performance.  Titan’s engineering and manufacturing resources are focused on designing quality products that address the needs of our customers and end-users across the markets that Titan serves.  Titan’s team of experienced engineers continuously work on new and improved engineered solutions that evolve with today’s applications for the off-highway wheel, tire, and assembly markets. Titan's advantage as both a wheel and tire manufacturer allows the Company to design, test, and bring to market innovative solutions to meet the specific needs of its customers. For example, Titan has developed the LSW technology, featuring a larger rim diameter and a smaller sidewall than standard tires, which helps reduce power hop, road lope, soil compaction, and provides improved safety and performance. Research and development (R&D) expenses are expensed as incurred.  R&D costs were $11.1 million, $10.3 million, and $10.0 million for the years ending December 31, 2018, 2017, and 2016, respectively.

CUSTOMERS
Titan’s 10 largest customers accounted for 35% of net sales for the year ended December 31, 2018, and 32% for the year ended December 31, 2017.  No customer accounted for 10% or more of Titan's net sales in 2018.  Management believes the Company is not dependent on any single customer; however, certain products are dependent on a few customers.  While the loss of any substantial customer could impact Titan’s business, the Company believes that its diverse product mix and customer base should minimize a longer-term impact caused by any such loss.

ORDER BACKLOG
The Company's backlog of orders is not considered material to, or a significant factor in, evaluating and understanding any of the Company's business segments or Titan's businesses considered as a whole.

MARKETING AND DISTRIBUTION
The Company employs an internal sales force and utilizes several manufacturing representative firms for sales in North America, Europe, Latin America, the CIS region, and other worldwide locations.  Sales representatives are primarily organized within geographic regions.

Titan distributes wheels, tires, assemblies, and undercarriage systems directly to OEMs. The distribution of aftermarket tires occurs primarily through a network of independent and OEM-affiliated dealers.


8


SEASONALITY
Agricultural equipment sales are seasonal by nature.  Farmers generally order equipment to be delivered before the growing season.  Shipments to OEMs in the agricultural industry in the U.S. and Europe usually peak during the Company’s first and second quarters for the spring planting period, while shipments in Latin America usually peak during the Company's second and third quarters for the fall planting period.  Earthmoving/construction and consumer segments have historically experienced higher demand in the first and second quarters.  These segments are affected by mining, building, and economic conditions.

EMPLOYEES
At December 31, 2018, the Company employed approximately 6,300 people worldwide, including approximately 4,300 located outside the United States.

At December 31, 2018, the employees at each of the Company's Bryan, Ohio; Freeport, Illinois; and Des Moines, Iowa facilities, which collectively account for approximately 38% of the Company’s U.S. employees, were covered by collective bargaining agreements which expire in November 2021.

Outside the United States, the Company enters into employment agreements in those countries in which such relationships are mandatory or customary. The provisions of these agreements generally correspond in each case with the required or customary terms in the subject jurisdiction.

PATENTS, TRADEMARKS, AND ROYALTIES
The Company owns various patents and trademarks and continues to apply for patent protection for new products.  Due to the difficult nature of predicting the interpretation of patent laws, the Company cannot anticipate or predict any material adverse effect on its operations, cash flows, or financial condition to the extent the Company is unable to protect its patents or should the Company be found to be infringing others' patents.

The Company has trademark license agreements with The Goodyear Tire & Rubber Company to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. Each of these agreements expire in 2025. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America under the Goodyear name.

ENVIRONMENTAL LAWS AND REGULATIONS
It is our policy to conduct our global operations in accordance with all applicable laws, regulations and other requirements.
In the ordinary course of business, similar to other industrial companies, Titan is subject to extensive and evolving federal, state, and local environmental laws and regulations, and has made provisions for the estimated financial impact of potential environmental cleanup.  The Company’s policy is to accrue environmental cleanup-related costs of a non-capital nature when those costs are believed to be probable and can be reasonably estimated.  Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are capitalized. The Company does not currently anticipate any material capital expenditures for environmental control facilities.  The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advances in environmental technologies, the quality of information available related to specific sites, the assessment stage of the site investigation, preliminary findings, and the length of time involved in remediation or settlement.  Due to the difficult nature of predicting future environmental costs, the Company cannot anticipate or predict the material adverse effect on its operations, cash flows, or financial condition as a result of efforts to comply with, or its liabilities under, environmental laws.


9


AVAILABLE INFORMATION
The Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports are made available, without charge, through the Company’s website located at www.titan-intl.com as soon as reasonably practicable after they are filed with the Securities and Exchange Commission (SEC).  You can also obtain copies of these materials by visiting the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, by calling the SEC at 800-SEC-0330, or by accessing the SEC’s website at www.SEC.gov.  The following documents are also posted on the Company’s website:
 
•
Corporate Governance Policy
•
Code of Business Conduct
•
Audit Committee Charter
•
Compensation Committee Charter
•
Nominating Committee Charter
•
Corporate Governance Committee Charter
 
Printed copies of these documents are available, without charge, by writing to:  Titan International, Inc.,
c/o Corporate Secretary, 2701 Spruce Street, Quincy, IL 62301.

The information on, or that may be accessed through, the aforementioned websites is not incorporated into this filing and should not be considered a part of this filing.


ITEM 1A – RISK FACTORS

The Company is subject to various risks and uncertainties that it believes are significant to our business. These risks relate to or arise out of the nature of the Company's business and overall business, economic, financial, legal, and other factors or conditions that may affect the Company. In addition to risks discussed elsewhere in this report, the following are factors that could, individually or in the aggregate, materially adversely affect the Company’s business, financial condition and results of operations and cause the Company's actual results to differ from past results and/or those anticipated, estimated or projected. In addition, other risks not presently known to the Company or that the Company currently believes to be immaterial may also adversely affect the Company’s business, financial condition and results of operations, perhaps materially. It is impossible to predict or identify all such risks and uncertainties and, as a result, you should not consider the following factors to be a complete discussion of all risks or uncertainties that may impact the Company’s business, financial condition or results of operations.

•
The Company is exposed to price fluctuations of key commodities.
The Company uses various raw materials, most significantly steel, natural rubber, synthetic rubber, carbon black, bead wire, and fabric in manufacturing its products across all of its market segments. The Company does not generally enter into long-term commodity contracts and does not use derivative commodity instruments to hedge exposures to commodity market price fluctuations.  Therefore, the Company is exposed to price fluctuations of key commodities.  Although the Company attempts to pass on certain material price increases to its customers, there is no assurance that the Company will be able to do so in the future.  Any increase in the price of steel and rubber that is not passed on to customers could result in declining margins and have a material adverse effect on Titan’s financial condition and results of operations.
 
•
The Company relies on a limited number of suppliers.
The Company currently relies on a limited number of suppliers for certain key commodities, which consist primarily of steel and rubber, in the manufacturing of Titan products.  If the Company’s suppliers are unable to provide raw materials to Titan in a timely manner, or are unable to meet our quality, quantity or cost requirements, the Company may not in all cases be able to promptly obtain substitute sources. Any extended delay in receiving critical materials could impair Titan’s ability to deliver products to its customers. The loss of key suppliers, the inability to establish relationships with replacement suppliers, or the inability of Titan's suppliers to meet price, quality, quantity, and delivery requirements could have a significant adverse impact on the Company’s results of operations.





10


•
The Company’s revolving credit facility and other debt obligations contain covenants that could limit the Company's financial and operational flexibility.
The Company’s revolving credit facility, the indenture relating to the Company’s 6.50% senior secured notes due 2023 and other debt obligations contain covenants and restrictions that may impact the Company’s business. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Debt Restrictions” below for a further discussion of these covenants and restrictions. A breach of one or more of the covenants could result in adverse consequences that could negatively impact the Company's business, results of operations and financial condition. These consequences could limit Titan’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends, or to take advantage of business opportunities, including future acquisitions.  Titan’s ability to comply with the covenants may be affected by events beyond its control, including prevailing economic, financial, and industry conditions.
 
•
The Company operates in cyclical industries and is subject to changes in the economy.
The Company's sales are substantially dependent on three major industries: agricultural equipment, earthmoving/construction equipment, and consumer products.  The business activity levels in these industries are subject to specific industry and general economic cycles.  Any downturn in these industries or the general economy could drive decreases in demand for Titan’s products and have a material adverse effect on Titan’s business.
 
The agricultural equipment industry is affected by crop prices, farm income and farmland values, weather, export markets, and government policies. The earthmoving/construction industry is affected by the levels of government and private construction spending and replacement demand. The mining industry, which is within the earthmoving/construction industry, is affected by raw material commodity prices. The consumer products industry is affected by consumer disposable income, weather, competitive pricing, energy prices, and consumer attitudes. In addition, the performance of these industries is sensitive to interest rate and foreign exchange rate changes and varies with the overall level of economic activity. The cyclicality and volatility of the industries on which our sales are substantially dependent results in significant fluctuations in profits and cash flow from period to period and over the business cycle.

•
The Company’s revenues are seasonal in nature due to Titan’s dependence on seasonal industries.
The agricultural, earthmoving/construction, and consumer markets are seasonal, with typically lower sales during the second half of the year. This seasonality in demand has resulted in fluctuations in the Company’s revenues and operating results between the first half and the second half of the year.  Because much of Titan’s overhead expenses are fixed, seasonal trends can cause volatility in profit margins and Titan's financial condition, especially during slower periods. 

•
The Company’s customer base is relatively concentrated.
The Company’s ten largest customers, which are primarily original equipment manufacturers (OEMs), accounted for 35% of Titan’s net sales for 2018. No customer accounted for 10% or more of Titan's net sales in 2018. Titan’s business could be adversely affected if one of its larger customers reduces, or otherwise eliminates in full, its purchases from Titan due to work stoppages or slow-downs, financial difficulties, as a result of termination provisions, competitive pricing, or other reasons.  There is also continuing pressure from OEMs to reduce costs, including the cost of products and services purchased from outside suppliers such as Titan, and in that regard OEMs may develop in-house tire and wheel capabilities.  There can be no assurance that Titan will be able to maintain its long-term relationships with its major customers which could have an adverse effect on the Company's results of operations.
 
•
The Company may be adversely affected by changes in government regulations and policies.
Domestic and foreign political developments and government regulations and policies directly affect the agricultural, earthmoving/construction, and consumer products industries in the United States and abroad. Regulations and policies in the agricultural industry such as those concerning greenhouse gas emissions in the United States and ongoing U.S. budget issues could negatively impact the Company's business. The earthmoving/construction industry is affected by changes in construction activity, housing starts, and other regulations related to the mining and the construction of roads, bridges, and infrastructure. The modification or adoption of existing laws, regulations, or policies could have an adverse effect on any one or more of these industries and, therefore, on Titan’s business.




 

11


•
The Company is subject to corporate governance requirements, and costs related to compliance with, or failure to comply with, existing and future requirements could adversely affect Titan’s business.
The Company is subject to corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as rules and regulations of the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB), and the New York Stock Exchange (NYSE). These laws, rules, and regulations continue to evolve and may become increasingly restrictive in the future. Failure to comply with these laws, rules, and regulations may have a material adverse effect on Titan’s reputation, financial condition, and the value of the Company’s securities.
 
•
The Company is subject to risks associated with maintaining adequate disclosure controls and internal controls over financial reporting.
Failure to maintain adequate financial and management processes and controls could affect the accuracy and timing of the Company's financial reporting. Testing and maintaining effective internal control over financial reporting and disclosures involves significant costs and could divert management's attention from other matters that are important to Titan's business. If the Company does not maintain adequate financial and management personnel, processes, and controls, it may not be able to accurately report its financial performance on a timely basis, the Company may be otherwise unable to comply with the periodic reporting requirements of the Securities and Exchange Commission and the listing of the Company’s common stock on the NYSE could be suspended or terminated, each of which could have a material adverse effect on the confidence in the Company's financial reporting, its credibility in the marketplace, and the trading price of Titan's common stock.

•
The Company faces substantial competition from domestic and international companies.
The Company competes with several domestic and international competitors, some of which are larger and have greater financial and marketing resources than Titan.  Titan competes on the basis of price, quality, sales support, customer service, design capability, and delivery time.  The Company’s ability to compete with international competitors may be adversely affected various factors including, currency fluctuations and tariffs imposed by domestic and foreign governments.  In addition, certain OEM customers could elect to manufacture certain products to meet their own requirements or to otherwise compete with Titan. The success of the Company's business depends in large part on its ability to provide comprehensive wheel and tire assemblies to its customers. The development or enhancement by Titan's competitors of similar capabilities could adversely affect its business.

There can be no assurance that Titan’s businesses will not be adversely affected by increased competition in the Company’s markets, or that competitors will not develop products that are more effective or less expensive than Titan products or which could render certain products less competitive.  From time to time certain competitors have reduced prices in particular product categories, which has caused Titan to reduce prices. There can be no assurance that in the future Titan’s competitors will not further reduce prices or that any such reductions would not have a material adverse effect on Titan’s business.

•
The Company may be affected by unfair trade.
Titan faces intense competition from producers both in the United States and around the world, some of which may engage in unfair trade practices.  For example, in early January 2016, Titan, along with the United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Worker International Union, AFL-CIO, CLC of Pittsburgh, Pennsylvania, filed petitions with the U.S. Department of Commerce (DOC) and the U.S. International Trade Commission (ITC) alleging that imported off-the-road tires from India and Sri Lanka and wheel and tire assemblies from China were being dumped and/or subsidized and were a cause of material injury to the domestic industry. Unfair trade may have a material adverse effect on Titan's business.

•
The Company could be negatively impacted if Titan fails to maintain satisfactory labor relations.
Titan is party to collective bargaining agreements covering a portion of the Company's workforce. If Titan is unable to maintain satisfactory labor relations with its employees covered by collective bargaining agreements, these employees could engage in strikes, or the Company may otherwise experience work slowdowns or be subject to other labor actions. Any such actions, and any other labor disputes with the Company’s employees domestically or internationally, could materially disrupt its operations. Future collective bargaining agreements may impose significant additional costs on Titan, which could adversely affect its financial condition and results of operations.







12


•
Unfavorable outcomes of legal proceedings could adversely affect results of operations.
The Company is a party to routine legal proceedings arising out of the normal course of business.  Due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict any material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of efforts to comply with, or its liabilities pertaining to, legal judgments. Any adverse outcome in any litigation involving Titan or any of its subsidiaries could negatively affect the Company's business, reputation, and financial condition.
 
•
Acquisitions/divestitures may require significant resources and/or result in significant losses, costs, or liabilities.
Any future acquisitions or divestitures will depend on the Company’s ability to identify suitable opportunities, to negotiate acceptable terms, and to finance acquisitions. Titan will also face competition for suitable acquisition candidates, which may increase costs. In addition, acquisitions and divestitures require significant managerial attention, which may be diverted from current operations. Furthermore, acquisitions and divestitures of businesses or facilities entail a number of additional risks and challenges including: integrating acquisitions with existing operations; and separating operations in connection with dispositions; applying internal controls and processes throughout the acquired business; potential disruption of the Company's ongoing business; inability to maintain key customer, supplier, and employee relationships; potential that transactions do not produce satisfactory returns on a timely basis or at all; and exposure to unanticipated liabilities.
 
International acquisitions or divestitures may be more complex and time consuming. Also, international acquisitions and divestitures may include a number of additional risks, including the integration of acquisitions or separation of divestitures in compliance with foreign laws and regulations and business and accounting systems.
 
Subject to the terms of its existing indebtedness, the Company may finance future acquisitions with cash from operations, additional indebtedness, and/or by issuing additional equity securities.  These commitments may impair the operation of Titan’s businesses.  In addition, the Company could face financial risks associated with incurring additional indebtedness, such as reducing liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.

•
The Company has international operations and purchases raw material from foreign suppliers.
The Company had total aggregate net sales outside the United States of approximately $890.5 million, $826.2 million, and $707.2 million for the years ended December 31, 2018, 2017, and 2016, respectively. Net sales outside the United States have become a significant proportion of total net sales, accounting for 56% of net sales for each of the years ending December 31, 2018, 2017, and 2016. Net sales from these international operations are expected to continue to represent a similar portion of total net sales for the foreseeable future.

International Operations and Sales – International operations and sales are subject to a number of risks, that are not generally applicable to Titan’s North American operations including, but not limited to, risks with respect to currency exchange rates, economic and political destabilization, other disruption of foreign markets, and restrictive actions by foreign governments (such as restrictions on transfer of funds, export duties, and quotas and foreign customs).  Other risks include changes in foreign laws regarding trade and investment; difficulties in establishing and maintaining relationships with respect to product distribution and support; nationalization; reforms of United States laws and policies affecting trade, restrictions on foreign investment, and restrictions on loans to foreign entities; and changes in foreign tax and other laws.  There may also be restrictions on the Company's ability to repatriate earnings and investments from international operations. There can be no assurance that one or a combination of these factors will not have a material adverse effect on the Company’s ability to increase or maintain its international sales.
 
Foreign Suppliers – The Company purchases raw materials from foreign suppliers.  The production costs, profit margins, and competitive position of the Company are affected by the strength of the currencies in countries where Titan purchases goods, relative to the strength of the currencies in countries where the products are sold.  The Company’s results of operations, cash flows, and financial position may be affected by fluctuations in foreign currencies.

•
The Company is subject to anti-corruption laws and regulations.
The Company has international operations and must comply with anti-corruption laws and regulations including the U.S. Foreign Corrupt Practices Act (FCPA). These anti-bribery laws generally prohibit companies and their intermediaries from making improper payments or providing anything of value for the purpose of obtaining or retaining business. The FCPA prohibits these payments regardless of local customs and practices. Safeguards that Titan may implement to discourage these practices could prove to be ineffective, and violations of these laws may result in criminal or civil sanctions or other liabilities or proceedings against Titan and could adversely affect the Company's business and reputation.

13


  
•
The Company may be subject to product liability and warranty claims.
The Company warrants its products to be free of certain defects and, accordingly, may be subject, in the ordinary course of business, to product liability or product warranty claims.  Losses may result or be alleged to result from defects in Titan products, which could subject the Company to claims for damages, including consequential damages.  There can be no assurance that the Company's insurance coverage will be adequate for liabilities actually incurred or that adequate insurance will be available on terms acceptable to the Company. Any claims relating to defective products that result in liability exceeding Titan’s insurance coverage could have a material adverse effect on Titan's financial condition and results of operations. Further, claims of defects could result in negative publicity against Titan, which could adversely affect the Company’s business and reputation.


•
The Company may be adversely affected by a disruption in, or failure of, information technology systems.
In the ordinary course of business, the Company relies upon information technology systems, some of which are managed by third parties, to process, transmit, and store electronic information. Technology systems are used in a variety of business processes and activities, including purchasing, manufacturing, distribution, invoicing, and financial reporting. The Company utilizes security measures and business continuity plans to prevent, detect, and remediate damage from computer viruses, natural disasters, unauthorized access (whether through cybersecurity attacks or otherwise), utility failures, and other similar disruptions. Despite Titan's security measures and safeguards, a security breach or information technology system interruption or failure may disrupt and affect the Company's business, resulting in customer dissatisfaction, potential legal claims and adversely affect Titan’s results of operations and financial conditions. There can be no assurance that any such security measures or plans will be sufficient to mitigate all potential risks to Titan's systems, networks, and information. Further a significant theft, loss, or fraudulent use of customer or employee information could adversely impact the Company's reputation and could result in unauthorized release of confidential or otherwise protected information, significant costs, fines, and litigation, including with respect to enhanced cybersecurity protection and remediation costs. The Company is currently undergoing upgrades and improvements to its core enterprise resource planning (ERP) systems which are ‘cloud based’. Despite adequate security measures, these systems are vulnerable to disruption of service and security breaches as mentioned above. Further, investment in the ‘cloud based’ systems may have an adverse impact on short-term results of operations and financial condition.

•
The Company is subject to governmental laws, regulations and other legal obligations related to privacy and data protection.
The legislative and regulatory framework for privacy and data protection issues worldwide is rapidly evolving and is likely to remain uncertain for the foreseeable future. Titan collects personally identifiable information (PII) and other data as integral parts of its business processes and activities. This data is subject to a variety of U.S. and international laws and regulations, including oversight by various regulatory or other governmental bodies. Many foreign countries and governmental bodies, including the European Union, Canada, and other relevant jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdiction that are more restrictive than those in the U.S. Additionally, in 2016, the European Union adopted the General Data Protection Regulation (GDPR) that imposes more stringent data protection requirements and provides for greater penalties for noncompliance. Any inability, or perceived inability, to adequately address privacy and data protection concerns, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations, or other legal obligations could result in additional cost and liability to the Company or Company officials, damage our reputation, inhibit sales, and otherwise adversely affect our business.

•
The Company is subject to risks associated with climate change regulations.
Governmental regulatory bodies in the United States and other countries have adopted, or are contemplating introducing regulatory changes in response to the potential impacts of climate change.  Laws and regulations regarding climate change and energy usage may impact the Company directly through higher costs for energy and raw materials.  The Company’s customers may also be affected by climate change regulations that may impact future purchases of the Company's products.  Physical climate change may potentially have a large impact on the Company’s two largest industry segments, agriculture and earthmoving/construction.  The potential impacts of climate change and climate change regulations are highly uncertain at this time, and the Company cannot anticipate or predict any material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of climate change and climate change regulations.

 

14


•
The Company is subject to risks associated with environmental laws and regulations.
The Company’s operations are subject to federal, state, local, and foreign laws and regulations governing, among other things, emissions to air, discharge to waters, and the generation, handling, storage, transportation, treatment, and disposal of waste and other materials.  The Company’s operations entail risks in these areas, and there can be no assurance that Titan will not incur material costs or liabilities.  In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations, or requirements that may be adopted or imposed in the future. Titan’s customers may also be affected by environmental laws and regulations that may impact future purchases of the Company's products.  
 
•
The Company is subject to foreign currency translation risk.
The Company operates in many worldwide locations and transacts business in many foreign currencies. Titan's financial statements are reported in U.S. dollars with financial statements of international subsidiaries being initially recorded in foreign currencies and translated into U.S. dollars. Large fluctuations in currency exchange rates between the U.S. dollar and other global currencies may have a material adverse impact on the Company's financial condition, results of operations, and liquidity.  

•
The Company may incur additional tax expense or tax exposure.
The Company is subject to income taxes in the United States and numerous foreign jurisdictions, and has domestic and international tax liabilities which are dependent upon the distribution of income among these different jurisdictions. Titan's income tax provision and cash tax liability in the future could be adversely affected by numerous factors, including income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws and regulations. 

•
The Company is subject to risks related to uncertainties in global and regional economic conditions.
Our results of operations are materially affected by economic conditions globally, regionally and in the particular industries we serve. The demand for our products tends to be cyclical and can be significantly reduced in periods of economic weakness characterized by lower levels of government and business investment, lower levels of business confidence, lower corporate earnings, high real interest rates, lower credit activity or tighter credit conditions, higher unemployment and lower consumer spending. Economic conditions vary across regions and countries, and demand for our products generally increases in those regions and countries experiencing economic growth and investment. Slower economic growth or a change in the global mix of regions and countries experiencing economic growth and investment could have an adverse effect on our business, results of operations and financial condition.

•
The Company is not insured against all potential losses and could be harmed by natural disasters, catastrophes, or sabotage.
The Company's business activities involve substantial investments in manufacturing facilities and products are produced at a limited number of locations. These facilities could be materially damaged, including as a result of natural disasters, such as fires, floods, tornadoes, hurricanes, and earthquakes, or by sabotage. The Company could incur uninsured losses and liabilities arising from such events, as well as damage to its reputation, and/or suffer material losses in operational capacity and efficiency, which could have a material adverse impact on Titan's business, financial condition, and results of operations.

ITEM 1B – UNRESOLVED STAFF COMMENTS

None.




15


ITEM 2 – PROPERTIES

The Company’s properties with total square footage above one million, all of which are owned by the Company,
are detailed by the location, size, and focus of each facility as provided in the table below (amounts in thousands):
 
 
Approximate square footage
 
 
 
 
Location
 
Owned
 
 
Use
 
Segment
Volzhsky, Russia
 
2,153

 
 
Manufacturing, distribution
 
All segments
Union City, Tennessee
 
2,149

 
 
Manufacturing, distribution
 
All segments
Des Moines, Iowa
 
1,930

 
 
Manufacturing, distribution
 
All segments
Sao Paulo, Brazil
 
1,282

 
 
Manufacturing, distribution
 
All segments
Quincy, Illinois
 
1,205

 
 
Manufacturing, distribution
 
All segments
Freeport, Illinois
 
1,202

 
 
Manufacturing, distribution
 
All segments


The Company’s total properties by continent are detailed by the location, size, and focus as provided in the table below (amounts in thousands):
 
 
Approximate square footage
 
 
 
 
Location
 
Owned
 
Leased
 
Use
 
Segment
North America
 
8,594

 
547

 
Manufacturing, distribution
 
All segments
Europe
 
3,911

 
18

 
Manufacturing, distribution
 
All segments
South America
 
2,897

 
95

 
Manufacturing, distribution
 
All segments
Australia
 
 
 
1,452

 
Manufacturing, distribution
 
All segments
Asia
 
646

 
273

 
Manufacturing, distribution
 
All segments

The Company considers each of its facilities to be in good condition and adequate for present use.  Management believes that the Company has sufficient capacity to meet current market demand with the active facilities.   

ITEM 3 – LEGAL PROCEEDINGS

The Company is subject, from time to time, to certain legal proceedings and claims arising out of the normal course of its business, which cover a wide range of matters, including environmental issues, product liability, contracts, and labor and employment matters. See Note 24 - Litigation in Part IV, Item 15, Notes to Consolidated Financial Statements of this Form 10-K for further discussion.

ITEM 4 – MINE SAFETY DISCLOSURES

None.


16


PART II

ITEM 5
– MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s common stock is traded on the New York Stock Exchange (NYSE) under the symbol TWI.  As of February 25, 2019, there were approximately 350 holders of record of Titan common stock.  

PERFORMANCE COMPARISON GRAPH
The performance graph below compares cumulative total return on the Company’s common stock over the past five years against the cumulative total return of the Standard & Poor’s 600 Agricultural & Farm Machinery Index, and against the Standard & Poor’s 500 Stock Index.  The graph depicts the value on December 31, 2018, of a $100 investment made on December 31, 2013, in Company common stock and each of the other two indices, with all dividends reinvested.  The stock price performance reflected below is based on historical results and is not necessarily indicative of future stock price performance.

The performance graph is not deemed to be “soliciting material” or to be “filed” with the SEC for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Titan under the Securities Act of 1933 or the Exchange Act.

chart-358a86621a985fed925.jpg

 
Fiscal Year Ended December 31,
 
2013
 
2014
 
2015
 
2016
 
2017
 
2018
Titan International, Inc.
$
100.00

 
$
59.21

 
$
22.01

 
$
62.79

 
$
72.28

 
$
26.22

S&P 500 Index
100.00

 
113.69

 
115.26

 
129.05

 
157.22

 
150.33

S&P 600 Agricultural & Farm Machinery Index (a)
100.00

 
93.06

 
87.83

 
120.35

 
143.03

 
114.99

(a) The S&P 600 Agricultural & Farm Machinery index was created March 2014. The index data above reflects the old S&P 600 Construction & Farm Machinery & Heavy Trucks index from 12/31/13 - 2/28/14 and the new S&P 600 Agricultural & Farm Machinery index from 3/31/14 - forward.


17


ITEM 6 – SELECTED FINANCIAL DATA

The selected financial data presented below, as of and for the years ended December 31, 2018, 2017, 2016, 2015, and 2014, are derived from the Company’s consolidated financial statements, as audited by Grant Thornton LLP, an independent registered public accounting firm, for the years ended December 31, 2018, 2017, 2016, 2015, and 2014, and should be read in conjunction with the Company’s Management’s Discussion and Analysis of Financial Condition and Results of Operations and our audited consolidated financial statements and notes thereto.
 
Year Ended December 31,
 (All amounts in thousands, except per share data)
2018
 
2017
 
2016
 
2015
 
2014
Net sales
$
1,602,408

 
$
1,468,922

 
$
1,265,497

 
$
1,394,771

 
$
1,895,527

Asset impairment and inventory write-down
—

 
9,917

 
—

 
—

 
39,932

Gross profit
198,266

 
160,311

 
141,415

 
136,583

 
144,533

Non-cash goodwill impairment charge
—

 
—

 
—

 
—

 
36,571

Income (loss) from operations
42,244

 
(11,151
)
 
(22,400
)
 
(25,505
)
 
(93,735
)
Loss on senior note repurchase
—

 
(18,646
)
 
—

 
—

 
—

Income (loss) before income taxes
19,807

 
(52,876
)
 
(36,474
)
 
(55,072
)
 
(151,109
)
Net income (loss)
13,045

 
(64,079
)
 
(39,755
)
 
(89,828
)
 
(129,705
)
Net loss attributable to noncontrolling interests
(3,042
)
 
(4,037
)
 
(2,150
)
 
(14,654
)
 
(49,964
)
Net income (loss) attributable to Titan
16,087

 
(60,042
)
 
(37,605
)
 
(75,174
)
 
(79,741
)
Net income (loss) per share – basic
0.06

 
(1.12
)
 
(.87
)
 
(1.73
)
 
(2.41
)
Net income (loss) per share – diluted
0.06

 
(1.12
)
 
(.87
)
 
(1.73
)
 
(2.41
)
Dividends declared per common share
0.02

 
0.02

 
0.02

 
0.02

 
0.02


 
As of December 31,
(All amounts in thousands)
2018
 
2017
 
2016
 
2015
 
2014
Working capital, excluding cash
$
322,728

 
$
266,701

 
$
215,250

 
$
246,279

 
$
339,027

Current assets
779,481

 
783,193

 
729,181

 
716,564

 
842,034

Total assets
1,251,256

 
1,290,112

 
1,265,896

 
1,273,793

 
1,501,828

Long-term debt (a)
409,572

 
407,171

 
408,760

 
475,443

 
496,503

Total equity
270,097

 
310,084

 
292,879

 
351,246

 
524,970

(a)
Excludes amounts due within one year and classified as a current liability.



ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements included in this annual report with a narrative from the perspective of the management of Titan International, Inc. (together with its subsidiaries, Titan, or the Company) on Titan’s financial condition, results of operations, liquidity, and other factors which may affect the Company’s future results. You should read the following discussion and analysis in conjunction with "Item 6. Selected Financial Data" and our consolidated financial statements and related notes in "Item 8. Financial Statements and Supplementary Data." The following discussion includes forward-looking statements about our business, financial condition, and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs, and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Forward-Looking Statements” and "Item 1A. Risk Factors."


18



BUSINESS
For a description of the Company’s business and segments see Item 1, Business, of Part I of this Annual Report on Form 10-K.


MARKET CONDITIONS AND OUTLOOK

AGRICULTURAL MARKET OUTLOOK
Agricultural market net sales were higher in 2018 when compared to 2017 due to increased volume and price/mix partially offset by unfavorable foreign currency translation. The current industry climate which includes lower crop prices and ongoing tariff battles is currently impacting the overall sentiment within the agricultural economy. Within North America, farm cash receipts are expected to grow slightly while farm income is anticipated to remain relatively stable when compared to 2018. Most major OEMs are forecasting modest growth in agricultural equipment sales (0%-5%) during 2019 within most regions. North American used equipment inventory has decreased from peak levels, while good condition, late model equipment values remain positive. The current age of the existing fleet and the need to replace equipment as part of a typical replacement cycle is expected to drive additional volume for larger equipment over time. Many variables, including weather, volatility in the price of commodities, grain prices, export markets, foreign currency exchange rates, government policies, subsidies and the demand for used equipment can greatly impact the Company's performance in the agricultural market in a given period.

EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
Earthmoving/construction market net sales were higher in 2018 when compared to 2017 mainly due to higher net sales volumes. Demand for larger construction equipment used for highways and infrastructure has been strong and mining industry equipment demand continued to strengthen within certain regions in 2018. Demand for our products in these markets is anticipated to continue to improve in 2019. Demand for small and medium-sized earthmoving/construction equipment used in the housing and commercial construction sectors is also anticipated to increase. 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
Consumer market net sales were down slightly in 2018 when compared to 2017 as unfavorable currency translation offset the sales volumes and price gains experienced in most regions. The consumer market consists of several different distinct product lines within different regions. These products include light truck tires, turf, specialty and train brakes. Overall, the Company expects modest growth within this market during 2019. The consumer segment is affected by many variables including consumer spending, interest rates, government policies, and other macroeconomic drivers.





19


SUMMARY OF RESULTS OF OPERATIONS

The following table sets forth the Company’s statement of operations expressed as a percentage of net sales for the periods indicated.  This table and subsequent discussions should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included elsewhere in this annual report.
 
As a Percentage of Net Sales
Year ended December 31,
 
2018
 
2017
 
2016
Net sales
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of sales
87.6

 
88.4

 
88.8

Asset impairment
—

 
0.7

 
—

Gross profit
12.4

 
10.9

 
11.2

Selling, general and administrative expenses
8.4

 
10.3

 
11.5

Research and development
0.7

 
0.7

 
0.8

Royalty expense
0.6

 
0.7

 
0.7

Income (loss) from operations
2.7

 
(0.8
)
 
(1.8
)
Interest expense
(1.9
)
 
(3.3
)
 
(2.6
)
Foreign exchange gain (loss)
(0.7
)
 
(0.1
)
 
0.7

Other income
1.2

 
0.6

 
0.8

Income (loss) before income taxes
1.3

 
(3.6
)
 
(2.9
)
Income tax provision
0.4

 
0.8

 
0.3

Net income (loss)
0.9
 %
 
(4.4
)%
 
(3.2
)%
Net loss attributable to noncontrolling interests
(0.2
)
 
(0.3
)
 
(0.2
)
Net income (loss) attributable to Titan
1.1
 %
 
(4.1
)%
 
(3.0
)%
 

In addition, the following table sets forth components of the Company’s net sales classified by segment:
 
(amounts in thousands)
2018
 
2017
 
2016
Agricultural
$
694,268

 
$
690,238

 
$
583,324

Earthmoving/construction
741,733

 
608,894

 
524,289

Consumer
166,407

 
169,790

 
157,884

Total
$
1,602,408

 
$
1,468,922

 
$
1,265,497




20


FISCAL YEAR ENDED DECEMBER 31, 2018, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2017

RESULTS OF OPERATIONS
 
Highlights for the year ended December 31, 2018, compared to 2017 (amounts in thousands):
 
2018
 
2017
 
% Increase (Decrease)
Net sales
$
1,602,408

 
$
1,468,922

 
9.1
 %
Cost of sales
1,404,142

 
1,298,694

 
8.1
 %
Asset impairment
—

 
9,917

 
n/a

Gross profit
198,266

 
160,311

 
23.7
 %
Selling, general and administrative expenses
134,789

 
150,676

 
(10.5
)%
Research and development expenses
11,146

 
10,302

 
8.2
 %
Royalty expense
10,087

 
10,484

 
(3.8
)%
Income (loss) from operations
42,244

 
(11,151
)
 
478.8
 %

Net Sales
Net sales for the year ended December 31, 2018, were $1.60 billion, compared to $1.47 billion for the year ended December 31, 2017, an increase of 9.1%, primarily resulting from an increase in net sales volume in all segments. This increase reflects general market improvements in the agricultural and construction sectors, coupled with market share increases, particularly in the undercarriage mining sector during 2018. Overall, net sales volume was up 7.7%. Favorable price/mix contributed to a 3.6% increase in net sales, partially offset by unfavorable currency translation which decreased net sales by 2.2%.

Cost of Sales and Gross Profit
Cost of sales was $1.40 billion for the year ended December 31, 2018, compared to $1.31 billion for 2017. Gross profit for 2018 was $198.3 million, or 12.4% of net sales, compared to $160.3 million, or 10.9% of net sales, for 2017. The increase in gross profit and margin was driven by increased sales volume and production efficiencies partially offset by higher material costs. In the fourth quarter of 2017, the Company recorded an asset impairment of $9.9 million related to a fire at one of its subsidiaries (see Note 18 to the Company's consolidated financial statements). Excluding the asset impairment, gross profit for 2017 would have been $170.2 million, or 11.6% of net sales.

Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year ended December 31, 2018, were $134.8 million, or 8.4% of net sales, down 10.5%, compared to $150.7 million, or 10.3% of net sales, for 2017.  The decrease in SG&A expenses was driven by $7.3 million in lower legal fees and $6.5 million related to a 2017 non-recurring legal contingent liability.

Research and Development Expenses
Research and development (R&D) expenses for the year ended December 31, 2018, were $11.1 million, or 0.7% of net sales, compared to $10.3 million, or 0.7% of net sales, for 2017. The increase in expenses was primarily attributable to higher amortization expense for product and technology investments made in 2018.

Royalty Expense
The Company has trademark license agreements with The Goodyear Tire & Rubber Company to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. Each of these agreements is scheduled to expire in 2025. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America which is scheduled to expire in June 2019. Royalty expenses for the year ended December 31, 2018, were $10.1 million, compared to $10.5 million for 2017.

Income (Loss) from Operations
Income from operations for the year ended December 31, 2018, was $42.2 million, or 2.7% of net sales, compared to loss of $11.2 million, or 0.8% of net sales, for 2017.  This improvement was primarily driven by growth in net sales and was the net result of the items previously discussed.



21


OTHER PROFIT/LOSS ITEMS

Interest Expense / Loss on Senior Note Repurchase
Interest expense for 2018 was $30.5 million; slightly above 2017's amount of $30.2 million, primarily due to stable debt and interest levels during the year. There was no activity related to the senior note repurchase for the year ended December 31, 2018, as compared to the $18.6 million loss for the comparable period in 2017. In 2017, the Company completed a tender offer settlement and redemption of all of its outstanding $400.0 million principal amount of Titan's 6.875% senior secured notes due 2020.

Foreign Exchange Gain (Loss)
Foreign currency loss was $11.2 million for the year ended December 31, 2018, compared to a loss of $2.0 million for the year ended December 31, 2017. Foreign currency gain or loss is the result of the translation of intercompany loans at certain foreign subsidiaries which are denominated in local currencies, not the reporting currency, the United States dollar. Since such loans are expected to be settled in cash at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. Latin American, Australian, Canadian and Russian currencies all experienced significant fluctuations in 2018 which drove the Company's increase in foreign currency loss. The Company uses derivative financial instruments from time to time on such intercompany loans as well as other actions to reduce foreign exchange exposures.

Other Income
Other income was $19.2 million for the year ended December 31, 2018, as compared to other income of $9.1 million for 2017, an increase of $10.1 million. The increase in 2018 was primarily attributable to non-recurring legal settlements of $9.9 million.

Provision for Income Taxes
The Company recorded tax expense for income taxes of $6.8 million in 2018, compared to $11.2 million in 2017. The Company's effective tax rate was 34.1% in 2018 and (21.2%) in 2017. The Company’s 2018 income tax expense and rate differ 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 a reduction of the liability for unrecognized tax positions, differences in tax rates in certain foreign jurisdictions, valuation allowances on deferred tax assets created by current year losses, and the impact of certain provisions under U.S. Tax Reform. The Company’s 2017 income tax expense and rate differ 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 an increase in the valuation allowance against deferred tax assets partially offset by tax rate change due to the Tax Cuts and Jobs Act.
 
NET INCOME (LOSS)
Net income for the year ended December 31, 2018, was $13.0 million, compared to net loss of $64.1 million for 2017. Basic earnings per share was $0.06 for the year ended December 31, 2018, as compared to $(1.12) for 2017. Diluted earnings per share was $0.06 for the year ended December 31, 2018, as compared to $(1.12) for 2017. The Company's higher net income and earnings per share were due to the items previously discussed.



SEGMENT INFORMATION

Segment Summary (Amounts in thousands)
2018
 
Agricultural
 
Earthmoving/
Construction
 
Consumer
 
Corporate/ Unallocated
 Expenses
 
Consolidated
 Totals
Net sales
 
$
694,268

 
$
741,733

 
$
166,407

 
$
—

 
$
1,602,408

Gross profit
 
94,217

 
80,056

 
23,993

 
—

 
198,266

Income (loss) from operations
 
62,065

 
31,141

 
11,994

 
(62,956
)
 
42,244

2017
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
690,238

 
$
608,894

 
$
169,790

 
$
—

 
$
1,468,922

Gross profit
 
85,482

 
49,556

 
25,273

 
—

 
160,311

Income (loss) from operations
 
50,188

 
2,028

 
11,463

 
(74,830
)
 
(11,151
)

22



Agricultural Segment Results
Agricultural segment results were as follows:
(Amounts in thousands)
2018
 
2017
 
% Increase
Net sales
$
694,268

 
$
690,238

 
0.6
%
Gross profit
94,217

 
85,482

 
10.2
%
Income from operations
62,065

 
50,188

 
23.7
%

Net sales in the agricultural market were $694.3 million for the year ended December 31, 2018, as compared to $690.2 million for 2017, an increase of 0.6%. Agricultural net sales increased in North America from more favorable market conditions, while net sales dropped slightly in Europe and Russia due to continued economic weakness. Overall, volume contributed 1.2% to the increase and favorable price/mix contributed an additional 3.0% partially offset by an unfavorable foreign currency impact of 3.6% of net sales, which principally came from South America and Russia.

Gross profit in the agricultural market was $94.2 million, or 13.6% of net sales, for 2018, as compared to $85.5 million, or 12.4% of net sales, for 2017.   The increase in gross profit was driven by higher North American sales volume partially offset by decreases in Latin America and Russia due to lower sales and unfavorable currency impact. Income from operations in the agricultural market was $62.1 million for the year 2018, as compared to $50.2 million for 2017.  
 
Earthmoving/Construction Segment Results
Earthmoving/construction segment results were as follows:
(Amounts in thousands)
2018
 
2017
 
% Increase
Net sales
$
741,733

 
$
608,894

 
21.8
%
Gross profit
80,056

 
49,556

 
61.5
%
Income from operations
31,141

 
2,028

 
1,436
%

The Company's earthmoving/construction market net sales were $741.7 million for the year ended December 31, 2018, compared to $608.9 million for 2017, an increase of 21.8%. The increase in earthmoving/construction net sales was driven by increased volume of 16.8% and favorable price/mix which increased net sales an additional 4.8%. Foreign currency translation was essentially flat, contributing to net sales by an additional 0.3%. Increases in market share and general market growth for the Company's undercarriage products, particularly in the mining sector, were the primary drivers of net sales growth.

Gross profit in the earthmoving/construction market was $80.1 million, or 10.8% of net sales, for the year 2018, as compared to $49.6 million, or 8.1% of net sales, for 2017. In 2017, the Company recorded an asset impairment of $9.9 million related to a fire at one of its subsidiaries. Excluding the asset impairment, gross profit for 2017 would have been $59.5 million, or 9.8% of net sales, and income from operations would have been $11.9 million. The Company's earthmoving/construction market income from operations was $31.1 million for the year 2018, as compared to $2.0 million for 2017. The increase in both gross profit and income from operations in 2018, compared to the same period in 2017, is primarily due to the increase in sales volume and the favorable impact it had on production efficiencies, particularly in the European facilities which produce the Company's undercarriage products.

Consumer Segment Results
Consumer segment results were as follows:
(Amounts in thousands)
2018
 
2017
 
% Increase (Decrease)
Net sales
$
166,407

 
$
169,790

 
(2.0
)%
Gross profit
23,993

 
25,273

 
(5.1
)%
Income from operations
11,994

 
11,463

 
4.6
 %


23


Consumer market net sales were $166.4 million for the year ended December 31, 2018, compared to $169.8 million for 2017, a decrease of 2.0%.  The decrease in consumer net sales was primarily due to unfavorable currency translation, principally in Latin America, which impacted net sales by (5.6%) partially offset by increased volume and favorable price/mix which contributed an additional 1.4% and 2.2% of net sales, respectively.

Gross profit from the consumer market was $24.0 million for 2018, or 14.4% of net sales, compared to $25.3 million, or 14.9% of net sales, for 2017. Consumer segment income from operations was $12.0 million for 2018, as compared to $11.5 million for 2017.

Corporate & Unallocated Expenses
Income from operations on a segment basis does not include corporate expenses which totaled $63.0 million for the year ended December 31, 2018, down 15.8% compared to $74.8 million for 2017. Corporate expenses were composed of selling, general and administrative expenses of approximately $63.0 million and $74.8 million for the years ended December 31, 2018 and 2017, respectively. The decrease was primarily due to $7.3 million in lower legal fees and $6.5 million related to a 2017 non-recurring legal contingent liability.


FISCAL YEAR ENDED DECEMBER 31, 2017, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2016

RESULTS OF OPERATIONS
 
Highlights for the year ended December 31, 2017, compared to 2016 (amounts in thousands):
 
2017
 
2016
 
% Increase
Net sales
$
1,468,922

 
$
1,265,497

 
16.1
%
Cost of sales
1,298,694

 
1,124,082

 
15.5
%
Asset impairment
9,917

 
—

 
n/a

Gross profit
160,311

 
141,415

 
13.4
%
Selling, general and administrative expenses
150,676

 
144,988

 
3.9
%
Research and development expenses
10,302

 
9,971

 
3.3
%
Royalty expense
10,484

 
8,856

 
18.4
%
Loss from operations
(11,151
)
 
(22,400
)
 
50.2
%

Net Sales
Net sales for the year ended December 31, 2017, were $1.47 billion, compared to $1.27 billion for the year ended December 31, 2016, an increase of 16.1%, primarily resulting from an increase in net sales volume in all segments. Overall net sales volume was up 12% with higher volume across all segments and geographies. Favorable currency translations increased net sales by 3% and favorable changes in price/mix contributed another 1% increase to net sales.

Cost of Sales, Asset Impairment, and Gross Profit
Cost of sales was $1.30 billion for the year ended December 31, 2017, compared to $1.12 billion for 2016. Gross profit for 2017 was $160.3 million, or 10.9% of net sales, compared to $141.4 million, or 11.2% of net sales, for 2016. In the fourth quarter of 2017, the Company recorded an asset impairment of $9.9 million related to a fire at one of its subsidiaries (see Note 18 to the Company's consolidated financial statements). Excluding the asset impairment, gross profit for 2017 would have been $170.2 million, or 11.6% of net sales.

After adjusting for the asset impairment, gross profit as a percent of net sales improved from manufacturing efficiencies and plant capacity utilization driven by higher net sales volumes. These efficiencies were partially offset by timing of passing higher raw material costs to customers in the first half of 2017.

Selling, General and Administrative Expenses
Selling, general and administrative (SG&A) expenses for the year ended December 31, 2017, were $150.7 million, or 10.3% of net sales, up 4% compared to $145.0 million, or 11.5% of net sales, for 2016.  The increase in SG&A expenses was due to a $6.5 million legal contingent liability recorded in 2017 partially offset by decreases in other expenses. After adjusting for the accrued liability (see Note 24 to the Company's consolidated financial statements), SG&A expenses for 2017 would have been 9.8% of net sales.


24


Research and Development Expenses
Research and development (R&D) expenses for the year ended December 31, 2017, were $10.3 million, or 0.7% of net sales, compared to $10.0 million, or 0.8% of net sales, for 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 which covers sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. Royalty expenses for the year ended December 31, 2017, were $10.5 million, compared to $8.9 million for 2016.

Loss from Operations
Loss from operations for the year ended December 31, 2017, was $11.2 million, or 0.8% of net sales, compared to loss of $22.4 million, or 1.8% of net sales, for 2016.  This improvement was the net result of the items previously discussed.

OTHER PROFIT/(LOSS) ITEMS

Interest Expense / Loss on Senior Note Repurchase
Interest expense for 2017 was $30.2 million, compared to $32.5 million for 2016.  The 7% decrease in interest expense was primarily due to the January 2017 conversion of the Company's 5.625% convertible senior subordinated notes. Loss on senior note repurchase was $18.6 million for 2017. The loss was in connection to the Company completing a tender offer settlement and redemption of all of its outstanding $400.0 million principal amount of Titan's 6.875% senior secured notes due 2020.

Foreign Exchange Gain (Loss)
Foreign currency loss was $2.0 million for the year ended December 31, 2017, compared to a gain of $8.6 million for the year ended December 31, 2016. Foreign currency loss in 2017 and gain in 2016 primarily reflects the translation of intercompany loans at certain foreign subsidiaries denominated in currencies other than their functional currencies. Since such loans are expected to be settled in cash at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates. The U.S. dollar weakened through most of 2017 while remaining mixed in 2016 across currencies in which Titan operates. The Company uses derivative financial instruments on such intercompany loans as well as other actions taken to reduce foreign exchange exposures.

Other Income
Other income was $9.1 million for the year ended December 31, 2017, as compared to other income of $9.9 million for 2016.  The major items included in 2017 were: Wheels India Limited equity income of $3.6 million; interest income of $3.4 million; building rental income of $2.4 million; discount amortization on prepaid royalty of $0.9 million; all of which were partially offset by a loss on sale of assets of $0.7 million.

The major items included in 2016 were: interest income of $3.2 million; Wheels India Limited equity income of $3.0 million; gain on sale of assets of $2.3 million; building rental income of $2.1 million; and discount amortization on prepaid royalty of $1.5 million.

Provision for Income Taxes
The Company recorded tax expense for income taxes of $11.2 million in 2017, compared to income tax expense of $3.3 million in 2016. The Company's effective tax rate was (21.2)% in 2017 and (9.0)% in 2016. The Company’s 2017 income tax expense and rate differ 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 an increase in the valuation allowance against deferred tax assets partially offset by tax rate change due to the Tax Cuts and Jobs Act. The Company's 2016 income tax expense and rate differ 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 an increase in the valuation allowance against deferred tax assets partially offset by tax rates in foreign jurisdictions where the statutory rate is less than 35%.
 
NET LOSS
Net loss for the year ended December 31, 2017, was $64.1 million, compared to net loss of $39.8 million for 2016. Basic earnings per share was $(1.12) for the year ended December 31, 2017, as compared to $(0.87) for 2016. Diluted earnings per share was $(1.12) for the year ended December 31, 2017, as compared to $(0.87) for 2016. The Company's higher net loss and lower earnings per share were due to the items previously discussed.



25


SEGMENT INFORMATION

Segment Summary (Amounts in thousands)
2017
 
Agricultural
 
Earthmoving/
Construction
 
Consumer
 
Corporate/ Unallocated
 Expenses
 
Consolidated
 Totals
Net sales
 
$
690,238

 
$
608,894

 
$
169,790

 
$
—

 
$
1,468,922

Gross profit
 
85,482

 
49,556

 
25,273

 
—

 
160,311

Income (loss) from operations
 
50,188

 
2,028

 
11,463

 
(74,830
)
 
(11,151
)
2016
 
 

 
 

 
 

 
 

 
 

Net sales
 
$
583,324

 
$
524,289

 
$
157,884

 
$
—

 
$
1,265,497

Gross profit
 
76,330

 
47,355

 
17,730

 
—

 
141,415

Income (loss) from operations
 
41,999

 
4,701

 
2,998

 
(72,098
)
 
(22,400
)

Agricultural Segment Results
Agricultural segment results were as follows:
(Amounts in thousands)
2017
 
2016
 
% Increase
Net sales
$
690,238

 
$
583,324

 
18.3
%
Gross profit
85,482

 
76,330

 
12.0
%
Income from operations
50,188

 
41,999

 
19.5
%

Net sales in the agricultural market were $690.2 million for the year ended December 31, 2017, as compared to $583.3 million for 2016, an increase of 18%. Higher agricultural net sales volume increased net sales by 13% with favorable currency translation contributing 3% and favorable price/mix contributing an additional 2%.

Gross profit in the agricultural market was $85.5 million, or 12.4% of net sales, for 2017, as compared to $76.3 million, or 13.1% of net sales, for 2016.  Income from operations in the agricultural market was $50.2 million for the year 2017, as compared to $42.0 million for 2016.  Increased net sales volume drove the overall increase in gross profit. However, the inability to immediately pass on the sharp increase of raw material costs negatively impacted gross profit in the first half of 2017.
  
Earthmoving/Construction Segment Results
Earthmoving/construction segment results were as follows:
(Amounts in thousands)
2017
 
2016
 
% Increase
Net sales
$
608,894

 
$
524,289

 
16.1
 %
Gross profit
49,556

 
47,355

 
4.6
 %
Income from operations
2,028

 
4,701

 
(56.9
)%

The Company's earthmoving/construction market net sales were $608.9 million for the year ended December 31, 2017, compared to $524.3 million for 2016, an increase of 16%. The increase in earthmoving/construction net sales was driven by increased volume which increased net sales by 13% and favorable price/mix which increased net sales an additional 2%. Favorable currency translation contributed an additional 1% of net sales.

Gross profit in the earthmoving/construction market was $49.6 million, or 8.1% of net sales, for the year 2017, as compared to $47.4 million, or 9.0% of net sales, for 2016. The Company's earthmoving/construction market income from operations was $2.0 million for the year 2017, as compared to $4.7 million for 2016. In the fourth quarter of 2017, the Company recorded an asset impairment of $9.9 million related to a fire at one of its subsidiaries. Excluding the asset impairment, gross profit for 2017 would have been $59.5 million, or 9.8% of net sales, and income from operations would have been $11.9 million; the increase was primarily driven by our strategy to increase aftermarket sales.



26


Consumer Segment Results
Consumer segment results were as follows:
(Amounts in thousands)
2017
 
2016
 
% Increase
Net sales
$
169,790

 
$
157,884

 
7.5
%
Gross profit
25,273

 
17,730

 
42.5
%
Income from operations
11,463

 
2,998

 
282.4
%

Consumer market net sales were $169.8 million for the year ended December 31, 2017, compared to $157.9 million for 2016, an increase of 8%.  The increase in consumer net sales was primarily due to favorable currency translation which contributed approximately 6% to net sales. Increased volume and favorable price/mix each contributed an additional 1% of net sales.

Gross profit from the consumer market was $25.3 million for 2017, or 14.9% of net sales, compared to $17.7 million, or 11.2% of net sales, for 2016.  Consumer market income from operations was $11.5 million for 2017, as compared to $3.0 million for 2016. Margins improved overall due to both geographic and product mix.

Corporate & Unallocated Expenses
Income from operations on a segment basis does not include corporate expenses totaling $74.8 million for the year ended December 31, 2017, up 4% compared to $72.1 million for 2016. Corporate expenses were composed of selling and marketing expenses of approximately $74.8 million and $72.1 million for the years ended December 31, 2017 and 2016, respectively. The increase was due to a $6.5 million legal contingent liability recorded in 2017 partially offset by decreases in other expenses of $3.8 million.



LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
As of December 31, 2018, the Company had $81.7 million of cash, a decrease of $61.9 million from December 31, 2017, due to the following items:


Operating Cash Flows
Summary of cash flows from operating activities:
(Amounts in thousands)
Year ended December 31,
 
 
 
2018
 
2017
 
Change
Net income (loss)
$
13,045

 
$
(64,079
)
 
$
77,124

Depreciation and amortization
57,618

 
58,444

 
(826
)
Asset impairment
—

 
9,917

 
(9,917
)
Deferred income tax provision
(2,291
)
 
785

 
(3,076
)
Loss on note repurchase
—

 
18,646

 
(18,646
)
Accounts receivable
(36,092
)
 
(38,478
)
 
2,386

Inventories
(77,919
)
 
(55,562
)
 
(22,357
)
Prepaid and other current assets
(5,377
)
 
9,277

 
(14,654
)
Accounts payable
29,364

 
37,584

 
(8,220
)
Other current liabilities
(2,866
)
 
9,522

 
(12,388
)
Other liabilities
(3,444
)
 
(9,816
)
 
6,372

Other operating activities
(8,214
)
 
22,471

 
(30,685
)
Net cash used for operating activities
$
(36,176
)
 
$
(1,289
)
 
$
(34,887
)
 
For the year ended December 31, 2018, operating activities used cash of $36.2 million, including decreases from inventories of $77.9 million and accounts receivable of $36.1 million, offset somewhat by increases from accounts payable of $29.4 million. Included in net income of $13.0 million were non-cash charges for depreciation and amortization of $57.6 million.


27


Operating activity cash use increased by $34.9 million when comparing 2018 to 2017. An increase of $77.1 million in net income was offset primarily by increased cash used for working capital needs. Also, the 2017 net loss included noncash charges totaling $28.6 million for asset impairments and loss on note repurchase.
 
Summary of the components of cash conversion cycle:
 
December 31,

 
December 31,

 
2018
 
2017
Days sales outstanding
61

 
55

Days payable in inventory
115

 
98

Days payable outstanding
(62
)
 
(56
)
Cash conversion cycle
114

 
97


Days payable in inventory increased by 17 days during 2018 from 2017 due to strategic building of inventory for anticipated demand levels in the first half of 2019. Demand in the aftermarket also increased, requiring flexibility for on-demand stock for customers. During 2019 and beyond, days payable in inventory is expected to decrease as a result of recently improved planning systems to ensure more accurate demand forecasting and strategic sourcing of raw materials.

Investing Cash Flows
Summary of cash flows from investing activities:
(Amounts in thousands)
Year ended December 31,
 
 
 
2018
 
2017
 
Change
Capital expenditures
$
(39,000
)
 
$
(32,626
)
 
$
(6,374
)
Certificates of deposit
—

 
50,000

 
(50,000
)
Other investing activities
2,069

 
993

 
1,076

Cash (used for) provided by investing activities
$
(36,931
)
 
$
18,367

 
$
(55,298
)
 
Net cash used for investing activities was $36.9 million in 2018, compared to cash provided of $18.4 million in 2017. In 2017, the Company had cash provided by investing activities of $50.0 million from certificates of deposit that matured and were not reinvested. The Company invested a total of $39.0 million in capital expenditures in 2018, compared to $32.6 million in 2017. Capital expenditures represent various equipment purchases and improvements to enhance production capabilities of Titan’s existing business and maintain existing equipment, as well as normal investments for maintenance for production facilities and equipment.

Financing Cash Flows
Summary of cash flows from financing activities:
(Amounts in thousands)
Year ended December 31,
 
 
 
2018
 
2017
 
Change
Proceeds from borrowings
$
57,294

 
$
447,639

 
$
(390,345
)
Repurchase of senior secured notes
—

 
(415,395
)
 
415,395

Payment on debt
(38,557
)
 
(55,160
)
 
16,603

Dividends paid
(1,201
)
 
(1,167
)
 
(34
)
Cash provided by (used for) financing activities
$
17,536

 
$
(24,083
)
 
$
41,619

 
Net cash provided by financing activities was $17.5 million in 2018 due to proceeds from borrowings partially offset by debt payments. In 2017, the Company issued $400.0 million of 6.50% senior secured notes due in 2023 and redeemed its 6.875% senior secured notes due in 2020.


28


Debt Restrictions
The Company’s revolving credit facility (credit facility) and indenture relating to the 6.50% senior secured notes due 2023 contain various restrictions which include:
•
When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($7.5 million as of December 31, 2018), the Company is required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a trailing four quarter basis);
•
Limits on dividends and repurchases of the Company’s stock;
•
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge, or otherwise fundamentally change the ownership of the Company;
•
Limitations on investments, dispositions of assets, and guarantees of indebtedness; and
•
Other customary affirmative and negative covenants.
  
These restrictions could limit the Company’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.

LIQUIDITY OUTLOOK
At December 31, 2018, the Company had $81.7 million of cash and cash equivalents. At December 31, 2018, there were no outstanding borrowings on the Company's $75 million revolving credit facility. Titan’s availability under this domestic facility may be less than $75 million as a result of any outstanding letters of credit and the balance of accounts receivable and inventory at certain of its domestic subsidiaries. At December 31, 2018, an outstanding letter of credit totaled $12.3 million and the remaining amount available under the revolving credit facility was $62.7 million, based upon eligible accounts receivable and inventory balances. The cash and cash equivalents balance of $81.7 million includes $55.6 million held in foreign countries. The Company's current plans do not demonstrate a need to repatriate the foreign amounts to fund U.S. operations. As a result of the 2017 Tax Cuts and Jobs Act, the Company can repatriate the cumulative undistributed foreign earnings back to the U.S. when needed with minimal additional taxes other than state income and foreign withholding tax.

The Company's redeemable noncontrolling interest in Voltyre-Prom includes a settlement put option which was exercisable during a six-month period beginning July 9, 2018. As of the filing of this Form 10-K, both shareholders have exercised their put in accordance with the Shareholder's Agreement, however, the Company has only entered into a definitive settlement agreement with one of the shareholders, RDIF, relating to the settlement of the put. See Note 13 to the Company's consolidated financial statements regarding the Company's redeemable noncontrolling interest and the settlement put option and Note 31, Subsequent Events, for further information on the settlement agreement.
 
Capital expenditures for 2019 are forecasted to be $40 million to $50 million. These capital expenditures are anticipated to be used primarily to enhance the Company’s existing facilities and manufacturing capabilities and drive productivity gains.
Cash payments for interest are currently forecasted to be approximately $29 million in 2019 based on the Company's year-end 2018 debt balances and debt maturities.
  
In the future, Titan may seek to grow by making acquisitions which will depend on its ability to identify suitable acquisition candidates, to negotiate acceptable terms for their acquisition, and to 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 on hand, 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.


29


CONTRACTUAL OBLIGATIONS
The Company’s contractual obligations at December 31, 2018, consisted of the following (amounts in thousands):
 
 
Payments due by period
Contractual Obligations
 
Total
 
Less than  1 year
 
1-3 years
 
3-5 years
 
More than 5 years
6.50% senior secured notes due 2023
 
$
400,000

 
$
—

 
$
—

 
$
400,000

 
$
—

Other debt
 
66,354

 
51,885

 
11,711

 
1,297

 
1,461

Interest expense (a)
 
134,267

 
29,416

 
54,163

 
50,688

 
—

Operating leases
 
29,233

 
7,759

 
10,036

 
6,040

 
5,398

Capital leases
 
3,145

 
811

 
1,446

 
888

 
—

Purchase obligations
 
24,682

 
20,623

 
4,004

 
37

 
18

Put option settlement (b)
 
25,000

 
25,000

 
—

 
—

 
—

Other long-term liabilities (c)
 
36,000

 
2,600

 
17,100

 
16,300

 
—

Total
 
$
718,681

 
$
138,094

 
$
98,460

 
$
475,250

 
$
6,877

(a)
Interest expense is estimated based on the Company’s year-end 2018 debt balances, maturities, and interest rates.  The estimates assume no credit facility borrowings.  The Company’s actual debt balances and interest rates may fluctuate in the future; therefore, actual interest payments may vary from those payments detailed in the above table.
(b)
Payment related to a definitive agreement with an affiliate of the Russian Direct Investment Fund (RDIF) relating to a settlement put option that was exercised by RDIF in November of 2018. For additional information see Note 31 to the Company's consolidated financial statements, included in Item 8 of this annual report.
(c)
Other long-term liabilities represent the Company’s estimated funding requirements for defined benefit pension plans. The Company’s 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 with the assistance of outside actuaries.  Assumptions are based on past experience and anticipated future trends and are subject to a number of risks and uncertainties and may lead to significantly different pension liability funding requirements.

OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2018, the Company did not have any off-balance sheet arrangements (as defined in Item 303(a)(4) of Regulation S-K).

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


30


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.  For more information concerning these obligations, see Note 22 to the Company’s financial statements.
 
The effect of hypothetical changes to selected assumptions on the Company’s frozen pension benefit obligations would be as follows (amounts in thousands):
 
 
 
December 31, 2018
 
2019
Assumptions
Percentage
Change
 
Increase
(Decrease)
PBO (a)
 
Increase
(Decrease)
Equity
 
Increase
(Decrease)
Expense
Pension
 
 
 
 
 
 
 
   Discount rate
+/-5
 
$(4,479)/$4,851
 
$4,479/$(4,851)
 
$(183)/$230
   Expected return on assets
+/-5
 
 
 
 
 
$(337)/$337
 
(a)
Projected benefit obligation (PBO) for pension plans.
 
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 product warranties 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 and changes to the estimated warranty liability. The Company's warranty liability was $17.3 million at December 31, 2018, and $18.6 million at December 31, 2017. The Company recorded warranty expense of $5.2 million for the year ended December 31, 2018, and $9.0 million for the year ended December 31, 2017. The Company's estimated warranty liability and expense increased primarily as the result of higher net sales of product with historical warranty experience.

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. Factors 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.













31


MARKET RISK

Foreign Currency Risk
The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of the Company's various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange derivative contracts to mitigate the currency risk. The Company is exposed to fluctuations in the Australian dollar, Brazilian real, British pound, euro, Russian ruble and other global currencies.   The Company’s net investment in foreign entities translated into U.S. dollars was $347.1 million at December 31, 2018, and $387.6 million at December 31, 2017.  The hypothetical potential loss in value of the Company’s net investment in foreign entities resulting from a 10% adverse change in foreign currency exchange rates at December 31, 2018, would have been approximately $34.7 million.

Commodity Price Risk
The Company does not generally enter into long-term commodity pricing contracts and does not use derivative commodity instruments to hedge its exposures to commodity market price fluctuations.  Therefore, the Company is exposed to price fluctuations of its key commodities, which consist primarily of steel, natural rubber, synthetic rubber, and carbon black. The Company attempts to pass on certain material price increases and decreases to its customers, depending on market conditions.
 
Interest Rate Risk
The Company is exposed to interest rate risk on its variable debt. The Company has a $75 million credit facility that has a variable interest rate.  As of December 31, 2018, the amount available under the credit facility was $62.7 million. If the credit facility were fully drawn to available funds, a change in the interest rate of 100 basis points, or 1%, would have changed the Company’s interest expense by approximately $0.6 million.  At December 31, 2018, there were no borrowings under the credit facility.


ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Reference is made to Item 7, Part II of this report.

ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Reference is made to Item 15, Part IV of this report, “Exhibits and Financial Statement Schedules.”
 
ITEM 9
– CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A – CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures
Titan management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of December 31, 2018. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2018, 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 are 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 Control over Financial Reporting
There were no changes in Titan's internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fourth quarter of fiscal 2018 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

32


Management's Report on Internal Control over Financial Reporting
Titan management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Internal control over financial reporting includes those policies, procedures, and activities that:
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;
•
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
•
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.
Titan management, including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the "Internal Control-Integrated Framework (2013)." Based on this assessment, management concluded that the Company maintained effective internal control over financial reporting as of December 31, 2018.
The effectiveness of Titan's internal control over financial reporting as of December 31, 2018, has been audited by Grant Thornton LLP, an independent registered public accounting firm, as stated in their report within this Form 10-K.
Inherent Limitations on the Effectiveness of Controls
Because of its inherent limitations, the Company's disclosure controls and procedures or internal controls 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.


ITEM 9B – OTHER INFORMATION

None.

33


PART III

ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

Directors
Information regarding the Company’s directors is incorporated herein by reference to the Company’s 2019 Proxy Statement under the captions “Election of Directors,” “Committees of the Board of Directors; Meetings” and “Corporate Governance.”

Executive Officers
The names, ages, and positions of all executive officers of the Company are listed below, followed by a brief account of their business experience during the past five years.  Officers are normally appointed annually by the Board of Directors at a meeting immediately following the Annual Meeting of Stockholders.  There is no arrangement or understanding between any officer and any other person pursuant to which an officer was selected.

Paul G. Reitz, 46, joined the Company in July 2010 as Chief Financial Officer.  Mr. Reitz was appointed President in February 2014. In December 2016, Mr. Reitz was appointed President and Chief Executive Officer.

David A. Martin, 51, joined the Company in June 2018 as Chief Financial Officer. Prior to joining Titan, Mr. Martin served from 1993 to 2018 in various roles at Aegion Corporation, a global technology/service provider maintaining, protecting and strengthening infrastructure, primarily pipelines, that is listed on the NASDAQ Global Select Market. Mr. Martin’s roles included Chief Financial Officer from 2007 to November 2017.

Michael G. Troyanovich, 61, joined the Company in August 2011 as Assistant General Counsel. Mr. Troyanovich was appointed Secretary in December 2012, and General Counsel in June 2013.

Section 16(a) Beneficial Ownership Reporting Compliance
Information regarding beneficial ownership reporting compliance is incorporated herein by reference to the Company’s 2019 Proxy Statement under the caption “Section 16(a) Beneficial Ownership Reporting Compliance.”

Business Conduct Policy
The Company adopted a business conduct policy, which is applicable to directors, officers and employees.  The Company has also adopted corporate governance guidelines.  The business conduct policy and corporate governance guidelines are available under the investor information category of the Company’s website, www.titan-intl.com.  The Company intends to satisfy disclosure requirements regarding amendments to or waivers from its business conduct policy by posting such information on its website.  Printed copies of the business conduct policy and corporate governance guidelines are available, without charge, by writing to:  Titan International, Inc., c/o Corporate Secretary, 2701 Spruce Street, Quincy, IL 62301.
 
ITEM 11 – EXECUTIVE COMPENSATION

Information regarding executive compensation is incorporated herein by reference to the Company’s 2019 Proxy Statement under the caption “Compensation of Executive Officers.”


ITEM 12– SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information regarding security ownership is incorporated herein by reference to the Company’s 2019 Proxy Statement under the caption “Security Ownership of Certain Beneficial Owners and Management.”


ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

Information regarding relationships and related party transactions is incorporated herein by reference to the Company’s 2019 Proxy Statement under the captions “Certain Relationships and Related Party Transactions” and “Corporate Governance” and also appears in Note 27 of the Company’s Notes to Consolidated Financial Statements.

ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding audit fees and services is incorporated by reference herein to the Company’s 2019 Proxy Statement under the caption “Audit and Other Fees.”

34


PART IV

ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2.
 
 
 
 
 
 
 
 
3.
 

The accompanying Exhibit Index is incorporated herein by reference.

35


TITAN INTERNATIONAL, INC.
Exhibit Index
Annual Report on Form 10-K
Exhibit No.
DESCRIPTION
3.1 (a)
3.2 (a)
4.1 (b)
4.2 (b)
10.1 (c)
10.2 (d)
10.3 (e)
10.4 (f)
10.5 (g)
10.6 (h)
10.7 (i)
10.8 (j)
10.9 (k)
10.10 (l)
10.11 (m)
10.12 (n)
10.13 (o)
21*
31.1*
31.2*
32*
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
* Filed herewith
** Confidential treatment has been granted with respect to certain portions of this exhibit.  Omitted portions have been filed separately with the Securities and Exchange Commission.

(a)
Incorporated by reference to the same numbered exhibit contained in the Company’s Current Report on Form 8-K filed on June 29, 2015 (No. 1-12936).
(b)
Incorporated by reference to the same numbered exhibit contained in the Company’s Current Report on Form 8-K filed on November 20, 2017 (No. 1-12936).
(c)
Incorporated by reference to Appendix A of the Company’s Definitive Proxy Statement filed on March 28, 2011.
(d)
Incorporated by reference to the same numbered exhibit contained in the Company's Form 10-Q for the quarterly period ended March 31, 2016 (No. 1-12936).

36


(e)
Incorporated by reference to exhibit 10.1 contained in the Company's Current Report on Form 8-K filed on December 23, 2015 (No. 1-12936).
(f)
Incorporated by reference to exhibit 10.3 contained in the Company's Current Report on Form 8-K filed on December 9, 2016 (No. 1-12936).
(g)
Incorporated by reference to exhibit 10.3 contained in the Company's Current Report on Form 8-K filed on December 23, 2015 (No. 1-12936).
(h)
Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on June 15, 2018 (No. 1-12936).
(i)
Incorporated by reference to exhibit 10.1 contained in the Company's Form 10-Q for the quarterly period ended March 31, 2016 (No. 1-12936).
(j)
Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 29, 2016 (No. 1-12936).
(k)
Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on October 3, 2016 (No. 1-12936).
(l)
Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 23, 2017 (No. 1-12936).
(m)
Incorporated by reference to exhibit 10 contained in the Company's Form 10-Q for the quarterly period ended September 30, 2018 (No. 1-12936).
(n)
Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 11, 2019 (No 1-12936).
(o)
Incorporated by reference to exhibit 10 contained in the Company's Current Report on Form 8-K filed on February 25, 2019 (No 1-12936).

37


SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
TITAN INTERNATIONAL, INC.
 
(Registrant)


Date:  
March 6, 2019
By:  
/s/  PAUL G. REITZ
 
 
 
Paul G. Reitz
 
 
 
President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 6, 2019.

Signatures
Capacity
 
 
 
 
/s/  PAUL G. REITZ
President, Chief Executive Officer and Director
 
Paul G. Reitz
(Principal Executive Officer)
 
 
 
 
/s/  DAVID A. MARTIN
SVP and Chief Financial Officer
 
David A. Martin
(Principal Financial Officer)
 
 
 
 
 /s/ AMY S. EVANS
VP, Chief Accounting Officer
 
Amy S. Evans
(Principal Accounting Officer)
 
 
 
 
/s/  MAURICE M. TAYLOR JR.
Chairman
 
Maurice M. Taylor Jr.
 
 
 
 
 
/s/  RICHARD M. CASHIN JR.                                                              
Director
 
Richard M. Cashin Jr.
 
 
 
 
 
/s/  GARY L. COWGER                                                        
Director
 
Gary L. Cowger
 
 
 
 
 
/s/  ALBERT J. FEBBO                                                   
Director
 
Albert J. Febbo
 
 
 
 
 
/s/  PETER MCNITT                                        
Director
 
Peter McNitt
 
 
 
 
 
/s/  DR. MARK RACHESKY
Director
 
Dr. Mark Rachesky
 
 
 
 
 
/s/  ANTHONY L. SOAVE                                                   
Director
 
Anthony L. Soave