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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

titancolora19.jpg

FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: March 31, 2019
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 of Incorporation)
 
(I.R.S. Employer Identification No.)
2701 Spruce Street, Quincy, IL 62301
(Address of principal executive offices, including Zip Code)

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

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

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

Indicate the number of shares of Titan International, Inc. outstanding: 60,000,370 shares of common stock, $0.0001 par value, as of April 25, 2019.




TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
 
 
Three months ended
 
March 31,
 
2019

2018
 
 
 
 
Net sales
$
410,374

 
$
425,382

Cost of sales
365,110

 
365,821

Gross profit
45,264

 
59,561

Selling, general and administrative expenses
35,905

 
34,639

Research and development expenses
2,617

 
2,877

Royalty expense
2,606

 
2,663

Income from operations
4,136

 
19,382

Interest expense
(7,933
)
 
(7,518
)
Foreign exchange gain (loss)
5,723

 
(4,432
)
Other income
996

 
7,750

Income before income taxes
2,922

 
15,182

Provision (benefit) for income taxes
1,915

 
(786
)
Net income
1,007

 
15,968

Net loss attributable to noncontrolling interests
(970
)
 
(1,679
)
Net income attributable to Titan
1,977

 
17,647

   Redemption value adjustment
(776
)
 
(2,343
)
Net income applicable to common shareholders
$
1,201

 
$
15,304

 
 
 
 
Earnings per common share:
 

 
 

Basic
$
0.02

 
$
0.26

Diluted
$
0.02

 
$
0.26

Average common shares and equivalents outstanding:
 
 
 

Basic
59,946

 
59,711

Diluted
59,946

 
59,876

 
 
 
 
Dividends declared per common share:
$
0.005

 
$
0.005

 
 








See accompanying Notes to Condensed Consolidated Financial Statements.

1



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

 
Three months ended
 
March 31,
 
2019
 
2018
Net income
$
1,007

 
$
15,968

Currency translation adjustment
(4,379
)
 
8,062

Pension liability adjustments, net of tax of $122 and $(54), respectively
466

 
883

Comprehensive (loss) income
(2,906
)
 
24,913

Net comprehensive loss attributable to redeemable and noncontrolling interests
(68
)
 
(1,040
)
Comprehensive (loss) income attributable to Titan
$
(2,838
)
 
$
25,953



 
 





































See accompanying Notes to Condensed Consolidated Financial Statements.

2



TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
 
March 31, 2019
 
December 31, 2018
 
 
 
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
68,315

 
$
81,685

  Accounts receivable, net
295,333

 
241,832

Inventories
412,238

 
395,735

Prepaid and other current assets
61,587

 
60,229

Total current assets
837,473

 
779,481

Property, plant and equipment, net
378,684

 
384,872

Operating lease assets
23,701

 

Deferred income taxes
4,252

 
2,874

Other assets
81,146

 
84,029

Total assets
$
1,325,256

 
$
1,251,256

 
 
 
 
Liabilities
 

 
 

Current liabilities
 

 
 

Short-term debt
$
66,347

 
$
51,885

Accounts payable
250,918

 
212,129

Other current liabilities
121,979

 
111,054

Total current liabilities
439,244

 
375,068

Long-term debt
432,762

 
409,572

Deferred income taxes
9,627

 
9,416

Other long-term liabilities
83,152

 
67,290

Total liabilities
964,785

 
861,346

 
 
 
 
Redeemable noncontrolling interest
70,800

 
119,813

 
 
 
 
Equity
 

 
 

Titan shareholders' equity


 


  Common stock ($0.0001 par value, 120,000,000 shares authorized, 60,715,356 issued at March 31, 2019 and December 31, 2018)

 

Additional paid-in capital
528,305

 
519,498

Retained deficit
(23,026
)
 
(29,048
)
Treasury stock (at cost, 768,969 and 798,383 shares, respectively)
(7,567
)
 
(7,831
)
Accumulated other comprehensive loss
(213,319
)
 
(203,571
)
Total Titan shareholders’ equity
284,393

 
279,048

Noncontrolling interests
5,278

 
(8,951
)
Total equity
289,671

 
270,097

Total liabilities and equity
$
1,325,256

 
$
1,251,256


 See accompanying Notes to Condensed Consolidated Financial Statements.

3



TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
 
 Number of
common shares
 
Additional
paid-in
capital
 
Retained (deficit) earnings
 
Treasury stock
 
Stock
 reserved for
deferred compensation
 
Accumulated other comprehensive (loss) income
 
Total Titan Equity
 
 Noncontrolling interest
 
Total Equity
Balance January 1, 2018
59,800,559

 
$
531,708

 
$
(44,022
)
 
$
(8,606
)
 
$
(1,075
)
 
$
(157,076
)
 
$
320,929

 
$
(10,845
)
 
$
310,084

Net income (loss) *
 
 
 
 
17,647

 
 
 
 
 
 
 
17,647

 
(1,164
)
 
16,483

Currency translation adjustment, net *
 
 
 
 
 
 
 
 
 
 
7,423

 
7,423

 
291

 
7,714

Pension liability adjustments, net of tax
 
 
 
 
 
 
 
 
 
 
883

 
883

 
 
 
883

Dividends declared
 
 
 
 
(299
)
 
 
 
 
 
 
 
(299
)
 
 
 
(299
)
Accounting standards adoption
 
 
 
 
88

 
 
 
 
 
 
 
88

 
35

 
123

Redemption value adjustment
 
 
(2,343
)
 
 
 
 
 
 
 
 
 
(2,343
)
 
 
 
(2,343
)
Stock-based compensation
 
 
73

 
 
 
 
 
 
 
 
 
73

 
 
 
73

VIE contributions
 
 
 
 
 
 
 
 
 
 
 
 

 
476

 
476

Issuance of treasury stock under 401(k) plan
10,211

 
42

 
 
 
91

 
 
 
 
 
133

 
 
 
133

Balance March 31, 2018
59,810,770

 
$
529,480

 
$
(26,586
)
 
$
(8,515
)
 
$
(1,075
)
 
$
(148,770
)
 
$
344,534

 
$
(11,207
)
 
$
333,327

* Net income (loss) excludes $(515) of net loss attributable to redeemable noncontrolling interest. Currency translation adjustment excludes $348 of currency translation related to redeemable noncontrolling interest.
 
 Number of
common shares
 
Additional
paid-in
capital
 
Retained (deficit) earnings
 
Treasury stock
 
Stock
 reserved for
deferred compensation
 
Accumulated other comprehensive (loss) income
 
Total Titan Equity
 
 Noncontrolling interest
 
Total Equity
Balance January 1, 2019
59,916,973

 
$
519,498

 
$
(29,048
)
 
$
(7,831
)
 
$

 
$
(203,571
)
 
$
279,048

 
$
(8,951
)
 
$
270,097

Net income (loss) *


 


 
1,977

 


 


 


 
1,977

 
(636
)
 
1,341

Currency translation adjustment, net *
 
 
 
 
 
 
 
 
 
 
(5,281
)
 
(5,281
)
 
474

 
(4,807
)
Pension liability adjustments, net of tax


 


 


 


 


 
466

 
466

 
 
 
466

Dividends declared


 


 
(301
)
 


 


 


 
(301
)
 
 
 
(301
)
Accounting standards adoption


 


 
4,346

 
 
 
 
 
(4,933
)
 
(587
)
 

 
(587
)
Redeemable noncontrolling interest activity


 
9,437

 


 


 


 


 
9,437

 
15,445

 
24,882

Redemption value adjustment


 
(776
)
 
 
 


 
 
 
 
 
(776
)
 
 
 
(776
)
Stock-based compensation


 
269

 


 


 


 


 
269

 
 
 
269

VIE distributions


 


 


 


 


 


 

 
(1,054
)
 
(1,054
)
Issuance of treasury stock under 401(k) plan
29,414

 
(123
)
 


 
264

 


 


 
141

 
 
 
141

Balance March 31, 2019
59,946,387

 
$
528,305

 
$
(23,026
)
 
$
(7,567
)
 
$

 
$
(213,319
)
 
$
284,393

 
$
5,278

 
$
289,671

 
* Net income (loss) excludes $(334) of net loss attributable to redeemable noncontrolling interest. Currency translation adjustment excludes $428 of currency translation related to redeemable noncontrolling interest.
See accompanying Notes to Condensed Consolidated Financial Statements.

4



TITAN INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
 
Three months ended March 31,
Cash flows from operating activities:
2019
 
2018
Net income
$
1,007

 
$
15,968

Adjustments to reconcile net income to net cash
used for operating activities:
 

 
 

Depreciation and amortization
14,673

 
15,330

Deferred income tax (benefit) provision
(1,366
)
 
2,510

Stock-based compensation
269

 
73

Issuance of treasury stock under 401(k) plan
141

 
133

Foreign currency translation (gain) loss
(6,695
)
 
3,769

(Increase) decrease in assets:
 

 
 

Accounts receivable
(53,083
)
 
(65,854
)
Inventories
(17,557
)
 
(26,115
)
Prepaid and other current assets
(1,611
)
 
(2,142
)
Other assets
3,152

 
(1,030
)
Increase (decrease) in liabilities:
 

 
 

Accounts payable
39,370

 
29,793

Other current liabilities
4,538

 
(4,421
)
Other liabilities
1,543

 
(3,697
)
Net cash used for operating activities
(15,619
)
 
(35,683
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(9,453
)
 
(7,807
)
Payment related to redeemable noncontrolling interest agreement
(25,000
)
 

Other
194

 
794

Net cash used for investing activities
(34,259
)
 
(7,013
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
52,398

 
16,480

Payment on debt
(15,357
)
 
(5,720
)
Dividends paid
(301
)
 
(299
)
Net cash provided by financing activities
36,740

 
10,461

Effect of exchange rate changes on cash
(232
)
 
1,094

Net decrease in cash and cash equivalents
(13,370
)
 
(31,141
)
Cash and cash equivalents, beginning of period
81,685

 
143,570

Cash and cash equivalents, end of period
$
68,315

 
$
112,429

 
 
 
 
Supplemental information:
 
 
 
Interest paid
$
1,199

 
$
792

Income taxes paid, net of refunds received
$
1,314

 
$
2,508












See accompanying Notes to Condensed Consolidated Financial Statements.

5



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


1.
BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 
The accompanying unaudited condensed consolidated interim financial statements include the accounts of Titan International, Inc. and its subsidiaries (Titan or the Company) and have been prepared in accordance with accounting principles generally accepted in the United States of America (US GAAP) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the information and footnotes required by US GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the Company's financial position as of March 31, 2019, and the results of operations and cash flows for the three months ended March 31, 2019 and 2018, and should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2018, filed with the SEC on March 7, 2019 (the 2018 Form 10-K). All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals, and notes payable at cost, which approximates fair value due to their short term or stated rates.  Investments in marketable equity securities are recorded at fair value.  The 6.50% senior secured notes due 2023 (senior secured notes) were carried at a cost of $395.3 million at March 31, 2019. The fair value of the senior secured notes at March 31, 2019, as obtained through an independent pricing source, was approximately $366.8 million.

Cash dividends
The Company declared cash dividends of $0.005 per share of common stock for each of the quarters ended March 31, 2019 and 2018, respectively. The first quarter 2019 cash dividend of $0.005 per share of common stock was paid on April 15, 2019, to shareholders of record on March 29, 2019.

New accounting standards:

Adoption of new accounting standards
On January 1, 2019, the Company adopted Accounting Standards Update (ASU) No. 2016-02, "Leases (Topic 842)" (New Lease Standard) to increase transparency and comparability among entities by recognizing lease assets and liabilities on the balance sheet and disclosing key information about lease arrangements. Titan elected the modified retrospective with cumulative effect transition approach to adopt the New Lease Standard and thus will not restate its comparative periods in the year of transition. The Company adopted the practical expedients of the New Lease Standard which include (i) not reassessing whether expired or existing contracts contain leases, (ii) not reassessing the lease classification for any expired or existing leases, and (iii) not revaluing initial direct costs for existing leases. The Company did not elect the hindsight practical expedient. The adoption of this standard resulted in the recognition of operating lease right-of-use assets and corresponding lease liabilities on the Condensed Consolidated Balance Sheet, which resulted in a net credit adjustment to retained earnings as of January 1, 2019, of $0.6 million. The New Lease Standard did not materially impact operating results or liquidity. Further disclosures related to the New Lease Standard are included in Note 10, Leases.

The Company adopted ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" effective January 1, 2019. The amendments in this update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act (TCJA). Consequently, the amendments eliminate the stranded tax effects resulting from the 2017 TCJA and improve the usefulness of information reported to financial statement users. As a result of adopting this standard, the Company recorded a $4.9 million reclassification to decrease accumulated other comprehensive income and increase retained earnings as of January 1, 2019.

6



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


The Company adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 606, "Revenue from Contracts with Customers" (the New Revenue Standard), effective January 1, 2018, using the modified retrospective approach which requires the recognition of the cumulative effect of initially applying the standard as an adjustment to opening retained earnings for the fiscal year beginning January 1, 2018. The adoption of the New Revenue Standard resulted in the recognition of an immaterial cumulative adjustment to opening retained earnings as of January 1, 2018, and had an immaterial effect on the Company’s financial position and results of operations. Results for reporting periods beginning after January 1, 2018, are presented under the New Revenue Standard, which prescribes that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Titan recognizes revenue when the performance obligations specified in the Company's contracts have been satisfied. Titan's contracts typically contain a single performance obligation that is fulfilled on the date of delivery based on shipping terms stipulated in the contract. The impact on net sales was immaterial and the disaggregation of revenues, which is according to the major markets the Company serves, has not changed from how it is presented in Note 18, Segment Information in Item 1 of this Form 10-Q.

The Company adopted ASU No. 2017-07, “Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" on January 1, 2018, using the retrospective transition method. This standard changed the presentation of net periodic pension and postretirement benefit cost (net benefit cost) within the Condensed Consolidated Statement of Operations. Under the previous guidance, net benefit cost was reported as an employee cost within operating income. The amendment requires the bifurcation of net benefit cost, with the service cost component to be presented with other employee compensation costs in operating income, while the other components will be reported separately outside of income from operations.

The Company early-adopted ASU No. 2018-15, "Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract," effective September 30, 2018, using the retrospective approach. ASU 2018-15 requires a customer in a hosting arrangement that is a service contract to apply the guidance on internal-use software to determine which implementation costs to recognize as an asset and which costs to expense. Costs to develop or obtain internal-use software that cannot be capitalized under Subtopic 350-40, such as training costs and certain data conversion costs, also cannot be capitalized for a hosting arrangement that is a service contract. The amendments in this update require a customer in a hosting arrangement that is a service contract to determine whether an implementation activity relates to the preliminary project stage, the application development stage, or the post-implementation stage. Costs for implementation activities in the application development stage will be capitalized depending on the nature of the costs, while costs incurred during the preliminary project and post-implementation stages will be expensed. As a result of the adoption of this accounting standard, the Company capitalized an aggregate of $7.4 million of implementation costs for the year ended December 31, 2018, from selling, general and administration in the Condensed Consolidated Statement of Operations to other assets in the Condensed Consolidated Balance Sheets.
 
In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118." This ASU updates the income tax accounting in US GAAP to reflect the SEC's interpretive guidance released on December 22, 2017, when the 2017 TCJA was enacted.

In May 2017, the FASB issued ASU No. 2017-09, "Stock Compensation (Topic 718): Scope of Modification Accounting." This update provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Disclosure requirements under Topic 718 remain unchanged. The Company adopted ASU 2017-09 effective January 1, 2018. The adoption of this guidance did not have a material effect on the Company's condensed consolidated financial statements; no changes were made to the terms or conditions of share-based payments.
 
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The Company adopted this guidance effective January 1, 2018, with no resulting changes to the Company's condensed consolidated financial statements.





7



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

Accounting standards issued but not yet adopted
 
In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement. The amendments in this update are effective for fiscal years beginning after December 15, 2019. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-14, "Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this update modify the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments in this update are effective for fiscal years ending after December 15, 2020. The adoption of this guidance is not expected to have a material effect on the Company's condensed consolidated financial statements.


2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following as of the dates set forth below (amounts in thousands):
 
March 31,
2019
 
December 31,
2018
Accounts receivable
$
299,185

 
$
245,236

Allowance for doubtful accounts
(3,852
)
 
(3,404
)
Accounts receivable, net
$
295,333

 
$
241,832


Accounts receivable are reduced by an estimated allowance for doubtful accounts, which is based on known risks and historical losses.


3. INVENTORIES
 
Inventories consisted of the following as of the dates set forth below (amounts in thousands):
 
March 31,
2019
 
December 31,
2018
Raw material
$
112,438

 
$
110,806

Work-in-process
64,061

 
55,543

Finished goods
235,739

 
229,386

 
$
412,238

 
$
395,735


 
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.



8



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

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following as of the dates set forth below (amounts in thousands):
 
March 31,
2019
 
December 31,
2018
Land and improvements
$
43,702

 
$
43,562

Buildings and improvements
257,443

 
255,451

Machinery and equipment
594,064

 
592,932

Tools, dies and molds
109,373

 
109,537

Construction-in-process
17,958

 
18,867

 
1,022,540

 
1,020,349

Less accumulated depreciation
(643,856
)
 
(635,477
)
 
$
378,684

 
$
384,872


 
Depreciation on property, plant and equipment for the three months ended March 31, 2019 and 2018, totaled $13.8 million and $14.4 million, respectively.


5. INTANGIBLE ASSETS

The components of intangible assets consisted of the following as of the dates set forth below (amounts in thousands):
 
Weighted Average Useful Lives (in years) March 31, 2019
 
March 31,
2019
 
December 31,
2018
Amortizable intangible assets:
 
 
 
 
 
     Customer relationships
8.4
 
$
12,801

 
$
12,967

     Patents, trademarks and other
7.6
 
11,149

 
11,356

          Total at cost
 
 
23,950

 
24,323

     Less accumulated amortization
 
 
(12,621
)
 
(12,676
)
 
 
 
$
11,329

 
$
11,647


   
Amortization related to intangible assets for the three months ended March 31, 2019 and 2018, totaled $0.5 million and $0.7 million, respectively. Intangible assets are included as a component of other assets in the Condensed Consolidated Balance Sheet.

The estimated aggregate amortization expense at March 31, 2019, for each of the years (or other periods) set forth below was as follows (amounts in thousands):
April 1 - December 31, 2019
$
2,139

2020
2,060

2021
1,104

2022
998

2023
998

Thereafter
4,030

 
$
11,329





9



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

6. WARRANTY

Changes in the warranty liability consisted of the following (amounts in thousands):
 
2019
 
2018
Warranty liability, January 1
$
16,327

 
$
18,612

Provision for warranty liabilities
1,714

 
1,898

Warranty payments made
(1,795
)
 
(1,336
)
Warranty liability, March 31
$
16,246

 
$
19,174



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. The Company calculates a provision for warranty expense based on past warranty experience. Warranty accruals are included as a component of other current liabilities on the Condensed Consolidated Balance Sheet.


7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
 
Long-term debt consisted of the following as of the dates set forth below (amounts in thousands):
 
March 31, 2019
 
Principal Balance
 
Unamortized Debt Issuance
 
Net Carrying Amount
6.50% senior secured notes due 2023
$
400,000

 
$
(4,687
)
 
$
395,313

Titan Europe credit facilities
36,739

 

 
36,739

Revolving credit facility
25,000

 

 
25,000

Other debt
39,343

 

 
39,343

Capital leases
2,714

 

 
2,714

     Total debt
503,796

 
(4,687
)
 
499,109

Less amounts due within one year
66,347

 

 
66,347

     Total long-term debt
$
437,449

 
$
(4,687
)
 
$
432,762


 
 
December 31, 2018
 
Principal Balance
 
Unamortized Debt Issuance
 
Net Carrying Amount
6.50% senior secured notes due 2023
$
400,000

 
$
(4,897
)
 
$
395,103

Titan Europe credit facilities
35,115

 

 
35,115

Other debt
28,429

 

 
28,429

Capital leases
2,810

 

 
2,810

     Total debt
466,354

 
(4,897
)
 
461,457

Less amounts due within one year
51,885

 

 
51,885

     Total long-term debt
$
414,469

 
$
(4,897
)
 
$
409,572




10



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

Aggregate principal maturities of long-term debt at March 31, 2019, for each of the years (or other periods) set forth below were as follows (amounts in thousands):
April 1 - December 31, 2019
$
56,936

2020
13,538

2021
4,547

2022
26,970

2023
400,889

Thereafter
916

 
$
503,796


 
6.50% senior secured notes due 2023
The senior secured notes are due November 2023. Including the impact of debt issuance costs, these notes had an effective yield of 6.79% at issuance. These notes are secured by the land and buildings of the following subsidiaries of the Company:  Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois.

Titan Europe credit facilities
The Titan Europe credit facilities contain borrowings from various institutions totaling $36.7 million in aggregate principal amount at March 31, 2019. Maturity dates on this debt range from less than one year to nine years. The Titan Europe facilities are secured by the assets of Titan's subsidiaries in Italy, Spain, Germany, and Brazil.

Revolving credit facility
The Company has a $75 million revolving credit facility (credit facility) with agent BMO Harris Bank N.A. and other financial institutions party thereto. The credit facility is collateralized by accounts receivable and inventory of certain of the Company’s domestic subsidiaries and is scheduled to mature in February 2022. From time to time Titan's availability under this credit facility may be less than $75 million as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At March 31, 2019, under the credit facility there were $25.0 million in borrowings, a $10.3 million letter of credit, and the amount available totaled $39.7 million.

Other debt
The Company has working capital loans at Titan Pneus do Brasil Ltda and Voltyre-Prom at various interest rates, which totaled $8.1 million and $28.3 million at March 31, 2019, respectively. Maturity dates on this debt range from less than one year to three years.


8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates. These derivative financial instruments are recognized at fair value. The Company has not designated these financial instruments as hedging instruments. Any gain or loss on the re-measurement of the fair value is recorded as an offset to currency exchange gain/loss. For the three months ended March 31, 2019 and March 31, 2018, the Company recorded currency exchange loss related to these derivatives of $0.1 million and $0.3 million, respectively.



11



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

9. REDEEMABLE NONCONTROLLING INTEREST

The Company, in partnership with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF), owns all of the equity interests in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. The Company is party to a shareholders' agreement with OEP and RDIF (Shareholders' Agreement) which was entered into in connection with the acquisition of Voltyre-Prom. The agreement contains a settlement put option which was exercisable during a six-month period beginning July 9, 2018. The settlement put option would require Titan to purchase the equity interests from OEP and RDIF in Voltyre-Prom with cash or Titan common stock, at a value set by the agreement. The value set by the agreement is the greater of: the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%, or the last twelve months of EBITDA multiplied by 5.5 less net debt times the selling party's ownership percentage.

On November 14, 2018, the Company received notification of exercise of the put option from RDIF. On February 11, 2019, the Company entered into a definitive agreement (the "Agreement") with an affiliate of RDIF relating to the put option that was exercised by RDIF. The Agreement provides, among other things, that in full satisfaction of the put option, within ten business days following the date of the Agreement, Titan would pay to RDIF $25 million in cash and, subject to the completion of regulatory approval, will issue to RDIF in a private placement $25 million in shares of restricted Titan common stock, with RDIF being required to hold such shares for three years from the date of the Agreement. Immediately following the closing, RDIF continued to own the same interest in Voltyre-Prom, subject to the terms of the Agreement and the Shareholders’ Agreement. Titan has retained the right to buy back the Titan shares from RDIF for $25 million during such three-year period and, if the stock buyback is consummated within one year, at the time of such buyback, RDIF would be required to convey to Titan, based on current ownership, a 10.71% interest in Voltyre-Prom, resulting in RDIF reducing its interest in Voltyre-Prom from 35.71% to 25%. The transaction closed on February 22, 2019. Under the terms of the Agreement, in full satisfaction of the settlement put option that was exercised by RDIF, Titan paid to RDIF $25 million in cash at the closing of the transaction, and agreed, subject to the completion of regulatory approval, to issue to RDIF in a private placement 4,032,259 shares of restricted Titan common stock. Due to pending regulatory approval, the issuance of the shares of restricted Titan common stock pursuant to the agreement was not completed as of March 31, 2019.

On January 8, 2019, the Company received notification of exercise of the put option from OEP. As of March 31, 2019, Titan had not paid any amounts, or issued any shares, to OEP in satisfaction of its obligations under the put option.

As of March 31, 2019, the value of the redeemable noncontrolling interest held by OEP was recorded at the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%. The redeemable noncontrolling interest held by RDIF was recorded at $25 million, the value of the shares of restricted stock to be issued.

The noncontrolling interest is presented as a redeemable noncontrolling interest separately from total equity in the Condensed Consolidated Balance Sheet at the redemption value of the settlement put option. If the redemption value is greater than the carrying value of the noncontrolling interest, the increase in the redemption value is adjusted directly to retained earnings of the affected entity, or additional paid-in capital if there are no available retained earnings applicable to the redeemable noncontrolling interest.
The following is a reconciliation of redeemable noncontrolling interest as of March 31, 2019 and 2018 (amounts in thousands):
 
2019
 
2018
Balance at January 1
$
119,813

 
$
113,193

   Reclassification as a result of Agreement regarding put option
(49,883
)
 

   Loss attributable to redeemable noncontrolling interest
(334
)
 
(515
)
   Currency translation
428

 
348

   Redemption value adjustment
776

 
2,343

Balance at March 31
$
70,800

 
$
115,369



This obligation approximates the cost to the Company if all remaining equity interests in the consortium were purchased by the Company on March 31, 2019, and is presented in the Condensed Consolidated Balance Sheet in redeemable noncontrolling interest, which is treated as mezzanine equity.


12



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

10. LEASES

The Company leases certain buildings and equipment under both operating and finance leases.  Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance, and insurance by the Company. Under ASC 842, the Company made an accounting policy election, by class of underlying asset, not to separate non-lease components such as those previously stated, from lease components and instead will treat the lease agreement as a single lease component for all asset classes. Operating right-of-use (ROU) assets represent the Company's right to use an underlying asset for the lease term and lease liabilities represent Titan's obligations to make lease payments arising from the lease. The majority of Titan's leases are operating leases. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of Titan's leases do not provide an implicit rate, the Company used its incremental borrowing rate (6.79%), based on the information available at the lease commencement date, in determining the present value of lease payments. Operating lease expense is recognized on a straight-line basis over the lease term and is included in cost of sales and selling, general and administrative expense on the Condensed Consolidated Statement of Operations. Amortization and interest expense associated with finance leases are included in cost of sales and selling, general and administrative expense and interest expense, respectively, on the Condensed Consolidated Statement of Operations. Short-term operating leases, which have an initial term of twelve months or less, are not recorded on the balance sheet.
 
Supplemental balance sheet information related to leases was as follows (amounts in thousands):
 
Balance Sheet Classification
 
 March 31, 2019
Operating lease ROU assets
Operating lease assets
 
$
23,701

 
 
 
 
Operating lease current liabilities
Other current liabilities
 
$
7,129

Operating lease long-term liabilities
Other long-term liabilities
 
16,830

    Total operating lease liabilities
 
 
$
23,959

 
 
 
 
Finance lease, gross
Property, plant & equipment, net
 
$
3,350

Finance lease accumulated depreciation
Property, plant & equipment, net
 
(396
)
   Finance lease, net
 
 
$
2,954

 
 
 
 
Finance lease current liabilities
Other current liabilities
 
$
626

Finance lease long-term liabilities
Long-term debt
 
2,088

   Total finance lease liabilities
 
 
$
2,714



At March 31, 2019, maturity of lease liabilities were as follows (amounts in thousands):
 
Operating Leases
 
Finance Leases
April 1 - December 31, 2019
$
6,288

 
$
1,246

2020
5,983

 
803

2021
4,557

 
688

2022
3,267

 
588

2023
2,079

 
388

Thereafter
3,840

 
136

Total lease payments
$
26,014

 
$
3,849

Less imputed interest
2,055

 
1,135

 
$
23,959

 
$
2,714

 
 
 
 
Weighted Average Remaining Lease Term (in years)
2.1

 
1.4



13



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


Supplemental cash flow information related to leases for the quarter ended March 31, 2019 was as follows: operating cash flows from operating leases were $2.5 million and operating cash flows from finance leases were $0.5 million.


11. EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately $0.4 million to the pension plans during the three months ended March 31, 2019, and expects to contribute approximately $2.3 million to the pension plans during the remainder of 2019.
 
The components of net periodic pension cost consisted of the following for the periods set forth below (amounts in thousands):
 
Three months ended
 
March 31,
 
2019
 
2018
Service cost
$
225

 
$
137

Interest cost
1,123

 
1,083

Expected return on assets
(1,189
)
 
(1,492
)
Amortization of unrecognized prior service cost
56

 
50

Amortization of net unrecognized loss
765

 
676

      Net periodic pension cost
$
980

 
$
454


Service cost is recorded as cost of sales in the Condensed Consolidated Statement of Operations while all other components are recorded in other income.


12. VARIABLE INTEREST ENTITIES
 
The Company holds a variable interest in three joint ventures for which the Company is the primary beneficiary. Two of the joint ventures operate distribution facilities that primarily distribute mining products. Titan is the 50% owner of one of these distribution facilities, which is located in Canada, and the 40% owner of the other such facility, which is located in Australia. The Company’s variable interests in these two joint ventures relate to sales of Titan product to these entities, consigned inventory, and working capital loans. The third joint venture is the consortium that owns Voltyre-Prom. Titan owns 43% of the consortium owning Voltyre-Prom, which is subject to a shareholders' agreement. See Note 9 for additional information.
 
The Company also holds a variable interest in five other entities for which Titan is the primary beneficiary. Each of these entities provides specific manufacturing related services at the Company's Tennessee facility. Titan's variable interest in these entities relates to financial support through providing many of the assets used by these entities in their business. The Company owns no equity in these entities.
 
As the primary beneficiary of these variable interest entities (VIEs), the VIEs’ assets, liabilities, and results of operations are included in the Company’s condensed consolidated financial statements. The other equity holders’ interests are reflected in “Net income (loss) attributable to noncontrolling interests” in the Condensed Consolidated Statements of Operations and “Noncontrolling interests” in the Condensed Consolidated Balance Sheets.
 

14



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

The following table summarizes the carrying amount of the entities’ assets and liabilities included in the Company’s Condensed Consolidated Balance Sheets at March 31, 2019, and December 31, 2018 (amounts in thousands):
 
March 31,
2019
 
December 31, 2018
Cash and cash equivalents
$
12,055

 
$
9,064

Inventory
17,046

 
12,987

Other current assets
44,970

 
38,533

Property, plant and equipment, net
28,593

 
28,057

Other long-term assets
3,348

 
2,971

   Total assets
$
106,012

 
$
91,612

 
 
 
 
Current liabilities
$
49,350

 
$
36,246

Other long-term liabilities
5,986

 
6,353

  Total liabilities
$
55,336

 
$
42,599


 
All assets in the above table can only be used to settle obligations of the consolidated VIE to which the respective assets relate. Liabilities are nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.
 
The Company holds variable interests in certain VIEs that are not consolidated because Titan is not the primary beneficiary. The Company's involvement with these entities is in the form of direct equity interests and prepayments related to purchases of materials. The maximum exposure to loss as reflected in the table below represents the loss of assets recognized by Titan relating to non-consolidated entities and amounts due to the non-consolidated assets. The assets and liabilities recognized in Titan's Condensed Consolidated Balance Sheets related to Titan's interest in these non-consolidated VIEs and the Company's maximum exposure to loss relating to non-consolidated VIEs as of the dates set forth below were as follows (amounts in thousands):
 
March 31,
2019
 
December 31, 2018
Investments
$
4,017

 
$
3,985

Other current assets
1,248

 
1,200

     Total VIE assets
5,265

 
5,185

Accounts payable
2,185

 
2,350

  Maximum exposure to loss
$
7,450

 
$
7,535




13. 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 expires 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 expires in June 2019. Royalty expenses recorded were $2.6 million and $2.7 million for the three months ended March 31, 2019 and 2018, respectively.
 


15



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

14. OTHER INCOME

Other income consisted of the following for the periods set forth below (amounts in thousands):
 
Three months ended
 
March 31,
 
2019
 
2018
Equity investment income
$
875

 
$
1,116

Gain on sale of assets
370

 
181

Interest income
340

 
617

Building rental income
255

 
578

Other (expense) income
(844
)
 
5,258

 
$
996

 
$
7,750




15. INCOME TAXES

The Company recorded income tax expense (benefit) of $1.9 million and $(0.8) million for the quarters ended March 31, 2019 and 2018, respectively. The Company's effective income tax rate was 66% and (5)% for the quarters ended March 31, 2019 and 2018, respectively.

The Company’s 2019 income tax expense and rate differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses. In addition, there were non-deductible royalty expenses and statutorily required income adjustments made in certain foreign jurisdictions that negatively impacted the tax rate for the three months ended March 31, 2019.

The Company’s 2018 income tax expense and rate differed 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 and U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses. In addition, there were non-deductible royalty expenses and statutorily required income adjustments made in certain foreign jurisdictions that negatively impacted the tax rate for the three months ended March 31, 2018.

The Company continues to monitor the realization of its deferred tax assets and assesses the need for a valuation allowance. The Company analyzes available positive and negative evidence to determine if a valuation allowance is needed based on the weight of the evidence. This objectively verifiable evidence primarily includes the past three years' profit and loss positions. This process requires management to make estimates, assumptions, and judgments that are uncertain in nature. The Company has established valuation allowances with respect to deferred tax assets in U.S. and certain foreign jurisdictions and continues to monitor and assess potential valuation allowances in all its jurisdictions.

The 2017 TCJA was enacted on December 22, 2017, and included a number of changes in existing tax law impacting businesses, including a one-time deemed repatriation of cumulative undistributed foreign earnings and a permanent reduction in the U.S. federal statutory income tax rate from 35% to 21% effective January 1, 2018.  Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment and deferred tax assets and liabilities are re-measured at the enacted tax rate. The re-measured U.S. net deferred asset was fully offset by a change in the valuation allowance in 2017. The Company’s net cumulative undistributed foreign earnings were a cumulative loss and therefore no additional income tax expense related to the one-time deemed repatriation toll charge was recorded in 2017.

The 2017 TCJA also created a new requirement that certain income (i.e., global intangible low taxed income, hereinafter referred to as GILTI) earned by foreign subsidiaries must be included currently in the gross income of the U.S. shareholder. For 2018 and 2019, the Company has estimated an amount of GILTI income that is included in the calculation of 2018 and 2019 income tax expense. This GILTI income inclusion, however, is fully offset by a change in the valuation allowance.



16



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

16. EARNINGS PER SHARE
 
Earnings per share (EPS) were as follows for the periods presented below (amounts in thousands, except per share data):
 
Three months ended
 
 
March 31,
 
 
2019
 
2018
 
 
 
 
 
 
Net income attributable to Titan
$
1,977

 
$
17,647

 
   Redemption value adjustment
(776
)
 
(2,343
)
 
Net income applicable to common shareholders
$
1,201

 
$
15,304

 
Determination of shares:
 
 
 
 
   Weighted average shares outstanding (basic)
59,946

 
59,711

 
   Effect of stock options/trusts

 
166

 
   Weighted average shares outstanding (diluted)
59,946

 
59,876

 
Earnings per share:
 
 
 
 
   Basic and diluted
0.02

 
0.26

 



17



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

17. LITIGATION
 
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 the material adverse effect on its consolidated financial condition, results of operations, or cash flows as a result of efforts to comply with, or liabilities pertaining to, legal judgments.

At March 31, 2019, two of Titan’s subsidiaries were involved in litigation concerning environmental laws and regulations.

In June 2015, Titan Tire Corporation (Titan Tire) and Dico, Inc. (Dico) appealed a U.S. District Court order granting the U.S. motion for summary judgment that found Dico liable for violating the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) and an Environmental Protection Agency (EPA) Administrative Order and awarded response costs, civil penalties, and punitive damages.

In December 2015, the United States Court of Appeals for the Eighth Circuit reversed the District Court’s summary judgment order with respect to “arranger” liability for Titan Tire and Dico under CERCLA and the imposition of punitive damages against Dico for violating the EPA Administrative Order, but affirmed the summary judgment order imposing civil penalties in the amount of $1.62 million against Dico for violating the EPA Administrative Order. The case was remanded to the District Court for a new trial on the remaining issues.

The trial occurred in April 2017. On September 5, 2017, the District Court issued an order: (a) concluding Titan Tire and Dico arranged for the disposal of a hazardous substance in violation of 42 U.S.C. § 9607(a); (b) holding Titan Tire and Dico jointly and severally liable for $5.45 million in response costs previously incurred and reported by the United States relating to the alleged violation, including enforcement costs and attorney’s fees; and (c) awarding a declaratory judgment holding Titan Tire and Dico jointly and severally liable for all additional response costs previously incurred but not yet reported or to be incurred in the future, including enforcement costs and attorney’s fees. The District Court also held Dico liable for $5.45 million in punitive damages under 42 U.S.C. § 9607(c)(3) for violating a unilateral administrative order. The punitive damages award does not apply to Titan Tire. The Company accrued a contingent liability of $6.5 million, representing $5.45 million in costs incurred by the United States and $1.05 million of additional response costs, for this order in the quarter ended September 30, 2017. As of March 31, 2019, the $6.5 million remains outstanding.

Titan Tire and Dico appealed the case to the United States Court of Appeals for the Eighth Circuit. On April 11, 2019, the U.S. Court of Appeals for the Eighth Circuit affirmed the District Court’s September 5, 2017, order. Dico and Titan Tire will file a petition for rehearing with the U.S. Court of Appeals for the Eighth Circuit, which must be filed by no later than May 26, 2019. While the Company believes it has meritorious arguments, the outcome of this petition cannot be predicted. As a result of the current judgment in favor of the United States, and pursuant to Iowa Code § 624.23, a judgment lien exists over Titan Tire’s real property in the State of Iowa. The United States has agreed, however, that it will take no steps to execute on this judgment lien. In exchange, Titan Tire has obtained a supersedeas bond in the amount of $6.0 million that stays enforcement of the judgment pending the outcome of the appeal and petition.






18



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

18. SEGMENT INFORMATION
 
The Company has aggregated its operating units into reportable segments based on its three customer markets: agricultural, earthmoving/construction, and consumer. These segments are based on the information used by the Chief Executive Officer to make certain operating decisions, allocate portions of capital expenditures, and assess segment performance. Segment external sales, expenses, and income from operations are determined based on the results of operations for the operating units of the Company's manufacturing facilities. Segment assets are generally determined on the basis of the tangible assets located at such operating units’ manufacturing facilities and the intangible assets associated with the acquisitions of such operating units. However, certain operating units’ property, plant and equipment balances are carried at the corporate level.

Titan is organized primarily on the basis of products being included in three market segments, with each reportable segment including wheels, tires, wheel/tire assemblies, and undercarriage systems and components.
The table below presents information about certain operating results, separated by market segments, for each of the three months ended March 31, 2019 and 2018 (amounts in thousands):

Three months ended

March 31,
 
2019
 
2018
Net sales
 
 
 
Agricultural
$
191,730

 
$
194,166

Earthmoving/construction
176,745

 
188,733

Consumer
41,899

 
42,483

 
$
410,374

 
$
425,382

Gross profit
 

 
 

Agricultural
$
22,125

 
$
29,961

Earthmoving/construction
18,170

 
22,462

Consumer
4,969

 
7,138

 
$
45,264

 
$
59,561

Income (loss) from operations
 

 
 

Agricultural
$
13,928

 
$
21,321

Earthmoving/construction
5,528

 
9,953

Consumer
2,121

 
3,947

Corporate & Unallocated
(17,441
)
 
(15,839
)
      Income from operations
4,136

 
19,382

 
 
 
 
Interest expense
(7,933
)
 
(7,518
)
Foreign exchange gain (loss)
5,723

 
(4,432
)
Other income, net
996

 
7,750

      Income before income taxes
$
2,922

 
$
15,182


Assets by segment were as follows as of the dates set forth below (amounts in thousands):
 
March 31,
2019
 
December 31,
2018
Total assets
 

 
 

Agricultural
$
547,879

 
$
464,828

Earthmoving/construction
557,531

 
543,927

Consumer
127,232

 
129,994

Corporate & Unallocated
92,614

 
112,507

 
$
1,325,256

 
$
1,251,256

 
19. FAIR VALUE MEASUREMENTS

19



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

 
Accounting standards for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as:
 
Level 1 – Quoted prices in active markets for identical instruments.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 
Assets and liabilities measured at fair value on a recurring basis consisted of the following as of the dates set forth below (amounts in thousands):
 
March 31, 2019
 
December 31, 2018
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Derivative financial instruments asset
$
804

 
$

 
$
804

 
$

 
$
902

 
$

 
$
902

 
$



20. RELATED PARTY TRANSACTIONS
 
The Company sells products and pays commissions to companies controlled by persons related to the Chairman of the Board of Directors of the Company, Mr. Maurice Taylor. The related party is Mr. Fred Taylor, who is Mr. Maurice Taylor’s brother. The companies with which Mr. Fred Taylor is associated that do business with Titan include the following: Blacksmith OTR, LLC; F.B.T. Enterprises, Inc.; Green Carbon, Inc.; Silverstone, Inc.; and OTR Wheel Engineering, Inc.  Sales of Titan products to these companies were approximately $0.3 million for each of the three months ended March 31, 2019 and 2018. Titan had trade receivables due from these companies of approximately $0.1 million at March 31, 2019, and approximately $0.2 million at December 31, 2018.  Sales commissions paid to the above companies were approximately $0.4 million for the three months ended March 31, 2019, as compared to $0.6 million for the three months ended March 31, 2018.
 
In July 2013, the Company entered into a Shareholders’ Agreement with OEP and RDIF to acquire Voltyre-Prom. Mr. Richard M. Cashin Jr., a director of the Company, is the President of OEP, which owns 21.4% of the joint venture.  The Shareholders’ Agreement contained a settlement put option which potentially required the Company to purchase equity interests in the joint venture from OEP and RDIF at a value set by the agreement. On January 8, 2019, the Company received notification of exercise of the put option from OEP. See Note 9 for additional information.


21. ACCUMULATED OTHER COMPREHENSIVE LOSS
 
Accumulated other comprehensive loss consisted of the following for the periods presented below (amounts in thousands):
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2019
$
(175,794
)
 
$
(27,777
)
 
$
(203,571
)
Currency translation adjustments
(5,281
)
 

 
(5,281
)
Defined benefit pension plan entries:
 

 
 

 
 

  Amortization of unrecognized losses and prior service cost,
  net of tax of $122

 
466

 
466

Reclassification from AOCI to retained earnings-Adoption of ASU 2018-02

 
(4,933
)
 
(4,933
)
Balance at March 31, 2019
$
(181,075
)
 
$
(32,244
)
 
$
(213,319
)



20



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


22. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The senior secured notes are guaranteed by the following wholly-owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. See the indenture governing the senior secured notes incorporated by reference to the 2018 Form 10-K for additional information. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales and marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.
(Amounts in thousands)
Condensed Consolidating Statements of Operations
For the Three Months Ended March 31, 2019
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
124,781

 
$
410,275