Titan International, Inc. 2020 Form 10-K Summary
Business Context and Reporting Period
Titan International, Inc. is a global manufacturer of wheels, tires, wheel-and-tire assemblies, and undercarriage systems for agricultural, earthmoving/construction, and consumer markets. This filing covers the fiscal year ended December 31, 2020; it is an annual Form 10-K rather than a standalone fourth-quarter filing.
Operations were materially affected by COVID-19-related shutdowns and market disruptions, particularly in Europe, Latin America, and Asia during the first half of 2020. Titan employed approximately 6,800 people worldwide and generated 54% of sales outside the United States.
Financial Performance and Liquidity
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $1,259.3 million | $1,448.7 million | Down 13.1% |
| Gross profit | $114.3 million | $129.0 million | Down 11.4% |
| Gross margin | 9.1% | 8.9% | Up 0.2 percentage points |
| Operating loss | $35.4 million | $28.4 million | Loss increased |
| Operating margin | (2.8%) | (2.0%) | Down 0.8 percentage points |
| Net loss | $65.1 million | $51.5 million | Loss increased |
| Net loss attributable to Titan | $60.4 million | $48.4 million | Loss increased |
| Loss per share | $0.99 | $0.84 | Higher loss |
| Operating cash flow | $57.2 million | $45.4 million | Up $11.8 million |
| Capital expenditures | $21.7 million | $36.4 million | Down $14.7 million |
Gross profit benefited from lower raw-material costs and operating-efficiency initiatives, but was reduced by approximately $15 million of COVID-19 impacts. SG&A declined 4.9% to $130.9 million, although SG&A as a percentage of sales increased to 10.4% from 9.5%.
Year-end cash and cash equivalents were $117.4 million, including $100.4 million held outside the United States. Inventories declined to $293.7 million from $333.4 million, and the cash conversion cycle improved to 97 days from 114 days.
Total debt was $467.8 million at December 31, 2020, compared with $503.8 million a year earlier. The $400 million of 6.50% senior secured notes mature in 2023. Titan had no borrowings under its revolving credit facility at year-end, $19.7 million of outstanding letters of credit, and reported $50.9 million of availability based on the borrowing base.
Segment Results and Material Changes
- Agricultural: Sales declined 2.7% to $634.7 million. Gross profit increased 16.9% to $65.4 million, but operating income declined to $9.8 million from $11.0 million. Volume increased 4.8%, offset by unfavorable currency translation and price/mix.
- Earthmoving/construction: Sales declined 21.4% to $510.2 million, driven by lower volume and COVID-19 disruptions. Gross profit fell to $37.9 million, and the segment reported a $21.6 million operating loss versus a $1.9 million loss in 2019.
- Consumer: Sales declined 22.3% to $114.5 million, while operating income fell to $1.1 million from $1.8 million.
- Foreign-exchange results shifted from a $4.0 million gain in 2019 to an $11.0 million loss in 2020.
- Interest expense declined to $30.6 million from $32.0 million, primarily due to lower borrowings and interest rates.
- Asset impairment charges totaled $20.8 million, including $13.8 million for machinery and equipment at Titan Tire Reclamation Corporation, $6.0 million for Australian customer relationships, and $1.0 million of inventory related to the Saltville, Virginia plant closure.
- Titan incurred $1.7 million of restructuring charges and recorded $18.8 million of other income, including an $8.6 million insurance settlement and a $4.9 million gain on the sale of the Brownsville, Texas facility.
- Non-core asset sales generated approximately $55 million of cash proceeds during 2020, supporting debt reduction and liquidity.
Guidance, Outlook, Risks, and Unusual Items
Management expected agricultural markets to improve in 2021, supported by stronger farmer income, an aging equipment fleet, lower equipment inventories, and anticipated growth in North America and Latin America. Earthmoving/construction markets were expected to improve modestly but remained dependent on global economic recovery, infrastructure spending, mining activity, and the continuing effects of COVID-19. Consumer markets were expected to stabilize as pent-up demand emerged.
- 2021 capital expenditures were forecast at approximately $35 million to $40 million.
- 2021 cash interest payments were forecast at approximately $30 million, including approximately $26 million of interest on the senior secured notes.
- Management expected cash, operating cash flow, available credit, potential divestitures, and unencumbered assets to provide sufficient liquidity for working capital, debt maturities, and capital expenditures, and did not anticipate significant near-term liquidity constraints.
- The revolving credit facility was amended on February 25, 2021: maturity was extended to February 16, 2023, committed availability was reduced from $125 million to $100 million, and the facility may be expanded by up to $50 million.
- The Dico environmental litigation settlement requires total payments of $11.5 million. Titan paid $9.2 million, including interest, on February 25, 2021; the remaining amounts are payable over the following two years.
- The Saltville, Virginia wheel-operation closure was expected to be completed in the first half of 2021, with additional disposal costs not yet estimated.
- Key risks include COVID-19 and cyclical demand, raw-material and shipping-cost inflation, limited suppliers, customer concentration, foreign exchange, tariffs, competition, labor relations, environmental and product-liability claims, cybersecurity, pension funding, and debt covenant compliance.
The company’s collective bargaining agreements at three U.S. facilities, representing approximately 45% of U.S. employees, were scheduled to expire in November 2021. Deere represented 11% of 2020 sales, while Titan’s ten largest customers represented 35%.
Most Important Facts to Verify
- Whether agricultural-market recovery and the expected 2021 improvement in construction and consumer demand materialized.
- Progress toward refinancing or repaying the $400 million senior secured notes due in 2023.
- Actual borrowing-base availability and compliance with revolving-credit and senior-note covenants.
- COVID-19 effects, raw-material costs, shipping costs, foreign exchange, and resulting margins.
- Completion costs and operational impact of the Saltville closure and any additional restructuring.
- Final payments and any further exposure from the Dico environmental settlement.
- Customer retention and impairment risk associated with the Australian customer relationships.
- Actual 2021 capital expenditures, pension contributions, cash generation, and liquidity.