TITAN INTERNATIONAL INC (TWI) FY 2022 MD&A

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 the 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 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" in Part 1 of this Form 10-K.

COVID-19 Pandemic

In December 2019, a novel strain of coronavirus ("COVID-19") was reported in Wuhan, China. During March 2020, the World

Health Organization declared the outbreak of COVID-19 as a global pandemic. The COVID-19 pandemic's adverse impact on the Company was less during 2022 than in 2021. The Company’s operations continued with additional sanitary and other protective health measures, which have increased operating costs. We expect these additional measures to continue into the foreseeable future as we seek to ensure the safety and welfare of Titan’s employees.

While the Company's operations began to return to historical levels during 2021 and continuing into 2022, certain geographies (particularly China) continue to remain impacted resulting in employee absenteeism. Further, global supply chains are experiencing constraints following the COVID-19 pandemic, including availability and pricing of raw materials, transportation and labor.

Due to the above circumstances and as described generally in this Form 10-K, the Company’s results of operations for the year ended December 31, 2022 are not necessarily indicative of the results to be expected in the future. Management cannot predict the future impact of the COVID-19 pandemic on the economic conditions generally, on the Company’s customers and, ultimately, on the Company. The nature, extent and duration of the effects of the COVID-19 pandemic on the Company remain uncertain and will depend on future developments, and such effects could exist for an extended period of time even after the pandemic might end.

Russia-Ukraine Military Conflict

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

The Company maintains operations in Russia and any such economic sanctions may result in an adverse effect on its Russian operations. The Company currently owns 64.3% of the Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, which represents approximately 7% of consolidated assets of Titan as of both December 31, 2022 and 2021. The Russian operations represent approximately 6% of consolidated global sales for both of the years ended December 31, 2022 and 2021. The military conflict between Russia and Ukraine has not had a significant impact on global operations. The Company continues to monitor the potential impacts on the business including the increased cost of energy in Europe and the ancillary impacts that the military conflict could have on other global operations.

As the military conflict in Ukraine exacerbates the global food crisis, Titan remains committed to the role it plays in the continuity of food supply and keeping essential goods moving, including its tire operation in Volgograd, Russia. Tires produced in the Voltyre-Prom facility are primarily sold into Commonwealth of Independent States (CIS) countries, located in Europe and Asia. This facility is in full compliance with all international sanctions on Russia. Titan has stopped any additional

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investments into this joint project and emphasizes that neither this operation, nor any other Titan operations, sell any products to the Russian military or other government agencies.

The potential impact of bans, sanction programs, and boycotts on our business is uncertain at the current time due to the fluid nature of the military conflict as it is unfolding. The potential impacts include supply chain and logistics disruptions, financial impacts including disruptions to the execution of banking transactions with certain Russian financial institutions, volatility in foreign exchange rates and interest rates, inflationary pressures on raw materials and energy, loss of operational control and/or assets, heightened cybersecurity threats and other restrictions. The Company continues to monitor the potential impacts on the business including the increased cost of energy in Europe and the ancillary impacts that the military conflict could have on other global operations.

Brazilian Tax Credits

In June 2021, the Company’s Brazilian subsidiaries received a notice that they had prevailed on an existing legal claim in regards to certain non-income (indirect) taxes that had been previously charged and paid. The matter specifically relates to companies’ rights to exclude the state tax on goods circulation (a value-added-tax or VAT equivalent, known in Brazil as “ICMS”) from the calculation of certain additional indirect taxes (specifically the program of social integration (“PIS”) and contribution for financing of social security (“COFINS”) levied by the Brazilian States on the sale of goods.

During the second and third quarter of 2022, the Company submitted the related supporting documentation and received the approval from the Brazilian tax authorities for two of its Brazilian subsidiaries. For the year ended December 31, 2022, the Company recorded $32.0 million within other income in the consolidated statements of operations. The Company also recorded $16.1 million of income tax expense associated with the recognition of these indirect tax credits for the year ended December 31, 2022. Of the $16.1 million income tax expense recorded, $9.4 million was recorded locally in Brazil, while the remaining $6.7 million was recorded to the US in accordance with the global intangible low-taxed income (GILTI) income tax requirements (refer to Note 21).

The Company expects to be able to apply the tax credits received to settle the income tax liability that was incurred as a result of the credit. The Company also expects to utilize the majority of the credit against future PIS/COFINS and income tax obligations over the next twelve months. For the year ended December 31, 2022, the Company has utilized approximately $15.0 million of the tax credits in the settlement of income tax obligations. After the utilization of $15.0 million of tax credits, the Company paid in cash approximately $24.1 million of income taxes for the year ended December 31, 2022 which is on the supplemental information of the consolidated statement of cash flows.

BUSINESS

For a description of the Company’s business and segments see Part 1, Item 1 of this Form 10-K.

MARKET CONDITIONS AND OUTLOOK

AGRICULTURAL MARKET OUTLOOK

Agriculture-related commodity prices continued to remain at historically high levels during 2022, although off from recent peaks in the first half of the year. The market conditions across the globe remain favorable with many of our customers forecasting modest growth during 2023. Strong farmer income, replacement of an aging large equipment fleet and replenishment of lower equipment inventory levels are all factors which are anticipated to support improved demand for our products and provide sustained stability in the market over the next few years. Many more variables, including weather, volatility in the price of commodities, grain prices, export markets, foreign currency exchange rates, interest rates, government policies, subsidies, economic cycles, and the demand for used equipment can greatly affect the Company's performance in the agricultural market in a given period.

EARTHMOVING/CONSTRUCTION MARKET OUTLOOK

The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and other macroeconomic drivers. The construction market is primarily driven by GDP by country and the need for infrastructure developments. The earthmoving/construction markets experienced strong signs of growth in 2022 as economies emerged from the pandemic and modest growth is expected to continue into 2023, curtailed by softer housing starts due to rising interest rates. There are historically low equipment inventory levels throughout the global construction industry and mining capital budgets continued to rise during 2022, and we expect them to remain at healthy levels in 2023. Improvements in mineral commodity prices also currently support growth.

CONSUMER MARKET OUTLOOK

The consumer market consists of several distinct product lines within different regions. These products include light truck tires, turf equipment, specialty products, including custom mixing of rubber stock, and train brakes. Overall, the markets remained

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stable during 2022. However, the pace of growth can vary period to period. There are strong initiatives underway to bolster opportunities in various specialty products including mixing of rubber stock in the United States. The consumer segment is affected by many variables including inflationary impacts, consumer spending, interest rates, government policies, and other macroeconomic drivers.

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.

In addition, the following table sets forth components of the Company’s net sales classified by segment:

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FISCAL YEAR ENDED DECEMBER 31, 2022, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2021

RESULTS OF OPERATIONS

Highlights for the year ended December 31, 2022, compared to 2021 (amounts in thousands):

Net Sales

Net sales for the year ended December 31, 2022 were $2.17 billion, compared to $1.78 billion for the year ended December 31, 2021, an increase of 22%. The net sales increase was primarily driven by increases in product pricing in response to inflationary impacts on raw material costs and other input costs including freight and energy costs. The net sales increase was also impacted by product mix and volume to a lesser extent across all segments. The overall volume increase was primarily in North America and Europe, and was driven by increased customer demand which is reflective of improved farmer income, and replacement of an aging large equipment fleet in the global agricultural markets. Construction and mining markets were also improved in 2022 as economies emerged from the pandemic and mining commodity prices increased. The increase in net sales was unfavorably impacted by foreign currency translation of 3.6% or $64.1 million, primarily due to the weakening Euro. The Company sold its Australian wheel business in the first quarter of 2022 which decreased the net sales by 1.8% or $32.9 million, compared to the year ended December 31, 2021.

Cost of Sales and Gross Profit

Cost of sales was $1.81 billion for the year ended December 31, 2022, compared to $1.54 billion for 2021. The increase in cost of sales was driven by the impact of increases in sales volume, raw material cost increases, and other inflationary cost impacts. Gross profit for 2022 was $360.7 million, or 17% of net sales, compared to $237.5 million, or 13% of net sales, for 2021. The increase in gross profit and margin was driven by the impact of increases in net sales, as described previously, and improved operating leverage in our production facilities. In addition, cost reduction and productivity initiatives continue to be executed across global production facilities. Global supply chains are experiencing constraints and volatility, including availability and pricing of raw materials, transportation and labor. Titan is also experiencing similar supply chain challenges and has been able to manage the situation effectively through each of the periods.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses for the year ended December 31, 2022, were $132.8 million, or 6.1% of net sales, up only 1%, compared to $131.8 million, or 7% of net sales, for 2021.  The slight increase in SG&A was primarily due to an increase in certain variable costs associated with improved operating performance and growth in sales.

Research and Development Expenses

Research and development (R&D) expenses for the year ended December 31, 2022, were $10.4 million, or 1% of net sales, compared to $10.1 million, or 1% of net sales, for 2021. R&D spending reflects continued initiatives to improve product designs and an ongoing focus on quality.

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. Royalty expenses for the year ended December 31, 2022 were $11.7 million compared to $10.5 million for 2021. The increase in royalty expenses was due to the increase in sales, as described previously, resulting in an increase in the amount of royalty expense incurred.

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Income from Operations

Income from operations for the year ended December 31, 2022 was $205.8 million, or 10% of net sales, compared to income of $85.2 million, or 5% of net sales, for 2021.  The increase in income was primarily due to the higher sales and improvements in gross profit margins.

OTHER PROFIT/LOSS ITEMS

Interest Expense

Interest expense for 2022 and 2021 was $29.8 million and $32.2 million, respectively. Interest expense decreased due to the reduced borrowing under the Company's global credit facilities, and the refinancing of the senior secured notes during the second quarter of 2021 resulting in an additional interest expense in 2021 which did not occur in 2022.

Loss on Senior Note Repurchase

Loss on senior note repurchase was $16.0 million for 2021. The loss was in connection to the Company completing a call and redemption of all of its outstanding $400.0 million principal amount of Titan's 6.50% senior secured notes due 2023 during the second quarter of 2021.

Foreign Exchange Gain

Foreign currency gain was $0.9 million for the year ended December 31, 2022, compared to a gain of $12.0 million for the year ended December 31, 2021. The foreign exchange gain experienced for the year ended December 31, 2022 is primarily the result of a favorable impact of the movement of exchange rates in certain geographies in which we conduct business. The gain was partially offset by the loss from translation of intercompany loans at certain foreign subsidiaries, which are denominated in local currencies rather than the reporting currency, which is the United States dollar. Since such loans are expected to be settled at some point in the future, these loans are adjusted each reporting period to reflect the current exchange rates.

Foreign exchange gain of $12.0 million for the year ended December 31, 2021 was primarily the result of the closeout of certain legal entities as part of the ongoing initiative to rationalize Titan's legal entity structure and ongoing management of the intercompany capital structure as well as a favorable impact of the movement of exchange rates.

Other Income

Other income was $25.4 million for the year ended December 31, 2022, compared to other income of $2.1 million for 2021, an increase of $23.3 million. The increase in other income was primarily attributable to $32.0 million income on indirect tax credits in Brazil, and a gain of $1.3 million from a government grant associated with an earthquake that affected one of our Italian subsidiaries from May 2012. The increase was partially offset by $10.9 million loss on sale of the Australian wheel business which was comprised of the release of the cumulative translation adjustment of approximately $10.0 million and closing costs associated with the completion of the transaction of approximately $0.9 million.

Provision for Income Taxes

The Company recorded tax expense for income taxes of $23.2 million and $1.1 million for the years ended December 31, 2022 and 2021, respectively. The Company's effective tax rate was 11.4% in 2022 and 2.3% in 2021.

The Company’s 2022 and 2021 income tax expense and rates 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 have a full valuation allowance on deferred tax assets. For 2022, income tax expense was favorably impacted by benefits from a valuation allowance release, which resulted in a tax benefit of $47.4 million.

In jurisdictions where the Company operates, management continues to monitor the realizability of the deferred tax assets arising from losses in its cyclical business, taking into account multiple factors. In completing this assessment, Titan considered both objective and subjective factors. These factors included, but were not limited to, a history of income or losses in prior years, future projections of income or loss, future reversal of existing temporary differences, and tax planning strategies. After evaluating all available evidence, including the fact that the US is in a three year cumulative income position, the Company decided to release most of its U.S. valuation allowance and only retain the portion related to credits that were not more likely than not to be utilized, some state net operating losses, and interest expense carryforward. The Company continues to record a valuation allowance in several major jurisdictions, including various U.S. states, Italy, and Luxembourg where it remains more likely than not that the deferred tax assets would not be utilized.

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Net Income and Income per Share

Net income for the year ended December 31, 2022, was $179.2 million, compared to net income of $49.9 million for 2021. Basic earnings per share was $2.80 for the year ended December 31, 2022, compared to $0.80 for 2021. Diluted earnings per share was $2.77 for the year ended December 31, 2022, compared to $0.79 for 2021. The Company's higher net income and earnings per share were due to the items previously discussed.

SEGMENT INFORMATION

Segment Summary (Amounts in thousands)

Agricultural Segment Results

Agricultural segment results were as follows:

Net sales in the agricultural market were $1,192.2 million for the year ended December 31, 2022, compared to $949.4 million for 2021, an increase of 26%. Net sales increase was driven by price/product mix and volume. Price had a greater impact, primarily reflective of increases in product pricing in response to inflationary impacts on raw materials and other inflationary cost increases in the markets, including freight and energy costs. The volume increase was due to increased demand in the global agricultural market, reflective of high farm commodity prices and increased farmer income, the need for replacement of an aging large equipment fleet and the need to replenish equipment inventory levels within the equipment dealer channels. The overall increase in net sales was partially offset by unfavorable currency translation of 2.8%, primarily due to the weakening Euro, and the effects of the disposed Australian business of 1.5%.

Gross profit in the agricultural market was $193.6 million, or 16% of net sales, for 2022, compared to $135.8 million, or 14% of net sales, for 2021. The increase in gross profit and margin was primarily attributable to the impact of increases in net sales as described previously and cost reduction and productivity initiatives executed across global production facilities. The Company balanced the increases of related raw materials and other inflationary cost impacts with corresponding price increases to protect profitability.

Income from operations in the agricultural market was $130.5 million for the year ended December 31, 2022, compared to $77.7 million for 2021. The overall increase in income from operations is attributable to higher gross profit, described previously.

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Earthmoving/Construction Segment Results

Earthmoving/construction segment results were as follows:

The Company's earthmoving/construction market net sales were $807.4 million for the year ended December 31, 2022, compared to $693.4 million for the year ended December 31, 2021, an increase of 16%. The increase in earthmoving/construction net sales was primarily driven by increases in product pricing in response to inflationary impacts on energy and freight costs, along with fluctuations in the price of steel. The net sales increase was also impacted by volume across all regions, particularly Europe with the undercarriage business. The volume increase was primarily due to improvements in global economic conditions, recovery in construction markets, and stronger mining commodity prices. Net sales were unfavorably impacted by foreign currency translation of 5.4%, primarily due to the weakening Euro, and the effects of the disposed Australia business of 2.5%.

Gross profit in the earthmoving/construction market was $135.8 million, or 17% of net sales, for the year ended December 31, 2022, compared to $83.7 million, or 12% of net sales, for the year ended December 31, 2021. The increase in gross profit and margin was primarily driven by the impact of net sales as described previously and the continued improved production efficiencies stemming from the strong management actions taken to improve profitability for the long-term. The Company balanced the increases related to raw materials and other inflationary cost impacts with corresponding price increases to protect profitability.

The Company's earthmoving/construction segment income from operations was $79.8 million for the year ended December 31, 2022, as compared to income of $27.8 million for 2021. This improvement was due to increases in sales price, volume, and continued execution of cost containment measures taken to manage profitability.

Consumer Segment Results

Consumer segment results were as follows:

Consumer market net sales were $169.8 million for the year ended December 31, 2022, compared to $137.5 million for 2021, an increase of 24%.  The increase was driven by increased price/product mix and volume, with price having a greater impact. Pricing increases were implemented because of inflationary input costs, such as fluctuations in the price of steel and rubber, and increased energy and freight costs. The increase in demand is primarily related to specialty products in the United States, primarily custom mixing of rubber stock to third parties. Net sales were favorably impacted by foreign currency translation, primarily in Latin America and Russia, which increased net sales by 0.2%, although the disposal of the Australian business had a negative effect on sales of 0.8%.

Gross profit from the consumer market was $31.3 million for 2022, or 18% of net sales, compared to $18.0 million, or 13% of net sales, for 2021. The increase was primarily caused by increased price/product mix and the positive impact of sales volume increase on operating leverage.

Consumer segment income from operations was $22.8 million for the year ended December 31, 2022, compared to $9.6 million for 2021. The increase was due to increase in gross profit as mentioned previously.

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Corporate & Unallocated Expenses

Income from operations on a segment basis does not include corporate expenses of approximately $27.3 million and $29.9 million for the year ended December 31, 2022 and 2021, respectively. Unallocated expenses are primarily comprised of corporate selling, general and administrative expenses. The year-over-year change was due to reductions in certain SG&A expenses primarily associated with investments to improve our supply chain and logistics processes in 2021 which did not occur in 2022.

FISCAL YEAR ENDED DECEMBER 31, 2021, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2020

The comparison of the 2021 results to 2020 has been omitted from this Form 10-K and can be found in the Company's Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on March 3, 2022.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

As of December 31, 2022, the Company had $159.6 million of cash, an increase of $61.5 million from December 31, 2021, due to the following items:

Operating Cash Flows

Summary of cash flows from operating activities:

For the year ended December 31, 2022, operating activities provided cash of $160.7 million, driven by the net income of $179.2 million, increases in other current liabilities of $18.9 million, and deceases in prepaid and other current assets of $11.4 million, which was partially offset by increases in accounts receivable of $27.2 million generated by the increased sales activity during the year, increases in inventories of $19.6 million, and decreases in accounts payable of $7.8 million. Included in net income of $179.2 million were non-cash items for depreciation and amortization of $42.7 million, the income on indirect taxes of $32.0 million, deferred income tax benefit of $23.4 million, and loss on sale of the Australian wheel business of $10.9 million.

Cash provided by operating activities increased by $150.0 million when comparing 2022 to 2021. This increase was primarily due to an increase of $129.3 million in net income year over year.

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Summary of the components of cash conversion cycle:

Cash conversion cycle increased by 4 days during 2022 from 2021 due to decreases in accounts payable of $7.8 million at year ended December 31, 2022, as compared to 2021.

Investing Cash Flows

Summary of cash flows from investing activities:

Net cash used for investing activities was $36.8 million in 2022, compared to cash used for investing activities of $37.6 million in 2021. The Company invested a total of $47.0 million in capital expenditures in 2022, compared to $38.8 million in 2021. Capital expenditures represent plant equipment replacement and improvements, along with new tools, dies and molds related to new product development. The overall capital outlay for 2022 increased as the Company seeks to enhance the Company's existing facilities and manufacturing capabilities and drive plant efficiency and labor productivity gains. Cash provided by investing activities in 2022 includes $9.3 million from proceeds for the sale of the Australian wheel business.

Cash used for investing activities for 2021 included $38.8 million capital expenditures used to enhance the Company's existing facilities and manufacturing capabilities and drive productivity gains.

Financing Cash Flows

Summary of cash flows from financing activities:

Net cash used for financing activities was $61.3 million in 2022. Payment on debt of $124.7 million and repurchase of common stock of $25.0 million were offset partially by proceeds from borrowings of $88.9 million. The Company borrowed on the domestic revolving credit facility during the first quarter of 2022 to facilitate the repurchasing of the Company's common stock from RDIF, and subsequently repaid the borrowing during the second quarter of 2022 as cash flow improved. The Company reduced its domestic credit facility outstanding balance to zero during 2022 with cash provided from operations as compared to domestic credit facility outstanding balance of $30.0 million at December 31, 2021.

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Debt Restrictions

The Company’s revolving credit facility (credit facility) and indenture relating to the 7.00% senior secured notes due 2028 contain various restrictions which include:

•When remaining availability under the credit facility is less than 10% of the total commitment under the credit facility ($12.5 million as of December 31, 2022), 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.

Guarantor Financial Information

The Company's 7.00% senior secured notes due 2028 are guaranteed by the following 100% 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.

The following summarized financial information of both the Company and the Guarantor Subsidiaries ("Guarantors") is presented on a combined basis. Intercompany balances and transactions between the Company and the Guarantors have been eliminated and the summarized financial information does not reflect investments of the Company or the Guarantors in the Non-Guarantor Subsidiaries. The information is presented in accordance with the requirements of Rule 13-01 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the guarantor subsidiary operated as an independent entity.

Summarized Balance Sheets:

Summarized Statement of Operations:

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LIQUIDITY OUTLOOK

The Company does not anticipate significant liquidity constraints during the foreseeable future. At December 31, 2022, the Company had $159.6 million of cash and cash equivalents. At December 31, 2022, under the Company's $125 million credit facility, there were no outstanding borrowings, $7.2 million in outstanding letters of credit, and the amount available to borrow totaled $117.8 million. Titan’s availability under this domestic facility may be less than $125 million, from time to time, as a result of any outstanding letters of credit and eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. The cash and cash equivalents balance of $159.6 million includes $132.8 million held in foreign countries.

Capital expenditures for 2023 are forecasted to be approximately $55 million to $60 million. These capital expenditures are anticipated to be used primarily to continue to enhance the Company’s existing facilities and manufacturing capabilities and drive productivity gains, along with the purchase of new tools, dies and molds related to new product development.

Cash payments for interest are currently forecasted to be approximately $30 million in 2023, based on the Company's year-end 2022 debt balances and debt maturities. The forecasted interest payments are comprised primarily of the semi-annual interest payments totaling approximately $28 million (paid in April and October) for the 7.00% senior secured notes.

Cash and cash equivalents along with anticipated internal cash flows from operations and utilization of availability on global credit facilities, are expected to provide sufficient liquidity for working capital needs, debt maturities, and capital expenditures. Potential divestitures and unencumbered assets are also a means to provide for future liquidity needs.

In June 2022, Moody’s Investors Service upgraded its credit rating for the Company, including its senior secured notes. The rating upgrade reflected Moody's expectation that favorable demand growth in Titan's end markets, primarily agricultural equipment, will support continued strength in the Company's credit metrics into 2023.

In December 2022, S&P Global Ratings upgraded its credit rating for the Company due to its belief that the Company will continue to benefit from solid demand in its agricultural and mining end markets in 2023.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1. Description of Business and Significant Accounting Policies to the consolidated financial statements. 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.

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. Management’s judgment is required to determine the provision for income taxes, deferred tax assets and liabilities, and valuation allowances against deferred tax assets.

Management records a reduction to the carrying amounts of deferred tax assets by recording a valuation allowance if, based on the available evidence, it is more likely than not such assets will not be realized. The valuation of deferred tax assets requires judgment in assessing future profitability by year, including the impact of tax planning strategies, relative to the expiration dates, if any, of the assets.

Management considers both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. Management gives operating results during the most recent three-year period a significant weight in our analysis. Management considers positive cumulative operating results exist in the most recent three-year period. Management performs scheduling exercises as needed to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. Management also considers prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized. See Note 21 to the consolidated financial statements for additional information on the composition of valuation allowances.

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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 of the Notes to Consolidated Financial Statements for additional information.

The effect of hypothetical changes to selected assumptions on the Company’s frozen pension benefit obligations would be as follows (amounts in thousands):

(a)Projected benefit obligation (PBO) for pension plans.

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 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 $249.0 million at December 31, 2022, and $255.6 million at December 31, 2021.  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, 2022, would have been approximately $25.0 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 $125 million credit facility that has a variable interest rate.  As of December 31, 2022, the amount available under the credit facility was $117.8 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 $1.2 million.  At December 31, 2022, there were no borrowings under the credit facility.