0000899751False00008997512024-02-292024-02-29


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

FORM 8-K/A

(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): February 29, 2024

TITAN INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)

Delaware1-1293636-3228472
(State of Incorporation)(Commission File Number)(I.R.S. Employer Identification No.)
1525 Kautz Road, Suite 600, West Chicago, IL 60185
(Address of principal executive offices, including Zip Code)
(630) 377-0486
(Registrant's telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

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 ☐

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



EXPLANATORY NOTE

This Amendment No. 1 on Form 8-K/A amends and supplements the Current Report on Form 8-K filed by Titan International Inc. (the “Company”) on February 29, 2024 (the “Initial Report”), in order to provide certain financial statements and pro forma financial information required under Item 9.01(a) and Item 9.01(b) of Form 8-K, with respect to the Company’s acquisition of The Carlstar Group, LLC (“Carlstar”) as described in the Initial Report.


Item 9.01.    Financial Statements and Exhibits

(a) Financial Statements of Business Acquired.

The audited consolidated financial statements of Carlstar, as of and for the year ended December 31, 2023, the notes related thereto and the related independent auditor’s report of RSM US LLP, are filed as Exhibit 99.1 to this report and incorporated herein by reference.


(b) Pro Forma Financial Information.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 the unaudited pro forma condensed combined balance sheet as of December 31, 2023 and the notes related thereto, are filed as Exhibit 99.2 to this report and incorporated herein by reference.

(d) Exhibits.




























SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



TITAN INTERNATIONAL, INC.
(Registrant)

Date:May 16, 2024
By:
/s/ MICHAEL G. TROYANOVICH
Michael G. Troyanovich
Secretary and General Counsel



CONSENT OF INDEPENDENT AUDITOR

We consent to the incorporation by reference in the Registration Statement (No. 333-257617) on Form S-8 of Titan International, Inc. of our report dated April 17, 2024, relating to the consolidated financial statements of The Carlstar Group LLC, included in this Current Report on Form 8-K/A.

/s/ RSM US LLP


Nashville, Tennessee
May 16, 2024


FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

THE CARLSTAR GROUP LLC
(A LIMITED LIABILITY COMPANY)

FOR THE YEAR ENDED DECEMBER 31, 2023

CONTENTS



INDEPENDENT AUDITORS' REPORT

Board of Directors
The Carlstar Group LLC

Opinion
We have audited the consolidated financial statements of The Carlstar Group LLC (the Company), which comprise the consolidated balance sheet as of December 31, 2023, and the related consolidated statements of operations and comprehensive income, member’s equity and cash flows for the year then ended, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued or available to be issued.

Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.

In performing an audit in accordance with GAAS, we:

•Exercise professional judgment and maintain professional skepticism throughout the audit.

•Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

•Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, no such opinion is expressed.

•Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.

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•Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.

We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.

/s/ RSM US LLP
Nashville, Tennessee
April 17, 2024


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THE CARLSTAR GROUP LLC
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in millions)
 
December 31, 2023
 
Net revenues$615.2 
Costs and expenses
Cost of goods sold470.1 
Selling and administrative expenses84.3 
Research and development expenses3.2 
Other income, net(56.1)
Earnings before interest and income taxes113.7 
Interest expense, net33.8 
Income before income taxes79.9 
Income tax expense6.0 
Net income$73.9 
Other comprehensive income
Change in foreign currency translation1.7 
Comprehensive income$75.6 
 

See accompanying Notes to these Consolidated Financial Statements.
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THE CARLSTAR GROUP LLC
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED BALANCE SHEET
(Dollars in millions except member unit amounts)
 December 31, 2023
Assets
Current assets: 
Cash and cash equivalents$19.4 
Accounts receivable, net71.0 
Inventories, net139.9 
Prepaid expenses and other current assets3.5 
Total current assets233.8 
Property, plant and equipment, net74.1 
Other intangible assets, net3.6 
Goodwill5.1 
Operating lease right-of-use assets95.1 
Finance lease right-of-use assets, net0.7 
Deferred income taxes3.3 
Total assets$415.7 
Liabilities and Member's Equity
Current liabilities:
Accounts payable$66.7 
Accrued expenses38.1 
Current portion of long-term debt0.4 
Total current liabilities105.2 
Deferred income taxes2.9 
Operating lease liabilities89.8 
Long-term debt, net90.8 
Total liabilities288.7 
Member’s equity:
Member's equity units ($1,000 par value per unit. 190,000 units authorized; 136,862 units outstanding at 2023)132.4 
Accumulated earnings2.4 
Accumulated other comprehensive loss(7.8)
Total member's equity127.0 
Total liabilities and member's equity$415.7 


See accompanying Notes to these Consolidated Financial Statements.
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THE CARLSTAR GROUP LLC
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENT OF MEMBER'S EQUITY
(Dollars in millions)

Member's Equity UnitsAccumulated Earnings (Deficit)Accumulated Other Comprehensive LossTotal
 UnitsAmount
Balance at December 31, 2022136,812 $132.5 $(42.3)$(9.5)$80.7 
Net Income— — 73.9 — 73.9 
Repayment of member's equity units(130)(0.1)— — (0.1)
Distribution to members— — (29.2)— (29.2)
Other comprehensive income— — — 1.71.7 
Balance at December 31, 2023136,682 $132.4 $2.4 $(7.8)$127.0 



See accompanying Notes to these Consolidated Financial Statements.
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THE CARLSTAR GROUP LLC
(A LIMITED LIABILITY COMPANY)

CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)December 31, 2023
Operating activities
Net income$73.9 
Reconciliation of net income to cash flows provided by operating activities: 
Depreciation & amortization16.9 
Debt extinguishment6.5 
(Gain) on sale-leaseback transaction(56.2)
(Gain) on sale of property and equipment(0.1)
Deferred taxes0.7 
Lease expenses1.1 
Changes in assets and liabilities:
Accounts receivable 17.4 
Inventories(1.8)
Accounts payable and accrued expenses3.8 
Other assets and liabilities1.1 
Net cash provided by operating activities63.3 
 
Investing activities
Capital expenditures(15.9)
Proceeds from sale-leaseback transaction76.4 
Net cash provided by investing activities60.5 
 
Financing activities
Borrowings from new term loan lending facility, net(217.3)
Borrowings from new asset based lending facility, net95.0 
Debt refinancing costs(4.5)
Payments under finance lease obligations(0.4)
Repayments of members equity units(0.1)
Distributions to members(29.2)
Net cash used in financing activities(156.5)
Effect of exchange rate changes on cash and cash equivalents1.7 
Change in cash and cash equivalents(31.0)
Cash and cash equivalents:
Beginning of year50.4 
End of year$19.4 
Noncash financing activities
Lease assets obtained in exchange for new operating lease liabilities$89.0 
Lease assets obtained in exchange for new finance lease liabilities$0.3 
Supplemental disclosures of cash flow information:
Cash paid for interest$27.9 
Cash paid for taxes$5.9 

See accompanying Notes to these Consolidated Financial Statements.
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1. BACKGROUND AND DESCRIPTION OF BUSINESS

Ownership of the Company
The Carlstar Group LLC, formerly known as CTP Transportation Products, LLC (“the Company”), based in Franklin, Tennessee, is a wholly owned subsidiary of Carlstar Holdings LLC, formerly known as CTP Transportation Products Holdings LLC (“Holdings”), which is 76.6% owned by AIPCF V AIV C, L.P. and 15.9% owned by American Industrial Partners (“AIP”) Capital Fund V (co-invest), L.P., two partnerships established by AIP. Barclays Bank PLC holds 5% of the ownership of Holdings. Certain members of management collectively hold 2.5% of the ownership of the Holdings.

Description of the Business
The Company is a leading manufacturer and supplier of a comprehensive suite of specialty tires and wheels. The Company operates four manufacturing and nine distribution facilities worldwide (ten in the U.S., two in Canada, and one in China) in addition to a data center, sales offices in the Netherlands and Hungary, and its Franklin, TN based headquarters. The Company employed a total of approximately 2,250 employees as of the year ended December 31, 2023.

2. BASIS OF PRESENTATION

The consolidated financial statements included herein are prepared in conformity with accounting principles generally accepted in the United States. The financial statements reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary to present fairly our consolidated financial position, results of operations and cash flows.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation
The consolidated financial statements include the accounts of the Company and all of its subsidiaries. All significant intercompany accounts and transactions and balances between operations within the Company have been eliminated in consolidation.

Use of Estimates, Risks and Uncertainties
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short term investments in bank accounts. Financial assets with original maturities of three months or less are included in cash equivalents.

Revenue Recognition
Revenue is recognized, in accordance with Accounting Standard Codification (ASC) Topic 606, Revenue from Contracts with Customers”, which provides a five-step model for recognizing revenue from contracts with customers as follows:

•Identify the contract with a customer
•Identify the performance obligations in the contract
•Determine the transaction price
•Allocate the transaction price to the performance obligations in the contract
•Recognize revenue when or as performance obligations are satisfied

The Company’s revenue is primarily derived from sales of tires and wheels to original equipment manufacturers and to aftermarket wholesale distributors and retailers primarily in the United States and Canada and to a lesser degree in Europe and Asia. Sales of the Company’s products are subject to economic conditions and may fluctuate based on changes in the industry, trade policies and financial markets.

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The Company assesses the contract term as the period in which the parties to the contract have presently enforceable rights and obligations, and it is probable that the Company will collect substantially all of the consideration to which it is entitled.

Revenue from the sale of products is recognized upon transfer of control to the customer, which is typically upon shipment to the customer, however for certain contracts, transfer of control does not occur until the product is received by the customer or upon customer acceptance. All of the Company’s revenue from the sale of products is recognized at a point in time, and the Company does not have any contracts that include multiple performance obligations.

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring its products to the customer. Revenue is recorded based on the transaction price, which includes fixed consideration and estimates of variable consideration such as early payment discounts, volume rebates, and rights of return.

Payment terms on invoiced amounts vary by region and customer, but are generally 30 to 90 days. In instances where the timing of revenue recognition differs from the timing of the right to invoice, the Company has determined that a significant financing component generally does not exist. The primary purpose of the Company’s invoicing terms is to provide customers with simplified and predictable ways of purchasing the products and not to receive financing from or provide financing to the customer.

The Company provides limited-assurance-type warranties for products. The warranty period typically extends for a limited duration following transfer of control of the products. Historically, warranty claims have not resulted in material costs incurred. The Company does not consider these warranties to be performance obligations.

The Company does not generally receive customer payments in advance of transfer of control of the product to the customer that would result in contract liabilities. Contract liabilities are immaterial as of December 31, 2023. Furthermore, because the Company does not generally have rights to consideration for work completed but not billed at the reporting date, the Company does not have any contract assets. Accounts receivable are not considered contract assets under the new revenue standard as contract assets are conditioned upon the Company's future satisfaction of a performance obligation. Accounts receivable, in contrast, are unconditional rights to consideration.

Sales taxes, value added taxes, and other taxes collected concurrently with revenue-producing activities are excluded from revenue.

Costs to Obtain a Contract
Costs of obtaining a contract, which generally include sales commissions, are not capitalized but are expensed in selling, general and administrative costs as incurred. The Company has elected to apply the practical expedient to expense costs of obtaining a contract as incurred as the expected amortization period is one year or less. The Company does not have any costs to fulfill a contract that qualify to be capitalized and are thus expensed as incurred.

Selling and Administrative Expenses
Selling and administrative expenses include wages and benefits related to the sales force, its administrative functions such as corporate management and other indirect costs not allocated to inventories, including a portion of depreciation and amortization. Selling and administrative expenses also includes corporate overhead charges and certain warehousing costs incurred related to distribution centers that are separately operated to facilitate shipments directly to customers.

Shipping and Handling Costs
Costs incurred to physically transfer product to customer locations are recorded as a component of cost of goods sold. Shipping and handling costs associated with outbound freight after control of a product has transferred to a customer are accounted for as a fulfillment cost and not as a separate performance obligation. Therefore, such items are accrued upon recognition of revenue. Charges passed on to customers are recorded in revenue.

Accounts Receivable and Allowances for Credit Loss and Sales Returns
Accounts receivables are reduced by an estimated allowance for credit loss. Estimate of credit losses are primarily developed based on historical losses, with adjustments for current economic conditions and, in some cases, evaluating specific customer accounts for risk of loss. Changes in economic conditions in specific markets in which the Company operates could have an effect on the required allowance for credit loss. Changes in our product offerings or production process could have an effect on
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the required allowance for sales returns. The allowance for credit loss and sales returns was $2.7 million as of December 31, 2023.

Inventories, net
Inventories are valued at the lower of acquisition cost or net realizable value, with cost determined on a weighted-average basis using the first-in, first-out method. The cost of inventories includes direct as well as certain indirect costs associated with the acquisition and production process. These costs include raw materials, direct and indirect labor and manufacturing overhead. Manufacturing overhead includes materials, depreciation, and amortization related to property, plant, and equipment and other intangible assets used directly and indirectly in the acquisition and production of inventory and costs related to the distribution network such as inbound freight charges, purchasing and receiving costs, inspection costs, warehousing costs, internal transfer costs, and other such costs associated with preparing the products for sale. The Company establishes reserves for obsolete or slow moving inventories based on inventory levels, expected selling prices, and customer demand.

Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is based upon the estimated useful lives of the respective assets, primarily using the straight-line method. The estimated asset residual value is taken into consideration in calculating depreciation. The estimated useful lives are as follows: Asset lives are 30 years for buildings, 15 years for building improvements, 5 to 12 years for machinery and equipment, 3 to 10 years for molds, 10 years for furniture and fixtures, 5 years for computer software and equipment, 3 to 5 years for automobiles, and the term of the lease for leasehold improvements and finance lease assets.

Long-Lived Assets
Long-lived assets or asset groups, including property, plant and equipment and amortizable intangible assets, are tested for impairment whenever events or circumstances indicate that the carrying amount of the asset or asset group may not be recoverable. For purposes of testing for impairment, long-lived assets are grouped and classified as held and used at the lowest level for which identifiable cash flows are largely independent of the cash flows from other assets and liabilities. The asset groupings vary based on the related business in which the long-lived asset is employed and the interrelationship between those long-lived assets in producing net cash flows, for example, multiple manufacturing facilities may work in concert with one another or may work on a stand-alone basis to produce net cash flows. Long-lived assets are utilized in multiple economic environments and the asset grouping reflects these various factors.

The operating and cash flow results of the long-lived assets and asset groups classified as held and used are monitored to identify whether events and circumstances indicate the remaining useful lives of those assets should be adjusted, or if the carrying value of those assets or asset groups may not be recoverable. In the event indicators of impairment are identified, undiscounted estimated future cash flows are compared to the carrying value of the long-lived asset or asset group. If the undiscounted estimated future cash flows are less than the carrying amount, the fair value of the asset or asset group is determined and an impairment charge is recorded in current earnings to the extent carrying value exceeds fair value. Fair values may be determined based on estimated discounted cash flows, by prices for like or similar assets in similar markets, or a combination of both. No impairment was recognized as of December 31, 2023.

Intangible Assets, net
Intangible assets are recognized and recorded at their acquisition date fair values. Intangible assets that are subject to amortization are amortized on a straight-line basis over their useful lives. The Company determines the useful lives of its customer relationship intangible assets based on multiple factors including the size and make-up of the acquired customer base, the expected dissipation of those customers over time, the Company’s own experience in the particular industry, the impact of known trends such as technological obsolescence, product demand or other factors, and the period over which expected cash flows are used to measure the fair value of the intangible asset at acquisition. The useful lives of the customer relationship intangible assets are periodically re-assessed when events or circumstances indicate that useful lives have significantly changed from the previous estimate. Other intangible assets are amortized over the term of the agreement, expected period of use, or legal term.

Goodwill
Goodwill results from business acquisitions and represents the excess of purchase price over the fair value of the assets acquired and liabilities assumed. The Company estimates the fair value of goodwill based on the income approach utilizing the discounted cash flow method. The Company tests the carrying amount of goodwill for impairment through a comparison with
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its fair value on an annual basis and between annual tests in certain circumstances when events indicate that impairment may exist. The Company has goodwill of $5.1 million as of December 31, 2023. The Company has elected to perform its annual analysis as of December 31st of each year. No impairment was noted at December 31, 2023 and there were no indicators of impairment at December 31, 2023.

Discounts and Deferred Financing Costs
Financing costs that are incurred by the Company in connection with the issuance of debt are deferred and amortized over the life of the underlying indebtedness using the effective interest method. For the year ended December 31, 2023, the Company recorded $1.4 million amortization related to the Carlyle Loan Facility. The Company wrote off $6.5 million unamortized deferred refinancing cost related to the Carlyle Loan Facility during 2023 as the Company paid off the facility in full. In addition, the Company recorded amortization related to the Ally ABL Facility of $0.1 million during the year ended December 31, 2023. Amortization is included as part of interest expense in the Company’s condensed consolidated statement of operations and comprehensive income.

Lease Arrangements
The Company determines if an arrangement is a lease at inception by evaluating if the asset is explicitly or implicitly identified or distinct, if the Company will receive substantially all of the economic benefit or if the lessor has an economic benefit and the ability to substitute the asset. Operating leases are included in other long-term assets, accrued expenses, and other long-term liabilities.

Right-of-use assets ("ROU assets") represent the Company's right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of fixed and known lease payments over the lease term. Variable payments are not included in the ROU asset or lease liability and can vary from period to period based on the use of an asset during the period or the Company's proportionate share of common costs. When determining the lease term, we include renewal or termination options that we are reasonably certain to exercise. As most of the Company's leases do not provide an implicit rate, the Company determines the appropriate incremental borrowing rates based on the information available at implementation date or lease commencement date for leases involving real properties. For leases related to personal properties, the Company uses risk free rates based on the information available at implementation date or lease commencement date in determining the present value of lease payments. Lease expense for lease payments is recognized on a straight-line basis over the lease term. Leases with an initial term of 12 months or less are not recorded on the balance sheet, and lease expense for these leases is recognized on a straight-line basis over the lease term. Refer to Note 11 for additional information regarding leases.

The Company accounts for sale-leaseback transactions with unrelated third parties at fair value. Third-party appraisal firms are used to determine the estimated fair value of each property sold. Property valuations generally involve the use of the cost approach, the sales comparison approach and the income approach, each of which requires management to make assumptions and to apply judgment to determine the estimated fair value of the property. These assumptions and judgments include, but are not limited to, replacement cost estimates, comparable sales adjustments, projected net operating income estimates and capitalization rates. Refer to Note 11 for additional information regarding sale-leaseback transactions.

Employee Benefits
Healthcare Benefits
The health benefits provided include medical and dental expenses and short-term disability benefits. Participants share in the cost of healthcare benefits. Active employees’ benefits are expensed as incurred.

401(k) Plan
The Company sponsors a 401(k) retirement savings plans in the U.S. and a number of defined contribution plans at foreign subsidiaries. The Company matches employee contributions in an amount equal to 100% of the first 3% and 50% of the next 2% of the employee’s compensation. The Company incurred $2.3 million during the year ended December 31, 2023 related to matching contributions.

Share-Based Compensation
Per the Amended and Restated Limited Liability Company Agreement of Holdings (the “Agreement”) Article 3.3, employees, officers, directors and other service providers of the Company are eligible to participate in the Company’s equity incentive plan
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(the “Plan”). Pursuant to the Agreement, the number of Incentive Units (“Units”) of the Holdings common units permitted to be issued by the Company shall not exceed 22,000 units. The exercise price of the Incentive Units issued is the fair value of the underlying equity at the time of grant. Units have a contractual life of 10 years from the grant date, and vest over a four-year vesting period. The Units become fully vested and exercisable at the time of an Exit Transaction as defined in the Plan. A total of 16,133.13 units have been granted and are outstanding as of December 31, 2023 under the Plan. Recognition of share-based compensation expense is deferred and will be recognized upon the occurrence of an exit transaction.

Foreign Currency Translation
The functional currency for subsidiaries outside the United States is the currency of the primary economic environment in which the subsidiary operates. The functional currency of the operation in China and Europe is the U.S. Dollar, and for Canada is the Canadian Dollar. Assets and liabilities of operations, where the functional currency is not the U.S. Dollar, are translated at the exchange rate in effect at each balance sheet date. Income statement accounts are translated at the weighted average rate of exchange prevailing during the quarter. Translation adjustments arising from the use of differing exchange rates from period to period are included as a component of shareholders’ equity in accumulated other comprehensive income. Gains and losses from foreign currency transactions and from the remeasurement of monetary assets and liabilities and associated income statement activity of foreign subsidiaries where the functional currency is the U.S. Dollar and the books are maintained in the local currency are included in other income, net.

Income Taxes
The Company has elected to be taxed as a partnership, with income taxes assessed primarily at the member level. However, all foreign subsidiaries of the Company continue to be subject to tax in their respective jurisdiction based on local country tax policies. The income tax provision was $6.0 million for the year ended December 31, 2023, which was primarily attributable to income before taxes from the Company’s foreign jurisdictions.

Deferred income taxes are accounted for under the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled.

New Accounting Standards Adopted
In June 2016, the FASB issued ASU 2016-13, "Measurement of Credit Losses on Financial Instruments," which changes accounting requirements for the recognition of credit losses from an incurred or probable impairment methodology to a current expected credit losses (CECL) methodology. The FASB issued subsequent amendments to the initial guidance in November 2019, April 2020 and May 2020 with ASU 2019-19, ASU 2020-04 and ASU 2020-05, respectively. Trade receivables (including the allowance for doubtful accounts) is the only financial instrument in scope for ASU 2016-13 currently held by the Company. The Company adopted this guidance prospectively on January 1, 2023 and it did not have a material effect on the Company’s consolidated financial statements.

New Accounting Standards Not Yet Effective
In December 2023, the FASB issued ASU 2023-09, Improvements to Income Tax Disclosures, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. The Company is in the process of evaluating the potential impact, if any, on the consolidated financial statements related to the adoption of this standard.

4. SHARE-BASED COMPENSATION

In December 2013, the Board of Directors of Holdings approved Incentive Units (“Units”) under the Amended and Restated Limited Liability Company Agreement (the “Agreement”). Under the Agreement, employees, officers, directors and other service providers of the Company are eligible to participate in the Company’s equity incentive plan (the “Plan”). Pursuant to the Agreement, the number of Units of the Holdings’ common units permitted to be issued by the Company shall not exceed 22,000 units. The exercise price of the Incentive Units issued is the fair value of the underlying equity at the time of grant. Units have a contractual life of 10 years from the grant date and vest over a four-year vesting period. The Units become fully vested and exercisable at the time of an Exit Transaction as defined in the Plan. A total of 16,133.13 units have been granted and are
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outstanding as of December 31, 2023 under the Plan. Recognition of share-based compensation expense is deferred and will be recognized upon the occurrence of an Exit Transaction.

Exercisability of the options is contingent upon the occurrence of an Exit Transaction of the Company. The Company could potentially recognize approximately $1.6 million of compensation expense if these performance targets are met or are expected by management to be achieved. The Company estimates the fair value of all equity awards at the closing price on the grant date by applying the Black-Scholes option-pricing valuation model. The application of this valuation model involves assumptions that are highly subjective, judgmental and sensitive in the determination of compensation cost.

There were no Units granted for the year ended December 31, 2023.

Peer group information is the basis for the selection of the expected volatility. The estimated expected term is the expected term the units are expected to remain outstanding. The risk-free interest rate is selected based upon yields of United States Treasury issues with a term equal to the expected term of the option being valued.

Incentive Unit activity for the year ended December 31, 2023 was as follows:
Number of
Shares    		Weighted Average Exercise Price
(in thousands) 		Weighted Average Remaining Contractual Term
(Years)
Outstanding at December 31, 2022.......................17,503.50 $839 3.84
Granted......................................................................— 
Forfeited....................................................................(1,370.37)1,000 1.89
Outstanding at December 31, 2023.......................16,133.13 $341 1.69
Exercisable at December 31, 202316,133.13 $341 1.69


5. INCOME TAXES

Income Tax Disclosures
The Company’s income before tax from U.S. and non-U.S. operations amounted to $69.7 million and $10.2 million, respective, for the year ended December 31, 2023. The provision for income taxes is as follows:
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Year Ended December 31,
(in millions)2023
Current expense:
Domestic.................................................................................$1.4 
Foreign....................................................................................3.9 
Total current expense....................................................................$5.3 
Deferred expense (benefit)
Domestic.................................................................................0.9 
Foreign....................................................................................(0.2)
Total deferred.................................................................................0.7 
Total expense ................................................................................$6.0 

A reconciliation of the tax provision for continuing operations computed at the U.S. federal statutory rate to the actual tax provision is as follows:
Year Ended December 31,
(in millions)2023
Taxes at the 21% U.S. statutory rate...........................................$16.8 
Taxes attributable to non-taxable entities..................................(14.7)
State and local taxes......................................................................1.4 
Benefit of foreign earnings taxed at lower rates........................0.3 
Permanent items.............................................................................1.4 
Other................................................................................................0.8 
Tax expense from continuing operations...................................$6.0 

Deferred tax assets and (liabilities) are classified as long-term consistent with the requirements of ASU 2015-17, Income Taxes
(Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”). Foreign deferred tax assets and liabilities are analyzed on a jurisdictional basis, and are related to the following at December 31:
December 31,
(in millions)2023
Deferred tax assets
Inventory allowance......................................................................$0.2 
Accrued expenses.........................................................................0.7 
Depreciation of long-lived assets...............................................2.4 
Other, net........................................................................................— 
Total deferred income tax assets.................................................$3.3 
Valuation allowances....................................................................— 
Deferred tax assets after valuation allowances.........................$3.3 
Deferred tax liabilities
Depreciation of long-lived assets...............................................$(2.9)
Total deferred income tax liabilities.............................................$(2.9)
Net deferred income tax asset......................................................$0.4 

In assessing whether deferred tax assets associated with temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes are realizable, the Company considers if it is more likely than not that
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they will be utilized to offset future taxable income during the periods in which those temporary differences become deductible for income tax purposes. As of December 31, 2023 the Company had deferred tax assets related to net operating loss ("NOL") carryforwards for certain foreign subsidiaries.

Interest and penalties associated with uncertain tax positions are classified and reported as a component of the income tax provision on the Consolidated Statement of Operations, and as a long-term liability on the Balance Sheet. Uncertain tax positions and associated interest and penalties were not material to the Company’s financial statements for 2023.

6. INVENTORIES

The components of inventories at December 31, 2023 were as follows:
 (in millions)December 31,
2023
Finished goods...................................................................$124.4 
Work-in-process................................................................6.0 
Raw materials......................................................................22.5 
Reserves..............................................................................(13.0)
Inventories..........................................................................$139.9 

7. PROPERTY, PLANT AND EQUIPMENT

The components of property, plant, and equipment at December 31, 2023 were as follows:
(in millions)December 31,
2023
Land.....................................................................................$6.4 
Buildings and leasehold improvements..........................24.9 
Machinery and equipment................................................175.2 
Projects in progress...........................................................11.7 
218.2 
Accumulated depreciation................................................(144.1)
Property, plant and equipment, net.................................$74.1 
 
Total depreciation expense for property, plant, and equipment was $15.5 million for the year ended December 31, 2023.

8. INTANGIBLE ASSETS AND GOODWILL

The components of acquired intangible assets at December 31, 2023 were as follows:
(in millions)December 31,
2023
Customer Relationships.......................$11.6 
Trademarks.............................................4.4 
Noncompetition agreement..................0.8 
Developed Technology........................0.3 
Total amortizable intangibles...............17.1 
Less: accumulated amortization..........(13.5)
Net intangible assets............................$3.6 

The weighted average amortization period remaining for intangible assets are as follows: customer relationships – 2.3 years; and trademarks – 1.1 years. Total amortization expenses for intangible assets was $1.4 million for the year ended December 31,
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2023. The estimated annual future amortization expense for intangible assets for the next five years succeeding 2023 is as follows: 2024 - $1.1 million, 2025 - $0.7 million, and 2026 - 2028 - $0.3 million.

The Company has goodwill of $5.1 million as of December 31, 2023. Goodwill relates to our acquisition of the Marastar business. There are no accumulated impairment losses of goodwill at December 31, 2023.

9. ACCRUED EXPENSES

Accrued expenses consisted of the following at December 31, 2023:
(in millions)December 31,
2023
Accrued compensation and benefits..............................$5.9 
Incentive bonus.................................................................15.1 
Rebates................................................................................7.0 
Legal and professional......................................................0.7 
Workers' Compensation....................................................1.3 
Operating lease liabilities..................................................7.5 
Other accrued expenses....................................................0.6 
Total accrued expenses.....................................................$38.1 

10. DEBT

Debt consists of the following at December 31, 2023:
(in millions)December 31,
2023
Term loan.............................................................................$— 
Asset based lending facility.............................................95.0 
Finance lease......................................................................0.5 
Less unamortized discount and debt issuance costs...4.3 
Total debt............................................................................91.2 
Less short-term portion of debt.......................................0.4 
Long term portion of debt.................................................$90.8 

Asset Based Lending Agreement: On July 8, 2022, the Company entered into an ABL Credit Agreement with TCG Senior Funding LLC (“Carlyle”), which provides for a five-year $55 million revolving credit facility (the “Carlyle ABL Facility”) and term loan proceeds of $220 million (the “Carlyle Term Loan Facility”, and together with the Carlyle ABL Facility, “Carlyle Loan Facility”). The Carlyle ABL Facility was paid in full on November 9, 2023.

On November 9, 2023, the Company and certain of its affiliates entered in to an ABL Credit Agreement with Ally Bank (“Ally”), as administrative agent, collateral agent, swingline lender and an L/C issuer. The ABL Credit Agreement provides for an aggregate commitment in the amount of $200 million, which consists of a revolving credit facility in the amount of $185 million (“New ABL Facility”) and a first-in-last-out revolving credit facility in the amount of $15 million (“FILO Loan”, and together with the New ABL Facility, “Ally Loan Facility”). Borrowings under the Ally Loan Facility is collateralized with substantially all eligible trade receivables, eligible inventory, appraised value of eligible machinery and equipment owned by the Company’s US and Canadian operations (collectively “Borrowing Base”).

Availability under the Ally Loan Facility is calculated as the Borrowing Base minus the total revolving credit outstanding as of any time of determination. There was $52.0 million available on the Ally Loan Facility at December 31, 2023.

Borrowings under Ally ABL Facility bear interest (i) if a Base Rate Loan, at the Base Rate in effect from time to time, plus 175 basis points; (ii) if a SOFR Rate Loan, at the secured overnight financing rate (“SOFR”) plus 275 basis points; (iii) if a Base Rate FILO Loan, at the Base Rate in effect from time to time, plus 350 basis points, and (iv) if a SOFR Rate FILO Loan, at the
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SOFR plus 450 basis points. The Company had borrowings of $95.0 million on the Ally Loan Facility as of December 31, 2023. The average interest rate was 8.38% at December 31, 2023. Interest accrues from the date the Revolver Loan is advanced or the Obligation is incurred or due and payable, until paid by the Company. In addition to paying interest on outstanding principal balances under the credit facility, the Company is required to pay a commitment fee to the lenders equal to 0.5% per annum of the unutilized commitments.

Unamortized deferred financing costs related to the Ally Loan Facility of $4.3 million as of December 31, 2023 was included in the long-term portion of debt.

Term Loan Facility: On July 8, 2022, the Company entered into an ABL Credit Agreement with Carlyle providing for term loan proceeds of $220 million. Borrowings under the Carlyle Term Loan Facility bear same interest rate as borrowings under the Carlyle ABL Facility. The Carlyle Term Loan Facility was paid in full on November 9, 2023.

December 31, 2023
PrincipalUnamortized Discount and Debt Issuance Costs
Term Loan........................................................................$— $— 
Asset Based Lending Facility...........................................95.0 4.3 
$95.0 $4.3 

Covenants and Limitations: Under the Company’s debt and credit facilities, the Company is required to meet various covenants and limitations, including certain leverage ratios, fixed charge coverage ratios, and limits on outstanding debt balances held by certain subsidiaries. We were in compliance with all covenants and limitations as of December 31, 2023.

Letters of Credit: During the normal course of business, the Company enters into commitments in the form of letters of credit to provide financial and performance assurance to third parties. As of December 31, 2023 the Company had $4.4 million letters of credit outstanding.

11. COMMITMENTS AND CONTINGENCIES

Leases
The Company has leases primarily for its distribution centers, offices and certain equipment. The Company recognizes on the balance sheet a lease liability and a right of use asset for leases with a term greater than one year for both operating and finance leases.

The amounts of lease liability and right of use asset are determined at lease commencement and are based on the present value of the lease payments over the lease term. As most of the Company's leases do not provide an implicit rate, the Company determines the appropriate incremental borrowing rates based on the information available at implementation date or lease commencement date for leases involving real properties. For leases related to personal properties, the Company uses risk free rates based on the information available at implementation date or lease commencement date in determining the present value of lease payment. Leases with contractual periods greater than one year and that do not meet the finance lease criteria are classified as operating leases. Leases with an initial term of one year or less are expensed on a straight-line basis over the lease term and recorded in short-term lease expense.

Certain real estate leases contain one or more options to terminate or renew, with terms that can extend the lease term from one to twenty years. Options that the Company is reasonably certain to exercise are included in the lease term.

The lease expense by type consisted of the following:
15
(in millions)2023
Operating lease expense............................................$8.9 
Short-term lease expense...........................................5.0
Finance Lease:
Amortization of right of use assets.........................0.4 
Interest on lease liabilities.........................................— 
Total lease cost$14.3 

Operating and finance lease right of use assets and lease liabilities follow:
(in millions)December 31,
2023
Opertaing leases:
Operating lease right-of-use assets ........................$95.1 
Accrued expenses......................................................7.5 
Operating lease liabilities - long-term .....................89.8 
Total operating lease liabilities.............................$97.3 
Finance leases:
Finance lease right-of-use assets............................$0.7 
Short-term borrowings...............................................0.4 
Long-term borrowings...............................................0.1 
Total finance lease liabilities.................................$0.5 
The weighted average remaining lease term in years and discount rates follows:
2023
Weighed average remaining lease term:
Operating leases14.3 
Finance leases2.9 
Weighed average discount rates:
Operating leases9.2 %
Finance leases2.3 %

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Lease payment amounts in each of the next five years as of December 31, 2023, follow:
Operating LeaseFinance Lease
2024............................................$15.9 $0.4 
2025............................................13.5 0.1 
2026............................................13.0 0.1 
2027............................................12.7 0.1 
2028............................................11.8 0.1 
Later years.................................126.3 — 
Total lease payments193.2 0.8 
Less: imputed interest95.9 0.1
Total lease liabilities$97.3 $0.7 

Cash paid for amounts included in the measurement of lease liabilities follows:
(in millions)2023
Operating cash flows for operating leases.................$8.0 
Financing cash flows for finance leases.....................0.4

During 2023, we executed a sale-leaseback transaction for our manufacturing facilities located at Aiken, South Carolina, Clinton, Tennessee and Jackson, Tennessee, as well as our distribution center in Slinger, Wisconsin for net sales proceeds of $76.2 million. The transaction qualified for sale-leaseback accounting in accordance with ASC 842. Concurrently with the sale, we entered into an operating leaseback agreement with an initial lease term of 20 years and two 10-year renewal options. We recognized a gain related to the execution of the sale transaction of $56.2 million in 2023, which was recorded in other income, net on the consolidated statement of operations and comprehensive income.

Workers’ Compensation, General Liability, and Property Claims

The Company maintains occurrence-based insurance contracts with certain insurance carriers for workers’ compensation, medical and dental, general liability, and property claims up to applicable retention limits. Retention limits are $0.5 million per occurrence for general liability, $0.5 million per occurrence for workers’ compensation, $1.0 million per occurrence for property, and up to $0.5 million for medical claims. The Company is insured for losses in excess of these limits. The Company had accrued expenses (Note 9) related to workers’ compensation of $1.3 million for the year ended December 31, 2023.

Litigation

From time-to-time the Company may be involved in various legal actions arising in the normal course of business. In the opinion of management, the ultimate outcome of such actions, either individually or in the aggregate, will not have a material adverse effect on the combined balance sheet, results of operations for a particular period or annual operating cash flows of the Company.

Insurance Claims

On December 10, 2020, a fire broke out at our Clinton, Tennessee tire manufacturing facility and seriously damaged our number one mixer and related accessories. The Company filed a claim with our insurance carriers and worked closely with the carriers and claim adjusters to ascertain the full amount of insurance proceeds due to the Company under the policies. The Company’s insurance policies cover the repair or replacement of the Company’s assets that suffered loss or damage, with a deductible under these policies of $1.0 million. The policies include coverage for the interruption to the Company’s business, including lost profits. Furthermore, the policies reimburse the Company for other expenses and costs incurred relating to the damages and losses incurred.

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On July 29, 2022, the Company reached a settlement with the insurance carriers for all property and business interruption claims. As of December 31, 2023, the Company has received all insurance proceeds in full.

12. RELATED-PARTY TRANSACTIONS

The Company and its subsidiaries entered into a management services agreement with AIP pursuant to which AIP provides management services to the Company and its subsidiaries. Pursuant to the agreement, AIP is reimbursed for expenses it incurs in connection with providing management services. The Company incurred expenses of $6.0 million related to work AIP performed in assisting our business or expenses AIP paid on our behalf during the year ended December 31, 2023. No amounts due to AIP were outstanding at December 31, 2023.


13. CONDENSED CONSOLIDATING FINANCIAL INFORMATION OF SUBSIDIARY GUARANTORS

The obligations of the Company under its Ally Loan Facility are guaranteed by the Company’s 100% owned domestic and Canadian subsidiaries (the “Guarantors”). The guarantees are made fully and unconditionally on a joint and several basis. The Company’s foreign holdings, other than the Company’s Canadian subsidiary, (the “Non-guarantors”) are not guarantors of the Ally Loan Facility. The claims of creditors of Non-guarantor subsidiaries have priority over the rights of the Company to receive dividends or distributions from such subsidiaries.
Presented below is supplementary condensed consolidating financial information for the Company, the Guarantors and the Non-guarantors. The accounting policies of the subsidiary guarantors are the same as those described in the Summary of Significant Accounting Policies (see Note 3).
Condensed Consolidating Statements of Operations and Comprehensive Income (Loss)
For the Year Ended December 31, 2023
(Dollars in millions)GuarantorNon-GuarantorEliminationConsolidated
Net revenues$595.3 $243.5 $(223.6)$615.2 
— — 
Costs and expenses
Cost of goods sold461.8 231.9 (223.6)470.1 
Selling and administrative expenses79.4 4.9 — 84.3 
Research and development expenses2.7 0.5 — 3.2 
Other expenses(56.1)— — (56.1)
Earnings before interest and income taxes107.5 6.2 — 113.7 
Interest expense, net33.8 — — 33.8 
Income (loss) from equity investment3.5 — (3.5)— 
Income (loss) before income taxes77.2 6.2 (3.5)79.9 
Income tax expense3.3 2.7 — 6.0 
Net income (loss)$73.9 $3.5 $(3.5)$73.9 
Other comprehensive income (loss)
Change in foreign currency translation1.7 0.8 (0.8)1.7 
Comprehensive income (loss)$75.6 $4.3 $(4.3)$75.6 


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Condensed Consolidating Balance Sheet
December 31, 2023
(in millions)GuarantorNon-GuarantorEliminationConsolidated
Assets
Current assets:
Cash and cash equivalents$16.8 $2.6 $— $19.4 
Accounts receivable, net67.6 3.4 — 71.0 
Inventories, net125.3 14.6 — 139.9 
Prepaid expenses and other current assets1.7 1.8 — 3.5 
Total current assets211.4 22.4 — 233.8 
Property, plant and equipment, net39.0 35.1 — 74.1 
Other intangible assets, net3.6 — — 3.6 
Goodwill5.1 — — 5.1 
Investment in equity subsidiaries146.6 — (146.6)— 
Operating lease right-of-use assets94.2 0.9 — 95.1 
Finance lease right-of-use assets0.7 — — 0.7 
Deferred income taxes2.5 0.8 — 3.3 
Intercompany receivables— 109.5 (109.5)— 
Total assets$503.1 $168.7 $(256.1)$415.7 
Liabilities and Members' Equity
Current liabilities:
Accounts payable$49.6 $17.1 $— $66.7 
Accrued expenses36.9 1.2 — 38.1 
Short term debt, net0.4 — — 0.4 
Total current liabilities86.9 18.3 — 105.2 
Deferred income taxes— 2.9 — 2.9 
Operating lease liabilities88.9 0.9 — 89.8 
Long-term debt, net90.8 — — 90.8 
Intercompany payables109.5 — (109.5)— 
Total liabilities376.1 22.1 (109.5)288.7 
Members' equity:
Members' equity units132.4 79.4 (79.4)132.4 
Retained (deficit) earnings2.4 65.2 (65.2)2.4 
Accumulated other comprehensive (loss) income(7.8)2.0 (2.0)(7.8)
Total members' equity127.0 146.6 (146.6)127.0 
Total liabilities and members' equity$503.1 $168.7 $(256.1)$415.7 





19
Consolidating Condensed Statement of Cash Flows
For the Year Ended December 31, 2023
(Dollars in millions)GuarantorNon-GuarantorEliminationConsolidated
Operating activities
Net income (loss)$73.9 $3.5 $(3.5)$73.9 
Reconciliation of net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization12.4 4.5 — 16.9 
Debt Extinguishment6.5 — — 6.5 
Gain on property and equipment damaged in fire— (0.1)— (0.1)
Gain on sale-leaseback transaction(56.2)— — (56.2)
Deferred taxes0.9 (0.2)— 0.7 
Lease expenses1.2 (0.1)— 1.1 
Income from equity investment(3.5)— 3.5 — 
Changes in assets and liabilities:
Accounts receivables17.3 0.1 — 17.4 
Inventories(0.6)(1.2)— (1.8)
Accounts payable and accrued expenses5.5 (1.7)— 3.8 
Other assets and liabilities0.8 0.3 — 1.1 
Net cash provided by operating activities58.2 5.1 — 63.3 
Investing activities
Capital expenditures(11.8)(4.1)— (15.9)
Proceeds from sale of building76.4 — — 76.4 
Net transfers to guarantor— (4.2)4.2 — 
Net cash used in investing activities64.6 (8.3)4.2 60.5 
Financing activities
Repayment of term loan(217.3)— — (217.3)
Borrowings (repayments) of asset based lending facility, net95.0 — — 95.0 
Payments under finance lease obligations(0.4)— — (0.4)
Origination costs for term loan(4.5)— — (4.5)
Repayments of members equity units(0.1)— — (0.1)
Distributions to members(29.2)— — (29.2)
Net transfers from non-guarantor4.2 — (4.2)— 
Net cash provided by financing activities(152.3)— (4.2)(156.5)
Effect of exchange rate changes on cash1.7 — — 1.7 
Change in cash and cash equivalents(27.8)(3.2)— (31.0)
Cash and cash equivalents
Beginning of period44.65.8—50.4 
End of period$16.8$2.6$—$19.4
Noncash financing activities
Equity investment for term loan$89.0 $— $— $89.0 
Capital lease obligations incurred for use of equipment$0.3 $— $— $0.3 
Supplemental disclosures of cash flow information:
Cash paid for interest$27.9 $— $— $27.9 
Cash paid for taxes$3.4 $2.5 $— $5.9 


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14. QUARTERLY FINANCIAL DATA (UNAUDITED)

2023
(in millions)FirstSecondThirdFourthYear
Net revenues..............................................................$177.1 $162.2 $145.6 $130.3 $615.2 
Cost of goods sold...................................................142.8 123.0 106.6 97.7 470.1 
Gross profit................................................................34.3 39.2 39.0 32.6 145.1 
Selling and administrative expenses......................19.3 19.2 22.4 23.4 84.3 
Research and development expenses....................0.8 0.8 0.9 0.7 3.2 
Other (income) expense, net....................................(0.6)0.8 0.2 (56.5)(56.1)
Earnings before interest and income taxes............14.8 18.4 15.5 65.0 113.7 
Interest expense, net.................................................6.3 6.5 8.1 12.9 33.8 
Earnings before income taxes......................8.5 11.9 7.4 52.1 79.9 
Income tax expense...................................................2.1 1.8 1.5 0.6 6.0 
Net income..................................................................$6.4 $10.1 $5.9 $51.5 $73.9 

15. SUBSEQUENT EVENTS

On February 29, 2024, the Company, along with all of its subsidiaries, was acquired by Titan International, Inc. ("Titan") for a purchase price of $296.2 million consisting of $168.7 million in Titan’s stock based on the previous 45-day average price and $127.5 million in cash pursuant to an agreement dated February 29, 2024, and subject to agreed upon working capital target and escrow provisions. Titan is a global wheel, tire and undercarriage industrial manufacturer and supplier that services both original equipment manufacturers and aftermarket customers across the globe in the agricultural, earthmoving/construction, and consumer markets.

In conjunction with Titan’s acquisition of the Company, the Ally ABL Facility was paid off in full, all outstanding Incentive Units became fully vested, and the management service agreement between the Company and AIP was terminated as of February 29, 2024.

21

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
(Dollar amounts presented in thousands, except per share amounts)


On February 29, 2024, Titan International, Inc., a Delaware corporation (the “Company”) entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among the Company, Titan Tire Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Holdings”), Carlstar Intermediate Holdings I, LLC (“Carlstar Intermediate”), AIPCF V Feeder (Cayman), LP (“AIPCF Cayman”), AIPCF V Feeder CTP Tire, LLC (together with Carlstar Intermediate and AIPCF Cayman, the “Sellers”) and The Carlstar Group, LLC (“Carlstar”) under which Holdings acquired all of the equity interest of Carlstar (the “Transaction”) for a total purchase price of approximately $296.2 million, consisting of $127.5 million of cash (the “Cash Consideration”) and $168.7 million of the Company’s common stock, subject to certain customary adjustments including a working capital adjustment based on an agreed working capital target. See Note 1 to this unaudited pro forma condensed combined financial information for additional information on the Transaction. The unaudited pro forma condensed combined financial information is presented to illustrate the effects of the acquisition (the “Acquisition”) of Carlstar by the Company and certain contemporaneous financing transactions (collectively, the “Transaction”) as if the Acquisition has occurred on January 1, 2023, the beginning of the most recently completed fiscal year preceding the Acquisition.

The unaudited pro forma condensed combined balance sheet as of December 31, 2023 and the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 are based upon, derived from and should be read in conjunction with the historical audited consolidated financial statements of the Company for the year ended December 31, 2023 (which are available in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2024), and the historical financial statements of Carlstar included in this Form 8-K/A as Exhibit 99.1.

For purposes of the pro forma condensed combined statement of operations, results for Carlstar are presented for the twelve-month period ended December 31, 2023. This information was derived from the historical audited statement of operations of Carlstar for the year ended December 31, 2023, as included in this Form 8-K/A as Exhibit 99.1. For purposes of the pro forma condensed combined balance sheet, we utilized the audited historical balance sheet of Carlstar as of December 31, 2023 included in this Form 8-K/A as Exhibit 99.1.

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 assumes that the Transaction occurred on January 1, 2023. The unaudited pro forma condensed combined balance sheet as of December 31, 2023 assumes that the Transaction occurred on December 31, 2023. The historical condensed combined financial information has been adjusted to give pro forma effect to reflect the accounting for the Transaction in accordance with U.S. GAAP. In the opinion of management, all adjustments necessary to present fairly the unaudited pro forma condensed combined financial information have been made. The assumptions underlying the pro forma adjustments are described fully in the accompanying notes, which should be read in conjunction with the unaudited pro forma condensed combined financial information.

The Acquisition is being accounted for as a business combination using the acquisition method of accounting under the provisions of Accounting Standards Codification ("ASC") Topic 805, "Business Combinations" ("ASC 805"), and using the fair value concepts defined in ASC Topic 820, "Fair Value Measurements" ("ASC 820"). ASC 820 defines the term "fair value" and sets forth the valuation requirements for any asset or liability measured at fair value, expands related disclosure requirements and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop fair value measures. Fair value is defined in ASC 820 as "the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date". This is an exit price concept for the valuation of the asset or liability. In addition, market participants are assumed to be buyers and sellers in the principal (or the most advantageous) market for the asset or liability. Many of these fair value measurements can be highly subjective, and it is possible that other professionals, applying reasonable judgment to the same facts and circumstances, could develop and support a range of alternative estimated amounts. Under ASC 805, all assets acquired and liabilities assumed are recorded at their acquisition date fair value. The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information is based upon management's internally developed preliminary estimates of the fair market value of the assets acquired and liabilities assumed, as if the Acquisition had occurred on the above dates. This allocation of the purchase price depends upon certain estimates and assumptions, all of which are preliminary and, in some instances, are incomplete and
1

have been made solely for the purpose of developing the unaudited pro forma condensed combined financial information. Any adjustments to the preliminary estimated fair value amounts could have a significant impact on the unaudited pro forma condensed combined financial information contained herein, and our future results of operations and financial position.

The unaudited pro forma condensed combined financial information is not necessarily indicative of the combined financial position or results of operations that would have been realized had the Transaction occurred as of the dates indicated, nor is it meant to be indicative of any anticipated combined financial position or future results of operations that the Company will experience after the Transaction.
2

TITAN INTERNATIONAL, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(All amounts in thousands, except share data)
 Historical TitanHistorical Carlstar Business as of December 31, 2023Transaction Accounting AdjustmentsNote ReferencesPro Forma Combined
Assets
Current assets 
Cash and cash equivalents$220,251 $19,400 $4,793 4(a)$244,444 
Accounts receivable, net219,145 71,000 — 290,145 
Inventories365,156 139,900 10,700 4(b)515,756 
Prepaid and other current assets72,229 3,500 — 75,729 
Total current assets876,781 233,800 15,493 1,126,074 
Property, plant and equipment, net321,694 74,100 54,062 4(c)449,856 
Operating lease assets11,955 95,800 2,200 4(d)109,955 
Goodwill— 5,100 25,709 4(e)30,809 
Intangible assets, net— 3,600 12,170 4(f)15,770 
Deferred income taxes38,033 3,300 (3,300)4(g)38,033 
Other long-term assets40,782 — — 40,782 
Total assets$1,289,245 $415,700 $106,334 $1,811,279 
Liabilities 
Current liabilities 
Short-term debt$16,913 $400 $— $17,313 
Accounts payable201,201 66,700 — 267,901 
Other current liabilities154,261 38,100 6,200 4(h)198,561 
Total current liabilities372,375 105,200 6,200 483,775 
Long-term debt409,178 90,800 56,200 4(i)556,178 
Deferred income taxes2,234 2,900 7,551 4(j)12,685 
Other long-term liabilities38,043 89,800 890 4(k)128,733 
Total liabilities821,830 288,700 70,841 1,181,371 
Equity 
Titan shareholders' equity
Common stock— — — — 
Member's equity units ($1,000 par value per unit. 190,000 units authorized; 136,682 units outstanding at 2023)— 132,400 (132,400)4(l)— 
Additional paid-in capital569,065 — 168,693 4(l)737,758 
Retained earnings169,623 2,400 (8,600)4(m)163,423 
Treasury stock (at cost, 5,809,414 shares at December 31, 2023)(52,585)— — (52,585)
Accumulated other comprehensive loss(219,043)(7,800)7,800 4(n)(219,043)
Total Titan shareholders’ equity467,060 127,000 35,493 629,553 
Noncontrolling interests355 — — 355 
Total equity467,415 127,000 35,493 629,908 
Total liabilities and equity$1,289,245 $415,700 $106,334 $1,811,279 
See accompanying Notes to Condensed Consolidated Financial Statements.
3

TITAN INTERNATIONAL, INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
(All amounts in thousands, except per share data)
 Historical TitanHistorical Carlstar Business for the year ended December 31, 2023Transaction AdjustmentsNote ReferencesPro Forma Combined
 
Net sales$1,821,800 $615,200 $— $2,437,000 
Cost of sales1,515,951 470,100 9,922 5(a)1,995,973 
Gross profit305,849 145,100 (9,922)441,027 
Selling, general and administrative expenses134,938 84,300 6,605 5(b)225,843 
Research and development expenses12,539 3,200 — 15,739 
Royalty expense9,645 — — 9,645 
Income from operations148,727 57,600 (16,527)189,800 
Interest expense, net(18,785)(33,800)17,287 5(c)(35,298)
Foreign exchange loss(22,822)— — (22,822)
Other income 2,628 56,100 — 58,728 
Income before income taxes109,748 79,900 760 190,408 
Provision for income taxes26,042 6,000 14,165 5(d)46,207 
Net income83,706 73,900 (13,405)144,201 
Net income attributable to noncontrolling interests4,946 — — 4,946 
Net income attributable to Titan and applicable to common shareholders$78,760 $73,900 $(13,405)$139,255 
Earnings per common share: 
Basic$1.26 $1.87 
Diluted$1.25 $1.86 
Average common shares and equivalents outstanding:
Basic62,452 11,922 5(e)74,374 
Diluted62,961 11,922 74,883 
 

See accompanying Notes to Condensed Consolidated Financial Statements.
4


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)

1. DESCRIPTION OF TRANSACTION

On February 29, 2024, Titan International, Inc., a Delaware corporation (the “Company”) entered into a Membership Interest Purchase Agreement (the “Purchase Agreement”) by and among the Company, Titan Tire Holdings, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Holdings”), Carlstar Intermediate Holdings I, LLC (“Carlstar Intermediate”), AIPCF V Feeder (Cayman), LP (“AIPCF Cayman”), AIPCF V Feeder CTP Tire, LLC (together with Carlstar Intermediate and AIPCF Cayman, the “Sellers”) and The Carlstar Group, LLC (“Carlstar”) under which Holdings acquired all of the equity interest of Carlstar (the “Transaction”) for a total purchase price of approximately $296.2 million, consisting of $127.5 million of cash (the “Cash Consideration”) and $168.7 million of the Company’s common stock (11,921,766 shares at $14.15 per share) (the “Stock Consideration”), subject to certain customary adjustments including a working capital adjustment based on an agreed working capital target.

Carlstar is a global manufacturer and distributor of wheels and tires for a variety of end-market verticals including outdoor power equipment, power sports, trailers, and small to midsize agricultural and construction equipment. Carlstar has 17 manufacturing and distribution facilities located in four countries and provides solutions to customers in North America, Europe and China.


2. BASIS OF PRESENTATION

The unaudited pro forma condensed combined statement of operations for the year ended December 31, 2023 was derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K ("the 2023 Form 10-K") for the year ended December 31, 2023, and the audited historical financial information of Carlstar for the year ended December 31, 2023, and has been prepared as if the Transaction had occurred on January 1, 2023.

The unaudited pro forma condensed combined balance sheet as of December 31, 2023 combines the consolidated balance sheet included in the 2023 Form 10-K with the historical audited balance sheet for Carlstar as of December 31, 2023, and has been prepared as if the Transaction had occurred on December 31, 2023. The unaudited pro forma condensed combined financial information herein has been prepared to illustrate the effects of the Transaction in accordance with U.S. GAAP and pursuant to Article 11 of Regulation S-X.

The Carlstar audited historical consolidated financial statements as of and for the year ended December 31, 2023 are included in this Current Report on Form 8-K/A. These statements should be read in conjunction with such historical financial statements. The historical consolidated financial information has been adjusted to give pro forma effect to reflect the accounting for the Transaction in accordance with U.S. GAAP. The historical Carlstar financial statements as of and for the year ended December 31, 2023 have been adjusted to reflect certain reclassifications to conform to the Company’s financial statement presentation in the unaudited pro forma condensed combined financial statements. In addition, amounts previously presented on the historical consolidated balance sheet of Carlstar for finance lease right of use assets in the amount of $700 have been reclassified into "Operating lease assets" on the unaudited pro forma condense combined balance sheet.

The Company has accounted for the Transaction under the acquisition method of accounting in accordance with the authoritative guidance on business combinations under the provisions of ASC 805. The allocation of the purchase price as reflected in the unaudited pro forma condensed combined financial information was based on a preliminary valuation of the assets acquired and liabilities assumed, and the accounting is subject to revision as more detailed analyses are completed and additional information about the fair value of assets acquired and liabilities assumed becomes available. The final purchase price allocation may include changes to the amount of intangible assets, goodwill, and deferred taxes, as well as other items. Accordingly, the pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial information. Differences between these preliminary estimates and the final purchase accounting may occur, and these differences could be material.

Assets acquired and liabilities assumed in a business combination that arise from contingencies must be recognized at fair value if the fair value can be reasonably estimated. If the fair value of an asset or liability that arises from a contingency cannot be determined, the asset or liability would be recognized in accordance with ASC 450, “Disclosure of Certain Loss
5


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)
Contingencies” (“ASC 450”). If the fair value is not determinable and the ASC 450 criteria are not met, no asset or liability would be recognized. Management is not aware of any material contingencies related to Carlstar.

The unaudited pro forma condensed combined financial information is presented solely for informational purposes and is not necessarily indicative of the combined results of operations or financial position that might have been achieved for the periods presented, nor is it necessarily indicative of the future results of the combined company. The unaudited pro forma condensed combined financial information does not reflect any cost savings from future operating synergies or integration activities, if any, or any revenue, tax, or other synergies, if any, that could result from the Acquisition.

3. ACCOUNTING POLICIES

Acquisition accounting rules require evaluation of certain assumptions and estimates, as well as determination of financial statement classifications which are completed during the measurement period as defined in current accounting standards. The Company has completed a preliminary review of accounting policies for purposes of the unaudited pro forma combined financial information and did not identify any material differences in accounting policies.

Management will conduct a final review of Carlstar’s accounting policies in an effort to determine if differences in accounting policies require adjustment of Carlstar’s results of operations or of assets or liabilities to conform to the Company’s accounting policies, or other adjustments which may be required by acquisition accounting rules. As a result of that review, management may identify differences that, when conformed, could have a material impact on this unaudited pro forma condensed combined financial information.


4. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET ADJUSTMENTS RELATED TO THE ACQUISITION

The allocation of the purchase price discussed below is preliminary. The final allocation of the purchase price will be determined at a later date and is dependent on a number of factors, including the final evaluation of the fair value of Carlstar's tangible and identifiable intangible assets acquired and liabilities assumed. Such final adjustments, which may include other increases or decreases to amortization resulting from the allocation of the purchase price to amortizable tangible and intangible assets, along with the related income tax effect, may be material. The final allocation is subject to review and agreement with the prior equityholders of Carlstar. The working capital figure included in the consideration set forth below is also preliminary and subject to review and agreement with the prior equityholders of Carlstar in accordance with the terms of the Purchase Agreement.

The total consideration transferred as if the acquisition date were December 31, 2023 is presented as follows:

Amounts as of Acquisition Date, in thousands
Titan International, Inc. common stock$168,693 
Base cash consideration, net of cash acquired127,500 
296,193 
Additional cash consideration for excess net working capital acquired18,372 
Other debt-like items(3,665)
Total Consideration transferred to Sellers$310,900 






6


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)
The preliminary allocation of the purchase price to the fair value of Carlstar’s assets acquired and liabilities assumed prepared is presented as follows.
NoteAmounts as of Acquisition Date, in thousands
Cash and cash equivalents4(a)$19,400 
Accounts receivable71,000 
Inventories4(b)150,600 
Prepaid and other current assets3,500 
Property, plant, and equipment4(c)128,162 
Operating lease assets4(d)98,000 
Goodwill4(e)30,809 
Intangible assets4(f)15,770 
Fair value of assets acquired517,241 
Accounts payable67,100 
Other current liabilities38,100 
Deferred income taxes4(j)10,451 
Other long-term liabilities4(k)90,690 
Fair value of liabilities assumed206,341 
Total consideration transferred to Sellers$310,900 

4(a) The total impact of cash and cash equivalents related to the transaction accounting adjustments totaled $4,793, which is comprised of the following:
Amounts as of Acquisition Date, in thousands
Cash received from revolving credit facility147,000 
Cash consideration paid to the Sellers(142,207)
Net pro forma cash adjustment$4,793 

4(b) Reflects $10,700 for the fair value adjustment of Carlstar’s inventories related to the increase from its book value to preliminary estimated fair value. The fair value of finished goods and work-in-process inventory represents the estimated selling price less estimate of cost to complete and sell.

4(c) Represents the adjustment in carrying value of Carlstar's property, plant and equipment from its historical gross book value to its preliminary estimated fair value. Of the total consideration, approximately $128,162 relates to fixed assets as illustrated in the table below. The fair value estimate for fixed assets is preliminary and is determined based on the assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their best use. For purposes of the accompanying unaudited pro forma condensed combined financial information, it is assumed that all assets will be used in a manner that represents their highest and best use. The final fair value determination for fixed assets may differ from this preliminary determination. The fair value of fixed assets is determined primarily using a combination of the cost approach and the sales comparison approach.

7


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)
 Average Estimated Useful Life (years)Historical Gross Carrying AmountHistorical Accumulated Depreciation AmountHistorical Property Plant and Equipment, netFair Value AdjustmentPreliminary Fair Value
Land and improvementsN/A$6,456 $(2,295)$4,161 $349 $4,510 
Buildings and improvements20.424,910 (8,966)15,944 7,856 23,800 
Machinery and equipment7.2175,183 (132,844)42,339 45,857 88,196 
Construction-in-progressN/A11,656 — 11,656 — 11,656 
Total$218,205 $(144,105)$74,100 $54,062 $128,162 

4(d) Represents an adjustment of $2,200 to increase the carrying value of Carlstar’s existing operating leases to its preliminary estimated fair value due to certain favorable operating leases. The final fair value determination for operating leases may differ from this preliminary determination.

4(e) Prior to the Acquisition, Carlstar's historical balance sheet included $5,100 of goodwill. As a result of the Transaction, goodwill is calculated as the difference between the fair value of the consideration transferred and the values assigned to the identifiable tangible and intangible assets acquired and liabilities assumed. This adjustment of $25,709 represents the adjustment to increase the historical goodwill carrying value of Carlstar to its preliminary estimated fair value per the purchase price allocation table in Note 4. The goodwill balance will be lower for the final purchase accounting allocation due to unseasonably low accounts receivable as of December 31, 2023 as compared to February 29, 2024 accounts receivable acquired.

4(f) Represents the adjustments to eliminate historical Carlstar intangibles and to record the preliminary estimated fair value of intangible assets identified upon the acquisition. Of the total consideration, approximately $15,770 relates to identified intangible assets. The fair value estimate for identifiable intangible assets is preliminary and is determined based on the assumptions that market participants would use in pricing an asset, based on the most advantageous market for the asset (i.e., its highest and best use). This preliminary fair value estimate could include assets that are not intended to be used, may be sold or are intended to be used in a manner other than their best use. For purposes of the accompanying unaudited pro forma condensed combined financial information, it is assumed that all assets will be used in a manner that represents their highest and best use. The final fair value determination for identified intangibles may differ from this preliminary determination.

The fair value of identifiable intangible assets is determined primarily using the “income approach”, which is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life. Some of the more significant assumptions inherent in the development of the identifiable intangible assets valuations, from the perspective of a market participant, include the estimated after-tax cash flows that will be received for the intangible asset, the appropriate discount rate selected in order to measure the risk inherent in each future cash flow stream, the assessment of each asset’s life cycle, and competitive trends impacting the asset and each cash flow stream. No assurances can be given that the underlying assumptions used to prepare the discounted cash flow analysis will not change or the timely completion of each project to commercial success will occur. For these and other reasons, actual results may vary significantly from estimated results. The methodologies and significant assumptions utilized to value the intangible assets include using a discount rate that reflected the risks inherent in the cash flow stream as well as the nature of the asset.

The general categories of the acquired identified intangible assets are expected to be the following:
    
8


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)
 Carrying ValueWeighted Average Amortization (in Years)
Customer lists/relationships$10,347 10.00
Trade names3,508 15.00
Other intangibles1,915 6.25
Total$15,770 10.66

4(g) Represents the adjustments to eliminate historical Carlstar deferred tax assets, which the Company is not expected to utilize following the acquisition. Refer to footnote 4(j) related to the deferred income tax liabilities resulting from the fair value adjustments.

4(h) Reflects the accrual of $6,200 of transaction-related expenses incurred by the Company associated with the Carlstar Transaction.

4(i) To fund the acquisition, the Company borrowed an additional $147,000 under its new revolving credit facility; The proceeds were partially used to terminate the term debt of $90,800 at Carlstar. The net impact of these pro forma adjustments is $56,200.

4(j) Reflects deferred income tax liabilities resulting from fair value adjustments. The estimates of deferred tax liabilities were determined based on the book and tax basis differences of the fair value step-ups attributable to the net assets acquired at a weighted average tax rate of 25%. The weighted average tax rate was based upon the jurisdictions of the net assets acquired. This estimate of deferred income tax liabilities is preliminary and is subject to change based upon management’s final determination of the fair values of tangible and identifiable intangible assets acquired by jurisdiction.

4(k) Represents tax liabilities related to uncertain tax positions recorded by the Company related to the acquisition of Carlstar that are expected to be an obligation assumed by the Company.

4(l) Represents the elimination of Carlstar's historical additional paid in capital and record the additional paid in capital for the issuance of Titan common stock of $168,693 as part of purchase price consideration to the Sellers.

4(m) Represents the elimination of Carlstar's historical retained earnings and to record the $6,200 of transaction-related expenses incurred by the Company associated with the Carlstar Transaction.

4(n) Represents the elimination of Carlstar's historical accumulated other comprehensive income.

9


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)
5. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS ADJUSTMENTS RELATED TO THE ACQUISITION FOR THE YEAR ENDED DECEMBER 31, 2023

5(a) Represents the following adjustments:

NoteAdjustment amount, in thousands
(i)$(778)
(ii)10,700 
$9,922 

(i) elimination of historic Carlstar fixed asset depreciation of $13,960 and the addition of recorded pro forma depreciation expense of $13,182 on the portion of purchase price allocated to fixed assets as follows:

 Preliminary Fair ValueEstimated Useful Life (years)Total Depreciation ExpenseCost of Goods SoldSelling, General and Administrative
Land and improvements$4,510 N/A$— $— $— 
Buildings and improvements23,800 20.41,167 1,050 117 
Machinery and equipment88,196 7.213,480 12,132 1,348 
Construction-in-progress11,656 N/A— — — 
Total$128,162 $14,647 $13,182 $1,465 
Less: Carlstar Historical Depreciation for the year ended December 31, 2023$15,488 $13,960 $1,528 
Pro Forma adjustment to depreciation expense$(841)$(778)$(63)
The Pro Forma adjustment to depreciation expense is reduced compared to the historical depreciation recorded due to reset of estimated useful lives following the acquisition.

(ii) Reflects $10,700 for the amortization of the fair value adjustment of Carlstar’s inventories related to the increase from its book value to preliminary estimated fair value. The fair value of finished goods and work-in-process inventory represents the estimated selling price less estimate of cost to complete and sell.

5(b) Represents the following adjustments:

NoteAdjustment amount, in thousands
(i)$321 
(ii)(63)
(iii)6,200 
(iv)147 
$6,605 


(i) historic Carlstar intangible asset amortization of $1,367 and the addition of recorded pro forma amortization     expense of $1,688 on the portion of the purchase price allocated to definite-lived intangible assets as follows:

10


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)
 Carrying ValueWeighted Average Amortization (in Years)Amortization Expense
Customer lists/relationships$10,347 10.00$1,035 
Trade names3,508 15.00234 
Other intangibles1,915 6.25419 
Total$15,770 10.66$1,688 
Less: Carlstar Historical Amortization for the year ended December 31, 2023$1,367 
Pro Forma adjustment to amortization$321 

(ii) Historic Carlstar fixed asset depreciation of $1,528 and the addition of recorded pro forma depreciation expense of $1,465 as presented in 5(a) above.

(iii) Reflects the addition of $6,200 of transaction-related expenses incurred by the Company associated with the Carlstar Transaction.

(iv) Reflects the amortization of $147 related to the fair value adjustment of $2,200 associated with certain operating lease assets.

5(c) As stated above, the Company borrowed an additional $147,000 under a revolving credit facility to finance the acquisition of Carlstar. The proceeds were partially used to terminate the term debt of $90,800 at Carlstar. This adjustment represents a reduction in interest expense of $17,287 based on the prevailing SOFR rate less the impact of commitment fees that would be owed on the unused portion of the facility, in accordance with the terms of the credit agreement.

5(d) Represents an increase in income tax expense associated with the change in the ownership structure of Carlstar following the Transaction using the weighted average tax rate of 25%. The weighted average tax rate was based upon the jurisdictions of the net assets acquired. This estimate of the income tax expense is preliminary and is subject to change.

5(e) Titan issued common stock worth $168.7 million (11,921,766 shares at $14.15 per share) to the Sellers in connection with the acquisition of Carlstar.

6. UNADJUSTED PRO FORMA BALANCES

Accounting for Carlstar's Sale-Leaseback Transaction (6a)
During November 2023, Carlstar executed a sale-leaseback transaction for the manufacturing facilities located at Aiken, South Carolina, Clinton, Tennessee and Jackson, Tennessee, as well as the distribution center in Slinger, Wisconsin for net sales proceeds of $76.2 million. The transaction qualified for sale-leaseback accounting in accordance with ASC 842. Carlstar recorded a $56.2 million gain associated with this sale-leaseback transaction, which is included within other income within the unaudited pro forma condensed combined statement of operations.
11


TITAN INTERNATIONAL, INC.
Notes to Unaudited Condensed Combined Financial Statements
Amounts in thousands (except per share data)
(Unaudited)

If Carlstar had executed the sale-leaseback transaction as of January 1, 2023, the Company would have incurred incremental net expense of $4,969 comprised of additional lease expense, depreciation expense on the right of use asset, and offset by the reversal of depreciation expense on the buildings prior to the sale-leaseback. A pro forma adjustment has not been included as a part of the pro forma balance sheet and income statement.

Accounting for Carlstar's Transaction Costs (6b)
Carlstar incurred $5,498 of direct, incremental transaction costs related to costs incurred to sell the business that are reflected in the historical statement of operations for the year ended December 31, 2023. These charges include financial advisory fees, legal, accounting, other professional fees incurred by the Carlstar that are related to costs incurred to sell the business. A pro forma adjustment has not been included as a part of the pro forma balance sheet and income statement.

Provision for Income Taxes (6c)
Represents a decrease in income tax expense associated with the impact of the management adjustments above using the weighted average tax rate of 25%

The following table depicts the pro forma income statement as if the management adjustments above were included within the unaudited pro forma consolidated statement of operations for the year ended December 31, 2023.
 Pro Forma CombinedManagement AdjustmentsNote ReferencesAdjusted Pro Forma Combined
Net sales$2,437,000 $— $2,437,000 
Cost of sales1,995,973 4,969 6(a)2,000,942 
Gross profit441,027 (4,969)436,058 
Selling, general and administrative expenses225,843 (5,498)6(b)220,345 
Research and development expenses15,739 — 15,739 
Royalty expense9,645 — 9,645 
Income from operations189,800 529 190,329 
Interest expense, net(35,298)— (35,298)
Foreign exchange loss(22,822)— (22,822)
Other income 58,728 (56,200)6(a)2,528 
Income before income taxes190,408 (55,671)134,737 
Provision for income taxes46,207 (13,918)6(c)32,289 
Net income144,201 (41,753)102,448 
Net income attributable to noncontrolling interests4,946 — 4,946 
Net income attributable to Titan and applicable to common shareholders$139,255 $(41,753)$97,502 
Earnings per common share:
Basic$1.87 $1.31 
Diluted$1.86 $1.30 
Average common shares and equivalents outstanding:
Basic74,374 74,374 
Diluted74,883 74,883 
`
12
v3.24.1.1.u2
8-K Document and Entity Information Document
Feb. 29, 2024
Document Information [Line Items]  
Document Type 8-K/A
Document Period End Date Feb. 29, 2024
Entity Registrant Name TITAN INTERNATIONAL, INC.
Entity Incorporation, State or Country Code DE
Entity File Number 1-12936
Entity Tax Identification Number 36-3228472
Entity Address, Address Line One 1525 Kautz Road, Suite 600
Entity Address, City or Town West Chicago
Entity Address, State or Province IL
Entity Address, Postal Zip Code 60185
City Area Code (630)
Local Phone Number 377-0486
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Entity Emerging Growth Company false
Title of 12(b) Security Common stock, $0.0001 par value
Trading Symbol TWI
Security Exchange Name NYSE
Entity Central Index Key 0000899751
Amendment Flag false
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