TITAN INTERNATIONAL INC (TWI) FY 2024 MD&A

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

MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s discussion and analysis of financial condition and results of operations is designed to provide a reader of the financial statements included in this annual report with a narrative from the perspective of the management of Titan on Titan’s financial condition, results of operations, liquidity, and other factors which may affect the Company’s future results. You should read the following discussion and analysis in conjunction with our consolidated financial statements and related notes in "Item 8. Financial Statements and Supplementary Data." The following discussion includes forward-looking statements about our business, financial condition, and results of operations, including discussions about management’s expectations for our business. These statements represent projections, beliefs, and expectations based on current circumstances and conditions and in light of recent events and trends, and you should not construe these statements either as assurances of performance or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse. See “Forward-Looking Statements” and "Item 1A. Risk Factors" in Part I of this Form 10-K.

Acquisition of Carlstar

On February 29, 2024, the Company acquired 100% of the equity interests of Carlstar. The results of Carlstar's operations have been included in our consolidated financial statements since February 29, 2024. Total acquisition-related costs related to the Carlstar acquisition for the year ended December 31, 2024 were $6.2 million.

The purchase consideration for the Carlstar acquisition was allocated to the estimated fair value of assets acquired and liabilities assumed for Carlstar as of February 29, 2024. For further information, refer to Note 2 to our consolidated financial statements.

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BUSINESS

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

MARKET CONDITIONS AND OUTLOOK

AGRICULTURAL MARKET OUTLOOK

During recent months, agriculture-related commodity prices and farmer income have been on the rise, however, prices remain lower than historical highs. The conclusion of the United States national political elections appears to have boosted farmer sentiments regarding the agriculture industry outlook. Population growth, a shift in consumer preference toward higher protein diets, and the pressures to replace an aging large equipment fleet in favor of newer and higher productivity technology, have provided encouragement that market conditions may improve to support renewed and continued demand for the Company's products in the mid- to long-term time horizon. The agricultural market has recently experienced a significant slowdown in customer demand, but the Company is hopeful that the underlying market conditions mentioned previously will provide future support for the mid- to long-term demand for the Company's products. Many more variables, including weather, volatility in the price of commodities, grain prices, export markets, foreign currency exchange rates, interest rates, government policies, subsidies, tariffs (including those currently being discussed by the Trump administration and the governments of China, Mexico, and Canada), and the demand for used equipment, can greatly affect the Company's performance in the agricultural market in a given period.

EARTHMOVING/CONSTRUCTION MARKET OUTLOOK

The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts, and other macroeconomic drivers. The construction market is primarily driven by country-specific GDP and the need for infrastructure developments. The earthmoving/construction markets are currently experiencing a slowdown in OEM demand, but we expect the market to stabilize over the mid to long term given the level of mining capital budgets and forecasted GDP growth. The mining industry has experienced growth given the increased demand for natural resources. Mineral commodity prices are at relatively high levels, which also supports the forecasted mid- to long-term growth.

CONSUMER MARKET OUTLOOK

The consumer market consists of several distinct product lines within different regions. These products include specialty tires and products under several leading brands, inclusive of Carlstar, ITP and Marastar brands within powersports, outdoor power equipment and high-speed trailers. The consumer market also includes light truck tires and other specialty products, including custom mixing of rubber stock, and train brakes. Some aspects of the consumer market are experiencing a significant slowdown, particularly in the Americas. The consumer segment pace of growth can vary from period to period and is affected by many variables including inflationary impacts, consumer spending, interest rates, government policies, tariffs, and other macroeconomic drivers.

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SUMMARY OF RESULTS OF OPERATIONS

The following table sets forth the Company’s statement of operations expressed as a percentage of net sales for the periods indicated.  This table and subsequent discussions should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included elsewhere in this annual report.

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

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FISCAL YEAR ENDED DECEMBER 31, 2024, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2023

RESULTS OF OPERATIONS

Highlights for the year ended December 31, 2024, compared to 2023 (amounts in thousands):

Net Sales

Net sales for the year ended December 31, 2024 were $1.85 billion, compared to $1.82 billion for the year ended December 31, 2023. Net sales growth was primarily driven by increased volumes in the consumer segment, bolstered by the net sales from the Carlstar acquisition, which was $418.9 million. This growth was partially offset by declines in the agricultural and earthmoving/construction segments, attributable to weakened global end customer demand. Additionally, negative price effects primarily from lower steel prices and a 3.3% unfavorable currency translation impact, mainly due to the depreciation of the Argentine peso, Brazilian real and Turkish lira, also contributed to the offset.

Cost of Sales and Gross Profit

Cost of sales was $1.59 billion for the year ended December 31, 2024, compared to $1.52 billion for 2023. The increase in cost of sales was driven by the impact of the Carlstar acquisition. Gross profit for 2024 was $257.8 million, or 14.0% of net sales, compared to $305.8 million, or 16.8% of net sales, for 2023. The change in gross profit and gross margin were primarily due to reduced fixed cost leverage across many of the Company's global production facilities due to significantly lower volume, inflationary costs impacts, negative price/mix and inventory revaluation step-up of $11.5 million related to the Carlstar purchase price allocation. Excluding the inventory revaluation step-up, the gross margin for the year ended December 31, 2024 would have been 14.6% of net sales.

Selling, General and Administrative Expenses

Selling, general and administrative (SG&A) expenses for the year ended December 31, 2024, were $191.8 million, or 10.5% of net sales, up 42.1%, compared to $134.9 million, or 7.4% of net sales, for 2023.  The increase in SG&A was due to the continuing SG&A incurred on the Carlstar operations, which includes the management of distribution centers and heightened depreciation and amortization expenses associated with the acquisition. Without the impact of the acquisition of Carlstar, SG&A would have decreased by approximately 1% or $1.3 million, as the Company controlled expenses in light of more challenging market conditions.

Acquisition-Related Expenses

Acquisition-related expenses for the year ended December 31, 2024 were $6.2 million, reflecting one-time transaction costs for Carlstar.

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Research and Development Expenses

Research and development (R&D) expenses for the year ended December 31, 2024, were $16.5 million, or 0.9% of net sales, compared to $12.5 million, or 0.7% of net sales, for 2023. R&D spending reflects initiatives to improve product designs and an ongoing focus on innovation and quality.

Royalty Expense

The Company has trademark license agreements with Goodyear to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia, and other Commonwealth of Independent States countries. The Company also has a trademark license agreement with Carlisle to manufacture and sell certain tires under the Carlisle® brand. Royalty expenses for the year ended December 31, 2024 were $10.1 million compared to $9.6 million for 2023.

Income from Operations

Income from operations for the year ended December 31, 2024 was $33.2 million, or 1.8% of net sales, compared to income of $148.7 million, or 8.2% of net sales, for 2023.  The change in income was primarily due to lower net sales and the cumulative impact of the previously discussed items.

OTHER PROFIT/LOSS ITEMS

Interest Expense

Interest expense for 2024 and 2023 was $36.4 million and $29.2 million, respectively. The increase in interest expense was primarily attributable to higher borrowing associated with a new credit facility, which was used for the Carlstar acquisition in February 2024 and the MHR Repurchase in October 2024.

Interest Income

Interest income was $11.0 million and $10.4 million for the year ended December 31, 2024 and 2023, respectively. The increase in interest income was mainly driven by short-term financial investments in Brazil.

Foreign Exchange Loss

Foreign currency loss was $6.1 million for the year ended December 31, 2024, compared to a loss of $22.8 million for the year ended December 31, 2023. The change in foreign exchange loss was primarily attributable to reduced fluctuations in exchange rates in certain geographies in which we conduct business, particularly in Argentina, Turkey (refer to Note 1 to the consolidated financial statements), and Brazil.

Other Income

Other income was $6.6 million for the year ended December 31, 2024, compared to other income of $2.6 million for 2023, an increase of $4.0 million. This growth was primarily attributable to a $1.9 million gain from a property insurance settlement related to repairs at one of our operating facilities in Italy, a $0.5 million gain from a property insurance settlement concerning equipment at our North American wheel production facility, and an increase of $1.5 million in pension plan income as a result of favorable market performance on pension plan assets.

Provision for Income Taxes

The Company recorded income tax expense of $11.9 million and $26.0 million for the years ended December 31, 2024 and 2023, respectively. The Company's effective tax rate was 143.4% in 2024 and 23.7% in 2023. The change in the Company's effective tax rate is primarily due to the loss incurred domestically in 2024 and the impact from foreign income taxed at a higher rate as compared to the United States.

The Company’s 2024 and 2023 income tax expense and rates differed from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of foreign income tax rate differential on the mix of earnings. In 2024 the rate was unfavorably impacted by certain non-deductible transaction costs related to the Company’s acquisition of The Carlstar Group, LLC.

The Organization for Economic Co-operation and Development (the “OECD”) has issued various proposals that would change long-standing global tax principles. These proposals include a two-pillar approach to global taxation (BEPS 2.0/ Pillar Two), focusing on global profit allocation and a global minimum tax rate. On December 12, 2022, the European Union member states agreed to implement the OECD’s global corporate minimum tax rate of 15%, which became effective January 2024. The company is assessing the impact of this proposal as countries are actively considering changes to their tax laws to adopt certain parts of the OECD's proposal. As of now, the company is monitoring the effects of Pillar II and the impact is not material to the Company’s results of operations or financial condition.

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Net (Loss) Income and (Loss) Earnings per Share

Net loss for the year ended December 31, 2024, was $3.6 million, compared to net income of $83.7 million for 2023. Basic loss per share was $0.08 for the year ended December 31, 2024, compared to basic earnings per share of $1.26 for 2023. Diluted loss per share was $0.08 for the year ended December 31, 2024, compared to diluted earnings per share of $1.25 for 2023. Changes in the Company’s net income and income per share were primarily influenced by the factors previously discussed.

SEGMENT INFORMATION

Segment Summary (Amounts in thousands)

Agricultural Segment Results

Agricultural segment results were as follows:

Net sales in the agricultural segment were $788.6 million for the year ended December 31, 2024, compared to $980.5 million for 2023. The change in net sales was primarily driven by a significant decline in global demand for agricultural equipment, particularly in North America and Europe which stemmed from lower farm income, higher financing costs, and actions taken by OEM customers to reduce elevated inventory at their retail channels, among other economic impacts. Additionally, an adverse foreign currency translation effect on sales of 5.1%, primarily due to the depreciation of the Argentine peso, Turkish lira, and Brazilian real, further impacted net sales.

Gross profit in the agricultural segment was $104.0 million, or 13.2% of net sales, for 2024, compared to $163.0 million, or 16.6% of net sales, for 2023. The change in gross profit was attributable to significantly lower sales volume across all major geographies, reduced fixed cost leverage, negative price/mix effects, and an inventory revaluation step-up related to the Carlstar purchase price allocation.

Income from operations in the agricultural segment was $39.8 million for the year ended December 31, 2024, compared to $100.6 million for 2023. The overall change in income from operations was primarily a result of decreased gross profit stemming from reduced net sales.

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Earthmoving/Construction Segment Results

Earthmoving/construction segment results were as follows:

The Company's earthmoving/construction segment net sales were $583.4 million for the year ended December 31, 2024, compared to $687.8 million for the year ended December 31, 2023. The change in net sales was primarily attributable to reduced sales volume due to much softer demand in North America and Europe. Additionally, adverse price/mix effects from steel cost reductions in the market and a 1.0% unfavorable impact on sales from foreign currency translation contributed to the overall change.

Gross profit in the earthmoving/construction segment was $62.8 million, or 10.8% of net sales, for the year ended December 31, 2024, compared to $110.7 million, or 16.1% of net sales, for the year ended December 31, 2023. Gross profit and margin changes were mainly due to lower sales volume, negative price/mix effects, and the effect on fixed cost leverage.

The Company's earthmoving/construction segment income from operations was $7.0 million for the year ended December 31, 2024, as compared to income of $55.1 million for 2023. The change was due to decreased sales volume and the effect on gross profit.

Consumer Segment Results

Consumer segment results were as follows:

Consumer segment's net sales were $474.0 million for the year ended December 31, 2024, compared to $153.5 million for 2023. This growth was primarily driven by increased sales volumes following the Carlstar acquisition, which contributed $346.2 million for the year ended December 31, 2024. This was partially offset by reduced sales in the Americas due to challenging market conditions, particularly with OEM's from the more challenging economic conditions, along with a 2.7% negative impact on sales from foreign currency translation, primarily related to the weakening Brazilian real.

Gross profit from the consumer segment was $91.0 million for 2024, or 19.2% of net sales, compared to $32.1 million, or 20.9% of net sales, for 2023. The increase in gross profit was influenced by the Carlstar acquisition, which was partially offset by the impact of reduced sales in other businesses. The change in profit margin was primarily due to a $9.4 million inventory revaluation step-up associated with the acquisition. Excluding the inventory revaluation step-up, the adjusted gross margin for the year ended December 31, 2024 would have been 21.2% of net sales.

Consumer segment's income from operations was $20.5 million for the year ended December 31, 2024, compared to $22.4 million for 2023. The change was due to the increase in selling, general, and administrative (SG&A) costs associated with the Carlstar acquisition of $48.1 million associated with the consumer segment, which primarily relate to warehousing and distribution costs.

Corporate & Unallocated Expenses

Income from operations on a segment basis does not include corporate expenses of approximately $34.1 million and $29.4 million for the year ended December 31, 2024 and 2023, respectively. Unallocated expenses are primarily comprised of corporate selling, general and administrative expenses. The increase in corporate and unallocated expenses for the the year ended December 31, 2024 as compared to the prior year was primarily due to transaction costs of $6.2 million related to the Carlstar acquisition incurred in the first quarter of 2024.

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FISCAL YEAR ENDED DECEMBER 31, 2023, COMPARED TO FISCAL YEAR ENDED DECEMBER 31, 2022

The comparison of the 2023 results to 2022 has been omitted from this Form 10-K and can be found in the Company's Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 29, 2024 under Item 7 thereof.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows

As of December 31, 2024, the Company had $196.0 million of cash and cash equivalents, a decrease of $24.3 million from December 31, 2023, due to the following items:

Operating Cash Flows

Summary of cash flows from operating activities:

In 2024, cash flows provided by operating activities was $141.5 million, primarily driven by a reduction in working capital, and non-cash adjustments for depreciation and amortization expenses totaling $60.7 million.

When comparing the year ended December 31, 2024, to 2023, operating cash flows decreased by $37.9 million, primarily due to lower net income, though this was partially offset by effective working capital management. The positive impact of working capital management included a $31.0 million improvement from accounts receivable via effective collections efforts, and a $19.8 million reduction in inventory. These improvements helped offset the impact of additional working capital provided from the Carlstar acquisition that also contributed to a $33.6 million increase in accounts payable.

Summary of the components of cash conversion cycle:

The cash conversion cycle increased by 14 days in 2024. The increase was largely attributable to the Carlstar acquisition, which led to additional inventory at the end of December 31, 2024, as a result of its mix toward aftermarket customers through the use of controlled distribution centers to have products on demand. Inventory management is critical for the business in preparation for the future periods to supply customers efficiently, which was the primary driver of increased days inventory outstanding at the end of December 31, 2024.

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Investing Cash Flows

Summary of cash flows from investing activities:

Net cash used for investing activities was $201.6 million in 2024, compared to $56.9 million in 2023. This rise was primarily attributable to the acquisition of Carlstar for a cash consideration of $143.6 million, which included an additional payment of $19.8 million for excess working capital to the sellers, which has now been recovered through active working capital management. The Company also invested $65.6 million in capital expenditures in 2024, up from $60.8 million in 2023. These capital expenditures were directed toward the replacement and enhancement of plant equipment, as well as the procurement of new tools, dies, and molds to support new product development initiatives. The increased capital outlay in 2024 includes the impact of Carlstar capital expenditures which were $17.2 million for the year ended December 31, 2024, and also reflects Titan's strategic efforts to improve its existing facilities, enhance manufacturing capabilities, and drive operational efficiency and labor productivity gains. Additionally, a $3.5 million property insurance settlement related to the repair of one of our operating facilities in Italy associated with a 2023 hail storm weather event was recognized in the second quarter of 2024.

Financing Cash Flows

Summary of cash flows from financing activities:

In 2024, net cash provided by financing activities was $64.6 million, primarily driven by borrowings totaling $213.2 million, which included $147.0 million borrowed to finance the acquisition of Carlstar in February 2024, and $45.0 million borrowed to fund the $57.6 million repurchase of the Company's common stock from the MHR Funds, a related party, in October 2024. This cash inflow was partially offset by debt repayments of $70.3 million and open market common stock repurchases of $16.4 million, along with the $57.6 million related to the MHR Repurchase. In 2023, cash used for financing activities was $56.0 million, comprising debt payments of $27.6 million and open market common stock repurchases of $32.6 million, partially offset by $6.7 million in borrowings.

Additionally, Titan issued common stock valued at $168.7 million in connection with the Carlstar acquisition. This was reflected in “Non cash financing activity” in our consolidated statements of cash flows.

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Debt Restrictions

The Company’s $225 million revolving credit facility (credit facility) and indenture relating to the 7.00% senior secured notes due 2028 contain various restrictions, including:

•When remaining availability under the credit facility is less than the greater of (i) $17 million and (ii) 10% of the credit facility’s line cap (the line cap being the lesser of our borrowing base or the lenders’ commitments under the credit facility), the Company will be required to maintain a minimum fixed charge coverage ratio of not less than 1.0 to 1.0 (calculated quarterly on a trailing four quarter basis);

•Limits on dividends and repurchases of the Company’s stock;

•Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge, or otherwise fundamentally change the ownership of the Company;

•Limits on investments, dispositions of assets, and guarantees of indebtedness; and

•Other customary affirmative and negative covenants.

These covenants are subject to a number of exceptions and qualifications that are described in the credit and security agreement and the indenture relating to the 7.00% senior secured notes due 2028. These restrictions could limit the Company’s ability to respond to market conditions, provide for unanticipated capital investments, raise additional debt or equity capital, pay dividends, repurchase stock or take advantage of business opportunities, including future acquisitions. The Company was in compliance with these debt covenants at December 31, 2024.

Guarantor Financial Information

The Company's 7.00% senior secured notes due 2028 are guaranteed by the following 100% owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the satisfaction of certain customary conditions.

The following summarized financial information of both the Company and the Guarantor Subsidiaries ("the Guarantors") is presented on a combined basis after elimination of (i) intercompany transactions and balances between the parent and the Guarantors and (ii) equity in earnings from investments in any subsidiary that is a non-Guarantor. The information is presented in accordance with the requirements of Rule 13-01 under the SEC’s Regulation S-X. The financial information may not necessarily be indicative of results of operations or financial position had the Guarantor operated as an independent entity.

Summarized Balance Sheets:

Summarized Statement of Operations:

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LIQUIDITY OUTLOOK

The Company does not anticipate significant liquidity constraints during the foreseeable future. At December 31, 2024, the Company had $196.0 million of cash and cash equivalents. This amount included $185.3 million held in foreign countries.

As of December 31, 2024, there were $146.0 million of borrowings outstanding under the Company's $225.0 million credit facility. Titan's availability under this credit facility may be less than $225 million as of any particular date, as a result of outstanding letters of credit and eligible accounts receivable and inventory balances at certain domestic and Canadian subsidiaries. Based on eligible accounts receivable and inventory balances, the Company's total amount available for borrowing under the credit facility at December 31, 2024 totaled $177.1 million. With outstanding letters of credit totaling $9.9 million and $146.0 million in borrowings under the revolving credit facility, the net amount available for borrowing under the credit facility at December 31, 2024 totaled $21.2 million.

Capital expenditures for 2025 are forecasted to be between approximately $55 million and $65 million. These capital expenditures are anticipated to be used primarily to continue to enhance the Company’s existing facilities and manufacturing capabilities and drive productivity gains, along with the purchase of new tools, dies and molds related to new product development.

Cash payments for interest are currently forecasted to be approximately $36 million to $40 million in 2025, based on the Company's year-end 2024 debt balances and debt maturities. The forecasted interest payments are comprised primarily of the semi-annual interest payments totaling approximately $28 million (paid in April and October) for the 7.00% senior secured notes, and between $8 million and $12 million of payments on the credit facility, which are variable dependent upon on the prevailing SOFR rate and outstanding debt levels within each month.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our significant accounting policies are described in Note 1. Description of Business and Significant Accounting Policies to our consolidated financial statements. Preparation of financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of technical accounting rules and guidance, as well as the use of estimates.  The Company’s application of such rules and guidance involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures.  A future change in the estimates, assumptions, or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts and the respective tax basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates that are expected to apply in the years the temporary differences are expected to be settled or realized. Management’s judgment is required to determine the provision for income taxes, deferred tax assets and liabilities, and valuation allowances against deferred tax assets.

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

Management considers both positive and negative evidence when measuring the need for a valuation allowance. The weight given to the evidence is commensurate with the extent to which it may be objectively verified. Current and cumulative financial reporting results are a source of objectively verifiable evidence. Management gives operating results during the most recent three-year period a significant weight in our analysis. Management considers whether positive cumulative operating results exist in the most recent three-year period. Management performs scheduling exercises as needed to determine if sufficient taxable income of the appropriate character exists in the periods required in order to realize our deferred tax assets with limited lives (such as tax loss carryforwards and tax credits) prior to their expiration. Management also considers prudent tax planning strategies (including an assessment of their feasibility) to accelerate taxable income if required to utilize expiring deferred tax assets. A valuation allowance is not required to the extent that, in our judgment, positive evidence exists with a magnitude and duration sufficient to result in a conclusion that it is more likely than not that our deferred tax assets will be realized. See Note 19 to the consolidated financial statements for additional information on the composition of valuation allowances.

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Retirement Benefit Obligations

Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts.  These assumptions include discount rates, expected return on plan assets, mortality rates, and other factors.  Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements, and obligations.  The Company has three frozen defined benefit pension plans in the United States and pension plans in several foreign countries.  For more information concerning these obligations, see Note 20 to our consolidated financial statements for additional information.

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

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

MARKET RISK

Foreign Currency Risk

The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of the Company's various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange derivative contracts to mitigate the currency risk. The Company is exposed to fluctuations in the Brazilian real, British pound, European Union Euro, Russian ruble, Argentinian pesos, Turkish Lira and other global currencies. A hypothetical adverse change of 10% in foreign currency exchange rates would have reduced foreign currency-denominated net assets and stockholders' equity by approximately $22.0 million at December 31, 2024.

Commodity Price Risk

The Company does not generally enter into long-term commodity pricing contracts to hedge its exposures to commodity market price fluctuations.  Periodically, the Company has entered into derivative commodity instruments to hedge the exposure to fluctuations in steel prices in North America. The Company is exposed to price fluctuations of its key commodities, which consist primarily of steel, natural rubber, synthetic rubber, and carbon black. The Company attempts to pass on certain material price increases and decreases to its customers, depending on market conditions. Certain customers have mechanisms in long-term contracts which provide for periodic pricing adjustments based on relative commodity and other market indices, which protect the Company from cost volatility.

Interest Rate Risk

The Company is exposed to interest rate risk on its variable debt. The Company has a $225 million credit facility that has a variable interest rate.  As of December 31, 2024, the net amount available under the credit facility was $21.2 million.  If the credit facility were fully drawn to available funds, a change in the interest rate of 100 basis points, or 1%, would have changed the Company’s interest expense by approximately $2.3 million.