1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTERLY PERIOD ENDED: MARCH 31, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
ILLINOIS 36-3228472
(State of Incorporation) (I.R.S. Employer Identification No.)
2701 SPRUCE STREET, QUINCY, IL 62301
(Address of principal executive offices, including Zip Code)
(217) 228-6011
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
SHARES OUTSTANDING AT
CLASS APRIL 28, 2000
----- --------------
COMMON STOCK, NO PAR VALUE PER SHARE 20,712,829
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
Page Number
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 2000 and 1999 1
Consolidated Condensed Balance Sheets as of
March 31, 2000 and December 31, 1999 2
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2000 and 1999 3
Notes to Consolidated Condensed Financial Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-10
Part II. Other Information and Signature 11-12
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)
THREE MONTHS ENDED
MARCH 31,
2000 1999
---- ----
Net sales $164,327 $158,610
Cost of sales 143,431 137,995
-------- --------
Gross profit 20,896 20,615
Selling, general & administrative expenses 11,286 13,442
Research and development expenses 1,550 1,597
-------- --------
Income from operations 8,060 5,576
Interest expense 6,563 5,550
Other income (216) (181)
-------- --------
Income before income taxes 1,713 207
Provision for income taxes 651 79
-------- --------
Net income $ 1,062 $ 128
======== ========
Earnings per share:
Basic $.05 $.01
Diluted $.05 $.01
Average shares outstanding:
Basic 20,666 20,911
Diluted 20,666 20,911
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
MARCH 31, DECEMBER 31,
2000 1999
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 6,875 $ 8,606
Accounts receivable (net of allowance of
$5,778 and $5,863, respectively) 130,533 97,457
Inventories 144,284 133,365
Prepaid and other current assets 39,287 39,650
-------- --------
Total current assets 320,979 279,078
Property, plant and equipment, net 264,288 267,049
Other assets 53,192 51,927
Goodwill, net 38,631 39,127
-------- --------
Total assets $677,090 $637,181
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 397 $ 20,195
Accounts payable 61,516 51,363
Other current liabilities 40,252 36,737
-------- --------
Total current liabilities 102,165 108,295
Deferred income taxes 28,090 28,421
Other long-term liabilities 15,691 16,078
Long-term debt 303,305 255,521
-------- --------
Total liabilities 449,251 408,315
-------- --------
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,555,081 issued 27 27
Additional paid-in capital 214,487 214,846
Retained earnings 116,875 116,123
Accumulated other comprehensive loss (9,435) (7,329)
Treasury stock at cost: 6,888,742 and 6,939,101 shares,
respectively (94,115) (94,801)
-------- --------
Total stockholders' equity 227,839 228,866
-------- --------
Total liabilities and stockholders' equity $677,090 $637,181
======== ========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,062 $ 128
Depreciation and amortization 10,126 9,874
Increase in receivables (35,256) (29,617)
(Increase)/decrease in inventories (11,366) 2,820
(Increase)/decrease in other current assets 516 (369)
Increase in accounts payable 11,475 3,720
Increase in other accrued liabilities 3,917 4,144
Other, net (1,830) (3,230)
-------- --------
Net cash used for operating activities (21,356) (12,530)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (8,274) (9,672)
Other 0 (3,224)
-------- --------
Net cash used for investing activities (8,274) (12,896)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 48,000 23,009
Payment of debt (19,892) (165)
Repurchase of common stock 0 (686)
Dividends paid (309) (314)
Other, net 327 336
-------- --------
Net cash provided by financing activities 28,126 22,180
Effect of exchange rate changes on cash (227) 0
Net decrease in cash and cash equivalents (1,731) (3,246)
Cash and cash equivalents at beginning of period 8,606 14,116
-------- --------
Cash and cash equivalents at end of period $ 6,875 $ 10,870
======== ========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. ACCOUNTING POLICIES
In the opinion of Titan International, Inc. ("Titan" or the "Company"),
the accompanying unaudited consolidated condensed financial statements
contain all adjustments, which are normal and recurring in nature,
necessary to present fairly its financial position as of March 31,
2000, the results of operations for the three months ended March 31,
2000 and 1999, and cash flows for the three months ended March 31, 2000
and 1999.
Accounting policies have continued without change and are described in
the Summary of Significant Accounting Policies contained in the
Company's 1999 Annual Report on Form 10-K. For additional information
regarding the Company's financial condition, refer to the footnotes
accompanying the financial statements as of and for the year ended
December 31, 1999, filed in conjunction with the Company's 1999 Annual
Report on Form 10-K. Details in those notes have not changed
significantly except as a result of normal interim transactions and
certain matters discussed below.
B. INVENTORIES
Inventories consisted of the following (in thousands):
March 31, December 31,
2000 1999
---- ----
Raw materials $ 38,655 $ 35,333
Work-in-process 15,415 18,810
Finished goods 84,893 73,564
-------- --------
138,963 127,707
LIFO reserve 5,321 5,658
-------- --------
$144,284 $133,365
======== ========
C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation of
$164.3 million and $155.9 million at March 31, 2000, and December 31,
1999, respectively.
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
D. GOODWILL
Goodwill, net reflects accumulated amortization of $7.7 million and
$7.3 million at March 31, 2000, and December 31, 1999, respectively.
E. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
March 31, December 31,
2000 1999
---- ----
Senior subordinated notes $150,000 $150,000
Credit facility 130,000 82,000
Notes payable to Pirelli Armstrong Tire Corp. 10,000 29,743
Industrial revenue bonds and other 13,702 13,973
-------- --------
303,702 275,716
Less: Amounts due within one year 397 20,195
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$303,305 $255,521
======== ========
Aggregate maturities of long-term debt at March 31, 2000 are as follows
(in thousands):
April 1 - December 31, 2000 $ 300
2001 5,386
2002 130,398
2003 6,350
2004 424
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
F. SEGMENT INFORMATION
The table below presents information about certain revenues and income
from operations used by the chief operating decision maker of the
Company for the three months ended March 31, 2000 and 1999 (in
thousands):
Revenues
from external Intersegment Income from
customers revenues operations
--------- -------- ----------
2000
Agricultural $ 72,140 $35,163 $ 6,535
Earthmoving/construction 41,206 13,777 4,627
Consumer 50,981 26,564 3,867
Reconciling items (a) 0 0 (6,969)
-------- ------- -------
Consolidated totals $164,327 $75,504 $ 8,060
======== ======= =======
1999
Agricultural $ 75,576 $26,620 $ 4,480
Earthmoving/construction 38,544 9,622 4,890
Consumer 44,490 12,203 2,171
Reconciling items (a) 0 0 (5,965)
-------- ------- -------
Consolidated totals $158,610 $48,445 $ 5,576
======== ======= =======
(a) Represents corporate expenses and depreciation and amortization expense
related to property, plant and equipment and goodwill carried at the
corporate level.
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
G. COMPREHENSIVE LOSS
Comprehensive loss, which includes net income and the effect of
currency translation, totaled $(1.0) million for the first quarter of
2000, compared to $(3.9) million in the first quarter of 1999.
H. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), will be
adopted on January 1, 2001. The Company is evaluating the effect SFAS
133 will have on its financial position and results of operations.
I. SUBSEQUENT EVENT
On April 14, 2000, the Company sold certain assets (primarily raw
material inventory, work-in-process inventory, and property, plant and
equipment) of two facilities located in Clinton, Tennessee, and
Slinger, Wisconsin, to Carlisle Tire and Wheel Company, a subsidiary of
Carlisle Companies Incorporated for approximately $94.1 million. The
Company will record a pretax gain of approximately $35.0 million to
$40.0 million in the second quarter of 2000. This nonrecurring gain has
not been included in the pro forma amounts described below. These two
facilities are in the business of providing wheels and tires to the
consumer market.
Had the transaction occurred on January 1, 1999, net sales for the
three months ended March 31, 2000, would have been $140.5 million,
compared to $136.2 million in 1999. Income from operations for the
three months ended March 31, 2000, would have been $3.8 million,
compared to $1.8 million in 1999, on a pro forma basis. Loss per share
for the three months ended March 31, 2000, would have been $(.05),
compared to $(.08) in 1999, on a pro forma basis.
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended March 31, 2000, were $164.3 million, as compared
to 1999 first quarter net sales of $158.6 million. Sales improved due to a
modest increase in volume in the earthmoving/construction and consumer markets.
Cost of sales was $143.4 million for the first quarter of 2000, as compared to
$138.0 million in 1999. Gross profit for the first quarter of 2000 was $20.9
million or 12.7% of net sales, compared to $20.6 million or 13.0% of net sales
for the first quarter of 1999.
Selling, general and administrative ("SG&A") expenses for the first quarter of
2000 were $11.3 million or 6.9% of net sales, compared to $13.4 million or 8.5%
of net sales for 1999. The decrease in SG&A expenses, as a percentage of net
sales, is primarily attributed to the Company's efforts to streamline costs at
each of its facilities. Research and development ("R&D") expenses for the first
quarter of 2000 and 1999 were $1.6 million or 1.0% of net sales.
Income from operations for the first quarter of 2000 was $8.1 million or 4.9% of
net sales, compared to $5.6 million or 3.5% in 1999. Income from operations was
impacted by the items described in the preceding paragraphs.
Net sales in the agricultural market were $72.1 million for the first quarter of
2000, as compared to $75.6 million in 1999. Earthmoving/construction market net
sales were $41.2 million for the first quarter of 2000, as compared to $38.5
million in 1999. The Company's consumer market net sales were $51.0 million for
the first quarter of 2000, as compared to $44.5 million in 1999. The declining
market sustained by low commodity prices negatively impacted sales in the
agricultural market. Sales in the earthmoving/construction and consumer market
increased due to a modest increase in volume.
Income from operations in the agricultural market was $6.5 million for the first
quarter of 2000, as compared to $4.5 million in 1999. The Company's
earthmoving/construction market income from operations was $4.6 million for the
first quarter of 2000, as compared to $4.9 million in 1999. Consumer market
income from operations was $3.9 million for the first quarter of 2000, as
compared to $2.2 million in 1999. The increase in income from operations in the
agricultural, and consumer markets was primarily due to improved efficiencies
coupled with the Company's efforts to streamline costs. The decrease in income
from operations in the earthmoving/construction market is primarily due to a
change in product mix from larger to smaller diameter wheels, resulting in
reduced margins. Income from operations on a segment basis does not include
corporate expenses and depreciation and amortization expense related to
property, plant and equipment and goodwill carried at the corporate level of
$7.0 million for the first quarter of 2000, as compared to $6.0 million in 1999.
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Net interest expense was $6.6 million for the first quarter of 2000, compared to
$5.6 million in 1999. The increased interest expense was primarily due to an
increase in the average debt outstanding in the first quarter of 2000, coupled
with higher average interest rates.
Net income for the first quarter of 2000 was $1.1 million compared to $0.1
million in 1999. Basic and diluted earnings per share were $.05 for the first
quarter of 2000 compared to $.01 in 1999. Net income and earnings per share were
impacted by the items described in the preceding paragraphs.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 2000, negative cash flows from operating activities of
$21.4 million resulted from increases in receivables and inventories. These
amounts were partially offset by increases in accounts payable and other accrued
liabilities. The increase in receivables is primarily due to extended payment
terms offered to certain customers during the first quarter of 2000. The Company
has built inventory to meet expected production and sales demand in the next six
months.
The Company has invested $8.3 million in capital expenditures in 2000, including
$3.4 million for equipment and construction related to the Brownsville, Texas
facility. The balance represents various equipment purchases and building
improvements to enhance production capabilities.
During the quarter, Titan hosted a successful open house for the media, local
and state officials of Texas to commemorate the introductory phase of tire
production at the Brownsville, Texas facility. The one million square foot
building houses equipment to manufacture specialty tires for agricultural,
construction and consumer markets.
The Company received $48.0 million in proceeds from its $175.0 million revolving
credit facility. These proceeds have been used to fund operations, capital
expenditures and pay the note described below.
In February 2000, the Company paid the subordinated note for $19.7 million to
Pirelli Armstrong Tire Corporation.
At March 31, 2000, the Company had cash and cash equivalents of $6.9 million.
Cash on hand, anticipated internal cash flows and utilization of available
borrowing under the Company's credit facilities are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RECENT DEVELOPMENTS
On April 14, 2000, the Company sold certain assets (primarily raw material
inventory, work-in-process inventory, and property, plant and equipment) of two
facilities located in Clinton, Tennessee, and Slinger, Wisconsin, to Carlisle
Tire and Wheel Company, a subsidiary of Carlisle Companies Incorporated for
approximately $94.1 million. The Company will record a pretax gain of
approximately $35.0 million to $40.0 million in the second quarter of 2000.
These two facilities are in the business of providing wheels and tires to the
consumer market. Titan has decided to exit the lawn and garden and all terrain
vehicle original equipment manufacturer wheel and tire business, concentrating
instead on the aftermarket business. See further discussion in the subsequent
event footnote in the financial statements.
MARKET RISK SENSITIVE INSTRUMENTS
The Company's risks related to foreign currencies, commodity prices and interest
rates are consistent with those for 1999.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), will be adopted on January 1,
2001. The Company is evaluating the effect SFAS 133 will have on its financial
position and results of operations.
SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Form 10-Q contains forward-looking statements, including statements
regarding, among other items, (i) anticipated trends in the Company's business,
(ii) future expenditures for capital projects, (iii) the Company's ability to
continue to control costs and maintain quality, (iv) the Company's business
strategies, including its intention to introduce new products and (v) the
Company's intention to consider and pursue acquisitions. These forward-looking
statements are based partially on the Company's expectations and are subject to
a number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of certain factors, including, (i) changes in the
Company's end-user markets as a result of world economic or regulatory
influences, (ii) changes in the competitive marketplace, including new products
and pricing changes by the Company's competitors, or (iii) changes regarding the
effects of implementation of the Euro. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result of
new information, future events or otherwise. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this document will in fact transpire.
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 5 ARE NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10(iii)(A)(1) Maurice M. Taylor, Jr. Employment Agreement
dated January 30, 2000
10(iii)(A)(2) J. Michael A. Akers Employment Agreement dated
January 30, 2000
10(iii)(A)(3) Kent W. Hackamack Employment Agreement dated
January 30, 2000
10(iii)(A)(4) Cheri T. Holley Employment Agreement dated
January 30, 2000
27 Financial Data Schedule
(b) Reports on Form 8-K
In a Current Report filed on Form 8-K dated April 14, 2000,
the Company reported the sale of certain assets (primarily raw
material inventory, work-in-process inventory, and property,
plant and equipment) of two facilities located in Clinton,
Tennessee, and Slinger, Wisconsin, to Carlisle Tire and Wheel
Company, a subsidiary of Carlisle Companies Incorporated.
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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 thereunto duly authorized.
TITAN INTERNATIONAL, INC.
(REGISTRANT)
Date: May 12, 2000 By: /s/ Kent W. Hackamack
--------------------- --------------------------------------------
Kent W. Hackamack
Vice President of Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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Exhibit Index
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Exhibit No. Description
- ----------- -----------
10(iii)(A)(1) Maurice M. Taylor, Jr. Employment Agreement dated January 30, 2000
10(iii)(A)(2) J. Michael A. Akers Employment Agreement dated January 30, 2000
10(iii)(A)(3) Kent W. Hackamack Employment Agreement dated January 30, 2000
10(iii)(A)(4) Cheri T. Holley Employment Agreement dated January 30, 2000
27 Financial Data Schedule