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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR QUARTERLY PERIOD ENDED: SEPTEMBER 30, 1997
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
(Telephone Number)
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, 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 practical date.
SHARES OUTSTANDING AT
CLASS OCTOBER 31, 1997
----- ---------------------
COMMON STOCK, NO PAR VALUE PER SHARE 21,639,428
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
September 30, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations
for the Three and Nine Months Ended
September 30, 1997 and 1996 2
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
September 30, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II. Other Information and Signature 10-11
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
SEPTEMBER 30, DECEMBER 31,
1997 1996
---- ----
ASSETS
Current assets
Cash and cash equivalents $ 20,419 $ 27,406
Accounts receivable (net of allowance of
$4,935 and $4,924, respectively) 107,656 95,613
Inventories 130,310 138,758
Prepaid and other current assets 31,449 22,874
-------- --------
Total current assets 289,834 284,651
Property, plant and equipment, net 211,403 205,087
Other assets 41,190 27,605
Goodwill 39,885 41,249
-------- --------
Total assets $582,312 $558,592
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 1,001 $872
Accounts payable 56,016 60,603
Accrued wages and commissions 11,402 9,878
Income taxes payable 6,657 6,992
Other current liabilities 31,831 25,291
-------- --------
Total current liabilities 106,907 103,636
Deferred income taxes 20,469 18,786
Other long-term liabilities 20,821 21,893
Long-term debt 187,277 113,096
-------- --------
Total liabilities 335,474 257,411
-------- --------
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
21,619,538 and 26,526,992 outstanding, respectively 27 27
Additional paid-in capital 212,177 210,677
Retained earnings 118,185 98,096
Cumulative translation adjustment (444) 2,673
Treasury stock at cost: 5,738,784 and 725,165 shares,
respectively (83,107) (10,292)
-------- --------
Total stockholders' equity 246,838 301,181
-------- --------
Total liabilities and stockholders' equity $582,312 $558,592
======== ========
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1997 1996 1997 1996
---- ---- ---- ----
Net sales $156,679 $145,682 $524,247 $489,969
Cost of sales 133,991 121,901 442,136 402,656
Realignment costs -0- 10,324 -0- 10,324
--------- ---------- --------- ---------
Gross profit 22,688 13,457 82,111 76,989
Selling, general and
administrative expenses 11,044 11,754 34,206 33,930
Research and development expenses 2,453 720 4,805 2,205
Gain on sale of assets -0- (15,332) -0- (16,330)
--------- ---------- --------- ---------
Income from operations 9,191 16,315 43,100 57,184
Interest expense 4,202 2,528 10,948 7,779
Minority interest -0- -0- -0- 2,082
Other (income) (862) (1,076) (1,821) (2,189)
--------- ---------- --------- ---------
Income before income taxes 5,851 14,863 33,973 49,512
Provision for income taxes 2,224 5,648 12,910 18,815
--------- ---------- --------- ---------
Net income $3,627 $9,215 $21,063 $30,697
========= ========== ========= =========
Earnings per share:
- -------------------
Primary $.17 $.41 $.91 $1.36
Fully diluted $.17 $.34 $.91 $1.12
Average shares outstanding:
- ---------------------------
Primary 21,792 22,462 23,028 22,617
Fully diluted (See Note 1) 21,832 29,315 23,070 29,480
(1) The computations of fully diluted earnings per share for the three and nine
months ending September 30, 1996, assumes the conversion of the Company's 4 3/4%
convertible notes, issued November, 1993, and extinguished December 30, 1996.
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)
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,063 $ 30,697
Depreciation and amortization 23,755 20,991
Gain on sale of assets -0- (16,330)
Realignment costs -0- 10,324
(Increase)/decrease in receivables (12,043) 9,406
(Increase)/decrease in inventories 8,448 (17,695)
(Increase)/decrease in other current assets (8,646) 4,805
(Decrease) in accounts payable (4,587) (2,960)
Increase in other accrued liabilities 7,504 6,802
Other, net (6,028) 742
-------- --------
Net cash provided by operating activities 29,466 46,782
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (26,989) (19,073)
Proceeds from sale of assets -0- 1,896
Acquisitions, net of cash acquired (6,313) (9,415)
-------- --------
Net cash used for investing activities (33,302) (26,592)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings, net of discount 149,250 60,000
Payment of debt (75,690) (32,053)
Repurchase of common stock (72,816) (5,150)
Payment of financing fees (4,300) (183)
Dividends paid (1,059) (1,014)
Other, net 1,464 145
-------- --------
Net cash provided by/(used for) financing activities (3,151) 21,745
Net increase/(decrease) in cash and cash equivalents (6,987) 41,935
Cash and cash equivalents at beginning of period 27,406 14,211
-------- --------
Cash and cash equivalents at end of period $ 20,419 $ 56,146
======== ========
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")
formerly known as Titan Wheel International, Inc., 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 September 30, 1997, the
results of operations for the three and nine months ended September 30,
1997 and 1996, and cash flows for the nine months ended September 30, 1997
and 1996.
Accounting policies have continued without change and are described in the
Summary of Significant Accounting Policies contained in the Company's 1996
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, 1996 filed
in conjunction with the Company's 1996 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 by component are as follows (in thousands):
September 30, December 31,
1997 1996
------------- ------------
Raw materials $37,660 $40,974
Work in progress 16,998 20,153
Finished goods 73,496 75,199
------------- ------------
128,154 136,326
LIFO reserve 2,156 2,432
------------- ------------
$130,310 $138,758
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation of
$94.6 million and $75.4 million at September 30, 1997, and December 31,
1996, respectively.
D. LONG-TERM DEBT (IN THOUSANDS):
Long-term debt comprised the following:
September 30, December 31,
1997 1996
------------- ------------
Senior subordinated notes $150,000 $-0-
Credit facility 5,000 80,000
Note payable to PATC 19,743 19,743
Industrial revenue bond - Greenwood 9,500 9,500
Other 4,035 4,725
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188,278 113,968
Less: Amounts due within one year 1,001 872
------------- ------------
$187,277 $113,096
============= ============
Aggregate maturities of long-term debt at September 30, 1997, are as
follows (in thousands):
October 1 - December 31, 1997 $105
1998 1,073
1999 675
2000 19,988
2001 and thereafter 166,437
----------
$188,278
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
D. LONG-TERM DEBT (CONTINUED):
On February 24, 1997, the Company filed a Registration Statement on Form
S-1 (as amended on March 5, 1997 and as effective on March 18, 1997) for
the sale of $150 million principal amount of 8 3/4% senior subordinated
notes, priced to the public at 99.5 percent, due 2007. The Company
received proceeds of $145.7 million net of a discount and underwriters'
fees of $4.3 million. The net proceeds from the notes were used to repay
outstanding long-term debt and for the Offer to Purchase (see Note E).
On March 14, 1997, the Company increased its availability under its credit
facility from $175 million to $200 million. Interest rate and foreign
currency borrowing options and covenants under the new facility remain
substantially unchanged from those under the prior facility.
E. STOCK REPURCHASE PROGRAM
The Company's Board of Directors has authorized the Company to repurchase
up to ten million shares of its common stock. On February 25, 1997, the
Company commenced an offer to purchase (the "Offer to Purchase") up to
five million shares of its common stock at a price of not greater than
$15.00 nor less than $12.50 per share. The Company repurchased 3.8
million shares of its common stock at a price of $15 per share under the
Offer to Purchase. As of September 30, 1997, the Company has repurchased
an additional 1.9 million shares of common stock in the open market (1.2
million shares during the first nine months of 1997 and 0.7 million shares
in 1996). The Company is authorized to repurchase an additional 4.3
million common shares.
F. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standard No. 128 (SFAS 128), "Earnings
Per Share," issued in February 1997 and effective for the Company for the
year ending December 31, 1997, requires presentation in the income
statement of basic and diluted earnings per share, calculated as defined
by SFAS 128, rather than primary and fully diluted earnings per share as
defined by APB 15, "Earnings Per Share." Earnings per share calculated in
accordance with SFAS 128 is not expected to differ materially from
earnings per share as calculated by the Company under APB 15.
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended September 30, 1997, were $156.7 million, an
increase of 8% over 1996 third quarter sales of $145.7 million. Sales for the
nine months ended September 30, 1997, were $524.2 million, an increase of 7%
over sales of $490.0 million for the similar period of 1996. Net sales were
positively impacted by strong demand from the agricultural market and the
acquisition of Titan France S.A. in December 1996. These increases were
partially offset by the divestiture of the majority of Titan's non-core
businesses during 1996.
Sales in the agricultural market were $78.7 and $268.6 million for the third
quarter of 1997 and for the nine months ended September 30, 1997 respectively,
as compared to $67.1 and $231.6 million in 1996. The Company's consumer market
sales were $35.7 and $124.8 million for the third quarter of 1997 and for the
nine months ended September 30, 1997 respectively, as compared to $35.2 and
$120.7 million in 1996. Construction market sales were $39.1 and $122.1
million for the third quarter of 1997 and for the nine months ended September
30, 1997 respectively, as compared to $34.9 and $111.6 million in 1996.
Cost of sales was $134.0 and $442.1 million for the third quarter of 1997 and
for the nine months ended September 30, 1997 respectively, as compared to
$121.9 and $402.7 million in 1996. Gross profit for the third quarter of 1997
was $22.7 million or 14.5% of net sales compared to $23.8 million before
realignment costs, or 16.3% of net sales for the third quarter of 1996. Gross
profit for the nine months ended September 30, 1997 was $82.1 million or 15.7%
of net sales compared to $87.3 million before realignment costs or 17.8% of net
sales for 1996. Gross profit was negatively impacted by European currency
fluctuations and the 1996 divestiture of the majority of Titan's non-core
businesses. With the development of the new Grizz LSW series of wheel and tire
assemblies production inefficiencies have resulted and are expected to continue
until full integration is achieved.
Selling, general and administrative ("SG&A") expenses for the third quarter of
1997 were $11.0 million or 7.0% of net sales compared to $11.8 million or 8.1%
of sales for 1996. SG&A expenses for the nine months ended September 30, 1997
were $34.2 million or 6.5% of sales compared to $33.9 million and 6.9% of sales
for 1996. Research and development ("R&D") expenses for the third quarter of
1997 were $2.5 million or 1.6% of net sales compared to $0.7 million and 0.5%
of sales for 1996. R&D expenses for the nine months ended September 30, 1997
were $4.8 million or 0.9% of sales compared to $2.2 million and 0.5% of sales
for 1996. R&D expenses were impacted by increased research and development
spending related to the development of the new Grizz LSW series of wheel and
tire assemblies.
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Income from operations for the third quarter of 1997 was $9.2 million or 5.9%
of net sales, compared to $11.3 million before realignment costs and gain on
sale of assets, or 7.8% in 1996. Income from operations for the nine months
ended September 30, 1997 was $43.1 million or 8.2% of net sales, compared to
$51.2 million or 10.4% in 1996. Income from operations was impacted by
increased research and development spending and production inefficiencies
related to the development of the new Grizz LSW series of wheel and tire
assemblies, unfavorable European currency fluctuations and the 1996 divestiture
of the majority of Titan's non-core businesses.
Interest expense was $4.2 million and $10.9 million for the third quarter of
1997 and the nine months ended September 30, 1997 respectively, as compared to
$2.5 and $7.8 million in 1996. Interest expense increased due to the Company's
higher average debt during the quarter and higher average interest rates
resulting from the $150 million 8 3/4% debt offering in March 1997.
Net income for the third quarter of 1997 and for the nine months ended
September 30, 1997 were $3.6 and $21.1 million respectively, compared to $9.2
and $30.7 million in 1996. Primary earnings per share were $.17 and $.91 for
the third quarter of 1997 and the nine months ended September 30, 1997
respectively, as compared to $.41 and $1.36 in 1996. Fully diluted earnings
per share for the third quarter of 1997 and the nine months ended September 30,
1997 were $.17 and $.91 respectively, as compared to $.34 and $1.12 in 1996.
Net income and fully diluted earnings per share for the third quarter of 1996
were $6.1 million and $.23 per share respectively before realignment costs and
gain on sale of assets.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations of $29.5 million for the nine months ended September
30, 1997 were attributed to net income, decreases in inventories, and increases
in other accrued liabilities. These amounts were partially offset by increases
in receivables, other current assets and other assets. Increases in
receivables were primarily due to higher sales for the third quarter of 1997 as
compared to the fourth quarter of 1996.
The Company has invested $27.0 million in capital expenditures in 1997, which
represent various equipment purchases and building improvements to enhance
production capabilities.
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In March 1997, the Company received $145.7 million in net proceeds from the
sale of $150 million principal amount of 8 3/4% senior subordinated notes due
2007. The net proceeds from the notes were used to repay long-term debt and
for the repurchase of shares of the Company pursuant to the Offer to Purchase
as discussed below.
The Company repurchased 3.8 million shares of its common stock in March 1997,
at a price of $15 per share under an Offer to Purchase up to five million
shares of common stock which was disseminated to all Company stockholders. An
additional 1.2 million shares were repurchased in the open market during the
first nine months of 1997. The Company is authorized to repurchase an
additional 4.3 million common shares.
At September 30, 1997, the Company had cash and cash equivalents of $20.4
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.
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standard No. 128 (SFAS 128), "Earnings Per
Share," issued in February 1997 and effective for the Company for the year
ending December 31, 1997, requires presentation in the income statement of
basic and diluted earnings per share, calculated as defined by SFAS 128, rather
than primary and fully diluted earnings per share as defined by APB 15,
"Earnings Per Share." Earnings per share calculated in accordance with SFAS
128 is not expected to differ materially from earnings per share as calculated
by the Company under APB 15.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Readers should note that in addition to the historical information contained
herein, this Form 10-Q contains forward-looking statements which are inherently
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated by such statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this report, as well as in the Company's 1996 Annual Report on
Form 10-K.
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6 ARE NOT APPLICABLE
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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: November 7, 1997 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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