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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, 1998
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 30, 1998
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COMMON STOCK, NO PAR VALUE PER SHARE 20,920,613
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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 Balance Sheets -
September 30, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations
For the Three and Nine Months Ended
September 30, 1998 and 1997 2
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
September 30, 1998 and 1997 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,
1998 1997
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ASSETS
Current assets
Cash and cash equivalents $ 18,397 $ 21,207
Accounts receivable (net of allowance of
$5,970 and $4,598, respectively) 117,273 112,795
Inventories 168,573 138,432
Prepaid and other current assets 28,652 26,162
-------- --------
Total current assets 332,895 298,596
Property, plant and equipment, net 246,659 210,290
Other assets 46,197 33,768
Goodwill, net 41,831 42,488
-------- --------
Total assets $667,582 $585,142
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 4,945 $ 1,065
Accounts payable 71,091 70,480
Other current liabilities 74,548 43,142
-------- --------
Total current liabilities 150,584 114,687
Deferred income taxes 21,156 21,021
Other long-term liabilities 23,739 19,600
Long-term debt 213,171 181,705
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Total liabilities 408,650 337,013
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Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,489,597 and 27,380,620, respectively 27 27
Additional paid-in capital 214,443 212,615
Retained earnings 134,451 121,934
Accumulated other comprehensive income (591) (3,340)
Treasury stock at cost: 6,316,784 and 5,738,784 shares,
Respectively (89,398) (83,107)
-------- --------
Total stockholders' equity 258,932 248,129
-------- --------
Total liabilities and stockholders' equity $667,582 $585,142
======== ========
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,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
Net sales $ 149,186 $ 156,679 $ 517,830 $ 524,247
Cost of sales 130,166 133,991 439,086 442,136
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Gross profit 19,020 22,688 78,744 82,111
Selling, general & administrative expenses 12,538 11,044 38,845 34,206
Research and development expenses 1,465 2,453 5,431 4,805
--------- --------- --------- ---------
Income from operations 5,017 9,191 34,468 43,100
Interest expense 4,678 4,202 13,397 10,948
Other income (334) (862) (683) (1,821)
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Income before income taxes 673 5,851 21,754 33,973
Provision for income taxes 256 2,224 8,267 12,910
--------- --------- --------- ---------
Net income $ 417 $ 3,627 $ 13,487 $ 21,063
========= ========= ========= =========
Earnings per share:
Basic $ .02 $ .17 $ .62 $ .91
Diluted $ .02 $ .17 $ .62 $ .91
Average shares outstanding:
Basic 21,657 21,615 21,687 22,899
Diluted 21,725 21,831 21,856 23,047
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,
1998 1997
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,487 $ 21,063
Depreciation and amortization 25,322 23,755
(Increase)/decrease in receivables 6,387 (12,043)
(Increase)/decrease in inventories (18,860) 8,448
Increase in other current assets (1,176) (8,646)
Decrease in accounts payable (6,878) (4,587)
Increase in other accrued liabilities 6,769 7,504
Other, net (512) (6,028)
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Net cash provided by operating activities 24,539 29,466
Cash flows from investing activities:
Capital expenditures, net (28,462) (29,981)
Acquisitions, net of cash acquired (14,686) 0
Other (7,143) (3,321)
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Net cash used for investing activities (50,291) (33,302)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 30,000 149,250
Payment of debt (954) (75,690)
Repurchase of common stock (5,850) (72,816)
Payment of financing fees (610) (4,300)
Dividends paid (977) (1,059)
Other, net 1,333 1,464
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Net cash provided by/(used for) financing activities 22,942 (3,151)
Net decrease in cash and cash equivalents (2,810) (6,987)
Cash and cash equivalents at beginning of period 21,207 27,406
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Can and cash equivalents at end of period $ 18,397 $ 20,419
========= =========
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 September 30,
1998, the results of operations for the three and nine months ended
September 30, 1998 and 1997, and cash flows for the nine months ended
September 30, 1998 and 1997.
Accounting policies have continued without change and are described in
the Summary of Significant Accounting Policies contained in the
Company's 1997 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, 1997 filed in conjunction with the Company's 1997 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):
September 30, December 31,
1998 1997
------------ ------------
Raw materials $ 58,350 $ 41,486
Work-in-process 18,068 12,412
Finished goods 87,361 82,219
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163,779 136,117
LIFO reserve 4,794 2,315
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$168,573 $138,432
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C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation of
$120.5 million and $100.4 million at September 30, 1998, and December
31, 1997, respectively. The Company acquired certain assets of Condere
Corporation from the United States Bankruptcy Court for the Southern
District of Mississippi for a total estimated purchase price of $28
million, which included a cash payment of $13 million.
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
D. GOODWILL
Goodwill, net reflects accumulated amortization of $5.4 million and
$4.4 million at September 30, 1998, and December 31, 1997,
respectively.
E. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 30, December 31,
1998 1997
---- ----
Senior subordinated notes $ 150,000 $ 150,000
Credit facility 30,000 0
Note payable to Pirelli Armstrong Tire Corp. 19,743 19,743
Industrial revenue bonds and other 18,373 13,027
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218,116 182,770
Less: Amounts due within one year 4,945 1,065
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$ 213,171 $ 181,705
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Aggregate maturities of long-term debt at September 30, 1998 are as
follows (in thousands):
October 1 - December 31, 1998 $ 1,306
1999 4,504
2000 20,560
2001 733
2002 and thereafter 191,013
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$ 218,116
In September 1998, the Company increased its availability under its
credit facility from $200 million to $250 million. Interest rate and
foreign currency borrowing options and covenants under the new facility
remain similar to those under the prior facility.
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
F. STOCK REPURCHASE PROGRAM
The Company's Board of Directors has authorized the Company to
repurchase up to ten million shares of its common stock. During the
quarter ended September 30, 1998, the Company repurchased 0.6 million
shares of common stock in the open market. The Company is authorized to
repurchase an additional 3.7 million common shares.
G. NEW ACCOUNTING STANDARD
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income."
Comprehensive income, which includes net income and the effect of
currency translation, was $3.9 million for the third quarter of 1998,
compared to $3.7 million in 1997. Comprehensive income for the nine
months ended September 30, 1998 was $16.2 million, compared to $23.3
million in 1997.
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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, 1998, were $149.2 million compared
to 1997 third quarter sales of $156.7 million. Sales for the nine months ended
September 30, 1998, were $517.8 million, compared to 1997 sales of $524.2
million. During the quarter, the Company continued to experience a labor strike
at its Des Moines, Iowa tire facility, the largest of the Company's tire
operations. Production capacity at the Des Moines, Iowa tire facility has
decreased to approximately half of full capacity resulting in a decrease in tire
production volume and therefore a decrease in sales and operating results, as
discussed below. The decrease in sales was partially offset by the acquisition
of Fabrica Uruguaya de Neumaticos S.A. ("FUNSA") in June 1998.
Sales in the agricultural market were $69.7 and $259.9 million for the third
quarter of 1998 and for the nine months ended September 30, 1998 respectively,
as compared to $78.9 and $269.0 million in 1997. Earthmoving/construction market
sales were $40.8 and $135.2 million for the third quarter of 1998 and for the
nine months ended September 30, 1998 respectively, as compared to $40.7 and
127.3 million in 1997. The Company's consumer market sales were $38.7 and $122.7
million for the third quarter of 1998 and for the nine months ended September
30, 1998 respectively, as compared to $37.1 and $127.9 million in 1997. Sales in
all markets were negatively impacted by a labor strike at the Company's Des
Moines, Iowa facility.
Cost of sales was $130.2 and $439.1 million for the third quarter of 1998 and
for the nine months ended September 30, 1998 respectively, as compared to $134.0
and $442.1 million in 1997. Gross profit for the third quarter of 1998 was $19.0
million or 12.7% of net sales, compared to $22.7 million or 14.5% of net sales
for the third quarter of 1997. Gross profit for the nine months ended September
30, 1998 was $78.7 million or 15.2% of net sales, compared to $82.1 million or
15.7% for 1997. Gross profit for the third quarter of 1998 and for the nine
months ended September 30, 1998, was negatively impacted by inefficiencies
caused by the labor strike at the Company's Des Moines, Iowa facility.
Selling, general and administrative ("SG&A") expenses for the third quarter of
1998 were $12.5 million or 8.4% of net sales, compared to $11.0 million or 7.0%
of sales for 1997. SG&A expenses for the nine months ended September 30, 1998
were $38.8 million or 7.5% of sales, compared to $34.2 million or 6.5% of sales
in 1997. The rise in SG&A expenses is primarily due to acquisitions coupled with
increased administrative and systems staffing. Research and development ("R&D")
expenses for the third quarter of 1998 were $1.5 million or 1.0% of net sales,
compared to $2.5 million or 1.6% of sales for 1997. R&D expenses for the nine
months ended September 30, 1998 were $5.4 million or 1.0% of sales, compared to
$4.8 million or 0.9% for 1997.
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Income from operations for the third quarter of 1998 was $5.0 million or 3.4% of
net sales, compared to $9.2 million or 5.9% in 1997. Income from operations for
the nine months ended September 30, 1998 was $34.5 million or 6.7% of net sales,
compared to $43.1 million or 8.2% in 1997. Income from operations was impacted
by the items described in the preceding paragraphs.
Interest expense was $4.7 and $13.4 for the third quarter of 1998 and for the
nine months ended September 30, 1998 respectively, compared to $4.2 million and
$10.9 million in 1997. Interest expense increased due the Company's higher
average debt during the third quarter of 1998 and for the nine months ended
September 30, 1998.
Net income for the third quarter of 1998 and for the nine months ended September
30, 1998 was $0.4 and $3.6 million respectively, compared to $3.6 and $21.1
million in 1997. Basic and diluted earnings per share were $.02 and $.62 for the
third quarter and nine months ended September 30, 1998 respectively compared to
$.17 and $.91 in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities of $24.5 million for the nine months ended
September 30, 1998 were attributed to net income, decreases in receivables and
increases in other accrued liabilities. These amounts were partially offset by
increases in inventories and decreases in accounts payable. The Company has
built inventory to meet expected production and sales demand in the next six
months.
The Company has invested $28.5 million in capital expenditures in 1998,
including $4.1 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 second quarter, Titan acquired 81 percent of the common stock of
FUNSA. In September 1998, the Company acquired certain assets of Condere
Corporation from the United States Bankruptcy Court for the Southern District of
Mississippi for a total estimated purchase price of $28 million, which included
a cash payment of $13 million.
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
In September 1998, the Company increased its availability under its credit
facility from $200 million to $250 million. The Company received $30.0 million
in proceeds from its $250 million revolving credit facility. These proceeds have
been used to fund operations and capital expenditures.
During the quarter ended September 30, 1998, the Company repurchased 0.6 million
shares of common stock in the open market. The Company is authorized to
repurchase an additional 3.7 million common shares.
At September 30, 1998, the Company had cash and cash equivalents of $18.4
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.
YEAR 2000
The Company's objective is to become Year 2000 compliant, and develop a
contingency plan, by mid-1999. The Company believes it is on schedule to
accomplish this objective. The Company is in process of requesting information
from its significant suppliers and customers that they are addressing this issue
to ensure there will be no major disruptions. The total cost to become Year 2000
compliant has not been material and the Company does not expect future costs to
have a material impact on the Company's financial position or results of
operations. No assurances can be given regarding the Company's compliance,
especially as it relates to third parties. The Company is in process of
developing contingency plans should any Year 2000 failures occur.
SAFE HARBOR 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 1997 Annual Report on Form
10-K.
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 4 ARE NOT APPLICABLE.
ITEM 5. OTHER MATTERS
Discretionary Proxy Voting Authority/Stockholder Proposals
The Securities and Exchange Commission recently amended Rule
14a-4 under the Securities Exchange Act of 1934, which governs
the use by the Company of discretionary voting authority with
respect to stockholder proposals. Rule 14a-4(c) (1) provides
that, if the proponent of a stockholder proposal fails to
notify the Company at least 45 days prior to the month and day
of mailing the prior year's proxy statement, the proxies of
the Company's management would be permitted to use their
discretionary authority at the Company's next annual meeting
of stockholders if the proposal were raised at the meeting
without any discussion of the matter in the proxy statement.
For purposes of the Company's 1999 Annual Meeting of
Stockholders, this deadline is February 22, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See the index to exhibits immediately preceding the exhibits
filed with this report.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K
during the quarter ended September 30, 1998.
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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 6, 1998 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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TITAN INTERNATIONAL, INC.
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3 Restated Articles of Incorporation of Titan
4 Multicurrency Credit Agreement dated September 17, 1998 among the
Company, Harris Trust and Savings Bank and the
banks named therein
27 Financial Data Schedule
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