<PAGE> 1
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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, 1996
Commission File Number: 1-12936
TITAN WHEEL 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.
<TABLE>
<CAPTION>
SHARES OUTSTANDING AT
CLASS OCTOBER 31, 1996
------------------------------------ ----------------------
<S> <C>
COMMON STOCK, NO PAR VALUE PER SHARE 22,037,252
</TABLE>
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<PAGE> 2
TITAN WHEEL INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
September 30, 1996 and December 31, 1995 1
Consolidated Condensed Statements of Operations
for the Three and Nine Months Ended
September 30, 1996 and 1995 2
Consolidated Condensed Statements of
Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 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
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1996 1995
------------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 56,146 $ 14,211
Marketable securities 39 32
Accounts receivable (net of allowance of
$5,100 and $4,970, respectively) 93,979 107,137
Inventories 126,054 124,928
Prepaid and other current assets 47,090 18,592
-------- --------
Total current assets 323,308 264,900
Property, plant and equipment, net 186,892 178,286
Other assets 19,384 17,701
Goodwill 41,626 51,248
-------- --------
Total assets $571,210 $512,135
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 14,009 $ 26,419
Accounts payable 53,743 58,592
Other current liabilities 38,761 28,631
-------- --------
Total current liabilities 106,513 113,642
Deferred income taxes 15,219 15,704
Other long-term liabilities 25,574 24,612
Long-term debt 181,710 142,305
-------- --------
Total liabilities 329,016 296,263
-------- --------
Stockholders' equity
Common stock, no par, 60,000,000 shares
authorized, 22,295,541 and
22,477,086 and outstanding, respectively 23 23
Additional paid-in capital 154,688 152,283
Retained earnings 93,823 64,142
Cumulative translation adjustments (355) 8
Treasury stock at cost: 399,165 and 78,817
shares, respectively (5,985) (584)
-------- --------
Total stockholders' equity 242,194 215,872
-------- --------
Total liabilities and stockholders' equity $571,210 $512,135
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE> 4
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
(Amounts in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $145,682 $149,528 $489,969 $464,900
Cost of sales 121,901 121,775 402,656 380,227
Realignment costs 10,324 -0- 10,324 -0-
-------- -------- -------- --------
Gross profit 13,457 27,753 76,989 84,673
Selling, general and administrative
expenses 11,754 10,767 33,930 29,488
Research and development expenses 720 554 2,205 1,599
Gain on sale of assets (15,332) -0- (16,330) -0-
-------- -------- -------- --------
Income from operations 16,315 16,432 57,184 53,586
Interest expense 2,528 2,381 7,779 8,794
Minority interest -0- 423 2,082 423
Other (income) (1,076) (1,215) (2,189) (2,688)
-------- -------- -------- --------
Income before income taxes 14,863 14,843 49,512 47,057
Provision for income taxes 5,648 5,937 18,815 18,820
-------- -------- -------- --------
Net income $ 9,215 $ 8,906 $ 30,697 $ 28,237
======== ======== ======== ========
Earnings per common share:
Primary $.41 $.40 $1.36 $1.51
Fully diluted $.34 $.33 $1.12 $1.15
Average common shares outstanding:
Primary 22,462 22,390 22,617 19,080
Fully diluted (See Note 1) 29,315 29,346 29,480 26,824
</TABLE>
(1) The computations of fully diluted earnings per share for the three and
nine months ending September 30, 1996 and 1995, assume the conversion of
the 4-3/4% convertible notes, issued November, 1993, due December, 2000.
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE> 5
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,697 $ 28,237
Depreciation and amortization 20,991 17,480
Gain on sale of assets (16,330) -0-
Realignment costs 10,324 -0-
(Increase)/decrease in receivables 9,406 (17,740)
(Increase)/decrease in inventories (17,695) 10,821
(Increase)/decrease in other assets 4,805 (9,017)
(Decrease) in accounts payable (2,960) (1,324)
Increase/(decrease) in other accrued liabilities 6,802 (2,384)
Other, net 742 (2,570)
-------- --------
Net cash provided by operating activities 46,782 23,503
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (19,073) (17,581)
Proceeds from sale of assets 1,896 -0-
Acquisitions, net of cash acquired (9,415) (14,900)
-------- --------
Net cash (used for) investing activities (26,592) (32,481)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock offering -0- 64,860
Payment of debt (32,053) (91,846)
Proceeds from long-term borrowings 60,000 58,038
Repurchase of preferred stock & stock warrants -0- (17,500)
Repurchase of common stock (5,150) -0-
Dividends paid (1,014) (724)
Other, net (38) (114)
-------- --------
Net cash provided by financing activities 21,745 12,714
Net increase in cash and cash equivalents 41,935 3,736
Cash and cash equivalents at beginning of period 14,211 7,241
-------- --------
Cash and cash equivalents at end of period $ 56,146 $ 10,977
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE> 6
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. ACCOUNTING POLICIES
In the opinion of Titan Wheel 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, 1996, the results of operations for the three and nine
month periods ended September 30, 1996 and 1995, and cash flows for the
nine months ended September 30, 1996 and 1995.
Accounting policies have continued without change and are described in
the Summary of Significant Accounting Policies contained in the Company's
1995 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, 1995
filed in conjunction with the Company's 1995 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):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 40,489 $ 37,273
Work in process 16,321 19,904
Finished goods 69,180 68,947
-------- --------
125,990 126,124
LIFO reserve 64 (1,196)
-------- --------
$126,054 $124,928
======== ========
</TABLE>
4
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TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation of
$70.3 million and $54.0 million at September 30, 1996, and December 31,
1995, respectively.
D. LONG-TERM DEBT (IN THOUSANDS):
<TABLE>
<CAPTION>
Long-term debt comprised the following: September 30, December 31,
1996 1995
------------- -----------
<S> <C> <C>
Bank borrowings
Revolving credit - Sirmac $ 16,994 $ 28,677
Term loan - Titan 60,000 -0-
Term loan - Titan Tire -0- 12,322
Term loan - Steel Wheels -0- 7,299
Industrial revenue bond - Greenwood 9,500 9,500
Note payable to PATC 19,743 19,743
Subordinated convertible notes 85,279 85,936
Other 4,203 5,247
-------- --------
195,719 168,724
Less - amounts due within one year 14,009 26,419
-------- --------
$181,710 $142,305
======== ========
</TABLE>
Aggregate maturities of long-term debt at September 30, 1996, are as
follows (in thousands):
<TABLE>
<S> <C>
October 1 - December 31, 1996 $ 13,389
1997 777
1998 1,045
1999 585
2000 and thereafter 179,923
--------
$195,719
========
</TABLE>
5
<PAGE> 8
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
D. LONG-TERM DEBT (CONTINUED):
On September 20, 1996, the Company entered into a new $175 million credit
facility with a group of banks ("Facility"). The Facility provides for
an unsecured $60 million term loan due September, 2001, and a $115
million revolving line, which is also available for documentary trade
and/or standby letters of credit. The $60 million term loan was used,
in part, to pay down debt comprised of certain other credit facilities
and term loans.
E. PURCHASE OF REMAINING INTEREST IN SIRMAC
On November 21, 1994, the Company acquired 50% of the common stock of the
Sirmac Group which was initially accounted for under the equity method.
The Sirmac Group, located in Italy, is a manufacturer of specialty wheels
and other products for the agricultural and construction markets.
Effective July 1, 1995, Titan was able to exert control over the Sirmac
Group by making day to day operational decisions; therefore, the Company
began consolidating the Sirmac Group in its financial statements.
Effective July 23, 1996, the Company acquired the remaining 50% of the
Sirmac Group.
Had the acquisition of 100% of the Sirmac Group occurred on January 1,
1995, net sales for the nine month period ended September 30, 1995, would
have been $508.6 million on a proforma basis. Net sales for 1996 would
not have been different, as the Sirmac Group was consolidated with the
Company beginning July 1, 1995. Net income and fully diluted earnings
per share would have been $32.2 million and $1.16 for the nine month
period ended September 30, 1996, on a proforma basis.
F. SALE OF ASSETS
On September 30, 1996, the Company sold the assets of Tractech to a joint
venture group and private investors. Tractech, which produces no-spin
differentials, contributed annual sales of approximately $25 million.
During the three and nine months ended September 30, 1996, Tractech
contributed net sales of $6.1 and $18.4 million respectively, net income
of $2.3 and $.8 million respectively, and fully diluted earnings per
share of $.09 and $.03 respectively. The Company has recorded a pretax
gain of $15.3 million after related expenses as a result of the
transaction in the third quarter of 1996. This follows the sale of the
assets of Automation International, Inc. in the second quarter of 1996.
6
<PAGE> 9
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
G. REALIGNMENT COSTS
During the third quarter of 1996, the Company has recorded a pretax
realignment charge of $10.3 million. These costs consist primarily of a
write-off of start-up costs and inventory associated with the
elimination of non-core products including golf car assemblies,
automotive Original Equipment Manufacturers (OEM) wheels, and axles.
This is part of the Company's overall strategy to concentrate its
resources on tire and wheel manufacturing, and is consistent with the
sale of assets mentioned in footnote F.
H. STOCK REPURCHASE PROGRAM
On May 23, 1996, the Board of Directors of the Company authorized the
repurchase of up to five million shares (approximately 22 percent of the
outstanding shares) of Titan Wheel International, Inc. common stock. The
Company may make these common stock purchases periodically in the open
market. As of September 30, 1996, the Company had purchased 350,000
shares under the aforementioned program. During October 1996, the
Company purchased an additional 285,500 shares under the program.
I. ENVIRONMENTAL MATTER
At September 30, 1996, the Company has an accrual of $5.6 million for
remaining costs associated with its Dico Inc. Des Moines, Iowa site.
7
<PAGE> 10
TITAN WHEEL 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, 1996, were $145.7 million
compared to $149.5 million in the third quarter of 1995. The decrease in
sales was primarily due to a decline in sales of light truck tires, strong
pricing pressure in the tire aftermarket, and a strike at the Company's Walcott
wheel facility, which was resolved in August, 1996. Net sales on a year to
date basis were $490.0 million, an increase of 5% over 1995 sales of $464.9
million. The change from the equity method of accounting to the consolidation
method for the Sirmac Group beginning July 1, 1995, accounted for the majority
of the increase in sales for the year to date period.
Sales in the Agricultural market were $67.1 and $231.6 million for the third
quarter and year to date respectively, as compared to $65.3 and $203.7 million
in 1995. The year to date increase was due primarily to the addition of the
Sirmac Group. The Company's Construction market sales were $34.9 and $111.6
million for the third quarter and year to date respectively, as compared to
$34.5 and $98.3 million in 1995, with the year to date increase primarily due
to the addition of the Sirmac Group. Consumer product sales were $35.2 and
$120.7 million for the third quarter and year to date respectively, as compared
to $38.1 and $134.7 million in 1995. The decrease, for the quarter and year to
date period, was primarily due to an $11.4 and $23.9 million reduction
respectively, in sales of light truck tires, which resulted from the expiration
of an agreement to produce such tires.
Cost of sales was $121.9 and $402.7 million for the third quarter and year to
date respectively, as compared to $121.8 and $380.2 million in 1995. Gross
profit for the third quarter, before realignment costs, was $23.8 million, or
16.3% of net sales, compared to $27.8 million or 18.6% of net sales for the
third quarter of 1995. Gross profit on a year to date basis, before
realignment costs, was $87.3 million, or 17.8% of net sales, compared to $84.7
million, or 18.2% of net sales for 1995. Gross profit, in the third quarter,
was negatively impacted by pricing pressure in the tire aftermarket and a
strike at the Company's Walcott wheel facility.
During the third quarter of 1996, the Company recorded a pretax realignment
charge of $10.3 million. These costs consist primarily of a write-off of
start-up costs and inventory associated with the elimination of non-core
products including golf car assemblies, automotive OEM wheels, and axles. This
is part of the Company's overall strategy to concentrate its resources on tire
and wheel manufacturing, and is consistent with the sale of assets mentioned
below.
8
<PAGE> 11
TITAN WHEEL INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
The Company sold the assets of Tractech to a joint venture group and private
investors. This follows the sale of the assets of Automation International,
Inc. in the second quarter of 1996. The Company recorded a pretax gain on sale
of assets of $15.3 and $16.3 million for the quarter and year to date
respectively.
Selling, general and administrative ("SG&A") and research and development
("R&D") expenses for the third quarter of 1996 were $12.5 million or 8.6% of
net sales compared to $11.3 million and 7.6% of sales for 1995. Year to date
SG&A and R&D expenses were $36.1 million and 7.4% of sales as compared to $31.1
million and 6.7% of sales for 1995. The rise in SG&A expenses is primarily due
to increased tire advertising coupled with overall efforts to improve systems
resources and technology. Income from operations for the quarter, before
realignment costs and gain on sale of assets, was $11.3 million or 7.8% of net
sales, compared to $16.4 million or 11.0% in 1995. Income from operations, as
a percentage of sales, was negatively impacted by pricing pressure in the tire
aftermarket, a strike at the Company's Walcott wheel facility, and a higher
level of SG&A expenses.
Interest expense was $2.5 and $7.8 million for the third quarter and year to
date respectively, as compared to $2.4 and $8.8 million in 1995. Interest
expense decreased on a year to date basis due to the Company's lower revolving
debt and subordinated convertible note balances, partially offset by interest
expense related to the Sirmac Group.
Net income for the third quarter and year to date respectively, was $9.2 and
$30.7 million in 1996, compared to $8.9 and $28.2 million in 1995. Earnings
per common share (on a fully diluted basis) were $.34 and $1.12 for the third
quarter and year to date respectively, as compared to $.33 and $1.15 in 1995.
The average number of 1996 fully diluted common shares outstanding has
increased 10% for the year to date period ended September 30, 1996, due to a
June 1995 common stock offering.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations of $46.8 million were attributed to net income,
decreases in receivables, and increases in other accrued liabilities. These
amounts were partially offset by the increase in inventory and the decrease in
accounts payable. Net income has also been adjusted by the gain on sale of
assets and the realignment costs, to arrive at cash flows from operations of a
recurring nature.
9
<PAGE> 12
TITAN WHEEL INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The increase in inventory is primarily due to the maintenance of higher
inventory levels to meet customer expectations for just-in-time delivery. The
decrease in receivables is primarily due to lower sales in the third quarter of
1996 as compared to the fourth quarter of 1995.
The Company has invested $19.1 million in capital expenditures in 1996,
including $3.2 million for the purchase, rebuilding and installation of bias
tire equipment. The balance represents various equipment purchases and
building improvements to enhance production capabilities.
The Company received $60.0 million in proceeds from the new $175 million credit
facility. These proceeds have been used to pay down debt comprised of certain
other credit facilities and term loans, as well as for general corporate
purposes.
At September 30, 1996, the Company had cash and cash equivalents of $56.1
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.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
From time to time, the Company may publish forward-looking statements, such as
in this Quarterly Report on Form 10-Q, relating to such matters as anticipated
financial performance, business prospects, technological developments, new
products, research and development activities and similar matters. Except for
the historical information contained herein, the matters discussed in this
report are forward-looking statements. The Private Securities Litigation
Reform Act of 1995 provides a safe harbor for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes that a
variety of factors, including but not limited to the economic, regulatory,
competitive and technological factors discussed in its prior filings with the
Securities and Exchange Commission, could cause the Company's actual results
and experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.
10
<PAGE> 13
TITAN WHEEL INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 4 ARE NOT APPLICABLE.
ITEM 5. OTHER MATTERS
The Company announced plans to build an agricultural, construction and
specialty tire plant in Brownsville, Texas.
On September 30, 1996, the Company sold the assets of Tractech to a
joint venture group and private investors.
The Company signed a letter of intent to purchase the specialty wheel
division of Delachaux which has two facilities in France.
ITEM 6 IS NOT APPLICABLE.
11
<PAGE> 14
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 WHEEL INTERNATIONAL, INC.
-------------------------------
(REGISTRANT)
DATE: NOVEMBER 12, 1996 BY: /s/Kent W. Hackamack
------------------------- ----------------------------------
Kent W. Hackamack
Controller and Treasurer
(Duly Authorized Officer,
Principal Financial Officer
and Principal Accounting
Officer)
12
<PAGE> 15
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM (A)
SEC FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 56,146
<SECURITIES> 39
<RECEIVABLES> 99,079
<ALLOWANCES> 5,100
<INVENTORY> 126,054
<CURRENT-ASSETS> 323,308
<PP&E> 257,213
<DEPRECIATION> 70,321
<TOTAL-ASSETS> 571,210
<CURRENT-LIABILITIES> 106,513
<BONDS> 181,710
0
0
<COMMON> 23
<OTHER-SE> 242,171
<TOTAL-LIABILITY-AND-EQUITY> 571,210
<SALES> 489,969
<TOTAL-REVENUES> 489,969
<CGS> 402,656
<TOTAL-COSTS> 402,656
<OTHER-EXPENSES> 10,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,779
<INCOME-PRETAX> 49,512
<INCOME-TAX> 18,815
<INCOME-CONTINUING> 30,697
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,697
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.12
</TABLE>
