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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal period from to
Commission file number 1-12936
TITAN WHEEL INTERNATIONAL, INC.
(Exact name of registrants specified in its charter)
<TABLE>
<C> <C>
ILLINOIS 36-3228472
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2701 SPRUCE STREET, QUINCY, IL 62301 (217) 228-6011
(Address of principal executive offices, (Telephone Number)
including Zip Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<C> <C>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common stock, no par value New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
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 for 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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of March 14, 1997, 25,477,782 shares of common stock of the registrant
were outstanding; the aggregate market value of the shares of common stock of
the registrant held by non-affiliates was approximately $335,027,475 based upon
the closing price of the common stock on the New York Stock Exchange on March
14, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrant's definitive
proxy statement for its annual meeting of stockholders to be held May 22, 1997.
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ITEM 1. BUSINESS
GENERAL
Titan Wheel International, Inc. ("Titan" or the "Company") is a leading
global manufacturer of steel wheels and tires for off-highway equipment used in
the agricultural, consumer (including recreational trailers, all terrain
vehicles ("ATV's") and grounds care vehicles), earth moving/construction and
military markets. The Company generally manufactures both the wheels and tires
for these vehicles and increasingly provides the value-added service of
assembling the completed wheel-tire system. The Company offers a broad range of
over 25,000 different products that are manufactured in relatively short
production runs and meet Original Equipment Manufacturers ("OEM")
specifications. The Company believes, based upon current industry revenue data,
that it is the largest agricultural wheel producer and the third largest
agricultural tire manufacturer in North America.
The Company was incorporated in 1983, grew during the 1980s through
acquiring, revitalizing and amalgamating the operations of several of the
largest wheel manufacturers serving the agricultural and off-highway
construction equipment markets. In 1990, Titan was acquired in a management led
leveraged buyout by investors, including Maurice M. Taylor, Jr., the Company's
President and Chief Executive Officer ("CEO"), and MascoTech, Inc.
("MascoTech"). In May 1993, the Company filed its first public offering and
today is traded on the New York Stock Exchange under the trading symbol TWI.
In July 1996, the Company acquired the 50% of the shares of the Sirmac
Group not previously owned by the Company. The Sirmac Group is a major European
manufacturer of specialty wheels and other products for the agricultural and
earthmoving/construction markets. In December 1996, the Company acquired the
wheel subsidiary of Delachaux SA, a French manufacturer of wheels and rims for
the French and European off-highway wheel market. The Company has been renamed
Titan France SA ("Titan France").
In the second and third quarters of 1996, respectively, Titan sold the
assets of its subsidiary Automation International, Inc. ("AII"), and of its
Tractech division. These divestitures were made pursuant to Titan's strategy to
shed non-core businesses and concentrate its resources on tire and wheel
manufacturing for off-highway markets.
Titan is currently constructing a new off-highway tire plant in
Brownsville, Texas, which will be the first new agricultural tire plant
constructed in the United States since the early 1960s. The plant, which will
significantly increase the Company's production capacity, should be operational
in late 1997 or early 1998.
BUSINESS STRATEGY
Titan's business strategy is to increase its penetration of the
after-market for tires and wheels, increase its penetration of European and
possibly other global markets, focus on possible additional strategic
acquisitions, continue to improve its operating efficiencies and continue its
emphasis on new product development.
Increase After-Market Tire and Wheel Business. Titan has concentrated on
increasing its penetration of the tire and wheel after-markets. These
after-markets offer higher profit margins, are larger and are somewhat less
cyclical than OEM markets. The Company will continue to devote its resources to
future growth in the tire and wheel after-markets.
Expand European Markets. Titan currently manufactures wheels for sale to
European OEMs in the agricultural and the earthmoving/construction off-highway
markets. The Company has established a significant presence in Europe, including
the following four markets: the United Kingdom, Italy, Germany and France. A
primary motivation for the Company's entry into European markets is its desire
to serve the worldwide needs of its major United States OEM customers, many of
which have substantial business in Europe. Additionally, the Company believes
that, due to the removal of trade barriers in the European Union and political
changes in Eastern Europe, the average size of farms in Europe is likely to
increase and, as a result, the average size of farm vehicles used in Europe will
increase. Because larger farm vehicles utilize a greater number of larger wheels
and tires similar to those produced in the United States, Titan believes that
there will be opportunities to expand sales of its agricultural wheel and tire
products to European OEMs in
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addition to Titan's existing North American OEM customers for export to Europe
and for their European operations.
Explore Additional Acquisitions. Titan believes that its expertise in the
manufacture of steel wheels has permitted it to take advantage of opportunities
to acquire businesses in the United States and Europe that complement this
product line, including companies engaged in the tire market and ultimately
companies with wheel and tire assembly capabilities. The broadening of Titan's
business may permit it to make additional worldwide acquisitions in the future.
Improve Operating Efficiencies. The Company continually strives to improve
the operating efficiency of its acquired assets and manufacturing facilities.
With each acquisition, Titan integrates each facility's strengths, often
transferring equipment and business to the facility that is best equipped to
handle the work. This provides capacity to increase utilization and spread
operating costs over a greater volume of products. Titan is also continuing a
comprehensive program to refurbish, modernize and computerize its equipment.
Titan has also centralized and streamlined its inventory controls, instituting a
"just-in-time" system of providing raw materials to its manufacturing units.
These efforts have led to improved management of order backlog and have
substantially improved the Company's ability to respond to customer orders on a
timely basis. The Company is continually evaluating opportunities to improve its
operating efficiency. The Company is ISO 9000 certified at two of its wheel
manufacturing facilities and one tire facility, evidencing its conformance to
internationally recognized standards of management and quality assurance.
Improve Design Capacity and Increase New Product Development. Equipment
manufacturers constantly face changing industry dynamics. Titan directs its
business and marketing strategy to understanding all of its markets, addressing
the needs of its customers, and demonstrating the advantages of its products. In
particular, the Company often participates with its customers in the design of
new and upgraded products. Titan, when appropriate, recommends modified products
to its customers based on Titan's own market information and research and
development. The Company's engineering and research and development staffs test
new designs and technologies, developing new methods of manufacturing to improve
product quality and performance. These value-added services enhance the
Company's relationship with its customers. The Company has spent in excess of $2
million annually on research and development for the fiscal years ending
December 31, 1994, 1995 and 1996, and has introduced more than 2,000 new
products in those years. The Company believes that its performance orientation
provides Titan with a competitive advantage in the global marketplace.
PRODUCTS AND MARKETS
The Company conducts its business in a single segment, the manufacture and
sale of a full line of wheels, tires and components for the agricultural,
consumer, earthmoving/construction, engineered product and military markets. The
following table sets forth, for the periods indicated, the approximate relative
contribution to Titan's net sales of the markets indicated below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Agricultural......................................... 38% 44% 48%
Consumer............................................. 34 27 24
Earthmoving/Construction............................. 19 22 23
Engineered Products.................................. 6 6 4
Military............................................. 3 1 1
--- --- ---
Total........................................... 100% 100% 100%
=== === ===
</TABLE>
Agricultural Market. Titan sells agricultural wheels, rims and tires to
OEMs and to after-market distributors. These wheels, rims and tires are
manufactured by Titan for installation on various agricultural and forestry
equipment, such as tractors, combines, skidders, plows, planters and irrigation
equipment. The wheels and rims range in diameter from 4" to 54" with the 54"
diameter being the largest agricultural wheel
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manufactured in North America. Basic configurations are combined with other
features (such as various centers and a wide range of material thickness)
allowing the Company to offer the broadest line of different product models to
meet customer specifications. The agricultural tires range in diameter from 8"
to 46" and in width from 4.80" to 30.5". The Company offers the added value of a
wheel and tire assembly to many of its customers. The after-market tires are
currently marketed through a network of more than 1,500 independent distributors
and twelve of Titan's own distribution centers. The Company is building a tire
manufacturing plant in Brownsville, Texas, to meet the growing demand of the
agricultural tire after-market.
Consumer Market. Titan manufactures a variety of consumer products. The
Company held a significant share of the boat/marine trailer market in the United
States in 1996, supplying wheel and tire assemblies, brakes and actuators. Titan
also supplied a substantial share of the wheel and tire assemblies for the
utility and camping trailer markets in the United States in 1996. The Company
anticipates future growth in these markets, with the focus on value-added wheel
and tire assemblies. Additionally, the Company believes it will increase its
market share through the introduction of new products in 1997.
Other markets served by Titan within the consumer group include the trailer
and lawn and garden markets. In addition, the Company currently produces
specialty automotive wheels and light truck tires. In 1996, Titan introduced its
new line of rolled rims to complement its existing wheel and tire products for
the lawn and garden and ATV markets. Titan will produce a new line of smaller
diameter rolled rims for the lawn and garden market at its wheel manufacturing
facility in Greenwood, South Carolina.
Earthmoving/Construction Market. Titan manufactures wheels and rims for
various types of earthmoving, mining and construction equipment, including
cranes, graders and levelers, scrapers, self-propelled shovel loaders, load
transporters, haul trucks and back-hoe loaders. These wheels and rims range in
diameter from 20" to 57" (with the 57"diameter being the largest
earthmoving/construction wheel manufactured in North America), in width from 8"
to 44", and in weight from 125 pounds to 6,300 pounds. The Company currently
produces a limited range of tires for the earthmoving/construction market. The
Company believes that it provides its customers with the broadest range of
earthmoving/construction wheels and rims available in the world. The majority of
the earthmoving/construction products produced by Titan are sold directly to
OEMs. The earthmoving/construction tire market is an area of expansion in which
the Company can offer the added value of a wheel and tire assembly.
Engineered Products Market. Assets of AII and the Tractech division, which
represented a majority of the Company's engineered products sales, were divested
in 1996, in a continuing effort to focus on the Company's core business. The
Company still maintains some operations in the engineered products area.
Military Market. The Company manufactures various wheels and rims for the
U.S. Government, principally for certain military vehicles (such as trucks,
tanks and personnel carriers). This business is cyclical, depending largely on
defense spending, which has been cut drastically in the last few years. The
current political climate, encouraging downsizing of government spending, has
caused a marked decrease in purchasing requirements for spare parts as well as a
reduction of new programs. While the Company believes that this trend will
affect Titan's wheel sales in the military market for 1997 and beyond, the
military tire market provides modest growth opportunities in which the Company
will continue to offer the added value of a wheel and tire assembly.
CUSTOMERS
In 1996, Titan sold its products to over 8,000 customers compared to 900
customers in 1992. Titan's ten largest customers accounted for approximately 42%
of net sales for the year ended December 31, 1996 compared to 42% for the year
ended December 31, 1995. For the year ended December 31, 1996, Deere & Company
accounted for 13% of the Company's net sales. Titan strives for long-term supply
arrangements with its customers.
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MARKETING & DISTRIBUTION
Titan has an internal sales force and also utilizes several manufacturing
representative firms for sales in North America and in Europe. In North America
sales representatives are utilized within geographical regions. The European
sales force includes employees in the United Kingdom, Italy, Germany and France.
The Company believes European sales efforts are enhanced when sales
representatives sell primarily within their native countries.
Titan distributes wheels and tires directly to OEMs. In the after-market,
Titan distributes wheel and tire assemblies through its own distribution centers
and distributes tires primarily through a network of more than 1,500 independent
distributors. Titan's distribution network consists of twelve facilities which
are strategically located throughout the United States and Europe. The Company
seeks to maintain a sufficient level of work-in-process inventory to insure its
ability to respond to customer needs in a timely manner.
OPERATIONS
Wheel Manufacturing Process. Most agricultural wheels are produced using a
rim and a wheel center. A rim is produced by first cutting large steel sheets to
required width and length specifications. These steel sheets are rolled and
welded to form a circular rim, which is flared and formed in the rollform
operation. The majority of wheel centers are manufactured using presses that
both blank and form the center to specifications in multiple stage operations.
The Company has the capability in each facility to paint the wheel using an
electrostatic process prior to the final top coating.
Earthmoving/construction steel wheels are manufactured principally from hot
rolled steel sections. This process is used because the high load bearing
capacity of these wheels requires rim thicknesses which are beyond the
capability of cold-rolling. Rims are built up from a series of hoops which are
welded together to form a rim base. The complete rim is made from either three
or five separate parts which then lock together after the rubber tire has been
fitted to the wheel and inflated.
Smaller wheels (usually 12" or less in diameter), of which the majority are
manufactured for consumer markets, are manufactured by a process in which
half-wheels are press-formed, then two of these half-wheel stampings are welded
together to form a complete wheel. The wheel assembly is then painted, generally
on automated electrostatic painting equipment. Generally, for larger wheels (12"
or more in diameter) manufactured for consumer markets, the Company manufactures
rims and centers, welds the rims to the centers and paints the assembled
product.
Due to the wide variation of applications of the Company's products,
engineering requirements often specify wheels having as many as five separate
components. Titan manufactures each of the components specified and then
assembles them into a finished product.
Tire Manufacturing Process. Tires are produced by mixing rubber and other
raw materials and chemicals to form a rubber compound. The compound is extruded
into tread and sidewall stock, mixed with wire strands to make the bead and
mixed with steel or fabric to produce the ply. The tread, sidewall, bead and
plies are assembled into a green tire (uncured), which is put into a press which
molds the tire under temperature and pressure into a finished cured tire.
Quality Control. During the entire production process, inspections are
performed continuously by production employees to ensure high product quality.
The Company has extensive quality control testing capabilities, such as radial
fatigue testing, metallurgical analysis, physical property analysis, salt spray
testing and other related testing. Titan's manufacturing employees are trained
in Statistical Process Control, the periodic testing of products.
Engineering/Research & Development. Supported by computer-aided design
(CAD), computer-aided manufacturing (CAM) and finite element techniques, Titan's
engineering and research and development staff continually investigates and
tests new designs and technologies, and develops new methods of manufacturing to
improve product quality and performance.
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Materials. The primary raw materials used by the Company are steel and
rubber. Due to demand/capacity issues in the steel industry, steel procurement
planning and execution are paramount. To ensure a consistent steel supply, Titan
purchases from key steel mills on its basic steel and maintains relationships
with steel processors for steel preparation. The Company is not dependent on any
single steel producer for its supply of steel. As is customary in the industry,
the Company does not have long-term contracts for the purchase of steel and,
therefore, its purchases are subject to fluctuation in the price of steel.
Rubber and raw materials for tire manufacture are the Company's second largest
commodity expense. The Company buys rubber in the markets where there are
numerous sources of supply. As the Company continues to grow, additional
commodities/services are being contracted to secure better pricing on purchased
items. Commodities or services that are significant include freight,
paints/coatings, welding materials, fasteners, systems software and hardware,
material handling equipment, tooling and manufacturing equipment. In addition to
the development of key suppliers domestically, the Company's strategic
procurement plan includes international sourcing to assure competitive price and
quality in the global marketplace.
Backlog/Firm Orders. As of February 28, 1997, Titan estimates that it had
$209 million in firm orders compared to $149 million at February 28, 1996.
Orders are considered firm if the customer would be obligated to accept products
covered thereby if manufactured and delivered pursuant to the terms of such
orders. Firm order backlog has increased due to recent acquisitions and growth
in existing operations. The Company believes that the majority of its current
backlog orders will be filled during the current fiscal year.
COMPETITION
The Company's businesses compete with several domestic and international
competitors, some of whom are larger and have greater financial resources than
Titan. The Company competes primarily on the basis of price, quality, customer
service, design capacity, delivery time and the added value of a wheel and tire
assembly. The Company believes it is the primary source of steel wheels and rims
to the majority of its North American customers. Titan's major competitors in
the wheel markets include GKN Wheels, Ltd., and Topy Industry, Ltd. The Company
believes, based on current industry revenue data, that it is the third largest
agricultural tire manufacturer in North America. Titan's major competitors in
the tire markets include Goodyear Tire & Rubber Co. and Bridgestone-Firestone.
EMPLOYEES
At December 31, 1996, the Company employed approximately 4,100 people in
the United States and Europe. Approximately 31% of the Company's employees in
the United States are covered by three collective bargaining agreements which
will expire before the year 2000. The majority of employees at Titan's foreign
facilities are represented by collective bargaining agreements. The Company
believes that all relations with its employees are good.
PATENTS AND TRADEMARKS
The Company owns numerous United States and foreign patents and trademarks
and continues to apply for patent protection for many of its new products. While
it considers that its patents are significant to the operations of its business,
Titan does not consider any one of them to be of such importance that its
expiration could materially affect its business.
ENVIRONMENTAL COMPLIANCE
The Company is subject to various federal, state, local and foreign
environmental laws and regulations in the jurisdictions in which it operates.
The Company does not currently anticipate any material adverse effect on its
operations or financial condition as a result of its efforts to comply with, or
its liabilities under, environmental laws. The Company does not currently
anticipate any material capital expenditures for environmental control
facilities. Some risk of environmental liability is inherent in the Company's
business, including with respect to Company facilities which have been used for
industrial purposes for a period of decades, and there can be no assurance that
material environmental costs will not arise in the future. In
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particular, the Company might incur capital, remediation and other costs to
comply with increasingly stringent environmental laws and enforcement policies.
Although it is difficult to predict future environmental costs, the Company does
not anticipate any material adverse effect on its operations, financial
condition or competitive position as a result of future costs of environmental
compliance.
ITEM 2. PROPERTIES
The Company and its subsidiaries maintain 36 facilities located in the
United States, United Kingdom, Italy, Germany and France for manufacturing and
warehousing/distribution. The facilities in the aggregate contain over 7.3
million square feet, 5.5 million square feet of which are used for
manufacturing, 1.7 million square feet for warehousing and distribution and the
balance for administrative and sales offices. Nineteen of the facilities are
leased and seventeen are owned. The Company believes that with the addition of
its Brownsville facility, its properties will be adequate to support its
operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
General. The Company is party to several routine legal proceedings arising
out of the normal course of business. The Company believes that none of these
actions, individually or in the aggregate, will have a material adverse affect
on its financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The names, ages and positions of all executive officers of the Company as
of December 31, 1996 are listed below, followed by a brief account of their
business experience during the past five years. Officers are normally appointed
annually by the Board of Directors at a meeting of the directors immediately
following the Annual Meeting of Shareholders. There is a family relationship
between the President and Secretary who are brother and sister. There is no
arrangement or understanding between any officer and any other person pursuant
to which an officer was selected.
Maurice M. Taylor, Jr., 52, has been the President, CEO and Director of the
Company since 1990, when Titan was acquired in a management led buyout by
investors, including Mr. Taylor. Prior thereto, Mr. Taylor had a significant
role in the development of the Company.
Michael R. Samide, 52, joined the Company as Vice President and Chief
Operating Officer in November 1993, following the Company's acquisition of
Dyneer Corporation ("Dyneer") in 1993. Mr. Samide served as the President and
CEO of Dico, Inc, ("Dico"), a division of Dyneer. Prior to his work with Dico,
he was President and CEO of the New Hampshire Ball Bearing Corporation for a
number of years.
Kent W. Hackamack, 38, served as Corporate Controller of the Company from
May 1994 to December 1996, and was appointed Treasurer in November 1994 and Vice
President of Finance in December 1996. Prior to joining the Company, Mr.
Hackamack served from 1990 to 1994 as the International Audit Manager for Pool
Energy Services Co. of Houston, Texas, addressing foreign operations accounting
and auditing issues.
Cheri T. Holley, 49, joined the Company in March 1994 as General Counsel.
In November 1994 she was named Secretary of the Company and in December 1996 she
was appointed Vice President. Before joining the Company, she was in private
practice specializing in corporate and environmental law for a number of years.
Prior to entering private practice, Ms. Holley had fifteen years of management
experience.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange
("NYSE"). The following table sets forth, for periods indicated, the high and
low sales prices per share on a post-stock split basis of the common stock as
reported on the NYSE, and information concerning per share dividends declared.
<TABLE>
<CAPTION>
DIVIDENDS
1995* HIGH LOW DECLARED
----- ---- --- ---------
<S> <C> <C> <C> <C> <C>
First Quarter............................................... $16 $11 5/8 $0.010
Second Quarter.............................................. $18 3/4 $14 1/4 $0.010
Third Quarter............................................... $21 $16 1/4 $0.015
Fourth Quarter.............................................. $18 1/8 $13 $0.015
</TABLE>
<TABLE>
<CAPTION>
1996
----
<S> <C> <C> <C> <C> <C>
First Quarter............................................... $17 5/8 $14 3/4 $0.015
Second Quarter.............................................. $18 1/8 $15 3/8 $0.015
Third Quarter............................................... $16 1/2 $13 3/8 $0.015
Fourth Quarter.............................................. $14 1/2 $12 $0.015
</TABLE>
- -------------------------
On February 28, 1997, there were approximately 771 holders of record of Titan
common stock.
* Amounts in 1995 have been adjusted for the two 3-for-2 stock splits that
occurred March 15 and August 31, 1995.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the years ended
December 31, 1992, 1993, 1994, 1995 and 1996, are derived from the Company's
financial statements, audited by Price Waterhouse LLP, independent accountants,
and should be read in conjunction with the Company's audited financial
statements and notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------
1992 1993 1994(1) 1995(1) 1996(1)
---- ---- ------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................. $113,170 $150,441 $407,000 $623,183 $634,553
Gross profit.............................. 17,437 25,269 68,432 115,726 97,354
Income from operations.................... 8,798 13,142 37,996 73,055 67,267
Income before income taxes, extraordinary
loss and cumulative effect of change in
accounting principle.................... 6,468 10,114 30,107 63,280 56,981
Income before extraordinary loss and
cumulative effect of change in
accounting principle.................... 4,072 6,361 18,480 37,983 35,378
Per share............................... .24 .46 1.14 1.91 1.57
Extraordinary loss related to early
retirement of debt...................... (258) -0- -0- -0- -0-
Cumulative effect of change in accounting
principle............................... (275) -0- -0- -0- -0-
Net income................................ 3,539 6,361 18,480 37,983 35,378
Net income per share (primary)............ .21 .46 1.14 1.91 1.57
Net income per share (fully diluted)...... .21 .46 .89 1.50 1.30
Current assets............................ $ 40,663 $141,682 $192,358 $264,900 $284,651
Total assets.............................. 69,313 261,266 400,460 512,135 558,592
Long-term debt............................ 35,785 123,646 178,341 142,305 113,096
Dividends declared per common share....... $ 0.00 $ 0.02 $ 0.03 $ 0.05 $ 0.06
</TABLE>
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(1) See Note 2 ("Acquisitions and Divestitures") of the Notes to the Company's
Consolidated Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the Company's
statement of operations expressed as a percentage of sales. This table and
subsequent discussions should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
DECEMBER 31,
---------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 83.2 81.4 83.0
Realignment costs........................................... 0.0 0.0 1.6
----- ----- -----
Gross profit................................................ 16.8 18.6 15.4
Selling, general, administrative expenses................... 7.0 6.6 6.9
Research and development expenses........................... 0.5 0.3 0.4
Gain on sale of assets...................................... 0.0 0.0 (2.5)
----- ----- -----
Income from operations...................................... 9.3 11.7 10.6
Interest expense............................................ 2.1 1.9 1.7
Minority interest........................................... 0.0 0.2 0.3
Other....................................................... (0.2) (0.6) (0.4)
----- ----- -----
Income before income taxes.................................. 7.4 10.2 9.0
Provision for income taxes.................................. 2.9 4.1 3.4
----- ----- -----
4.5% 6.1% 5.6%
===== ===== =====
</TABLE>
In addition, the following table sets forth, for periods indicated,
components of the Company's net sales classified by major markets (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Agricultural................................................ $156,015 $275,976 $307,734
Consumer.................................................... 140,073 170,717 152,775
Earthmoving/Construction.................................... 75,555 133,523 145,765
Engineered Products......................................... 22,511 38,920 21,687
Military.................................................... 12,846 4,047 6,592
-------- -------- --------
Total....................................................... $407,000 $623,183 $634,553
======== ======== ========
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1995
Net sales for the year ended December 31, 1996, were $634.6 million, an
increase of 2% compared to $623.2 million in sales for the year ended December
31, 1995. Sales in the agricultural market were $307.7 million for the year
ended December 31, 1996, as compared to $276.0 million in 1995. The Company's
construction market sales were $145.8 million for the year ended December 31,
1996, as compared to $133.5 million in 1995. The increase in sales to the
agricultural and construction markets is primarily due to the impact of
consolidating the Sirmac Group for a full year in 1996. Consumer market sales
were $152.8 million for the year ended December 31, 1996, as compared to $170.7
million in 1995. The decrease in consumer market sales was primarily due to a
$28.2 million reduction in sales of light truck tires, which resulted from the
expiration of an agreement to produce such tires.
The Company generates 22% of its net sales from foreign subsidiaries,
therefore the Company is subject to fluctuations in those foreign currencies.
Foreign currency fluctuations for the year ended December 31, 1996, did not have
a significant effect on results of operations.
Cost of sales was $526.9 million for the year ended December 31, 1996, as
compared to $507.5 million in 1995. Gross profit for the year ended December 31,
1996, before realignment costs, was $107.7 million, or 17.0% of net sales,
compared to $115.7 million, or 18.6% of net sales, for 1995. Gross profit was
negatively impacted by the divestiture of the assets of non-core businesses in
the second and third quarters of 1996, by pricing competition in the tire
aftermarket, and certain other factors.
During the third quarter of 1996, the Company recorded a pretax realignment
charge of $10.3 million. These costs consisted of a write-off of start-up costs
and inventory associated with the elimination of non-core products including
automotive OEM wheels, certain rolled rims and axles. The realignment 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.
In September 1996, Titan sold the assets of Tractech to a joint venture
group and private investors. Tractech produced no-spin differentials. During the
years ended December 31, 1995 and 1996, Tractech contributed net sales of $26.4
and $18.4 million, net income of $3.7 and $2.3 million, and fully diluted
earnings per share of $0.15 and $.09, 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 assets of
Automation International, Inc. in the second quarter of 1996, which did not have
a significant impact on results of operations.
Selling, general and administrative ("SG&A") expenses were $43.7 million
and 6.9% of sales for the year ended December 31, 1996, as compared to $40.6
million and 6.5% of sales for 1995. The rise in SG&A expenses is primarily due
to increased tire advertising and other administrative sales costs to improve
customer service, coupled with overall efforts to improve systems resources and
technology.
Income from operations for the year ended December 31, 1996, before
realignment costs and gains on sale of assets, was $61.3 million or 9.7% of net
sales, compared to $73.1 million or 11.7% in 1995. Income from operations, as a
percentage of 1996 sales, was negatively impacted by the divestiture of the
assets of non-core businesses in the second and third quarters of 1996, by
pricing competition in the tire aftermarket and certain other factors.
Net interest expense for the year ended December 31, 1996, was $10.7
million or 1.7% of net sales compared to $12.0 million or 1.9% for the same
period in 1995. The decreased interest expense was primarily due to a decrease
of approximately $21 million in the average debt outstanding in 1996 as compared
to 1995 coupled with lower average borrowing rates. These amounts were partially
offset by a $1.3 million charge as a result of the redemption of the 4 3/4%
subordinated convertible notes on December 30, 1996. The decrease in the average
debt outstanding was largely due to the extinguishment of the Titan Tire term
loan and reductions to the 4 3/4% subordinated convertible notes.
11
<PAGE> 12
Net income for the year ended December 31, 1996, was $35.4 million,
compared to $38.0 million in 1995. Earnings per common share (on a fully diluted
basis) were $1.30 for the year ended December 31, 1996, as compared to $1.50 in
1995. The average number of 1996 fully diluted common stock shares outstanding
increased 7% for the period ended December 31, 1996, due to the June 1995 stock
offering.
FISCAL YEAR ENDED DECEMBER 31, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1994
Net sales for the year ended December 31, 1995, were $623.2 million, an
increase of 53% compared to 1994 sales of $407.0 million. The increase was
primarily due to the acquisition by the Company of Steel Wheels in February
1995, Titan Tire in July 1994, and to the consolidation of the Sirmac Group in
the second half of 1995. Sales to the agricultural market, the Company's largest
market segment, were $276.0 million compared to 1994 sales of $156.0 million.
Agricultural sales accounted for 44% of the Company's total sales in 1995. Sales
increased primarily due to the acquisition of Titan Tire and the Sirmac Group.
Sales in the Company's second largest market, consumer, increased $30.6 million
compared to 1994, and represented 27% of total sales. The increase was due
primarily to the acquisitions noted above. Earthmoving/construction sales, the
Company's third largest market in 1995, at 22% of total sales, increased $58.0
million over 1994, primarily due to the acquisition of Steel Wheels.
Gross profit was $115.7 million or 18.6% of net sales in 1995, compared to
$68.4 million or 16.8% of net sales in 1994. The gross profit margin was
positively affected by strong margins from the Titan Tire acquisition as well as
strength in the Company's traditional markets.
SG&A expenses were $40.6 million, or 6.5% of net sales in 1995, compared to
$28.3 million or 7.0% of sales in 1994. The dollar increase was principally due
to the acquisitions noted above as well as increases in operations and
administrative personnel to enhance systems and controls. R&D expenses were
consistent from year to year at $2.1 million.
Interest expense for 1995 was $12.0 million or 1.9% of net sales, which
compares to $8.5 million or 2.1% of net sales in 1994. The increased interest
expense was primarily due to an increase of approximately $57 million in the
average debt outstanding in 1995 compared to 1994, coupled with slightly higher
average borrowing rates. The acquisition of Steel Wheels and the consolidation
of the Sirmac Group accounted for the majority of the increase in the average
debt outstanding.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $13.2 million from the prior year, as
increases in depreciation and amortization and other current liabilities,
decreases in accounts receivable, and a charge for realignment costs more than
offset increases in inventories, a decrease in net income, and gain on sale of
assets, resulting in an increase in net cash provided by operations of $16.8
million.
Depreciation and amortization expenses were $26.0 million and $2.0 million,
respectively, compared to $21.9 million and $1.5 million, respectively in 1995.
The increase in depreciation expense is primarily attributable to a full year of
depreciation on capital expenditures and recent acquisitions. The decrease in
accounts receivable was primarily due to the decrease in sales in the fourth
quarter 1996, as compared to 1995. The increase of $26.8 million in inventories
represents growth in work-in-process and finished goods to meet customer demands
for inventory on a just-in-time basis and raw material purchases to cover
anticipated demand in the first quarter 1997. The increase in other current
liabilities is substantially due to an increase in income taxes payable.
Net cash used for investing activities decreased from $37.3 million to
$33.0 million in 1996; however, cash used for investing activities in 1996 was
offset by $24.1 million in cash provided from the sale of assets of the Tractech
and Automation International divisions. Capital expenditures totaled $36.7
million compared to $20.2 million in 1995. The Company has increasingly
dedicated funds to modernize and improve production efficiencies and increase
production capacities. Also included in 1996 capital expenditures was $8.0
million used to purchase the land and building of the Brea, California plant
facility. The Company estimates that its
12
<PAGE> 13
capital expenditures for 1997 will be approximately $50 to $60 million. The
expected increase over 1996 is principally due to the construction of the new
tire facility in Brownsville, Texas.
Proceeds from the sale of the assets of the Tractech division were
partially used to fund the acquisition of Titan France in December 1996. Titan
also acquired the remaining 50% of the Sirmac Group in July 1996. These
acquisitions have allowed Titan to broaden its expertise in steel wheels and
expand geographically within Europe.
Net cash used for financing activities totaled $8.1 million in 1996
compared to $6.8 million provided by financing activities in 1995. In September
1996, the Company entered into a $175 million credit facility ("Facility"). The
Company received $80.0 million in proceeds from the Facility during 1996. These
funds were used to repay debt outstanding for the Steel Wheels and Sirmac
subsidiaries and repay the previous Titan credit facility, with the remainder
used for general corporate purposes, including capital expenditures and
repurchases of common stock. The Titan Tire term loan was completely repaid and
extinguished during 1996 from cash on hand. In May 1996, the Board of Directors
of the Company authorized the repurchase of up to five million shares of the
Company's common stock in the open market. The Company repurchased $9.5 million
of common stock pursuant to such authorization during 1996, and repurchased an
additional $13.4 million between January 1, 1997 and through February 12, 1997.
In addition to the other debt repaid during 1996, the Company converted and
redeemed its 4 3/4% convertible subordinated notes in December 1996. Prior to
the December 30, 1996 redemption date, two-thirds of the note holders converted
their notes into 4,530,240 shares of common stock of the Company. The remaining
note holders redeemed their notes at a redemption price of 102.714% plus accrued
interest, resulting in a total cash payment of $29.5 million.
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 net proceeds from this sale
are estimated to be $145 million (after offering expenses and underwriters'
discount). The net proceeds will be used to repay outstanding long-term debt
and, if the Offer to Purchase (as described below) is not consummated, for
general corporate purposes, which may include acquisitions and capital
expenditures.
On February 25, 1997, the Company commenced an offer to purchase (the
"Offer to Purchase") up to five million shares of its common stock for a maximum
aggregate purchase price of $75 million. The repurchase is expected to be funded
by the Company partially from cash on hand and partially from increased
borrowings under the Facility.
On March 14, 1997, the Company amended its existing $175 million credit
facility to a $200 million revolving credit facility. Interest rate and foreign
currency borrowing options and covenants under the new facility remain
substantially unchanged from those under the old facility.
At December 31, 1996, the Company had cash and cash equivalents of $27.4
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.
13
<PAGE> 14
NEW ACCOUNTING STANDARDS
The following accounting standards have been adopted by the Company for
1996:
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," establishes standards for the impairment
of long-lived assets, certain identifiable intangibles and goodwill related to
those assets to be held and used and those to be disposed. SFAS 121 did not have
a material impact on Titan's financial condition or results of operations.
SFAS 123, "Accounting for Stock-based Compensation" which defines the fair
value based method of accounting for stock option, purchase and awards plans.
SFAS 123 allows companies to use the fair value method defined in the Statement
or to continue use of the intrinsic value method as outlined in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25). The Company utilizes APB 25 for accounting for employee stock options and
related instruments. The Company adopted the disclosure provisions of SFAS 123
and therefore, there was no impact on the Company's financial position or
results of operations.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements, including statements
regarding, among other items (i) anticipated trends in the Company's businesses,
(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 largely 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 economic or regulatory influences, or
(ii) changes in the competitive marketplace, including new products and pricing
changes by the Company's competitors. 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
14
<PAGE> 15
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
Reference is made to the section captioned "Election of Directors" in the
Company's 1997 definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year, incorporated herein by reference. Reference is also made to the
information under the heading "Executive Officers of the Registrant" included
under Item 4a, Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the section captioned "Executive Compensation" in the
Company's 1997 definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year, which section is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the section captioned "Principal Shareholders" in the
Company's 1997 definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year, incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable
15
<PAGE> 16
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) 1. Financial Statements.
Report of Price Waterhouse LLP.............................. F-1
Consolidated Balance Sheets at December 31, 1996 and 1995... F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994............................ F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1995 and 1994........ F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994............................ F-5
Notes to Consolidated Financial Statements.................. F-6 through F-21
2. Financial Statement Schedule.
Schedule IX -- Valuation Reserves........................... S-1
3. Exhibits.................................................... E-1 through E-3
</TABLE>
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
March 24, 1997 TITAN WHEEL INTERNATIONAL, INC.
By: /s/ MAURICE M. TAYLOR, JR.
------------------------------------
Maurice M. Taylor, Jr.
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1997.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
---------- --------
<C> <S>
/s/ MAURICE M. TAYLOR, JR. President, Chief Executive Officer and Director
- --------------------------------------------- (Principal Executive Officer)
Maurice M. Taylor, Jr.
/s/ KENT W. HACKAMACK Vice President -- Finance and Treasurer
- --------------------------------------------- (Principal Financial Officer and
Kent W. Hackamack Principal Accounting Officer)
/s/ ERWIN H. BILLIG Director
- ---------------------------------------------
Erwin H. Billig
/s/ EDWARD J. CAMPBELL Director
- ---------------------------------------------
Edward J. Campbell
/s/ RICHARD M. CASHIN, JR. Director
- ---------------------------------------------
Richard M. Cashin, Jr.
/s/ ALBERT J. FEBBO Director
- ---------------------------------------------
Albert J. Febbo
/s/ ANTHONY L. SOAVE Director
- ---------------------------------------------
Anthony L. Soave
</TABLE>
17
<PAGE> 18
TITAN WHEEL INTERNATIONAL, INC.
EXHIBIT INDEX
FORM 10-K
1996
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
3(a)(1) Restated Articles of Incorporation of Titan
3(b)(8) Amendment dated May 19, 1994 to Articles of Incorporation of
Company
3(c)(2) Bylaws of the Company
4(a)(3) Registration Rights Agreement dated November 12, 1993,
between the Company and 399 Venture Partners, Inc.
4(b)(8) Form of Indenture between the Company and The First National
Bank of Chicago dated March 21, 1997
4(c)(4) Multicurrency Credit Agreement dated September 19, 1996
among the Company, Harris Bank and the banks names therein
4(c)(8) The March 14, 1997 Amendment to Multicurrency Credit
Agreement dated September 19, 1996 among the Company, Harris
Bank and the banks names therein
10(a)(5) Sublease dated June 20, 1988 between the Company and
Kelsey-Hayes Company
10(b)(6) Lease dated April 1, 1973 between Kelsey-Hayes Company and
the Town of Walcott, Iowa
10(c)(5) Indenture dated April 1, 1973 between Town of Walcott, Iowa
and First Trust and Savings Bank, as Trustee
10(d)(7) 1994 Non-Employee Director Stock Option Plan
10(e)(1) 1993 Stock Incentive Plan
11* Computation of Earnings per Common Share
21* Subsidiaries of the Registrant
23.1* Consent of Price Waterhouse LLP
27* Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith.
(1) Incorporated by reference to the same numbered exhibit contained in the
Company's Registration Statement on Form S-1 (No. 33-60518).
(2) Incorporated by reference to the same numbered exhibit contained in the
Company's Registration Statement on Form S-4 (No. 33-69228).
(3) Incorporated by reference to the same numbered exhibit contained in the
Company's' Annual Report on Form 10-K for its year ended December 31, 1994.
(4) Incorporated by reference to exhibit 9(b)(i) filed with the Company's Issuer
Tender Offer Statement on Schedule 13E-4 on February 24, 1997.
(5) Incorporated by reference to the exhibit filed with Amendment No. 1 to the
Company's Registration Statement on Form S-1 (No. 33-60518)
(6) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 33-60518)
(7) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 33-60518)
(8) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 333-22279)
18
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Titan Wheel International, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 16 present fairly, in all material
respects, the financial position of Titan Wheel International, Inc. and its
subsidiaries at December 31, 1995 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1996, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
St. Louis, Missouri
February 17, 1997, except as to Note 17 which is as of March 18, 1997
F-1
<PAGE> 20
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1996
---- ----
(ALL AMOUNTS
IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 14,211 $ 27,406
Accounts receivable (net of allowance of $4,970 and
$4,924, respectively).................................. 107,137 95,613
Inventories............................................... 124,928 138,758
Prepaid and other current assets.......................... 18,624 22,874
-------- --------
Total current assets................................... 264,900 284,651
Property, plant and equipment, net.......................... 178,286 205,087
Other assets................................................ 17,701 27,605
Goodwill.................................................... 51,248 41,249
-------- --------
Total assets........................................... $512,135 $558,592
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 26,419 $ 872
Accounts payable.......................................... 58,592 60,603
Accrued wages and commissions............................. 9,585 9,878
Income taxes payable...................................... -0- 6,992
Other current liabilities................................. 19,046 25,291
-------- --------
Total current liabilities.............................. 113,642 103,636
Deferred income taxes....................................... 15,704 18,786
Other long-term liabilities................................. 24,612 21,893
Long-term debt.............................................. 142,305 113,096
-------- --------
Total liabilities...................................... 296,263 257,411
-------- --------
Commitments and Contingencies
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
22,477,086 and 26,526,992 outstanding, respectively.... 23 27
Additional paid-in capital................................ 152,283 210,677
Retained earnings......................................... 64,142 98,096
Cumulative translation adjustment......................... 8 2,673
Treasury stock at cost: 78,817 and 725,165 shares,
respectively........................................... (584) (10,292)
-------- --------
Total stockholders' equity............................. 215,872 301,181
-------- --------
Total liabilities and stockholders' equity.................. $512,135 $558,592
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 21
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
---- ---- ----
(ALL AMOUNTS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $407,000 $623,183 $634,553
Cost of sales............................................... 338,568 507,457 526,875
Realignment costs........................................... -0- -0- 10,324
-------- -------- --------
Gross profit................................................ 68,432 115,726 97,354
Selling, general and administrative expenses................ 28,343 40,615 43,674
Research and development expenses........................... 2,093 2,056 2,743
Gain on sale of assets...................................... -0- -0- (16,330)
-------- -------- --------
Income from operations...................................... 37,996 73,055 67,267
Interest expense............................................ 8,503 12,045 10,725
Minority interest........................................... -0- 1,210 2,082
Other income................................................ (614) (3,480) (2,521)
-------- -------- --------
Income before income taxes.................................. 30,107 63,280 56,981
Provision for income taxes.................................. 11,627 25,297 21,603
-------- -------- --------
Net income.................................................. $ 18,480 $ 37,983 $ 35,378
======== ======== ========
Earnings per common share:
Primary................................................... $ 1.14 $ 1.91 $ 1.57
Fully diluted............................................. .89 1.50 1.30
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 22
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PREFERRED PREFERRED COMMON COMMON
SHARES STOCK SHARES STOCK
--------- --------- --------- ------
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA
<S> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994...... -0- $ -0- 15,817,664 $16
Net income.................
Dividends paid on common
stock....................
Exercise of Dyneer
options.................. 441,392
Issuance of stock under
401(k) plan.............. 16,238
Preferred stock issued..... 1,000,000 7,500
Dividends on preferred
stock....................
Common stock warrants
issued...................
Foreign currency
translation adjustment...
---------- ------- ---------- ---
BALANCE DECEMBER 31, 1994.... 1,000,000 7,500 16,275,294 16
Net income.................
Dividends paid on common
stock....................
Shares issued in public
offering................. 4,312,500 5
Conversion of subordinated
notes.................... 1,405,120 2
Dyneer contingent
consideration............ 426,688
Exercise of Dyneer
options.................. 48,391
Issuance of stock under
401(k) plan.............. 87,910
Repurchase of preferred
stock.................... (1,000,000) (7,500)
Dividends on preferred
stock....................
Repurchase of common stock
warrants.................
Foreign currency
translation adjustment...
Treasury stock
transactions............. (78,817)
---------- ------- ---------- ---
BALANCE DECEMBER 31, 1995.... -0- -0- 22,477,086 23
Net income.................
Dividends paid on common
stock....................
Conversion of subordinated
notes.................... 4,582,800 4
Issuance of stock under
401(k) plan.............. 100,294
Foreign currency
translation adjustment...
Treasury stock
transactions............. (646,348)
Exercise of stock
options.................. 13,160
---------- ------- ---------- ---
BALANCE DECEMBER 31, 1996.... -0- $ -0- 26,526,992 $27
========== ======= ========== ===
<CAPTION>
ADDITIONAL COMMON CUMULATIVE
PAID-IN STOCK RETAINED TRANSLATION TREASURY
CAPITAL WARRANTS EARNINGS ADJUSTMENT STOCK
---------- -------- -------- ----------- --------
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1994...... $ 57,788 $ -0- $ 9,202 $ (278) $ -0-
Net income................. 18,480
Dividends paid on common
stock.................... (432)
Exercise of Dyneer
options.................. 4,602
Issuance of stock under
401(k) plan.............. 197
Preferred stock issued.....
Dividends on preferred
stock.................... (30)
Common stock warrants
issued................... 10,000
Foreign currency
translation adjustment... 691
-------- -------- ------- ------ --------
BALANCE DECEMBER 31, 1994.... 62,587 10,000 27,220 413 -0-
Net income................. 37,983
Dividends paid on common
stock.................... (1,031)
Shares issued in public
offering................. 64,560
Conversion of subordinated
notes.................... 17,414
Dyneer contingent
consideration............ 4,717
Exercise of Dyneer
options.................. 600
Issuance of stock under
401(k) plan.............. 1,353
Repurchase of preferred
stock....................
Dividends on preferred
stock.................... (30)
Repurchase of common stock
warrants................. (10,000)
Foreign currency
translation adjustment... (405)
Treasury stock
transactions............. 1,052 (584)
-------- -------- ------- ------ --------
BALANCE DECEMBER 31, 1995.... 152,283 -0- 64,142 8 (584)
Net income................. 35,378
Dividends paid on common
stock.................... (1,424)
Conversion of subordinated
notes.................... 56,263
Issuance of stock under
401(k) plan.............. 1,543
Foreign currency
translation adjustment... 2,665
Treasury stock
transactions............. 443 (9,708)
Exercise of stock
options.................. 145
-------- -------- ------- ------ --------
BALANCE DECEMBER 31, 1996.... $210,677 $ -0- $98,096 $2,673 $(10,292)
======== ======== ======= ====== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 23
TITAN WHEEL INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
---- ---- ----
(ALL AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 18,480 $ 37,983 $ 35,378
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization............................. 17,428 23,428 27,955
Gain on sale of assets.................................... -0- -0- (16,330)
Realignment costs......................................... -0- -0- 10,324
(Increase) decrease in current assets, excluding the effects
of acquisitions:
Accounts receivable....................................... (24,845) 38 14,047
Inventories............................................... (25,493) 7,161 (26,804)
Prepaid and other current assets.......................... (6,423) (7,314) (5,425)
Increase (decrease) in current liabilities, excluding the
effects of acquisitions:
Accounts payable.......................................... 5,830 (4,624) 870
Other current liabilities................................. 8,251 (16,124) 10,522
Other, net................................................ (1,598) (3,057) 3,712
-------- -------- --------
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES...... (8,370) 37,491 54,249
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired........................ (41,904) (17,143) (20,442)
Capital expenditures, net................................. (15,249) (20,191) (36,665)
Sale of marketable securities............................. 3,469 -0- -0-
Proceeds from sale of assets.............................. -0- -0- 24,129
-------- -------- --------
NET CASH (USED FOR) INVESTING ACTIVITIES............... (53,684) (37,334) (32,978)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from (repurchase of) preferred stock &
warrants............................................... 17,500 (17,500) -0-
Proceeds from long-term borrowings........................ 54,144 58,120 80,000
Repayments on long-term debt.............................. (27,524) (97,529) (77,178)
Proceeds from stock offerings............................. -0- 64,860 -0-
Repurchase of common stock................................ -0- -0- (9,456)
Dividends paid............................................ (462) (1,061) (1,354)
Other..................................................... (207) (77) (88)
-------- -------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES:.......................................... 43,451 6,813 (8,076)
Net increase (decrease) in cash and cash equivalents........ (18,603) 6,970 13,195
Cash and cash equivalents, beginning of year................ 25,844 7,241 14,211
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 7,241 $ 14,211 $ 27,406
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 24
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Titan Wheel International, Inc. ("Titan" or the "Company") is a leading
global manufacturer of steel wheels and tires for off-highway equipment in the
agricultural, consumer (including recreational trailers, all terrain vehicles
and grounds care vehicles), earthmoving/construction and military markets. The
Company generally manufactures both wheels and tires for these vehicles and has
increasingly provided the value-added service of assembling the completed
wheel-tire system.
USE OF ESTIMATES
The policies utilized by the Company in the preparation of the financial
statements conform to generally accepted accounting principles and require
management to make estimates and assumptions that affect the reported amount of
assets and liabilities, and disclosure of contingent assets and liabilities, at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual amounts could differ from these
estimates and assumptions.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly and majority-owned subsidiaries. Titan records its investment in
each unconsolidated affiliated company (20 to 50% ownership) at its related
equity in the net assets of such affiliate as adjusted for equity earnings. All
significant intercompany accounts and transactions have been eliminated.
REVENUE RECOGNITION
Sales revenue and cost of sales are recorded by the Company when products
are shipped to customers.
INVENTORIES
Inventories are valued at the lower of cost or market, cost determined
using the last-in, first-out ("LIFO") method for 41% of inventories and the
first-in, first-out ("FIFO") method for 59% of inventories. Inventory of foreign
divisions is valued using the FIFO method.
FOREIGN CURRENCY TRANSLATION
Gains and losses arising from the settlement of foreign currency
transactions are charged to the related period's Consolidated Statement of
Operations. Translation adjustments arising from the translation of foreign
subsidiary financial statements are recorded as a separate component of
stockholders' equity.
FIXED ASSETS
Property, plant and equipment have been recorded at cost. Depreciation is
provided using the straight-line method over the following estimated useful
lives of the related assets:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements.................................. 25
Machinery and equipment..................................... 10
Tools, dies and molds....................................... 5
</TABLE>
Maintenance and repairs are expensed as incurred. When property, plant and
equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are eliminated and any gain or loss on disposition is included in
income.
F-6
<PAGE> 25
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED FINANCING COSTS
Deferred financing costs are primarily costs incurred in connection with
the Company's subordinated convertible notes issuance and credit facilities. The
costs associated with the subordinated convertible notes issuance were being
amortized over a period of seven years, the term of the notes. The notes were
redeemed and converted in December 1996, as described in Note 6, with a
corresponding write-off of unamortized deferred financing costs. The costs
associated with the credit facilities are being amortized over their respective
terms.
START UP COSTS
The Company capitalizes pre-operating costs that are directly related to
the construction of new plant and production facilities until the facility is
operational. Such costs are amortized over five years.
GOODWILL
Goodwill for domestic and foreign divisions are amortized over 40 and 25
years, respectively, on a straight-line basis.
IMPAIRMENT OF ASSETS
The Company reviews long-lived assets, goodwill and other intangibles to
assess recoverability from future operations using expected undiscounted future
cash flows whenever events and circumstances indicate that the carrying values
may not be recoverable. Impairment losses are recognized in operating results
when expected undiscounted future cash flows are less than the carrying value of
the asset.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standard No. 109 (SFAS 109). Under SFAS 109, the deferred
income tax provision is determined using the liability method whereby deferred
tax assets and liabilities are recognized based upon temporary differences
between the financial statement and income tax basis of assets and liabilities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company records all financial instruments, including cash and cash
equivalents, accounts receivable, notes receivable, accounts payable, other
accruals, and notes payable at cost which approximates fair value. The
convertible subordinated notes were the only significant financial instrument of
the Company with a fair value different than the recorded value. At December 31,
1995, the fair value of the convertible subordinated notes, based on quoted
market values, was approximately $112.6 million. The notes were converted and
redeemed as of December 30, 1996. See Note 6 for further discussion.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's activity with derivative financial instruments in 1995 and
1996 was minimal and the impact on operations was insignificant.
F-7
<PAGE> 26
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statement of Cash Flows, the Company
considers financial investments with an original maturity of three months or
less to be cash equivalents.
Investing activities during the years ended December 31, 1994, 1995 and
1996, including certain non-cash transactions, related to the Company's
acquisitions of Titan Tire Corporation ("Titan Tire"), Sirmac Officine
Meccaniche SpA ("Sirmac") and Siria Officine Meccaniche SpA ("Siria" and,
together with Sirmac, the "Sirmac Group"), Steel Wheels, Ltd. ("Steel Wheels")
and Titan France SA ("Titan France"), involved the following (in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Fair value of assets acquired, other than cash and
cash equivalents:
Current assets................................... $18,396 $65,457 $ 9,631
Property, plant and equipment.................... 52,350 36,739 22,970
Other assets..................................... 37,764 11,853 (5,672)
Liabilities assumed................................ (46,863) (91,589) (8,569)
Notes issued....................................... (19,743) -0- -0-
Minority interest acquired......................... -0- -0- 2,082
Common stock and options issued.................... -0- (5,317) -0-
------- ------- -------
Cash paid.......................................... $41,904 $17,143 $20,442
======= ======= =======
</TABLE>
The Company paid $8.4 million, $11.8 million and $10.4 million for interest
and $8.4 million, $27.1 million and $19.8 million for income taxes in 1994, 1995
and 1996, respectively.
ENVIRONMENTAL LIABILITIES
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past operations, and that do not contribute to current or future
revenue generation are expensed. Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs are reasonably
estimable.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" (SFAS 123) which defines the fair value based method of accounting
for stock options, purchase and awards plans. SFAS 123 allows companies to use
the fair value method defined in the Statement or to continue use of the
intrinsic value method as outlined in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). The Company utilizes
APB 25 for accounting for employee stock options and related instruments. See
Note 10 for pro forma impact on net income and earnings per share for the years
ended December 31, 1995 and 1996.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the
current year's presentation.
F-8
<PAGE> 27
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND DIVESTITURES OF THE COMPANY
ACQUISITIONS
Each of the following acquisitions were accounted for under the purchase
method of accounting and results of operations were included from the applicable
dates of acquisition.
In December 1996, the Company acquired the wheel subsidiary of the French
manufacturing company, Delachaux SA for cash of $11.5 million. The company has
been renamed Titan France SA ("Titan France"). In February 1995, the Company
acquired Steel Wheels. In July 1994, the Company's subsidiary, Titan Tire,
acquired certain assets of an agricultural tire business in Des Moines, Iowa. In
November 1994, the Company acquired 50% of the common stock of the Sirmac Group.
Effective July 1, 1995, upon exerting operational control over the Sirmac Group,
the Company began consolidating the Sirmac Group in its financial statements.
Effective July 1996, the Company acquired the remaining 50% of the Sirmac Group
for total consideration of approximately $11.5 million.
PRO FORMA RESULTS (UNAUDITED)
Assuming that the above acquisitions occurred on January 1, 1995, unaudited
pro forma sales, net income and fully diluted earnings per share would have been
$691 million, $39.5 million and $1.55, respectively, for the year ended December
31, 1995, and $656 million, $37.0 million and $1.35, respectively, for the year
ended December 31, 1996. Such pro forma results are not necessarily indicative
of future results of operations or the results of operations that would have
been reported had the acquisitions been completed as of January 1, 1995.
DIVESTITURES
In September 1996, the Company sold the assets of Tractech, a division of
Dyneer Corporation ("Dyneer") which produced no-spin differentials, to a joint
venture group and private investors. During the years ended December 31, 1995
and 1996, Tractech contributed net sales of $26.4 and $18.4 million, net income
of $3.7 and $2.3 million, and fully diluted earnings per share of $.15 and $.09,
respectively. The Company recorded a pre-tax gain of $15.3 million after related
expenses as a result of the transaction in the third quarter of 1996. The
divestiture of Tractech followed the sale of the assets of Automation
International, Inc. ("AII") in the second quarter of 1996, which did not have a
significant effect on results of operations. The Company's net sales, net income
and earnings per share for the years ended December 31, 1995 and 1996, would not
have been significantly different had the divestiture of AII occurred on January
1, 1995. These divestitures are part of the Company's overall strategy to
eliminate non-core products and concentrate its resources on tire and wheel
manufacturing.
3. INVENTORIES
Inventories at December 31, 1995 and 1996, comprised the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Raw material............................................. $ 37,273 $ 40,974
Work-in-process.......................................... 19,904 20,153
Finished goods........................................... 68,947 75,199
-------- --------
126,124 136,326
LIFO reserve............................................. (1,196) 2,432
-------- --------
$124,928 $138,758
======== ========
</TABLE>
F-9
<PAGE> 28
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1995 and 1996, comprised the
following (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Land and improvements.................................... $ 4,974 $ 10,092
Buildings and improvements............................... 39,809 51,295
Machinery and equipment.................................. 142,579 159,625
Tools, dies and molds.................................... 36,489 44,930
Construction in process.................................. 8,428 14,521
-------- --------
232,279 280,463
Less: Accumulated depreciation........................... (53,993) (75,376)
-------- --------
$178,286 $205,087
======== ========
</TABLE>
5. GOODWILL (IN THOUSANDS):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Goodwill.................................................. $53,554 $44,431
Less: Accumulated amortization............................ (2,306) (3,182)
------- -------
$51,248 $41,249
======= =======
</TABLE>
Amortization of goodwill for the years 1994, 1995 and 1996, totaled $0.9
million, $1.3 million and $1.5 million, respectively. The decrease of $10.0
million in goodwill relates to a purchase price reallocation and the divestiture
of certain assets.
6. LONG-TERM DEBT
Long-term debt at December 31, 1995 and 1996, comprised the following (in
thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Bank borrowings:
Revolving credit -- Titan.............................. $ -0- $ 20,000
Revolving credit -- Sirmac............................. 28,677 -0-
Term loan -- Titan..................................... -0- 60,000
Term loan -- Titan Tire................................ 12,322 -0-
Term loan -- Steel Wheels.............................. 7,299 -0-
Industrial revenue bond -- Greenwood..................... 9,500 9,500
Note payable to PATC..................................... 19,743 19,743
Subordinated convertible notes........................... 85,936 -0-
Other.................................................... 5,247 4,725
-------- --------
168,724 113,968
Less: Amounts due within one year........................ 26,419 872
-------- --------
$142,305 $113,096
======== ========
</TABLE>
On September 20, 1996, the Company entered into a new $175 million credit
facility ("Facility") with a group of banks. The Facility provides for an
unsecured $60 million term loan due September 2001, and a $115 million revolving
line of credit, which is also available for documentary trade and/or standby
letters of credit. The $60 million term loan was used, in part, to repay certain
other credit facilities and term loans. Borrowings
F-10
<PAGE> 29
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. LONG-TERM DEBT (CONTINUED)
under the Facility may be made in U.S. dollars, Italian lira or British pounds.
Debt outstanding under this Facility totalled $20 million for the revolving line
of credit and $60 million for the term loan at December 31, 1996. Approximately
$21.3 million of the $60 million term loan was denominated in lira or pounds at
December 31, 1996. The Facility allows Titan to borrow funds under three
interest options. The Company paid rates ranging from 6% to 8 3/4% on the
Facility in 1996. The Facility contains restrictions related to dividends,
investments, guarantees, certain financial ratios, and other less restrictive
covenants. Subsequent to year end, the Company amended the Facility, as further
discussed in Note 17.
Included in bank borrowings at December 31, 1995, is $22.5 million of
short-term and $6.2 million of long-term debt of the Sirmac Group. The
borrowings were financed primarily through lines of credit, for which Sirmac
Group accounts receivable were pledged to the banks as collateral. These
borrowings were completely repaid during 1996. While outstanding, the average
rate of interest on such lines was 9 1/2% 1996.
In September 1994, Titan Tire entered into a $35 million credit facility.
This facility was repaid and extinguished during 1996. While outstanding, the
average rate of interest was 8% in 1996.
In May 1995, the Company established a $14.4 million credit facility in
conjunction with the acquisition of Steel Wheels. This facility has been repaid
and extinguished during 1996. During 1996, interest rates for the term loan
ranged from 5% to 8%.
In March 1995, the Company issued $9.5 million of industrial revenue bonds
("IRB") to finance the construction of its facility in Greenwood, South
Carolina. The bonds carry tax exempt variable interest rates which ranged from
3% to 5%, in 1996. The bonds are secured by a letter of credit established by
the Company and are due in February 2010.
In August 1994, Titan Tire issued a subordinated note for $19.7 million
with a fixed interest rate of 7% to Pirelli Armstrong Tire Corporation ("PATC").
The note matures on February 11, 2000.
In December 1996, the Company issued a Notice of Redemption for its 4 3/4%
subordinated convertible notes ("Notes") with a scheduled maturity in December
2000. Prior to the December 30, 1996, redemption date, two-thirds of the
outstanding Note holders elected to convert their Notes into 4,530,240 shares of
common stock of the Company at a conversion price of $12.50 per common share.
The remaining Note holders redeemed their Notes at a redemption price of
102.714% plus accrued interest. Such redemption resulted in a total cash payment
of $29.5 million. The Company recorded a pre-tax charge of $1.3 million as
interest expense in conjunction with the redemption for the call premium and a
write-off of applicable unamortized deferred financing charges.
Other debt primarily consists of loans from local and state entities,
industrial revenue bonds and various other long-term notes.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1997........................................................ $ 872
1998........................................................ 1,088
1999........................................................ 628
2000........................................................ 245
2001 and thereafter......................................... 111,135
--------
$113,968
========
</TABLE>
F-11
<PAGE> 30
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SALES TO MAJOR MARKETS AND CUSTOMERS
The Company conducts its business in a single segment, the manufacture and
sale of a full line of wheels, tires and components for the agricultural,
consumer, earthmoving/construction, engineered product and military markets.
Sales to major markets in 1994, 1995 and 1996 comprised the following (in
thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Agricultural.................................... $156,015 $275,976 $307,734
Consumer........................................ 140,073 170,717 152,775
Earthmoving/Construction........................ 75,555 133,523 145,765
Engineered Products............................. 22,511 38,920 21,687
Military........................................ 12,846 4,047 6,592
-------- -------- --------
$407,000 $623,183 $634,553
======== ======== ========
</TABLE>
Export sales from the United States represent less than ten percent of
total sales. Sales to Deere & Company represented 15%, 12% and 13% of total
sales in 1994, 1995 and 1996, respectively.
The two divisions primarily responsible for Engineered Product sales were
divested in 1996. See Note 2, "Divestitures" for further discussion.
Although the Company is directly affected by the economic well-being of the
above markets and significant customers, management does not believe significant
credit risk exists at December 31, 1996. The Company performs ongoing credit
evaluations of its customers' financial condition and does not require
collateral. Historically, the Company has not experienced significant losses
related to receivables from individual customers or groups of customers in any
particular industry.
F-12
<PAGE> 31
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Income before income taxes consists of the following
(in thousands):
Domestic........................................... $28,203 $54,074 $36,900
Foreign............................................ 1,904 9,206 20,081
------- ------- -------
$30,107 $63,280 $56,981
======= ======= =======
The provision for income taxes was as follows
(in thousands):
Current
Federal.......................................... $ 9,789 $14,397 $13,281
State............................................ 2,187 3,406 2,708
Foreign.......................................... 265 1,613 5,619
------- ------- -------
12,241 19,416 21,608
------- ------- -------
Deferred
Federal.......................................... (367) 4,840 (4)
State............................................ (247) 1,041 (1)
------- ------- -------
(614) 5,881 (5)
------- ------- -------
Provision for income taxes......................... $11,627 $25,297 $21,603
======= ======= =======
</TABLE>
The provision for income taxes differs from the amount of income tax
determined by applying the statutory U.S. federal income tax rate to pre-tax
income as a result of the following:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Statutory U.S. federal tax rate.................... 35.0% 35.0% 35.0%
State taxes (net).................................. 4.2 4.6 3.0
Foreign taxes (net)................................ 0.0 (2.5) (2.5)
Other (net)........................................ (0.6) 2.9 2.5
---- ---- ----
Effective tax rate................................. 38.6% 40.0% 38.0%
==== ==== ====
</TABLE>
Federal income taxes are provided on earnings of foreign subsidiaries
except to the extent that such earnings are expected to be indefinitely
reinvested abroad.
Deferred tax assets (liabilities) at December 31, 1995 and 1996,
respectively, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Returnable pallets....................................... $ 673 $ 541
Employee benefits and related costs...................... 3,558 4,211
EPA reserve.............................................. 2,329 2,727
Allowance for bad debts.................................. 1,183 1,284
Other.................................................... 3,374 2,820
-------- --------
Gross deferred tax assets................................ $ 11,117 $ 11,583
======== ========
Fixed assets............................................. $(20,739) $(21,610)
Inventory................................................ (1,227) (749)
Other.................................................... (369) (1,636)
-------- --------
Gross deferred tax liabilities........................... (22,335) (23,995)
-------- --------
Net deferred tax liabilities............................. $(11,218) $(12,412)
======== ========
</TABLE>
The tax benefits from any future recognition of deductible temporary
differences relative to recent acquisitions, present at the date of such
acquisition, will adjust the related purchase accounting and be applied to
reduce noncurrent assets.
F-13
<PAGE> 32
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a contributory defined benefits pension plan covering
certain hourly employees of its French & Hecht division ("F&H"). The plan was
frozen in July 1993. The Company also sponsors a contributory defined benefits
plan covering all eligible bargaining employees of the Des Moines, Iowa,
location of Dico, Inc. ("Dico"), a wholly-owned subsidiary of Dyneer. The Dico
plan was frozen in July 1995. The Company's policy is to fund pension costs as
accrued, which is consistent with the funding requirements of federal laws and
regulations.
The components of net periodic pension cost for the years ending December
31, 1994, 1995 and 1996 and the reconciliation of the funded status of the Dico,
Inc. and F&H plans, in aggregate, at December 31, 1995 and 1996, are as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost.............................................. $ 126 $ 199 $ -0-
Interest cost............................................. 501 572 464
Actual return on assets................................... (327) (1,182) (388)
Net amortization.......................................... (744) 792 (17)
------ ------- -----
Net periodic pension cost (income).......................... $ (444) $ 381 $ 59
====== ======= =====
Major assumptions:
Discount rate............................................. 7 1/4-8 1/2% 7 1/4% 8%
Rate of return on plan assets............................. 8 1/2% 8 1/2% 8 1/2%
</TABLE>
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Reconciliation of funded status:
Actuarial present value of benefit obligations
Vested benefit obligation.............................. $ 6,148 $ 6,018
Non-vested benefit obligation.......................... 29 4
------- -------
Accumulated benefit obligation.............................. $ 6,177 $ 6,022
======= =======
Projected benefit obligation................................ $ 6,484 $ 6,279
Actual plan assets at fair value............................ 5,177 5,155
------- -------
Plan assets greater (less) than projected benefit
obligation................................................ (1,307) (1,124)
Unrecognized net loss....................................... 761 709
Unrecognized transition liability........................... (52) (45)
Minimum liability adjustment................................ (403) (527)
------- -------
Accrued pension cost recognized in the balance sheet........ $(1,001) $ (987)
======= =======
</TABLE>
The Company also has an obligation to provide supplemental benefits to five
former officers/shareholders of Dyneer. The present value of the unfunded
benefit obligation accrued at December 31, 1995 and 1996, of $2.4 million and
$2.3 million, respectively, is actuarially determined and is discounted at an
annual interest rate of 7 1/4% and 8% respectively. Expenses were $0.2 million
for each of the years ended December 31, 1994, 1995 and 1996, respectively.
Titan Tire has a frozen defined benefit plan which accepted a transfer of
pension assets from PATC in August 1996. An actuary has stated that the pension
assets of $55.3 million equal the pension obligations and therefore no pension
expense or accrued pension costs were recorded at December 31, 1996.
F-14
<PAGE> 33
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
401(K)
The Company sponsors two 401(k) retirement savings plans (the "401(k)
Plan"). One plan for the benefit of all employees who are not covered by a
collective bargaining arrangement, and a second plan for the employees covered
by a collective bargaining arrangement. Plan participants may contribute up to
17% of their annual compensation, up to a maximum of $9,500 in 1996. Employees
are fully vested with respect to their contributions. During the first six
months of 1994, Titan provided a 25% matching cash contribution on the
employee's contribution. Beginning on July 1, 1994, Titan amended its 401(k)
Plan to provide a 50% match in the form of the Company's common stock on the
first 6% of the employee's contribution. Titan issued 16,238, 87,910 and 100,294
shares of common stock in connection with the 401(k) Plan during 1994, 1995 and
1996, respectively. Expenses related to the 401(k) Plan were $0.9 million, $1.5
million and $1.5 million for 1994, 1995 and 1996, respectively.
10. STOCK OPTION PLAN
During 1993, the Company adopted the 1993 Stock Incentive Plan (the
"Plan"). A total of 1,125,000 shares of common stock are reserved under the
Plan. Under the Plan, stock options (both incentive and non-qualified),
restricted stock awards and performance awards may be granted to key employees
or consultants at the market price at date of grant. Options under the plan vest
and become exercisable at a rate of 40% on December 31 of the year following the
date of grant, and an additional 20% each year thereafter. In 1994, the Company
adopted a Non-Employee Director Stock Option Plan ("Director Plan") to provide
for grants of stock options as a means of attracting and retaining highly
qualified independent directors for the Company. No more than 225,000 shares of
Titan's common stock may be issued under the Director's Plan. Such options vest
and become exercisable immediately. All options expire 10 years from date of
grant.
The following is a summary of activity in the stock option plans for 1994,
1995 and 1996:
<TABLE>
<CAPTION>
SHARES WEIGHTED
SUBJECT AVERAGE
TO OPTION EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding, December 31, 1993..................... -0-
Granted.......................................... 205,670 $11.19
Exercised........................................ -0- -0-
Cancelled........................................ (25,800) 11.11
------- ------
Outstanding, December 31, 1994..................... 179,870 $11.20
Granted.......................................... 196,820 $11.11
Exercised........................................ -0- -0-
Cancelled........................................ (15,410) 11.11
------- ------
Outstanding, December 31, 1995..................... 361,280 $11.15
Granted.......................................... 159,590 $16.00
Exercised........................................ (13,160) 11.11
Cancelled........................................ (26,590) 12.91
------- ------
Outstanding, December 31, 1996..................... 481,120 $12.67
======= ======
</TABLE>
The exercise price for options outstanding at December 31, 1996 ranged from
$11.11 to $16.00 per share. The average remaining contractual life of these
options approximates eight years.
F-15
<PAGE> 34
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK OPTION PLAN (CONTINUED)
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123 "Accounting for Stock-based
Compensation." Accordingly, no compensation cost has been recognized for options
granted under the stock option plans. Had compensation cost been determined
based on the fair value at the grant date for awards in 1995 and 1996 consistent
with the provisions of SFAS No. 123, the Company's pro forma net income and
earnings per share would have been as presented below (in thousands, except per
share data):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net income -- as reported.................................. $37,983 $35,378
Net income -- pro forma.................................... 37,716 34,952
Net income per share -- as reported........................ $ 1.50 $ 1.30
Net income per share -- pro forma.......................... 1.48 1.28
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Expected stock price volatility....................... 45% 42%
Risk-free interest rate............................... 6.4% and 7.8% 5.8%
Expected life of options.............................. 6 years 6 years
Expected dividend yield............................... .35% .35%
</TABLE>
The weighted-average grant-date fair value of options granted during 1995
and 1996 was $6.32 and $8.03 per share, respectively.
The pro forma effect on net income for 1995 and 1996 is not representative
of the pro forma effect on net income in future years because it does not take
into consideration pro forma compensation related to grants made prior to 1995.
F-16
<PAGE> 35
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. GEOGRAPHIC SEGMENT INFORMATION
The Company's foreign operations are conducted primarily in the United
Kingdom, Italy, Germany, Ireland and France. A summary of Titan's operations by
geographical area for the three years ended December 31, 1996, follows (in
thousands):
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN ELIMINATIONS CONSOLIDATED
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
1994
Revenues
Customers...................................... $386,142 $ 20,858 $ -0- $407,000
Intercompany................................... 77,834 2,661 (80,495) -0-
-------- -------- --------- --------
Total revenues.............................. $463,976 $ 23,519 $ (80,495) $407,000
======== ======== ========= ========
Income from operations........................... $ 36,170 $ 2,278 $ (452) $ 37,996
======== ======== ========= ========
Identifiable assets.............................. $390,289 $ 10,171 $ -0- $400,460
======== ======== ========= ========
1995
Revenues
Customers...................................... $524,233 $ 98,950 $ -0- $623,183
Intercompany................................... 85,619 3,559 (89,178) -0-
-------- -------- --------- --------
Total revenues.............................. $609,852 $102,509 $ (89,178) $623,183
======== ======== ========= ========
Income from operations........................... $ 62,978 $ 10,087 $ (10) $ 73,055
======== ======== ========= ========
Identifiable assets.............................. $395,593 $117,682 $ (1,140) $512,135
======== ======== ========= ========
1996
Revenues
Customers...................................... $497,685 $136,868 $ -0- $634,553
Intercompany................................... 153,821 3,246 (157,067) -0-
-------- -------- --------- --------
Total revenues.............................. $651,506 $140,114 $(157,067) $634,553
======== ======== ========= ========
Income from operations........................... $ 49,247 $ 18,031 $ (11) $ 67,267
======== ======== ========= ========
Identifiable assets.............................. $402,640 $155,952 $ -0- $558,592
======== ======== ========= ========
</TABLE>
F-17
<PAGE> 36
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EARNINGS PER SHARE
Earnings per share for 1994, 1995 and 1996, are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Primary earnings per share............................... $1.14 $1.91 $1.57
===== ===== =====
Fully diluted earnings per share......................... $ .89 $1.50 $1.30
===== ===== =====
</TABLE>
Earnings per share are based upon weighted average common shares
outstanding. As discussed in Note 13, during 1995 the Board of Directors
declared two 3-for-2 stock splits, which were paid March 15 and August 31, 1995.
All share and per share data for the periods presented in the consolidated
financial statements and notes thereto have been adjusted to reflect the splits.
Weighted average common shares used in the computation of earnings per
share for the respective years are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Primary.................................... 16,255,942 19,933,034 22,515,133
Fully diluted.............................. 24,646,099 27,459,606 29,322,425
</TABLE>
Primary and fully diluted earnings per share of common stock for 1994, 1995
and 1996 assumes the exercise of common stock options for each year as they are
common stock equivalents with a dilutive effect.
Fully diluted earnings per share of common stock for 1994, 1995 and 1996,
assumes the conversion of the Company's convertible subordinated notes due
December 1, 2000, and the elimination of the related after-tax interest expense
and amortization of deferred financing fees. Although the convertible
subordinated notes were fully redeemed or converted prior to December 31, 1996,
as discussed in Notes 6 and 13, their effect on weighted average common shares
for the periods during which the notes were outstanding is included in the
computation of fully diluted earnings per share. Additionally, fully diluted
earnings per share of common stock for 1994 and 1995 assumed the conversion of
the Company's Class A noncumulative convertible preferred stock, which was
repurchased in June 1995. Conversion of the common stock warrants issued in the
Titan Tire acquisition was not assumed in 1994 or 1995, as the effect was
anti-dilutive.
F-18
<PAGE> 37
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. STOCKHOLDERS' EQUITY
The following discusses significant equity transactions which occurred
during 1995 and 1996.
As discussed in Note 6, the conversion of the Company's Notes, in December
1996, resulted in an increase of approximately $55.6 million to additional
paid-in capital. Prior to this conversion, approximately $17.6 million and $0.6
million of the Notes had been converted into 1.4 million and 52,560 common
shares in 1995 and 1996, respectively.
In May 1996, the Company's Board of Directors authorized the Company to
repurchase up to five million shares of its common stock. Through December 31,
1996, the Company had repurchased 676,000 shares of common stock under this
program, at a cost of $9.5 million. As discussed in Note 17, on February 25,
1997, the Company commenced an offer to purchase an additional five million
shares.
During 1995, the Company repurchased 150,000 shares of Titan common stock
from the Chief Executive Officer of the Company. During 1995 and 1996, 71,183
and 29,652 respectively, of these shares were issued as compensation to a former
employee, resulting in an increase of approximately $1.1 million and $0.4
million, respectively, in additional paid-in capital, including a tax benefit of
$0.3 million and $0.1 million, respectively. The remaining treasury shares were
withheld for payment of payroll taxes which represents the cost basis of the
49,165 treasury shares remaining at December 31, 1996.
In June 1995, the Company issued 4,312,500 shares of common stock at a
price of $15.83 per share. Excluding fees, Titan received $64.9 million, before
related offering costs of $0.3 million. With $17.5 million of the proceeds from
the June 1995 stock offering, Titan repurchased convertible preferred stock and
common stock warrants issued to PATC in the Titan Tire acquisition.
During 1995, the Company issued 426,688 shares of Titan common stock and
options to purchase 82,791 shares in conjunction with the settlement of an
earnout agreement with former Dyneer shareholders. The issuance of stock and
exercise of related options increased additional paid-in capital by $5.3 million
and resulted in a purchase price accounting adjustment in 1995. Former Dyneer
shareholders exercised options to purchase a total of 48,391 and 0 shares of the
Company's common stock for 1995 and 1996, respectively.
In January, 1995, the Board of Directors declared a 3-for-2 stock split,
payable as a stock dividend on March 15, 1995, to shareholders of record at the
close of business on February 15, 1995. In July, 1995, the Board of Directors
declared a 3-for-2 stock split payable as a stock dividend on August 31, 1995,
to shareholders of record at the close of business on July 31, 1995. All share
and per share data for the periods presented in the consolidated financial
statements and notes thereto have been adjusted to reflect the splits.
In conjunction with the related stock splits noted above, the Board of
Directors authorized an increase in the annual cash dividend from $.03 to $.06
per share. The Company paid cash dividends of $.03, $.05, and $.06 per share of
common stock during 1994, 1995 and 1996, respectively.
F-19
<PAGE> 38
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. LEASE COMMITMENTS
The Company leases buildings, machinery, and equipment under operating
leases. Certain lease agreements provide for renewal options and require payment
of property taxes, maintenance and insurance. Total rental expense approximated
$1.5 million, $1.5 million and $1.6 million for the years ended December 31,
1994, 1995 and 1996, respectively.
At December 31, 1996, future minimum rental commitments under noncancelable
operating leases with initial or remaining terms in excess of one year are as
follows: $2.3 million in 1997; $1.9 million in 1998; $1.4 million in 1999; $0.8
million in 2000; and $0.6 million in 2001.
15. LITIGATION
The Company is party to several routine legal proceedings arising out of
the normal course of business. The Company believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
financial condition or results of operations of the Company.
16. REALIGNMENT
During the third quarter of 1996, the Company recorded a pre-tax
realignment charge of $10.3 million. These costs consisted primarily of a
write-off of start-up costs and inventory associated with the elimination of
noncore products including automotive OEM wheels, certain rolled rims and axles.
The realignment charge is a result of the Company's decision to concentrate its
resources on tire and wheel manufacturing.
17. SUBSEQUENT EVENTS
Between January 1, 1997 and February 12, 1997, the Company repurchased an
additional 1.1 million shares of its common stock at a cost of $13.4 million,
pursuant to the five million share repurchase program authorized by the Board of
Directors in May 1996, as discussed in Note 13.
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 net proceeds from this sale are estimated
to be $145 million (after offering expenses and underwriters' discount). The net
proceeds will be used to repay outstanding long-term debt and, if the Offer to
Purchase (as described below) is not consummated, for general corporate
purposes, which may include acquisitions and capital expenditures.
On February 25, 1997, the Company commenced an offer to purchase (the
"Offer to Purchase") up to five million shares of its common stock (19% of
common shares outstanding at December 31, 1996) at a price not greater than
$15.00 nor less than $12.50 per share, for a maximum aggregate purchase price of
$75 million. The Offer to Purchase will expire on March 24, 1997, unless
extended. Because holders of common shares are not required to tender their
shares, no determination can be made of the number of shares, if any, that will
be tendered. The repurchase is expected to be funded by the Company partially
from cash on hand and partially from increased borrowings under the Facility.
On March 14, 1997, the Company amended its existing $175 million credit
facility to a $200 million revolving credit facility. Interest rate and foreign
currency borrowing options and covenants under the new facility remain
substantially unchanged from those under the old facility.
F-20
<PAGE> 39
TITAN WHEEL INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. SUPPLEMENTARY DATA -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
-------- ------- ------------ ----------- -----------
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C>
QUARTER ENDED:
1995
Net sales......................... $157,732 $157,640 $149,528 $158,283 $623,183
Gross profit...................... 28,763 28,157 27,753 31,053 115,726
Net income........................ 9,298 10,033 8,906 9,746 37,983
Per share amounts:
Primary........................ $ .56 $ .55 $ .40 $ .43 $ 1.91
Fully diluted.................. .40 .42 .33 .35 1.50
1996
Net sales......................... $177,257 $167,030 $145,682 $144,584 $634,553
Gross profit...................... 33,123 30,409 13,457(1) 20,365 97,354
Net income........................ 11,006 10,476 9,215(2) 4,681 35,378
Per share amounts:
Primary........................ $ .49 $ .46 $ .41 $ .21 $ 1.57
Fully diluted.................. .40 .38 .34 .18 1.30
</TABLE>
- -------------------------
(1) Includes realignment costs of $10.3 million (see note 16).
(2) Includes realignment costs of $10.3 million (see note 16) and gain on sales
of assets (see note 2).
NOTE: The annual earnings per share amounts do not necessarily agree to the
sum of the quarters as a result of changes in the market prices of
the Company's common stock and the application of the treasury stock
method.
F-21
<PAGE> 40
TITAN WHEEL INTERNATIONAL, INC.
SCHEDULE IX -- VALUATION RESERVES
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR
----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Year ended December 31, 1994
Reserve deducted in the balance sheet
from the assets to which it applies
Allowance for doubtful accounts........ $1,147,000 $1,449,000 $(383,000)(1) $2,213,000
========== ========== ========= ==========
Reserve for plant closure.............. $ 395,000 $ -0- $(395,000)(2) $ -0-
========== ========== ========= ==========
Year ended December 31, 1995
Reserve deducted in the balance sheet
from the assets to which it applies
Allowance for doubtful accounts........ $2,213,000 $3,154,000 $(397,000)(3) $4,970,000
========== ========== ========= ==========
Year ended December 31, 1996
Reserve deducted in the balance sheet
from the assets to which it applies
Allowance for doubtful accounts........ $4,970,000 $ 648,000 $(694,000)(4) $4,924,000
========== ========== ========= ==========
</TABLE>
- -------------------------
(1) Net of recoveries of $84,000
(2) Represents utilization of the reserve established in 1991
(3) Net of recoveries of $28,000
(4) Net of recoveries of $82,000 and includes reductions of $50,000 relating to
the sale of the Tractech division and Automation International, Inc.
subsidiary.
S-1
<PAGE> 1
EXHIBIT 11
TITAN WHEEL INTERNATIONAL, INC.
COMPUTATION OF EARNINGS OF COMPANY PER COMMON SHARE
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Primary
Net income.......................................... $ 18,480 $ 37,983 $ 35,378
=========== =========== ===========
Shares
Weighted average number of common shares
outstanding...................................... 16,173,396 19,889,320 22,388,952
Assuming exercise of options reduced by the number
of shares which could have been purchased with
the proceeds from the exercise of such options... 82,546 43,714 126,181
----------- ----------- -----------
Weighted average number of common shares outstanding
as adjusted...................................... 16,255,942 19,933,034 22,515,133
=========== =========== ===========
Net income.......................................... $1.14 $1.91 $1.57
=========== =========== ===========
Assuming full dilution
Earnings
Net income....................................... $ 18,480 $ 37,983 $ 35,378
Add after tax interest expense applicable to
4 3/4% convertible notes and amortization of
deferred financing............................. 3,409 2,918 2,594
----------- ----------- -----------
Net income as adjusted......................... $ 21,889 $ 40,901 $ 37,972
=========== =========== ===========
Shares
Weighted average number of common shares
outstanding...................................... 16,255,942 19,933,034 22,515,133
Assuming conversion of convertible preferred
stock............................................ 110,157 69,350 -0-
Assuming conversion of 4 3/4% convertible notes..... 8,280,000 7,457,222 6,807,292
----------- ----------- -----------
Weighted average number of common shares outstanding
as adjusted...................................... 24,646,099 27,459,606 29,322,425
=========== =========== ===========
Earnings per common share assuming full dilution
Net income.......................................... $.89 $1.50 $1.30
=========== =========== ===========
</TABLE>
E-1
<PAGE> 1
EXHIBIT 21
TITAN WHEEL INTERNATIONAL, INC.
SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
---- ---------------
<S> <C>
Automotive Wheels, Inc...................................... California
Dico, Inc................................................... Delaware
Dico Tire, Inc.............................................. Delaware
Dyneer Corporation.......................................... Delaware
Grasdorf Titan GmbH......................................... Germany
Sirmac Officine Meccaniche SpA.............................. Italy
Siria Officine Meccaniche SpA............................... Italy
Steel Wheels, Ltd........................................... United Kingdom
T.D. Wheels of Virginia, Inc................................ Virginia
Titan Distribution, Inc..................................... Illinois
Titan Europe, Ltd........................................... United Kingdom
Titan France, SA............................................ France
Titan Tire Corporation...................................... Illinois
Titan Wheel and Tire Foreign Sales Corporation.............. Barbados
Titan Wheel International, Limited.......................... United Kingdom
</TABLE>
E-2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-71788 and No. 33-80306) of Titan Wheel
International, Inc. of our report dated February 17, 1997, except as to Note 17
which is as of March 18, 1997, appearing on page F-1 of this Annual Report on
Form 10-K. We also consent to the reference to us under the heading "Selected
Financial Data" in such Form 10-K. However, it should be noted that Price
Waterhouse LLP has not prepared or certified such "Selected Financial Data."
PRICE WATERHOUSE LLP
St. Louis, Missouri
March 24, 1997
E-3
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 27,406
<SECURITIES> 0
<RECEIVABLES> 100,537
<ALLOWANCES> 4,924
<INVENTORY> 138,758
<CURRENT-ASSETS> 284,651
<PP&E> 280,463
<DEPRECIATION> 75,376
<TOTAL-ASSETS> 558,592
<CURRENT-LIABILITIES> 103,636
<BONDS> 113,096
0
0
<COMMON> 27
<OTHER-SE> 301,154
<TOTAL-LIABILITY-AND-EQUITY> 558,592
<SALES> 634,553
<TOTAL-REVENUES> 634,553
<CGS> 526,875
<TOTAL-COSTS> 526,875
<OTHER-EXPENSES> 10,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,725
<INCOME-PRETAX> 56,981
<INCOME-TAX> 21,603
<INCOME-CONTINUING> 35,378
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,378
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.30
</TABLE>
