<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR QUARTERLY PERIOD ENDED: JUNE 30, 1997
Commission File Number: 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
ILLINOIS 36-3228472
(State of Incorporation) (I.R.S. Employer
Identification No.)
2701 SPRUCE STREET, QUINCY, IL 62301
(Address of principal executive offices, including Zip Code)
(217) 228-6011
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
SHARES OUTSTANDING AT
CLASS JULY 31, 1997
----- ---------------------
COMMON STOCK, NO PAR VALUE PER SHARE 21,615,476
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
PAGE NO.
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
June 30, 1997 and December 31, 1996 1
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended
June 30, 1997 and 1996 2
Consolidated Condensed Statements of
Cash Flows for the Six Months Ended
June 30, 1997 and 1996 3
Notes to Consolidated Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-9
Part II. Other Information and Signature 10-11
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 16,854 $ 27,406
Accounts receivable (net of allowance of
$4,857 and $4,924, respectively) 120,362 95,613
Inventories 134,758 138,758
Prepaid and other current assets 27,717 22,874
--------- ---------
Total current assets 299,691 284,651
Property, plant and equipment, net 210,910 205,087
Other assets 40,852 27,605
Goodwill 40,415 41,249
--------- ---------
Total assets $ 591,868 $ 558,592
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 565 $ 872
Accounts payable 60,200 60,603
Accrued wages and commissions 11,647 9,878
Income taxes payable 8,808 6,992
Other current liabilities 32,067 25,291
--------- ---------
Total current liabilities 113,287 103,636
Deferred income taxes 18,063 18,786
Other long-term liabilities 20,888 21,893
Long-term debt 196,799 113,096
--------- ---------
Total liabilities 349,037 257,411
--------- ---------
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
21,574,732 and 26,526,992 outstanding, respectively 27 27
Additional paid-in capital 211,503 210,677
Retained earnings 114,883 98,096
Cumulative translation adjustment (562) 2,673
Treasury stock at cost: 5,738,784 and 725,165 shares,
respectively (83,020) (10,292)
--------- ---------
Total stockholders' equity 242,831 301,181
--------- ---------
Total liabilities and stockholders' equity $ 591,868 $ 558,592
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE> 4
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 187,360 $ 167,030 $ 367,568 $ 344,287
Cost of sales 157,175 136,621 308,145 280,755
--------- --------- --------- ---------
Gross profit 30,185 30,409 59,423 63,532
Selling, general & administrative expenses 11,451 10,519 23,162 22,176
Research and development expenses 1,685 716 2,352 1,485
--------- --------- --------- ---------
Income from operations 17,049 19,174 33,909 39,871
Interest expense 4,286 2,545 6,746 5,251
Minority interest -0- 1,348 -0- 2,082
Other income (438) (1,617) (959) (2,111)
--------- --------- --------- ---------
Income before income taxes 13,201 16,898 28,122 34,649
Provision for income taxes 5,016 6,422 10,686 13,167
--------- --------- --------- ---------
Net income $ 8,185 $ 10,476 $ 17,436 $ 21,482
======== ========= ========= =========
Earnings per share:
- -------------------
Primary $.38 $.46 $.74 $.95
Fully diluted .38 .38 .74 .78
Average shares outstanding:
- ---------------------------
Primary 21,752 22,717 23,657 22,696
Fully diluted (1) 21,808 29,584 23,700 29,564
</TABLE>
(1) The computations of fully diluted earnings per share for the three and six
months ending June 30, 1996, assumes the conversion of the Company's 4
3/4% convertible notes, issued November, 1993, and extinguished December
30, 1996.
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE> 5
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,436 $ 21,482
Depreciation and amortization 15,515 14,353
Gain on sale of assets -0- (998)
Increase in receivables (24,749) (3,104)
(Increase)/decrease in inventories 4,000 (14,695)
(Increase)/decrease in other current assets (5,105) 3,483
Decrease in accounts payable (403) (557)
Increase in other accrued liabilities 9,860 6,699
Other, net (8,704) 67
-------- --------
Net cash provided by operating activities 7,850 26,730
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (18,088) (14,096)
Proceeds from sale of assets -0- 2,077
Acquisitions, net of cash acquired (6,313) (941)
-------- --------
Net cash used for investing activities (24,401) (12,960)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings, net of discount 149,250 3,000
Payment of debt (66,604) (10,099)
Repurchase of common stock (72,490) 0
Payment of financing fees (4,250) 0
Dividends paid (734) (675)
Other, net 827 137
-------- --------
Net cash provided by/(used for) financing activities 5,999 (7,637)
Net increase/(decrease) in cash and cash equivalents (10,552) 6,133
Cash and cash equivalents at beginning of period 27,406 14,211
-------- --------
Cash and cash equivalents at end of period $ 16,854 $ 20,344
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE> 6
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. ACCOUNTING POLICIES
In the opinion of Titan International, Inc. ("Titan" or the "Company")
formerly known as Titan Wheel International, Inc., the accompanying
unaudited consolidated condensed financial statements contain all
adjustments, which are normal and recurring in nature, necessary to
present fairly its financial position as of June 30, 1997, the results
of operations for the three and six months ended June 30, 1997 and
1996, and cash flows for the six months ended June 30, 1997 and 1996.
Accounting policies have continued without change and are described in
the Summary of Significant Accounting Policies contained in the
Company's 1996 Annual Report on Form 10-K. For additional
information regarding the Company's financial condition, refer to the
footnotes accompanying the financial statements as of and for the year
ended December 31, 1996 filed in conjunction with the Company's 1996
Annual Report on Form 10-K. Details in those notes have not changed
significantly except as a result of normal interim transactions and
certain matters discussed below.
B. INVENTORIES
Inventories by component are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
Raw materials $ 39,215 $ 40,974
Work in progress 20,442 20,153
Finished goods 72,550 75,199
--------- ---------
132,207 136,326
LIFO reserve 2,551 2,432
--------- ---------
$ 134,758 $ 138,758
========= =========
</TABLE>
4
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation
of $88.6 million and $75.4 million at June 30, 1997, and December 31,
1996, respectively.
D. LONG-TERM DEBT (IN THOUSANDS):
Long-term debt comprised the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ ------------
<S> <C> <C>
Senior subordinated notes $ 150,000 $ -0-
Credit facility 14,000 80,000
Note payable to PATC 19,743 19,743
Industrial revenue bond - Greenwood 9,500 9,500
Other 4,121 4,725
--------- ---------
197,364 113,968
Less: Amounts due within one year 565 872
--------- ---------
$ 196,799 $ 113,096
========= =========
Aggregate maturities of long-term debt at June 30, 1997 are as follows (in thousands):
July 1 - December 31, 1997 $ 227
1998 1,099
1999 628
2000 19,989
2001 and thereafter 175,421
---------
$ 197,364
=========
</TABLE>
5
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
D. LONG-TERM DEBT (CONTINUED):
On February 24, 1997, the Company filed a Registration Statement on
Form S-1 (as amended on March 5, 1997 and as effective on March 18,
1997) for the sale of $150 million principal amount of 8 3/4% senior
subordinated notes, priced to the public at 99.5 percent, due 2007.
The Company received proceeds of $145.7 million net of a discount and
underwriters' fees of $4.3 million. The net proceeds from the notes
were used to repay outstanding long-term debt and for the Offer to
Purchase (see Note E).
On March 14, 1997, the Company increased its availability under its
credit facility from $175 million to $200 million. Interest rate and
foreign currency borrowing options and covenants under the new
facility remain substantially unchanged from those under the old
facility.
E. STOCK REPURCHASE PROGRAM
The Company's Board of Directors has authorized the Company to
repurchase up to ten million shares of its common stock. On February
25, 1997, the Company commenced an offer to purchase (the "Offer to
Purchase") up to five million shares of its common stock at a price of
not greater than $15.00 nor less than $12.50 per share. The Company
repurchased 3.8 million shares of its common stock at a price of $15
per share under the Offer to Purchase. As of June 30, 1997, the
Company has repurchased an additional 1.9 million shares of common
stock in the open market (1.2 million shares during the first six
months of 1997 and 0.7 million shares in 1996). The Company is
authorized to repurchase an additional 4.3 million common shares.
F. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standard No. 128 (SFAS 128),
"Earnings Per Share," issued in February 1997 and effective for the
Company for the year ending December 31, 1997, requires presentation
in the income statement of basic and diluted earnings per share,
calculated as defined by SFAS 128, rather than primary and fully
diluted earnings per share as defined by APB 15, "Earnings Per Share."
Earnings per share calculated in accordance with SFAS 128 is not
expected to differ materially from earnings per share as calculated by
the Company under APB 15.
6
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1997, were $187.4 million, an increase
of 12% over 1996 second quarter sales of $167.0 million. Sales on a year to
date basis were $367.6 million, an increase of 7% over 1996 sales of $344.3
million. Net sales were positively impacted by strong demand from the
agricultural market and the acquisition of Titan France S.A. in December 1996.
These increases were partially offset by the divestiture of Titan's non-core
businesses during 1996.
Sales in the agricultural market were $98.2 and $189.9 million for the second
quarter and year to date respectively, as compared to $78.3 and $164.5 million
in 1996. The Company's consumer market sales were $44.1 and $89.1 million for
the second quarter and year to date respectively, as compared to $43.0 and
$85.4 million in 1996. Construction market sales were $42.1 and $83.0 million
for the second quarter and year to date respectively, as compared to $36.3 and
$76.7 million in 1996.
Cost of sales was $157.2 and $308.1 million for the second quarter and year to
date respectively, as compared to $136.6 and $280.8 million in 1996. Gross
profit for the second quarter was $30.2 million, or 16.1% of net sales,
compared to $30.4 million, or 18.2% of net sales for the second quarter of
1996. Gross profit on a year to date basis was $59.4 million, or 16.2% of net
sales, compared to $63.5, or 18.5% of net sales for 1996. Gross profit was
negatively impacted by European currency fluctuations, the 1996 divestiture of
Titan's non-core businesses and facility inefficiencies.
Selling, general and administrative ("SG&A") and research and development
("R&D") expenses for the second quarter of 1997 were $13.1 million or 7.0% of
net sales compared to $11.2 million and 6.7% of sales for 1996. Year to date
SG&A and R&D expenses were $25.5 million and 6.9% of sales as compared to $23.7
million and 6.9% of sales for 1996. SG&A and R&D expenses were impacted by
increased research and development spending and administrative costs related to
the Grizz LSW series of wheel and tire assemblies.
Income from operations for the quarter was $17.0 million or 9.1% of net sales,
compared to $19.2 million or 11.5% in 1996. Year to date income from
operations was $33.9 million or 9.2% of net sales, compared to $39.9 million or
11.6% in 1996. Income from operations for the quarter and year to date was
impacted by increased research and development spending and administrative
costs related to the Grizz LSW series of wheel and tire assemblies, European
currency fluctuations, the 1996 divestiture of Titan's non-core businesses, and
facility inefficiencies.
Interest expense was $4.3 million and $6.7 million for the quarter and year to
date respectively, as compared to $2.5 and $5.3 million in 1996. Interest
expense increased due to the Company's higher average debt during the quarter
and higher average interest rates.
7
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Net income for the second quarter and year to date respectively, were $8.2 and
$17.4 million in 1997, compared to $10.5 and $21.5 million in 1996. Primary
earnings per share were $.38 and $.74 for the second quarter and year to date
respectively, as compared to $.46 and $.95 in 1996. Fully diluted earnings per
share for the second quarter and year to date respectively, were $.38 and $.74,
as compared to $.38 and $.78 in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operations of $7.9 million were attributed to net income,
increases in other accrued liabilities and decreases in inventories. These
amounts were partially offset by increases in receivables, other current assets
and other assets. Increases in receivables were primarily due to higher sales
for the second quarter of 1997 as compared to the fourth quarter of 1996.
The Company has invested $18.1 million in capital expenditures in 1997, which
represent various equipment purchases and building improvements to enhance
production capabilities.
In March 1997, the Company received $145.7 million in net proceeds from the
sale of $150 million principal amount of 8 3/4% senior subordinated notes due
2007. The net proceeds from the notes were used to repay long-term debt and
for the repurchase of shares of the Company pursuant to the Offer to Purchase
as discussed below.
The Company repurchased 3.8 million shares of its common stock in March 1997,
at a price of $15 per share under an Offer to Purchase up to five million
shares of common stock which was disseminated to all Company stockholders. An
additional 1.2 million shares were repurchased in the open market during the
first six months of 1997. The Company is authorized to repurchase an
additional 4.3 million common shares.
At June 30, 1997, the Company had cash and cash equivalents of $16.9 million.
Cash on hand, anticipated internal cash flows and utilization of available
borrowing under the Company's credit facilities are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
8
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standard No. 128 (SFAS 128), "Earnings Per
Share," issued in February 1997 and effective for the Company for the year
ending December 31, 1997, requires presentation in the income statement of
basic and diluted earnings per share, calculated as defined by SFAS 128, rather
than primary and fully diluted earnings per share as defined by APB 15,
"Earnings Per Share." Earnings per share calculated in accordance with SFAS
128 is not expected to differ materially from earnings per share as calculated
by the Company under APB 15.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
Readers should note that in addition to the historical information contained
herein, this Form 10-Q contains forward-looking statements which are inherently
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated by such statements. Factors that could
cause or contribute to such differences include, but are not limited to, those
discussed in this report, as well as in the Company's 1996 Annual Report on
Form 10-K.
9
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 3 ARE NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 22,
1997, for the purpose of electing two directors to serve for three
year terms, amending the Articles of Incorporation to change the
Company's name and approving the appointment of independent
auditors. All of management's nominees' for directors as listed in
the proxy statement were elected with the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
Election of Directors Voted For Against Withheld
--------------------- --------- ------- --------
<S> <C> <C> <C>
Erwin H. Billig 19,341,384 -0- 47,285
Anthony Soave 19,342,865 -0- 45,804
</TABLE>
The amendment to the Articles of Incorporation to change the name of
the Company was approved by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
New Company Name Voted For Against Withheld
---------------- --------- ------- --------
<S> <C> <C> <C>
Titan International, Inc. 19,359,278 13,131 16,260
</TABLE>
The appointment of Price Waterhouse LLP as independent auditors
was approved by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
Selection of Auditors Voted For Against Withheld
--------------------- --------- ------- --------
<S> <C> <C> <C>
Price Waterhouse LLP 19,362,178 8,335 18,156
</TABLE>
ITEM 5. NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
In a report dated May 23, 1997, the Company reported the
authorization by the stockholders to amend the Company's Articles
of Incorporation to change the name of the Company to "Titan
International, Inc." No financial statements were filed as part of
the report.
10
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TITAN INTERNATIONAL, INC.
(REGISTRANT)
Date: August 8, 1997 BY: /s/Kent W. Hackamack
-------------- -----------------------------
Kent W. Hackamack Vice
President of Finance and
Treasurer (Principal
Financial Officer and
Principal Accounting Officer)
11
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 16,854
<SECURITIES> 0
<RECEIVABLES> 125,219
<ALLOWANCES> 4,857
<INVENTORY> 134,758
<CURRENT-ASSETS> 299,691
<PP&E> 299,466
<DEPRECIATION> 88,556
<TOTAL-ASSETS> 591,868
<CURRENT-LIABILITIES> 113,287
<BONDS> 196,799
0
0
<COMMON> 27
<OTHER-SE> 242,804
<TOTAL-LIABILITY-AND-EQUITY> 591,868
<SALES> 367,568
<TOTAL-REVENUES> 367,568
<CGS> 308,145
<TOTAL-COSTS> 308,145
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,746
<INCOME-PRETAX> 28,122
<INCOME-TAX> 10,686
<INCOME-CONTINUING> 17,436
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,436
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
</TABLE>
