<PAGE> 1
================================================================================
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, 1997
[ ] 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 INTERNATIONAL, INC.
(Exact name of registrants specified in its charter)
ILLINOIS
(State or other jurisdiction of
incorporation or organization)
36-3228472
(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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
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 February 27, 1998, 21,665,098 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 $269,084,569
based upon the closing price of the common stock on the New York Stock Exchange
on February 27, 1998.
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
21, 1998.
================================================================================
<PAGE> 2
ITEM 1. BUSINESS
GENERAL
Titan International, Inc. ("Titan" or the "Company"), formerly known as
Titan Wheel International, Inc., was incorporated in 1983 and 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. In May 1993,
the Company filed its first public offering and today is traded on the New York
Stock Exchange under the symbol TWI.
The Company is a leading global manufacturer of steel wheels and tires for
off-highway equipment used in the agricultural, earthmoving/construction,
consumer [including trailers, all terrain vehicles ("ATVs") and lawn and garden
vehicles] and military markets. Titan 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
different products that are manufactured in relatively short production runs and
meet Original Equipment Manufacturers' ("OEM") specifications. Based upon
current industry revenue data Titan is the second largest manufacturer of bias
rear and small agricultural tires and the third largest maker of construction
and radial agricultural tires in North America.
During the mid-1990s Titan began a process to reengineer the wheel and tire
industry. The Company has established a new identity, creating the framework for
continued, well-managed growth. Titan continues a multi-year plan to focus on
its core business and lay the groundwork for ongoing growth and strength in the
off-highway wheel and tire business. Product innovation has demonstrated Titan's
leadership with the development of the new Grizz LSW assembly which the Company
believes will become the industry standard.
The Grizz LSW wheel and tire assembly reduces bounce, hop, loping and heat
build-up and provides more stability and safety for the operator, which in turn
means greater productivity. The key to the success of the Grizz LSW is an
increase in the diameter of the wheel while maintaining the original outside
diameter of the tire. This is accomplished by lowering the sidewall (LSW is an
acronym for low sidewall) and increasing its strength. Maintaining the original
outside diameter of the tire allows the Grizz LSW to improve the performance of
agricultural and construction equipment without further modification.
The Company is currently constructing a new off-highway tire facility in
Brownsville, Texas, which will be the first new agricultural tire plant
constructed in the United States since the early 1960s. The facility, which will
significantly increase the Company's production capacity, is expected to begin
production in late 1998.
BUSINESS STRATEGY
The Company's business strategy is to increase its penetration of the
after-market for tires and wheels, expand its presence in European and other
global markets, focus on additional strategic acquisitions, continue to improve
its operating efficiencies and continue its emphasis on new product development.
Increase After-Market Wheel and Tire Business. Titan has concentrated on
increasing its penetration of the wheel and tire after-markets. These
after-markets offer higher profit margins, are larger and are somewhat less
cyclical than OEM markets. The Company will pursue further assembly contracts
with OEMs and an increased presence in the wheel and tire after-markets.
2
<PAGE> 3
Expand European Markets. The Company 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: France, Germany, Italy and the
United Kingdom. A primary motivation for Titan's entry into European markets is
its desire to serve the worldwide needs of its major 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 similar to those produced in the United
States utilize a greater number of larger wheels and tires, the Company believes
that there will be opportunities to expand sales of its agricultural wheel and
tire products to European OEMs in 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 an 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 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.
Improve Product Design. 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.
Product 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 $2.7 million and $6.8 million on research and development for the fiscal
years ending December 31, 1996 and 1997, respectively. The increase in cost in
1997 is primarily due to the development of the Grizz LSW series of wheels and
tires, which will considerably enhance the performance of off-highway vehicles.
Titan plans to introduce a full line of Grizz LSW wheel and tire assemblies for
the agricultural, earthmoving/construction, ATV, and lawn and garden markets.
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,
earthmoving/construction, consumer and military markets. The affiliated
companies primarily responsible for engineered products were divested in 1996.
The following table sets forth, for the periods indicated, the approximate
relative contribution to the Company's net sales of the markets indicated below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Agricultural............................................ 44% 48% 52%
Earthmoving/Construction................................ 22 23 24
Consumer................................................ 27 24 22
Military................................................ 1 1 1
Engineered products and other........................... 6 4 1
--- --- ---
Total.............................................. 100% 100% 100%
=== === ===
</TABLE>
3
<PAGE> 4
Agricultural Market. Titan sells agricultural wheels, rims and tires to
OEMs and 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 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 its
customers. The after-market tires are currently marketed through a network of
independent distributors and Titan's own distribution centers. The Company is
building a tire manufacturing plant in Brownsville, Texas, to meet the growing
demand of the tire after-market.
Earthmoving/Construction Market. The Company manufactures wheels and rims
for various types of earthmoving, mining and construction equipment, including
skid steers, 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. Titan currently produces
a wide 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.
Consumer Market. Titan manufactures a variety of products for the ATV, lawn
and garden and trailer markets. The success of Titan's ATV products has led to
increased sales during 1997. The Company's new smaller diameter rolled rims,
which have replaced certain back-to-back wheels, have enhanced Titan's position
in the lawn and grounds care and ATV markets. The Company continues to hold
significant shares of the domestic markets for boat, recreational, agricultural
and utility trailers. Titan looks to continued growth in 1998 with additions of
new sizes in the ATV tire line, new brake designs and European certification for
its brakes and actuators.
Military Market. The Company manufactures various wheels and tires 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
continuing 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 Titan believes this trend will affect its wheel
sales in the military market for 1998 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
Titan's ten largest customers accounted for approximately 45% of net sales
for the year ended December 31, 1997, compared to 42% for the year ended
December 31, 1996. For the year ended December 31, 1997, Deere & Company
accounted for 16% of the Company's net sales. Titan strives for long-term supply
arrangements with its customers.
MARKETING AND DISTRIBUTION
The Company 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 France, Germany, Italy and the
United Kingdom. The Company believes European sales efforts are enhanced when
sales representatives sell primarily within their native countries.
4
<PAGE> 5
Titan distributes wheels and tires directly to OEMs. In the after-market,
the Company distributes wheel and tire assemblies through its own distribution
centers and distributes tires primarily through a network of independent
distributors. Titan's distribution network consists of fourteen 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 to paint the wheel using a multi-step 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. Titan has recently began replacing certain
back-to-back wheels with new smaller diameter rolled rims. 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.
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.
Wheel and Tire Assemblies. Titan's unique position as a manufacturer of
both wheels and tires allows the Company to mount and ship one of the largest
selections of off-road assemblies in the world.
Quality Control. The Company is ISO 9000 certified at five of its
manufacturing facilities. The ISO 9000 series is a set of related and
internationally recognized standards of management and quality assurance. The
standards specify guidelines for establishing, documenting and maintaining a
system to ensure consistent quality practices.
Engineering/Research and Development. Supported by computer-aided design
(CAD), computer-aided manufacturing (CAM) and finite element techniques, the
Company's engineering and research and development staff continually
investigates and tests new designs and technologies, and develops new
manufacturing methods to improve product quality and performance.
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 its basic steel from key steel mills 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.
5
<PAGE> 6
Rubber and raw materials for tire manufacture are the Company's second
largest commodity expense. Titan 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 and 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, 1998, Titan estimates that it had
$230 million in firm orders compared to $209 million at February 28, 1997.
Orders are considered firm if the customer would be obligated to accept the
product if manufactured and delivered pursuant to the terms of such orders. Firm
order backlog has increased due to growth in existing operations. The Company
believes that the majority of its current backlog orders will be filled during
the current fiscal year.
COMPETITION
Titan'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. Major competitors in the wheel
markets include GKN Wheels, Ltd., and Topy Industry, Ltd. Based on current
industry revenue data, it is the third largest agricultural tire manufacturer in
North America. Major competitors in the tire markets include Goodyear Tire &
Rubber Co. and Bridgestone-Firestone.
EMPLOYEES
At December 31, 1997, the Company employed approximately 4,200 people in
the United States and Europe. Approximately 26% of the Company's employees in
the United States are covered by two 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 which are renewed
from time to time depending on terms of the agreement and the laws of the
foreign jurisdiction. 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 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.
6
<PAGE> 7
ITEM 2. PROPERTIES
The Company and its subsidiaries maintain 35 facilities located in the
United States, France, Germany, Italy and the United Kingdom for manufacturing
and warehousing/distribution. The facilities in the aggregate contain over 7.9
million square feet, 5.6 million square feet of which are used for
manufacturing, 2.2 million square feet for warehousing and distribution and the
balance for administrative, research and development and sales offices.
Seventeen of the facilities are leased and eighteen are owned. The Company
believes that with the addition of its Brownsville, Texas, facility its
properties will be adequate to support its operations for the foreseeable
future.
ITEM 3. LEGAL PROCEEDINGS
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 MATTER 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, 1997, 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., 53, has been the President, CEO and a 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, 53, joined the Company as Vice President and Chief
Operating Officer in November 1993, following the Company's acquisition of
Dyneer Corporation ("Dyneer"). 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.
Gary L. Carlson, 47, joined Titan as Vice President in September 1997.
Prior to joining the Company, Mr. Carlson served as an executive of Bandag,
Incorporated. During his career at Bandag, he held positions in manufacturing,
managed distribution and logistics in North America, was vice president of
personnel worldwide, vice president of strategic planning worldwide and senior
vice president and general manager of Europe, Middle East and Northern Africa.
Cheri T. Holley, 50, 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.
Kent W. Hackamack, 39, 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.
7
<PAGE> 8
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") under the symbol TWI. The following table sets forth, for periods
indicated, the high and low sales prices per share of the common stock as
reported on the NYSE, and information concerning per share dividends declared.
<TABLE>
<CAPTION>
DIVIDENDS
HIGH LOW DECLARED
---- --- ---------
<S> <C> <C> <C> <C> <C>
1996
- ------------------------------------------------------------
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
1997
- ------------------------------------------------------------
First Quarter............................................... 14 7/8 11 7/8 0.015
Second Quarter.............................................. 17 7/8 13 5/8 0.015
Third Quarter............................................... 22 1/2 16 1/2 0.015
Fourth Quarter.............................................. 23 7/8 18 0.015
</TABLE>
On February 27, 1998, there were approximately 727 holders of record of
Titan common stock.
8
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the years ended
December 31, 1993, 1994, 1995, 1996 and 1997, 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,
--------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................. $150,441 $407,000 $623,183 $634,553 $690,131
Gross profit.............................. 25,269 68,432 115,726 97,354 105,982
Income from operations.................... 13,142 37,996 73,055 67,267 53,626
Income before income taxes................ 10,114 30,107 63,280 56,981 40,542
Net income................................ 6,361 18,480 37,983 35,378 25,136
Net income per share (basic).............. $.46 $1.14 $1.91 $1.58 $1.11
Net income per share (diluted)............ .46 .89 1.50 1.30 1.10
Working capital........................... $ 90,738 $119,962 $151,258 $181,015 $183,909
Current assets............................ 141,682 192,358 264,900 284,651 298,596
Total assets.............................. 261,266 400,460 512,135 558,592 585,142
Long-term debt............................ 123,646 178,341 142,305 113,096 181,705
Stockholders' equity...................... 66,728 107,736 215,872 301,181 248,129
Dividends declared per common share....... $0.02 $0.03 $0.05 $0.06 $0.06
</TABLE>
9
<PAGE> 10
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,
------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 81.4 83.0 84.6
Realignment costs........................................... 0.0 1.6 0.0
----- ----- -----
Gross profit................................................ 18.6 15.4 15.4
Selling, general, administrative expenses................... 6.6 6.9 6.6
Research and development expenses........................... 0.3 0.4 1.0
Gain on sale of assets...................................... 0.0 (2.5) 0.0
----- ----- -----
Income from operations...................................... 11.7 10.6 7.8
Interest expense............................................ 1.9 1.7 2.2
Minority interest........................................... 0.2 0.3 0.0
Other....................................................... (0.6) (0.4) (0.3)
----- ----- -----
Income before income taxes.................................. 10.2 9.0 5.9
Provision for income taxes.................................. 4.1 3.4 2.3
----- ----- -----
Net income.................................................. 6.1% 5.6% 3.6%
===== ===== =====
</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>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Agricultural................................................ $275,976 $307,734 $357,533
Earthmoving/Construction.................................... 133,523 145,765 164,636
Consumer.................................................... 170,717 152,775 155,519
Military.................................................... 4,047 6,592 6,779
Engineered products and other............................... 38,920 21,687 5,664
-------- -------- --------
Total..................................................... $623,183 $634,553 $690,131
======== ======== ========
</TABLE>
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1996
Net sales for the year ended December 31, 1997, were $690.1 million, an
increase of 9% compared to $634.6 million in sales for the year ended December
31, 1996. Sales in the agricultural market were $357.5 million for the year
ended December 31, 1997, as compared to $307.7 million in 1996. The Company's
earthmoving/construction market sales were $164.6 million for the year ended
December 31, 1997, as compared to $145.8 million in 1996. Consumer market sales
were $155.5 million for the year ended December 31, 1997, as compared to $152.8
million in 1996. Net sales were positively impacted by strong demand from the
agricultural market and the acquisition of Titan France in December 1996. These
increases were partially offset by the divestiture of the majority of Titan's
non-core businesses during 1996.
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, 1997, had a
minimal effect on results of operations.
Cost of sales was $584.1 million for the year ended December 31, 1997, as
compared to $526.9 million in 1996. Gross profit for the year ended December 31,
1997 was $106.0 million, or 15.4% of net sales, compared to $107.7 million
before realignment costs, or 17.0% of net sales for 1996. Gross profit was
negatively impacted by the 1996 divestiture of the majority of Titan's non-core
businesses. With the development of the new Grizz LSW series of wheel and tire
assemblies production inefficiencies have resulted and are expected to continue
until full integration is achieved.
Selling, general and administrative ("SG&A") expenses were $45.5 million or
6.6% of net sales for the year ended December 31, 1997, as compared to $43.7
million or 6.9% of net sales for 1996. Research and development ("R&D") expenses
were $6.8 million or 1.0% of net sales for the year ended December 31, 1997, as
compared to $2.7 million or 0.4% of net sales for 1996. R&D expenses were
impacted by increased research and development spending related to the
development of the new Grizz LSW series of wheel and tire assemblies. The
Company established additional R&D centers during 1997 to meet its wheel and
tire development needs.
Income from operations for the year ended December 31, 1997, was $53.6
million or 7.8% of net sales, compared to $61.3 million before realignment costs
and gain on sale of assets, or 9.7% in 1996. Income from operations was impacted
by increased research and development spending and production inefficiencies
related to the development of the new Grizz LSW assemblies and the 1996
divestiture of the majority of Titan's non-core businesses.
Net interest expense for the year ended December 31, 1997, was $15.1
million or 2.2% of net sales compared to $10.7 million or 1.7% for the same
period in 1996. The increased interest expense was primarily due to an increase
in the average debt outstanding in 1997 as compared to 1996, coupled with higher
average interest rates resulting from the $150 million 8 3/4% debt offering in
March 1997.
Net income for the year ended December 31, 1997, was $25.1 million,
compared to $35.4 million in 1996. Earnings per common share (on a diluted
basis) were $1.10 for the year ended December 31, 1997, as compared to $1.30 in
1996. Due to the repurchase of the Company's common stock, the average number of
diluted common shares outstanding for the year ended December 31, 1997,
decreased 22% as compared to the same period in 1996.
11
<PAGE> 12
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
earthmoving/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 earthmoving/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 Original Equipment Manufacturers' wheels, certain rolled rims and
axles. The realignment is part of the Company's overall strategy to concentrate
its resources on wheel and tire manufacturing, and is consistent with the sale
of assets mentioned below.
In September 1996, Titan sold the assets of an affiliated company which
produced no-spin differentials. During the years ended December 31, 1995 and
1996, that company contributed net sales of $26.4 and $18.4 million, net income
of $3.7 and $2.3 million, and 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 another affiliated company in the second
quarter of 1996, which did not have a significant impact on results of
operations.
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 a term loan and
reductions to the 4 3/4% subordinated convertible notes.
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 diluted
basis) were $1.30 for the year ended December 31, 1996, as compared to $1.50 in
1995. The average number of 1996 diluted common stock shares outstanding
increased 7% for the period ended December 31, 1996, due to the June 1995 stock
offering.
12
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $6.2 million from the prior year, as
increases in depreciation and amortization and accounts payable partially offset
increases in accounts receivable and prepaid and other current assets and a
decrease in net income, resulting in a decrease in net cash provided by
operations of $10.2 million. The increase in accounts receivable is primarily
due to the increase in sales in the fourth quarter of 1997 as compared to the
same period in 1996.
Net cash used for investing activities increased to $41.7 million in 1997
from $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 certain
affiliated companies. Capital expenditures totaled $38.3 million compared to
$36.7 million in 1996. The Company has increasingly dedicated funds to modernize
and improve production efficiencies and increase production capacities. The
Company estimates that its capital expenditures for 1998 will be approximately
$60 million. The expected increase over 1997 is primarily due to the
construction of the new tire facility in Brownsville, Texas.
The Company's Board of Directors authorized the repurchase of up to ten
million shares of its common stock. During 1997 the Company repurchased five
million shares of its common stock at a cost of $72.8 million. As of December
31, 1997, the Company is authorized to repurchase an additional 4.3 million
common shares.
During March 1997, the Company amended its existing $175 million credit
facility to a $200 million revolving credit facility. Interest rate, foreign
currency borrowing options and covenants under the new facility remain
substantially unchanged from those under the previous facility.
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 common shares of the Company.
At December 31, 1997, the Company had cash and cash equivalents of $21.2
million. Cash on hand, anticipated internal cash flows and utilization of
available borrowing under the Company's credit facility are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
YEAR 2000 COSTS
Many computer systems process transaction dates for application software
and data files based on a two digit field for the year rather than the complete
four digits. These systems will be unable to properly process transaction dates
in the year 2000. The Company has begun modifying or replacing its key financial
information and operational systems to become year 2000 compliant. The Company
believes that all key computer systems necessary to manage the business
effectively will be modified, upgraded or replaced prior to the year 2000. The
Company believes the costs for current systems to become year 2000 compliant
will not be material to the Company's results of operations and financial
position.
13
<PAGE> 14
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued two new Statements of
Financial Accounting Standards in 1997. The first, Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS 130),
establishes standards for reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. SFAS 130 is
effective for the Company beginning in 1998. The Company does not expect SFAS
130 to have a material impact on the Company's consolidated financial
statements.
Also issued in 1997 was Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131), which establishes standards for how public business enterprises report
information about operating segments in annual financial statements and requires
selected information about operating segments in interim financial reports. SFAS
131 also establishes standards for related disclosures about products and
services, geographic areas and major customers. SFAS 131 is effective for the
Company beginning in 1998. Company management continues to evaluate the
definition of a segment as presented in SFAS 131 and what its impact will have
on future disclosures.
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 partially 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 1998 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 1998 definitive Proxy Statement, to be filed with the Securities and
Exchange Commission within 120 days after the close of the Company's fiscal
year, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the section captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 1998 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, 1997 and 1996... F-2
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995.......................... F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995...... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.......................... F-5
Notes to Consolidated Financial Statements.................. F-6 through F-20
2. Financial Statement Schedule.
Schedule IX -- Valuation Reserves........................... S-1
3. Exhibits....................................................
The accompanying Exhibit Index is incorporated herein by
reference.
</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 26, 1998 TITAN 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 26, 1998.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
---------- --------
<S> <C>
/s/ MAURICE M. TAYLOR, JR. President, Chief Executive Officer and
- ----------------------------------------------------- Director
Maurice M. Taylor, Jr. (Principal Executive Officer)
/s/ KENT W. HACKAMACK Vice President of Finance and Treasurer
- ----------------------------------------------------- (Principal Financial Officer and Principal
Kent W. Hackamack Accounting Officer)
/s/ ERWIN H. BILLIG Director
- -----------------------------------------------------
Erwin H. Billig
/s/ RICHARD M. CASHIN, JR. Director
- -----------------------------------------------------
Richard M. Cashin, Jr.
/s/ EDWARD J. CAMPBELL Director
- -----------------------------------------------------
Edward J. Campbell
/s/ ALBERT J. FEBBO Director
- -----------------------------------------------------
Albert J. Febbo
/s/ ANTHONY L. SOAVE Director
- -----------------------------------------------------
Anthony L. Soave
</TABLE>
17
<PAGE> 18
TITAN INTERNATIONAL, INC.
EXHIBIT INDEX
FORM 10-K
1997
<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(b)(9) Amendment dated May 22, 1997 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 the 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
21* Subsidiaries of the Registrant
23.1* Consent of Price Waterhouse LLP
27.1997* Financial Data Schedule
27.1996* 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)
(9) Incorporated by reference to the exhibit filed with the Company's 1997
definitive Proxy Statement (No. 001-12936)
18
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Titan 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 International, Inc. and its
subsidiaries at December 31, 1996 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, 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 18, 1998
F-1
<PAGE> 20
TITAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 27,406 $ 21,207
Accounts receivable (net of allowance of $4,924 and
$4,598, respectively).................................. 95,613 112,795
Inventories............................................... 138,758 138,432
Prepaid and other current assets.......................... 22,874 26,162
-------- --------
Total current assets................................... 284,651 298,596
Property, plant and equipment, net.......................... 205,087 210,290
Other assets................................................ 27,605 33,768
Goodwill.................................................... 41,249 42,488
-------- --------
Total assets........................................... $558,592 $585,142
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 872 $ 1,065
Accounts payable.......................................... 60,603 70,480
Other current liabilities................................. 42,161 43,142
-------- --------
Total current liabilities.............................. 103,636 114,687
Deferred income taxes....................................... 18,786 21,021
Other long-term liabilities................................. 21,893 19,600
Long-term debt.............................................. 113,096 181,705
-------- --------
Total liabilities...................................... 257,411 337,013
-------- --------
Commitments and Contingencies
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,252,157 and 27,380,620 issued, respectively......... 27 27
Additional paid-in capital................................ 210,677 212,615
Retained earnings......................................... 98,096 121,934
Cumulative translation adjustment......................... 2,673 (3,340)
Treasury stock at cost: 725,165 and 5,738,784 shares,
respectively........................................... (10,292) (83,107)
-------- --------
Total stockholders' equity............................. 301,181 248,129
-------- --------
Total liabilities and stockholders' equity.................. $558,592 $585,142
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 21
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... $623,183 $634,553 $690,131
Cost of sales............................................... 507,457 526,875 584,149
Realignment costs........................................... -0- 10,324 -0-
-------- -------- --------
Gross profit................................................ 115,726 97,354 105,982
Selling, general and administrative expenses................ 40,615 43,674 45,528
Research and development expenses........................... 2,056 2,743 6,828
Gain on sale of assets...................................... -0- (16,330) -0-
-------- -------- --------
Income from operations...................................... 73,055 67,267 53,626
Interest expense............................................ 12,045 10,725 15,127
Minority interest........................................... 1,210 2,082 -0-
Other income................................................ (3,480) (2,521) (2,043)
-------- -------- --------
Income before income taxes.................................. 63,280 56,981 40,542
Provision for income taxes.................................. 25,297 21,603 15,406
-------- -------- --------
Net income.................................................. $ 37,983 $ 35,378 $ 25,136
======== ======== ========
Earnings per common share:
Basic..................................................... $1.91 $1.58 $1.11
Diluted................................................... 1.50 1.30 1.10
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 22
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF ADDITIONAL COMMON CUMULATIVE
PREFERRED PREFERRED COMMON COMMON PAID-IN STOCK RETAINED TRANSLATION
SHARES STOCK SHARES STOCK CAPITAL WARRANTS EARNINGS ADJUSTMENT
--------- --------- --------- ------ ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1995..... 1,000,000 $7,500 16,275,294 $16 $ 62,587 $10,000 $27,220 $ 413
Net income.................. 37,983
Dividends paid on common
stock..................... (1,031)
Shares issued in public
offering.................. 4,312,500 5 64,560
Conversion of subordinated
notes..................... 1,405,120 2 17,414
Dyneer contingent
consideration............. 426,688 4,717
Exercise of Dyneer
options................... 48,391 600
Issuance of stock under
401(k) plan............... 87,910 1,353
Repurchase of preferred
stock..................... (1,000,000) (7,500)
Dividends on preferred
stock..................... (30)
Repurchase of common stock
warrants.................. (10,000)
Foreign currency translation
adjustment................ (405)
Treasury stock
transactions.............. (78,817) 1,052
---------- ------ ---------- --- -------- ------- -------- -------
BALANCE DECEMBER 31, 1995... -0- -0- 22,477,086 23 152,283 -0- 64,142 8
Net income.................. 35,378
Dividends paid on common
stock..................... (1,424)
Conversion of subordinated
notes..................... 4,582,800 4 56,263
Issuance of stock under
401(k) plan............... 100,294 1,543
Foreign currency translation
adjustment................ 2,665
Treasury stock
transactions.............. (646,348) 443
Exercise of stock options... 13,160 145
---------- ------ ---------- --- -------- ------- -------- -------
BALANCE DECEMBER 31, 1996... -0- -0- 26,526,992 27 210,677 -0- 98,096 2,673
Net income.................. 25,136
Dividends paid on common
stock..................... (1,298)
Issuance of stock under
401(k) plan............... 103,815 1,612
Foreign currency translation
adjustment................ (6,013)
Treasury stock
transactions.............. (5,013,619)
Exercise of stock options... 24,648 326
---------- ------ ---------- --- -------- ------- -------- -------
BALANCE DECEMBER 31, 1997... -0- $ -0- 21,641,836 $27 $212,615 $ -0- $121,934 $(3,340)
========== ====== ========== === ======== ======= ======== =======
<CAPTION>
TREASURY
STOCK
--------
<S> <C>
BALANCE JANUARY 1, 1995..... $ -0-
Net income..................
Dividends paid on common
stock.....................
Shares issued in public
offering..................
Conversion of subordinated
notes.....................
Dyneer contingent
consideration.............
Exercise of Dyneer
options...................
Issuance of stock under
401(k) plan...............
Repurchase of preferred
stock.....................
Dividends on preferred
stock.....................
Repurchase of common stock
warrants..................
Foreign currency translation
adjustment................
Treasury stock
transactions.............. (584)
--------
BALANCE DECEMBER 31, 1995... (584)
Net income..................
Dividends paid on common
stock.....................
Conversion of subordinated
notes.....................
Issuance of stock under
401(k) plan...............
Foreign currency translation
adjustment................
Treasury stock
transactions.............. (9,708)
Exercise of stock options...
--------
BALANCE DECEMBER 31, 1996... (10,292)
Net income..................
Dividends paid on common
stock.....................
Issuance of stock under
401(k) plan...............
Foreign currency translation
adjustment................
Treasury stock
transactions.............. (72,815)
Exercise of stock options...
--------
BALANCE DECEMBER 31, 1997... $(83,107)
========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 23
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 37,983 $ 35,378 $ 25,136
Adjustments to reconcile net income to net cash provided
by (used for) operating activities:
Depreciation and amortization.......................... 23,428 27,955 30,917
Gain on sale of assets................................. -0- (16,330) -0-
Realignment costs...................................... -0- 10,324 -0-
(Increase) decrease in current assets, excluding the
effects of acquisitions:
Accounts receivable.................................... 38 14,047 (17,182)
Inventories............................................ 7,161 (26,804) 326
Prepaid and other current assets....................... (7,314) (5,425) (3,359)
Increase (decrease) in current liabilities, excluding the
effects of acquisitions:
Accounts payable....................................... (4,624) 870 9,877
Other current liabilities.............................. (16,124) 10,522 (329)
Other, net................................................ (3,057) 3,712 (1,368)
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 37,491 54,249 44,018
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired (17,143) (20,442) -0-
Capital expenditures, net................................. (20,191) (36,665) (38,336)
Proceeds from sale of assets.............................. -0- 24,129 -0-
Other -0- -0- (3,321)
-------- -------- --------
NET CASH (USED FOR) INVESTING ACTIVITIES (37,334) (32,978) (41,657)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repurchase of preferred stock and warrants................ (17,500) -0- -0-
Proceeds from long-term borrowings, net of discount....... 58,120 80,000 149,250
Repayments on long-term debt.............................. (97,529) (77,178) (81,198)
Proceeds from stock offerings............................. 64,860 -0- -0-
Repurchase of common stock................................ -0- (9,456) (72,815)
Payment of financing fees................................. (102) (233) (4,300)
Dividends paid............................................ (1,061) (1,354) (1,382)
Other 25 145 1,885
-------- -------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES... 6,813 (8,076) (8,560)
Net increase (decrease) in cash and cash equivalents........ 6,970 13,195 (6,199)
Cash and cash equivalents, beginning of year................ 7,241 14,211 27,406
-------- -------- --------
Cash and cash equivalents, end of year...................... $ 14,211 $ 27,406 $ 21,207
======== ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 24
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Titan International, Inc. ("Titan" or the "Company"), formerly known as
Titan Wheel International, Inc., is a leading global manufacturer of steel
wheels and tires for off-highway equipment in the agricultural,
earthmoving/construction, consumer (including trailers, all terrain vehicles and
grounds care vehicles) 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.
Investments in other companies are carried at cost. 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 is determined
using the last-in, first-out ("LIFO") method for 47% of inventories and the
first-in, first-out ("FIFO") method for 53% of inventories. Inventory of foreign
subsidiaries 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.
F-6
<PAGE> 25
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
DEFERRED FINANCING COSTS
Deferred financing costs are costs incurred in connection with the
Company's senior subordinated notes and credit facilities. The costs associated
with the senior subordinated notes and the discount are being amortized over a
period of ten years, the term of the notes. The costs associated with the credit
facilities are being amortized over their respective terms.
START UP COSTS
Prior to 1997, the Company capitalized pre-operating costs that were
directly related to the construction of new production facilities until the
facility was operational. Such costs are being amortized over five years.
GOODWILL
Goodwill for foreign and domestic subsidiaries are amortized over 25 and 40
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 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.
F-7
<PAGE> 26
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STATEMENT OF CASH FLOWS
For purposes of the Consolidated Statements 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, 1995 and 1996,
including certain non-cash transactions, related to the Company's acquisitions
of Sirmac Officine Meccaniche SpA ("Titan Sirmac") and Siria Officine Meccaniche
SpA ("Titan Siria" and, together with Titan Sirmac, the "Sirmac Group"), Steel
Wheels, Ltd. ("Titan Steel Wheels"), Delachaux, SA ("Titan France"), involved
the following (in thousands):
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Fair value of assets acquired, other than cash and cash
equivalents:
Current assets........................................... $65,457 $ 9,631
Property, plant and equipment............................ 36,739 22,970
Other assets............................................. 11,853 (5,672)
Liabilities assumed........................................ (91,589) (8,569)
Minority interest acquired................................. -0- 2,082
Common stock and options issued............................ (5,317) -0-
------- -------
Cash paid.................................................. $17,143 $20,442
======= =======
</TABLE>
The Company paid $11.8 million, $10.4 million and $11.1 million for
interest and $27.1 million, $19.8 million and $13.5 million for income taxes in
1995, 1996 and 1997, respectively.
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 senior
subordinated notes are the only significant financial instrument of the Company
with a fair value different than the recorded value. At December 31, 1997, the
fair value of the senior subordinated notes, based on quoted market prices
obtained through independent pricing sources for the same or similar types of
borrowing arrangements, was approximately $156.8 million, compared to a recorded
value of $150.0 million.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company's activity with derivative financial instruments in 1996 and
1997 was minimal and the impact on operations was insignificant.
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
The Company utilizes Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) for accounting for employee
stock options and related instruments. See Note 9 for pro forma fair value based
disclosures required under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS 123).
F-8
<PAGE> 27
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (SFAS 130), and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131), were issued in June 1997. The Company does not expect
SFAS 130 to have a material impact on the Company's consolidated financial
statements. Company management continues to evaluate the definition of a segment
as presented in SFAS 131 and what its impact will have on future disclosures.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the
current year's presentation.
2. INVENTORIES
Inventories at December 31, 1996 and 1997, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Raw material............................................. $ 40,974 $ 41,486
Work-in-process.......................................... 20,153 12,412
Finished goods........................................... 75,199 82,219
-------- --------
136,326 136,117
LIFO reserve............................................. 2,432 2,315
-------- --------
$138,758 $138,432
======== ========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31, 1996 and 1997, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Land and improvements.................................... $ 10,092 $ 10,456
Buildings and improvements............................... 51,295 53,907
Machinery and equipment.................................. 159,625 183,815
Tools, dies and molds.................................... 44,930 46,954
Construction in process.................................. 14,521 15,546
-------- --------
280,463 310,678
Less: Accumulated depreciation........................... (75,376) (100,388)
-------- --------
$205,087 $210,290
======== ========
</TABLE>
F-9
<PAGE> 28
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. GOODWILL
Goodwill at December 31, 1996 and 1997, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Goodwill................................................ $44,431 $46,844
Less: Accumulated amortization.......................... (3,182) (4,356)
------- -------
$41,249 $42,488
======= =======
</TABLE>
Amortization of goodwill for the years 1995, 1996 and 1997, totaled $1.3
million, $1.5 million and $1.2 million, respectively.
5. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1996 and 1997, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Accrued wages and commissions........................... $ 9,878 $ 8,491
Income taxes payable.................................... 6,992 6,727
Workers' compensation................................... 3,472 6,808
Other................................................... 21,819 21,116
------- -------
$42,161 $43,142
======= =======
</TABLE>
F-10
<PAGE> 29
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1997, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Bank borrowings:
Senior subordinated notes............................. $ -0- $150,000
Credit facility....................................... 80,000 -0-
Note payable to PATC.................................... 19,743 19,743
Industrial revenue bonds & other........................ 14,225 13,027
-------- --------
113,968 182,770
Less: Amounts due within one year....................... 872 1,065
-------- --------
$113,096 $181,705
======== ========
</TABLE>
In March 1997, the Company issued $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 repurchase of the Company's common stock.
During March 1997, the Company amended its existing $175 million credit
facility ("Facility") to a $200 million revolving credit facility, which is also
available for documentary trade and/or standby letters of credit. Borrowings
under the Facility may be made in U.S. dollars and major foreign currencies.
Debt outstanding under this Facility at December 31, 1996 and 1997 totaled $80
million and $0, respectively. Approximately $21.3 million of the $80 million
Facility was denominated in lira or pounds at December 31, 1996. The Facility
allows Titan to borrow funds under three interest options. The Company paid
interest rates ranging from 5 5/8% to 8 1/2% on the Facility in 1997. The
Facility contains restrictions related to dividends, investments, guarantees,
certain financial ratios and other less restrictive covenants.
In August 1994, Titan Tire Corporation issued a subordinated note for $19.7
million with a fixed interest rate of 7% to Pirelli Armstrong Tire Corporation
("PATC"). The note matures in February 2000.
Other debt primarily consists of industrial revenue bonds, loans from local
and state entities, and various other long-term notes.
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 1,065
1999........................................................ 623
2000........................................................ 19,937
2001........................................................ 132
2002 and thereafter......................................... 161,013
--------
$182,770
========
</TABLE>
F-11
<PAGE> 30
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
Income before income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Domestic........................................... $54,074 $36,900 $29,104
Foreign............................................ 9,206 20,081 11,438
------- ------- -------
$63,280 $56,981 $40,542
======= ======= =======
</TABLE>
The provision for income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Current
Federal.......................................... $14,397 $13,281 $10,248
State............................................ 3,406 2,708 2,112
Foreign.......................................... 1,613 5,619 3,433
------- ------- -------
19,416 21,608 15,793
------- ------- -------
Deferred
Federal.......................................... 4,840 (4) (319)
State............................................ 1,041 (1) (68)
------- ------- -------
5,881 (5) (387)
------- ------- -------
Provision for income taxes......................... $25,297 $21,603 $15,406
======= ======= =======
</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 pretax
income as a result of the following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal tax rate.................... 35.0% 35.0% 35.0%
State taxes (net).................................. 4.6 3.0 3.3
Foreign taxes (net)................................ (2.5) (2.5) (1.4)
Other (net)........................................ 2.9 2.5 1.1
---- ---- ----
Effective tax rate................................. 40.0% 38.0% 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. It is not practicable to determine the amount of unrecognized
deferred tax liabilities associated with such earnings.
F-12
<PAGE> 31
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) at December 31, 1996 and 1997,
respectively, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Employee benefits and related costs...................... $ 4,211 $ 5,814
EPA reserve.............................................. 2,727 2,551
Allowance for bad debts.................................. 1,284 1,205
Returnable pallets....................................... 541 342
Other.................................................... 2,820 2,818
-------- --------
Gross deferred tax assets................................ $ 11,583 $ 12,730
======== ========
Fixed assets............................................. $(21,610) $(20,693)
Inventory................................................ (749) (973)
Other.................................................... (1,636) (1,909)
-------- --------
Gross deferred tax liabilities........................... (23,995) (23,575)
-------- --------
Net deferred tax liabilities............................. $(12,412) $(10,845)
======== ========
</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 INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a contributory defined benefits pension plan covering
certain hourly employees of its Walcott, Iowa, facility ("Walcott"). The Walcott
plan was frozen in July 1993. The Company sponsors a contributory defined
benefits plan that covered eligible bargaining employees of the Des Moines,
Iowa, location formerly known as Dico, Inc. ("Dico"). The Dico plan was frozen
in July 1995. The Company has a defined benefits pension plan covering certain
hourly employees of the Titan Tire Corporation ("Titan Tire"). A frozen plan was
transferred from PATC to Titan Tire in August 1996. An actuary stated that the
pension assets of $55.3 million were equal to the pension obligation at December
31, 1996. 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, 1995, 1996 and 1997 and the reconciliation of the funded status of the Dico,
Titan Tire and Walcott plans, in aggregate, at December 31, 1996 and 1997, are
as follows (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Components of net periodic pension cost:
Service cost.............................................. $ 199 $ -0- $ -0-
Interest cost............................................. 572 464 5,371
Actual return on assets................................... (1,182) (388) (6,837)
Net amortization.......................................... 792 (17) 1,684
------- ----- -------
Net periodic pension cost................................... $ 381 $ 59 $ 218
======= ===== =======
Major assumptions:
Discount rate............................................. 7 1/4% 8% 8-9%
Rate of return on plan assets............................. 8 1/2% 8 1/2% 8 1/2-9%
</TABLE>
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Reconciliation of funded status:
Actuarial present value of benefit obligations
Vested benefit obligation.............................. $ 6,018 $62,334
Non-vested benefit obligation.......................... 4 -0-
------- -------
Accumulated benefit obligation.............................. $ 6,022 $62,334
======= =======
Projected benefit obligation................................ $ 6,279 $62,537
Actual plan assets at fair value............................ 5,155 60,853
------- -------
Plan assets less than projected benefit obligation.......... (1,124) (1,684)
Unrecognized net loss....................................... 709 2,147
Unrecognized transition liability........................... (45) (825)
Minimum liability adjustment................................ (527) (1,702)
------- -------
Accrued pension cost recognized on the consolidated balance
sheet..................................................... $ (987) $(2,064)
======= =======
</TABLE>
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 at Titan Tire. Plan participants may
contribute up to 17% of their annual compensation, up to a maximum of $9,500 in
1997. Employees are fully vested with respect to their contributions. Titan
provides a 50% match in the form of the Company's common stock on the first 6%
of the employee's contribution. Titan issued 87,910, 100,294 and 103,815 shares
of common stock in connection with the 401(k) Plan during 1995, 1996 and 1997,
respectively. Expenses related to the 401(k) Plan were $1.5 million, $1.5
million and $1.6 million for 1995, 1996 and 1997, respectively.
F-14
<PAGE> 33
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. 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 1995,
1996 and 1997:
<TABLE>
<CAPTION>
SHARES WEIGHTED
SUBJECT AVERAGE
TO OPTION EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding, January 1, 1995............................ 179,870 $11.20
Granted................................................. 196,820 11.11
Exercised............................................... -0- -0-
Canceled................................................ (15,410) 11.11
------- ------
Outstanding, December 31, 1995.......................... 361,280 11.15
Granted................................................. 159,590 16.00
Exercised............................................... (13,160) 11.11
Canceled................................................ (26,590) 12.91
------- ------
Outstanding, December 31, 1996.......................... 481,120 12.67
Granted................................................. 201,280 12.83
Exercised............................................... (24,648) 11.11
Canceled................................................ (11,858) 11.11
------- ------
Outstanding, December 31, 1997.......................... 645,894 $12.80
======= ======
</TABLE>
The exercise price for options outstanding at December 31, 1997 ranged from
$11.11 to $16.00 per share. The average remaining contractual life of these
options approximates eight years.
The Company has adopted the disclosure-only provisions of SFAS 123.
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, 1996 and 1997 consistent with the
provisions of SFAS 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 1997
---- ---- ----
<S> <C> <C> <C>
Net income -- as reported.......................... $37,983 $35,378 $25,136
Net income -- pro forma............................ 37,716 34,952 24,740
Net income per share -- as reported................ $1.50 $1.30 $1.10
Net income per share -- pro forma.................. 1.48 1.28 1.08
</TABLE>
F-15
<PAGE> 34
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLAN (CONTINUED)
The fair value of each option granted is calculated using the Black-Scholes
option-pricing model with the following assumptions used for grants in 1995,
1996 and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Stock price volatility........................... 45% 42% 30%
Risk-free interest rate.......................... 6.4 & 7.8% 5.8% 6.1%
Expected life of options......................... 6 years 6 years 6 years
Dividend yield................................... .35% .35% .36%
</TABLE>
The weighted-average fair value of options granted during 1995, 1996 and
1997 was $6.32, $8.03 and $4.83 per option, respectively.
The pro forma effect on net income for 1995, 1996 and 1997 may not be
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.
10. 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,
earthmoving/construction, consumer and military markets. Sales to major markets
in 1995, 1996 and 1997 comprised the following (in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Agricultural................................. $275,976 $307,734 $357,533
Earthmoving/Construction..................... 133,523 145,765 164,636
Consumer..................................... 170,717 152,775 155,519
Military..................................... 4,047 6,592 6,779
Engineered Products & Other.................. 38,920 21,687 5,664
-------- -------- --------
$623,183 $634,553 $690,131
======== ======== ========
</TABLE>
Export sales from the United States represent less than ten percent of
total sales. Sales to Deere & Company represented 12%, 13% and 16% of total
sales in 1995, 1996 and 1997, respectively.
The affiliated companies primarily responsible for engineered product sales
were divested in 1996.
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, 1997. 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 major customers or groups of major customers in any
particular industry.
F-16
<PAGE> 35
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. GEOGRAPHIC SEGMENT INFORMATION
The Company's foreign operations are conducted primarily in France,
Germany, Ireland, Italy and the United Kingdom. A summary of Titan's operations
by geographical area for the years ended December 31, 1995, 1996 and 1997
follows (in thousands):
<TABLE>
<CAPTION>
UNITED
STATES FOREIGN ELIMINATIONS CONSOLIDATED
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
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
======== ======== ========= ========
1997
- ----------------------------------------------
Revenues
Customers................................... $535,266 $154,865 $ -0- $690,131
Intercompany................................ 165,568 4,236 (169,804) -0-
-------- -------- --------- --------
Total revenues........................... $700,834 $159,101 $(169,804) $690,131
======== ======== ========= ========
Income from operations........................ $ 41,927 $ 11,699 $ -0- $ 53,626
======== ======== ========= ========
Identifiable assets........................... $437,080 $148,062 $ -0- $585,142
======== ======== ========= ========
</TABLE>
F-17
<PAGE> 36
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. EARNINGS PER SHARE
Earnings per share for 1995, 1996 and 1997, have been calculated and
presented to comply with the new accounting pronouncement Statement of Financial
Accounting Standards No. 128, "Earnings per share." Earnings per share for 1995,
1996 and 1997, are as follows (amounts in thousands, except share and per share
data):
<TABLE>
<CAPTION>
PER-SHARE
INCOME SHARES AMOUNT
------ ------ ---------
<S> <C> <C> <C>
1995
- ------------------------------------------------------------
BASIC EPS................................................... $37,983 19,889,320 $1.91
=====
Effect of dilutive securities
Stock options............................................. -0- 43,714
Convertible preferred stock............................... -0- 69,350
Subordinated convertible notes............................ 3,070 7,457,222
------- ----------
DILUTED EPS................................................. $41,053 27,459,606 $1.50
======= ========== =====
1996
- ------------------------------------------------------------
BASIC EPS................................................... $35,378 22,388,952 $1.58
=====
Effect of dilutive securities
Stock options............................................. -0- 125,954
Subordinated convertible notes............................ 2,594 6,807,292
------- ----------
DILUTED EPS................................................. $37,972 29,322,198 $1.30
======= ========== =====
1997
- ------------------------------------------------------------
BASIC EPS................................................... $25,136 22,581,806 $1.11
=====
Effect of dilutive securities
Stock options............................................. -0- 181,216
------- ----------
DILUTED EPS................................................. $25,136 22,763,022 $1.10
======= ========== =====
</TABLE>
Earnings per share are based upon weighted average common shares
outstanding. During 1995, the Board of Directors declared two 3-for-2 stock
splits, payable as a stock dividend in March and August 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.
F-18
<PAGE> 37
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. STOCKHOLDERS' EQUITY
The following discusses the Company's significant equity transactions which
occurred during 1996 and 1997.
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 102.7%
plus accrued interest. Such redemption resulted in a total cash payment of $29.5
million. The Company recorded a pretax 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.
The Company's Board of Directors authorized the Company to repurchase up to
ten million shares of its common stock. In February 1997, Titan 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 purchased 3.8 million shares of its common stock at a price
of $15 per share under the Offer to Purchase for a total of $57.0 million. The
Company has repurchased an additional 0.7 million shares and 1.2 million shares
of its common stock in the open market for a cost of $9.5 million and $15.8
million in 1996 and 1997, respectively. The Company is authorized to repurchase
an additional 4.3 million common shares.
During 1995, the Board of Directors declared two 3-for-2 stock splits,
payable as a stock dividend. In conjunction with the related stock splits, the
Board of Directors authorized an increase in the annual cash dividend from $.03
to $.06 per share. The Company paid cash dividends of $.05, $.06, and $.06 per
share of common stock during 1995, 1996 and 1997, respectively.
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, $1.6 million and $2.2 million for the years ended December 31,
1995, 1996 and 1997, respectively.
At December 31, 1997, future minimum rental commitments under
noncancellable operating leases with initial or remaining terms in excess of one
year are as follows: $2.0 million in 1998; $1.5 million in 1999; $0.8 million in
2000; $0.6 million in 2001; and $0.6 million in 2002.
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.
F-19
<PAGE> 38
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. REALIGNMENT
During the third quarter of 1996, the Company recorded a pretax 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 non-core
products including automotive Original Equipment Manufacturers' wheels, certain
rolled rims and axles. The realignment charge is a result of the Company's
decision to concentrate its resources on wheel and tire manufacturing.
17. GAIN ON SALE OF ASSETS
In 1996, the Company sold the assets of certain affiliated companies and
recorded a pretax gain of $16.3 million. During the years ended December 31,
1995 and 1996, one of the affiliates contributed net sales of $26.4 and $18.4
million, net income of $3.7 and $2.3 million and diluted earnings per share of
$.15 and $.09, respectively. These transactions were part of the Company's
overall strategy to eliminate non-core businesses and concentrate its resources
on wheel and tire manufacturing.
18. SUPPLEMENTARY DATA -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(All amounts in thousands, except per share data)
<TABLE>
<CAPTION>
QUARTER ENDED:
------------------------------------------------- YEAR ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 DECEMBER 31
-------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
1996
- ----
Net sales......................... $177,257 $167,030 $145,682 $144,584 $634,553
Gross profit...................... 33,123 30,409 13,457(a) 20,365 97,354
Net income........................ 11,006 10,476 9,215(b) 4,681 35,378
Per share amounts:
Basic.......................... $.49 $.46 $.41 $.21 $1.58
Diluted........................ .40 .38 .34 .18 1.30
1997
- ----
Net sales......................... $180,208 $187,360 $156,679 $165,884 $690,131
Gross profit...................... 29,238 30,185 22,688 23,871 105,982
Net income........................ 9,251 8,185 3,627 4,073 25,136
Per share amounts:
Basic.......................... $.36 $.38 $.17 $.19 $1.11
Diluted........................ .36 .38 .17 .19 1.10
</TABLE>
- -------------------------
(a) Includes realignment costs of $10.3 million (note 16).
(b) Includes realignment costs of $10.3 million (note 16) and gain on sales of
assets of $16.3 million (note 17).
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-20
<PAGE> 39
TITAN 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, 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)(a) $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)(b) $4,924,000
========== ========== ========= ==========
Year ended December 31, 1997
Reserve deducted in the balance sheet
from the assets to which it applies
Allowance for doubtful accounts...... $4,924,000 $ 440,000 $(766,000)(c) $4,598,000
========== ========== ========= ==========
</TABLE>
- -------------------------
(a) Net of recoveries of $28,000.
(b) Net of recoveries of $82,000 and includes reductions of $50,000 relating to
the sale of assets of certain affiliated companies.
(C) Net of recoveries of $47,000.
S-1
<PAGE> 1
EXHIBIT 21
TITAN INTERNATIONAL, INC.
SUBSIDIARIES
JURISDICTION OF
NAME INCORPORATION
- ---- ---------------
Automotive Wheels, Inc. California
Dyneer Corporation Delaware
Sirmac Officine Meccaniche, SpA Italy
Titan Steel Wheels, Ltd. United Kingdom
Titan Distribution, Inc. Illinois
Titan Siria, SpA Italy
Titan Tire Corporation Illinois
Titan Tire Corporation of Tennessee Tennessee
Titan Wheel Corporation of Virginia Virginia
E-1
<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 International,
Inc. of our report dated February 18, 1998, 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 26, 1998
E-2
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K, FOR THE YEAR ENDED DECEMBER 31, 1997 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 21,207
<SECURITIES> 0
<RECEIVABLES> 117,393
<ALLOWANCES> 4,598
<INVENTORY> 138,432
<CURRENT-ASSETS> 298,596
<PP&E> 310,678
<DEPRECIATION> 100,388
<TOTAL-ASSETS> 585,142
<CURRENT-LIABILITIES> 114,687
<BONDS> 181,705
0
0
<COMMON> 27
<OTHER-SE> 248,102
<TOTAL-LIABILITY-AND-EQUITY> 585,142
<SALES> 690,131
<TOTAL-REVENUES> 690,131
<CGS> 584,149
<TOTAL-COSTS> 584,149
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,127
<INCOME-PRETAX> 40,542
<INCOME-TAX> 15,406
<INCOME-CONTINUING> 25,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,136
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.10
</TABLE>
<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>
<RESTATED>
<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> 1.58
<EPS-DILUTED> 1.30
</TABLE>
