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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
FOR QUARTERLY PERIOD ENDED: JUNE 30, 1998
Commission File Number: 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
ILLINOIS 36-3228472
(State of Incorporation) (I.R.S. Employer Identification No.)
2701 SPRUCE STREET, QUINCY, IL 62301
(Address of principal executive offices, including Zip Code)
(217) 228-6011
(Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
SHARES OUTSTANDING AT
CLASS JULY 31, 1998
----- ------------------
COMMON STOCK, NO PAR VALUE PER SHARE 21,750,813
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
June 30, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended
June 30, 1998 and 1997 2
Consolidated Condensed Statements of
Cash Flows for the Six Months Ended
June 30, 1998 and 1997 3
Notes to Consolidated Condensed Financial Statements 4-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-10
Part II. Other Information and Signature 11-13
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 20,063 $ 21,207
Accounts receivable (net of allowance of
$5,783 and $4,598, respectively) 131,349 112,795
Inventories 156,401 138,432
Prepaid and other current assets 41,646 26,162
--------- ---------
Total current assets 349,459 298,596
Property, plant and equipment, net 210,117 210,290
Other assets 54,212 33,768
Goodwill, net 41,884 42,488
--------- ---------
Total assets $ 655,672 $ 585,142
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 5,206 $ 1,065
Accounts payable 75,671 70,480
Other current liabilities 59,942 43,142
--------- ---------
Total current liabilities 140,819 114,687
Deferred income taxes 21,156 21,021
Other long-term liabilities 24,070 19,600
Long-term debt 208,353 181,705
--------- ---------
Total liabilities 394,398 337,013
--------- ---------
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,468,801 and 27,380,620 issued, respectively 27 27
Additional paid-in capital 214,074 212,615
Retained earnings 134,353 121,934
Accumulated other comprehensive income (4,073) (3,340)
Treasury stock at cost: 5,738,784 shares respectively (83,107) (83,107)
--------- ---------
Total stockholders' equity 261,274 248,129
--------- ---------
Total liabilities and stockholders' equity $ 655,672 $ 585,142
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
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TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 181,216 $ 187,360 $ 368,644 $ 367,568
Cost of sales 153,988 157,175 308,920 308,145
--------- --------- --------- ---------
Gross profit 27,228 30,185 59,724 59,423
Selling, general & administrative expenses 13,601 11,451 26,307 23,162
Research and development expenses 1,738 1,685 3,966 2,352
--------- --------- --------- ---------
Income from operations 11,889 17,049 29,451 33,909
Interest expense 4,580 4,286 8,719 6,746
Other income (382) (438) (349) (959)
--------- --------- --------- ---------
Income before income taxes 7,691 13,201 21,081 28,122
Provision for income taxes 2,923 5,016 8,011 10,686
--------- --------- --------- ---------
Net income $ 4,768 $ 8,185 $ 13,070 $ 17,436
========= ========= ========= =========
Earnings per share:
Basic $.22 $.38 $.60 $.74
Diluted .22 .38 .60 .74
Average shares outstanding:
Basic 21,729 21,627 21,702 23,552
Diluted 21,940 21,772 21,922 23,666
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
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TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1998 1997
------ ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 13,070 $ 17,436
Depreciation and amortization 16,592 15,515
Increase in receivables (10,995) (24,749)
(Increase)/decrease in inventories (11,681) 4,000
Increase in other current assets (14,427) (5,105)
Decrease in accounts payable (1,673) (403)
Increase in other accrued liabilities 7,634 9,860
Other, net (638) (8,704)
-------- --------
Net cash provided by/(used for) operating activities (2,118) 7,850
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (14,776) (21,080)
Acquisitions, net of cash acquired (1,909) 0
Other (7,143) (3,321)
-------- --------
Net cash used for investing activities (23,828) (24,401)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 25,231 149,250
Payment of debt (742) (66,604)
Repurchase of common stock 0 (72,490)
Payment of financing fees 0 (4,250)
Dividends paid (651) (734)
Other, net 964 827
-------- --------
Net cash provided by financing activities 24,802 5,999
Net decrease in cash and cash equivalents (1,144) (10,552)
Cash and cash equivalents at beginning of period 21,207 27,406
-------- --------
Cash and cash equivalents at end of period $ 20,063 $ 16,854
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. ACCOUNTING POLICIES
In the opinion of Titan International, Inc. ("Titan" or the "Company"),
the accompanying unaudited consolidated condensed financial statements
contain all adjustments, which are normal and recurring in nature,
necessary to present fairly its financial position as of June 30, 1998,
the results of operations for the three and six months ended June 30,
1998 and 1997, and cash flows for the six months ended June 30, 1998
and 1997.
Accounting policies have continued without change and are described in
the Summary of Significant Accounting Policies contained in the
Company's 1997 Annual Report on Form 10-K. For additional information
regarding the Company's financial condition, refer to the footnotes
accompanying the financial statements as of and for the year ended
December 31, 1997 filed in conjunction with the Company's 1997 Annual
Report on Form 10-K. Details in those notes have not changed
significantly except as a result of normal interim transactions and
certain matters discussed below.
B. INVENTORIES
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Raw materials $ 49,839 $ 41,486
Work-in-process 17,459 12,412
Finished goods 84,999 82,219
--------- ---------
152,297 136,117
LIFO reserve 4,104 2,315
--------- ---------
$ 156,401 $ 138,432
========= =========
</TABLE>
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation of
$113.1 million and $100.4 million at June 30, 1998, and December 31,
1997, respectively.
D. GOODWILL
Goodwill, net reflects accumulated amortization of $5.0 million and
$4.4 million at June 30, 1998, and December 31, 1997, respectively.
E. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- --------
<S> <C> <C>
Senior subordinated notes $ 150,000 $ 150,000
Credit facility 25,000 0
Note payable to Pirelli Armstrong Tire Corp. 19,743 19,743
Industrial revenue bonds & other 18,816 13,027
--------- ---------
213,559 182,770
Less: Amounts due within one year 5,206 1,065
--------- ---------
$ 208,353 $ 181,705
========= =========
</TABLE>
Aggregate maturities of long-term debt at June 30, 1998 are as follows
(in thousands):
<TABLE>
<S> <C>
July 1 - December 31, 1998 $ 2,617
1999 3,632
2000 20,564
2001 733
2002 and thereafter 186,013
---------
$ 213,559
=========
</TABLE>
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
F. NEW ACCOUNTING STANDARD
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income."
Comprehensive income, which includes net income and the effect of
currency translation, was $4.5 million for the second quarter of 1998,
compared to $7.2 million in 1997. Comprehensive income for the six
months ended June 30, 1998 was $12.3 million, compared to $14.2 million
in 1997.
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the quarter ended June 30, 1998, were $181.2 million, compared to
1997 second quarter sales of $187.4 million. Sales for the six months ended June
30, 1998, were $368.6 million, compared to 1997 sales of $367.6 million. During
the quarter, the Company experienced a labor strike at its Des Moines, Iowa tire
facility, the largest of the Company's tire operations. As a result, tire
production volumes decreased which caused decreases in sales and operating
results, as discussed below. This decrease was partially offset by continued
growth in the agricultural and earthmoving/ construction markets and the
acquisition of Fabrica Uruguaya de Neumaticos S.A. ("FUNSA") in June 1998.
Sales in the agricultural market were $92.0 and $190.2 million for the second
quarter of 1998 and for the six months ended June 30, 1998 respectively, as
compared to $98.3 and $190.1 million in 1997. Earthmoving/construction market
sales were $46.5 and $94.4 million for the second quarter of 1998 and for the
six months ended June 30, 1998 respectively, as compared to $44.1 and $86.7
million in 1997. The Company's consumer market sales were $42.7 and $84.0
million for the second quarter of 1998 and for the six months ended June 30,
1998 respectively, as compared to $45.0 and $90.8 million in 1997. The decrease
in consumer market sales is primarily due to the Company's continued focus on
its core products within this market. Sales in all markets were negatively
impacted by a labor strike at the Company's Des Moines, Iowa facility. The
decrease in sales was partially offset by continued growth in the agricultural
and earthmoving/construction markets.
Cost of sales was $154.0 and $308.9 million for the second quarter of 1998 and
for the six months ended June 30, 1998 respectively, as compared to $157.2 and
$308.1 million in 1997. Gross profit for the second quarter of 1998 was $27.2
million or 15.0% of net sales, compared to $30.2 million, or 16.1% of net sales
for the second quarter of 1997. Gross profit for the six months ended June 30,
1998 was $59.7 million or 16.2% of net sales, compared to $59.4 or 16.2% of net
sales for 1997. Gross profit for the second quarter of 1998 was negatively
impacted by a labor strike at the Company's Des Moines, Iowa, facility.
7
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TITAN INTERNATIONAL, INC.
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Selling, general and administrative ("SG&A") expenses for the second quarter of
1998 were $13.6 million or 7.5% of net sales, compared to $11.5 million or 6.1%
of sales for 1997. SG&A expenses for the six months ended June 30, 1998 were
$26.3 million or 7.1% of sales, compared to $23.2 million or 6.3% of sales in
1997. The rise in SG&A expenses is primarily due to increased selling and other
administrative costs. Research and development ("R&D") expenses for the second
quarter of 1998 were $1.7 million or 0.9% of net sales, compared to $1.7 million
or 0.9% of net sales for 1997. R&D expenses for the six months ended June 30,
1998 were $4.0 million or 1.1% of sales, compared to $2.4 million or 0.7% for
1997. R&D expenses were impacted by increased spending related to the
development of the Grizz LSW series of wheel and tire assemblies.
Income from operations for the second quarter of 1998 was $11.9 million or 6.6%
of net sales, compared to $17.0 million or 9.1% in 1997. Income from operations
for the six months ended June 30, 1998 was $29.5 million or 8.0% of net sales,
compared to $33.9 million or 9.2% in 1997. Income from operations was negatively
impacted by a labor strike at the Company's Des Moines, Iowa facility, increased
advertising, administrative costs and research and development spending related
to the Grizz LSW series of wheel and tire assemblies.
Interest expense was $4.6 and $8.7 million for the second quarter of 1998 and
for the six months ended June 30, 1998 respectively, compared to $4.3 and $6.7
million in 1997. Interest expense increased due to the Company's higher average
debt during the second quarter of 1998 and for the six months ended June 30,
1998.
Net income for the second quarter of 1998 and for the six months ended June 30,
1998 was $4.8 and $13.1 million respectively, compared to $8.2 and $17.4 million
in 1997. Basic and diluted earnings per share were $.22 and $.60 for the second
quarter of 1998 and the six months ended June 30, 1998 respectively, compared to
$.38 and $.74 in 1997.
8
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
In the first six months of 1998, negative cash flows from operating activities
of $2.1 million resulted from increases in receivables, inventories and other
current assets. These amounts were partially offset by increases in other
accrued liabilities. The increase in receivables is primarily due to payment
terms offered to certain European and tire customers and the increase in
inventory is primarily due to higher production in the first six months of 1998.
The increase in other current assets is primarily due to reimbursable costs
related to the Company's new tire facility located in Brownsville, Texas.
The Company has invested $14.8 million in capital expenditures in 1998,
including $3.5 million for equipment and construction related to the
Brownsville, Texas facility. The balance represents various equipment purchases
and building improvements to enhance production capabilities.
During the second quarter, Titan acquired 81 percent of the common stock of
FUNSA. The facility produces car radial and specialty tires including
agricultural tires. The Company's net sales, net income and earnings per share
for the three and six months ended June 30, 1998, and 1997, would not have been
significantly different had the acquisition occurred on January 1, 1997. The
acquisition did not have a significant effect on the Company's financial
position at June 30, 1998.
The Company received $25.0 million in proceeds from its $200 million revolving
credit facility. These proceeds have been used to fund operations and capital
expenditures.
At June 30, 1998, the Company had cash and cash equivalents of $20.1 million.
Cash on hand, anticipated internal cash flows and utilization of available
borrowing under the Company's credit facilities are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
YEAR 2000
The Company's Year 2000 activities are progressing as planned and as described
in the Company's 1997 Annual Report on Form 10-K.
9
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TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Readers should note that in addition to the historical information contained
herein, this Form 10-Q contains forward-looking statements which are inherently
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated by such statements. Factors that could cause
or contribute to such differences include, but are not limited to, those
discussed in this report, as well as in the Company's 1997 Annual Report on Form
10-K.
10
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 3 ARE NOT APPLICABLE.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 21,
1998, for the purpose of electing two directors to serve for three
year terms, amending the Company's 1994 Non-Employee Director Stock
Option Plan and approving the appointment of independent auditors.
All of management's nominees for directors as listed in the proxy
statement were elected with the following vote:
<TABLE>
<CAPTION>
Shares Shares
Voted For Withheld
--------- --------
<S> <C> <C>
Edward J. Campbell 18,249,103 111,218
Maurice M. Taylor, Jr. 18,249,123 111,198
</TABLE>
The amendment to the Company's 1994 Non-Employee Director Stock
Option Plan was approved by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Against Withheld
--------- -------- --------
<S> <C> <C>
17,049,430 1,272,018 38,873
</TABLE>
The appointment of PricewaterhouseCoopers LLP as independent
auditors was approved by the following vote:
<TABLE>
<CAPTION>
Shares Shares Shares
Voted For Against Withheld
--------- -------- --------
<S> <C> <C>
18,338,391 7,401 14,529
</TABLE>
11
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEM 5. OTHER MATTERS
The United Steelworkers Local 164 at Titan Tire Corporation, a
subsidiary of Titan International, Inc., chose to go on strike at
the Des Moines, Iowa, facility when their contract expired at
midnight on April 30, 1998. Titan supervisors, salaried employees
and replacement workers will continue production at the facility to
minimize the effect to customers. Despite the strike action, Titan
Tire Corporation is continuing negotiations with the
representatives of the Steelworkers.
ITEM 6 IS NOT APPLICABLE.
12
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TITAN INTERNATIONAL, INC.
(REGISTRANT)
DATE: August 7, 1998 BY: /s/Kent W. Hackamack
------------------- ----------------------------------------
Kent W. Hackamack
Vice President of Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
13
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Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 20,063
<SECURITIES> 0
<RECEIVABLES> 137,132
<ALLOWANCES> 5,783
<INVENTORY> 156,401
<CURRENT-ASSETS> 349,459
<PP&E> 323,250
<DEPRECIATION> 113,133
<TOTAL-ASSETS> 655,672
<CURRENT-LIABILITIES> 140,819
<BONDS> 208,353
0
0
<COMMON> 27
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 655,672
<SALES> 368,644
<TOTAL-REVENUES> 368,644
<CGS> 308,920
<TOTAL-COSTS> 308,920
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,719
<INCOME-PRETAX> 21,081
<INCOME-TAX> 8,011
<INCOME-CONTINUING> 13,070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,070
<EPS-PRIMARY> .60
<EPS-DILUTED> .60
</TABLE>
