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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Pursuant to Section 13 or 1 Quarterly Report 5(d) of
the Securities Exchange Act of 1934
FOR QUARTERLY PERIOD ENDED: MARCH 31, 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 APRIL 30, 1998
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COMMON STOCK, NO PAR VALUE PER SHARE 21,726,937
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
Page Number
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Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 1
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 1998 and 1997 2
Consolidated Condensed Statements of
Cash Flows for the Three Months Ended
March 31, 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 7-8
Part II. Other Information and Signature 9-10
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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>
MARCH 31, DECEMBER 31,
1998 1997
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ASSETS
Current assets
<S> <C> <C>
Cash and cash equivalents $ 17,550 $ 21,207
Accounts receivable (net of allowance of
$5,518 and $4,598, respectively) 149,352 112,795
Inventories 150,975 138,432
Prepaid and other current assets 26,817 26,162
--------- ---------
Total current assets 344,694 298,596
Property, plant and equipment, net 204,888 210,290
Other assets 46,843 33,768
Goodwill, net 42,232 42,488
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Total assets $ 638,657 $ 585,142
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 639 $ 1,065
Accounts payable 84,218 70,480
Other current liabilities 55,739 43,142
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Total current liabilities 140,596 114,687
Deferred income taxes 21,156 21,021
Other long-term liabilities 23,723 19,600
Long-term debt 196,550 181,705
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Total liabilities 382,025 337,013
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Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,441,260 and 27,380,620 issued, respectively 27 27
Additional paid-in capital 213,613 212,615
Retained earnings 129,910 121,934
Accumulated other comprehensive income (3,811) (3,340)
Treasury stock at cost: 5,738,784 shares (83,107) (83,107)
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Total stockholders' equity 256,632 248,129
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Total liabilities and stockholders' equity $ 638,657 $ 585,142
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
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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 MARCH 31,
1998 1997
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<S> <C> <C>
Net sales $ 187,428 $ 180,208
Cost of sales 154,932 150,970
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Gross profit 32,496 29,238
Selling, general and administrative expenses 12,706 11,711
Research and development expenses 2,228 667
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Income from operations 17,562 16,860
Interest expense 4,139 2,460
Other (income) expense 33 (521)
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Income before income taxes 13,390 14,921
Provision for income taxes 5,088 5,670
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Net income $ 8,302 $ 9,251
========= =========
Earnings per share:
Basic $ .38 $ .36
Diluted .38 .36
Average shares outstanding:
Basic 21,676 25,499
Diluted 21,903 25,582
</TABLE>
The accompanying notes are an integral part
of the consolidated condensed financial statements.
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TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,302 $ 9,251
Depreciation and amortization 8,450 7,575
Increase in receivables (37,157) (25,147)
(Increase)/decrease in inventories (16,076) 1,019
Increase in other current assets (184) (3,787)
Increase in accounts payable 13,738 4,746
Increase in other accrued liabilities 12,818 5,426
Other, net (608) (1,915)
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Net cash used for operating activities (10,717) (2,832)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (7,537) (9,051)
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Net cash used for investing activities (7,537) (9,051)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 15,000 149,250
Payment of debt (581) (70,519)
Repurchase of common stock 0 (69,916)
Payment of financing fees 0 (4,088)
Dividends paid (325) (408)
Other, net 503 395
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Net cash provided by financing activities 14,597 4,714
Net decrease in cash and cash equivalents (3,657) (7,169)
Cash and cash equivalents at beginning of period 21,207 27,406
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Cash and cash equivalents at end of period $ 17,550 $ 20,237
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</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 March 31,
1998, the results of operations for the three months ended March 31,
1998 and 1997, and cash flows for the three months ended March 31, 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 by component are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
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<S> <C> <C>
Raw materials $ 50,875 $ 41,486
Work in process 11,845 12,412
Finished goods 83,902 82,219
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146,622 136,117
LIFO reserve 4,353 2,315
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$150,975 $138,432
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</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
$104.5 million and $100.4 million at March 31, 1998, and December 31,
1997, respectively.
D. GOODWILL
Goodwill, net reflects accumulated amortization of $4.7 million and
$4.4 million at March 31, 1998, and December 31, 1997, respectively.
E. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Senior subordinated notes $150,000 $150,000
Credit facility 15,000 0
Note payable to Pirelli Armstrong Tire Corp. 19,743 19,743
Industrial revenue bonds & other 12,446 13,027
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197,189 182,770
Less: Amounts due within one year 639 1,065
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$196,550 $181,705
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</TABLE>
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TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
E. LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt at March 31, 1998 are as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
April 1 - December 31, 1998 $ 489
1999 623
2000 19,937
2001 127
2002 and thereafter 176,013
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$ 197,189
=========
</TABLE>
F. NEW ACCOUNTING STANDARD
On January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 "Reporting Comprehensive Income."
Comprehensive income was $8.0 million and $7.9 million for the quarters
ended March 31, 1998 and 1997, respectively.
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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 March 31, 1998, were $187.4 million, an increase
of 4% over 1997 first quarter net sales of $180.2 million. Net sales were
positively impacted by continued growth in the agricultural and
earthmoving/construction markets.
Sales in the agricultural market were $98.2 million for the first quarter of
1998, as compared to $91.8 million in 1997. Construction market sales were $47.9
million for the first quarter, as compared to $42.6 million in 1997. The
Company's consumer market sales were $41.4 million for the first quarter, as
compared to $45.9 million in the same quarter of 1997. The decrease in consumer
market sales is primarily due to the Company's continued focus on its core
products within this market.
Cost of sales was $154.9 million for the first quarter of 1998, as compared to
$151.0 million in 1997. Gross profit for the first quarter of 1998 was $32.5
million or 17.3% of net sales, compared to $29.2 million or 16.2% of net sales
for the first quarter of 1997. Gross profit was positively impacted by increased
operating efficiencies.
Selling, general and administrative ("SG&A") expenses for the first quarter of
1998 were $12.7 million or 6.8% of net sales, compared to $11.7 million or 6.5%
of net sales for 1997. Research and development ("R&D") expenses for the first
quarter of 1998 were $2.2 million or 1.2% of net sales compared to $0.7 million
or 0.4% of sales for 1997. R&D expenses were impacted by increased spending
related to the development of the Grizz LSW series of wheel and tire assemblies.
Interest expense was $4.1 million for the first quarter of 1998, as compared to
$2.5 million in 1997. Interest expense increased due to the Company's higher
average debt and interest rates resulting from the $150 million 8 3/4% debt
offering during March 1997.
Net income for the first quarter of 1998 was $8.3 million compared to $9.3
million in 1997. Net income was impacted by the items noted above. Basic and
diluted earnings per share for the first quarter of 1998 increased 6% to $.38
from $.36 for the first quarter of 1997. With the repurchase of the Company's
common stock the average number of diluted common shares outstanding for the
first quarter of 1998, decreased 14% as compared to the first quarter of 1997.
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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 quarter of 1998, negative cash flows from operating activities of
$10.7 million resulted from increases in receivables and inventories. These
amounts were partially offset by increases in accounts payable and other accrued
liabilities. The increase in inventory is primarily due to higher sales and
production in the first quarter of 1998. The increases in receivables and
payables are primarily due to extended payment terms offered to customers and
received from vendors during the first quarter of 1998.
The Company has invested $7.5 million in capital expenditures in 1998 which
represents various equipment purchases and building improvements to enhance
production capabilities.
The Company received $15.0 million in proceeds from its $200 million revolving
credit facility. These proceeds have been used to fund operations and capital
expenditures.
At March 31, 1998, the Company had cash and cash equivalents of $17.6 million.
Cash on hand, anticipated internal cash flows and utilization of available
borrowing under the Company's credit facilities are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
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.
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TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 4 ARE NOT APPLICABLE.
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 and salaried
employees 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.
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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: May 6, 1998 BY: /s/Kent W. Hackamack
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Kent W. Hackamack
Vice President of Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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EX-27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 17,550
<SECURITIES> 0
<RECEIVABLES> 154,870
<ALLOWANCES> 5,518
<INVENTORY> 150,975
<CURRENT-ASSETS> 344,694
<PP&E> 309,384
<DEPRECIATION> 104,496
<TOTAL-ASSETS> 638,657
<CURRENT-LIABILITIES> 140,596
<BONDS> 196,550
0
0
<COMMON> 27
<OTHER-SE> 256,605
<TOTAL-LIABILITY-AND-EQUITY> 638,657
<SALES> 187,428
<TOTAL-REVENUES> 187,428
<CGS> 154,932
<TOTAL-COSTS> 154,932
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,139
<INCOME-PRETAX> 13,390
<INCOME-TAX> 5,088
<INCOME-CONTINUING> 8,302
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,302
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
