<PAGE> 1
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: MARCH 31, 1999
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, 1999
----- ---------------------
COMMON STOCK, NO PAR VALUE PER SHARE 20,875,576
<PAGE> 2
TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
Page Number
-----------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998 1
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 1999 and 1998 2
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 1998 3
Notes to Consolidated Condensed Financial Statements 4-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
Part II. Other Information and Signature 12
<PAGE> 3
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,870 $ 14,116
Accounts receivable (net of allowance of
$6,626 and $6,200, respectively) 137,811 108,194
Inventories 151,225 154,045
Prepaid and other current assets 37,559 35,840
--------- ---------
Total current assets 337,465 312,195
Property, plant and equipment, net 282,749 284,407
Other assets 42,874 40,896
Goodwill, net 40,111 40,776
--------- ---------
Total assets $ 703,199 $ 678,274
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 29,543 $ 7,902
Accounts payable 70,242 66,522
Other current liabilities 71,510 67,306
--------- ---------
Total current liabilities 171,295 141,730
Deferred income taxes 23,073 23,396
Other long-term liabilities 17,671 18,527
Long-term debt 248,787 247,584
--------- ---------
Total liabilities 460,826 431,237
--------- ---------
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,555,081 and 27,520,139, respectively 27 27
Additional paid-in capital 215,143 214,807
Retained earnings 128,616 128,801
Accumulated other comprehensive income (8,362) (4,294)
Treasury stock at cost: 6,684,984 and 6,591,484 shares,
respectively (93,051) (92,304)
--------- ---------
Total stockholders' equity 242,373 247,037
--------- ---------
Total liabilities and stockholders' equity $ 703,199 $ 678,274
========= =========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
1
<PAGE> 4
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED) (Amounts in thousands, except earnings
per share data)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
1999 1998
----- ----
<S> <C> <C>
Net sales $ 158,610 $187,428
Cost of sales 137,995 154,932
--------- --------
Gross profit 20,615 32,496
Selling, general & administrative expenses 13,442 12,706
Research and development expenses 1,597 2,228
--------- --------
Income from operations 5,576 17,562
Interest expense 5,550 4,139
Other (income) expense (181) 33
--------- --------
Income before income taxes 207 13,390
Provision for income taxes 79 5,088
--------- --------
Net income $ 128 $ 8,302
========= ========
Earnings per share:
Basic $ .01 $ .38
Diluted $ .01 $ .38
Average shares outstanding:
Basic 20,911 21,676
Diluted 20,911 21,903
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
2
<PAGE> 5
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 128 $ 8,302
Depreciation and amortization 9,874 8,450
Increase in receivables (29,617) (37,157)
(Increase)/decrease in inventories 2,820 (16,076)
Increase in other current assets (369) (184)
Increase in accounts payable 3,720 13,738
Increase in other accrued liabilities 4,144 12,818
Other, net (3,230) (608)
-------- --------
Net cash provided by operating activities (12,530) (10,717)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net (9,672) (7,537)
Other (3,224) 0
-------- --------
Net cash used for investing activities (12,896) (7,537)
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 23,009 15,000
Payment of debt (165) (581)
Repurchase of common stock (686) 0
Dividends paid (314) (325)
Other, net 336 503
-------- --------
Net cash provided by financing activities 22,180 14,597
Net decrease in cash and cash equivalents (3,246) (3,657)
Cash and cash equivalents at beginning of period 14,116 21,207
-------- --------
Cash and cash equivalents at end of period $ 10,870 $ 17,550
======== ========
</TABLE>
The accompanying notes are an integral part of the
consolidated condensed financial statements.
3
<PAGE> 6
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. ACCOUNTING POLICIES
In the opinion of Titan International, Inc. ("Titan" or the "Company"),
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,
1999, the results of operations for the three months ended March 31,
1999 and 1998, and cash flows for the three months ended March 31, 1999
and 1998.
Accounting policies have continued without change and are described in
the Summary of Significant Accounting Policies contained in the
Company's 1998 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, 1998 filed in conjunction with the Company's 1998 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>
March 31, December 31,
1999 1998
------ ------
<S> <C> <C>
Raw materials $45,687 $49,970
Work-in-process 18,768 17,831
Finished goods 80,935 82,579
------ ------
145,390 150,380
LIFO reserve 5,835 3,665
----- -----
$151,225 $154,045
======== ========
</TABLE>
C. FIXED ASSETS
Property, plant and equipment, net reflects accumulated depreciation of
$131.0 million and $124.2 million at March 31, 1999, and December 31,
1998, respectively.
4
<PAGE> 7
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
D. GOODWILL
Goodwill, net reflects accumulated amortization of $6.2 million and
$5.8 million at March 31, 1999, and December 31, 1998, respectively.
E. LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Senior subordinated notes $150,000 $150,000
Credit facility 75,000 55,000
Notes payable to Pirelli Armstrong Tire Corp. 29,743 29,743
Industrial revenue bonds and other 23,587 20,743
-------- --------
278,330 255,486
Less: Amounts due within one year 29,543 7,902
-------- --------
$248,787 $247,584
======== ========
Aggregate maturities of long-term debt at March 31, 1999 are as follows
(in thousands):
April 1 - December 31, 1999 $ 7,420
2000 23,017
2001 5,863
2002 135
2003 and thereafter 241,895
---------
$ 278,330
=========
</TABLE>
5
<PAGE> 8
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
F. SEGMENT INFORMATION
The table below presents information about certain revenues and income
(loss) from operations used by the chief operating decision maker of
the Company for the three months ended March 31, 1999 and 1998 (in
thousands):
<TABLE>
<CAPTION>
Revenues Income (loss)
from external Intersegment from
customers revenues operations
-------- ------- --------
<S> <C> <C> <C>
1999
- ----
Agricultural $ 75,576 $26,620 $ 4,480
Earthmoving/construction 38,544 9,622 4,890
Consumer 44,490 12,203 2,171
Reconciling items (a) 0 0 (5,965)
-------- ------- --------
Consolidated totals $158,610 $48,445 $ 5,576
======== ======= ========
1998
- ----
Agricultural $ 98,109 $29,754 $ 14,068
Earthmoving/construction 47,999 11,940 8,081
Consumer 41,320 12,866 2,403
Reconciling items (a) 0 0 (6,990)
-------- ------- --------
Consolidated totals $187,428 $54,560 $ 17,562
======== ======= ========
</TABLE>
(a) Represents corporate expenses and depreciation and amortization expense
related to property, plant and equipment and goodwill carried at the
corporate level.
6
<PAGE> 9
TITAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
G. COMPREHENSIVE INCOME
Comprehensive income, which includes net income and the effect of
currency translation, was $(3.9) million for the first quarter of 1999,
compared to $7.8 million in 1998.
H. STOCK REPURCHASE PROGRAM
The Company's Board of Directors has authorized the Company to
repurchase up to ten million shares of its common stock. During the
quarter ended March 31, 1999, the Company repurchased 0.1 million
shares of common stock in the open market. The Company is authorized to
repurchase an additional 3.4 million common shares.
I. NEW ACCOUNTING STANDARD
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), is effective
for the Company in 2000. The Company is evaluating the effect SFAS 133
will have on its financial position and results of operations.
7
<PAGE> 10
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, 1999, were $158.6 million compared to
1998 first quarter sales of $187.4 million. During the quarter, the Company
continued to experience a labor strike at its Des Moines, Iowa tire facility,
the largest of the Company's tire operations. As a result, production volumes
decreased which caused decreases in sales and operating results, as discussed
below. Sales also decreased due to shut-downs of certain facilities at several
of Titan's largest customers.
Sales in the agricultural market were $75.6 million for the first quarter of
1999, as compared to $98.2 million in 1998. Earthmoving/construction market
sales were $38.5 million for the first quarter of 1999, as compared to $47.9
million in 1998. The Company's consumer market sales were $44.5 million for the
first quarter of 1999, as compared to $41.4 million in 1998. Sales in all
markets were negatively impacted by a labor strike at the Company's Des Moines,
Iowa facility and the shut-downs of certain facilities at several of Titan's
largest customers.
Cost of sales was $138.0 million for the first quarter of 1999, as compared to
$154.9 million in 1998. Gross profit for the first quarter of 1999 was $20.6
million or 13.0% of net sales, compared to $32.5 million or 17.3% of net sales
for the first quarter of 1998. Gross profit for the first quarter of 1999 was
negatively impacted by inefficiencies caused by labor issues at the Company's
Des Moines, Iowa and Natchez, Mississippi facilities.
Selling, general and administrative ("SG&A") expenses for the first quarter of
1999 were $13.4 million or 8.5% of net sales, compared to $12.7 million or 6.8%
of sales for 1998. The rise in SG&A expenses, as a percentage of sales, is
primarily attributed to the decrease in volume as discussed above. Research and
development ("R&D") expenses for the first quarter of 1999 were $1.6 million or
1.0% of net sales, compared to $2.2 million or 1.2% of net sales for 1998.
Income from operations for the first quarter of 1999 was $5.6 million or 3.5% of
net sales, compared to $17.6 million or 9.4% in 1998. Income from operations was
impacted by the items described in the preceding paragraphs.
Income from operations in the agricultural market was $4.5 million for the first
quarter of 1999, as compared to $14.1 million in 1998. The company's
earthmoving/construction market income from operations was $4.9 million for the
first quarter of 1999, as compared to $8.1 million in 1998. Consumer market
income from operations was $2.2 million for the first quarter of 1999, as
compared to $2.4 million in 1998. The decrease in income from operations in the
agricultural, earthmoving/construction and consumer markets was primarily due to
the labor strike at the Company's Des Moines, Iowa facility and the shut-downs
of certain facilities at several of Titan's largest customers.
8
<PAGE> 11
TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS (CONTINUED)
Interest expense was $5.6 million for the first quarter of 1999, compared to
$4.1 million in 1998. The increased interest expense was primarily due to an
increase in the average debt outstanding in the first quarter of 1999.
Net income for the first quarter of 1999 was $0.1 million compared to $8.3
million in 1998. Basic and diluted earnings per share were $.01 for the first
quarter of 1999 compared to $.38 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
In the first quarter of 1999, negative cash flows from operating activities of
$12.5 million resulted from increases in receivables. These amounts were
partially offset by increases in accounts payable and other accrued liabilities
and a decrease in inventories. The increase in receivables is primarily due to
extended payment terms offered to certain customers during the first quarter of
1999.
The Company has invested $9.7 million in capital expenditures in 1999, including
$2.4 million for equipment and construction related to the Brownsville, Texas
facility. The balance represents various equipment purchases and building
improvements to enhance production capabilities.
The Company received $20.0 million in proceeds from its $250.0 million revolving
credit facility. These proceeds have been used to fund operations and capital
expenditures.
At March 31, 1999, the Company had cash and cash equivalents of $10.9 million.
Cash on hand, anticipated internal cash flows and utilization of available
borrowing under the Company's credit facilities are expected to provide
sufficient liquidity for working capital needs, capital expenditures and
acquisitions for the foreseeable future.
9
<PAGE> 12
TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000
During 1996, the Company formed a project team to address the inability of
certain computer and infrastructure systems to process dates in the year 2000
and later. The major areas for evaluation include mainframe computers, personal
computers, engineering hardware and software, manufacturing systems and the
readiness of the Company's suppliers, customers and distribution network. The
Company's phases for its Year 2000 program include planning, assessment,
remediation and testing and contingency planning.
Titan believes it is on schedule to become Year 2000 compliant. Planning began
in 1996 and is substantially complete. Assessment of the Company's information
technology ("IT") and non-IT systems is 95 percent complete and scheduled to be
complete by July 1999. The Company's non-IT systems including manufacturing
equipment, telecommunications equipment, building control equipment and
environmental equipment were considered. Date sensitive non-IT and IT systems
were identified and upgrade/replacement is anticipated to be complete by July
1999. Remediation of IT and non-IT systems is 80 percent complete and scheduled
to be complete by September 1999. Testing is performed as noncompliant systems
are remediated and will continue until year 2000 arrives.
The Company is evaluating its critical suppliers to ensure that there is no
interruption in the delivery of products and services to Titan due to Year 2000
issues. In 1998, the Company sent questionnaires to its major and critical
suppliers and customers in order to evaluate their Year 2000 status. Alternate
suppliers are in the process of being identified and are anticipated to be in
place by July 1999.
The total capitalized cost of the software upgrades was approximately $0.1
million for the first quarter of 1999, and is expected to total $1.1 million for
1999. The Company does not separately track the internal payroll costs
associated with remediating for year 2000; such costs are expensed as incurred.
The Company has utilized cash flows from operations in order to carry out the
Year 2000 plans discussed herein. Other major systems projects have not been
deferred due to the Year 2000 compliance projects.
The costs of the Company's Year 2000 conversion efforts and the dates by which
it believes these efforts will be completed are based on management's best
estimates. These were developed using many assumptions regarding future events,
including continued availability of certain resources, third-party remediation
plans and other factors. There can be no assurance that these estimates will
prove to be accurate and actual costs could differ materially from those
currently anticipated.
10
<PAGE> 13
TITAN INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 (CONTINUED)
The Company believes its most reasonably likely worst case scenario would
involve particular systems that are not fully or properly remediated. Until
necessary system modifications could be made, manual procedures would be
employed. Such a situation could result in additional costs and/or delays in
operating activities. The Company believes its most reasonably likely worst case
scenario with respect to third-parties would be the inability of such
third-parties to properly remediate for the year 2000 in which case manual
procedures would be employed or alternative relationships would be utilized.
The Company has developed and is in the process of implementing Year 2000
contingency plans that are designed to mitigate the impact on the Company in the
event that its Year 2000 compliance efforts are not successful. Such plans
contain alternate procedures to compensate for potential system and equipment
malfunctions including, but not limited to, use of alternate suppliers,
providing back-up power generators and use of cellular telephones at the
Company's facilities. The targeted completion date for implementation of the
Company's contingency plan is late-1999.
The Company's Year 2000 program is subject to a variety of risks and
uncertainties some of which are beyond the Company's control. Although no
assurances can be given as to the Company's compliance, particularly as it
relates to third-parties, based upon the progress to date, the Company does not
expect the consequences of any of the Company's unanticipated or unsuccessful
modifications to have a material adverse effect on its financial position or
results of operations. However, if all Year 2000 issues are not properly
identified, or assessment, remediation and testing are not completed for Year
2000 problems that are identified, there can be no assurance that the Year 2000
issue will not have a material adverse affect on the Company's relationships
with suppliers and customers. In addition, there can be no assurance that the
Year 2000 issues of other entities will not have a material adverse impact on
the Company's systems or results of operations.
SAFE HARBOR 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 1998 Annual Report on Form
10-K.
11
<PAGE> 14
TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
ITEMS 1 THROUGH 6 ARE NOT APPLICABLE.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during
the quarter ended March 31, 1999
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 7, 1999 BY: /s/ Kent W. Hackamack
---------------------- --------------------------------
Kent W. Hackamack
Vice President of Finance and Treasurer
(Principal Financial Officer and
Principal Accounting Officer)
12
<PAGE> 15
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 (A) SEC FORM
10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH (B) FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 10,870
<SECURITIES> 0
<RECEIVABLES> 144,437
<ALLOWANCES> 6,626
<INVENTORY> 151,225
<CURRENT-ASSETS> 337,465
<PP&E> 413,761
<DEPRECIATION> 131,012
<TOTAL-ASSETS> 703,199
<CURRENT-LIABILITIES> 171,295
<BONDS> 248,787
0
0
<COMMON> 27
<OTHER-SE> 242,346
<TOTAL-LIABILITY-AND-EQUITY> 703,199
<SALES> 158,610
<TOTAL-REVENUES> 158,610
<CGS> 137,995
<TOTAL-COSTS> 137,995
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,550
<INCOME-PRETAX> 207
<INCOME-TAX> 79
<INCOME-CONTINUING> 128
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 128
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
