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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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
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
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<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 26, 1999, 20,883,197 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 $100,737,784
based upon the closing price of the common stock on the New York Stock Exchange
on February 26, 1999.
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
20, 1999.
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ITEM 1. BUSINESS
GENERAL
Titan International, Inc. ("Titan" or the "Company") is a global
manufacturer of off-highway steel wheels and tires in the agricultural,
earthmoving/construction and consumer markets. Titan generally manufactures both
wheels and tires for these markets and 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 to
meet Original Equipment Manufacturers' ("OEM") specifications and/or aftermarket
customer requirements.
During the mid-1990s Titan began a process to reengineer the wheel and tire
industry. The Company 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, tire and assembly business. Product innovation has
demonstrated Titan's leadership with the development of the Grizz LSW series of
wheels and tires, which is expected to considerably enhance the performance of
off-highway vehicles.
In 1998, Titan's sales in the agricultural market represented 50% of net
sales, the earthmoving/ construction market represented 26% of net sales and the
consumer market represented 24% of net sales. For information concerning the
revenues, certain expenses, income from operations and assets attributable to
each of the segments in which the Company operates, see Note 15 to the
consolidated financial statements of Titan International, Inc. included in Item
8 herein.
AGRICULTURAL MARKET
Titan sells agricultural wheels, rims and tires to OEMs and aftermarket
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 a broad line of different
product models to meet customer specifications. The agricultural tires range in
diameter from 8" to 54" and in width from 4.8" to 30.5". The Company offers the
added value of a wheel and tire assembly to its customers. The Company's
aftermarket tires are marketed through a network of independent distributors and
Titan's own distribution centers.
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
63" (with the new 63" 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 a broad range of earthmoving/construction wheels and rims. The
majority of the earthmoving/construction wheels produced by Titan are sold
directly to OEMs. The earthmoving/construction tire market is another area in
which the Company can offer the added value of wheel and tire assembly.
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CONSUMER MARKET
Titan manufactures a variety of products for the all terrain vehicles
("ATV"), lawn and garden and trailer products. The success of the Company's ATV
and lawn and garden products has led to increased sales during 1998. The
Company's 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. Titan currently produces a wide range of tires for the consumer market.
The consumer market is another area in which the Company can offer the
value-added service of a wheel-tire system. The Company continues to hold
significant shares of the domestic markets for boat, recreational, agricultural
and utility trailers. Titan's goal is for continued growth in 1999 with
additions of new sizes in ATV, lawn and garden and trailer products.
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 large 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 thickness which is beyond the
capability of cold-rolling. Rims are built up from a series of hoops that are
welded together to form a rim base. The complete rim is made from either three
or five separate parts that 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
produced 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 begun replacing certain
back-to-back wheels with new smaller diameter rolled rims. Generally, for larger
wheels (12" or more in diameter) produced for the consumer market, the Company
manufactures rims and centers, welds the rims to the centers and then paints the
assembled product.
Tire Manufacturing Process. Tires are produced by mixing rubber, carbon
black and chemicals to form various rubber compounds. These rubber compounds are
then extruded or processed with textile steel materials to make specific
components. These components: beads (wire bundles that anchor the tire with the
wheel), plies (layers of fabric that give the tire strength), belts (fabric or
steel fabric wrapped under tread in some tires), tread and sidewall, are then
assembled into an uncured tire. The uncured tire is placed in a press that molds
the tire under set time, temperature and pressure into a finished tire.
Wheel and Tire Assemblies. The Company's unique position as a manufacturer
of both wheels and tires allows Titan to mount and deliver one of the largest
selections of off-road assemblies in the world. Backed by the resources of the
Company's facilities, Titan provides the value-added service of one-stop
shopping for wheel-tire assemblies for the agricultural,
earthmoving/construction and consumer markets. Customer orders are entered into
the Company's system either by electronic data interchange or manually. Based on
each customer's requirements, the appropriate wheel-tire assembly and delivery
schedule is formulated. The Company's just-in-time delivery program offers the
product to the customer when requested.
Quality Control. The Company is ISO 9000 certified at seven 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.
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RAW MATERIALS
The primary raw materials used by the Company in all segments 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 producer for its supply of steel. Rubber and raw materials for tire
manufacture are the Company's second largest commodity expense. Titan buys
rubber in markets where there are numerous sources of supply. In addition to the
development of key suppliers domestically, the Company's strategic procurement
plan includes international suppliers to assure competitive price and quality in
the global marketplace. As is customary in the industry, the Company does not
have long-term contracts for the purchase of steel or rubber and, therefore, its
purchases are subject to fluctuation in price.
CUSTOMERS
The Company's ten largest customers accounted for approximately 46% of net
sales for the year ended December 31, 1998, compared to 45% for the year ended
December 31, 1997. Net sales to Deere & Company in Titan's agricultural,
earthmoving/construction and consumer markets represent 16% of the Company's
consolidated revenues for the year ended December 31, 1998. No other customers
accounted for more than 10% of the Company's net sales in 1998.
MARKETING AND DISTRIBUTION
The Company has an internal sales force and utilizes several manufacturing
representative firms for sales in the United States, Europe and South America.
In the United States sales representatives are utilized within geographical
regions. The International sales force includes employees in France, Germany,
Italy, United Kingdom, and Uruguay. The Company believes International sales
efforts are enhanced when sales representatives sell primarily within their
native countries.
Titan distributes wheels and tires directly to OEMs. The distribution of
aftermarket tires is done primarily through a network of independent dealers.
The Company distributes wheel and tire assemblies through its own distribution
centers directly to OEMs and to aftermarket customers. Titan's distribution
network consists of fourteen facilities throughout the United States and Europe,
which are strategically located near major OEMs and aftermarket customers for
just-in-time delivery.
RESEARCH, DEVELOPMENT AND ENGINEERING
The Company's research, development and engineering staffs test new designs
and technologies, developing new manufacturing methods to improve product
quality and performance. These services enhance the Company's relationship with
its customers. The Company has spent $2.7 million, $6.8 million and $7.1 million
on research and development for the years ended December 31, 1996, 1997 and
1998, respectively. The increase in cost in 1997 and 1998 is primarily due to
the development of the Grizz LSW series of wheels and tires, which is expected
to considerably enhance the performance of off-highway vehicles. Titan continues
to introduce new designs of Grizz LSW wheel and tire assemblies for the
agricultural, earthmoving/construction and consumer markets.
The Grizz LSW wheel and tire assemblies reduce bounce, hop, lope and heat
build-up and provide 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, earthmoving/construction and consumer equipment without further
modification.
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BACKLOG
As of February 28, 1999, Titan estimates that it had $193 million in firm
orders compared to $230 million at February 28, 1998. 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. The Company believes that the
majority of its current backlog orders will be filled during the current year.
COMPETITION
The Company competes with several domestic and international competitors,
some of which are larger and have greater financial and marketing resources than
Titan. 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
market include GKN Wheels, Ltd., and Topy Industry, Ltd., and major competitors
in the tire market include Goodyear Tire & Rubber Co. and Bridgestone-Firestone.
The Company competes primarily on the basis of price, quality, customer service,
design capability and delivery time. The Company's ability to compete with
international competitors may be adversely affected by currency fluctuations. In
addition, certain of the Company's OEM customers could, under certain
circumstances, elect to manufacture certain of the Company's products to meet
their requirements or to otherwise compete with the Company. There can be no
assurance that the businesses of the Company will not be adversely affected by
increased competition in the markets in which it operates or that the Company's
competitors will not develop products that are more effective or less expensive
than the Company's products or which could render certain of the Company's
products less competitive. From time to time, certain competitors of the Company
have reduced their prices in particular product categories, which has caused the
Company to reduce its prices. There can be no assurance that in the future
competitors of the Company will not further reduce prices or that any such
reductions would not have a material adverse effect on the Company.
EMPLOYEES
At December 31, 1998, the Company employed approximately 5,600 people in
the United States, Europe and South America. Approximately 21% of the Company's
employees in the United States are covered by two collective bargaining
agreements, which have or 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. Since the expiration of
their collective bargaining agreement on April 30, 1998, approximately 600
employees at the Company's Des Moines, Iowa facility have been on strike. The
Company has been hiring and training replacement workers. Although the Company
believes that its relations with its employees are generally good, any extended
continuation of the Des Moines, Iowa strike could continue to have a material
adverse effect on the Company's financial position and results of operations.
INTERNATIONAL OPERATIONS
In addition to the Company's United States facilities, Titan maintains
facilities in Europe and South America. For the year ended December 31, 1998,
the Company generated 26% of its net sales from foreign operations.
International operations and exports to foreign markets are subject to a number
of special risks, including, but not limited to, risks with respect to currency
exchange rates, economic and political destabilization, other disruption of
markets, restrictive actions by foreign governments (such as restrictions on
transfer of funds, export duties and quotas and foreign customs), changes in
foreign laws regarding trade and investment, difficulty in obtaining
distribution and support, nationalization, the laws and policies of the United
States affecting trade, foreign investment and loans, and foreign tax laws.
There can be no assurance that one or a combination of these factors will not
have a material adverse effect on the Company's ability to increase or maintain
its foreign sales or on its results of operations. The Company had total
aggregate export sales of approximately $83.1 million, $97.6 million and $103.4
million for the years ended December 31, 1996, 1997 and 1998, respectively. For
financial information regarding international operations, see Note 15 to the
consolidated financial statements of Titan International, Inc. included in Item
8 herein.
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In addition, the Company has significant manufacturing operations in
foreign countries and purchases a portion of its raw materials from foreign
suppliers. The production costs, profit margins and competitive position of the
Company are affected by the strength of the currencies in countries where it
manufactures or purchases goods relative to the strength of the currencies in
countries where its products are sold. The Company's results of operations and
financial position may be adversely affected by fluctuations in foreign
currencies and by translation of the financial statements of the Company's
foreign subsidiaries from local currencies into U.S. dollars.
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 the business,
Titan does not consider any one of them to be of such importance that the
patent's expiration or invalidity could materially affect the Company's
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.
ITEM 2. PROPERTIES
The Company maintains twenty-three manufacturing and
warehousing/distribution facilities in the United States with a collective floor
space of approximately 8.3 million square feet. Of these facilities, one is used
primarily for the manufacture of agricultural products, one is used primarily
for the manufacture of earthmoving/construction products, two are used primarily
for the manufacture of consumer products, one is used for the manufacture of
earthmoving/construction and consumer products, five are used for the
manufacture of agricultural, earthmoving/construction and consumer products, and
thirteen are used for the warehousing/distribution of products in all of the
Company's segments.
In Europe and South America, Titan maintains ten manufacturing and
warehousing/distribution facilities with a collective floor space of
approximately 1.8 million square feet. Of these facilities, one is used for the
manufacture of earthmoving/construction products, seven are used for the
manufacture of agricultural and earthmoving/construction products, one is used
for the manufacture of agricultural, earthmoving/ construction and consumer
products and one is used for warehousing/distribution of products in all of the
Company's segments.
Several of the Company's facilities are leased through operating lease
agreements. For information on operating leases, see Note 11 to the consolidated
financial statements of Titan International, Inc. included in Item 8 herein. The
Company considers each of its facilities to be in good operating condition and
adequate for its present use. Management believes that it has sufficient
capacity to meet its current market demand.
ITEM 3. LEGAL PROCEEDINGS
The Company is party to several routine legal proceedings arising out of
the normal course of business. Although it is not possible to predict with
certainty the outcome of these unresolved legal actions or the range of possible
loss, 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.
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ITEM 4. SUBMISSION OF MATTERS 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 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 Stockholders. 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., 54, has been 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.
Gary L. Carlson, 48, joined the Company as Vice President in September
1997. Prior to joining the Company, Mr. Carlson served as an executive of
Bandag, Incorporated since 1974, most recently as its Senior Vice President and
General Manager of Europe, Middle East and Northern Africa. During his career at
Bandag he also held positions in manufacturing, managed distribution and
logistics in North America, was Vice President of personnel worldwide and Vice
President of strategic planning worldwide.
Cheri T. Holley, 51, joined the Company in March of 1994 as General
Counsel. In November of 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, 40, 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.
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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>
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DIVIDENDS
HIGH LOW DECLARED
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<S> <C> <C> <C> <C> <C>
1997
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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
1998
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First quarter............................................... $20 1/4 $16 1/2 $0.015
Second quarter.............................................. 20 3/16 16 3/4 0.015
Third quarter............................................... 17 13/16 9 11/16 0.015
Fourth quarter.............................................. 12 1/4 8 9/16 0.015
</TABLE>
On February 26, 1999, there were approximately 731 holders of record of
Titan common stock.
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ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below, as of and for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998, are derived from the Company's
consolidated financial statements, audited by PricewaterhouseCoopers LLP,
independent accountants, and should be read in conjunction with the Company's
audited consolidated financial statements and notes thereto.
<TABLE>
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YEAR ENDED DECEMBER 31,
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1994 1995 1996 1997 1998
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(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................. $407,000 $623,183 $634,553 $690,131 $660,781
Gross profit.............................. 68,432 115,726 97,354 105,982 91,129
Income from operations.................... 37,996 73,055 67,267 53,626 31,163
Income before income taxes................ 30,107 63,280 56,981 40,542 13,146
Net income................................ 18,480 37,983 35,378 25,136 8,151
Net income per share (basic).............. $1.14 $1.91 $1.58 $1.11 $.38
Net income per share (diluted)............ .89 1.50 1.30 1.10 .38
Working capital........................... $119,962 $151,258 $181,015 $183,909 $170,465
Current assets............................ 192,358 264,900 284,651 298,596 312,195
Total assets.............................. 400,460 512,135 558,592 585,142 678,274
Long-term debt............................ 178,341 142,305 113,096 181,705 247,584
Stockholders' equity...................... 107,736 215,872 301,181 248,129 247,037
Dividends declared per common share....... $0.03 $0.05 $0.06 $0.06 $0.06
</TABLE>
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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 audited
consolidated financial statements and notes thereto.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
YEAR ENDED DECEMBER 31,
---------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 83.0 84.6 86.2
Realignment costs........................................... 1.6 0.0 0.0
----- ----- -----
Gross profit................................................ 15.4 15.4 13.8
Selling, general and administrative expenses................ 6.9 6.6 8.0
Research and development expenses........................... 0.4 1.0 1.1
Gain on sale of assets...................................... (2.5) 0.0 0.0
----- ----- -----
Income from operations...................................... 10.6 7.8 4.7
Interest expense............................................ 1.7 2.2 2.8
Minority interest........................................... 0.3 0.0 0.0
Other....................................................... (0.4) (0.3) (0.1)
----- ----- -----
Income before income taxes.................................. 9.0 5.9 2.0
Provision for income taxes.................................. 3.4 2.3 0.8
----- ----- -----
Net income.................................................. 5.6% 3.6% 1.2%
===== ===== =====
</TABLE>
In addition, the following table sets forth, for periods indicated,
components of the Company's net sales classified by segment (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Agricultural.............................................. $306,743 $358,255 $324,938
Earthmoving/Construction.................................. 153,234 172,929 174,354
Consumer.................................................. 154,266 158,947 161,489
Other..................................................... 20,310(a) 0 0
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Total................................................... $634,553 $690,131 $660,781
======== ======== ========
</TABLE>
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(a) Represents an operating segment that was divested in 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1998 COMPARED TO FISCAL YEAR ENDED DECEMBER 31,
1997
Net sales for the year ended December 31, 1998, were $660.8 million
compared to $690.1 million in sales for the year ended December 31, 1997. During
the year, the Company experienced a labor strike at its Des Moines, Iowa
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. The decrease in sales was partially offset by the sales related
to the acquisition of Fabrica Uruguaya de Neumaticos S.A. ("FUNSA") in June
1998.
Sales in the agricultural market were $324.9 million for the year ended
December 31, 1998, as compared to $358.3 million in 1997. The Company's
earthmoving/construction market sales were $174.4 million for the year ended
December 31, 1998, as compared to $172.9 million in 1997. Consumer market sales
were $161.5 million for the year ended December 31, 1998, as compared to $158.9
million in 1997. Sales in all markets were negatively impacted by the labor
strike at the Company's Des Moines, Iowa facility.
The Company generates 26% 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, 1998, had a
minimal effect on results of operations.
Cost of sales was $569.7 million for the year ended December 31, 1998, as
compared to $584.1 million in 1997. Gross profit for the year ended December 31,
1998 was $91.1 million, or 13.8% of net sales, compared to $106.0 million, or
15.4% of net sales for 1997. Gross profit was negatively impacted by
inefficiencies caused by the strike at the Company's Des Moines, Iowa facility.
Selling, general and administrative ("SG&A") expenses were $52.9 million or
8.0% of net sales for the year ended December 31, 1998, as compared to $45.5
million or 6.6% of net sales for 1997. 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 were $7.1 million or
1.1% of net sales for the year ended December 31, 1998, as compared to $6.8
million or 1.0% of net 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.
Income from operations for the year ended December 31, 1998, was $31.2
million or 4.7% of net sales, compared to $53.6 million, or 7.8% in 1997. Income
from operations was impacted by the items described in the preceding paragraphs.
Income from operations in the agricultural market was $25.5 million for the
year ended December 31, 1998, as compared to $50.0 million in 1997. The
Company's earthmoving/construction market income from operations was $25.8
million for the year ended December 31, 1998, as compared to $28.4 million in
1997. Consumer market income from operations was $4.7 million for the year ended
December 31, 1998, as compared to $4.8 million in 1997. 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.
Net interest expense for the year ended December 31, 1998, was $18.3
million or 2.8% of net sales compared to $15.1 million or 2.2% for 1997. The
increased interest expense was primarily due to an increase in the average debt
outstanding in 1998 as compared to 1997.
Net income for the year ended December 31, 1998, was $8.2 million, compared
to $25.1 million in 1997. Earnings per common share (on a diluted basis) were
$.38 for the year ended December 31,1998, as compared to $1.10 in 1997. Due to
the repurchase of the Company's common stock, the average number of diluted
common shares outstanding for the year ended December 31, 1998, decreased 5% as
compared to the same period in 1997.
11
<PAGE> 12
Titan had a strong beginning to the 1998 year in both sales and earnings
until the strike at the Des Moines, Iowa, facility began in May 1998. The
Company has been hiring and training replacement workers. The Des Moines
facility is forecasted to approach full capacity in the second quarter of 1999.
Titan remains optimistic for the demand in 1999 for its products in the
agricultural, earthmoving/construction and consumer markets. The demand for
large tractor and large construction wheels is anticipated to be lower in 1999,
however, the demand for small construction wheels is expected to partially
offset the shortfall. Additionally, Titan's LSW wheel and tire assemblies are
anticipated to add production volume to the Company's facilities in 1999.
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 $358.3 million for the year
ended December 31, 1997, as compared to $306.7 million in 1996. The Company's
earthmoving/construction market sales were $172.9 for the year ended December
31, 1997, as compared to $153.2 million in 1996. Consumer market sales were
$158.9 million for the year ended December 31, 1997, as compared to $154.3
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.
Income from operations in the agricultural market was $50.0 million for the
year ended December 31, 1997, as compared to $46.5 million in 1996. The
Company's earthmoving/construction market income from operations was $28.4
million for the year ended December 31, 1997, as compared to $24.3 million in
1996. Consumer market income from operations was $4.8 million for the year ended
December 31, 1997, as compared to $9.8 million in 1996. Income from operations
in agricultural and earthmoving/construction markets was positively impacted by
strong customer demand due to growth within those markets. The decrease in
income from operations in the consumer market was primarily due to the Company's
divestiture of a non-core business in 1996.
12
<PAGE> 13
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% 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.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $7.1 million from the prior year, as
increases in depreciation and amortization and a decrease in accounts receivable
partially offset increases in inventories and prepaid and other current assets
and a decrease in accounts payable and net income, resulting in a decrease in
net cash provided by operations of $11.3 million.
Depreciation and amortization expenses were $34.7 million for the year
ended December 31, 1998, compared to $30.9 million in 1997. The increase is
primarily attributable to a full year of depreciation on prior year capital
expenditures, current year capital expenditures and recent acquisitions. The
decrease in accounts receivable is primarily due to the decrease in sales during
the fourth quarter of 1998, as compared to 1997. Accounts payable decreased
primarily due to lower volume in the fourth quarter of 1998.
Net cash used for investing activities increased to $86.7 million in 1998
from $41.7 million in 1997. Capital expenditures totaled $64.9 million compared
to $38.3 million in 1997. The Company has increasingly dedicated funds to
modernize and improve production efficiencies and increase production
capacities. Also included in 1998 capital expenditures is $19.4 million used to
purchase certain property, plant and equipment at the Des Moines, Iowa, facility
and $6.7 million used for equipment purchases at the Company's new tire facility
in Brownsville, Texas. The Company estimates that its capital expenditures for
1999 will range between $40 and $50 million.
In June 1998, Titan acquired 81 percent of the common stock of FUNSA, a
manufacturing facility located in Montevideo, Uruguay. In September 1998, the
Company acquired certain assets of Condere Corporation from the United States
Bankruptcy Court for the Southern District of Mississippi for a total estimated
purchase price of $28 million, which included a cash payment of $13 million.
These acquisitions did not have a significant impact on the Company's results of
operations or financial condition.
In September 1998, the Company increased its availability under its credit
facility from $200 million to $250 million. The Company received $55 million in
proceeds from its $250 million credit facility. These proceeds have been used to
fund operations and capital expenditures.
During 1998, the Company repurchased 0.9 million shares of its common stock
in the open market. The Company is authorized to repurchase an additional 3.5
million common shares.
At December 31, 1998, the Company had cash and cash equivalents of $14.1
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.
13
<PAGE> 14
YEAR 2000
The Year 2000 issue is the result of computer systems and other equipment
with processors that are coded to accept two digits rather than four in their
date code fields to define a year. A company's computer equipment and software
devices with embedded technology that are time-sensitive may recognize a date
using the "00" as the year 1900 rather than 2000. The Company utilizes
information technology ("IT") systems such as computer networking systems and
non-IT devices, which may contain embedded circuits such as building security
equipment. Both IT systems and non-IT systems may be subject to potential
failure due to the Year 2000 issue. This could result in a system failure or
miscalculations causing disruptions of operations including, among other things,
a temporary inability to process transactions, send invoices, or engage in other
normal business activities.
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 IT and
non-IT systems is 90 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 75 percent complete and scheduled to be complete by
July 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 April 1999.
The total capitalized cost of the software upgrades was approximately $0.8
million for 1998, and is expected to total $1.1 million for 1999. Prior to 1998,
Year 2000 costs were insignificant. 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.
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.
14
<PAGE> 15
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.
MARKET RISK SENSITIVE INSTRUMENTS
Exchange Rate Sensitivity
The Company is exposed to fluctuations in the British pound, Italian lira,
French franc, German deutschemark and Uruguayan peso. The Company views its
investments in foreign subsidiaries as long-term commitments and does not hedge
foreign currency transaction or translation exposures. The Company's net
investment in foreign subsidiaries translated into U.S. dollars at December 31,
1998 is $66.5 million. The hypothetical potential loss in value of the Company's
net investment in foreign subsidiaries resulting in a 10% adverse change in
foreign currency exchange rates at December 31, 1998 would amount to $6.7
million.
Commodity Price Sensitivity
The Company does not generally enter into long-term commodity contracts and
does not use derivative commodity instruments to hedge its exposures to
commodity market price fluctuations. Therefore, the Company is exposed to
fluctuations in the prices of its key commodities, which consist primarily of
steel and rubber. The Company is, however, generally able to pass through
material price increases and decreases to its customers.
Interest Rate Sensitivity
At December 31, 1998, the fair value of the Company's senior subordinated
notes, based upon quoted market prices obtained through independent pricing
sources for the same or similar types of borrowing arrangements was $142.5
million, compared to the carrying value of $150.0 million. The Company believes
the carrying value of its other debt reasonably approximates fair value at
December 31, 1998.
15
<PAGE> 16
EURO CONVERSION
The Euro was introduced on January 1, 1999, at which time the conversion
rates between legacy currencies and the Euro were set for eleven participating
European Monetary Union member countries. However, the legacy currencies in
those countries will continue to be used as legal tender through January 1,
2002. Thereafter, the legacy currencies will be canceled and Euro bills and
coins will be used in the eleven participating countries.
Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of accounting systems, statutory records, tax books and
payroll systems to the Euro, as well as conversion of bank accounts and other
treasury and cash management activities.
The Company is in the process of identification, implementation and testing
of its systems to adopt the Euro currency in its operations affected by this
change. The Company expects to have its systems ready to process the Euro
conversion during the transition period from January 1, 1999 through January 1,
2002. The costs associated with the transition to the Euro are not anticipated
to be material.
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 supersedes Statement of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position, but did affect the
disclosure of segment information, see Note 15 to the consolidated financial
statements of Titan International, Inc. included in Item 8 herein.
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.
FORWARD-LOOKING STATEMENTS
This Form 10-K contains forward-looking statements, including statements
regarding, among other items, (i) anticipated trends in the Company's business,
(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, (v) expectations
concerning the performance and commercial success of the Company's existing and
new products and (vi) 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 world
economic or regulatory influences, (ii) changes in the competitive marketplace,
including new products and pricing changes by the Company's competitors, or
(iii) changes regarding the effects of Year 2000 compliance and implementation
of the Euro. 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.
16
<PAGE> 17
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference is made to Item 7
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference is made to Item 14
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
17
<PAGE> 18
PART III
ITEM 10. EXECUTIVE OFFICERS AND DIRECTORS
Reference is made to the section captioned "Election of Directors" in the
Company's 1999 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 1999 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 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the sections captioned "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 1999 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
Reference is made to the section captioned "Related Party Transactions" in
the Company's 1999 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 Note 12 to the
consolidated financial statements of Titan International, Inc. included in Item
8 herein.
18
<PAGE> 19
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C> <C>
(a) 1. Financial Statements
Report of PricewaterhouseCoopers LLP........................ F-1
Consolidated Balance Sheets at December 31, 1997 and 1998... F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1997 and 1998.......................... F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1996, 1997 and 1998...... F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998.......................... F-5
Notes to Consolidated Financial Statements.................. F-6 through F-21
2. Financial Statement Schedule................................
Schedule IX -- Valuation Reserves........................... S-1
3. Exhibits....................................................
</TABLE>
The accompanying Exhibit Index is incorporated herein by reference.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the
quarter ended December 31, 1998.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Sections 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, 1999 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, 1999.
<TABLE>
<CAPTION>
SIGNATURES CAPACITY
---------- --------
<C> <S>
/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/ MITCHELL I. QUAIN Director
- -----------------------------------------------------
Mitchell I. Quain
/s/ ANTHONY L. SOAVE Director
- -----------------------------------------------------
Anthony L. Soave
</TABLE>
20
<PAGE> 21
TITAN INTERNATIONAL, INC.
EXHIBIT INDEX
FORM 10-K
1998
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3(a)(1) Amended Restated Articles of Incorporation of the Company
3(b)(2) Bylaws of the Company
10(a)(3) Registration Rights Agreement dated November 12, 1993,
between the Company and 399 Venture Partners, Inc.
10(b)(4) Indenture between the Company and The First National Bank of
Chicago dated March 21, 1997
10(c)(1) Multicurrency Credit Agreement dated September 17, 1998
among the Company, Harris Trust and Savings Bank and the
banks named therein
10(d)* The March 1, 1999 Amendment to Multicurrency Credit
Agreement dated September 17, 1998 among the Company, Harris
Trust and Savings Bank and the banks named therein
10(e)(5) 1994 Non-Employee Director Stock Option Plan
10(f)(5) 1993 Stock Incentive Plan
21* Subsidiaries of the Registrant
23.1* Consent of PricewaterhouseCoopers LLP
27* Financial Data Schedule
</TABLE>
- -------------------------
* Filed herewith
(1) Incorporated by reference to the same numbered exhibit contained in the
Company's Form 10-Q for its quarterly period ended September 30, 1998 (No.
001-12936).
(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, 1993.
(4) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-1 (No. 333-22279).
(5) Incorporated by reference to the Company's Registration Statement on Form
S-3 (No. 333-61743).
21
<PAGE> 22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders 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 19 present fairly, in all material
respects, the financial position of Titan International, Inc. and its
subsidiaries at December 31, 1997 and 1998, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, 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.
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
February 18, 1999
F-1
<PAGE> 23
TITAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 21,207 $ 14,116
Accounts receivable (net of allowance of $4,598 and
$6,200, respectively).................................. 112,795 108,194
Inventories............................................... 138,432 154,045
Prepaid and other current assets.......................... 26,162 35,840
-------- --------
Total current assets................................... 298,596 312,195
Property, plant and equipment, net........................ 210,290 284,407
Other assets.............................................. 33,768 40,896
Goodwill, net............................................. 42,488 40,776
-------- --------
Total assets........................................... $585,142 $678,274
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt......................... $ 1,065 $ 7,902
Accounts payable.......................................... 70,480 66,522
Other current liabilities................................. 43,142 67,306
-------- --------
Total current liabilities.............................. 114,687 141,730
Deferred income taxes....................................... 21,021 23,396
Other long-term liabilities................................. 19,600 18,527
Long-term debt.............................................. 181,705 247,584
-------- --------
Total liabilities...................................... 337,013 431,237
-------- --------
Commitments and contingencies
Stockholders' equity
Common stock, no par, 60,000,000 shares authorized,
27,380,620 and 27,520,139, issued, respectively........ 27 27
Additional paid-in capital................................ 212,615 214,807
Retained earnings......................................... 121,934 128,801
Accumulated other comprehensive income.................... (3,340) (4,294)
Treasury stock at cost: 5,738,784 and 6,591,484 shares,
respectively........................................... (83,107) (92,304)
-------- --------
Total stockholders' equity............................. 248,129 247,037
-------- --------
Total liabilities and stockholders' equity.................. $585,142 $678,274
======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-2
<PAGE> 24
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net sales................................................... $634,553 $690,131 $660,781
Cost of sales............................................... 526,875 584,149 569,652
Realignment costs........................................... 10,324 0 0
-------- -------- --------
Gross profit................................................ 97,354 105,982 91,129
Selling, general and administrative expenses................ 43,674 45,528 52,902
Research and development expenses........................... 2,743 6,828 7,064
Gain on sale of assets...................................... (16,330) 0 0
-------- -------- --------
Income from operations...................................... 67,267 53,626 31,163
Interest expense............................................ 10,725 15,127 18,317
Minority interest........................................... 2,082 0 0
Other income................................................ (2,521) (2,043) (300)
-------- -------- --------
Income before income taxes.................................. 56,981 40,542 13,146
Provision for income taxes.................................. 21,603 15,406 4,995
-------- -------- --------
Net income.................................................. $ 35,378 $ 25,136 $ 8,151
======== ======== ========
Earnings per common share:
Basic..................................................... $ 1.58 $ 1.11 $ .38
Diluted................................................... 1.30 1.10 .38
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE> 25
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
NUMBER OF ADDITIONAL OTHER
COMMON COMMON PAID-IN RETAINED TREASURY COMPREHENSIVE COMPREHENSIVE
SHARES STOCK CAPITAL EARNINGS STOCK INCOME INCOME
--------- ------ ---------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996.... 22,477,086 $23 $152,283 $ 64,142 $ (584) $ 8
Net income................. 35,378 $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) plans............. 100,294 1,543
Currency translation
adjustment............... 2,665 2,665
Treasury stock
transactions............. (646,348) 443 (9,708)
Exercise of stock
options.................. 13,160 145
---------- --- -------- -------- -------- ------- -------
BALANCE DECEMBER 31,
1996..................... 26,526,992 27 210,677 98,096 (10,292) 2,673 $38,043
=======
Net income................. 25,136 $25,136
Dividends paid on common
stock.................... (1,298)
Issuance of stock under
401(k) plans............. 103,815 1,612
Currency translation
adjustment............... (6,013) (6,013)
Treasury stock
transactions............. (5,013,619) (72,815)
Exercise of stock
options.................. 24,648 326
---------- --- -------- -------- -------- ------- -------
BALANCE DECEMBER 31,
1997..................... 21,641,836 27 212,615 121,934 (83,107) (3,340) $19,123
=======
Net income................. 8,151 $ 8,151
Dividends paid on common
stock.................... (1,284)
Issuance of stock under
401(k) plans............. 93,393 1,531
Currency translation
adjustment............... 1,841 1,841
Minimum pension
liability................ (2,795) (2,795)
Treasury stock
transactions............. (852,700) (9,197)
Exercise of stock
options.................. 46,126 661
---------- --- -------- -------- -------- ------- -------
BALANCE DECEMBER 31,
1998..................... 20,928,655 $27 $214,807 $128,801 $(92,304) $(4,294) $ 7,197
========== === ======== ======== ======== ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 26
TITAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $35,378 $25,136 $ 8,151
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 27,955 30,917 34,733
Gain on sale of assets................................. (16,330) 0 0
Realignment costs...................................... 10,324 0 0
(Increase) decrease in current assets, excluding the
effects of acquisitions:
Accounts receivable.................................... 14,047 (17,182) 15,466
Inventories............................................ (26,804) 326 (4,332)
Prepaid and other current assets....................... (5,425) (3,359) (6,789)
Increase (decrease) in current liabilities, excluding the
effects of acquisitions:
Accounts payable....................................... 870 9,877 (11,447)
Other current liabilities.............................. 10,522 (329) (1)
Other, net................................................ 3,712 (1,368) (3,107)
------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 54,249 44,018 32,674
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired........................ (20,442) 0 (14,686)
Capital expenditures, net................................. (36,665) (38,336) (64,920)
Proceeds from sale of assets.............................. 24,129 0 0
Other..................................................... 0 (3,321) (7,143)
------- ------- --------
NET CASH USED FOR INVESTING ACTIVITIES................. (32,978) (41,657) (86,749)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings........................ 80,000 149,250 57,487
Repayments on long-term debt.............................. (77,178) (81,198) (1,071)
Repurchase of common stock................................ (9,456) (72,815) (9,197)
Payment of financing fees................................. (233) (4,300) (610)
Dividends paid............................................ (1,354) (1,382) (1,295)
Other..................................................... 145 1,885 1,670
------- ------- --------
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES... (8,076) (8,560) 46,984
Net increase (decrease) in cash and cash equivalents........ 13,195 (6,199) (7,091)
Cash and cash equivalents, beginning of year................ 14,211 27,406 21,207
------- ------- --------
Cash and cash equivalents, end of year...................... $27,406 $21,207 $ 14,116
======= ======= ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 27
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
Titan International, Inc. ("Titan" or the "Company"), is a global
manufacturer of off-highway steel wheels and tires in the agricultural,
earthmoving/construction and consumer markets. The Company generally
manufactures both wheels and tires for these markets and provides the
value-added service of assembling the completed wheel-tire system. The Company's
primary materials utilized in the manufacturing process are steel and rubber,
which are obtained from a broad base of suppliers.
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 of less than 20% 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 44% of inventories and the
first-in, first-out ("FIFO") method for 56% 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> 28
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>
Building 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 credit facilities and senior subordinated notes. The costs associated
with the credit facilities are being amortized over their respective terms. The
costs associated with the senior subordinated notes and the discount are being
amortized over ten years, the term of the notes.
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> 29
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, 1996 and 1998,
including certain non-cash transactions, related to the Company's acquisition of
Sirmac Officine Meccaniche SpA and Siria Officine Meccaniche SpA ("Titan
Italia"), Delachaux, SA ("Titan France"), certain assets of Condere Corporation
and Fabrica Uruguaya de Neumaticos S.A. ("FUNSA"), involved the following (in
thousands):
<TABLE>
<CAPTION>
1996(A) 1998
------- ----
<S> <C> <C>
Fair value of assets acquired, other than cash and cash
equivalents:
Current assets........................................... $ 9,631 $27,122
Property, plant and equipment............................ 22,970 34,331
Other assets............................................. (5,672) (8,162)
Liabilities assumed...................................... (8,569) (38,605)
Minority interest acquired............................... 2,082 0
------- -------
Cash paid........................................... $20,442 $14,686
======= =======
</TABLE>
- -------------------------
(a) There were no such transactions in 1997.
During 1998, the Company acquired certain assets of Condere Corporation
from the United States Bankruptcy Court for the Southern District of Mississippi
for a total estimated purchase price of $28 million, which included a cash
payment of $13 million.
During 1998, the Company issued $10 million of notes to purchase certain
property, plant and equipment of the Des Moines, Iowa facility.
The Company paid $10.4 million, $11.1 million and $16.9 million for
interest and $19.8 million, $13.5 million and $8.5 million for income taxes in
1996, 1997 and 1998, 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, 1998, 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 $142.5 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, 1997
and 1998 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 are expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and can be reasonably estimated.
F-8
<PAGE> 30
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company utilizes Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB 25) to account 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).
NEW ACCOUNTING STANDARDS
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 supersedes Statement of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business Enterprise," replacing the
"industry segment" approach with the "management" approach. The management
approach designates the internal organization that is used by management for
making operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about products
and services, geographic areas, and major customers. The adoption of SFAS 131
did not affect results of operations or financial position, but did affect the
disclosure of segment information, see Note 15.
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.
RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform with the
current year's presentation.
2. INVENTORIES
Inventories at December 31, 1997 and 1998, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Raw material............................................. $ 41,486 $ 49,970
Work-in-process.......................................... 12,412 17,831
Finished goods........................................... 82,219 82,579
-------- --------
136,117 150,380
LIFO Reserve............................................. 2,315 3,665
-------- --------
$138,432 $154,045
======== ========
</TABLE>
F-9
<PAGE> 31
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment at December 31, 1997 and 1998, consisted of
the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Land and improvements.................................. $ 10,456 $ 10,598
Buildings and improvements............................. 53,907 59,693
Machinery and equipment................................ 183,815 231,452
Tools, dies and molds.................................. 46,954 51,623
Construction in process................................ 15,546 55,287
--------- ---------
310,678 408,653
Less accumulated depreciation.......................... (100,388) (124,246)
--------- ---------
$ 210,290 $ 284,407
========= =========
</TABLE>
4. GOODWILL
Goodwill at December 31, 1997 and 1998, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Goodwill................................................... $46,844 $46,567
Less accumulated amortization.............................. (4,356) (5,791)
------- -------
$42,488 $40,776
======= =======
</TABLE>
Amortization of goodwill for the years 1996, 1997 and 1998 totaled $1.5
million, $1.2 million and $1.4 million, respectively.
5. OTHER CURRENT LIABILITIES
Other current liabilities at December 31, 1997 and 1998, consisted of the
following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Acquisition payable........................................ $ 0 $14,750
Accrued wages and commissions.............................. 8,491 10,247
Income taxes payable....................................... 6,727 0
Workers' compensation...................................... 6,808 4,254
Other...................................................... 21,116 38,055
------- -------
$43,142 $67,306
======= =======
</TABLE>
F-10
<PAGE> 32
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. LONG-TERM DEBT
Long-term debt at December 31, 1997 and 1998, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Senior subordinated notes................................ $150,000 $150,000
Credit facility.......................................... 0 55,000
Notes payable to Pirelli................................. 19,743 29,743
Industrial revenue bonds and other....................... 13,027 20,743
-------- --------
182,770 255,486
Less amounts due within one year......................... 1,065 7,902
-------- --------
$181,705 $247,584
======== ========
</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 September 1998, the Company increased its availability under its
credit facility ("Facility") from $200 million to $250 million, 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, 1997 and 1998 totaled $0
and $55 million, respectively. The Facility, which expires September 2003,
allows Titan to borrow funds under various interest rate options. The Company
paid interest rates ranging from 5 1/2% to 8 1/2% on the outstanding balance
under the Facility in 1998. 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
("Pirelli"). The note matures in February 2000. In December 1998, Titan Tire
Corporation issued two $5 million subordinated notes with fixed interest rates
of 6 1/2% to Pirelli LLC to acquire certain property, plant and equipment. The
notes mature in June 2001, and December 2003, respectively.
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>
1999........................................................ $ 7,902
2000........................................................ 20,670
2001........................................................ 5,900
2002........................................................ 135
2003 and thereafter......................................... 220,879
--------
$255,486
========
</TABLE>
F-11
<PAGE> 33
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
Income before income taxes consisted of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Domestic........................................... $36,900 $29,104 $ 3,139
Foreign............................................ 20,081 11,438 10,007
------- ------- -------
$56,981 $40,542 $13,146
======= ======= =======
</TABLE>
The provision for income taxes was as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Current
Federal.......................................... $13,281 $10,248 $ 3,468
State............................................ 2,708 2,112 157
Foreign.......................................... 5,619 3,433 3,009
------- ------- -------
21,608 15,793 6,634
------- ------- -------
Deferred
Federal.......................................... (4) (319) (1,736)
State............................................ (1) (68) 97
------- ------- -------
(5) (387) (1,639)
------- ------- -------
Provision for income taxes......................... $21,603 $15,406 $ 4,995
======= ======= =======
</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>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Statutory U.S. federal tax rate............................. 35.0% 35.0% 35.0%
State taxes (net)........................................... 3.0 3.3 1.3
Foreign taxes (net)......................................... (2.5) (1.4) 0.3
Nondeductible goodwill amortization......................... 0.9 1.0 3.2
U.S. benefit from foreign sales corporation................. 0.0 (1.1) (2.5)
Other (net)................................................. 1.6 1.2 0.7
---- ---- ----
Effective tax rate.......................................... 38.0% 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> 34
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES (CONTINUED)
Deferred tax assets (liabilities) at December 31, 1997 and 1998,
respectively, consisted of the following (in thousands):
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Employee benefits and related costs...................... $ 5,814 $ 6,321
EPA reserve.............................................. 2,551 2,200
Allowance for bad debts.................................. 1,205 1,605
Inventory................................................ 0 967
Other.................................................... 3,160 5,317
-------- --------
Gross deferred tax assets................................ 12,730 16,410
-------- --------
Fixed assets............................................. (20,693) (20,786)
Inventory................................................ (973) 0
Deferred gain............................................ 0 (2,542)
Other.................................................... (1,909) (5,445)
-------- --------
Gross deferred tax liabilities........................... (23,575) (28,773)
-------- --------
Net deferred tax liabilities............................. $(10,845) $(12,363)
======== ========
</TABLE>
F-13
<PAGE> 35
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE BENEFIT PLANS
PENSION PLANS
The Company has a frozen contributory defined benefit pension plan covering
certain hourly employees of its Walcott, Iowa, facility ("Walcott"). The Company
sponsors a contributory defined benefit plan that covered former eligible
bargaining employees of Dico, Inc. ("Dico"). The Company has a frozen defined
benefit pension plan covering certain employees of Titan Tire Corporation
("Titan Tire"). The Company's policy is to fund pension costs as accrued, which
is consistent with the funding requirements of federal laws and regulations.
The Company's defined benefit plans have been aggregated below. Included in
the amounts below are two plans with an aggregate projected benefit obligation
and aggregated accumulated benefit obligation of $57.8 million and $63.7 million
which exceeds the aggregate fair value of plan assets of $55.8 million and $59.9
million at December 31, 1997 and 1998, respectively. The following tables
provide the change in benefit obligation, change in plan assets, funded status
and amounts recognized in the consolidated balance sheet of the defined benefit
pension plans as of December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
---- ----
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year.................. $64,049 $62,522
Interest cost............................................ 5,371 5,307
Actuarial losses (gains)................................. (750) 6,835
Benefits paid............................................ (6,148) (6,022)
------- -------
Benefit obligation at end of year........................ $62,522 $68,642
======= =======
Change in plan assets:
Fair value of plan assets at beginning of year........... $59,882 $60,853
Actual return on plan assets............................. 6,837 8,620
Employer contributions................................... 282 1,648
Benefits paid............................................ (6,148) (6,023)
------- -------
Fair value of plan assets at end of year................. $60,853 $65,098
======= =======
Funded status............................................ $(1,684) $(3,543)
Unrecognized net loss.................................... 2,147 4,533
Unrecognized deferred tax liability...................... (826) (762)
------- -------
Net amount recognized.................................... $ (363) $ 228
======= =======
Amounts recognized in the consolidated balance sheet:
Prepaid benefit cost..................................... $ 1,685 $ 68
Accrued benefit liability................................ (2,048) (3,858)
Accumulated other comprehensive income................... 0 4,018
------- -------
Net amount recognized.................................... $ (363) $ 228
======= =======
</TABLE>
Included in the consolidated balance sheet at December 31, 1998, is the
minimum pension liability for the unfunded pension plans. The adjustment for the
minimum pension liability in the amount of $4.0 million resulted in a reduction
in stockholders' equity and other comprehensive income of $2.8 million and a
deferred tax asset of $1.2 million, at December 31, 1998. The minimum pension
liability will change from year to year as a result of revisions to actuarial
assumptions, experience gains or losses and settlement rate changes.
F-14
<PAGE> 36
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table provides the components of net periodic pension cost
for the plans and the assumptions used in the measurement of the Company's
benefit obligation for years ended December 31, 1996, 1997 and 1998 (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Components of net periodic pension cost:
Interest cost................................ $ 464 $ 5,371 $ 5,307
Actual return on assets...................... (388) (6,837) (8,620)
Amortization of unrecognized deferred
taxes..................................... (7) (63) (63)
Amortization of net unrecognized loss........ 38 11 9
Asset (gain) loss............................ (48) 1,736 4,425
----- ------- -------
Net periodic pension cost............ $ 59 $ 218 $ 1,058
===== ======= =======
</TABLE>
<TABLE>
<S> <C> <C> <C>
Major assumptions:
Discount rate................................ 8% 8-9% 7 1/4-7 3/4%
Rate of return on plan assets................ 8 1/2% 8 1/2-9% 7-8 1/2%
</TABLE>
401(K)
The Company sponsors two 401(k) retirement savings plans (the "401(k)
Plans"). One plan is for the benefit of all employees who are not covered by a
collective bargaining arrangement and a second plan is 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 $10,000 in
1998. 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 100,294, 103,815 and 93,393 shares
of common stock in connection with the 401(k) Plans during 1996, 1997 and 1998,
respectively. Expenses related to the 401(k) Plans were $1.5 million, $1.6
million and $1.5 million for 1996, 1997 and 1998, respectively.
F-15
<PAGE> 37
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS
The Company adopted the 1993 Stock Incentive Plan (the "Plan") in which a
total of 1,125,000 shares of common stock are reserved. 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 an exercise
price not less than 85% of the fair market value of the common stock on the 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. The Company adopted a 1994 Non-Employee Director Stock Option
Plan (the "Director Plan") to provide for grants of stock options as a means of
attracting and retaining highly qualified independent directors for the Company.
The exercise price of stock options may not be less than the fair market value
of the common stock on the date of grant. No more than 400,000 shares of Titan's
common stock may be issued under the Director Plan. Such options vest and become
exercisable immediately. All options under both plans expire 10 years from date
of grant.
The following is a summary of activity in the stock option plans for 1996,
1997 and 1998:
<TABLE>
<CAPTION>
SHARES SUBJECT WEIGHTED-AVERAGE
TO OPTION EXERCISE PRICE
-------------- ----------------
<S> <C> <C>
Outstanding, January 1, 1996.................... 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
Granted......................................... 173,340 $18.00
Exercised....................................... (11,724) 12.02
Canceled........................................ (23,792) 12.96
------- ------
Outstanding, December 31, 1998.................. 783,718 $13.96
======= ======
</TABLE>
The exercise price for options outstanding at December 31, 1998 ranged from
$11.11 to $18.00 per share and the weighted-average remaining contractual life
of these options approximates seven years. At December 31, 1998, a total of
504,252 options were exercisable at a weighted-average exercise price of $13.12.
The Company has recorded an insignificant amount of compensation expense
under APB 25 as exercise price on the date of grant generally approximates fair
market value. Had compensation cost been determined based on the fair value at
the grant date for awards in 1996, 1997 and 1998 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>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income -- as reported........................... $35,378 $25,136 $8,151
Net income -- pro forma............................. 34,952 24,740 7,518
Net income per share -- as reported................. $1.30 $1.10 $.38
Net income per share -- pro forma................... 1.28 1.08 .35
</TABLE>
F-16
<PAGE> 38
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. STOCK OPTION PLANS (CONTINUED)
The fair value of each option is calculated using the Black-Scholes
option-pricing model with the following assumptions used for grants in 1996,
1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Stock price volatility.............................. 42% 30% 34%
Risk-free interest rate............................. 5.8% 6.1% 5.6%
Expected life of options............................ 6 years 6 years 6 years
Dividend yield...................................... .35% .36% .39%
</TABLE>
The weighted-average fair value of options granted during 1996, 1997 and
1998 was $8.03, $4.83 and $7.47 per option, respectively.
The pro forma effect on net income for 1996, 1997 and 1998 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 1996.
10. STOCKHOLDERS' EQUITY
The Company's Board of Directors has authorized Titan to repurchase up to
ten million shares of its common stock. The Company repurchased 0.6 million, 5.0
million and 0.9 million shares of its common stock for a cost of $9.5 million,
$72.8 million and $9.2 million in 1996, 1997 and 1998, respectively. The Company
is authorized to repurchase an additional 3.5 million common shares. The Company
paid cash dividends of $.06 per share of common stock during 1996, 1997 and
1998.
11. LEASE COMMITMENTS
The Company leases certain of its buildings and equipment under operating
leases including a lease for the building in Brownsville, Texas. Certain lease
agreements provide for renewal options, fair value purchase options, and payment
of property taxes, maintenance and insurance by the Company. Total rental
expense was $1.6 million, $2.2 million and $3.7 million for the years ended
December 31, 1996, 1997 and 1998, respectively.
At December 31, 1998, future minimum rental commitments under
noncancellable operating leases with initial or remaining terms in excess of one
year are as follows: $5.5 million in 1999; $4.5 million in 2000; $4.3 million in
2001; $3.8 million in 2002; and $3.4 million in 2003.
12. RELATED PARTY TRANSACTIONS
The Company sells products and pays commissions to companies controlled by
persons related to the Chief Executive Officer of the Company. During 1996, 1997
and 1998, sales of Titan product to these companies were approximately $5.0
million, $8.3 million and $11.5 million, respectively. On sales referred to
Titan from these manufacturing representative companies, commissions were paid
in the amount of approximately $1.0 million, $1.1 million and $1.1 million for
1996, 1997 and 1998, respectively. These sales and commissions were made in the
ordinary course of business and were made on terms no less favorable to Titan
than comparable sales and commissions to unaffiliated third parties.
F-17
<PAGE> 39
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. 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.
14. REALIGNMENT & GAIN ON SALE OF ASSETS
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. In 1996, the Company sold the assets of certain
affiliated companies and recorded a pretax gain of $16.3 million. These
transactions were part of the Company's overall strategy to eliminate non-core
businesses.
15. SEGMENT INFORMATION
The Company has aggregated its operating units into reportable segments
based on its three customer markets: agricultural, earthmoving/construction and
consumer. These segments are based on the management approach, which is the
internal organization used by management in making operating decisions and
assessing performance. The accounting policies of the segments are the same as
those described in Note 1, "Summary of Significant Accounting Policies." Sales
between segments are priced at certain margins over the cost to manufacture and
all intersegment revenues are eliminated in consolidation. Segment external
revenues, expenses and income from operations are determined on the basis of the
results of operations of operating units' manufacturing facilities. Segment
assets are generally determined on the basis of the tangible assets located at
such operating units' manufacturing facilities and the intangible assets
associated with the acquisitions of such operating units. However, certain
operating units' goodwill and property, plant and equipment balances are carried
at the corporate level.
Titan is organized primarily on the basis of products being broken into
three separate marketing units. The products for each reportable segment include
wheels, tires and wheel-tire assemblies. The Company has operations in the
United States, Europe and South America.
Revenues from one customer of Titan's agricultural,
earthmoving/construction and consumer segments represents approximately $81
million, $107 million and $107 million of the Company's consolidated revenues in
1996, 1997 and 1998, respectively.
F-18
<PAGE> 40
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT INFORMATION (CONTINUED)
The table below presents information about certain revenues and expenses,
income (loss) from operations and segment assets used by the chief operating
decision maker of Titan as of and for the years ended December 31, 1996, 1997
and 1998 (in thousands):
<TABLE>
<CAPTION>
EARTHMOVING/ RECONCILING CONSOLIDATED
AGRICULTURAL CONSTRUCTION CONSUMER OTHER(A) ITEMS TOTALS
------------ ------------ -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1996
Revenues from external
customers................. $306,743 $153,234 $154,266 $20,310 $ 0 $634,553
Intersegment revenues....... 77,075 31,474 44,879 400 0 153,828
Depreciation &
amortization.............. 10,449 7,248 3,593 670 5,995(b) 27,955
Income from operations...... 46,544 24,344 9,764 4,516 (17,901)(c) 67,267
Total assets................ 239,100 122,746 105,984 0 90,762(d) 558,592
Capital expenditures........ 12,343 7,080 12,435 332 4,475(e) 36,665
1997
Revenues from external
customers................. $358,255 $172,929 $158,947 $ 0 $ 0 $690,131
Intersegment revenues....... 84,877 37,361 47,566 0 0 169,804
Depreciation &
amortization.............. 12,099 8,295 4,985 0 5,538(b) 30,917
Income from operations...... 49,975 28,403 4,780 0 (29,532)(f) 53,626
Total assets................ 246,906 133,825 110,450 0 93,961(d) 585,142
Capital expenditures........ 16,698 9,079 5,536 0 7,023(e) 38,336
1998
Revenues from external
customers................. $324,938 $174,354 $161,489 $ 0 $ 0 $660,781
Intersegment revenues....... 98,914 40,334 47,519 0 0 186,767
Depreciation &
amortization.............. 13,961 9,247 5,664 0 5,861(b) 34,733
Income from operations...... 25,527 25,750 4,743 0 (24,857)(f) 31,163
Total assets................ 299,182 152,209 143,555 0 83,328(d) 678,274
Capital expenditures........ 38,427 12,204 9,542 0 4,747(e) 64,920
</TABLE>
- -------------------------
(a) Represents an operating segment that was divested in 1996
(b) Represents depreciation and amortization expense related to property, plant
and equipment and goodwill carried at the corporate level
(c) Represents corporate expenses and depreciation and amortization expenses
referred to in (b); net of realignment costs and gain on sale of assets
(Note 14)
(d) Represents property, plant and equipment and goodwill related to certain
acquisitions and other corporate assets
(e) Represents corporate capital expenditures
(f) Represents corporate expenses and depreciation and amortization expenses
referred to in (b)
F-19
<PAGE> 41
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. SEGMENT INFORMATION (CONTINUED)
The table below presents information by geographic area as of and for the
years ended December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
CONSOLIDATED
UNITED STATES ITALY OTHER COUNTRIES TOTALS
------------- ----- --------------- ------------
<S> <C> <C> <C> <C>
1996
Revenues from external customers.............. $503,242 $78,318 $52,993 $634,553
Intersegment revenues......................... 152,579 0 1,249 153,828
Long-lived assets............................. 176,789 37,372 32,175 246,336
1997
Revenues from external customers.............. $535,266 $81,330 $73,535 $690,131
Intersegment revenues......................... 165,568 1,021 3,215 169,804
Long-lived assets............................. 188,591 35,062 29,125 252,778
1998
Revenues from external customers.............. $487,174 $79,349 $94,258 $660,781
Intersegment revenues......................... 176,882 3,723 6,162 186,767
Long-lived assets............................. 251,961 35,615 37,607 325,183
</TABLE>
16. EARNINGS PER SHARE
Earnings per share for 1996, 1997 and 1998, are as follows (amounts in
thousands, except share and per share data):
<TABLE>
<CAPTION>
NET WEIGHTED- PER SHARE
INCOME AVERAGE SHARES AMOUNT
------ -------------- ---------
<S> <C> <C> <C>
1996
BASIC EPS................................................... $35,378 22,388,952 $1.58
Effect of stock options..................................... 0 125,954
Effect of 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 stock options..................................... 0 181,216
------- ----------
DILUTED EPS................................................. $25,136 22,763,022 $1.10
======= ========== =====
1998
BASIC EPS................................................... $ 8,151 21,505,023 $ .38
Effect of stock options..................................... 0 126,557
------- ----------
DILUTED EPS................................................. $ 8,151 21,631,580 $ .38
======= ========== =====
</TABLE>
F-20
<PAGE> 42
TITAN INTERNATIONAL, INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
17. 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>
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
1998
Net sales.......................... $187,428 $181,216 $149,186 $142,951 $660,781
Gross profit....................... 32,496 27,228 19,020 12,385 91,129
Net income (loss).................. 8,302 4,768 417 (5,336) 8,151
Per share amounts:
Basic........................... $ .38 $ .22 $ .02 $ (.25) $ .38
Diluted......................... .38 .22 .02 (.25) .38
</TABLE>
- -------------------------
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 stock and the application of the treasury stock method.
F-21
<PAGE> 43
TITAN INTERNATIONAL, INC.
SCHEDULE IX -- VALUATION RESERVES
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS TO COSTS BALANCE AT END
DESCRIPTION BEGINNING OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
----------- ----------------- ------------------ ---------- --------------
<S> <C> <C> <C> <C>
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)(a) $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)(b) $4,598,000
========== ========== ========= ==========
Year ended December 31, 1998
Reserve deducted in the balance
sheet from the assets to which it
applies
Allowance for doubtful accounts.... $4,598,000 $1,400,000 $ 202,000(c) $6,200,000
========== ========== ========= ==========
</TABLE>
- -------------------------
(a) Net of recoveries of $82,000 and includes reductions of $50,000 relating to
the sale of assets of certain affiliated companies
(b) Net of recoveries of $47,000
(c) Net of recoveries of $350,000 and an addition relating to the acquisition of
FUNSA of $294,000.
S-1
<PAGE> 1
EXHIBIT 10(d)
TITAN INTERNATIONAL, INC.
TITAN INVESTMENT CORPORATION
TITAN CREDITCORPORATION
FIRST AMENDMENT TO MULTICURRENCY CREDIT AGREEMENT
Harris Trust and Savings Bank,
as Agent
111 West Monroe Street
Chicago, Illinois 60603
The other Banks party to the
Credit Agreement identified
and defined below
Ladies and Gentlemen:
Reference is hereby made to that certain Multicurrency Credit Agreement
dated as of September 17, 1998 (the "Credit Agreement") by and among Titan
International, Inc., an Illinois corporation (the "Company"), Titan Investment
Corporation, an Illinois corporation ("Titan Investment") and Titan Credit
Corporation, a Nevada corporation ("Titan Credit"; the Company, Titan Investment
and Titan Credit being hereinafter referred to collectively as the "Borrowers"
and individually as a "Borrower") and each of you (the "Banks") pursuant to
which the Banks currently extend credit to the Borrowers. Capitalized terms used
herein shall have the same meaning herein as such terms have in the Credit
Agreement unless otherwise specified.
The Borrowers have requested that the Banks make certain amendments to
the Credit Agreement. The Banks have agreed to accommodate such requests by the
Borrowers on the terms and conditions set forth in this First Amendment to
Multicurrency Credit Agreement (the "Amendment").
SECTION 1. AMENDMENTS.
Upon the effectiveness of this Amendment as hereinafter set forth, the
Credit Agreement shall be and hereby is amended as follows:
Section 1.01. Borrowing Base. Section 1.1 of the Credit Agreement
shall be and hereby is amended by inserting the following immediately after the
second sentence of such Section:
"During Calendar Year 1999, the sum of the aggregate Original
Dollar Amount of outstanding Loans (whether Committed Loans or
Bid Loans) and L/C Obligations (other than the Excluded
Standby L/C Obligations) shall not exceed the Borrowing Base
as then determined and computed."
-1-
<PAGE> 2
Section 1.02. Maximum L/C Obligations. Section 1.2(a) of the Credit
Agreement shall be amended by striking the first sentence of such Section and
substituting therefor the following:
"Subject to the terms and conditions hereof, as part of the
Revolving Credit, the Agent shall from time to time issue
standby letters of credit and commercial letters of credit
(each a "Letter of Credit") for the account of any or all of
the Borrowers (whether or not also for the account of any
other Subsidiary of the Company as well) prior to the
Termination Date, in an aggregate undrawn face amount up to
the amount of the L/C Sub-Limit, provided that the aggregate
Original Dollar Amount of L/C Obligations at any time
outstanding shall not exceed the difference between (x) the
Commitments in effect at such time and (y) the aggregate
Original Dollar Amount of Loans (whether Committed Loans or
Bid Loans) then outstanding, and further provided that during
Calendar Year 1999, the aggregate Original Dollar Amount of
L/C Obligations (other than the Excluded Standby L/C
Obligations) at any time outstanding shall not exceed the
difference between (x) the Borrowing Base as then determined
and computed and (y) the aggregate Original Dollar Amount of
Loans (whether Committed Loans or Bid Loans) then
outstanding."
Section 1.03. NationsBank Letter of Credit. Section 1.2 of the Credit
Agreement shall be amended by inserting the following new subsection immediately
at the end thereof:
"(i) NationsBank Letter of Credit. Notwithstanding
anything in this Agreement to the contrary, that certain
standby Letter of Credit (the "NationsBank Letter of Credit")
dated March 30, 1995 issued by NationsBank, N.A.
("NationsBank") to Norwest Bank Minnesota, N.A. in the
original amount of $9,609,315.00 to support the industrial
revenue bond issue in Greenwood, South Carolina described in
item 1 of Schedule 10.11(g) hereof shall constitute a "Letter
of Credit" herein for all purposes of this Agreement to the
same extent, and with the same force and effect, as if such
Letter of Credit had been issued under this Agreement by the
Agent at the request of the Company, but subject to the
following: (i) NationsBank shall act on behalf of the Banks
with respect to the NationsBank Letter of Credit and the
documents associated therewith, (ii) the term "Agent" when
used in this Section 1.2 and Section 5.2(b) hereof shall, when
used with respect to the NationsBank Letter of Credit, mean
and include NationsBank in its capacity as the issuer of the
NationsBank Letter of Credit, (iii) in its capacity as the
issuer of the NationsBank Letter of Credit, NationsBank shall
have all the benefits and immunities provided to the Agent in
Section 13 hereof with respect
-2-
<PAGE> 3
to any acts taken or omissions suffered by it in connection
with the NationsBank Letter of Credit and the related
Application as if the term "Agent" as used in such Section
included NationsBank in its capacity as the issuer of the
NationsBank Letter of Credit with respect to such acts or
omissions, (iv) all payments by the Borrower on the L/C
Obligations with respect to the NationsBank Letter of Credit
shall be made to the Agent and then distributed by the Agent
to the Banks or NationsBank in accordance with the
provisions of this Section 1.2 as modified by this sentence
for purposes of the NationsBank Letter of Credit, (v) all
payments by the Banks on their Participating Interests in
the NationsBank Letter of Credit shall be made to the Agent
which shall promptly remit such payments to NationsBank and
(vi) all processing and transaction fees called for by
Section 5.2(b) hereof shall be paid to NationsBank directly.
Section 1.04. Maximum Bid Loans. Section 3.1 of the Credit
Agreement shall be amended and as so amended shall be restated in its entirety
to read as follows:
"Section 3.1. Bid Loans. Any Borrower may request the
Banks to offer to make uncommitted loans (each a "Bid Loan"
and collectively the "Bid Loans") in U.S. Dollars in the
manner set forth in this Section 3 and in amounts such that
(i) the aggregate Original Dollar Amount of all outstanding
Loans (whether Committed Loans or Bid Loans) and L/C
Obligations shall not exceed the Commitments then in effect
and (ii) only during Calendar Year 1999, the sum of the
aggregate Original Dollar Amount of outstanding Loans (whether
Committed Loans or Bid Loans) and L/C Obligations (other than
the Excluded Standby L/C Obligations) shall not exceed the
Borrowing Base as then determined and computed. The Banks may,
but shall have no obligation to, make such offers and the
Borrowers may, but shall have no obligation to, accept any
such offers in the manner set forth in this Section 3. Each
Bank may offer to make Bid Loans in any amount (whether
greater than, equal to, or less than its Commitment), subject
to the limitations (i) that the aggregate Original Dollar
Amount of Loans (whether Committed Loans or Bid Loans) and L/C
Obligations outstanding at any time shall not at any time
exceed the limits set forth in the immediately preceding
sentence, (ii) that no Bid Loan shall be made if at the time
thereof or immediately after giving effect thereto, the
aggregate principal amount of Bid Loans then outstanding would
exceed the lesser of the unused Commitments or the Bid Loan
Limit and (iii) of the other conditions o f this Section 3."
Section 1.05. Additional Mandatory Prepayment. The first sentence
of Section 4.7(b) of
-3-
<PAGE> 4
the Credit Agreement shall be amended and as so amended shall be restated in its
entirety to read as follows:
"(b) If (i) the aggregate Original Dollar Amount of
outstanding Loans and L/C Obligations shall at any time for
any reason exceed the Commitments then in effect, or (ii) the
aggregate Original Dollar Amount of outstanding Loans and L/C
Obligations (other than the Excluded Standby L/C Obligations)
shall at any time during Calendar Year 1999 for any reason
exceed the Borrowing Base as then determined and computed,
then in either case the Company shall, within three (3)
Business Days, pay the amount of such excess to the Agent for
the ratable benefit of the Banks as a prepayment of Loans (to
be applied to such Loan as the Company shall direct at the
time of such payment) and, if necessary, a prefunding of
Letters of Credit. Any Event of Default consisting of the
failure to make any payment required by this Section to
eliminate any such excess with respect to the Borrowing Base
during Calendar Year 1999 shall continue in effect (even
beyond Calendar Year 1999) unless and until waived in writing
by the Banks or cured before any acceleration of the
Obligations."
Section 1.06. Change in Applicable Margin. Section 2.1(c) of the
Credit Agreement shall be amended by amending and restating in its entirety the
definition of "Applicable Margin" appearing therein to read as follows:
"(c) Applicable Margin. With respect to Committed
Loans and the facility fee payable under Section 5.1 hereof,
the "Applicable Margin" shall mean the rate specified for such
Obligation below, subject to quarterly adjustment as
hereinafter provided:
<TABLE>
<CAPTION>
When Following Status Applicable Margin Applicable Margin Applicable
Exists For any Margin For Domestic Rate For Eurocurrency Margin For
Determination Date Loans Is: Loans Is: Facility Fee Is:
<S> <C> <C> <C>
Level I Status 0% .500% .20%
Level II Status 0% .750% .20%
Level III Status 0% 1.000% .20%
Level IV Status 0% 1.250% .20%
Level V Status 0% 1.500% .20%
</TABLE>
provided, however, that all of the foregoing percentages set
forth in the chart above are subject to the following:
(i) on or before the date that is ten (10) Business
Days after the latest date by which the Company is required to
deliver a Compliance Certificate to the Agent for a given
quarterly accounting period pursuant to Section 10.5(b) hereof
(each date
-4-
<PAGE> 5
that is ten Business Days after the latest date by
which the Company is required to deliver a Compliance
Certificate to the Agent being herein referred to as the
"Margin Determination Date"), the Agent shall determine
whether Level I Status, Level II Status, Level III Status,
Level IV Status or Level V Status exists as of the close of
the applicable quarterly accounting period (the "quarterly
test period") and shall also determine the Debt to Earnings
Ratio as of such close, in each case based upon such
Compliance Certificate and the financial statements delivered
to the Agent under Section 10.5 hereof for such quarterly test
period, and shall promptly notify the Company (acting on
behalf of the Borrowers) of such determination and of any
change in the Applicable Margin resulting therefrom. Any
change in the Applicable Margin shall be effective as of such
Margin Determination Date, with such new Applicable Margin to
continue in effect until the next Margin Determination Date;
(ii) during the Lower Interest Coverage Period to the
extent not occurring during Calendar Year 1999, the Applicable
Margin shall be determined as if the rates specified in the
chart above were in each case .375% higher than each rate
otherwise specified in the chart above;
(iii) other than during Calendar Year 1999, if the
Company has not delivered a Compliance Certificate by the date
such Compliance Certificate is required to have been delivered
under Section 10.5 hereof, but delivers such Compliance
Certificate before the next Margin Determination Date, the
Applicable Margin shall be the Applicable Margin for Level V
Status as if the Lower Interest Coverage Period were in effect
as of a time other than Calendar Year 1999. If the Company
subsequently delivers such late Compliance Certificate before
the next Margin Determination Date, the Applicable Margin
established by such Compliance Certificate shall take effect
from the date ten (10) Business Days after the date of such
delivery and remain effective until such next Margin
Determination Date;
(iv) during Calendar Year 1999 and thereafter to but
not including the Margin Determination Date for the first
quarterly test period in the Company's fiscal year 2000,
notwithstanding anything herein to the contrary, other than
upon the occurrence and during the continuance of an Event of
Default, the Applicable Margin for Eurocurrency Loans shall be
2.00%; and
(v) if and so long as any Event of Default has
occurred and is continuing hereunder during Calendar Year
1999,
-5-
<PAGE> 6
notwithstanding anything herein to the contrary, the
Applicable Margin shall be the Applicable Margin for Level V
Status as if the Lower Interest Coverage Period were in effect
as of a time other than Calendar Year 1999."
Section 1.07. Changed Definitions. Section 7.1 of the Credit Agreement
shall be amended by striking the definition of the terms "Consolidated Net
Income" and "EBIT" appearing therein and substituting therefor the following new
definitions of such terms:
"Consolidated Net Income" means, for any period, the net
income (or net loss) of the Company and its Subsidiaries for
such period computed on a consolidated basis in accordance
with GAAP.
"EBIT" means, for any period, Consolidated Net Income for
such period plus all amounts deducted in arriving at such
Consolidated Net Income amount for such period for Interest
Expense and for foreign, federal, state and local income tax
expense plus the Temporary Add-Back, if any.
Section 1.08. New Definitions. Section 7.1 of the Credit Agreement
shall be amended by inserting in the appropriate alphabetical locations the
definitions of the following terms:
"Borrowing Base" means, as of any time it is to be determined,
the sum of:
(a) 85% of the then aggregate outstanding amount
of Eligible Domestic Accounts; plus
(b) 55% of the value (computed at its cost using
the method of inventory valuation applied by the Borrower in
accordance with GAAP which reflects such cost on the
Borrower's books as its net book value, but in any event after
reducing such value as so computed by the aggregate amount of
all reserves for obsolescence, slow-moving items, shrinkage
and all such other matters as to which GAAP shall from time to
time require reserves to adjust such net book value) of
Eligible Domestic Inventory; plus
(c) the Fixed Asset Advance; plus
(d) 100% of the aggregate value of all cash and
marketable securities owned by the Borrowers and each other
Domestic Subsidiary;
provided that the Borrowing Base shall be computed only as
against and on so much of the assets as are included on the
-6-
<PAGE> 7
certificates to be furnished from time to time by the Company
pursuant to Section 10.5(a)(ix) hereof.
"Calendar Year 1999" means the period commencing from the
First Amendment Effective Date up to and including December
31, 1999.
"Eligible Domestic Account" means each account receivable of
each Borrower and Domestic Subsidiary that is not unpaid more
than 90 days after its original due date (which must be not
more than one hundred eighty (180) days subsequent to the
original invoice date and which invoice date must not be more
than five (5) days after the date of the relevant shipment or
performance of the relevant services giving rise to such
account receivable).
"Eligible Domestic Inventory" means all inventory of each
Borrower and Domestic Subsidiary that is located in the United
States of America.
"Excluded Standby L/C Obligations" means the L/C Obligations
in respect of (i) those two certain standby Letters of Credit,
each issued by Harris Bank on December 30, 1998 to Pirelli
Tire LLC and each in the original amount of $5,000,000 (and
thus aggregating $10,000,000), (ii) the NationsBank Letter of
Credit and (iii) any standby Letter of Credit issued by Harris
Bank to replace the NationsBank Letter of Credit.
"First Amendment Effective Date" means the date of the First
Amendment to this Agreement.
"Fixed Asset Advance" means $50,000,000.
"Temporary Add-Back" shall mean (i) $18,000,000 when
calculating EBIT with respect to the four consecutive fiscal
quarters of the Company ending with the close of the Company's
fiscal quarter ending on or about March 31, 1999, (ii)
$22,000,000 when calculating EBIT with respect to the four
consecutive fiscal quarters of the Company ending with the
close of the Company's fiscal quarter ending on or about June
30, 1999, (iii) $22,000,000 when calculating EBIT with respect
to the four consecutive fiscal quarters of the Company ending
with the close of Company's fiscal quarter ending on or about
September 30, 1999 and (iv) $18,000,000 when calculating EBIT
with respect to the four consecutive fiscal quarters of the
Company ending with the close of the Company's fiscal quarter
ending on or about December 31, 1999 (the parties hereto
acknowledging and agreeing that the
-7-
<PAGE> 8
Temporary Add-Back shall have no effect in calculating EBIT
for any period ending on or at any time after January 1,
2000).
Section 1.09. Borrowing Base Certificate. Section 10.5(a) of the Credit
Agreement shall be amended by (i) deleting the reference to "and" appearing at
the end of Section 10.5(a)(vii), (ii) deleting the period appearing at the end
of Section 10.5(a)(viii) and inserting "; and " in lieu thereof and (iii)
inserting the following new subsection (ix) immediately at the end thereof:
"(ix) within 30 days after the end of each monthly
accounting period of the Company in Calendar Year 1999
(commencing with the monthly accounting period ending on or
about February 28, 1999), a written certificate signed by the
Company's chief financial officer or corporate controller
showing in reasonable detail the computation of the Borrowing
Base as of the close of such monthly accounting period, such
certificate to be in form and substance reasonably acceptable
to the Agent and the Required Banks."
Section 1.10. Double Negative Pledge. Section 10 of the Credit
Agreement shall be amended by adding a new Section 10.27 at the end thereof
which Section 10.27 shall be stated to read as follows:
"Section 10.27. Double Negative Pledge. The Borrowers
will not, and will not permit any Subsidiary to, agree (other
than in the Loan Documents) with another party not to pledge,
mortgage or otherwise encumber or subject to, or not to permit
to exist upon or be subjected to, any lien, security interest
or charge upon, any Property (including stock in subsidiaries)
at any time owned by any Borrower or Domestic Subsidiary,
other than (i) customary provisions restricting subletting or
assignment of any lease governing a leasehold interest of any
Borrower or Subsidiary, (ii) restrictions on a Subsidiary's
Property imposed under agreements relating to indebtedness
incurred by such Subsidiary prior to the date on which such
Subsidiary was acquired by a Borrower and outstanding on such
acquisition date but not incurred in contemplation of such
acquisition and (iii) restrictions or conditions imposed by
any agreement relating to any secured indebtedness or
sale-leaseback transaction in each case permitted by this
Agreement if such restrictions or conditions only apply to the
Property securing such indebtedness or which is the subject of
such sale-leaseback transaction. Notwithstanding the
foregoing, this Section shall have no further force and effect
if no Default or Event of Default exists as of the date of the
Agent's receipt of the Form 10-K or, if earlier, the annual
audit report required by Section 10.5 hereof for the Company's
fiscal year ending on or about December 31, 1999."
-8-
<PAGE> 9
SECTION 2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Borrowers and the Required Banks shall have accepted
this Amendment in the spaces provided for that purpose below.
(b) The Guarantors shall have accepted this Amendment in the
spaces provided for that purpose below.
(c) The Agent shall have received for the ratable account of
the Banks a fee in the amount of 0.20% of the Commitments in
consideration of the Banks' agreements in this Amendment.
(d) The Agent shall have received, with a sufficient number
of copies for each Bank (which the Agent shall properly distribute to
each Bank), a Borrowing Base certificate complying with Section
10.5(a)(ix) of the Credit Agreement after giving effect to this
Amendment showing the computation of the Borrowing Base as of January
31, 1999.
(e) The Agent shall have received, for the account of the
Banks, an opinion of the Borrowers' counsel with respect to this
Amendment, such opinion to be in form and substance reasonably
acceptable to the Agent and the Required Banks.
(f) The Borrowers and the Guarantors shall be in full
compliance with the terms of the Loan Documents and no Event of Default
or Default shall have occurred or be continuing after giving effect to
this Amendment.
(g) All other legal matters incident to the execution and
delivery hereof contemplated hereby and to the transactions
contemplated hereby shall be satisfactory to the Agent, the Required
Banks and their respective counsel.
Upon the satisfaction of the foregoing conditions precedent, this Amendment
shall take effect as of its date below.
SECTION 3. REPRESENTATIONS REAFFIRMED.
In order to induce the Agent and the Required Banks to execute and
deliver this Amendment, each Borrower hereby represents to the Agent and the
Banks that immediately after giving effect to this Amendment, each of the
representations and warranties by such Borrower set forth in Section 8 of the
Credit Agreement as amended hereby (except those representations that relate
expressly to an earlier date) are and shall be true and correct (except that the
representations contained in Section 8.4 shall be deemed to refer to the most
recent financial
-9-
<PAGE> 10
statements of the Borrower delivered to the Banks pursuant to Section 10.5 of
the Credit Agreement) and that such Borrower and the Subsidiaries are and shall
be in full compliance with the terms of the Credit Agreement as so amended and
the Loan Documents and that no Event of Default or Default shall be continuing
or shall result after giving effect to this Amendment.
SECTION 4. MISCELLANEOUS.
This Amendment may be executed in any number of counterparts and by
different parties hereto on separate counterparts, each of which when so
executed shall be an original but all of which shall constitute one and the same
instrument. Except as specifically waived or amended hereby, all of the terms
and conditions of the Credit Agreement shall stand and remain unchanged and in
full force and effect. No reference to this Amendment need be made in any note,
instrument or other document making reference to the Credit Agreement, any
reference to the Credit Agreement in any such note, instrument or other document
(including, without limitation, the Loan Documents) to be deemed to be a
reference to the Credit Agreement as amended hereby. The Borrowers agree to pay
all reasonable out-of-pocket costs and expenses (including attorneys' fees)
incurred by the Agent in connection with the preparation, execution and delivery
hereof and the documents and transactions contemplated hereby.
This instrument shall be construed and governed by and in accordance
with the laws of the state of Illinois (without regard to principles of
conflicts of laws).
[SIGNATURE PAGES TO FOLLOW]
-10-
<PAGE> 11
IN WITNESS WHEREOF, the Borrowers, the Guarantors and the Required
Banks have executed and delivered this Amendment as of the day and year below
written.
Dated as of this 1st day of March, 1999.
TITAN INTERNATIONAL, INC.
By /s/ Cheri T. Holley
----------------------------
Its Secretary
TITAN INVESTMENT CORPORATION
By /s/ Cheri T. Holley
----------------------------
Its Secretary
TITAN CREDIT CORPORATION
By /s/ Cheri T. Holley
----------------------------
Its Secretary
-11-
<PAGE> 12
Each of the undersigned consents to the above Amendment and
acknowledges and agrees that all of its obligations under Section 14 of the
Credit Agreement and under each relevant Guarantee Agreement dated as of
September 17, 1998 (collectively, the "Guaranty") remain in full force and
effect for the benefit and security of, among other things, the Credit Agreement
as modified hereby. Each of the undersigned further acknowledges and agrees that
all references in the Guaranty to the Credit Agreement shall be deemed a
reference to the Credit Agreement as amended hereby. Each of the undersigned
agrees to execute and deliver any and all instruments or documents as may be
required by the Agent or the Required Banks to confirm any of the foregoing.
Each of the undersigned agrees that its consent to this Amendment is not
required and that its consent to any further amendments of the Credit Agreement
shall not be required as a result of this consent having been obtained.
AUTOMOTIVE WHEELS, INC.
By /s/ Cheri T. Holley
-----------------------
Its Secretary
TITAN DISTRIBUTION, INC.
By /s/ Cheri T. Holley
-----------------------
Its Secretary
DYNEER CORPORATION
By /s/ Cheri T. Holley
-----------------------
Its Secretary
NIEMAN'S LTD.
By /s/ Cheri T. Holley
-----------------------
Its Secretary
TITAN WHEEL CORPORATION
By /s/ Cheri T. Holley
-----------------------
Its Secretary
DICO INC.
By /s/ Cheri T. Holley
-----------------------
Its Secretary
-12-
<PAGE> 13
TITAN WHEEL CORPORATION OF ILLINOIS
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN WHEEL CORPORATION OF IOWA
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN WHEEL CORPORATION OF OHIO
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN WHEEL CORPORATION OF SOUTH CAROLINA
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN WHEEL CORPORATION OF WISCONSIN
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN WHEEL CORPORATION OF VIRGINIA
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN TIRE CORPORATION
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
TITAN TIRE CORPORATION OF TENNESSEE
By /s/ Cheri T. Holley
-----------------------------------
Its Secretary
-13-
<PAGE> 14
Accepted and agreed to.
HARRIS TRUST AND SAVINGS BANK, in its individual
capacity as a Bank and as Agent
By /s/ James H. Colley
----------------------------------
Its Vice President
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Michael V. Rhodes
----------------------------------
Its Assistant Vice President
NATIONSBANK, N.A.
By /s/ Steven K. Ahrenholz
----------------------------------
Its Vice President
COMERICA BANK
By /s/ Jeffrey E. Peck
----------------------------------
Its Vice President
SUNTRUST BANK, ATLANTA
By /s/ Linda L. Dash
----------------------------------
Its Vice President
ABN AMRO BANK, N.V.
By /s/ David C. Sagers /s/ Douglas R. Elliott
-----------------------------------------------
Its Vice President Group Vice President
MICHIGAN NATIONAL BANK
By /s/ Teresa L. Irland
----------------------------------
Its Group Manager
THE BANK OF NEW YORK
By /s/ John M. Lokay, Jr.
----------------------------------
Its Vice President
FIRSTAR BANK OF MILWAUKEE, N.A.
By /s/ John R. Falb
----------------------------------
Its Vice President
-14-
<PAGE> 1
EXHIBIT 21
TITAN INTERNATIONAL, INC.
SUBSIDIARIES
JURISDICITON OF
NAME INCORPORATION
Titan Italia, S.p.A. Italy
Titan Steel Wheels, Limited United Kingdom
Titan Tire Corporation Illinois
Titan Tire Corporation of Tennessee Tennessee
Titan Wheel Corporation of Illinois Illinois
Titan Wheel Corporation of South Carolina South Carolina
Titan Wheel Corporation of Virginia Virginia
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-71788 and No. 33-80306) and the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 333-61743)of
Titan International, Inc. of our report dated February 18, 1999, 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 PricewaterhouseCoopers LLP has not prepared or certified
such "Selected Financial Data."
PRICEWATERHOUSECOOPERS LLP
St. Louis, Missouri
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K FOR THE YEAR ENDED DECEMBER 31, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 14,116
<SECURITIES> 0
<RECEIVABLES> 114,394
<ALLOWANCES> 6,200
<INVENTORY> 154,045
<CURRENT-ASSETS> 312,195
<PP&E> 408,653
<DEPRECIATION> 124,246
<TOTAL-ASSETS> 678,274
<CURRENT-LIABILITIES> 141,730
<BONDS> 247,584
0
0
<COMMON> 27
<OTHER-SE> 247,010
<TOTAL-LIABILITY-AND-EQUITY> 678,274
<SALES> 660,781
<TOTAL-REVENUES> 660,781
<CGS> 569,652
<TOTAL-COSTS> 569,652
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,317
<INCOME-PRETAX> 13,146
<INCOME-TAX> 4,995
<INCOME-CONTINUING> 8,151
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,151
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
