10-Q 1 k62312e10-q.txt FORM 10-Q FOR THE PERIOD ENDED MARCH 31, 2001 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED: MARCH 31, 2001 OR 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 Registrant as specified in its Charter) ILLINOIS 36-3228472 (State of Incorporation) (I.R.S. Employer Identification No.) 2701 SPRUCE STREET, QUINCY, IL 62301 (Address of principal executive offices, including Zip Code) (217) 228-6011 (Registrant's telephone number, including area code) 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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
SHARES OUTSTANDING AT CLASS APRIL 30, 2001 ----- --------------------- COMMON STOCK, NO PAR VALUE PER SHARE 20,627,127
================================================================================ 2 TITAN INTERNATIONAL, INC. TABLE OF CONTENTS
Page Number ----------- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2001 and 2000 1 Consolidated Condensed Balance Sheets as of March 31, 2001 and December 31, 2000 2 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 3 Notes to Consolidated Condensed Financial Statements 4-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-12 Part II. Other Information and Signature 13-14
3 PART I. FINANCIAL INFORMATION Item 1. Financial Statements TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except earnings per share data)
THREE MONTHS ENDED MARCH 31, 2001 2000 ---- ---- Net sales $136,047 $164,327 Cost of sales 120,599 143,431 -------- -------- Gross profit 15,448 20,896 Selling, general & administrative expenses 10,822 11,286 Research and development expenses 801 1,550 -------- -------- Income from operations 3,825 8,060 Interest expense 5,639 6,563 Gain on sale of assets (1,619) 0 Other income (633) (216) -------- -------- Income before income taxes 438 1,713 Provision for income taxes 210 651 -------- -------- Net income $ 228 $ 1,062 ======== ======== Earnings per share: Basic $.01 $.05 Diluted $.01 $.05 Average shares outstanding: Basic 20,625 20,666 Diluted 20,625 20,666
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 4 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data)
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ ASSETS Current assets Cash and cash equivalents $ 9,742 $ 5,668 Accounts receivable (net of allowance of $3,711 and $3,764, respectively) 103,205 83,689 Inventories 160,081 160,309 Prepaid and other current assets 45,946 35,890 --------- --------- Total current assets 318,974 285,556 Property, plant and equipment, net 223,167 232,335 Other assets 49,857 54,829 Goodwill, net 18,278 18,921 --------- --------- Total assets $ 610,276 $ 591,641 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 5,478 $ 5,377 Accounts payable 50,998 53,524 Other current liabilities 38,970 40,539 --------- --------- Total current liabilities 95,446 99,440 Deferred income taxes 20,754 20,754 Other long-term liabilities 14,305 14,767 Long-term debt 254,293 227,975 --------- --------- Total liabilities 384,798 362,936 --------- --------- Stockholders' equity Common stock, no par, 60,000,000 shares authorized, 27,555,081 issued 27 27 Additional paid-in capital 213,303 213,423 Retained earnings 119,325 119,405 Treasury stock at cost: 6,932,346 and 6,928,684 shares, respectively (92,945) (93,041) Accumulated other comprehensive loss (14,232) (11,109) --------- --------- Total stockholders' equity 225,478 228,705 --------- --------- Total liabilities and stockholders' equity $ 610,276 $ 591,641 ========= =========
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 5 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
THREE MONTHS ENDED MARCH 31, 2001 2000 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 228 $ 1,062 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,486 10,126 Gain on sale of assets (1,619) 0 (Increase) decrease in current assets: Accounts receivable (21,202) (35,256) Inventories (576) (11,366) Prepaid and other current assets (1,063) 516 Increase/(decrease) in current liabilities: Accounts payable (1,300) 11,475 Other current liabilities (1,096) 3,917 Other, net 789 (1,527) -------- -------- Net cash used for operating activities (16,353) (21,053) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (5,217) (8,274) Other 8 (303) -------- -------- Net cash used for investing activities (5,209) (8,577) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 1,669 0 Payment of debt (121) (19,892) Proceeds from credit facility 25,000 48,000 Repurchase of common stock (80) 0 Dividends paid (309) (309) Other, net (194) 327 -------- -------- Net cash provided by financing activities 25,965 28,126 Effect of exchange rate changes on cash (329) (227) Net increase (decrease) in cash and cash equivalents 4,074 (1,731) Cash and cash equivalents at beginning of period 5,668 8,606 -------- -------- Cash and cash equivalents at end of period $ 9,742 $ 6,875 ======== ========
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 6 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) A. ACCOUNTING POLICIES In the opinion of Titan International, Inc. ("Titan" or the "Company"), the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of March 31, 2001, the results of operations for the three months ended March 31, 2001 and 2000, and cash flows for the three months ended March 31, 2001 and 2000. Accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company's 2000 Annual Report on Form 10-K. These interim financial statements have been prepared pursuant to the Securities and Exchange Commission's rules for Form 10-Qs and are not a presentation in accordance with generally accepted accounting principles. For additional information regarding the Company's financial condition, refer to the footnotes accompanying the financial statements as of and for the year ended December 31, 2000, filed in conjunction with the Company's 2000 Annual Report on Form 10-K. Details in those notes have not changed significantly except as a result of normal interim transactions and certain matters discussed below. B. INVENTORIES Inventories consisted of the following (in thousands):
March 31, December 31, 2001 2000 -------- ------------ Raw materials $ 41,936 $ 41,284 Work-in-process 14,063 15,919 Finished goods 101,440 100,622 -------- -------- 157,439 157,825 LIFO reserve 2,642 2,484 -------- -------- $160,081 $160,309 ======== ========
C. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net reflects accumulated depreciation of $165.2 million and $161.0 million at March 31, 2001, and December 31, 2000, respectively. 4 7 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) D. GOODWILL Goodwill, net reflects accumulated amortization of $5.1 million and $4.7 million at March 31, 2001, and December 31, 2000, respectively. E. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
March 31, December 31, 2001 2000 -------- ------------ Senior subordinated notes $150,000 $150,000 Credit facility 85,000 60,000 Notes payable to Pirelli 10,000 10,000 Industrial revenue bonds and other 14,771 13,352 -------- -------- 259,771 233,352 Less: Amounts due within one year 5,478 5,377 -------- -------- $254,293 $227,975 ======== ========
Aggregate maturities of long-term debt at March 31, 2001 are as follows (in thousands): April 1 - December 31, 2001 $ 5,358 2002 85,504 2003 6,458 2004 539 2005 550 2006 and thereafter 161,362
5 8 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) F. SEGMENT INFORMATION The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three months ended March 31, 2001 and 2000 (in thousands):
Revenues from external Intersegment Income from 2001 customers revenues operations ---- --------------- --------------- ------------ Agricultural $ 76,828 $ 45,355 $ 7,069 Earthmoving/construction 42,999 17,981 3,556 Consumer 16,220 7,590 90 Reconciling items (a) 0 0 (6,890) ---------- ---------- ---------- Consolidated totals $ 136,047 $ 70,926 $ 3,825 ========== ========== ========== 2000 Agricultural $ 72,140 $ 35,163 $ 6,535 Earthmoving/construction 41,206 13,777 4,627 Consumer 50,981 26,564 3,867 Reconciling items (a) 0 0 (6,969) ---------- ---------- ---------- Consolidated totals $ 164,327 $ 75,504 $ 8,060 ========== ========== ==========
(a) Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment and goodwill carried at the corporate level. 6 9 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) F. SEGMENT INFORMATION (CONTINUED)
March 31, December 31, Total assets 2001 2000 ------------ ---------- ------------ Agricultural $ 298,852 $ 280,925 Earthmoving/construction 166,611 154,159 Consumer 72,043 87,309 Reconciling items (a) 72,770 69,248 ---------- ---------- Consolidated totals $ 610,276 $ 591,641 ========== ==========
(a) Represents property, plant and equipment and goodwill related to certain acquisitions and other corporate assets. G. COMPREHENSIVE LOSS Comprehensive loss, which includes net income and the effect of foreign currency translation adjustments, totaled $(2.5) million for the first quarter of 2001, compared to $(1.0) million in the first quarter of 2000. H. NEW ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended by Statement of Financial Accounting Standards No. 138, was adopted on January 1, 2001. The Company does not utilize derivatives to manage interest rate or currency risks, therefore, there was no material impact resulting from the adoption of SFAS 133 on its financial position, cash flows or results of operations. 7 10 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) I. SALE OF ASSETS On April 14, 2000, the Company sold certain assets (primarily raw material inventory, work-in-process inventory, and property, plant and equipment) of two facilities located in Clinton, Tennessee, and Slinger, Wisconsin, to Carlisle Tire and Wheel Company, a subsidiary of Carlisle Companies Incorporated, for approximately $94.1 million in cash. In conjunction with this transaction, the Company eliminated $19.5 million of related goodwill. The Company recorded a pretax gain of $38.7 million in the second quarter of 2000. This nonrecurring gain has not been included in the pro forma amounts described below. These two facilities are in the business of providing wheels and tires to the consumer market, primarily for original equipment manufacturer (OEM) lawn and garden equipment and all terrain vehicles (ATVs). Had the transaction occurred on January 1, 2000, net sales for the three months ended March 31, 2000, would have been $140.5 million. Net loss for the quarter ended March 31, 2000, would have been $(1.0) million. Loss per share for the quarter ended March 31, 2000, would have been $(.05). There is no difference in net sales, net income and earnings per share for the three months ended March 31, 2001. 8 11 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales for the quarter ended March 31, 2001, were $136.0 million, compared to 2000 first quarter net sales of $164.3 million. Net sales decreased primarily due to the sale of certain consumer segment operating assets in April of 2000 as discussed in note I to the consolidated condensed financial statements. Cost of sales was $120.6 million for the first quarter of 2001, compared to $143.4 million in 2000. Gross profit for the first quarter of 2001 was $15.4 million or 11.4% of net sales, compared to $20.9 million or 12.7% of net sales for the first quarter of 2000. Gross profit was lower due to the reduced sales volume. Selling, general and administrative ("SG&A") and research and development ("R&D") expenses for the first quarter of 2001 were $11.6 million or 8.5% of net sales, compared to $12.8 million or 7.8% of net sales for 2000. The SG&A and R&D percentage was higher due to the reduced sales volume in the first quarter of 2001 as compared to the first quarter of 2000. Income from operations for the first quarter of 2001 was $3.8 million or 2.8% of net sales, compared to income from operations of $8.1 million or 4.9% in 2000. Operating results were impacted by the sale of certain consumer segment operating assets in April of 2000. Gain on sale of assets in 2001 of $1.6 million was attributed to the sale of an airplane during the first quarter of 2001. Net interest expense was $5.6 million for the first quarter of 2001, compared to $6.6 million in 2000. The decreased interest expense for the first quarter of 2001 was primarily due to a decrease in the average debt outstanding of approximately $40 million in the first quarter of 2001 from the first quarter of 2000. Net income for the first quarter of 2001 was $0.2 compared to $1.1 million in 2000. Basic and diluted earnings per share were $.01 for the first quarter of 2001 compared to $.05 in 2000. Net income and earnings per share decreased primarily due to the effects of the sale of assets as noted above. Net sales in the agricultural market were $76.8 million for the first quarter of 2001 as compared to $72.1 million in 2000. Income from operations in the agricultural market was $7.1 million for the first quarter of 2001 as compared to $6.5 million in 2000. Net sales and income from operations in the agricultural market increased primarily due to increased sales volume during the first quarter of 2001. 9 12 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) The Company's earthmoving/construction market net sales were $43.0 million for the first quarter of 2001 as compared to $41.2 million for the first quarter of 2000. Income from operations in the earthmoving/construction market was $3.6 million for the first quarter of 2001 as compared to $4.6 million for the first quarter of 2000. The decrease in income from operations in the earthmoving/construction market is partially due to a change in product mix from larger to smaller diameter wheels, resulting in reduced margins. Consumer market net sales were $16.2 million for the first quarter of 2001 as compared to $51.0 million for the first quarter of 2000. Consumer market income from operations was $0.1 million for the first quarter of 2001 as compared to $3.9 million for 2000. The decrease in consumer market sales and income from operations is primarily due to the Company exiting the OEM business for lawn and garden equipment and ATVs. The Company remains active in the ATV tire aftermarket and continues to explore new distribution channels and develop innovative ATV products. Income from operations on a segment basis does not include: corporate expenses; depreciation and amortization expense related to property, plant and equipment; and amortization expense related to goodwill carried at the corporate level, for a total of $6.9 million for the first quarter of 2001 as compared to $7.0 million for the first quarter of 2000. LIQUIDITY AND CAPITAL RESOURCES The Company's business is subject to seasonal variations in sales that affect inventory levels and account receivable balances. In the first quarter of 2001, negative cash flows from operating activities of $16.4 million resulted largely from increases in receivables. The increase in receivables is primarily due to higher sales volume in the first quarter of 2001 as compared the fourth quarter of 2000. The Company has invested $5.2 million in capital expenditures in 2001. The expenditures represent various equipment purchases and building improvements to enhance production capabilities. The Company estimates that its total capital expenditures for 2001 will range between $20 million and $30 million. During the first quarter of 2001, the Company received $25.0 million in proceeds from its $175 million revolving credit facility. These proceeds have been used to fund operations. 10 13 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) At March 31, 2001, the Company had cash and cash equivalents of $9.7 million and debt outstanding of $85.0 million under its $175 million credit facility. Cash on hand, anticipated internal cash flows and utilization of remaining available borrowing are expected to provide sufficient liquidity for working capital needs, capital expenditures and acquisitions for the foreseeable future. OUTLOOK Although agricultural market sales were up slightly in the first quarter of 2001, they are expected to be the same or slightly lower for the remainder of 2001 due to economic conditions and the large OEMs continuing to reduce inventory balances. Sales for the earthmoving/construction market are expected to be slightly lower than last year as a result of the economic slowdown in the United States. Sales in the consumer market are expected to be lower than last year based on the Company exiting the OEM wheel and tire business for lawn and garden equipment and ATVs in the second quarter of 2000. However, Titan remains active in the ATV tire aftermarket and continues to explore new distribution channels and develop innovative ATV products. The Company is developing relationships to supply private branded tires to OEMs in the agricultural and earthmoving/construction markets. As these relationships develop, Titan would expect an increase in market share in these segments. The Company expects sales of LSW assemblies to increase as development efforts continue with OEM and aftermarket customers. Titan is focusing the LSW assemblies on specialty wheels and tires, which will provide benefits to the customers and increased margins for the Company. MARKET RISK SENSITIVE INSTRUMENTS The Company's risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2000. NEW ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), as amended by Statement of Financial Accounting Standards No. 138, was adopted on January 1, 2001. The Company does not utilize derivatives to manage interest rate or currency risks, therefore, there was no material impact resulting from the adoption of SFAS 133 on its financial position, cash flows or results of operations. 11 14 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q 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 and (v) the Company's intention to consider and pursue acquisitions. These forward-looking statements are based partially on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of certain factors, including, (i) changes in the Company's end-user markets as a result of 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 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. 12 15 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION ITEMS 1 THROUGH 6 ARE NOT APPLICABLE. 13 16 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TITAN INTERNATIONAL, INC. (REGISTRANT) DATE: May 11, 2001 BY: /s/ Kent W. Hackamack -------------------- ----------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 14