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, 2000 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. <TABLE> <CAPTION> SHARES OUTSTANDING AT CLASS APRIL 28, 2000 ----- -------------- <S> <C> COMMON STOCK, NO PAR VALUE PER SHARE 20,712,829 </TABLE>
2 TITAN INTERNATIONAL, INC. TABLE OF CONTENTS <TABLE> <CAPTION> Page Number ----------- <S> <C> <C> Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2000 and 1999 1 Consolidated Condensed Balance Sheets as of March 31, 2000 and December 31, 1999 2 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2000 and 1999 3 Notes to Consolidated Condensed Financial Statements 4-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-10 Part II. Other Information and Signature 11-12 </TABLE>
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) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2000 1999 ---- ---- <S> <C> <C> Net sales $164,327 $158,610 Cost of sales 143,431 137,995 -------- -------- Gross profit 20,896 20,615 Selling, general & administrative expenses 11,286 13,442 Research and development expenses 1,550 1,597 -------- -------- Income from operations 8,060 5,576 Interest expense 6,563 5,550 Other income (216) (181) -------- -------- Income before income taxes 1,713 207 Provision for income taxes 651 79 -------- -------- Net income $ 1,062 $ 128 ======== ======== Earnings per share: Basic $.05 $.01 Diluted $.05 $.01 Average shares outstanding: Basic 20,666 20,911 Diluted 20,666 20,911 </TABLE> 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) <TABLE> <CAPTION> MARCH 31, DECEMBER 31, 2000 1999 ---- ---- <S> <C> <C> ASSETS Current assets Cash and cash equivalents $ 6,875 $ 8,606 Accounts receivable (net of allowance of $5,778 and $5,863, respectively) 130,533 97,457 Inventories 144,284 133,365 Prepaid and other current assets 39,287 39,650 -------- -------- Total current assets 320,979 279,078 Property, plant and equipment, net 264,288 267,049 Other assets 53,192 51,927 Goodwill, net 38,631 39,127 -------- -------- Total assets $677,090 $637,181 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ 397 $ 20,195 Accounts payable 61,516 51,363 Other current liabilities 40,252 36,737 -------- -------- Total current liabilities 102,165 108,295 Deferred income taxes 28,090 28,421 Other long-term liabilities 15,691 16,078 Long-term debt 303,305 255,521 -------- -------- Total liabilities 449,251 408,315 -------- -------- Stockholders' equity Common stock, no par, 60,000,000 shares authorized, 27,555,081 issued 27 27 Additional paid-in capital 214,487 214,846 Retained earnings 116,875 116,123 Accumulated other comprehensive loss (9,435) (7,329) Treasury stock at cost: 6,888,742 and 6,939,101 shares, respectively (94,115) (94,801) -------- -------- Total stockholders' equity 227,839 228,866 -------- -------- Total liabilities and stockholders' equity $677,090 $637,181 ======== ======== </TABLE> 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) <TABLE> <CAPTION> THREE MONTHS ENDED MARCH 31, 2000 1999 ---- ---- <S> <C> <C> CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,062 $ 128 Depreciation and amortization 10,126 9,874 Increase in receivables (35,256) (29,617) (Increase)/decrease in inventories (11,366) 2,820 (Increase)/decrease in other current assets 516 (369) Increase in accounts payable 11,475 3,720 Increase in other accrued liabilities 3,917 4,144 Other, net (1,830) (3,230) -------- -------- Net cash used for operating activities (21,356) (12,530) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (8,274) (9,672) Other 0 (3,224) -------- -------- Net cash used for investing activities (8,274) (12,896) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 48,000 23,009 Payment of debt (19,892) (165) Repurchase of common stock 0 (686) Dividends paid (309) (314) Other, net 327 336 -------- -------- Net cash provided by financing activities 28,126 22,180 Effect of exchange rate changes on cash (227) 0 Net decrease in cash and cash equivalents (1,731) (3,246) Cash and cash equivalents at beginning of period 8,606 14,116 -------- -------- Cash and cash equivalents at end of period $ 6,875 $ 10,870 ======== ======== </TABLE> 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, 2000, the results of operations for the three months ended March 31, 2000 and 1999, and cash flows for the three months ended March 31, 2000 and 1999. Accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company's 1999 Annual Report on Form 10-K. For additional information regarding the Company's financial condition, refer to the footnotes accompanying the financial statements as of and for the year ended December 31, 1999, filed in conjunction with the Company's 1999 Annual Report on Form 10-K. Details in those notes have not changed significantly except as a result of normal interim transactions and certain matters discussed below. B. INVENTORIES Inventories consisted of the following (in thousands): <TABLE> <CAPTION> March 31, December 31, 2000 1999 ---- ---- <S> <C> <C> Raw materials $ 38,655 $ 35,333 Work-in-process 15,415 18,810 Finished goods 84,893 73,564 -------- -------- 138,963 127,707 LIFO reserve 5,321 5,658 -------- -------- $144,284 $133,365 ======== ======== </TABLE> C. FIXED ASSETS Property, plant and equipment, net reflects accumulated depreciation of $164.3 million and $155.9 million at March 31, 2000, and December 31, 1999, respectively. 4
7 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) D. GOODWILL Goodwill, net reflects accumulated amortization of $7.7 million and $7.3 million at March 31, 2000, and December 31, 1999, respectively. E. LONG-TERM DEBT Long-term debt consisted of the following (in thousands): <TABLE> <CAPTION> March 31, December 31, 2000 1999 ---- ---- <S> <C> <C> Senior subordinated notes $150,000 $150,000 Credit facility 130,000 82,000 Notes payable to Pirelli Armstrong Tire Corp. 10,000 29,743 Industrial revenue bonds and other 13,702 13,973 -------- -------- 303,702 275,716 Less: Amounts due within one year 397 20,195 -------- -------- $303,305 $255,521 ======== ======== </TABLE> Aggregate maturities of long-term debt at March 31, 2000 are as follows (in thousands): <TABLE> <S> <C> April 1 - December 31, 2000 $ 300 2001 5,386 2002 130,398 2003 6,350 2004 424 </TABLE> 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, 2000 and 1999 (in thousands): <TABLE> <CAPTION> Revenues from external Intersegment Income from customers revenues operations --------- -------- ---------- <S> <C> <C> <C> 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 ======== ======= ======= 1999 Agricultural $ 75,576 $26,620 $ 4,480 Earthmoving/construction 38,544 9,622 4,890 Consumer 44,490 12,203 2,171 Reconciling items (a) 0 0 (5,965) -------- ------- ------- Consolidated totals $158,610 $48,445 $ 5,576 ======== ======= ======= </TABLE> (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) G. COMPREHENSIVE LOSS Comprehensive loss, which includes net income and the effect of currency translation, totaled $(1.0) million for the first quarter of 2000, compared to $(3.9) million in the first quarter of 1999. H. NEW ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), will be adopted on January 1, 2001. The Company is evaluating the effect SFAS 133 will have on its financial position and results of operations. I. SUBSEQUENT EVENT 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. The Company will record a pretax gain of approximately $35.0 million to $40.0 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. Had the transaction occurred on January 1, 1999, net sales for the three months ended March 31, 2000, would have been $140.5 million, compared to $136.2 million in 1999. Income from operations for the three months ended March 31, 2000, would have been $3.8 million, compared to $1.8 million in 1999, on a pro forma basis. Loss per share for the three months ended March 31, 2000, would have been $(.05), compared to $(.08) in 1999, on a pro forma basis. 7
10 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, 2000, were $164.3 million, as compared to 1999 first quarter net sales of $158.6 million. Sales improved due to a modest increase in volume in the earthmoving/construction and consumer markets. Cost of sales was $143.4 million for the first quarter of 2000, as compared to $138.0 million in 1999. Gross profit for the first quarter of 2000 was $20.9 million or 12.7% of net sales, compared to $20.6 million or 13.0% of net sales for the first quarter of 1999. Selling, general and administrative ("SG&A") expenses for the first quarter of 2000 were $11.3 million or 6.9% of net sales, compared to $13.4 million or 8.5% of net sales for 1999. The decrease in SG&A expenses, as a percentage of net sales, is primarily attributed to the Company's efforts to streamline costs at each of its facilities. Research and development ("R&D") expenses for the first quarter of 2000 and 1999 were $1.6 million or 1.0% of net sales. Income from operations for the first quarter of 2000 was $8.1 million or 4.9% of net sales, compared to $5.6 million or 3.5% in 1999. Income from operations was impacted by the items described in the preceding paragraphs. Net sales in the agricultural market were $72.1 million for the first quarter of 2000, as compared to $75.6 million in 1999. Earthmoving/construction market net sales were $41.2 million for the first quarter of 2000, as compared to $38.5 million in 1999. The Company's consumer market net sales were $51.0 million for the first quarter of 2000, as compared to $44.5 million in 1999. The declining market sustained by low commodity prices negatively impacted sales in the agricultural market. Sales in the earthmoving/construction and consumer market increased due to a modest increase in volume. Income from operations in the agricultural market was $6.5 million for the first quarter of 2000, as compared to $4.5 million in 1999. The Company's earthmoving/construction market income from operations was $4.6 million for the first quarter of 2000, as compared to $4.9 million in 1999. Consumer market income from operations was $3.9 million for the first quarter of 2000, as compared to $2.2 million in 1999. The increase in income from operations in the agricultural, and consumer markets was primarily due to improved efficiencies coupled with the Company's efforts to streamline costs. The decrease in income from operations in the earthmoving/construction market is primarily due to a change in product mix from larger to smaller diameter wheels, resulting in reduced margins. Income from operations on a segment basis does not include corporate expenses and depreciation and amortization expense related to property, plant and equipment and goodwill carried at the corporate level of $7.0 million for the first quarter of 2000, as compared to $6.0 million in 1999. 8
11 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Net interest expense was $6.6 million for the first quarter of 2000, compared to $5.6 million in 1999. The increased interest expense was primarily due to an increase in the average debt outstanding in the first quarter of 2000, coupled with higher average interest rates. Net income for the first quarter of 2000 was $1.1 million compared to $0.1 million in 1999. Basic and diluted earnings per share were $.05 for the first quarter of 2000 compared to $.01 in 1999. Net income and earnings per share were impacted by the items described in the preceding paragraphs. LIQUIDITY AND CAPITAL RESOURCES In the first quarter of 2000, negative cash flows from operating activities of $21.4 million resulted from increases in receivables and inventories. These amounts were partially offset by increases in accounts payable and other accrued liabilities. The increase in receivables is primarily due to extended payment terms offered to certain customers during the first quarter of 2000. The Company has built inventory to meet expected production and sales demand in the next six months. The Company has invested $8.3 million in capital expenditures in 2000, including $3.4 million for equipment and construction related to the Brownsville, Texas facility. The balance represents various equipment purchases and building improvements to enhance production capabilities. During the quarter, Titan hosted a successful open house for the media, local and state officials of Texas to commemorate the introductory phase of tire production at the Brownsville, Texas facility. The one million square foot building houses equipment to manufacture specialty tires for agricultural, construction and consumer markets. The Company received $48.0 million in proceeds from its $175.0 million revolving credit facility. These proceeds have been used to fund operations, capital expenditures and pay the note described below. In February 2000, the Company paid the subordinated note for $19.7 million to Pirelli Armstrong Tire Corporation. At March 31, 2000, the Company had cash and cash equivalents of $6.9 million. Cash on hand, anticipated internal cash flows and utilization of available borrowing under the Company's credit facilities are expected to provide sufficient liquidity for working capital needs, capital expenditures and acquisitions for the foreseeable future. 9
12 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RECENT DEVELOPMENTS 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. The Company will record a pretax gain of approximately $35.0 million to $40.0 million in the second quarter of 2000. These two facilities are in the business of providing wheels and tires to the consumer market. Titan has decided to exit the lawn and garden and all terrain vehicle original equipment manufacturer wheel and tire business, concentrating instead on the aftermarket business. See further discussion in the subsequent event footnote in the financial statements. MARKET RISK SENSITIVE INSTRUMENTS The Company's risks related to foreign currencies, commodity prices and interest rates are consistent with those for 1999. NEW ACCOUNTING STANDARD Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133), will be adopted on January 1, 2001. The Company is evaluating the effect SFAS 133 will have on its financial position 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. 10
13 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION ITEMS 1 THROUGH 5 ARE NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10(iii)(A)(1) Maurice M. Taylor, Jr. Employment Agreement dated January 30, 2000 10(iii)(A)(2) J. Michael A. Akers Employment Agreement dated January 30, 2000 10(iii)(A)(3) Kent W. Hackamack Employment Agreement dated January 30, 2000 10(iii)(A)(4) Cheri T. Holley Employment Agreement dated January 30, 2000 27 Financial Data Schedule (b) Reports on Form 8-K In a Current Report filed on Form 8-K dated April 14, 2000, the Company reported the sale of 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. 11
14 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 12, 2000 By: /s/ Kent W. Hackamack --------------------- -------------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 12
15 Exhibit Index ------------- <TABLE> <CAPTION> Exhibit No. Description - ----------- ----------- <S> <C> 10(iii)(A)(1) Maurice M. Taylor, Jr. Employment Agreement dated January 30, 2000 10(iii)(A)(2) J. Michael A. Akers Employment Agreement dated January 30, 2000 10(iii)(A)(3) Kent W. Hackamack Employment Agreement dated January 30, 2000 10(iii)(A)(4) Cheri T. Holley Employment Agreement dated January 30, 2000 27 Financial Data Schedule </TABLE>