UNITED STATESSECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
For Quarterly Period Ended: March 31, 2004
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
Commission File Number: 1-12936
TITAN INTERNATIONAL, INC.
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 o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
TABLE OF CONTENTS
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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)
The accompanying notes are an integral part of theconsolidated condensed financial statements.
TITAN INTERNATIONAL, INC.CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)(Amounts in thousands, except share data)
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TITAN INTERNATIONAL, INC.CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)(Amounts in thousands)
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT(UNAUDITED)
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I. Comprehensive Income (Loss)
J. Employee Benefit Plans
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K. Segment Information
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L. Income Taxes
M. Goodwill impairment on Titan Europe
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N. Lease Commitments
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O. New Accounting Standards
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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)
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Term Loan Amendment
On April 19, 2004, the Company amended its term loan with General Electric Capital Corporation. Major revisions contained in the amendment included a voluntary prepayment of $26.4 million on April 19, 2004, with no prepayment penalty and the right of the Company to purchase the Titan International stock owned by Citicorp Venture Capital, Ltd. For further information, see the Company’s Form 8-K filed on April 22, 2004.
Stock Repurchase
On April 20, 2004, the Company purchased the shares of Titan International stock held by Citicorp Venture Capital, Ltd. (CVC) (approximately 4.9 million shares) for $15 million. CVC was formerly the largest single stockholder of Titan. For further information, see the Company’s Form 8-K filed on April 22, 2004.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Titan is a manufacturer of off-highway wheels and tires for agricultural, earthmoving/construction and consumer equipment. Titan manufactures both wheels and tires for the majority of these applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.
The Company’s major OEM customers include large manufacturers of off-highway equipment such as Deere & Company, CNH Global N.V., Caterpillar Inc., AGCO Corporation, and Kubota Corporation, in addition to many other off-highway equipment manufacturers. The Company distributes products directly to OEMs, independent and OEM affiliated dealers, and through a network of Titan distribution facilities.
The Company recorded sales of $167.0 million for the first quarter of 2004, up 29.5% from the $129.0 million recorded in 2003. The agricultural and earthmoving/construction markets had sales increases of over 30% as compared to first quarter of 2003, as a result of higher demand from the Company’s customers. The consumer market sales increased a modest 4.5% as compared to last year’s first quarter.
Titan’s net income was $5.3 million for the quarter, up substantially compared to the first quarter 2003 net loss of $(5.9) million. Earnings per share was $.25 for the quarter versus diluted loss per share of $(.28) for the same quarter of the previous year.
Early in the second quarter (April 7, 2004), Titan Europe Plc was admitted to trading as a separate public company on London’s AIM market. Titan Luxembourg S.a.r.l., a subsidiary of the Company, is the largest stockholder in the newly public company, retaining a 30 percent interest. The cash proceeds from the sale of the 70 percent interest of Titan Europe totaled $61.8 million.
Recent Developments
On April 7, 2004, Titan Luxembourg, a European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. Titan Luxembourg will be the largest single stockholder in Titan Europe Plc, retaining a 30% interest. Titan Luxembourg’s proceeds from the sale of Titan Europe shares were approximately $61.8 million before fees and expenses of approximately $2.8 million. The Company will record cash receipts of approximately $49.8 million and a note receivable from the newly created public company, Titan Europe Plc, of approximately $9.2 million. At March 31, 2004, the assets and liabilities of Titan Europe were reclassified as held for sale. Assets reclassified as held for sale totaled $170.7 million and liabilities reclassified totaled $81.2 million.
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Titan recognized, in the first quarter of 2004, a $3.0 million goodwill impairment on the pending sale of Titan Europe in accordance with accounting standards. Approximately $26.4 million of the cash receipts from the sale of Titan Europe were used to reduce the Company’s debt balances in April 2004. An additional $15.0 million of the cash receipts were used to purchase the shares of Titan International stock (approximately 4.9 million shares) held by Citicorp Venture Capital, Ltd.
On April 19, 2004, the Company amended its term loan with General Electric Capital Corporation. Major revisions contained in the amendment included a voluntary prepayment of $26.4 million on April 19, 2004, and the right of the Company to purchase the Company’s shares owned by Citicorp Venture Capital, Ltd. For further information, see the Company’s Form 8-K filed on April 22, 2004.
Critical Accounting Policies
Preparation of the financial statements and related disclosures in compliance with generally accepted accounting principles requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The Company’s application of these policies involves judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial results.
Revenue Recognition
The Company records sales revenue and cost of sales when products are shipped to customers and both title and the risks and rewards of ownership are transferred. Provisions are established for sales returns and uncollectible accounts based on historical experience. Should these experience trends change, adjustments to the estimated provisions would be necessary.
Product Costing
Inventories are valued at the lower of cost or market. For operations in the United States, cost is determined using the last-in, first-out (LIFO) method for approximately 55% of inventories and the first-in, first-out (FIFO) method for the remainder of inventories. Inventory of foreign subsidiaries is valued using the FIFO method. Market is estimated based on current selling prices. Estimated provisions are established for excess and obsolete inventory, as well as inventory carried above market price, based on historical experience. Should this experience change, adjustments to the estimated provisions would be necessary.
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Impairment of Fixed Assets
The Company reviews fixed assets 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. Impairment losses are measured as the excess of the carrying value of the asset over the discounted expected future cash flows, or the fair value of the asset. The Company had assets held for sale of $37.5 million at March 31, 2004. Depreciation will not be recorded on assets held for sale in 2004 in accordance with SFAS No. 144. Appraisals from third-party valuation firms support the fair market value of the machinery and equipment at these facilities to be in excess of the carrying value. Significant assumptions relating to future operations must be made when estimating future cash flows. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur.
Valuation of Investments Accounted for Under the Equity Method
The Company assesses the carrying value of its equity investments whenever events and circumstances indicate that the carrying value may not be recoverable. Investment write-downs, if necessary, are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. Any such write-downs are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the fair value of the asset. Significant assumptions relating to future investment results must be made when estimating the future cash flows associated with these investments. Should unforeseen events occur or should investment trends change significantly, impairment losses could occur.
Impairment of Goodwill
The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur.
Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by the Company’s actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations. For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 20 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2003.
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TITAN INTERNATIONAL INC.
Results of Operations
Net Sales
Net sales for the quarter ended March 31, 2004, were $167.0 million, compared to 2003 first quarter net sales of $129.0 million. The majority of the increase was attributed to higher demand from the Company’s customers, primarily in the agricultural and earthmoving/construction segments, which increased 32% and 30%, respectively. Sales at foreign subsidiaries benefited from a favorable currency translation of approximately $6.3 million in first quarter of 2004.
Titan Europe net sales for the quarters ended March 31, were $49.5 million in 2004, compared to $35.7 million in 2003. Therefore, the remaining net sales for the Company were $117.5 million and $93.3 million for the quarters ended March 31, 2004 and 2003, respectively.
Cost of Sales
Cost of sales was $139.7 million for the first quarter of 2004, compared to $118.6 million in 2003. Gross profit for the first quarter of 2004 was $27.3 million or 16.3% of net sales, compared to $10.4 million or 8.1% of net sales for the first quarter of 2003. Gross profit was positively impacted by higher sales levels, which allowed the Company to operate more efficiently.
Titan Europe gross profit for the quarters ended March 31, was $8.3 million or 16.8% in 2004, compared to $5.3 million or 14.8% in 2003. Therefore, the remaining gross profit for the Company was $19.0 million or 16.2% and $5.1 million or 5.5% for the quarters ended March 31, 2004 and 2003, respectively.
The Company’s profit margins continue to be affected by the excess capacity at the idle Brownsville, Texas, and Natchez, Mississippi, facilities. The Brownsville location continues as a distribution and warehouse center for the Company. In December 2003, certain machinery and equipment at the Brownsville and Natchez facilities, with a net book value of $15.6 million and $17.3 million, respectively, were reclassified to assets held for sale. Depreciation is not being recorded on assets held for sale in 2004 in accordance with SFAS No. 144. Certain operating costs continue to be incurred at the Brownsville and Natchez facilities. For the quarter ended March 31, 2004, these costs totaled approximately $1.1 million for the Brownsville facility and $0.2 million for the Natchez facility.
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Administrative Expenses
Selling, general and administrative (SG&A) and research and development (R&D) expenses for the first quarter of 2004 were $12.5 million or 7.5% of net sales, compared to $12.1 million or 9.4% of net sales for 2003. Despite the significant increase in sales, the Company was able to maintain administrative expenses near the previous year’s level.
Titan Europe SG&A and R&D expenses for the quarters ended March 31, were $4.9 million or 9.9% of net sales in 2004, compared to $3.8 million or 10.6% in 2003. Therefore, the remaining SG&A and R&D expenses for the Company were $7.6 million or 6.5% of net sales and $8.3 million or 8.9% of net sales for the quarters ended March 31, 2004 and 2003, respectively.
On April 7, 2004, Titan Luxembourg, a European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. Titan recognized, in the first quarter of 2004, a $3.0 million goodwill impairment on the pending sale of Titan Europe in accordance with accounting standards. See “Recent Developments” for additional information.
Operating Results and Other
Income from operations for the first quarter of 2004 was $11.8 million or 7.0% of net sales, compared to loss from operations of $(1.7) million or (1.3)% in 2003. Operating results were primarily impacted by efficiency related to higher sales as discussed in the “Cost of Sales” section. This efficiency was partially offset by the $3.0 million goodwill impairment on Titan Europe.
Net interest expense was $5.2 million for the first quarter of 2004, compared to $5.0 million in 2003. The slight increase in interest expense for the first quarter of 2004 was due to a slightly higher average debt outstanding in the first quarter of 2004 as compared to the first quarter of 2003.
The Company recorded income tax expense of $1.4 million and an income tax benefit of $0.3 million for the three months ended March 31, 2004 and 2003, respectively. The Company’s income tax expense differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax loss primarily as a result of income tax expense to be paid in foreign jurisdictions and the application of a valuation allowance on the domestic net deferred tax asset balance. As a result of several periods of recurring losses, the Company began reserving its net deferred tax asset position at December 31, 2002, consistent with the Company’s accounting policies.
The Company will continue to monitor its income tax position and will review the necessity of the valuation allowance at the end of each reporting period. To the extent it is determined deferred tax assets will be realized in excess of deferred tax liabilities, some or all of the valuation allowance will be reversed. At March 31, 2004, the Company’s valuation allowance remained consistent with its year-end position.
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Net Income (Loss)
Net income for the first quarter of 2004 was $5.3 million compared to net loss of $(5.9) million in 2003. Basic and diluted earnings per share was $.25 for the first quarter of 2004 compared to loss per share of $(.28) in 2003. Net income and earnings per share increased primarily due to higher sales levels offset by the $3.0 goodwill impairment on Titan Europe.
Foreign Subsidiaries Sales
Net sales at foreign subsidiaries were $49.5 million for the first quarter of 2004 as compared to $35.7 million for 2003. The sales increase at foreign subsidiaries was due to additional sales resulting from demand by the foreign subsidiaries’ customers, as well as favorable currency translation of approximately $6.3 million in first quarter of 2004.
Agricultural Segment Results
Net sales in the agricultural market were $103.3 million for the first quarter of 2004 as compared to $78.1 million in 2003. Agricultural market net sales increased as a result of increased demand from the Company’s customers. Income from operations in the agricultural market was $12.7 million for the first quarter of 2004 as compared to $3.4 million for the first quarter of 2003. The increase in income from operations in the agricultural market was attributed to efficiencies gained from higher production levels.
Earthmoving/Construction Segment Results
The Company’s earthmoving/construction market net sales were $53.4 million for the first quarter of 2004 as compared to $41.0 million for the first quarter of 2003. Approximately $8.8 million of the increased sales came from the Company’s foreign subsidiaries whose earthmoving/construction customers have had increased demand. Income from operations in the earthmoving/construction market was $4.0 million for the first quarter of 2004 versus $1.5 million in 2003. The increase in income from operations in the earthmoving/construction market was primarily due to efficiencies gained by operating at higher production levels.
Consumer Segment Results
Consumer market net sales were $10.3 million for the first quarter of 2004 as compared to $9.8 million for the first quarter of 2003. Consumer market income from operations was $0.9 million for the first quarter of 2004 as compared to $0.2 million for 2003. The increase in income from operations in the consumer market was primarily attributed to a change in sales mix to higher margin products.
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Corporate Expenses
Income from operations on a segment basis does not include corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $5.8 million for the first quarter of 2004 as compared to $6.8 million for the first quarter of 2003. The reduction is attributed to the streamlining of corporate costs, primarily professional fees of approximately $0.9 million.
Market Risk Sensitive Instruments
The Company’s risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2003.
Liquidity and Capital Resources
Cash Flows
As of March 31, 2004, the Company had $18.6 million of unrestricted cash deposited within various bank accounts, including unrestricted cash at Titan Europe, which has been reclassified as assets held for sale, of $9.0 million. The total unrestricted cash balance increased by $12.0 million from December 31, 2003, due to the cash flow items discussed in the following paragraphs.
In the first quarter of 2004, positive cash flows from operating activities of $17.0 million resulted primarily from net income of $5.3 million, depreciation and amortization of $6.7 million, increases in accounts payable of $14.6 million, and increases in other current liabilities of $9.2 million, offset by accounts receivable increases of $24.7 million.
In comparison, for the first quarter of 2003, negative cash flows from operating activities of $15.0 million resulted primarily from a $26.8 million increase in accounts receivable and a net loss of $5.9 million, offset by accounts payable increases of $9.7 million and depreciation and amortization of $7.9 million. The increase in receivables in both years is primarily due to a seasonal increase in sales volume in the first quarter when compared to the fourth quarter. The increase in accounts payable results from this same seasonal increase.
The Company invested $3.0 million in capital expenditures in the first quarter of 2004, compared to $1.8 million in the first quarter of 2003. The expenditures represent various equipment purchases and building improvements to enhance production capabilities. The Company estimates that its total capital expenditures for 2004 could range between $9 million and $12 million.
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In the three months ended March 31, 2004, $1.9 million of cash was used for financing activities. This use of cash was primarily the result of net debt payment of $1.8 million. In comparison, in the first quarter of 2003, total debt increased by $6.2 million to fund working capital requirements.
Debt Funding
The Company’s term loan and revolving loan agreements contain various covenants and restrictions. The financial covenants in these loan agreements require that the (i) Company’s adjusted minimum tangible net worth be equal to or greater than $150 million, (ii) value of equipment, accounts receivable, and inventory be equal to or greater than three times the outstanding principal balance of the term loan, and (iii) value of accounts receivable and inventory be equal to or greater than $100 million. Restrictions include (i) limits on payments of dividends and repurchases of the Company’s stock, (ii) restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company, and (iii) limitations on investments, dispositions of assets and guarantees of indebtedness. These covenants and restrictions could limit the Company’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends or to take advantage of business opportunities, including future acquisitions. If the Company were unable to meet these covenants, the Company would be in default on these loan agreements.
The Company is in compliance with these covenants and restrictions as of March 31, 2004. The Company’s adjusted minimum tangible net worth is required to be equal to or greater than $150 million and the Company computed it to be $188.3 million at March 31, 2004. The value of the equipment, accounts receivable and inventory is required to be equal to or greater than 3.00 times the outstanding principal balance of the term loan and is calculated to be 4.00 times this balance at March 31, 2004. The value of the accounts receivable and inventory must be equal to or greater than $100 million and is computed to be $139.2 million at March 31, 2004.
Other Issues
The Company’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances.
There have been no significant changes in interest rates, debt borrowings, or related covenants during the first three months of 2004.
The Company had restricted cash of $51.0 million at March 31, 2004, and December 31, 2003. Restricted cash of $24.5 million is on deposit for a court appeal. Additionally, restricted cash of $15.0 million is collateral on a revolving loan agreement. The remaining $11.5 million is collateral on outstanding letters of credit for an industrial revenue bond of $9.6 million and another letter of credit for $1.9 million.
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Liquidity Outlook
At March 31, 2004, the Company had unrestricted cash and cash equivalents of $9.6 million and no amounts had been drawn on the $20 million revolving loan agreement. In April 2004, Titan received gross proceeds from the sale of Titan Europe shares of approximately $61.8 million before fees and expenses. Approximately $26.4 million of the cash receipts were used to make debt payments in April 2004. Approximately $15.0 million of the cash receipts were used to purchase approximately 4.9 million shares of Titan International stock held by Citicorp Venture Capital, Ltd. See “Recent Developments” for additional information.
The Company has scheduled debt principal payments amounting to $5.1 million due for the remainder of 2004. The Company presently anticipates contributing approximately $7.6 million to its pension plans in the remainder of 2004.
The Company’s term loan will terminate in January 2005. The balance at the time of termination is scheduled to be $52.6 million. The balance was reduced by applying certain of the proceeds of the Titan Europe offering, which was completed in April 2004. The Company intends to secure replacement financing by the termination date of the current term loan. At this time, the Company does not foresee the inability to refinance this debt. The Company is in discussions with its current lenders as well as other lenders regarding the Company’s financial borrowing requirements.
Cash on hand, including the proceeds from the sale of Titan Europe, anticipated internal cash flows from operations and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, capital expenditures, and payments required on short-term debt for the near term. However, if the Company were to exhaust all currently available working capital sources or were not to meet the financial covenants and conditions of its loan agreements, the Company might find it difficult to secure additional funding in order to meet working capital requirements.
Outlook
In the first quarter of 2004, the Company benefited from increased demand for its products. This demand was driven by the increase in sales of new agricultural and earthmoving/construction vehicles that use the Company’s products. Many of the Company’s customers have positive outlooks for the remainder of 2004. During the first quarter, the Company was able to offset higher raw material costs with certain price increases. The higher sales levels have allowed the Company to manufacture its products in a more efficient operating environment. Given these facts, the Company is optimistic that it will continue to show improved results as compared to the last several years. However, if the increased demand seen in the first quarter of 2004 subsides, the Company may see deterioration in its operating results. The Company’s customers generally operate in businesses that have cyclical demand. Historically, the Company sees higher sales levels in the first half of the year as a result of this cyclical demand.
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On April 7, 2004, Titan Luxembourg S.a.r.l. (Titan Luxembourg), a European subsidiary, sold 70% of the common stock of Titan Europe, Limited (Titan Europe), to the public on the Alternative Investment Market (AIM) of the London, England Stock Exchange. In the first quarter of 2004, Titan Europe had net sales of $49.5 million, income from operations on a consolidated basis of $3.4 million and net income of $1.5 million. In the first quarter of 2004, Titan Europe had depreciation and amortization of $2.3 million and capital expenditures of $1.3 million. Titan Europe’s operating results will no longer be consolidated with those of the Company. However, as an equity investment, the Company will record its 30% share of Titan Europe’s income or loss in Titan’s financial results.
Agricultural Segment
Agricultural market sales are expected to remain at a high level for the remainder of 2004. Crop and livestock prices have remained high, lifting farm income. The healthy farm economy combined with favorable tax depreciation provisions in the United States is supporting an upturn in the sale of agricultural equipment. Many variables, including weather, export markets, and future government policies and payments can greatly influence the overall health of the agricultural economy.
Earthmoving/Construction Segment
Sales for the earthmoving/construction market are expected to remain strong for the rest of 2004. Housing construction continues to remain robust. Rental firms have begun to replenish stocks of construction equipment. Military sales, which are included in this segment, are expected to continue at a high level. Equipment replacement demand is expected to move slightly higher for the remainder of 2004 in the earthmoving/construction segment.
Consumer Segment
Sales in the consumer market are expected to be stable for the duration of 2004. The all terrain vehicle (ATV) wheel and tire market is expected to continue to offer future growth opportunities for Titan. Many items affect the consumer market including weather, competitive pricing, energy prices, and consumer attitude, which has improved but remains cautious.
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New Accounting Standards
Financial Accounting Standards Board Interpretation Number 46
In December 2003, Financial Accounting Standards Board Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities,” was revised. FIN No. 46 was originally issued in January 2003 and requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the activities of the variable interest entity or is entitled to receive a majority of the entity’s residual returns. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. For entities created prior to this date, adoption of the statement and interpretations is required to be applied in the first interim period beginning after March 15, 2004. Certain disclosure requirements were required for all financial statements issued after January 1, 2003. The adoption of this interpretation had no material effect on the Company’s financial position, cash flows or results of operations.
Statement of Financial Accounting Standards Number 132
In December 2003, Statement of Financial Accounting Standards (SFAS) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” was revised. The new Statement does not change the measurement or recognition of those plans that is required by previously issued standards. The Statement retains the disclosure requirements contained in SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces, and also requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The additional disclosures required by SFAS No. 132 (revised 2003) are effective for fiscal years ending after December 15, 2003. The Company has disclosed the additional information required by this statement. The adoption of SFAS No. 132 (revised 2003) had no material effect on the Company’s financial position, cash flows or results of operations.
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Pensions
The Company has two defined benefit pension plans. These plans are described in Note 20 of the Company’s Notes to Consolidated Financial Statements in the 2003 Form 10-K. The Company’s recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates and other factors. Certain of these assumptions are determined with the assistance of outside actuaries. Assumptions are based on past experience and anticipated future trends. These assumptions are reviewed on a regular basis and revised when appropriate. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and the carrying value of the related obligations. During the first quarter of 2004, the Company contributed $0.9 million to its pension plans. The Company presently anticipates contributing approximately $7.6 million to its pension plans in the remainder of 2004.
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) meeting financial covenants and conditions of its loan agreements, (v) the Company’s business strategies, including its intention to introduce new products, (vi) expectations concerning the performance and commercial success of the Company’s existing and new products and (vii) the Company’s intention to consider and pursue acquisitions and divestitures. Readers of this Form 10-Q should understand that these forward-looking statements are based 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) fluctuations in currency translations, (iii) changes in the competitive marketplace, including new products and pricing changes by the Company’s competitors, (iv) availability and price of raw materials, (v) levels of operating efficiencies, (vi) actions of domestic and foreign governments, (vii) results of investments, and (vii) ability to secure financing at reasonable terms. Any changes in such factors could lead to significantly different results. 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.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
See the Company’s 2003 Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information.
Item 4. Controls and Procedures
The Company’s principal executive officer and principal financial officer believe the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective based on their most recent evaluation, which was completed as of March 31, 2004. During the quarter ended March 31, 2004, there were no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.
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PART II. OTHER INFORMATION
Items 1 through 5 are not applicable.
Item 6. Exhibits and Reports on Form 8-K
In a Current Report filed on Form 8-K dated February 27, 2004, the Company furnished a copy of the press release reporting its year-end 2003 financial results.
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SIGNATURES
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.
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