form10q.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
þ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For Quarterly Period Ended: June 30, 2009
OR
o |
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
Accelerated filer x |
Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the 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.
|
|
Shares Outstanding at |
Class |
|
July 28, 2009 |
|
|
|
Common stock, no par value per share |
|
35,258,529 |
TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
|
|
Page |
Part I. |
Financial Information |
|
|
|
|
Item 1. |
Financial Statements (Unaudited) |
|
|
|
|
|
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended June 30, 2009 and 2008 |
1 |
|
|
|
|
Consolidated Condensed Balance Sheets as of
June 30, 2009, and December 31, 2008 |
2 |
|
|
|
|
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Six Months Ended June 30, 2009 |
3 |
|
|
|
|
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 2009 and 2008 |
4 |
|
|
|
|
Notes to Consolidated Condensed Financial Statements |
5-17 |
|
|
|
Item 2. |
Management’s Discussion and Analysis of
Financial Condition and Results of Operations |
18-32 |
|
|
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
33 |
|
|
|
Item 4. |
Controls and Procedures |
33 |
|
|
|
Part II. |
Other Information |
|
|
|
|
Item 1. |
Legal Proceedings |
33 |
|
|
|
Item 1A. |
Risk Factors |
33 |
|
|
|
Item 4. |
Submission of Matters to a Vote of Security Holders |
34 |
|
|
|
Item 6. |
Exhibits |
34 |
|
|
|
|
Signatures |
34 |
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 |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
206,983 |
|
|
$ |
269,114 |
|
|
$ |
439,587 |
|
|
$ |
522,639 |
|
Cost of sales |
|
|
177,237 |
|
|
|
227,168 |
|
|
|
379,778 |
|
|
|
448,349 |
|
Gross profit |
|
|
29,746 |
|
|
|
41,946 |
|
|
|
59,809 |
|
|
|
74,290 |
|
Selling, general & administrative expenses |
|
|
14,626 |
|
|
|
15,289 |
|
|
|
28,153 |
|
|
|
29,366 |
|
Royalty expense |
|
|
2,200 |
|
|
|
2,268 |
|
|
|
4,659 |
|
|
|
4,415 |
|
Income from operations |
|
|
12,920 |
|
|
|
24,389 |
|
|
|
26,997 |
|
|
|
40,509 |
|
Interest expense |
|
|
(3,878 |
) |
|
|
(3,708 |
) |
|
|
(7,822 |
) |
|
|
(7,692 |
) |
Other income |
|
|
647 |
|
|
|
1,497 |
|
|
|
2,056 |
|
|
|
2,917 |
|
Income before income taxes |
|
|
9,689 |
|
|
|
22,178 |
|
|
|
21,231 |
|
|
|
35,734 |
|
Provision for income taxes |
|
|
3,779 |
|
|
|
8,872 |
|
|
|
8,280 |
|
|
|
14,294 |
|
Net income |
|
$ |
5,910 |
|
|
$ |
13,306 |
|
|
$ |
12,951 |
|
|
$ |
21,440 |
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
.17 |
|
|
$ |
.39 |
|
|
$ |
.37 |
|
|
$ |
.62 |
|
Diluted |
|
|
.17 |
|
|
|
.38 |
|
|
|
.37 |
|
|
|
.62 |
|
Average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
34,704 |
|
|
|
34,358 |
|
|
|
34,664 |
|
|
|
34,311 |
|
Diluted |
|
|
35,265 |
|
|
|
34,774 |
|
|
|
35,221 |
|
|
|
34,756 |
|
See accompanying Notes to Consolidated Condensed Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
|
|
June 30, |
|
|
December 31, |
|
Assets |
|
2009 |
|
|
2008 |
|
Current assets |
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,684 |
|
|
$ |
61,658 |
|
Accounts receivable |
|
|
104,723 |
|
|
|
126,531 |
|
Inventories |
|
|
150,023 |
|
|
|
147,306 |
|
Deferred income taxes |
|
|
12,042 |
|
|
|
12,042 |
|
Prepaid and other current assets |
|
|
20,388 |
|
|
|
21,662 |
|
Total current assets |
|
|
307,860 |
|
|
|
369,199 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
263,398 |
|
|
|
248,442 |
|
Goodwill |
|
|
11,702 |
|
|
|
11,702 |
|
Deferred income taxes |
|
|
5,913 |
|
|
|
7,256 |
|
Other assets |
|
|
23,101 |
|
|
|
18,183 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
611,974 |
|
|
$ |
654,782 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
0 |
|
|
$ |
25,000 |
|
Accounts payable |
|
|
31,332 |
|
|
|
65,547 |
|
Other current liabilities |
|
|
50,060 |
|
|
|
46,088 |
|
Total current liabilities |
|
|
81,392 |
|
|
|
136,635 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
193,800 |
|
|
|
200,000 |
|
Other long-term liabilities |
|
|
41,193 |
|
|
|
38,959 |
|
Total liabilities |
|
|
316,385 |
|
|
|
375,594 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
Common stock (no par, 60,000,000 shares authorized, 37,475,288 issued) |
|
|
30 |
|
|
|
30 |
|
Additional paid-in capital |
|
|
299,641 |
|
|
|
300,024 |
|
Retained earnings |
|
|
54,325 |
|
|
|
41,726 |
|
Treasury stock (at cost, 2,234,338 and 2,443,604 shares, respectively) |
|
|
(20,453 |
) |
|
|
(22,332 |
) |
Treasury stock reserved for contractual obligations |
|
|
(5,501 |
) |
|
|
(5,501 |
) |
Accumulated other comprehensive loss |
|
|
(32,453 |
) |
|
|
(34,759 |
) |
Total stockholders’ equity |
|
|
295,589 |
|
|
|
279,188 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
611,974 |
|
|
$ |
654,782 |
|
See accompanying Notes to Consolidated Condensed Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
|
|
Number of common shares |
|
|
Common Stock |
|
|
Additional
paid-in
capital |
|
|
Retained earnings |
|
|
Treasury stock |
|
|
Treasury stock reserved for contractual obligations |
|
|
Accumulated other comprehensive income (loss) |
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance January 1, 2009 |
|
|
#35,031,684 |
|
|
$ |
30 |
|
|
$ |
300,024 |
|
|
$ |
41,726 |
|
|
$ |
(22,332 |
) |
|
$ |
(5,501 |
) |
|
$ |
(34,759 |
) |
|
$ |
279,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,951 |
|
Pension liability adjustments, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,359 |
|
|
|
1,359 |
|
Unrealized gain on investment, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
947 |
|
|
|
947 |
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,257 |
|
Dividends on common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(352 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(352 |
) |
Exercise of stock options |
|
|
170,000 |
|
|
|
|
|
|
|
(298 |
) |
|
|
|
|
|
|
1,526 |
|
|
|
|
|
|
|
|
|
|
|
1,228 |
|
Issuance of treasury stock under 401(k) plan |
|
|
39,266 |
|
|
|
|
|
|
|
(85 |
) |
|
|
|
|
|
|
353 |
|
|
|
|
|
|
|
|
|
|
|
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2009 |
|
|
# 35,240,950 |
|
|
$ |
30 |
|
|
$ |
299,641 |
|
|
$ |
54,325 |
|
|
$ |
(20,453 |
) |
|
$ |
(5,501 |
) |
|
$ |
(32,453 |
) |
|
$ |
295,589 |
|
See accompanying Notes to Consolidated Condensed Financial Statements.
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
|
|
Six months ended |
|
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
Net income |
|
$ |
12,951 |
|
|
$ |
21,440 |
|
Adjustments to reconcile net income to net cash |
|
|
|
|
|
|
|
|
provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
16,289 |
|
|
|
14,392 |
|
Deferred income tax provision |
|
|
0 |
|
|
|
7,379 |
|
Gain on senior note repurchase |
|
|
(1,398 |
) |
|
|
0 |
|
Excess tax benefit from stock options exercised |
|
|
(86 |
) |
|
|
(3,913 |
) |
Issuance of treasury stock under 401(k) plan |
|
|
268 |
|
|
|
266 |
|
(Increase) decrease in current assets: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
21,808 |
|
|
|
(41,044 |
) |
Inventories |
|
|
(2,717 |
) |
|
|
9,965 |
|
Prepaid and other current assets |
|
|
1,274 |
|
|
|
(3,947 |
) |
Other assets |
|
|
(637 |
) |
|
|
(567 |
) |
Increase (decrease) in current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
|
|
(34,215 |
) |
|
|
26,983 |
|
Other current liabilities |
|
|
4,057 |
|
|
|
10,531 |
|
Other liabilities |
|
|
4,426 |
|
|
|
1,539 |
|
Net cash provided by operating activities |
|
|
22,020 |
|
|
|
43,024 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(31,702 |
) |
|
|
(38,912 |
) |
Acquisition of shares of Titan Europe Plc |
|
|
(2,399 |
) |
|
|
0 |
|
Other |
|
|
1,026 |
|
|
|
89 |
|
Net cash used for investing activities |
|
|
(33,075 |
) |
|
|
(38,823 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Repurchase of senior notes |
|
|
(4,726 |
) |
|
|
0 |
|
Payment on debt |
|
|
(25,000 |
) |
|
|
0 |
|
Proceeds from exercise of stock options |
|
|
1,142 |
|
|
|
3,220 |
|
Excess tax benefit from stock options exercised |
|
|
86 |
|
|
|
3,913 |
|
Payment of financing fees |
|
|
(1,070 |
) |
|
|
0 |
|
Dividends paid |
|
|
(351 |
) |
|
|
(274 |
) |
Net cash (used for) provided by financing activities |
|
|
(29,919 |
) |
|
|
6,859 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(40,974 |
) |
|
|
11,060 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period |
|
|
61,658 |
|
|
|
58,325 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
20,684 |
|
|
$ |
69,385 |
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Consolidated Condensed Financial Statements.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
1. 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 and necessary to present fairly the Company’s financial position as of June 30, 2009, the results of operations for the three and
six months ended June 30, 2009 and 2008, and cash flows for the six months ended June 30, 2009 and 2008.
Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2008 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-Q’s and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s 2008 Annual Report on Form 10-K. Certain amounts from
prior periods have been reclassified to conform to the current period financial presentation.
Stock split
In June 2008, Titan’s Board of Directors approved a five-for-four stock split with a record date of July 31, 2008, and a payable date of August 15, 2008. The Company gave five shares for every four shares held as of the record date. Stockholders received one additional share for every four shares owned as of the
record date and received cash in lieu of fractional shares. All share and per share data, except shares authorized, have been adjusted to reflect the effect of the stock split for all periods presented.
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. Investments in marketable equity securities are recorded at fair value. The senior unsecured notes are the
only significant financial instrument of the Company with a fair value different from the recorded value. At June 30, 2009, the fair value of the senior unsecured notes, based on market prices obtained through independent pricing sources, was approximately $174.7 million, compared to a carrying value of $193.8 million.
Cash dividends
The Company declared cash dividends of $.005 and $.010 per share of common stock for the three and six months ended June 30, 2009, and $.004 and $.008 per share for the three and six months ended June 30, 2008, respectively. The second quarter 2009 cash dividend of $.005 per share of common stock was paid July15, 2009, to stockholders
of record on June 30, 2009.
Subsequent events
The Company has performed an evaluation of subsequent events through July 30, 2009, which is the date the financial statements were filed with the Securities and Exchange Commission.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Accounts receivable |
|
$ |
112,026 |
|
|
$ |
133,170 |
|
Allowance for doubtful accounts |
|
|
(7,303 |
) |
|
|
(6,639 |
) |
Accounts receivable, net |
|
$ |
104,723 |
|
|
$ |
126,531 |
|
The Company had net accounts receivable balance of $104.7 million at June 30, 2009, and $126.5 million at December 31, 2008. These amounts are net of allowance for doubtful accounts of $7.3 million at June 30, 2009, and $6.6 million at December 31, 2008.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
3. INVENTORIES
Inventories consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Raw materials |
|
$ |
60,518 |
|
|
$ |
73,927 |
|
Work-in-process |
|
|
21,571 |
|
|
|
26,820 |
|
Finished goods |
|
|
69,819 |
|
|
|
56,488 |
|
|
|
|
151,908 |
|
|
|
157,235 |
|
Adjustment to LIFO basis |
|
|
(1,885 |
) |
|
|
(9,929 |
) |
|
|
$ |
150,023 |
|
|
$ |
147,306 |
|
Inventories were $150.0 million at June 30, 2009, and $147.3 million at December 31, 2008. At June 30, 2009, cost is determined using the first-in, first-out (FIFO) method for approximately 75% of inventories and the last-in, first-out (LIFO) method for approximately 25% of the inventories. At December 31, 2008, the FIFO method
was used for approximately 78% of inventories and LIFO was used for approximately 22% of the inventories. The change in the adjustment to LIFO basis was primarily the result of lower raw material costs in the current year. Included in the inventory balances were reserves for slow-moving and obsolete inventory of $4.0 million at June 30, 2009, and $3.8 million at December 31, 2008.
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Land and improvements |
|
$ |
2,955 |
|
|
$ |
3,343 |
|
Buildings and improvements |
|
|
96,831 |
|
|
|
99,650 |
|
Machinery and equipment |
|
|
343,245 |
|
|
|
318,327 |
|
Tools, dies and molds |
|
|
70,375 |
|
|
|
62,856 |
|
Construction-in-process |
|
|
33,904 |
|
|
|
37,536 |
|
|
|
|
547,310 |
|
|
|
521,712 |
|
Less accumulated depreciation |
|
|
(283,912 |
) |
|
|
(273,270 |
) |
|
|
$ |
263,398 |
|
|
$ |
248,442 |
|
At June 30, 2009, there was $24.7 million in construction-in-process related to the giant OTR mining tire project, including $1.2 million of capitalized interest. Depreciation on fixed assets for the six months ended June 30, 2009 and 2008, totaled $15.0 million and $13.0 million, respectively.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
5. INVESTMENT IN TITAN EUROPE PLC
Investment in Titan Europe Plc consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Investment in Titan Europe Plc |
|
$ |
6,505 |
|
|
$ |
2,649 |
|
Titan Europe Plc is publicly traded on the AIM market in London, England. During the first quarter of 2009, the Company purchased $2.4 million of additional shares in Titan Europe Plc, thereby increasing its investment from 17.2% to a 22.9% ownership percentage. The Company has considered the applicable guidance in APB
18, “The Equity Method of Accounting for Investments in Common Stock,” and FIN 35, “Criteria for Applying the Equity Method of Accounting for Investments in Common Stock,” and has concluded that the Company’s investment in Titan Europe Plc should continue to be accounted for as an available-for-sale security and recorded at fair value in accordance with FAS 115, “Accounting for Certain Investments in Debt and Equity Securities.” The Company has determined that
the equity method of accounting for this investment is not appropriate after considering all of the facts and circumstances relating to the investment. In particular, the Company has concluded that its inability to obtain the needed quarterly financial information from Titan Europe Plc is an indication that the Company does not have the ability to exercise significant influence over the financial and operating policies of this investee. The investment in Titan Europe Plc is included as a
component of other assets on the Consolidated Condensed Balance Sheets. The increased value in the Titan Europe Plc investment at June 30, 2009, was due to a higher publicly quoted Titan Europe Plc market price and additional purchased shares.
6. GOODWILL
The carrying amount of goodwill by segment consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Agricultural segment |
|
$ |
6,912 |
|
|
$ |
6,912 |
|
Earthmoving/construction segment |
|
|
3,552 |
|
|
|
3,552 |
|
Consumer segment |
|
|
1,238 |
|
|
|
1,238 |
|
|
|
$ |
11,702 |
|
|
$ |
11,702 |
|
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. No goodwill impairments were recorded in the first six months of 2009 or 2008. There can
be no assurance that future goodwill tests will not result in a charge to earnings.
7. WARRANTY
Changes in the warranty liability consisted of the following (in thousands):
|
|
2009 |
|
|
2008 |
|
Warranty liability, January 1 |
|
$ |
7,488 |
|
|
$ |
5,854 |
|
Provision for warranty liabilities |
|
|
7,008 |
|
|
|
4,511 |
|
Warranty payments made |
|
|
(7,101 |
) |
|
|
(4,099 |
) |
Warranty liability, June 30 |
|
$ |
7,395 |
|
|
$ |
6,266 |
|
The Company provides limited warranties on workmanship on its products in all market segments. The majority of the Company’s products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year. The Company calculates a provision for warranty expense based
on past warranty experience. Warranty accruals are included as a component of other current liabilities on the Consolidated Condensed Balance Sheets.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Senior unsecured notes |
|
$ |
193,800 |
|
|
$ |
200,000 |
|
Revolving credit facility |
|
|
0 |
|
|
|
25,000 |
|
|
|
|
193,800 |
|
|
|
225,000 |
|
Less: Amounts due within one year |
|
|
0 |
|
|
|
25,000 |
|
|
|
$ |
193,800 |
|
|
$ |
200,000 |
|
Aggregate maturities of long-term debt at June 30, 2009, were as follows (in thousands):
July 1 – December 31, 2009 |
|
$ |
0 |
|
2010 |
|
|
0 |
|
2011 |
|
|
0 |
|
2012 |
|
|
193,800 |
|
Thereafter |
|
|
0 |
|
|
|
$ |
193,800 |
|
Senior unsecured notes
The Company’s 8% senior unsecured notes are due January 2012. In the first quarter of 2009, the Company repurchased $6.2 million of principal value of senior notes for approximately $4.8 million resulting in a $1.4 million gain on the senior note repurchases. The senior notes outstanding balance was $193.8 million
at June 30, 2009.
Revolving credit facility
The Company’s $150 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2012 termination date and is collateralized by a first priority security interest in certain assets of Titan and its domestic subsidiaries. At June 30, 2009, there were no cash borrowings under the credit facility. Outstanding
letters of credit were $5.0 million at June 30, 2009, leaving $145.0 million of unused availability on the credit facility. During the first six months of 2009, the borrowings under the credit facility bore an approximate 3¼% interest rate.
On January 30, 2009, Titan International, Inc. amended and restated its credit facility with Bank of America, N.A. The amendment included a multi-year extension that extended the credit facility termination date to January 2012 from the previous October 2009 date. The amendment created an accordion feature within the
credit facility that set the initial loan availability at $150 million with the ability to request increases up to a maximum availability of $250 million.
The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. The Company is in compliance with these covenants and restrictions as of June 30, 2009.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
9. EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. The Company also sponsors four 401(k) retirement savings plans.
The components of net periodic pension cost (income) consisted of the following (in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest cost |
|
$ |
1,364 |
|
|
$ |
1,324 |
|
|
$ |
2,728 |
|
|
$ |
2,648 |
|
Expected return on assets |
|
|
(1,234 |
) |
|
|
(1,954 |
) |
|
|
(2,468 |
) |
|
|
(3,908 |
) |
Amortization of unrecognized prior service cost |
|
|
34 |
|
|
|
34 |
|
|
|
68 |
|
|
|
68 |
|
Amortization of unrecognized deferred taxes |
|
|
(14 |
) |
|
|
(14 |
) |
|
|
(28 |
) |
|
|
(28 |
) |
Amortization of net unrecognized loss |
|
|
1,076 |
|
|
|
397 |
|
|
|
2,152 |
|
|
|
794 |
|
Net periodic pension cost (income) |
|
$ |
1,226 |
|
|
$ |
(213 |
) |
|
$ |
2,452 |
|
|
$ |
(426 |
) |
During the first half of 2009, the Company contributed cash funds of $0.1 million to the frozen defined pension plans. The Company expects to contribute approximately $0.1 million to the pension plans during the remainder of 2009.
10. LEASE COMMITMENTS
The Company leases certain buildings and equipment under operating leases. Certain lease agreements provide for renewal options and payment of property taxes, maintenance and insurance by the Company.
At June 30, 2009, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
July 1 – December 31, 2009 |
|
$ |
852 |
|
2010 |
|
|
1,455 |
|
2011 |
|
|
716 |
|
2012 |
|
|
52 |
|
Thereafter |
|
|
1 |
|
Total future minimum lease payments |
|
$ |
3,076 |
|
11. ROYALTY EXPENSE
Royalty expense consisted of the following (in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Royalty expense |
|
$ |
2,200 |
|
|
$ |
2,268 |
|
|
$ |
4,659 |
|
|
$ |
4,415 |
|
The Company has a license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name. Royalty expenses recorded were $2.2 million and $2.3 million for the quarters ended June 30, 2009 and 2008, respectively. Royalty expenses were $4.7
million and $4.4 million for the six months ended June 30, 2009 and 2008, respectively.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
12. OTHER INCOME
Other income consisted of the following (in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Gain on senior note repurchases |
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
1,398 |
|
|
$ |
0 |
|
Dividend income – Titan Europe Plc |
|
|
0 |
|
|
|
1,234 |
|
|
|
0 |
|
|
|
1,234 |
|
Interest income |
|
|
48 |
|
|
|
359 |
|
|
|
112 |
|
|
|
874 |
|
Other income (expense) |
|
|
599 |
|
|
|
(96 |
) |
|
|
546 |
|
|
|
809 |
|
|
|
$ |
647 |
|
|
$ |
1,497 |
|
|
$ |
2,056 |
|
|
$ |
2,917 |
|
The gain on senior note repurchases of $1.4 million resulted from the Company’s repurchase of $6.2 million of principal value of senior notes for approximately $4.8 million in the first quarter of 2009.
13. INCOME TAXES
Income tax expense consisted of the following (in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Income tax expense |
|
$ |
3,779 |
|
|
$ |
8,872 |
|
|
$ |
8,280 |
|
|
$ |
14,294 |
|
The Company recorded income tax expense of $3.8 million and $8.3 million for the three and six months ended June 30, 2009, respectively, as compared to $8.9 million and $14.3 million for the three and six months ended June 30, 2008. The Company’s effective income tax rate was 39% and 40% for the six months ended June 30, 2009
and 2008, respectively.
14. COMPREHENSIVE INCOME
The Company’s quarterly comprehensive income consisted of the following: (i) for the quarter ended June 30, 2009, net income of $5.9 million, amortization of pension adjustments of $0.7 million and unrealized gain on the Titan Europe Plc investment of $2.6 million for a total comprehensive income of $9.2 million; (ii) for
the quarter ended June 30, 2008, net income of $13.3 million, amortization of pension adjustments of $0.3 million and unrealized gain on the Titan Europe Plc investment of $5.2 million for a total comprehensive income of $18.8 million.
The Company’s year-to-date comprehensive income consisted of the following: (i) for the six months ended June 30, 2009, net income of $13.0 million, amortization of pension adjustments of $1.4 million and unrealized gain on the Titan Europe Plc investment of $0.9 million for a total comprehensive income of $15.3 million; (ii)
for the six months ended June 30, 2008, net income of $21.4 million, amortization of pension adjustments of $0.5 million and unrealized gain on the Titan Europe Plc investment of $4.1 million for a total comprehensive income of $26.0 million.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
15. 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 and six months ended June 30, 2009 and 2008 (in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Revenues from external customers |
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
$ |
160,344 |
|
|
$ |
185,615 |
|
|
$ |
347,672 |
|
|
$ |
359,101 |
|
Earthmoving/construction |
|
|
42,426 |
|
|
|
76,471 |
|
|
|
82,353 |
|
|
|
150,304 |
|
Consumer |
|
|
4,213 |
|
|
|
7,028 |
|
|
|
9,562 |
|
|
|
13,234 |
|
|
|
$ |
206,983 |
|
|
$ |
269,114 |
|
|
$ |
439,587 |
|
|
$ |
522,639 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
$ |
24,002 |
|
|
$ |
25,388 |
|
|
$ |
48,922 |
|
|
$ |
45,081 |
|
Earthmoving/construction |
|
|
5,658 |
|
|
|
15,675 |
|
|
|
10,542 |
|
|
|
27,586 |
|
Consumer |
|
|
608 |
|
|
|
1,381 |
|
|
|
1,396 |
|
|
|
2,430 |
|
Corporate expenses |
|
|
(522 |
) |
|
|
(498 |
) |
|
|
(1,051 |
) |
|
|
(807 |
) |
|
|
$ |
29,746 |
|
|
$ |
41,946 |
|
|
$ |
59,809 |
|
|
$ |
74,290 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agricultural |
|
$ |
19,220 |
|
|
$ |
22,010 |
|
|
$ |
39,305 |
|
|
$ |
38,453 |
|
Earthmoving/construction |
|
|
2,822 |
|
|
|
13,393 |
|
|
|
6,662 |
|
|
|
23,195 |
|
Consumer |
|
|
487 |
|
|
|
1,190 |
|
|
|
1,124 |
|
|
|
2,059 |
|
Corporate expenses |
|
|
(9,609 |
) |
|
|
(12,204 |
) |
|
|
(20,094 |
) |
|
|
(23,198 |
) |
Income from operations |
|
|
12,920 |
|
|
|
24,389 |
|
|
|
26,997 |
|
|
|
40,509 |
|
Interest expense |
|
|
(3,878 |
) |
|
|
(3,708 |
) |
|
|
(7,822 |
) |
|
|
(7,692 |
) |
Other income |
|
|
647 |
|
|
|
1,497 |
|
|
|
2,056 |
|
|
|
2,917 |
|
Income before income taxes |
|
$ |
9,689 |
|
|
$ |
22,178 |
|
|
$ |
21,231 |
|
|
$ |
35,734 |
|
Assets by segment were as follows (in thousands):
|
|
June 30, |
|
|
December 31, |
|
Total Assets |
|
2009 |
|
|
2008 |
|
Agricultural segment |
|
$ |
347,709 |
|
|
$ |
360,030 |
|
Earthmoving/construction segment |
|
|
196,879 |
|
|
|
188,486 |
|
Consumer segment |
|
|
9,939 |
|
|
|
9,401 |
|
Other assets |
|
|
57,447 |
|
|
|
96,865 |
|
|
|
$ |
611,974 |
|
|
$ |
654,782 |
|
|
|
|
|
|
|
|
|
|
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
16. EARNINGS PER SHARE
Earnings per share (EPS) are as follows (amounts in thousands, except per share data):
|
|
Three months ended, |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
Net
Income |
|
|
Weighted average shares |
|
|
Per share
amount |
|
|
Net
Income |
|
|
Weighted average shares |
|
|
Per share amount |
|
Basic EPS |
|
$ |
5,910 |
|
|
|
34,704 |
|
|
$ |
.17 |
|
|
$ |
13,306 |
|
|
|
34,358 |
|
|
$ |
.39 |
|
Effect of stock options/trusts |
|
|
0 |
|
|
|
561 |
|
|
|
|
|
|
|
0 |
|
|
|
416 |
|
|
|
|
|
Diluted EPS |
|
$ |
5,910 |
|
|
|
35,265 |
|
|
$ |
.17 |
|
|
$ |
13,306 |
|
|
|
34,774 |
|
|
$ |
.38 |
|
|
|
Six months ended, |
|
|
|
June 30, 2009 |
|
|
June 30, 2008 |
|
|
|
Net Income |
|
|
Weighted average shares |
|
|
Per share amount |
|
|
Net
Income |
|
|
Weighted average shares |
|
|
Per share amount |
|
Basic EPS |
|
$ |
12,951 |
|
|
|
34,664 |
|
|
$ |
.37 |
|
|
$ |
21,440 |
|
|
|
34,311 |
|
|
$ |
.62 |
|
Effect of stock options/trusts |
|
|
0 |
|
|
|
557 |
|
|
|
|
|
|
|
0 |
|
|
|
445 |
|
|
|
|
|
Diluted EPS |
|
$ |
12,951 |
|
|
|
35,221 |
|
|
$ |
.37 |
|
|
$ |
21,440 |
|
|
|
34,756 |
|
|
$ |
.62 |
|
The weighted-average diluted shares outstanding for the three and six months ended June 30, 2009, exclude stock options to purchase approximately 0.3 million shares for both periods, because such options have an exercise price in excess of the average market price of the Company’s common stock during the period.
17. FAIR VALUE MEASUREMENTS
The adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, effective January 1, 2009, did not have a material impact on Titan’s consolidated financial position, results of operations or cash flows.
SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:
|
Level 1 – Quoted prices in active markets for identical instruments; |
|
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable. |
|
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
Assets and liabilities measured at fair value on a recurring basis consisted of the following (in thousands):
|
|
Fair Value Measurements as of June 30, 2009 |
|
|
|
Total |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
Investment in Titan Europe Plc |
|
$ |
6,505 |
|
|
$ |
6,505 |
|
|
$ |
0 |
|
|
$ |
0 |
|
Investments for contractual obligations |
|
|
4,871 |
|
|
|
4,871 |
|
|
|
0 |
|
|
|
0 |
|
Total |
|
$ |
11,376 |
|
|
$ |
11,376 |
|
|
$ |
0 |
|
|
$ |
0 |
|
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
18. LITIGATION
The Company is a party to 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 at this time that none of these actions, individually or in the aggregate, will
have a material adverse affect on the consolidated financial condition, results of operations or cash flows of the Company. However, due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations or cash flows as a result of efforts to comply with or its liabilities pertaining to legal judgments.
19. RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards Number 141 (revised 2007)
In January 2009, the Company adopted SFAS No. 141 (revised 2007), “Business Combinations.” This statement requires an acquirer to recognize assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. The adoption of SFAS No. 141 (revised 2007) had no material effect on the Company’s financial position, results of operations or cash flows.
FASB Staff Position No. FAS 107-1 and APB 28-1
In April 2009, FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” was issued. This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,’ to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures in summarized financial information at interim reporting periods. This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this FSP had no material effect on the Company’s financial position, results of operations or cash flows.
FASB Staff Position No. FAS 115-2 and FAS 124-2
In April 2009, FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” was issued. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this FSP had no material effect on the Company’s financial position, results of operations or cash flows.
Statement of Financial Accounting Standards Number 165
In June 2009, the Company adopted SFAS No. 165, “Subsequent Events.” The objective of this statement was to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This statement was effective for interim periods
ending after June 15, 2009. The adoption of this standard had no material effect on the Company’s financial position, results of operations or cash flows.
Statement of Financial Accounting Standards Number 168
In June 2009, SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” was issued. This Statement establishes the FASB Accounting Standards Codification, ("Codification") as the single source of authoritative GAAP to be applied by nongovernmental
entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard is expected to have no material effect on the Company’s financial position, results of operations or cash flows.
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
20. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company’s 8% senior unsecured notes are guaranteed by each of Titan’s current and future wholly owned domestic subsidiaries other than its immaterial subsidiaries (subsidiaries with total assets less than $250,000 and total revenues less than $250,000.) The note guarantees are full and unconditional, joint and several obligations
of the guarantors. Non-guarantors consist primarily of foreign subsidiaries of the Company, which are organized outside the United States of America. The following condensed consolidating financial statements are presented using the equity method of accounting.
|
|
Consolidating Condensed Statements of Operations |
|
(Amounts in thousands) |
|
|
|
|
|
For the Three Months Ended June 30, 2009 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
0 |
|
|
$ |
206,983 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
206,983 |
|
Cost of sales |
|
|
213 |
|
|
|
177,024 |
|
|
|
0 |
|
|
|
0 |
|
|
|
177,237 |
|
Gross (loss) profit |
|
|
(213 |
) |
|
|
29,959 |
|
|
|
0 |
|
|
|
0 |
|
|
|
29,746 |
|
Selling, general and administrative expenses |
|
|
4,270 |
|
|
|
10,315 |
|
|
|
41 |
|
|
|
0 |
|
|
|
14,626 |
|
Royalty expense |
|
|
0 |
|
|
|
2,200 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,200 |
|
(Loss) income from operations |
|
|
(4,483 |
) |
|
|
17,444 |
|
|
|
(41 |
) |
|
|
0 |
|
|
|
12,920 |
|
Interest expense |
|
|
(3,878 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(3,878 |
) |
Other income |
|
|
556 |
|
|
|
91 |
|
|
|
0 |
|
|
|
0 |
|
|
|
647 |
|
(Loss) income before income taxes |
|
|
(7,805 |
) |
|
|
17,535 |
|
|
|
(41 |
) |
|
|
0 |
|
|
|
9,689 |
|
(Benefit) provision for income taxes |
|
|
(3,044 |
) |
|
|
6,839 |
|
|
|
(16 |
) |
|
|
0 |
|
|
|
3,779 |
|
Equity in earnings of subsidiaries |
|
|
10,671 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(10,671 |
) |
|
|
0 |
|
Net income (loss) |
|
$ |
5,910 |
|
|
$ |
10,696 |
|
|
$ |
(25 |
) |
|
$ |
(10,671 |
) |
|
$ |
5,910 |
|
|
|
Consolidating Condensed Statements of Operations |
|
(Amounts in thousands) |
|
|
|
|
|
For the Three Months Ended June 30, 2008 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
0 |
|
|
$ |
269,114 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
269,114 |
|
Cost of sales |
|
|
255 |
|
|
|
226,913 |
|
|
|
0 |
|
|
|
0 |
|
|
|
227,168 |
|
Gross (loss) profit |
|
|
(255 |
) |
|
|
42,201 |
|
|
|
0 |
|
|
|
0 |
|
|
|
41,946 |
|
Selling, general and administrative expenses |
|
|
5,815 |
|
|
|
9,426 |
|
|
|
48 |
|
|
|
0 |
|
|
|
15,289 |
|
Royalty expense |
|
|
0 |
|
|
|
2,268 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,268 |
|
(Loss) income from operations |
|
|
(6,070 |
) |
|
|
30,507 |
|
|
|
(48 |
) |
|
|
0 |
|
|
|
24,389 |
|
Interest expense |
|
|
(3,708 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(3,708 |
) |
Other income (expense) |
|
|
386 |
|
|
|
(122 |
) |
|
|
1,233 |
|
|
|
0 |
|
|
|
1,497 |
|
(Loss) income before income taxes |
|
|
(9,392 |
) |
|
|
30,385 |
|
|
|
1,185 |
|
|
|
0 |
|
|
|
22,178 |
|
(Benefit) provision for income taxes |
|
|
(3,756 |
) |
|
|
12,153 |
|
|
|
475 |
|
|
|
0 |
|
|
|
8,872 |
|
Equity in earnings of subsidiaries |
|
|
18,942 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(18,942 |
) |
|
|
0 |
|
Net income |
|
$ |
13,306 |
|
|
$ |
18,232 |
|
|
$ |
710 |
|
|
$ |
(18,942 |
) |
|
$ |
13,306 |
|
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
|
Consolidating Condensed Statements of Operations |
|
(Amounts in thousands) |
|
|
|
|
|
For the Six Months Ended June 30, 2009 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
0 |
|
|
$ |
439,587 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
439,587 |
|
Cost of sales |
|
|
434 |
|
|
|
379,344 |
|
|
|
0 |
|
|
|
0 |
|
|
|
379,778 |
|
Gross (loss) profit |
|
|
(434 |
) |
|
|
60,243 |
|
|
|
0 |
|
|
|
0 |
|
|
|
59,809 |
|
Selling, general and administrative expenses |
|
|
8,961 |
|
|
|
19,149 |
|
|
|
43 |
|
|
|
0 |
|
|
|
28,153 |
|
Royalty expense |
|
|
0 |
|
|
|
4,659 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,659 |
|
(Loss) income from operations |
|
|
(9,395 |
) |
|
|
36,435 |
|
|
|
(43 |
) |
|
|
0 |
|
|
|
26,997 |
|
Interest expense |
|
|
(7,822 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(7,822 |
) |
Other income |
|
|
1,852 |
|
|
|
204 |
|
|
|
0 |
|
|
|
0 |
|
|
|
2,056 |
|
(Loss) income before income taxes |
|
|
(15,365 |
) |
|
|
36,639 |
|
|
|
(43 |
) |
|
|
0 |
|
|
|
21,231 |
|
(Benefit) provision for income taxes |
|
|
(5,992 |
) |
|
|
14,289 |
|
|
|
(17 |
) |
|
|
0 |
|
|
|
8,280 |
|
Equity in earnings of subsidiaries |
|
|
22,324 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(22,324 |
) |
|
|
0 |
|
Net income |
|
$ |
12,951 |
|
|
$ |
22,350 |
|
|
$ |
(26 |
) |
|
$ |
(22,324 |
) |
|
$ |
12,951 |
|
|
|
Consolidating Condensed Statements of Operations |
|
(Amounts in thousands) |
|
|
|
|
|
For the Six Months Ended June 30, 2008 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
0 |
|
|
$ |
522,639 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
522,639 |
|
Cost of sales |
|
|
314 |
|
|
|
448,035 |
|
|
|
0 |
|
|
|
0 |
|
|
|
448,349 |
|
Gross (loss) profit |
|
|
(314 |
) |
|
|
74,604 |
|
|
|
0 |
|
|
|
0 |
|
|
|
74,290 |
|
Selling, general and administrative expenses |
|
|
11,211 |
|
|
|
18,094 |
|
|
|
61 |
|
|
|
0 |
|
|
|
29,366 |
|
Royalty expense |
|
|
0 |
|
|
|
4,415 |
|
|
|
0 |
|
|
|
0 |
|
|
|
4,415 |
|
(Loss) income from operations |
|
|
(11,525 |
) |
|
|
52,095 |
|
|
|
(61 |
) |
|
|
0 |
|
|
|
40,509 |
|
Interest expense |
|
|
(7,692 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(7,692 |
) |
Other income (expense) |
|
|
1,886 |
|
|
|
(203 |
) |
|
|
1,234 |
|
|
|
0 |
|
|
|
2,917 |
|
(Loss) income before income taxes |
|
|
(17,331 |
) |
|
|
51,892 |
|
|
|
1,173 |
|
|
|
0 |
|
|
|
35,734 |
|
(Benefit) provision for income taxes |
|
|
(6,932 |
) |
|
|
20,756 |
|
|
|
470 |
|
|
|
0 |
|
|
|
14,294 |
|
Equity in earnings of subsidiaries |
|
|
31,839 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(31,839 |
) |
|
|
0 |
|
Net income |
|
$ |
21,440 |
|
|
$ |
31,136 |
|
|
$ |
703 |
|
|
$ |
(31,839 |
) |
|
$ |
21,440 |
|
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
|
Consolidating Condensed Balance Sheets |
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
20,513 |
|
|
$ |
25 |
|
|
$ |
146 |
|
|
$ |
0 |
|
|
$ |
20,684 |
|
Accounts receivable |
|
|
(66 |
) |
|
|
104,789 |
|
|
|
0 |
|
|
|
0 |
|
|
|
104,723 |
|
Inventories |
|
|
0 |
|
|
|
150,023 |
|
|
|
0 |
|
|
|
0 |
|
|
|
150,023 |
|
Prepaid and other current assets |
|
|
14,989 |
|
|
|
17,441 |
|
|
|
0 |
|
|
|
0 |
|
|
|
32,430 |
|
Total current assets |
|
|
35,436 |
|
|
|
272,278 |
|
|
|
146 |
|
|
|
0 |
|
|
|
307,860 |
|
Property, plant and equipment, net |
|
|
7,515 |
|
|
|
255,883 |
|
|
|
0 |
|
|
|
0 |
|
|
|
263,398 |
|
Investment in subsidiaries |
|
|
43,578 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(43,578 |
) |
|
|
0 |
|
Other assets |
|
|
15,135 |
|
|
|
19,076 |
|
|
|
6,505 |
|
|
|
0 |
|
|
|
40,716 |
|
Total assets |
|
$ |
101,664 |
|
|
$ |
547,237 |
|
|
$ |
6,651 |
|
|
$ |
(43,578 |
) |
|
$ |
611,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
2,313 |
|
|
$ |
29,019 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
31,332 |
|
Other current liabilities |
|
|
10,689 |
|
|
|
38,371 |
|
|
|
1,000 |
|
|
|
0 |
|
|
|
50,060 |
|
Total current liabilities |
|
|
13,002 |
|
|
|
67,390 |
|
|
|
1,000 |
|
|
|
0 |
|
|
|
81,392 |
|
Long-term debt |
|
|
193,800 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
193,800 |
|
Other long-term liabilities |
|
|
4,718 |
|
|
|
36,475 |
|
|
|
0 |
|
|
|
0 |
|
|
|
41,193 |
|
Intercompany accounts |
|
|
(405,445 |
) |
|
|
431,356 |
|
|
|
(25,911 |
) |
|
|
0 |
|
|
|
0 |
|
Stockholders’ equity |
|
|
295,589 |
|
|
|
12,016 |
|
|
|
31,562 |
|
|
|
(43,578 |
) |
|
|
295,589 |
|
Total liabilities and stockholders’ equity |
|
$ |
101,664 |
|
|
$ |
547,237 |
|
|
$ |
6,651 |
|
|
$ |
(43,578 |
) |
|
$ |
611,974 |
|
|
|
Consolidating Condensed Balance Sheets |
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
59,011 |
|
|
$ |
60 |
|
|
$ |
2,587 |
|
|
$ |
0 |
|
|
$ |
61,658 |
|
Accounts receivable |
|
|
(127 |
) |
|
|
126,658 |
|
|
|
0 |
|
|
|
0 |
|
|
|
126,531 |
|
Inventories |
|
|
0 |
|
|
|
147,306 |
|
|
|
0 |
|
|
|
0 |
|
|
|
147,306 |
|
Prepaid and other current assets |
|
|
17,117 |
|
|
|
16,573 |
|
|
|
14 |
|
|
|
0 |
|
|
|
33,704 |
|
Total current assets |
|
|
76,001 |
|
|
|
290,597 |
|
|
|
2,601 |
|
|
|
0 |
|
|
|
369,199 |
|
Property, plant and equipment, net |
|
|
6,160 |
|
|
|
242,282 |
|
|
|
0 |
|
|
|
0 |
|
|
|
248,442 |
|
Investment in subsidiaries |
|
|
31,474 |
|
|
|
0 |
|
|
|
0 |
|
|
|
(31,474 |
) |
|
|
0 |
|
Other assets |
|
|
15,842 |
|
|
|
18,650 |
|
|
|
2,649 |
|
|
|
0 |
|
|
|
37,141 |
|
Total assets |
|
$ |
129,477 |
|
|
$ |
551,529 |
|
|
$ |
5,250 |
|
|
$ |
(31,474 |
) |
|
$ |
654,782 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
$ |
25,000 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
0 |
|
|
$ |
25,000 |
|
Accounts payable |
|
|
3,106 |
|
|
|
62,441 |
|
|
|
0 |
|
|
|
0 |
|
|
|
65,547 |
|
Other current liabilities |
|
|
10,548 |
|
|
|
34,540 |
|
|
|
1,000 |
|
|
|
0 |
|
|
|
46,088 |
|
Total current liabilities |
|
|
38,654 |
|
|
|
96,981 |
|
|
|
1,000 |
|
|
|
0 |
|
|
|
136,635 |
|
Long-term debt |
|
|
200,000 |
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
|
|
200,000 |
|
Other long-term liabilities |
|
|
3,943 |
|
|
|
35,016 |
|
|
|
0 |
|
|
|
0 |
|
|
|
38,959 |
|
Intercompany accounts |
|
|
(392,308 |
) |
|
|
419,738 |
|
|
|
(27,430 |
) |
|
|
0 |
|
|
|
0 |
|
Stockholders’ equity |
|
|
279,188 |
|
|
|
(206 |
) |
|
|
31,680 |
|
|
|
(31,474 |
) |
|
|
279,188 |
|
Total liabilities and stockholders’ equity |
|
$ |
129,477 |
|
|
$ |
551,529 |
|
|
$ |
5,250 |
|
|
$ |
(31,474 |
) |
|
$ |
654,782 |
|
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
|
Consolidating Condensed Statements of Cash Flows |
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2009 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash (used for) provided by operating activities |
|
$ |
(6,676 |
) |
|
$ |
28,738 |
|
|
$ |
(42 |
) |
|
$ |
22,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(1,903 |
) |
|
|
(29,799 |
) |
|
|
0 |
|
|
|
(31,702 |
) |
Acquisition of shares of Titan Europe Plc |
|
|
0 |
|
|
|
0 |
|
|
|
(2,399 |
) |
|
|
(2,399 |
) |
Other, net |
|
|
0 |
|
|
|
1,026 |
|
|
|
0 |
|
|
|
1,026 |
|
Net cash used for investing activities |
|
|
(1,903 |
) |
|
|
(28,773 |
) |
|
|
(2,399 |
) |
|
|
(33,075 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of senior notes |
|
|
(4,726 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(4,726 |
) |
Payment on debt |
|
|
(25,000 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(25,000 |
) |
Proceeds from exercise of stock options |
|
|
1,142 |
|
|
|
0 |
|
|
|
0 |
|
|
|
1,142 |
|
Payment of financing fees |
|
|
(1,070 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(1,070 |
) |
Other, net |
|
|
(265 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(265 |
) |
Net cash used for financing activities |
|
|
(29,919 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(29,919 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents |
|
|
(38,498 |
) |
|
|
(35 |
) |
|
|
(2,441 |
) |
|
|
(40,974 |
) |
Cash and cash equivalents, beginning of period |
|
|
59,011 |
|
|
|
60 |
|
|
|
2,587 |
|
|
|
61,658 |
|
Cash and cash equivalents, end of period |
|
$ |
20,513 |
|
|
$ |
25 |
|
|
$ |
146 |
|
|
$ |
20,684 |
|
|
|
Consolidating Condensed Statements of Cash Flows |
|
(Amounts in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30, 2008 |
|
|
|
Titan |
|
|
|
|
|
Non- |
|
|
|
|
|
|
Intl., Inc. |
|
|
Guarantor |
|
|
Guarantor |
|
|
|
|
|
|
(Parent) |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Consolidated |
|
Net cash provided by (used for) operating activities |
|
$ |
6,869 |
|
|
$ |
36,231 |
|
|
$ |
(76 |
) |
|
$ |
43,024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(2,769 |
) |
|
|
(36,143 |
) |
|
|
0 |
|
|
|
(38,912 |
) |
Other, net |
|
|
0 |
|
|
|
89 |
|
|
|
0 |
|
|
|
89 |
|
Net cash used for investing activities |
|
|
(2,769 |
) |
|
|
(36,054 |
) |
|
|
0 |
|
|
|
(38,823 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from exercise of stock options |
|
|
3,220 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,220 |
|
Excess tax benefit from stock options exercised |
|
|
3,913 |
|
|
|
0 |
|
|
|
0 |
|
|
|
3,913 |
|
Other, net |
|
|
(274 |
) |
|
|
0 |
|
|
|
0 |
|
|
|
(274 |
) |
Net cash provided by financing activities |
|
|
6,859 |
|
|
|
0 |
|
|
|
0 |
|
|
|
6,859 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
10,959 |
|
|
|
177 |
|
|
|
(76 |
) |
|
|
11,060 |
|
Cash and cash equivalents, beginning of period |
|
|
57,285 |
|
|
|
63 |
|
|
|
977 |
|
|
|
58,325 |
|
Cash and cash equivalents, end of period |
|
$ |
68,244 |
|
|
$ |
240 |
|
|
$ |
901 |
|
|
$ |
69,385 |
|
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan’s financial condition, results of operations, liquidity
and other factors which may affect the Company’s future results. The MD&A in this quarterly report should be read in conjunction with the MD&A in Titan’s 2008 annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2009.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, including statements regarding, among other items:
· |
Anticipated trends in the Company’s business |
· |
Future expenditures for capital projects |
· |
The Company’s ability to continue to control costs and maintain quality |
· |
Ability to meet financial covenants and conditions of loan agreements |
· |
The Company’s business strategies, including its intention to introduce new products |
· |
Expectations concerning the performance and success of the Company’s existing and new products |
· |
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:
· |
The effect of the current banking and credit crisis on the Company and its customers and suppliers |
· |
Changes in the Company’s end-user markets as a result of world economic or regulatory influences |
· |
Changes in the marketplace, including new products and pricing changes by the Company’s competitors |
· |
Availability and price of raw materials |
· |
Levels of operating efficiencies |
· |
Actions of domestic and foreign governments |
· |
Fluctuations in currency translations |
· |
Ability to secure financing at reasonable terms |
Any changes in such factors could lead to significantly different results. The Company cannot provide any assurance that the assumptions referred to in the forward-looking statements or otherwise are accurate or will prove to transpire. Any assumptions that are inaccurate or do not prove to be correct could have a material
adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements. 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.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Titan International, Inc. and its subsidiaries are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets. Titan manufactures both wheels and tires for the majority of these market 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.
Agricultural Market: Titan’s agricultural rims, wheels and tires are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket
through independent distributors, equipment dealers and Titan’s own distribution centers.
Earthmoving/Construction Market: The Company manufactures rims, wheels and tires for various types of off-the-road (OTR) earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel
loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders. The earthmoving/construction market is often referred to as OTR, an acronym for off-the-road.
Consumer Market: Titan builds select products for all-terrain vehicles (ATV), turf, golf and trailer applications. Titan’s sales in the consumer market include sales to Goodyear, which are under an off-take/mixing agreement. This agreement includes
mixed stock, which is a prepared rubber compound used in tire production. The Company provides wheels/tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets.
The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company and Kubota Corporation, in addition to many other off-highway equipment manufacturers. The Company distributes products to OEMs, independent and OEM-affiliated
dealers, and through a network of distribution facilities.
The following table provides highlights for the quarter ended June 30, 2009, compared to 2008 (amounts in thousands):
|
|
Three months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
206,983 |
|
|
$ |
269,114 |
|
Gross profit |
|
|
29,746 |
|
|
|
41,946 |
|
Income from operations |
|
|
12,920 |
|
|
|
24,389 |
|
Net income |
|
|
5,910 |
|
|
|
13,306 |
|
Quarter: The Company recorded sales of $207.0 million for the second quarter of 2009, which were 23% lower than the second quarter 2008 sales of $269.1 million. The lower sales levels resulted from reduced demand for the Company’s products across the board,
a consequence of the worldwide recession and global economic crisis. These items had a larger negative impact on Titan’s earthmoving/construction sales, which were approximately 45% lower, quarter over quarter.
The following operating results were primarily related to the lower sales levels. The Company’s income from operations was $12.9 million for the second quarter of 2009, compared to $24.4 million in 2008. Net income was $5.9 million for the quarter, compared to $13.3 million in 2008. Basic earnings per
share were $.17 in 2009, compared to $.39 in 2008.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
The following table provides highlights for the six months ended June 30, 2009, compared to 2008 (amounts in thousands):
|
|
Six months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
439,587 |
|
|
$ |
522,639 |
|
Gross profit |
|
|
59,809 |
|
|
|
74,290 |
|
Income from operations |
|
|
26,997 |
|
|
|
40,509 |
|
Net income |
|
|
12,951 |
|
|
|
21,440 |
|
Year-to-date: The Company recorded sales of $439.6 million for the six months ended June 30, 2009, as compared to $522.6 million in 2008. The lower sales levels resulted from reduced demand for the Company’s products across the board, a consequence of the
worldwide recession and global economic crisis. These items had a larger negative impact on Titan’s earthmoving/construction year-to-date sales, which were approximately 45% lower than the first six months of 2008.
The following operating results were primarily related to the lower sales levels. Titan’s income from operations was $27.0 million for the six months ended June 30, 2009, as compared to $40.5 million in 2008. Net income was $13.0 million for the six months ended June 30, 2009, as compared to $21.4 million in 2008. Basic
earnings per share were $.37 for the six months ended June 30, 2009, compared to $.62 in 2008.
CRITICAL ACCOUNTING ESTIMATES
Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America 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 assumptions
that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the estimates, assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.
Inventories
Inventories are valued at lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for approximately 75% of inventories and the last-in, first-out (LIFO) method for approximately 25% of inventories. The major rubber material inventory and related work-in-process and their finished goods
are accounted for under the FIFO method. The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method. Market value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory, as well as inventory carried above market price based on historical experience. Should experience change, adjustments to estimated provisions would be necessary.
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. The Company had goodwill of $11.7 million at June 30, 2009. Significant assumptions relating
to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Should unforeseen events occur or operating trends change significantly, impairment losses could occur.
Income taxes
Deferred income tax provisions are 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. The Company assesses the realizability of its deferred tax asset positions in accordance
with SFAS No. 109, “Accounting for Income Taxes.” The Company recognizes and measures uncertain tax positions in accordance with FIN 48, “Accounting for Uncertainty in Income Taxes.”
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by third-party 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. The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. Titan expects to contribute approximately $0.1 million to these frozen defined pension plans during the remainder of 2009. For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 21 to the Company’s financial statements
on Form 10-K for the fiscal year ended December 31, 2008.
RESULTS OF OPERATIONS
Highlights for the three and six months ended June 30, 2009, compared to 2008 (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
206,983 |
|
|
$ |
269,114 |
|
|
$ |
439,587 |
|
|
$ |
522,639 |
|
Cost of sales |
|
|
177,237 |
|
|
|
227,168 |
|
|
|
379,778 |
|
|
|
448,349 |
|
Gross profit |
|
|
29,746 |
|
|
|
41,946 |
|
|
|
59,809 |
|
|
|
74,290 |
|
Gross profit margin |
|
|
14.4 |
% |
|
|
15.6 |
% |
|
|
13.6 |
% |
|
|
14.2 |
% |
Net Sales
Quarter: Net sales for the quarter ended June 30, 2009, were $207.0 million, compared to $269.1 million in 2008. The lower sales levels were primarily the result of reduced demand for the Company’s products, a consequence of the worldwide recession and global
economic crisis.
Year-to-date: Net sales for the six months ended June 30, 2009, were $439.6 million, compared to 2008 net sales of $522.6 million. The lower sales levels were primarily the result of reduced demand in the Company’s earthmoving/construction market, a major
consequence of the worldwide recession and global economic crisis.
Cost of Sales and Gross Profit
Quarter: Cost of sales was $177.2 million and $227.2 million for the quarter ended June 30, 2009 and 2008, respectively. The cost of sales decreased as a result of the lower sales levels.
Gross profit for the second quarter of 2009 was $29.7 million or 14.4% of net sales, compared to $41.9 million or 15.6% of net sales for the second quarter of 2008. The gross profit margin had a reduction of approximately 1% primarily as a consequence of reduced manufacturing efficiencies resulting from lower sales levels.
Year-to-date: Cost of sales was $379.8 million for the six months ended June 30, 2009, compared to $448.3 million in 2008. The cost of sales decreased as a result of the lower sales levels.
Gross profit for the six months ended June 30, 2009, was $59.8 million or 13.6% of net sales, compared to $74.3 million or 14.2% of net sales in 2008. The gross profit margin had a slight reduction of approximately ½% primarily as a consequence of reduced manufacturing efficiencies resulting from lower sales levels.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Administrative Expenses
Selling, general and administrative expenses were as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Selling, general and administrative |
|
$ |
14,626 |
|
|
$ |
15,289 |
|
|
$ |
28,153 |
|
|
$ |
29,366 |
|
Percentage of net sales |
|
|
7.1 |
% |
|
|
5.7 |
% |
|
|
6.4 |
% |
|
|
5.6 |
% |
Quarter: Selling, general and administrative (SG&A) expenses for the second quarter of 2009 were $14.6 million or 7.1% of net sales, compared to $15.3 million or 5.7% of net sales for 2008. The Company’s second quarter 2009 SG&A expense was slightly
lower than that of the previous year’s quarter. However, when the SG&A expenses are expressed as a percentage of net sales, the percentage is higher due to the lower sales levels.
Year-to-date: Expenses for SG&A for the six months ended June 30, 2009, were $28.2 million or 6.4% of net sales, compared to $29.4 million or 5.6% of net sales in 2008. The Company continues to strive to achieve low administrative expenses. The Company’s
SG&A expense for the first half of 2009 was slightly lower than that of the previous year’s first half.
Royalty Expense
Royalty expense was as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Royalty expense |
|
$ |
2,200 |
|
|
$ |
2,268 |
|
|
$ |
4,659 |
|
|
$ |
4,415 |
|
The Company has a license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name.
Quarter: Royalty expenses recorded were $2.2 million and $2.3 million for the quarter ended June 30, 2009 and 2008, respectively. As sales subject to the license agreement have not changed significantly, the Company’s second quarter 2009 royalty expense has remained
relatively consistent with that of the previous year’s quarter.
Year-to-date: Year-to-date royalty expenses recorded were $4.7 million and $4.4 million for the six months ended June 30, 2009 and 2008, respectively. As sales subject to the license agreement have not changed significantly,
the Company’s royalty expense for the first half of 2009 has remained relatively consistent with that of the previous year’s first half.
Income from Operations
Income from operations was as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Income from operations |
|
$ |
12,920 |
|
|
$ |
24,389 |
|
|
$ |
26,997 |
|
|
$ |
40,509 |
|
Percentage of net sales |
|
|
6.2 |
% |
|
|
9.1 |
% |
|
|
6.1 |
% |
|
|
7.8 |
% |
Quarter: Income from operations for the second quarter of 2009 was $12.9 million or 6.2% of net sales, compared to $24.4 million or 9.1% of net sales in 2008. The reduction in income from operations was the net result
of the items previously discussed in the sales, cost of sales, administrative and royalty line items.
Year-to-date: Income from operations for the six months ended June 30, 2009, was $27.0 million or 6.1% of net sales, compared to $40.5 million or 7.8% of net sales in 2008. The reduction in income from operations was the net result of the items previously discussed
in the sales, cost of sales, administrative and royalty line items.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Interest Expense
Interest expense was as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Interest expense |
|
$ |
3,878 |
|
|
$ |
3,708 |
|
|
$ |
7,822 |
|
|
$ |
7,692 |
|
Quarter: Interest expense was $3.9 million and $3.7 million for the quarter ended June 30, 2009 and 2008, respectively. The Company’s second quarter 2009 interest expense has remained relatively consistent with
that of the previous year’s quarter.
Year-to-date: Year-to-date interest expense was $7.8 million and $7.7 million for the six months ended June 30, 2009 and 2008, respectively. The Company’s interest expense for the first half of 2009 has remained
relatively consistent with that of the previous year’s first half.
Other Income
Other income was as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Other income |
|
$ |
647 |
|
|
$ |
1,497 |
|
|
$ |
2,056 |
|
|
$ |
2,917 |
|
Quarter: Other income was $0.6 million and $1.5 million for the quarter ended June 30, 2009 and 2008, respectively. Dividend income of zero and $1.2 million from the Titan Europe Plc investment was recorded in the second quarter of 2009 and 2008, respectively.
Year-to-date: Year-to-date other income was $2.1 million for 2009 as compared to $2.9 million in 2008. A gain on senior note repurchase of $1.4 million was included in other income for the six months ended June 30, 2009. Dividend income of zero and $1.2
million from the Titan Europe Plc investment was recorded in the six months ended June 30, 2009 and 2008, respectively. Interest income included in other income was $0.1 million and $0.9 million for the six months ended June 30, 2009 and 2008, respectively.
Income Taxes
Income taxes were as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Income tax expense |
|
$ |
3,779 |
|
|
$ |
8,872 |
|
|
$ |
8,280 |
|
|
$ |
14,294 |
|
Quarter: The Company recorded income tax expense of $3.8 million for the quarter ended June 30, 2009, as compared to $8.9 million in 2008. The Company’s effective income tax rate was 39% and 40% for the quarter ended June 30, 2009 and 2008, respectively.
Year-to-date: Income tax expense for the six months ended June 30, 2009 and 2008, was $8.3 million and $14.3 million, respectively. The Company’s effective income tax rate was 39% and 40% for the six months ended June 30, 2009 and 2008, respectively.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Net Income
Net income was as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net income |
|
$ |
5,910 |
|
|
$ |
13,306 |
|
|
$ |
12,951 |
|
|
$ |
21,440 |
|
Quarter: Net income for the quarter ended June 30, 2009, was $5.9 million, compared to $13.3 million in 2008. For the quarter ended June 30, 2009 and 2008, basic earnings per share were $.17 and $.39, respectively, and diluted earnings per share were $.17 and $.38,
respectively. The Company’s net income and earnings per share were lower due to the items previously discussed.
Year-to-date: Net income for the six months ended June 30, 2009 and 2008, was $13.0 million and $21.4 million, respectively. For the six months ended June 30, 2009 and 2008, basic and diluted earnings per share were $.37 and $.62, respectively. The Company’s
net income and earnings per share were lower due to the items previously discussed.
Agricultural Segment Results
Agricultural segment results were as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
160,344 |
|
|
$ |
185,615 |
|
|
$ |
347,672 |
|
|
$ |
359,101 |
|
Gross profit |
|
|
24,002 |
|
|
|
25,388 |
|
|
|
48,922 |
|
|
|
45,081 |
|
Income from operations |
|
|
19,220 |
|
|
|
22,010 |
|
|
|
39,305 |
|
|
|
38,453 |
|
Quarter: Net sales in the agricultural market were $160.3 million for the quarter ended June 30, 2009, as compared to $185.6 million in 2008. Sales of smaller agricultural product softened in the quarter, while sales of large agricultural product remained relatively
strong.
Gross profit in the agricultural market was $24.0 million for the quarter ended June 30, 2009, as compared to $25.4 million in 2008. Income from operations in the agricultural market was $19.2 million for the quarter ended June 30, 2009, as compared to $22.0 million in 2008. The reduction in gross profit and income from operations
in the agricultural market was primarily attributed to lower farm equipment sales.
Year-to-date: Net sales in the agricultural market were $347.7 million for the six months ended June 30, 2009, as compared to $359.1 million in 2008. The reduced agricultural segment sales were the result of softening sales of small
agricultural product. However, agricultural sales were supported by continued high demand for large agricultural equipment.
Gross profit in the agricultural market was $48.9 million for the six months ended June 30, 2009, as compared to $45.1 million in 2008. Income from operations in the agricultural market was $39.3 million for the six months ended June 30, 2009, as compared to $38.5 million in 2008. The increase in gross profit and income
from operations in the agricultural market was primarily attributed to the continued strong large farm equipment sales.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Earthmoving/Construction Segment Results
Earthmoving/Construction segment results were as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
42,426 |
|
|
$ |
76,471 |
|
|
$ |
82,353 |
|
|
$ |
150,304 |
|
Gross profit |
|
|
5,658 |
|
|
|
15,675 |
|
|
|
10,542 |
|
|
|
27,586 |
|
Income from operations |
|
|
2,822 |
|
|
|
13,393 |
|
|
|
6,662 |
|
|
|
23,195 |
|
Quarter: The Company’s earthmoving/construction market net sales were $42.4 million for the quarter ended June 30, 2009, as compared to $76.5 million in 2008. The major sales contraction in earthmoving/construction resulted from significantly reduced demand
for earthmoving/construction machinery, a consequence of the worldwide recession and global economic crisis. Also negatively impacting this segment was the large reduction in the construction areas related to commercial, residential and infrastructure.
Gross profit in the earthmoving/construction market was $5.7 million for the quarter ended June 30, 2009, as compared to $15.7 million in 2008. Income from operations in the earthmoving/construction market was $2.8 million for the quarter ended June 30, 2009, as compared to $13.4 million in 2008. Gross profit and income
from operations declined as a result of the major sales reduction.
Year-to-date: The Company’s earthmoving/construction market net sales were $82.4 million for the six months ended June 30, 2009, as compared to $150.3 million in 2008. The major sales contraction in earthmoving/construction resulted from significantly reduced
demand for earthmoving/construction machinery, a consequence of the worldwide recession and global economic crisis. Also negatively impacting this segment was the large reduction in the construction areas related to commercial, residential and infrastructure.
Gross profit in the earthmoving/construction market was $10.5 million for the six months ended June 30, 2009, as compared to $27.6 million in 2008. Income from operations in the earthmoving/construction market was $6.7 million for the six months ended June 30, 2009, as compared to $23.2 million in 2008. Gross profit and
income from operations declined as a result of the major sales reduction.
Consumer Segment Results
Consumer segment results were as follows (amounts in thousands):
|
|
Three months ended |
|
|
Six months ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
Net sales |
|
$ |
4,213 |
|
|
$ |
7,028 |
|
|
$ |
9,562 |
|
|
$ |
13,234 |
|
Gross profit |
|
|
608 |
|
|
|
1,381 |
|
|
|
1,396 |
|
|
|
2,430 |
|
Income from operations |
|
|
487 |
|
|
|
1,190 |
|
|
|
1,124 |
|
|
|
2,059 |
|
Quarter: Consumer market net sales were $4.2 million for the quarter ended June 30, 2009, as compared to $7.0 million in 2008. The reduction in consumer market sales is attributed to the large contraction in consumer discretionary spending resulting from the recession
and economic crisis.
Gross profit from the consumer market was $0.6 million for the quarter ended June 30, 2009, as compared to $1.4 million in 2008. Consumer market income from operations was $0.5 million for the quarter ended June 30, 2009, as compared to $1.2 million for 2008. Gross profit and income from operations declined with sales in the
consumer market.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Year-to-date: Consumer market net sales were $9.6 million for the six months ended June 30, 2009, as compared to $13.2 million in 2008. The reduction in consumer market sales is attributed to the large contraction in consumer discretionary spending resulting from
the recession and economic crisis.
Gross profit from the consumer market was $1.4 million for the six months ended June 30, 2009, as compared to $2.4 million in 2008. Consumer market income from operations was $1.1 million for the six months ended June 30, 2009, as compared to $2.1 million for 2008. Gross profit and income from operations declined with
sales in the consumer market.
Segment Summary (Amounts in thousands)
Quarter
Three months ended
June 30, 2009 |
|
Agricultural |
|
|
Earthmoving/
Construction |
|
|
Consumer |
|
|
Corporate
Expenses |
|
|
Consolidated
Totals |
|
Net sales |
|
$ |
160,344 |
|
|
$ |
42,426 |
|
|
$ |
4,213 |
|
|
$ |
0 |
|
|
$ |
206,983 |
|
Gross profit (loss) |
|
|
24,002 |
|
|
|
5,658 |
|
|
|
608 |
|
|
|
(522 |
) |
|
|
29,746 |
|
Income (loss) from operations |
|
|
19,220 |
|
|
|
2,822 |
|
|
|
487 |
|
|
|
(9,609 |
) |
|
|
12,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
185,615 |
|
|
$ |
76,471 |
|
|
$ |
7,028 |
|
|
$ |
0 |
|
|
$ |
269,114 |
|
Gross profit (loss) |
|
|
25,388 |
|
|
|
15,675 |
|
|
|
1,381 |
|
|
|
(498 |
) |
|
|
41,946 |
|
Income (loss) from operations |
|
|
22,010 |
|
|
|
13,393 |
|
|
|
1,190 |
|
|
|
(12,204 |
) |
|
|
24,389 |
|
Year-to-Date
Six months ended
June 30, 2009 |
|
Agricultural |
|
|
Earthmoving/
Construction |
|
|
Consumer |
|
|
Corporate
Expenses |
|
|
Consolidated
Totals |
|
Net sales |
|
$ |
347,672 |
|
|
$ |
82,353 |
|
|
$ |
9,562 |
|
|
$ |
0 |
|
|
$ |
439,587 |
|
Gross profit (loss) |
|
|
48,922 |
|
|
|
10,542 |
|
|
|
1,396 |
|
|
|
(1,051 |
) |
|
|
59,809 |
|
Income (loss) from operations |
|
|
39,305 |
|
|
|
6,662 |
|
|
|
1,124 |
|
|
|
(20,094 |
) |
|
|
26,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
359,101 |
|
|
$ |
150,304 |
|
|
$ |
13,234 |
|
|
$ |
0 |
|
|
$ |
522,639 |
|
Gross profit (loss) |
|
|
45,081 |
|
|
|
27,586 |
|
|
|
2,430 |
|
|
|
(807 |
) |
|
|
74,290 |
|
Income (loss) from operations |
|
|
38,453 |
|
|
|
23,195 |
|
|
|
2,059 |
|
|
|
(23,198 |
) |
|
|
40,509 |
|
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Corporate Expenses
Quarter
Income from operations on a segment basis does not include corporate expenses or depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $9.6 million for the quarter ended June 30, 2009, as compared to $12.2 million for 2008.
Corporate expenses for the quarter ended June 30, 2009, were composed of selling and marketing expenses of approximately $4 million and administrative expenses of approximately $6 million.
Corporate expenses for the quarter ended June 30, 2008, were composed of selling and marketing expenses of approximately $5 million and administrative expenses of approximately $7 million.
The lower corporate expenses for the quarter ended June 30, 2009, as compared to 2008 resulted from costs reductions and reduced spending due to the lower sales levels.
Year-to-Date
Income from operations on a segment basis does not include corporate expenses or depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $20.1 million for the six months ended June 30, 2009, as compared to $23.2 million for 2008.
Corporate expenses for the six months ended June 30, 2009, were composed of selling and marketing expenses of approximately $9 million and administrative expenses of approximately $11 million.
Corporate expenses for the six months ended June 30, 2008, were composed of selling and marketing expenses of approximately $10 million and administrative expenses of approximately $13 million.
The lower corporate expenses for the six months ended June 30, 2009, as compared to 2008 resulted from costs reductions and reduced spending due to the lower sales levels.
MARKET RISK SENSITIVE INSTRUMENTS
The Company’s risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2008. For more information, see the “Market Risk Sensitive Instruments” discussion in the Company’s Form 10-K for the fiscal year ended December 31, 2008.
PENSIONS
The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. These plans are described in Note 21 of the Company’s Notes to Consolidated Financial Statements in the 2008 Annual Report on 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 by the Company 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. Titan expects to contribute approximately $0.1 million to these frozen defined pension plans during the remainder of 2009.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of June 30, 2009, the Company had $20.7 million of cash balances within various bank accounts. This cash balance decreased by $41.0 million from December 31, 2008, due to the following cash flow items.
(amounts in thousands) |
|
|
|
|
|
June 30, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
Cash |
|
$ |
20,684 |
|
|
$ |
61,658 |
|
Operating cash flows
Summary of cash flows from operating activities (amounts in thousands):
|
|
Six months ended June 30, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Net income |
|
$ |
12,951 |
|
|
$ |
21,440 |
|
|
$ |
(8,489 |
) |
Depreciation and amortization |
|
|
16,289 |
|
|
|
14,392 |
|
|
|
1,897 |
|
Deferred income tax provision |
|
|
0 |
|
|
|
7,379 |
|
|
|
(7,379 |
) |
Accounts receivable |
|
|
21,808 |
|
|
|
(41,044 |
) |
|
|
62,852 |
|
Inventories |
|
|
(2,717 |
) |
|
|
9,965 |
|
|
|
(12,682 |
) |
Accounts payable |
|
|
(34,215 |
) |
|
|
26,983 |
|
|
|
(61,198 |
) |
Other operating activities |
|
|
7,904 |
|
|
|
3,909 |
|
|
|
3,995 |
|
Cash provided by operating activities |
|
$ |
22,020 |
|
|
$ |
43,024 |
|
|
$ |
(21,004 |
) |
In the first six months of 2009, operating activities provided cash of $22.0 million. This cash was primarily provided by net income of $13.0 million and a lower accounts receivable balance of $21.8 million due to a decrease in sales. Included in net income were noncash charges of $16.3 million of depreciation and amortization. Positive
cash flows were offset by a decrease in the accounts payable balance of $34.2 million due to reduced purchases resulting from the lower sales levels.
In the first six months of 2008, operating activities provided cash of $43.0 million. This cash was primarily provided by net income of $21.4 million and a higher accounts payable balance of $27.0 million due to elevated expenses. Included in net income were noncash charges of $14.4 million of depreciation and amortization
and a $7.4 million deferred income tax provision. Positive cash flows were offset by an increase in the accounts receivable balance of $41.0 million due to record sales levels.
Operating cash flows decreased $21.0 million when comparing the six months ended June 30, 2009, to the six months ended June 30, 2008. The net income in the first six months of 2009 was an $8.5 million decrease from the first six months of 2008. When comparing the first six months of 2009 to the first six months of 2008,
cash flows from accounts receivable increased by $62.9 million and cash flows from accounts payable decreased $61.2 million. These large changes are the result of increased sales in the first six months of 2008 with corresponding increases in accounts receivable and accounts payable, while the first six months of 2009 were a period of decreased sales with corresponding decreases in accounts receivable and accounts payable. When comparing the first six months of 2009 to the first six months
of 2008, cash flows from inventories decreased by $12.7 million primarily due to inventory reductions in 2008 given the Company’s record sales levels in that period.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Investing cash flows
Summary of cash flows from investing activities:
(amounts in thousands) |
|
Six months ended June 30, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Capital expenditures |
|
$ |
(31,702 |
) |
|
$ |
(38,912 |
) |
|
$ |
7,210 |
|
Other investing activities |
|
|
(1,373 |
) |
|
|
89 |
|
|
|
(1,462 |
) |
Cash used for investing activities |
|
$ |
(33,075 |
) |
|
$ |
(38,823 |
) |
|
$ |
5,748 |
|
Net cash used for investing activities was $33.1 million in the first six months of 2009, as compared to $38.8 million in the first six months of 2008. The Company invested a total of $31.7 million in capital expenditures in the first six months of 2009, compared to $38.9 million in 2008. Of the $31.7 million of capital
expenditures in the first six months of 2009, approximately $21 million relates to the Company’s Giant OTR Project. The remaining expenditures represent various equipment purchases and improvements to enhance production capabilities. Other investing activities in the first six months of 2009 relate primarily to the Company’s $2.4 million purchase of additional shares in Titan Europe Plc.
Financing cash flows
Summary of cash flows from financing activities:
(amounts in thousands) |
|
Six months ended June 30, |
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
Repurchase of senior notes |
|
$ |
(4,726 |
) |
|
$ |
0 |
|
|
$ |
(4,726 |
) |
Payment on debt |
|
|
(25,000 |
) |
|
|
0 |
|
|
|
(25,000 |
) |
Proceeds from exercise of stock options |
|
|
1,142 |
|
|
|
3,220 |
|
|
|
(2,078 |
) |
Excess tax benefit from option exercise |
|
|
86 |
|
|
|
3,913 |
|
|
|
(3,827 |
) |
Payment of financing fees |
|
|
(1,070 |
) |
|
|
0 |
|
|
|
(1,070 |
) |
Other financing activities |
|
|
(351 |
) |
|
|
(274 |
) |
|
|
(77 |
) |
Cash (used for) provided by financing activities |
|
$ |
(29,919 |
) |
|
$ |
6,859 |
|
|
$ |
(36,778 |
) |
In the first six months of 2009, cash of $29.9 million was used for financing activities. This cash was primarily used for payment on debt of $25.0 million and repurchase of senior notes of $4.7 million.
In the first six months of 2008, cash of $6.9 million was provided by financing activities. This cash was primarily provided by $3.2 million in proceeds from the exercise of stock options and $3.9 million of excess tax benefit from stock options exercised.
Financing cash flows decreased $36.8 million when comparing the first six months of 2009 to the first six months of 2008. This cash flow reduction resulted primarily from payment on debt and repurchase of senior notes in 2009.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
Debt Covenants
The Company’s revolving credit facility contains various covenants and restrictions. The financial covenants in this agreement require that:
· |
Collateral coverage be equal to or greater than 1.2 times the outstanding revolver balance. |
· |
If the 30-day average of the outstanding revolver balance exceeds $125 million, the fixed charge coverage ratio be equal to or greater than a 1.0 to 1.0 ratio. |
Restrictions include:
· |
Limits on payments of dividends and repurchases of the Company’s stock. |
· |
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company. |
· |
Limitations on investments, dispositions of assets and guarantees of indebtedness. |
· |
Other customary affirmative and negative covenants. |
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. The failure by Titan to meet these
covenants could result in the Company ultimately being in default on these loan agreements.
The Company is in compliance with these covenants and restrictions as of June 30, 2009. The collateral coverage was calculated to be approximately 82 times the outstanding revolver balance at June 30, 2009.
The fixed charge coverage ratio did not apply for the quarter ended June 30, 2009. The credit facility usage was $5.0 million at June 30, 2009, consisting exclusively of letters of credit of $5.0 million with no cash borrowings.
Other Issues
The Company’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances. Historically, Titan tends to experience higher sales demand in the first and second quarters.
Liquidity Outlook
At June 30, 2009, the Company had $20.7 million of cash and cash equivalents and $145.0 million of unused availability under the terms of its credit facility. The availability under the Company’s $150 million credit facility was reduced by $5.0 million for letters of credit.
The Company estimates that current commitments related to the Giant OTR Project at this time are approximately $105 million, of which approximately $103 million was disbursed from inception of the Giant OTR Project through June 30, 2009. Additional capital expenditure commitments may be incurred through 2009 as the Giant OTR Project
moves to completion. The final cost of these additional OTR capital items have not been finalized at this time.
The Company currently anticipates that cash on hand and anticipated internal cash flows from operations will allow the Company sufficient funds for completion of the Giant OTR Project. In addition to the Giant OTR Project, Titan estimates approximately $6 million of capital expenditures for other projects for the remainder of the
2009 year.
Cash on hand, anticipated internal cash flows from operations and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs and capital expenditures. If the Company were to exhaust all currently available working capital sources or not meet the financial covenants and conditions
of its loan agreements, the Company’s ability to secure additional funding may be negatively impacted.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
MARKET CONDITIONS AND OUTLOOK
In the first half of 2009, Titan experienced market decline across the board. The magnitude and duration of this worldwide recession and economic crisis makes it extremely difficult to forecast future sales levels. Titan expects to continue to experience sales declines in each of the Company’s markets for the remainder
of 2009.
Energy, raw material and petroleum-based product costs have been exceptionally volatile and may negatively impact the Company’s margins. Many of Titan’s overhead expenses are fixed; therefore, lower seasonal trends may cause negative fluctuations in quarterly profit margins and affect the financial condition of
the Company.
AGRICULTURAL MARKET OUTLOOK
Agricultural market sales are forecasted to be lower in the second half of 2009 when compared to the record sales levels in 2008. Commodity prices have declined from last year’s highs, but remain above the long-term average. The gradual increase in the use of biofuels may help sustain future production. However,
the magnitude and duration of the worldwide economic crisis makes it extremely difficult to forecast future sales levels. Many variables, including weather, grain prices, export markets and future government policies and payments can greatly influence the overall health of the agricultural economy. For the remainder of 2009, the Company expects challenging conditions for the agricultural market.
EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
Sales for the earthmoving/construction market are expected to be significantly lower in 2009 as a result of the worldwide economic crisis. The magnitude and duration of this crisis makes it extremely difficult to forecast future sales levels. Metals, oil and gas prices have retreated from last year’s highs as a
result of the economic crisis. In the long-term, these prices are expected to return to levels that are attractive for continued investment, which should help support future earthmoving and mining sales. However, many producers are currently delaying new investments which are affecting current year sales. The significant decline in the United States housing market continues to cause a major reduction in demand for equipment used for construction. The earthmoving/construction
segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts and the current banking and credit crisis. For the remainder of 2009, the Company expects difficult conditions for the earthmoving/construction market.
CONSUMER MARKET OUTLOOK
Consumer discretionary spending has experienced a major contraction as a result of the worldwide recession, housing market decline, and high unemployment rates. Many of the Company’s consumer market sales are ultimately used in items which fall into the discretionary spending category. There is no clear consensus
among economists as to when consumer spending will rebound. Many factors continue to affect the consumer market including weather, competitive pricing, energy prices and consumer attitude. For the remainder of 2009, the Company expects continued weakness in consumer spending related to Titan’s consumer market.
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards Number 141 (revised 2007)
In January 2009, the Company adopted SFAS No. 141 (revised 2007), “Business Combinations.” This statement requires an acquirer to recognize assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over
the net identifiable assets acquired. The adoption of SFAS No. 141 (revised 2007) had no material effect on the Company’s financial position, results of operations or cash flows.
FASB Staff Position No. FAS 107-1 and APB 28-1
In April 2009, FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” was issued. This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,’ to require disclosures about fair value of financial instruments
for interim reporting periods of publicly traded companies as well as in annual financial statements. This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures in summarized financial information at interim reporting periods. This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this FSP had no material effect on the Company’s financial position, results of operations or cash flows.
FASB Staff Position No. FAS 115-2 and FAS 124-2
In April 2009, FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” was issued. This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary
impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This FSP was effective for interim reporting periods ending after June 15, 2009. The adoption of this FSP had no material effect on the Company’s financial position, results of operations or cash flows.
Statement of Financial Accounting Standards Number 165
In June 2009, the Company adopted SFAS No. 165, “Subsequent Events.” The objective of this statement was to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. This statement was effective for interim periods
ending after June 15, 2009. The adoption of this standard had no material effect on the Company’s financial position, results of operations or cash flows.
Statement of Financial Accounting Standards Number 168
In June 2009, SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” was issued. This Statement establishes the FASB Accounting Standards Codification, ("Codification") as the single source of authoritative GAAP to be applied by nongovernmental
entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants. This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The adoption of this standard is expected to have no material effect on the Company’s financial position, results of operations or cash flows.
TITAN INTERNATIONAL, INC.
PART I. FINANCIAL INFORMATION
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See the Company’s 2008 Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company’s principal executive officer and principal financial officer have concluded the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective as of the end of the period covered by this Form 10-Q based on an evaluation of the effectiveness of disclosure controls
and procedures.
Changes in Internal Controls
There were no material changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the second quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with
the policies or procedures may deteriorate.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is a party to 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 at this time that none of these actions, individually or in the aggregate, will
have a material adverse affect on the consolidated financial condition, results of operations or cash flows of the Company. However, due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations or cash flows as a result of efforts to comply with or its liabilities pertaining to legal judgments.
Item 1A. Risk Factors
See the Company’s 2008 Annual Report filed on Form 10-K (Item 1A). There has been no material change in this information.
TITAN INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on May 15, 2009, for the purposes of:
· |
Electing Erwin H. Billig and Anthony L. Soave as directors to serve for three-year terms. |
· |
Ratifying the appointment of the independent registered public accounting firm for 2009. |
Erwin H. Billig and Anthony L. Soave were elected as directors with the following vote:
|
|
Shares |
|
|
Shares |
|
|
|
Voted For |
|
|
Withheld |
|
Erwin H. Billig |
|
|
29,842,973 |
|
|
|
1,037,428 |
|
Anthony L. Soave |
|
|
30,510,442 |
|
|
|
369,959 |
|
The following were directors at the time of the annual meeting and continue serving their term as Titan directors:
J. Michael A. Akers, Richard M. Cashin Jr., Albert J. Febbo, Mitchell I. Quain and Maurice M. Taylor Jr.
The appointment of PricewaterhouseCoopers LLP as the independent registered public accounting firm was ratified by the following vote:
|
|
Shares |
|
|
Shares |
|
|
Shares |
|
|
|
Voted For |
|
|
Against |
|
|
Abstaining |
|
PricewaterhouseCoopers LLP |
|
|
30,204,562 |
|
|
|
158,262 |
|
|
|
517,577 |
|
Item 6. Exhibits
31.1 |
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 |
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32 |
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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.
|
TITAN INTERNATIONAL, INC. |
|
(Registrant) |
Date: |
July 30, 2009 |
By: |
/s/ MAURICE M. TAYLOR JR. |
|
|
Maurice M. Taylor Jr. |
|
|
Chairman and Chief Executive Officer
(Principal Executive Officer) |
|
By: |
/s/ KENT W. HACKAMACK |
|
|
Kent W. Hackamack |
|
|
Vice President of Finance and Treasurer |
|
|
(Principal Financial Officer) |
34