Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For Quarterly Period Ended: September 30, 2010
OR
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Commission File Number: 1-12936
TITAN INTERNATIONAL, INC.
(Exact name of Registrant as specified in its Charter)
Illinois
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36-3228472
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(State of Incorporation)
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(I.R.S. Employer Identification No.)
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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 þ 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
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Accelerated filer þ
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Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
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
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Class
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October 25, 2010
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Common stock, no par value per share
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35,355,477
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
Page
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Part I.
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Financial Information
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Item 1.
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Financial Statements (Unaudited)
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Consolidated Condensed Statements of Operations
for the Three and Nine Months Ended September 30, 2010 and 2009
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1
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Consolidated Condensed Balance Sheets as of
September 30, 2010, and December 31, 2009
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2
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Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Nine Months Ended September 30, 2010
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3
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Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 30, 2010 and 2009
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4
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Notes to Consolidated Condensed Financial Statements
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5-17
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Item 2.
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Management’s Discussion and Analysis of
Financial Condition and Results of Operations
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18-33
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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33
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Item 4.
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Controls and Procedures
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33
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Part II.
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Other Information
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Item 1.
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Legal Proceedings
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34
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Item 1A.
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Risk Factors
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34
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Item 6.
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Exhibits
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34
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Signatures
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34
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)
Three months ended
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Nine months ended
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September 30,
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September 30,
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|||||||||||||||
2010
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2009
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2010
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2009
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Net sales
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$ | 222,818 | $ | 141,496 | $ | 648,922 | $ | 581,083 | ||||||||
Cost of sales
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194,872 | 144,526 | 560,986 | 524,304 | ||||||||||||
Gross profit (loss)
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27,946 | (3,030 | ) | 87,936 | 56,779 | |||||||||||
Selling, general & administrative expenses
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12,037 | 10,114 | 36,008 | 34,409 | ||||||||||||
Research and development expenses
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1,112 | 1,158 | 5,039 | 5,016 | ||||||||||||
Royalty expense
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2,275 | 1,464 | 6,809 | 6,123 | ||||||||||||
Income (loss) from operations
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12,522 | (15,766 | ) | 40,080 | 11,231 | |||||||||||
Interest expense
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(5,867 | ) | (3,997 | ) | (19,713 | ) | (11,819 | ) | ||||||||
Gain (loss) on note repurchase
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(473 | ) | 0 | (3,195 | ) | 1,398 | ||||||||||
Other income
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401 | 644 | 307 | 1,302 | ||||||||||||
Income (loss) before income taxes
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6,583 | (19,119 | ) | 17,479 | 2,112 | |||||||||||
Income tax provision (benefit)
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2,568 | (8,006 | ) | 6,817 | 274 | |||||||||||
Net income (loss)
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$ | 4,015 | $ | (11,113 | ) | $ | 10,662 | $ | 1,838 | |||||||
Earnings (loss) per common share:
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||||||||||||||||
Basic
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$ | .12 | $ | (.32 | ) | $ | .31 | $ | .05 | |||||||
Diluted
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.11 | (.32 | ) | .30 | .05 | |||||||||||
Average common shares outstanding:
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||||||||||||||||
Basic
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34,868 | 34,746 | 34,819 | 34,692 | ||||||||||||
Diluted
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51,773 | 34,746 | 51,740 | 35,251 |
See accompanying Notes to Consolidated Condensed Financial Statements.
1
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
September 30,
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December 31,
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Assets
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2010
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2009
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Current assets
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Cash and cash equivalents
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$ | 159,315 | $ | 229,182 | ||||
Accounts receivable
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114,140 | 67,513 | ||||||
Inventories
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135,976 | 110,136 | ||||||
Deferred income taxes
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3,065 | 11,108 | ||||||
Prepaid and other current assets
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20,826 | 27,277 | ||||||
Total current assets
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433,322 | 445,216 | ||||||
Property, plant and equipment, net
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248,689 | 254,461 | ||||||
Deferred income taxes
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1,671 | 7,253 | ||||||
Other assets
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44,012 | 29,533 | ||||||
Total assets
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$ | 727,694 | $ | 736,463 | ||||
Liabilities and Stockholders’ Equity
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Current liabilities
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Accounts payable
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$ | 47,135 | $ | 24,246 | ||||
Other current liabilities
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43,886 | 45,826 | ||||||
Total current liabilities
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91,021 | 70,072 | ||||||
Long-term debt
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312,448 | 366,300 | ||||||
Other long-term liabilities
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38,431 | 38,138 | ||||||
Total liabilities
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441,900 | 474,510 | ||||||
Stockholders’ equity
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Common stock (no par, 120,000,000 shares authorized, 37,475,288 issued)
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30 | 30 | ||||||
Additional paid-in capital
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299,862 | 299,519 | ||||||
Retained earnings
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26,509 | 16,377 | ||||||
Treasury stock (at cost, 2,127,428 and 2,214,347 shares, respectively)
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(19,494 | ) | (20,274 | ) | ||||
Treasury stock reserved for contractual obligations
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(2,936 | ) | (5,393 | ) | ||||
Accumulated other comprehensive loss
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(18,177 | ) | (28,306 | ) | ||||
Total stockholders’ equity
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285,794 | 261,953 | ||||||
Total liabilities and stockholders’ equity
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$ | 727,694 | $ | 736,463 |
See accompanying Notes to Consolidated Condensed Financial Statements.
2
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
Number of common shares
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Common Stock
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Additional
paid-in
capital
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Retained earnings
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Treasury stock
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Treasury stock reserved for contractual obligations
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Accumulated other comprehensive income (loss)
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Total
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Balance January 1, 2010
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#35,260,941 | $ | 30 | $ | 299,519 | $ | 16,377 | $ | (20,274 | ) | $ | (5,393 | ) | $ | (28,306 | ) | $ | 261,953 | ||||||||||||||
Comprehensive income:
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Net income
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10,662 | 10,662 | ||||||||||||||||||||||||||||||
Pension liability adjustments, net of tax
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1,724 | 1,724 | ||||||||||||||||||||||||||||||
Unrealized gain on investment, net of tax
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8,405 | 8,405 | ||||||||||||||||||||||||||||||
Comprehensive income
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20,791 | |||||||||||||||||||||||||||||||
Dividends on common stock
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(530 | ) | (530 | ) | ||||||||||||||||||||||||||||
Exercise of stock options
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45,000 | (163 | ) | 404 | 241 | |||||||||||||||||||||||||||
Contractual obligation transactions
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501 | 2,457 | 2,958 | |||||||||||||||||||||||||||||
Issuance of treasury stock under 401(k) plan
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41,919 | 5 | 376 | 381 | ||||||||||||||||||||||||||||
Balance September 30, 2010
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#35,347,860 | $ | 30 | $ | 299,862 | $ | 26,509 | $ | (19,494 | ) | $ | (2,936 | ) | $ | (18,177 | ) | $ | 285,794 |
See accompanying Notes to Consolidated Condensed Financial Statements.
3
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Nine months ended
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September 30,
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2010
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2009
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Cash flows from operating activities:
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Net income
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$ | 10,662 | $ | 1,838 | ||||
Adjustments to reconcile net income to net cash
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provided by operating activities:
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Depreciation and amortization
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27,617 | 24,759 | ||||||
Deferred income tax provision
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8,043 | 550 | ||||||
(Gain) loss on note repurchase
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3,195 | (1,398 | ) | |||||
Excess tax benefit from stock options exercised
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0 | (86 | ) | |||||
Issuance of treasury stock under 401(k) plan
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382 | 398 | ||||||
(Increase) decrease in assets:
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Accounts receivable
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(46,627 | ) | 46,326 | |||||
Inventories
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(25,840 | ) | 22,473 | |||||
Prepaid and other current assets
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6,451 | (2,236 | ) | |||||
Other assets
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(458 | ) | (1,753 | ) | ||||
Increase (decrease) in liabilities:
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Accounts payable
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22,889 | (40,483 | ) | |||||
Other current liabilities
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(1,740 | ) | (5,070 | ) | ||||
Other liabilities
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3,074 | 6,330 | ||||||
Net cash provided by operating activities
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7,648 | 51,648 | ||||||
Cash flows from investing activities:
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Capital expenditures
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(20,056 | ) | (36,482 | ) | ||||
Acquisition of shares of Titan Europe Plc
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0 | (2,399 | ) | |||||
Other
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91 | 1,030 | ||||||
Net cash used for investing activities
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(19,965 | ) | (37,851 | ) | ||||
Cash flows from financing activities:
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Repurchase of senior notes
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(56,674 | ) | (4,726 | ) | ||||
Payment on debt
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0 | (25,000 | ) | |||||
Proceeds from exercise of stock options
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240 | 1,142 | ||||||
Excess tax benefit from stock options exercised
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0 | 86 | ||||||
Payment of financing fees
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(586 | ) | (1,070 | ) | ||||
Dividends paid
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(530 | ) | (527 | ) | ||||
Net cash used for financing activities
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(57,550 | ) | (30,095 | ) | ||||
Net decrease in cash and cash equivalents
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(69,867 | ) | (16,298 | ) | ||||
Cash and cash equivalents at beginning of period
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229,182 | 61,658 | ||||||
Cash and cash equivalents at end of period
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$ | 159,315 | $ | 45,360 |
See accompanying Notes to Consolidated Condensed Financial Statements.
4
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, necessary to present fairly the Company’s financial position as of September 30, 2010, the results of operations for the three and nine months ended September 30, 2010 and 2009, and cash flows for the nine months ended September 30, 2010 and 2009.
Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2009 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 2009 Annual Report on Form 10-K. Certain amounts from prior periods have been reclassified to conform to the current period financial presentation.
Fair value of financial instruments
The Company records financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable and other accruals at cost, which approximates fair value. Investments in marketable equity securities are recorded at fair value. The senior unsecured 8% notes due January 2012 (senior unsecured notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $139.9 million and $172.5 million at September 30, 2010, respectively. The fair value of these notes at September 30, 2010, as obtained through independent pricing sources, was approximately $148.3 million for the senior unsecured notes and approximately $263.7 million for the convertible notes.
Cash dividends
The Company declared cash dividends of $.005 and $.015 per share of common stock for each of the three and nine months ended September 30, 2010 and 2009. The third quarter 2010 cash dividend of $.005 per share of common stock was paid October 15, 2010, to stockholders of record on September 30, 2010.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
September 30,
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December 31,
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2010
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2009
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Accounts receivable
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$ | 118,275 | $ | 71,471 | ||||
Allowance for doubtful accounts
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(4,135 | ) | (3,958 | ) | ||||
Accounts receivable, net
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$ | 114,140 | $ | 67,513 |
The Company had net accounts receivable balance of $114.1 million at September 30, 2010, and $67.5 million at December 31, 2009. These amounts are net of allowance for doubtful accounts of $4.1 million at September 30, 2010, and $4.0 million at December 31, 2009.
5
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
3. INVENTORIES
Inventories consisted of the following (in thousands):
September 30,
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December 31,
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2010
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2009
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Raw materials
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$ | 56,557 | $ | 44,336 | ||||
Work-in-process
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23,064 | 21,378 | ||||||
Finished goods
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60,476 | 46,067 | ||||||
140,097 | 111,781 | |||||||
Adjustment to LIFO basis
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(4,121 | ) | (1,645 | ) | ||||
$ | 135,976 | $ | 110,136 |
Inventories were $136.0 million at September 30, 2010, and $110.1 million at December 31, 2009. At September 30, 2010, cost is determined using the first-in, first-out (FIFO) method for approximately 69% of inventories and the last-in, first-out (LIFO) method for approximately 31% of the inventories. At December 31, 2009, the FIFO method was used for approximately 74% of inventories and LIFO was used for approximately 26% of the inventories. Included in the inventory balances were reserves for slow-moving and obsolete inventory of $2.1 million at September 30, 2010, and $2.3 million at December 31, 2009.
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (in thousands):
September 30,
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December 31,
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2010
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2009
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Land and improvements
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$ | 3,040 | $ | 2,993 | ||||
Buildings and improvements
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97,391 | 97,238 | ||||||
Machinery and equipment
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370,090 | 359,244 | ||||||
Tools, dies and molds
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83,550 | 77,926 | ||||||
Construction-in-process
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17,041 | 16,383 | ||||||
571,112 | 553,784 | |||||||
Less accumulated depreciation
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(322,423 | ) | (299,323 | ) | ||||
$ | 248,689 | $ | 254,461 |
The Company had property, plant and equipment of $248.7 million and $254.5 million at September 30, 2010, and December 31, 2009, respectively. Depreciation on fixed assets for the three months ended September 30, 2010 and 2009, totaled $8.4 million and $7.8 million, respectively. Depreciation on fixed assets for the nine months ended September 30, 2010 and 2009, totaled $25.7 million and $22.8 million, respectively.
6
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
5. INVESTMENT IN TITAN EUROPE PLC
Investment in Titan Europe Plc consisted of the following (in thousands):
September 30,
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December 31,
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2010
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2009
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Investment in Titan Europe Plc
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$ | 19,386 | $ | 6,456 |
Titan Europe Plc is publicly traded on the AIM market in London, England. The Company’s investment in Titan Europe represents a 22.9% ownership percentage. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe Plc should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe Plc. The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Condensed Balance Sheets. Titan’s cost basis in Titan Europe is $5.0 million. Titan’s other comprehensive income includes a gain on the Titan Europe Plc investment of $9.3 million, which is net of tax of $5.0 million. The increased value in the Titan Europe Plc investment at September 30, 2010, was due primarily to a higher publicly quoted Titan Europe Plc market price.
6. WARRANTY
Changes in the warranty liability consisted of the following (in thousands):
2010
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2009
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Warranty liability, January 1
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$ | 9,169 | $ | 7,488 | ||||
Provision for warranty liabilities
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12,469 | 12,735 | ||||||
Warranty payments made
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(11,181 | ) | (11,398 | ) | ||||
Warranty liability, September 30
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$ | 10,457 | $ | 8,825 |
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.
7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
September 30,
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December 31,
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|||||||
2010
|
2009
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Senior unsecured 8% notes due January 2012
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$ | 139,948 | $ | 193,800 | ||||
Convertible senior subordinated 5.625% notes due 2017
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172,500 | 172,500 | ||||||
Revolving credit facility
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0 | 0 | ||||||
312,448 | 366,300 | |||||||
Less: Amounts due within one year
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0 | 0 | ||||||
$ | 312,448 | $ | 366,300 |
7
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Aggregate maturities of long-term debt at September 30, 2010, were as follows (in thousands):
October 1 – December 31, 2010
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$ | 0 | ||
2011
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0 | |||
2012
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139,948 | |||
2013
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0 | |||
2014
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0 | |||
Thereafter
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172,500 | |||
$ | 312,448 |
Senior unsecured 8% notes due January 2012
The Company’s senior unsecured 8% notes (senior unsecured notes) are due January 2012. In the nine months ended September 30, 2010, the Company repurchased $53.9 million of principal value of senior unsecured notes resulting in a loss on note repurchase of $3.2 million. In the first quarter of 2009, the Company repurchased $6.2 million of principal value of senior unsecured notes for approximately $4.8 million resulting in a $1.4 million gain on the note repurchases. The Company’s senior unsecured notes outstanding balance was $139.9 million at September 30, 2010.
Tender offer and loss on senior unsecured note repurchase
In May 2010, the Company commenced a tender offer to purchase its outstanding senior unsecured 8% notes due January 2012. As of the expiration of the tender offer in June 2010, there were $47.4 million of the notes tendered and accepted for payment which represented 24.4% of the principal amount of notes outstanding. In July 2010, the Company repurchased an additional $6.5 million of senior unsecured notes outstanding. In connection with the tender offer and additional note repurchase, Titan recorded expenses of $3.2 million in the nine months ended September 30, 2010. These expenses were related to: (i) early tender premium of $2.6 million, (ii) unamortized deferred financing fees of $0.4 million and (iii) other fees of $0.2 million.
Convertible senior subordinated 5.625% notes due 2017
The Company’s convertible senior subordinated 5.625% notes (convertible notes) are due January 2017. The initial base conversion rate for the convertible notes is 93.0016 shares of Titan common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan common stock. If the price of Titan common stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan common stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture. The base conversion rate will be subject to adjustment in certain events. The Company’s convertible notes balance was $172.5 million at September 30, 2010.
Revolving credit facility
The Company’s $100 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2014 termination date and is collateralized by the accounts receivable and inventory of Titan and certain of its domestic subsidiaries. During the first nine months of 2010 and at September 30, 2010, there were no borrowings under the credit facility. The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. Titan is in compliance with these covenants and restrictions as of September 30, 2010.
In September 2010, Titan amended its credit facility with Bank of America, N.A. The amendment extended the credit facility termination date to January 2014 from the previous January 2012 date. The amendment also reduced the revolving commitment to $100 million from $150 million and released the lender’s lien on property, plant and equipment.
8
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
8. LEASE COMMITMENTS
The Company leases certain buildings and equipment under operating leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company.
At September 30, 2010, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
October 1 – December 31, 2010
|
$ | 303 | ||
2011
|
392 | |||
2012
|
64 | |||
2013
|
14 | |||
Thereafter
|
1 | |||
Total future minimum lease payments
|
$ | 774 |
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 Company expects to contribute approximately $0.4 million to the pension plans during the remainder of 2010.
The components of net periodic pension cost consisted of the following (in thousands):
Three months ended
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Nine months ended
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September 30,
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September 30,
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|||||||||||||||
2010
|
2009
|
2010
|
2009
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Interest cost
|
$ | 1,300 | $ | 1,364 | $ | 3,900 | $ | 4,092 | ||||||||
Expected return on assets
|
(1,227 | ) | (1,235 | ) | (3,681 | ) | (3,703 | ) | ||||||||
Amortization of unrecognized prior service cost
|
34 | 34 | 102 | 102 | ||||||||||||
Amortization of unrecognized deferred taxes
|
(14 | ) | (14 | ) | (42 | ) | (42 | ) | ||||||||
Amortization of net unrecognized loss
|
907 | 1,076 | 2,721 | 3,228 | ||||||||||||
Net periodic pension cost (income)
|
$ | 1,000 | $ | 1,225 | $ | 3,000 | $ | 3,677 |
10. ROYALTY EXPENSE
Royalty expense consisted of the following (in thousands):
Three months ended
|
Nine months ended
|
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September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Royalty expense
|
$ | 2,275 | $ | 1,464 | $ | 6,809 | $ | 6,123 |
The Company has a trademark 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 $2.3 million and $1.5 million for the quarters ended September 30, 2010 and 2009, respectively. Royalty expenses were $6.8 million and $6.1 million for the nine months ended September 30, 2010 and 2009, respectively.
9
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
11. OTHER INCOME
Other income consisted of the following (in thousands):
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Investment gain on contractual obligations
|
$ | 638 | $ | 583 | $ | 285 | $ | 1,028 | ||||||||
Interest income
|
92 | 35 | 266 | 147 | ||||||||||||
Other income (expense)
|
(329 | ) | 26 | (244 | ) | 127 | ||||||||||
$ | 401 | $ | 644 | $ | 307 | $ | 1,302 |
In September 2010, Titan recorded other expense of $0.4 million related to deferred financing fees when the Company’s credit facility was amended.
12. INCOME TAXES
Income tax provision (benefit) consisted of the following (in thousands):
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Income tax provision (benefit)
|
$ | 2,568 | $ | (8,006 | ) | $ | 6,817 | $ | 274 |
The Company recorded income tax provision of $2.6 million and $6.8 million for the three and nine months ended September 30, 2010, respectively, as compared to income tax benefit of $(8.0) million and income tax provision of $0.3 million for the three and nine months ended September 30, 2009. The Company’s effective income tax rate was 39% and 13% for the nine months ended September 30, 2010 and 2009, respectively. The 2009 effective income tax rate was impacted by a reduction to the Company’s income tax provision of $0.5 million that related to one of the Company’s foreign subsidiaries.
13. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consisted of the following (in thousands):
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net income (loss)
|
$ | 4,015 | $ | (11,113 | ) | $ | 10,662 | $ | 1,838 | |||||||
Unrealized gain on investment, net of tax
|
5,137 | 1,686 | 8,405 | 2,633 | ||||||||||||
Pension liability adjustments, net of tax
|
575 | 680 | 1,724 | 2,039 | ||||||||||||
$ | 9,727 | $ | (8,747 | ) | $ | 20,791 | $ | 6,510 |
10
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
14. 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 nine months ended September 30, 2010 and 2009 (in thousands):
Three months ended
|
Nine months ended
|
|||||||||||||||
September 30,
|
September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Revenues from external customers
|
||||||||||||||||
Agricultural
|
$ | 170,675 | $ | 105,426 | $ | 497,503 | $ | 453,098 | ||||||||
Earthmoving/construction
|
47,848 | 30,732 | 139,161 | 113,085 | ||||||||||||
Consumer
|
4,295 | 5,338 | 12,258 | 14,900 | ||||||||||||
$ | 222,818 | $ | 141,496 | $ | 648,922 | $ | 581,083 | |||||||||
Gross profit (loss)
|
||||||||||||||||
Agricultural
|
$ | 25,283 | $ | (522 | ) | $ | 78,201 | $ | 48,400 | |||||||
Earthmoving/construction
|
2,495 | (1,815 | ) | 10,294 | 8,727 | |||||||||||
Consumer
|
827 | (142 | ) | 2,302 | 1,254 | |||||||||||
Corporate expenses
|
(659 | ) | (551 | ) | (2,861 | ) | (1,602 | ) | ||||||||
$ | 27,946 | $ | (3,030 | ) | $ | 87,936 | $ | 56,779 | ||||||||
Income (loss) from operations
|
||||||||||||||||
Agricultural
|
$ | 21,440 | $ | (3,775 | ) | $ | 66,222 | $ | 35,530 | |||||||
Earthmoving/construction
|
1,077 | (2,951 | ) | 4,080 | 3,711 | |||||||||||
Consumer
|
734 | (282 | ) | 2,030 | 842 | |||||||||||
Corporate expenses
|
(10,729 | ) | (8,758 | ) | (32,252 | ) | (28,852 | ) | ||||||||
Income (loss) from operations
|
12,522 | (15,766 | ) | 40,080 | 11,231 | |||||||||||
Interest expense
|
(5,867 | ) | (3,997 | ) | (19,713 | ) | (11,819 | ) | ||||||||
Other income (expense)
|
(72 | ) | 644 | (2,888 | ) | 2,700 | ||||||||||
Income (loss) before income taxes
|
$ | 6,583 | $ | (19,119 | ) | $ | 17,479 | $ | 2,112 |
Assets by segment were as follows (in thousands):
September 30,
|
December 31,
|
|||||||
Total Assets
|
2010
|
2009
|
||||||
Agricultural segment
|
$ | 328,603 | $ | 257,523 | ||||
Earthmoving/construction segment
|
191,881 | 188,169 | ||||||
Consumer segment
|
11,761 | 8,305 | ||||||
Other assets
|
195,449 | 282,466 | ||||||
$ | 727,694 | $ | 736,463 |
11
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
15. EARNINGS PER SHARE
Earnings per share (EPS) are as follows (amounts in thousands, except per share data):
Three months ended,
|
||||||||||||||||||||||||
September 30, 2010
|
September 30, 2009
|
|||||||||||||||||||||||
Net
Income
|
Weighted average shares
|
Per share
amount
|
Net
Loss
|
Weighted average shares
|
Per share
amount
|
|||||||||||||||||||
Basic EPS
|
$ | 4,015 | 34,868 | $ | .12 | $ | (11,113 | ) | 34,746 | $ | (.32 | ) | ||||||||||||
Effect of stock options/trusts
|
0 | 529 | 0 | 0 | ||||||||||||||||||||
Effect of convertible notes
|
1,598 | 16,376 | 0 | 0 | ||||||||||||||||||||
Diluted EPS
|
$ | 5,613 | 51,773 | $ | .11 | $ | (11,113 | ) | 34,746 | $ | (.32 | ) |
Nine months ended,
|
||||||||||||||||||||||||
September 30, 2010
|
September 30, 2009
|
|||||||||||||||||||||||
Net Income
|
Weighted average shares
|
Per share amount
|
Net Income
|
Weighted average shares
|
Per share amount
|
|||||||||||||||||||
Basic EPS
|
$ | 10,662 | 34,819 | $ | .31 | $ | 1,838 | 34,692 | $ | .05 | ||||||||||||||
Effect of stock options/trusts
|
0 | 545 | 0 | 559 | ||||||||||||||||||||
Effect of convertible notes
|
4,827 | 16,376 | 0 | 0 | ||||||||||||||||||||
Diluted EPS
|
$ | 15,489 | 51,740 | $ | .30 | $ | 1,838 | 35,251 | $ | .05 |
The effect of stock options/trusts has been excluded for the three months ended September 30, 2009, as the effect would have been antidilutive. The weighted average share amount excluded was 0.6 million shares.
16. FAIR VALUE MEASUREMENTS
ASC 820 Fair Value Measurements 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):
September 30, 2010
|
December 31, 2009
|
|||||||||||||||||||||||
Total
|
Level 1
|
Levels 2&3
|
Total
|
Level 1
|
Levels 2&3
|
|||||||||||||||||||
Investment in Titan Europe Plc
|
$ | 19,386 | $ | 19,386 | $ | 0 | $ | 6,456 | $ | 6,456 | $ | 0 | ||||||||||||
Investments for contractual obligations
|
9,112 | 9,112 | 0 | 5,869 | 5,869 | 0 | ||||||||||||||||||
Total
|
$ | 28,498 | $ | 28,498 | $ | 0 | $ | 12,325 | $ | 12,325 | $ | 0 |
12
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
17. 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.
18. RECENTLY ISSUED ACCOUNTING STANDARDS
Fair Value Measurements and Disclosures
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.” This guidance requires new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements. This guidance requires separate presentation about purchases, sales, issuances, and settlements for activity in Level 3 fair value measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The guidance for new disclosures and clarifications of existing disclosures was effective for reporting periods beginning after December 15, 2009. The adoption of this part of the guidance had no material effect on the Company’s financial position, results of operations or cash flows. The guidance related to presentation of Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010. The adoption of this part of the guidance is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
Receivables
In July 2010, FASB issued ASU No. 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This guidance amends Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The disclosures as of the end of a reporting period are effective for reporting periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period are effective for reporting periods beginning on or after December 15, 2010. The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
19. SUBSEQUENT EVENTS
Senior Secured 7.875% Notes due 2017
On October 1, 2010, the Company closed on an offering of $200 million senior secured 7.875% notes due 2017. Titan used a portion of the net proceeds from the offering to finance the repurchase of $138.9 million of its 8% senior unsecured notes due January 2012 and to pay all consent payments, accrued interest and costs and expenses associated therewith. The Company intends to use the remaining net proceeds from this offering of approximately $44 million for general corporate purposes, which may include potential future acquisitions.
Senior Unsecured 8% Note due January 2012 Repurchase
On October 1, 2010, the Company closed on a tender transaction to purchase $138.9 million, or 99.2%, of its outstanding senior unsecured 8% notes due January 2012. In connection with this transaction, Titan will record expenses of approximately $12 million in the fourth quarter of 2010. These expenses relate primarily to a tender and consent premium of $75 per $1,000 principal amount of the notes. After this transaction, Titan’s senior unsecured 8% note due January 2012 outstanding balance was $1.1 million as of October 1, 2010, compared to a balance of $139.9 million at September 30, 2010.
13
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
20. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company’s 8% senior unsecured notes and 5.625% convertible senior subordinated 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 September 30, 2010
|
||||||||||||||||||||
Titan
|
Non-
|
|||||||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Net sales
|
$ | 0 | $ | 222,818 | $ | 0 | $ | 0 | $ | 222,818 | ||||||||||
Cost of sales
|
387 | 194,485 | 0 | 0 | 194,872 | |||||||||||||||
Gross income (loss)
|
(387 | ) | 28,333 | 0 | 0 | 27,946 | ||||||||||||||
Selling, general and administrative expenses
|
4,843 | 7,185 | 9 | 0 | 12,037 | |||||||||||||||
Research and development expenses
|
0 | 1,112 | 0 | 0 | 1,112 | |||||||||||||||
Royalty expense
|
0 | 2,275 | 0 | 0 | 2,275 | |||||||||||||||
Income (loss) from operations
|
(5,230 | ) | 17,761 | (9 | ) | 0 | 12,522 | |||||||||||||
Interest expense
|
(5,867 | ) | 0 | 0 | 0 | (5,867 | ) | |||||||||||||
Loss on note repurchase
|
(473 | ) | 0 | 0 | 0 | (473 | ) | |||||||||||||
Other income
|
377 | 24 | 0 | 0 | 401 | |||||||||||||||
Income (loss) before income taxes
|
(11,193 | ) | 17,785 | (9 | ) | 0 | 6,583 | |||||||||||||
Income tax provision (benefit)
|
(4,366 | ) | 6,937 | (3 | ) | 0 | 2,568 | |||||||||||||
Equity in income of subsidiaries
|
10,842 | 0 | 0 | (10,842 | ) | 0 | ||||||||||||||
Net income (loss)
|
$ | 4,015 | $ | 10,848 | $ | (6 | ) | $ | (10,842 | ) | $ | 4,015 |
Consolidating Condensed Statements of Operations
|
||||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
For the Three Months Ended September 30, 2009
|
||||||||||||||||||||
Titan
|
Non-
|
|||||||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Net sales
|
$ | 0 | $ | 141,496 | $ | 0 | $ | 0 | $ | 141,496 | ||||||||||
Cost of sales
|
273 | 144,253 | 0 | 0 | 144,526 | |||||||||||||||
Gross loss
|
(273 | ) | (2,757 | ) | 0 | 0 | (3,030 | ) | ||||||||||||
Selling, general and administrative expenses
|
3,512 | 6,580 | 22 | 0 | 10,114 | |||||||||||||||
Research and development expenses
|
2 | 1,156 | 0 | 0 | 1,158 | |||||||||||||||
Royalty expense
|
0 | 1,464 | 0 | 0 | 1,464 | |||||||||||||||
Loss from operations
|
(3,787 | ) | (11,957 | ) | (22 | ) | 0 | (15,766 | ) | |||||||||||
Interest expense
|
(3,997 | ) | 0 | 0 | 0 | (3,997 | ) | |||||||||||||
Other income
|
618 | 26 | 0 | 0 | 644 | |||||||||||||||
Loss before income taxes
|
(7,166 | ) | (11,931 | ) | (22 | ) | 0 | (19,119 | ) | |||||||||||
Income tax provision (benefit)
|
3,070 | (11,085 | ) | 9 | 0 | (8,006 | ) | |||||||||||||
Equity in loss of subsidiaries
|
(877 | ) | 0 | 0 | 877 | 0 | ||||||||||||||
Net loss
|
$ | (11,113 | ) | $ | (846 | ) | $ | (31 | ) | $ | 877 | $ | (11,113 | ) |
14
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Condensed Statements of Operations
|
||||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
For the Nine Months Ended September 30, 2010
|
||||||||||||||||||||
Titan
|
Non-
|
|||||||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Net sales
|
$ | 0 | $ | 648,922 | $ | 0 | $ | 0 | $ | 648,922 | ||||||||||
Cost of sales
|
1,996 | 558,990 | 0 | 0 | 560,986 | |||||||||||||||
Gross profit (loss)
|
(1,996 | ) | 89,932 | 0 | 0 | 87,936 | ||||||||||||||
Selling, general and administrative expenses
|
14,624 | 21,334 | 50 | 0 | 36,008 | |||||||||||||||
Research and development expenses
|
0 | 5,039 | 0 | 0 | 5,039 | |||||||||||||||
Royalty expense
|
0 | 6,809 | 0 | 0 | 6,809 | |||||||||||||||
Income (loss) from operations
|
(16,620 | ) | 56,750 | (50 | ) | 0 | 40,080 | |||||||||||||
Interest expense
|
(19,713 | ) | 0 | 0 | 0 | (19,713 | ) | |||||||||||||
Loss on note repurchase
|
(3,195 | ) | 0 | 0 | 0 | (3,195 | ) | |||||||||||||
Other income
|
203 | 104 | 0 | 0 | 307 | |||||||||||||||
Income (loss) before income taxes
|
(39,325 | ) | 56,854 | (50 | ) | 0 | 17,479 | |||||||||||||
Income tax provision (benefit)
|
(15,337 | ) | 22,173 | (19 | ) | 0 | 6,817 | |||||||||||||
Equity in earnings of subsidiaries
|
34,650 | 0 | 0 | (34,650 | ) | 0 | ||||||||||||||
Net income (loss)
|
$ | 10,662 | $ | 34,681 | $ | (31 | ) | $ | (34,650 | ) | $ | 10,662 |
Consolidating Condensed Statements of Operations
|
||||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
For the Nine Months Ended September 30, 2009
|
||||||||||||||||||||
Titan
|
Non-
|
|||||||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Net sales
|
$ | 0 | $ | 581,083 | $ | 0 | $ | 0 | $ | 581,083 | ||||||||||
Cost of sales
|
707 | 523,597 | 0 | 0 | 524,304 | |||||||||||||||
Gross profit (loss)
|
(707 | ) | 57,486 | 0 | 0 | 56,779 | ||||||||||||||
Selling, general and administrative expenses
|
12,437 | 21,907 | 65 | 0 | 34,409 | |||||||||||||||
Research and development expenses
|
38 | 4,978 | 0 | 0 | 5,016 | |||||||||||||||
Royalty expense
|
0 | 6,123 | 0 | 0 | 6,123 | |||||||||||||||
Income (loss) from operations
|
(13,182 | ) | 24,478 | (65 | ) | 0 | 11,231 | |||||||||||||
Interest expense
|
(11,819 | ) | 0 | 0 | 0 | (11,819 | ) | |||||||||||||
Gain on note repurchase
|
1,398 | 0 | 0 | 0 | 1,398 | |||||||||||||||
Other income
|
1,072 | 230 | 0 | 0 | 1,302 | |||||||||||||||
Income (loss) before income taxes
|
(22,531 | ) | 24,708 | (65 | ) | 0 | 2,112 | |||||||||||||
Income tax provision (benefit)
|
(2,922 | ) | 3,204 | (8 | ) | 0 | 274 | |||||||||||||
Equity in earnings of subsidiaries
|
21,447 | 0 | 0 | (21,447 | ) | 0 | ||||||||||||||
Net income (loss)
|
$ | 1,838 | $ | 21,504 | $ | (57 | ) | $ | (21,447 | ) | $ | 1,838 |
15
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Condensed Balance Sheets
|
||||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
September 30, 2010
|
||||||||||||||||||||
Titan
|
Non-
|
|||||||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
Assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 159,158 | $ | 24 | $ | 133 | $ | 0 | $ | 159,315 | ||||||||||
Accounts receivable
|
0 | 114,140 | 0 | 0 | 114,140 | |||||||||||||||
Inventories
|
0 | 135,976 | 0 | 0 | 135,976 | |||||||||||||||
Prepaid and other current assets
|
7,004 | 16,887 | 0 | 0 | 23,891 | |||||||||||||||
Total current assets
|
166,162 | 267,027 | 133 | 0 | 433,322 | |||||||||||||||
Property, plant and equipment, net
|
3,483 | 245,206 | 0 | 0 | 248,689 | |||||||||||||||
Investment in subsidiaries
|
36,234 | 0 | 0 | (36,234 | ) | 0 | ||||||||||||||
Other assets
|
19,427 | 6,870 | 19,386 | 0 | 45,683 | |||||||||||||||
Total assets
|
$ | 225,306 | $ | 519,103 | $ | 19,519 | $ | (36,234 | ) | $ | 727,694 | |||||||||
Liabilities and Stockholders’ Equity
|
||||||||||||||||||||
Accounts payable
|
$ | 1,554 | $ | 45,581 | $ | 0 | $ | 0 | $ | 47,135 | ||||||||||
Other current liabilities
|
487 | 43,399 | 0 | 0 | 43,886 | |||||||||||||||
Total current liabilities
|
2,041 | 88,980 | 0 | 0 | 91,021 | |||||||||||||||
Long-term debt
|
312,448 | 0 | 0 |