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: March 31, 2011
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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April 21, 2011
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Common stock, no par value per share
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42,072,631
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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 Months Ended March 31, 2011 and 2010
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1
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Consolidated Condensed Balance Sheets as of
March 31, 2011, and December 31, 2010
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2
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Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2011
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3
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Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2011 and 2010
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4
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Notes to Consolidated Condensed Financial Statements
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5-19
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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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20-31
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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32
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Item 4.
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Controls and Procedures
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32
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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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33
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Item 1A.
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Risk Factors
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33
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Item 6.
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Exhibits
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33
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Signatures
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33
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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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||||||||
March 31,
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||||||||
2011
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2010
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|||||||
Net sales
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$ | 280,829 | $ | 196,448 | ||||
Cost of sales
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224,557 | 170,361 | ||||||
Gross profit
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56,272 | 26,087 | ||||||
Selling, general and administrative expenses
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25,293 | 11,809 | ||||||
Research and development expenses
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1,183 | 2,027 | ||||||
Royalty expense
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2,917 | 2,121 | ||||||
Income from operations
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26,879 | 10,130 | ||||||
Interest expense
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(6,280 | ) | (7,056 | ) | ||||
Noncash convertible debt conversion charge
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(16,135 | ) | 0 | |||||
Other income
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193 | 333 | ||||||
Income before income taxes
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4,657 | 3,407 | ||||||
Provision for income taxes
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7,693 | 1,329 | ||||||
Net income (loss)
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$ | (3,036 | ) | $ | 2,078 | |||
Earnings (loss) per common share:
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||||||||
Basic
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$ | (.07 | ) | $ | .06 | |||
Diluted
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(.07 | ) | .06 | |||||
Average common shares outstanding:
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||||||||
Basic
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40,511 | 34,772 | ||||||
Diluted
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40,511 | 35,329 | ||||||
Dividends declared per common share:
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$ | .005 | $ | .005 |
See accompanying Notes to Consolidated Condensed Financial Statements.
1
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
March 31,
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December 31,
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|||||||
Assets
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2011
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2010
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||||||
Current assets
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||||||
Cash and cash equivalents
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$ | 230,048 | $ | 239,500 | ||||
Accounts receivable
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139,025 | 89,004 | ||||||
Inventories
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133,679 | 127,982 | ||||||
Deferred income taxes
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12,791 | 12,791 | ||||||
Prepaid and other current assets
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18,031 | 18,663 | ||||||
Total current assets
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533,574 | 487,940 | ||||||
Property, plant and equipment, net
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242,064 | 248,054 | ||||||
Other assets
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49,332 | 51,476 | ||||||
Total assets
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$ | 824,970 | $ | 787,470 | ||||
Liabilities and Stockholders’ Equity
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||||||||
Current liabilities
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||||||||
Accounts payable
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$ | 45,186 | $ | 35,281 | ||||
Other current liabilities
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65,547 | 57,072 | ||||||
Total current liabilities
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110,733 | 92,353 | ||||||
Long-term debt
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312,881 | 373,564 | ||||||
Deferred income taxes
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9,385 | 1,970 | ||||||
Other long-term liabilities
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41,114 | 41,268 | ||||||
Total liabilities
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474,113 | 509,155 | ||||||
Stockholders’ equity
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||||||||
Common stock(no par, 120,000,000 shares authorized,
44,092,997 and 37,475,288 issued, respectively)
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37 | 30 | ||||||
Additional paid-in capital
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375,746 | 300,540 | ||||||
Retained earnings
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12,782 | 16,028 | ||||||
Treasury stock (at cost, 2,076,040 and 2,108,561 shares, respectively)
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(19,033 | ) | (19,324 | ) | ||||
Treasury stock reserved for deferred compensation
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(1,233 | ) | (1,917 | ) | ||||
Accumulated other comprehensive loss
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(17,442 | ) | (17,042 | ) | ||||
Total stockholders’ equity
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350,857 | 278,315 | ||||||
Total liabilities and stockholders’ equity
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$ | 824,970 | $ | 787,470 |
See accompanying Notes to Consolidated Condensed Financial Statements.
2
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(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 deferred compensation
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Accumulated other comprehensive income (loss)
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Total
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|||||||||||||||||||||||||
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Balance January 1, 2011
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#35,366,727 | $ | 30 | $ | 300,540 | $ | 16,028 | $ | (19,324 | ) | $ | (1,917 | ) | $ | (17,042 | ) | $ | 278,315 | ||||||||||||||
Comprehensive income (loss):
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Net loss
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(3,036 | ) | (3,036 | ) | ||||||||||||||||||||||||||||
Pension liability adjustments, net of tax
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593 | 593 | ||||||||||||||||||||||||||||||
Unrealized loss on investment, net of tax
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(993 | ) | (993 | ) | ||||||||||||||||||||||||||||
Comprehensive loss
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(3,436 | ) | ||||||||||||||||||||||||||||||
Dividends on common stock
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(210 | ) | (210 | ) | ||||||||||||||||||||||||||||
Note conversion
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6,617,709 | 7 | 73,902 | 73,909 | ||||||||||||||||||||||||||||
Exercise of stock options
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26,125 | (4 | ) | 234 | 230 | |||||||||||||||||||||||||||
Stock-based compensation
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393 | 393 | ||||||||||||||||||||||||||||||
Deferred compensation transactions
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846 | 684 | 1,530 | |||||||||||||||||||||||||||||
Issuance of treasury stock under 401(k) plan
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6,396 | 69 | 57 | 126 | ||||||||||||||||||||||||||||
Balance March 31, 2011
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#42,016,957 | $ | 37 | $ | 375,746 | $ | 12,782 | $ | (19,033 | ) | $ | (1,233 | ) | $ | (17,442 | ) | $ | 350,857 |
See accompanying Notes to Consolidated Condensed Financial Statements.
3
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)
Three months ended
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||||||||
March 31,
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||||||||
2011
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2010
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|||||||
Cash flows from operating activities:
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||||||||
Net income (loss)
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$ | (3,036 | ) | $ | 2,078 | |||
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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9,299 | 9,281 | ||||||
Deferred income tax provision
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7,415 | 1,275 | ||||||
Noncash convertible debt conversion charge
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16,135 | 0 | ||||||
Stock-based compensation
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393 | 0 | ||||||
Issuance of treasury stock under 401(k) plan
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126 | 123 | ||||||
(Increase) decrease in assets:
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||||||||
Accounts receivable
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(50,021 | ) | (34,789 | ) | ||||
Inventories
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(5,697 | ) | (19,462 | ) | ||||
Prepaid and other current assets
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632 | 3,099 | ||||||
Other assets
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10 | 46 | ||||||
Increase in liabilities:
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Accounts payable
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9,905 | 22,432 | ||||||
Other current liabilities
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8,442 | 4,413 | ||||||
Other liabilities
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802 | 1,365 | ||||||
Net cash used for operating activities
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(5,595 | ) | (10,139 | ) | ||||
Cash flows from investing activities:
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Capital expenditures
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(3,469 | ) | (3,508 | ) | ||||
Other
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623 | 42 | ||||||
Net cash used for investing activities
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(2,846 | ) | (3,466 | ) | ||||
Cash flows from financing activities:
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Repurchase of senior unsecured notes
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(1,064 | ) | 0 | |||||
Proceeds from exercise of stock options
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230 | 0 | ||||||
Payment of financing fees
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0 | (186 | ) | |||||
Dividends paid
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(177 | ) | (176 | ) | ||||
Net cash used for financing activities
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(1,011 | ) | (362 | ) | ||||
Net decrease in cash and cash equivalents
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(9,452 | ) | (13,967 | ) | ||||
Cash and cash equivalents at beginning of period
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239,500 | 229,182 | ||||||
Cash and cash equivalents at end of period
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$ | 230,048 | $ | 215,215 |
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 and necessary for a fair statement of the Company’s financial position as of March 31, 2011, and the results of operations and cash flows for the three months ended March 31, 2011 and 2010.
Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2010 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 2010 Annual Report on Form 10-K.
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 secured 7.875% notes due 2017 (senior secured notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $200.0 million and $112.9 million at March 31, 2011, respectively. The fair value of these notes at March 31, 2011, as obtained through independent pricing sources, was approximately $214.0 million for the senior secured notes and approximately $317.8 million for the convertible notes. The increase in the fair value of the convertible notes is due primarily to the increased value of the underlying common stock.
Cash dividends
The Company declared cash dividends of $.005 per share of common stock for each of the three months ended March 31, 2011 and 2010.
2. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
March 31,
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December 31,
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|||||||
2011
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2010
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Accounts receivable
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$ | 143,258 | $ | 92,893 | ||||
Allowance for doubtful accounts
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(4,233 | ) | (3,889 | ) | ||||
Accounts receivable, net
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$ | 139,025 | $ | 89,004 |
5
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
3. INVENTORIES
Inventories consisted of the following (in thousands):
March 31,
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December 31,
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|||||||
2011
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2010
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|||||||
Raw materials
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$ | 54,169 | $ | 56,414 | ||||
Work-in-process
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18,103 | 16,860 | ||||||
Finished goods
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64,010 | 59,680 | ||||||
136,282 | 132,954 | |||||||
Adjustment to LIFO basis
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(2,603 | ) | (4,972 | ) | ||||
$ | 133,679 | $ | 127,982 |
At March 31, 2011, cost is determined using the first-in, first-out (FIFO) method for approximately 66% of inventories and the last-in, first-out (LIFO) method for approximately 34% of the inventories. At December 31, 2010, the FIFO method was used for approximately 64% of inventories and LIFO was used for approximately 36% of the inventories. Included in the inventory balances were provisions for slow-moving and obsolete inventory of $7.6 million at March 31, 2011, and $7.4 million at December 31, 2010.
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (in thousands):
March 31,
|
December 31,
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|||||||
2011
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2010
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|||||||
Land and improvements
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$ | 3,061 | $ | 3,061 | ||||
Buildings and improvements
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98,234 | 98,233 | ||||||
Machinery and equipment
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385,153 | 383,231 | ||||||
Tools, dies and molds
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84,901 | 84,134 | ||||||
Construction-in-process
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8,040 | 8,741 | ||||||
579,389 | 577,400 | |||||||
Less accumulated depreciation
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(337,325 | ) | (329,346 | ) | ||||
$ | 242,064 | $ | 248,054 |
Depreciation on fixed assets for the three months ended March 31, 2011 and 2010, totaled $8.8 million and $8.6 million, respectively.
6
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
5. INVESTMENT IN TITAN EUROPE PLC
Investment in Titan Europe Plc consisted of the following (in thousands):
March 31,
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December 31,
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|||||||
2011
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2010
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|||||||
Investment in Titan Europe Plc
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$ | 21,165 | $ | 22,693 |
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 Accounting Standards Codification (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 accumulated other comprehensive income includes a gain on the Titan Europe Plc investment of $10.5 million, which is net of tax of $5.6 million. The decreased value in the Titan Europe Plc investment at March 31, 2011, was due primarily to a lower publicly quoted Titan Europe Plc market price.
6. WARRANTY
Changes in the warranty liability consisted of the following (in thousands):
|
2011
|
2010
|
||||||
Warranty liability, January 1
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$ | 12,471 | $ | 9,169 | ||||
Provision for warranty liabilities
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5,256 | 3,629 | ||||||
Warranty payments made
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(3,743 | ) | (3,377 | ) | ||||
Warranty liability, March 31
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$ | 13,984 | $ | 9,421 |
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):
March 31,
|
December 31,
|
|||||||
2011
|
2010
|
|||||||
7.875% senior notes due 2017
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$ | 200,000 | $ | 200,000 | ||||
5.625% convertible senior notes due 2017
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112,881 | 172,500 | ||||||
8% senior unsecured notes due January 2012
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0 | 1,064 | ||||||
312,881 | 373,564 | |||||||
Less: Amounts due within one year
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0 | 0 | ||||||
$ | 312,881 | $ | 373,564 |
7
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Aggregate maturities of long-term debt at March 31, 2011, were as follows (in thousands):
April 1 – December 31, 2011
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$ | 0 | ||
2012
|
0 | |||
2013
|
0 | |||
2014
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0 | |||
2015
|
0 | |||
Thereafter
|
312,881 | |||
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$ | 312,881 |
7.875% senior secured notes due 2017
The Company’s 7.875% senior secured notes (senior secured notes) are due October 2017. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Tire Corporation, Titan Wheel Corporation of Illinois, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan. The Company’s senior secured notes outstanding balance was $200.0 million at March 31, 2011.
5.625% convertible senior subordinated notes due 2017
The Company’s 5.625% convertible senior subordinated 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 $112.9 million at March 31, 2011.
In the first quarter of 2011, the Company closed an Exchange Agreement with a note holder of the convertible notes, pursuant to which such holder converted approximately $59.6 million in aggregate principal amount of the Convertible Notes into approximately 6.6 million shares of the Company’s common stock, plus a payment for the accrued and unpaid interest. In connection with the exchange, the Company recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.
8% senior unsecured notes due 2012
In the first quarter of 2011, Titan satisfied and discharged the indenture relating to the 8% senior unsecured notes due January 2012 by depositing with the trustee $1.1 million cash representing the outstanding principal of such notes and interest payments due on July 15, 2011, and at maturity on January 15, 2012. Titan irrevocably instructed the trustee to apply the deposited money toward the interest and principal of the notes.
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 quarter of 2011 and at March 31, 2011, 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 March 31, 2011.
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 March 31, 2011, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
April 1 – December 31, 2011
|
$ | 370 | ||
2012
|
79 | |||
2013
|
18 | |||
2014
|
1 | |||
Thereafter
|
0 | |||
Total future minimum lease payments
|
$ | 468 |
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 $2 million to the pension plans during the remainder of 2011.
The components of net periodic pension cost consisted of the following (in thousands):
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Interest cost
|
$ | 1,272 | $ | 1,300 | ||||
Expected return on assets
|
(1,315 | ) | (1,227 | ) | ||||
Amortization of unrecognized prior service cost
|
34 | 34 | ||||||
Amortization of unrecognized deferred taxes
|
(14 | ) | (14 | ) | ||||
Amortization of net unrecognized loss
|
936 | 907 | ||||||
Net periodic pension cost
|
$ | 913 | $ | 1,000 |
10. ROYALTY EXPENSE
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 $2.9 million and $2.1 million for the first quarter of 2011 and 2010, 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 March 31,
|
||||||||
2011
|
2010
|
|||||||
Investment gain on marketable securities
|
$ | 93 | $ | 196 | ||||
Interest income
|
145 | 94 | ||||||
Other income (expense)
|
(45 | ) | 43 | |||||
$ | 193 | $ | 333 |
12. INCOME TAXES
The Company recorded income tax expense of $7.7 million and $1.3 million for the quarters ended March 31, 2011 and 2010, respectively. The Company’s effective income tax rate was 165% and 39% for the three months ended March 31, 2011 and 2010, respectively. The Company’s 2011 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $16.1 million noncash charge taken in connection with the Company’s convertible debt. This noncash charge is not deductible for income tax purposes.
13. COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) consisted of the following (in thousands):
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Net income (loss)
|
$ | (3,036 | ) | $ | 2,078 | |||
Unrealized loss on investment, net of tax
|
(993 | ) | (918 | ) | ||||
Pension liability adjustments, net of tax
|
593 | 575 | ||||||
$ | (3,436 | ) | $ | 1,735 | ||||
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 months ended March 31, 2011 and 2010 (in thousands):
Three months ended March 31,
|
||||||||
2011
|
2010
|
|||||||
Revenues from external customers
|
||||||||
Agricultural
|
$ | 209,997 | $ | 151,112 | ||||
Earthmoving/construction
|
66,511 | 41,815 | ||||||
Consumer
|
4,321 | 3,521 | ||||||
$ | 280,829 | $ | 196,448 | |||||
Gross profit
|
||||||||
Agricultural
|
$ | 47,700 | $ | 23,890 | ||||
Earthmoving/construction
|
8,195 | 3,150 | ||||||
Consumer
|
1,002 | 668 | ||||||
Unallocated corporate
|
(625 | ) | (1,621 | ) | ||||
$ | 56,272 | $ | 26,087 | |||||
Income from operations
|
||||||||
Agricultural
|
$ | 42,868 | $ | 19,955 | ||||
Earthmoving/construction
|
6,288 | 690 | ||||||
Consumer
|
916 | 581 | ||||||
Unallocated corporate
|
(23,193 | ) | (11,096 | ) | ||||
Consolidated income from operations
|
26,879 | 10,130 | ||||||
Interest expense
|
(6,280 | ) | (7,056 | ) | ||||
Noncash convertible debt conversion charge
|
(16,135 | ) | 0 | |||||
Other income, net
|
193 | 333 | ||||||
Income before income taxes
|
$ | 4,657 | $ | 3,407 |
Assets by segment were as follows (in thousands):
March 31,
|
December 31,
|
|||||||
Total Assets
|
2011
|
2010
|
||||||
Agricultural
|
$ | 347,432 | $ | 304,048 | ||||
Earthmoving/construction
|
193,276 | 181,249 | ||||||
Consumer
|
9,239 | 5,863 | ||||||
Unallocated corporate
|
275,023 | 296,310 | ||||||
Consolidated totals
|
$ | 824,970 | $ | 787,470 | ||||
11
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
15. EARNINGS PER SHARE
Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
|
Three months ended
|
|||||||||||||||||||||||
|
March 31, 2011
|
March 31, 2010
|
||||||||||||||||||||||
|
Net
Loss
|
Weighted average shares
|
Per share amount
|
Net
Income
|
Weighted average shares
|
Per share amount
|
||||||||||||||||||
Basic EPS
|
$ | (3,036 | ) | 40,511 | $ | (.07 | ) | $ | 2,078 | 34,772 | $ | .06 | ||||||||||||
Effect of stock options/trusts
|
0 | 0 | 0 | 557 | ||||||||||||||||||||
Diluted EPS
|
$ | (3,036 | ) | 40,511 | $ | (.07 | ) | $ | 2,078 | 35,329 | $ | .06 |
The effect of convertible notes has been excluded for both of the three months ended March 31, 2011 and 2010, as the effect would have been antidilutive. The weighted average share amount excluded for convertible notes totaled 12.3 million shares and 16.0 million shares for the three months ended March 31, 2011 and 2010, respectively.
The effect of stock options/trusts has been excluded for the three months ended March 31, 2011, as the effect would have been antidilutive. The weighted average share amount excluded was 0.3 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):
|
March 31, 2011
|
December 31, 2010
|
||||||||||||||||||||||
|
Total
|
Level 1
|
Levels 2&3
|
Total
|
Level 1
|
Levels 2&3
|
||||||||||||||||||
Investment in Titan Europe Plc
|
$ | 21,165 | $ | 21,165 | $ | 0 | $ | 22,693 | $ | 22,693 | $ | 0 | ||||||||||||
Investment in marketable securities
|
12,791 | 12,791 | 0 | 11,168 | 11,168 | 0 | ||||||||||||||||||
Total
|
$ | 33,956 | $ | 33,956 | $ | 0 | $ | 33,861 | $ | 33,861 | $ | 0 |
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 effect 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.
12
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
18. RECENTLY ISSUED ACCOUNTING STANDARDS
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2010 Annual Report on Form 10-K.
19. SUBSEQUENT EVENTS
Purchase of Goodyear’s Latin American Farm Tire Business
On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company’s Latin American farm tire business for approximately $98.6 million U.S. dollars, subject to post-closing conditions and adjustments. The transaction includes Goodyear’s Sao Paulo, Brazil manufacturing plant, property, equipment and inventories and a licensing agreement that allows Titan to sell Goodyear-brand farm tires in Latin America for seven years and extends the North American licensing agreement for seven years.
13
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
20. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company’s 5.625% convertible senior subordinated notes are guaranteed by the following subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, Titan Tire Corporation of Texas, Titan Wheel Corporation of Illinois, and Titan Wheel Corporation of Virginia. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.
|
Consolidating Condensed Statements of Operations
|
|||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
|
For the Three Months Ended March 31, 2011
|
|||||||||||||||||||
|
Titan
|
Non-
|
||||||||||||||||||
|
Intl., Inc.
|
Guarantor
|
Guarantor
|
|||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||||||
Net sales
|
$ | 0 | $ | 280,829 | $ | 0 | $ | 0 | $ | 280,829 | ||||||||||
Cost of sales
|
361 | 223,754 | 442 | 0 | 224,557 | |||||||||||||||
Gross profit (loss)
|
(361 | ) | 57,075 | (442 | ) | 0 | 56,272 | |||||||||||||
Selling, general and administrative expenses
|
15,405 | 2,725 | 7,163 | 0 | 25,293 | |||||||||||||||
Research and development expenses
|
0 | 1,183 | 0 | 0 | 1,183 | |||||||||||||||
Royalty expense
|
0 | 2,917 | 0 | 0 | 2,917 | |||||||||||||||
Income (loss) from operations
|
(15,766 | ) | 50,250 | (7,605 | ) | 0 | 26,879 | |||||||||||||
Interest expense
|
(6,280 | ) | 0 | 0 | 0 | (6,280 | ) | |||||||||||||
Noncash convertible debt conversion charge
|
(16,135 | ) | 0 | 0 | 0 | (16,135 | ) | |||||||||||||
Other income (expense)
|
317 | (202 | ) | 78 | 0 | 193 | ||||||||||||||
Income (loss) before income taxes
|
(37,864 | ) | 50,048 | (7,527 | ) | 0 | 4,657 | |||||||||||||
Provision (benefit) for income taxes
|
(8,039 | ) | 18,518 | (2,786 | ) | 0 | 7,693 | |||||||||||||
Equity in earnings of subsidiaries
|
26,789 | (60 | ) | 60 | (26,789 | ) | 0 | |||||||||||||
Net income (loss)
|
$ | (3,036 | ) | $ | 31,470 | $ | (4,681 | ) | $ | (26,789 | ) | $ | (3,036 | ) |
|
Consolidating Condensed Statements of Operations
|
|||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
|
For the Three Months Ended March 31, 2010
|
|||||||||||||||||||
Titan
|
Non-
|
|||||||||||||||||||
|
Intl., Inc.
|
Guarantor
|
Guarantor
|
|||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||||||
Net sales
|
$ | 0 | $ | 196,448 | $ | 0 | $ | 0 | $ | 196,448 | ||||||||||
Cost of sales
|
1,324 | 168,550 | 487 | 0 | 170,361 | |||||||||||||||
Gross profit (loss)
|
(1,324 | ) | 27,898 | (487 | ) | 0 | 26,087 | |||||||||||||
Selling, general and administrative expenses
|
4,864 | 2,334 | 4,611 | 0 | 11,809 | |||||||||||||||
Research and development expenses
|
0 | 2,027 | 0 | 0 | 2,027 | |||||||||||||||
Royalty expense
|
0 | 2,121 | 0 | 0 | 2,121 | |||||||||||||||
Income (loss) from operations
|
(6,188 | ) | 21,416 | (5,098 | ) | 0 | 10,130 | |||||||||||||
Interest expense
|
(7,056 | ) | 0 | 0 | 0 | (7,056 | ) | |||||||||||||
Other income (expense)
|
290 | (2 | ) | 45 | 0 | 333 | ||||||||||||||
Income (loss) before income taxes
|
(12,954 | ) | 21,414 | (5,053 | ) | 0 | 3,407 | |||||||||||||
Provision (benefit) for income taxes
|
(5,052 | ) | 8,352 | (1,971 | ) | 0 | 1,329 | |||||||||||||
Equity in earnings of subsidiaries
|
9,980 | (88 | ) | 88 | (9,980 | ) | 0 | |||||||||||||
Net income (loss)
|
$ | 2,078 | $ | 12,974 | $ | (2,994 | ) | $ | (9,980 | ) | $ | 2,078 |
14
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
Consolidating Condensed Balance Sheets
|
|||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
|
March 31, 2011
|
|||||||||||||||||||
|
Titan
|
Non-
|
||||||||||||||||||
|
Intl., Inc.
|
Guarantor
|
Guarantor
|
|||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||||||
Assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 229,924 | $ | 7 | $ | 117 | $ | 0 | $ | 230,048 | ||||||||||
Accounts receivable
|
0 | 139,025 | 0 | 0 | 139,025 | |||||||||||||||
Inventories
|
0 | 133,679 | 0 | 0 | 133,679 | |||||||||||||||
Prepaid and other current assets
|
14,063 | 16,389 | 370 | 0 | 30,822 | |||||||||||||||
Total current assets
|
243,987 | 289,100 | 487 | 0 | 533,574 | |||||||||||||||
Property, plant and equipment, net
|
7,667 | 229,385 | 5,012 | 0 | 242,064 | |||||||||||||||
Investment in subsidiaries
|
61,855 | 9,057 | 20 | (70,932 | ) | 0 | ||||||||||||||
Other assets
|
21,573 | 1,060 | 26,699 | 0 | 49,332 | |||||||||||||||
Total assets
|
$ | 335,082 | $ | 528,602 | $ | 32,218 | $ | (70,932 | ) | $ | 824,970 | |||||||||
Liabilities and Stockholders’ Equity
|
||||||||||||||||||||
Accounts payable
|
$ | 790 | $ | 44,006 | $ | 390 | $ | 0 | $ | 45,186 | ||||||||||
Other current liabilities
|
20,332 | 42,860 | 2,355 | 0 | 65,547 | |||||||||||||||
Total current liabilities
|
21,122 | 86,866 | 2,745 | 0 | 110,733 | |||||||||||||||
Long-term debt
|
312,881 | 0 | 0 | 0 | 312,881 | |||||||||||||||
Other long-term liabilities
|
16,980 | 27,671 | 5,848 | 0 | 50,499 | |||||||||||||||
Intercompany accounts
|
(366,758 | ) | 189,850 | 176,908 | 0 | 0 | ||||||||||||||
Stockholders’ equity
|
350,857 | 224,215 | (153,283 | ) | (70,932 | ) | 350,857 | |||||||||||||
Total liabilities and stockholders’ equity
|
$ | 335,082 | $ | 528,602 | $ | 32,218 | $ | (70,932 | ) | $ | 824,970 |
|
Consolidating Condensed Balance Sheets
|
|||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
|
December 31, 2010
|
|||||||||||||||||||
|
Titan
|
Non-
|
||||||||||||||||||
|
Intl., Inc.
|
Guarantor
|
Guarantor
|
|||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||||||
Assets
|
||||||||||||||||||||
Cash and cash equivalents
|
$ | 239,362 | $ | 6 | $ | 132 | $ | 0 | $ | 239,500 | ||||||||||
Accounts receivable
|
0 | 89,004 | 0 | 0 | 89,004 | |||||||||||||||
Inventories
|
0 | 127,982 | 0 | 0 | 127,982 | |||||||||||||||
Prepaid and other current assets
|
14,732 | 16,240 | 482 | 0 | 31,454 | |||||||||||||||
Total current assets
|
254,094 | 233,232 | 614 | 0 | 487,940 | |||||||||||||||
Property, plant and equipment, net
|
7,678 | 235,143 | 5,233 | 0 | 248,054 | |||||||||||||||
Investment in subsidiaries
|
39,465 | 9,057 | 20 | (48,542 | ) | 0 | ||||||||||||||
Other assets
|
22,183 | 869 | 28,424 | 0 | 51,476 | |||||||||||||||
Total assets
|
$ | 323,420 | $ | 478,301 | $ | 34,291 | $ | (48,542 | ) | $ | 787,470 | |||||||||
Liabilities and Stockholders’ Equity
|
||||||||||||||||||||
Accounts payable
|
$ | 1,406 | $ | 33,473 | $ | 402 | $ | 0 | $ | 35,281 | ||||||||||
Other current liabilities
|
16,066 | 39,186 | 1,820 | 0 | 57,072 | |||||||||||||||
Total current liabilities
|
17,472 | 72,659 | 2,222 | 0 | 92,353 | |||||||||||||||
Long-term debt
|
373,564 | 0 | 0 | 0 | 373,564 | |||||||||||||||
Other long-term liabilities
|
9,161 | 28,083 | 5,994 | 0 | 43,238 | |||||||||||||||
Intercompany accounts
|
(355,092 | ) | 178,164 | 176,928 | 0 | 0 | ||||||||||||||
Stockholders’ equity
|
278,315 | 199,395 | (150,853 | ) | (48,542 | ) | 278,315 | |||||||||||||
Total liabilities and stockholders’ equity
|
$ | 323,420 | $ | 478,301 | $ | 34,291 | $ | (48,542 | ) | $ | 787,470 |
15
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Consolidating Condensed Statements of Cash Flows
|
||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||
For the Three Months Ended March 31, 2011
|
||||||||||||||||
Titan
|
Non-
|
|||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
Net cash provided by (used for) operating activities
|
$ | (8,115 | ) | $ | 2,487 | $ | 33 | $ | (5,595 | ) | ||||||
Cash flows from investing activities:
|
||||||||||||||||
Capital expenditures
|
(312 | ) | (3,100 | ) | (57 | ) | (3,469 | ) | ||||||||
Other, net
|
0 | 614 | 9 | 623 | ||||||||||||
Net cash used for investing activities
|
(312 | ) | (2,486 | ) | (48 | ) | (2,846 | ) | ||||||||
Cash flows from financing activities:
|
||||||||||||||||
Repurchase of senior unsecured notes
|
(1,064 | ) | 0 | 0 | (1,064 | ) | ||||||||||
Proceeds from exercise of stock options
|
230 | 0 | 0 | 230 | ||||||||||||
Dividends paid
|
(177 | ) | 0 | 0 | (177 | ) | ||||||||||
Net cash used for financing activities
|
(1,011 | ) | 0 | 0 | (1,011 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents
|
(9,438 | ) | 1 | (15 | ) | (9,452 | ) | |||||||||
Cash and cash equivalents, beginning of period
|
239,362 | 6 | 132 | 239,500 | ||||||||||||
Cash and cash equivalents, end of period
|
$ | 229,924 | $ | 7 | $ | 117 | $ | 230,048 |
Consolidating Condensed Statements of Cash Flows
|
||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||
For the Three Months Ended March 31, 2010
|
||||||||||||||||
Titan
|
Non-
|
|||||||||||||||
Intl., Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
Net cash provided by (used for) operating activities
|
$ | (13,596 | ) | $ | 3,427 | $ | 30 | $ | (10,139 | ) | ||||||
Cash flows from investing activities:
|
||||||||||||||||
Capital expenditures
|
0 | (3,460 | ) | (48 | ) | (3,508 | ) | |||||||||
Other, net
|
0 | 37 | 5 | 42 | ||||||||||||
Net cash used for investing activities
|
0 | (3,423 | ) | (43 | ) | (3,466 | ) | |||||||||
Cash flows from financing activities:
|
||||||||||||||||
Payment of financing fees
|
(186 | ) | 0 | 0 | (186 | ) | ||||||||||
Dividends paid
|
(176 | ) | 0 | 0 | (176 | ) | ||||||||||
Net cash used for financing activities
|
(362 | ) | 0 | 0 | (362 | ) | ||||||||||
Net increase (decrease) in cash and cash equivalents
|
(13,958 | ) | 4 | (13 | ) | (13,967 | ) | |||||||||
Cash and cash equivalents, beginning of period
|
229,004 | 11 | 167 | 229,182 | ||||||||||||
Cash and cash equivalents, end of period
|
$ | 215,046 | $ | 15 | $ | 154 | $ | 215,215 | ||||||||
16
TITAN INTERNATIONAL, INC
Notes to Consolidated Condensed Financial Statements
(Unaudited)
21. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company’s 7.875% senior secured notes are guaranteed by the following subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.
|
Consolidating Condensed Statements of Operations
|
|||||||||||||||||||
(Amounts in thousands)
|
||||||||||||||||||||
|
For the Three Months Ended March 31, 2011
|
|||||||||||||||||||
|
Titan
|
Non-
|
||||||||||||||||||
|
Intl., Inc.
|
Guarantor
|
Guarantor
|
|||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
|||||||||||||||
Net sales
|
$ | 0 | $ | 274,961 | $ | 5,868 | $ | 0 | $ | 280,829 | ||||||||||
Cost of sales
|
361 | 217,995 | 6,201 | 0 | 224,557 | |||||||||||||||
Gross profit (loss)
|
(361 | ) | 56,966 | (333 | ) | 0 | 56,272 | |||||||||||||
Selling, general and administrative expenses
|
15,405 | 2,649 | 7,239 | 0 | 25,293 | |||||||||||||||
Research and development expenses
|