TITAN INTERNATIONAL INC
10-Ks and 10-Qs
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2013
or
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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)
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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
þ
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.
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Large accelerated filer
þ
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Accelerated filer
¨
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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.
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Shares Outstanding at
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||
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Class
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April 22, 2013
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Common stock, no par value per share
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53,522,670
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TITAN INTERNATIONAL, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
(All amounts in thousands, except per share data)
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Three months ended
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||||||
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March 31,
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|||||||
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2013
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2012
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|||||
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Net sales
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$
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578,387
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$
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463,088
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Cost of sales
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481,636
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369,725
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Gross profit
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96,751
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93,363
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Selling, general and administrative expenses
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42,443
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30,835
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Research and development expenses
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2,702
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1,508
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Royalty expense
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3,723
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2,349
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Income from operations
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47,883
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58,671
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Interest expense
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(10,441
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)
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(6,295
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)
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Convertible debt conversion charge
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(7,273
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)
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—
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Other income
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1,419
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3,111
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Income before income taxes
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31,588
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55,487
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Provision for income taxes
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12,199
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20,093
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Net income
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19,389
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35,394
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Net loss attributable to noncontrolling interests
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(86
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)
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(25
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)
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Net income attributable to Titan
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$
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19,475
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$
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35,419
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Earnings per common share:
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Basic
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$
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.38
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$
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.84
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Diluted
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$
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.30
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$
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.68
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Average common shares and equivalents outstanding:
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Basic
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51,816
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42,105
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Diluted
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66,614
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53,450
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Dividends declared per common share:
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$
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.005
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$
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.005
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See accompanying Notes to Consolidated Financial Statements.
1
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(All amounts in thousands)
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Three months ended
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|||||||
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March 31,
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|||||||
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2013
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2012
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Net income
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$
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19,389
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$
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35,394
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Unrealized gain (loss) on investments, net of tax of $0 and $3,475, respectively
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(3
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)
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5,917
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Currency translation adjustment, net
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504
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3,567
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Pension liability adjustments, net of tax of $527 and $491, respectively
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951
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836
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Comprehensive income
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20,841
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45,714
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Net comprehensive loss attributable to noncontrolling interests
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(86
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)
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(25
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)
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Comprehensive income attributable to Titan
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$
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20,927
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$
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45,739
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See accompanying Notes to Consolidated Financial Statements.
2
TITAN INTERNATIONAL, INC.
(All amounts in thousands, except share data)
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March 31,
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December 31,
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|||||
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Assets
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2013
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2012
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Current assets
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Cash and cash equivalents
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$
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508,447
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$
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189,114
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Accounts receivable, net
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329,368
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297,798
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Inventories
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378,367
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366,385
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Deferred income taxes
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32,208
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50,558
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Prepaid and other current assets
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74,867
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75,140
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Total current assets
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1,323,257
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978,995
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Property, plant and equipment, net
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566,549
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568,344
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Goodwill
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25,101
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24,941
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Deferred income taxes
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25,508
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8,383
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Other assets
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113,934
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112,444
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Total assets
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$
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2,054,349
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$
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1,693,107
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Liabilities and Equity
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Current liabilities
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Short-term debt
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$
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230,658
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$
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145,801
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Accounts payable
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210,585
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180,065
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Other current liabilities
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128,904
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135,835
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Total current liabilities
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570,147
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461,701
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Long-term debt
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634,171
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441,438
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Deferred income taxes
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61,071
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62,259
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Other long-term liabilities
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100,044
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107,096
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Total liabilities
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1,365,433
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1,072,494
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Equity
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Titan stockholders' equity
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|||||||
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Common stock (no par, 120,000,000 shares authorized, 55,253,092 and 50,350,048 issued,
respectively)
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—
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—
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Additional paid-in capital
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554,488
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507,199
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Retained earnings
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180,936
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161,729
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Treasury stock (at cost, 1,738,661 and 1,787,844 shares, respectively)
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(16,004
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)
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(16,445
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)
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Treasury stock reserved for deferred compensation
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(1,075
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(1,075
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Accumulated other comprehensive loss
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(55,502
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(56,954
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)
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Total Titan stockholders’ equity
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662,843
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594,454
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Noncontrolling interests
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26,073
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26,159
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Total equity
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688,916
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620,613
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Total liabilities and equity
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$
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2,054,349
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$
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1,693,107
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See accompanying Notes to Consolidated Financial Statements.
3
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)
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Number of
common shares
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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 Titan Equity
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Noncontrolling interest
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Total Equity
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|||||||||||||||||||||||||
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Balance January 1, 2013
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48,562,204
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$
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507,199
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$
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161,729
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$
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(16,445
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)
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$
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(1,075
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$
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(56,954
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)
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$
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594,454
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$
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26,159
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$
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620,613
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Net income
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19,475
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19,475
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(86
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)
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19,389
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||||||||||||||||
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Currency translation adjustment
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504
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504
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504
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Pension liability adjustments, net of tax
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951
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951
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951
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Unrealized loss on investment
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(3
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(3
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(3
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Dividends on common stock
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(268
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)
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(268
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)
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(268
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)
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Note conversion
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4,903,044
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45,903
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45,903
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45,903
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Exercise of stock options
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42,253
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360
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379
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739
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739
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Stock-based compensation
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963
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963
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963
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Tax benefit related to stock-based compensation
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(29
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)
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(29
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)
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(29
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)
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Issuance of treasury stock under 401(k) plan
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6,930
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92
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62
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154
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154
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Balance March 31, 2013
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53,514,431
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$
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554,488
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$
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180,936
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$
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(16,004
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)
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$
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(1,075
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)
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$
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(55,502
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)
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$
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662,843
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$
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26,073
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$
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688,916
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See accompanying Notes to Consolidated Financial Statements.
4
TITAN INTERNATIONAL, INC.
(All amounts in thousands)
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Three months ended March 31,
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||||||
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Cash flows from operating activities:
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2013
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2012
|
|||||
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Net income
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$
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19,389
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$
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35,394
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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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19,984
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11,843
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Amortization of debt premium
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(218
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)
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—
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|||
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Deferred income tax provision
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37
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(8,091
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)
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|||
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Convertible debt conversion charge
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7,273
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—
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|||
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Stock-based compensation
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963
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791
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Excess tax benefit from stock options exercised
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29
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(6
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)
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Issuance of treasury stock under 401(k) plan
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154
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139
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(Increase) decrease in assets:
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Accounts receivable
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(34,978
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)
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(54,988
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)
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Inventories
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(16,310
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)
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(22,449
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)
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Prepaid and other current assets
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(870
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)
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(3,033
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)
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Other assets
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1,330
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(3,089
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)
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Increase (decrease) in liabilities:
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Accounts payable
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33,902
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35,334
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Other current liabilities
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(4,266
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)
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11,580
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Other liabilities
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(5,139
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)
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17,223
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Net cash provided by operating activities
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21,280
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20,648
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Cash flows from investing activities:
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Capital expenditures
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(21,174
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)
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(8,155
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)
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Other
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(219
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)
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108
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Net cash used for investing activities
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(21,393
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)
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(8,047
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)
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Cash flows from financing activities:
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Proceeds from borrowings
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345,313
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—
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Payment on debt
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(18,059
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)
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(12,444
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)
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|||
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Term loan borrowing
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10,818
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—
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|||
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Convertible note conversion
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(14,090
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)
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—
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|||
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Proceeds from exercise of stock options
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739
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370
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|||
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Excess tax benefit from stock options exercised
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(29
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)
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6
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|
|||
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Payment of financing fees
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(5,064
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)
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—
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|
|||
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Dividends paid
|
(243
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)
|
(211
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)
|
|||
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Net cash provided by (used for) financing activities
|
319,385
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(12,279
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)
|
|||
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Effect of exchange rate changes on cash
|
61
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|
(184
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)
|
|||
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Net increase in cash and cash equivalents
|
319,333
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|
138
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|
|||
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Cash and cash equivalents, beginning of period
|
189,114
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|
129,170
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|
|||
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Cash and cash equivalents, end of period
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$
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508,447
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$
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129,308
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Supplemental information:
|
|||||||
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Interest paid
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$
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15,535
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$
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11,600
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Income taxes paid
|
$
|
10,003
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$
|
9,986
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|
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Noncash investing and financing information:
|
|||||||
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Issuance of common stock for convertible debt payment
|
$
|
45,903
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|
$
|
—
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|
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See accompanying Notes to Consolidated Financial Statements.
5
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, 2013
, and the results of operations and cash flows for the three months ended
March 31, 2013
and 2012.
Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company's 2012 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 2012 Annual Report on Form 10-K.
Sales
Sales and revenues are presented net of sales taxes and other related taxes.
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 due to their short term or stated rates. Investments in marketable equity securities are recorded at fair value. The
7.875%
senior secured notes due 2017 (senior secured notes) and
5.625%
convertible senior subordinated notes due 2017 (convertible notes) are carried at cost of
$545.1 million
and
$60.2 million
at
March 31, 2013
, respectively. The fair value of these notes at
March 31, 2013
, as obtained through independent pricing sources, was approximately
$586.9 million
for the senior secured notes and approximately
$134.7 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, 2013
, and 2012. The first quarter 2013 cash dividend of
$.005
per share of common stock was paid April 15, 2013, to stockholders of record on March 28, 2013.
Interest paid
Titan paid
$15.5 million
and
$11.6 million
for interest for the three months ended
March 31, 2013
and 2012, respectively.
Income taxes paid
Titan paid
$10.0 million
and
$10.0 million
for income taxes for the three months ended
March 31, 2013
and 2012, respectively.
Use of estimates
The policies utilized by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America and require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates and assumptions.
Reclassification
Certain amounts from prior years have been reclassified to conform to the current year's presentation.
Subsequent Events
The Company has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date of issuance of the financial statements.
6
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
2. ACQUISITIONS
Acquisition of Titan Europe Plc.
On October 31, 2012, Titan acquired over
97%
of the outstanding stock of Titan Europe Plc (Titan Europe) and in December 2012, the remaining
3%
interest was acquired. Titan Europe is an international engineering group which designs and manufactures wheels, undercarriage components and assemblies for tracked and wheeled "off-road vehicles". The Titan Europe acquisition allowed the Company to expand its global presence and expand its product line. Prior to the acquisition, Titan held a
21.8%
ownership percentage in Titan Europe. Titan Europe shareholders received one share of new Titan common stock for every
11
Titan Europe shares held. A total of
6,257,051
new shares of Titan were issued with a value of
$121.8 million
. In addition, Titan paid cash of
$5.6 million
for option payouts and partial shares. Titan's previous investment in Titan Europe had a fair value on the acquisition date of
$31.7 million
based on Titan Europe's stock price on the AIM market in London. Total consideration including the value of stock issued, cash payments, and the fair value of previously held Titan Europe shares totaled
$159.1 million
. A gain of
$26.7 million
was recorded on Titan's previously held interest in Titan Europe which was recorded as Noncash Titan Europe Plc gain in the consolidated statement of operations. This gain was previously recorded in other comprehensive income.
The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values. Inventory was valued using the comparative sales method. Real and personal property was valued at fair value. The Company continues to evaluate the preliminary purchase price allocation, primarily the value of certain deferred taxes and property, plant & equipment, and may revise the purchase price allocation in future periods as these estimates are finalized.
The purchase price allocation of the Titan Europe acquisition consisted of the following (amounts in thousands):
|
Cash
|
$
|
39,122
|
|
|
Accounts receivable
|
128,585
|
|
|
|
Inventories
|
178,407
|
|
|
|
Deferred income taxes - current asset
|
22,068
|
|
|
|
Prepaid & other current assets
|
21,745
|
|
|
|
Property, plant & equipment
|
217,309
|
|
|
|
Investment in Wheels India Limited
|
36,804
|
|
|
|
Other assets
|
8,414
|
|
|
|
Short term debt
|
(96,822
|
)
|
|
|
Accounts payable
|
(142,752
|
)
|
|
|
Other current liabilities
|
(51,045
|
)
|
|
|
Long term debt
|
(158,183
|
)
|
|
|
Deferred income taxes - noncurrent liability
|
(12,636
|
)
|
|
|
Other noncurrent liabilities
|
(31,874
|
)
|
|
|
Net assets acquired
|
$
|
159,142
|
|
Pro forma financial information
The following unaudited pro forma financial information gives effect to the acquisition of Titan Europe Plc as if the acquisition had taken place on January 1, 2012. The pro forma financial information for Titan Europe Plc was derived from the historical accounting records of Titan Europe. The Titan Europe results were adjusted to reflect additional depreciation.
7
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Pro forma financial information is as follows (in thousands, except per share data):
|
Three Months ended
March 31, 2012
|
||||
|
Net sales
|
$
|
664,695
|
|
|
|
Net income
|
40,016
|
|
||
|
Net income attributable to Titan
|
40,041
|
|
||
|
Basic earnings per share
|
$
|
.83
|
|
|
|
Diluted earnings per share
|
.69
|
|
||
The pro forma information is presented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2012, nor is it necessarily indicative of Titan's future consolidated results of operations or financial position.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (amounts in thousands):
|
|
March 31,
2013 |
December 31,
2012 |
|||||
|
Accounts receivable
|
$
|
335,514
|
|
$
|
302,928
|
|
|
|
Allowance for doubtful accounts
|
(6,146
|
)
|
(5,130
|
)
|
|||
|
Accounts receivable, net
|
$
|
329,368
|
|
$
|
297,798
|
|
|
Accounts receivable are reduced by an allowance for doubtful accounts which is based on historical losses.
4. INVENTORIES
Inventories consisted of the following (amounts in thousands):
|
|
March 31,
2013 |
December 31,
2012 |
|||||
|
Raw material
|
$
|
140,528
|
|
$
|
153,308
|
|
|
|
Work-in-process
|
62,342
|
|
69,030
|
|
|||
|
Finished goods
|
181,521
|
|
154,785
|
|
|||
|
|
384,391
|
|
377,123
|
|
|||
|
Adjustment to LIFO basis
|
(6,024
|
)
|
(10,738
|
)
|
|||
|
|
$
|
378,367
|
|
$
|
366,385
|
|
|
At
March 31, 2013
, approximately
17%
of the Company's inventories were valued under the last-in, first-out (LIFO) method. At
December 31, 2012
, approximately
16%
of the Company's inventories were valued under the LIFO method. The remaining inventories were valued under the first-in, first-out (FIFO) method or average cost method. All inventories are valued at lower of cost or market. The LIFO reserve decreased primarily as a result of the composition of inventory. An overall increase in raw material relative to total inventory resulted in a greater decrease in the FIFO cost versus the LIFO cost.
8
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
5. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, net consisted of the following (amounts in thousands):
|
|
March 31,
2013 |
December 31, 2012
|
|||||
|
Land and improvements
|
$
|
65,223
|
|
$
|
66,012
|
|
|
|
Buildings and improvements
|
192,242
|
|
192,135
|
|
|||
|
Machinery and equipment
|
569,814
|
|
555,261
|
|
|||
|
Tools, dies and molds
|
117,163
|
|
117,341
|
|
|||
|
Construction-in-process
|
57,976
|
|
49,136
|
|
|||
|
|
1,002,418
|
|
979,885
|
|
|||
|
Less accumulated depreciation
|
(435,869
|
)
|
(411,541
|
)
|
|||
|
|
$
|
566,549
|
|
$
|
568,344
|
|
|
Depreciation on fixed assets for the three months ended
March 31, 2013
and 2012, totaled
$19.0 million
and
$11.4 million
, respectively.
Included in the total building and improvements are capital leases of
$4.3 million
and
$4.5 million
at
March 31, 2013
, and December 31, 2012, respectively. Included in the total of machinery and equipment are capital leases of
$35.5 million
and
$36.0 million
at
March 31, 2013
, and December 31, 2012, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
Changes in goodwill consisted of the following (amounts in thousands):
|
2013
|
2012
|
||||||||||||||||||||||
|
Earthmoving/
|
Earthmoving/
|
||||||||||||||||||||||
|
Agricultural
|
Construction
|
Agricultural
|
Construction
|
||||||||||||||||||||
|
|
Segment
|
Segment
|
Total
|
Segment
|
Segment
|
Total
|
|||||||||||||||||
|
Goodwill balance, January 1
|
$
|
11,522
|
|
$
|
13,419
|
|
$
|
24,941
|
|
$
|
19,841
|
|
$
|
—
|
|
$
|
19,841
|
|
|||||
|
Acquisition adjustment
|
—
|
|
—
|
|
—
|
|
(10,134
|
)
|
—
|
|
(10,134
|
)
|
|||||||||||
|
Foreign currency translation
|
105
|
|
55
|
|
160
|
|
585
|
|
—
|
|
585
|
|
|||||||||||
|
Goodwill balance, March 31
|
$
|
11,627
|
|
$
|
13,474
|
|
$
|
25,101
|
|
$
|
10,292
|
|
$
|
—
|
|
$
|
10,292
|
|
|||||
The Company's agricultural segment goodwill balance is related to the acquisition of Goodyear's Latin American farm tire business which included the Sao Paulo, Brazil manufacturing facility. The Company's earthmoving/construction goodwill balance is related to the acquisition of Planet Group in August 2012. The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. The Company's consumer segment does not have any recorded goodwill.
9
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
The components of intangible assets consisted of the following (amounts in thousands):
|
Weighted- Average Useful Lives (in Years)
|
March 31, 2013
|
December 31, 2012
|
|||||
|
Amortizable intangible assets:
|
|||||||
|
Customer relationships
|
14.2
|
19,430
|
|
19,357
|
|
||
|
Patents, trademarks and other
|
2.4
|
3,670
|
|
3,658
|
|
||
|
Total at cost
|
23,100
|
|
23,015
|
|
|||
|
Less accumulated amortization
|
(2,416
|
)
|
(1,807
|
)
|
|||
|
20,684
|
|
21,208
|
|
||||
Amortization related to intangible assets for the three months ended March 31, 2013 and 2012, totaled
$0.6 million
and
$0.0 million
, respectively. Intangible assets are included as a component of other assets in the consolidated condensed balance sheet.
The estimated aggregate amortization expense at
March 31, 2013
, is as follows (amounts in thousands):
|
April 1 - December 31, 2013
|
$
|
1,804
|
|
|
2014
|
2,381
|
|
|
|
2015
|
1,960
|
|
|
|
2016
|
1,312
|
|
|
|
2017
|
1,250
|
|
|
|
Thereafter
|
11,977
|
|
|
|
|
$
|
20,684
|
|
7. WARRANTY
Changes in the warranty liability consisted of the following (amounts in thousands):
|
|
2013
|
2012
|
|||||
|
Warranty liability, January 1
|
$
|
27,482
|
|
$
|
17,659
|
|
|
|
Provision for warranty liabilities
|
7,946
|
|
7,773
|
|
|||
|
Warranty payments made
|
(7,625
|
)
|
(5,899
|
)
|
|||
|
Warranty liability, March 31
|
$
|
27,803
|
|
$
|
19,533
|
|
|
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.
10
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
Long-term debt consisted of the following (amounts in thousands):
|
|
March 31,
2013 |
December 31,
2012 |
|||||
|
7.875% senior secured notes due 2017 - Issued 2013
|
$
|
325,000
|
|
$
|
—
|
|
|
|
Unamortized premium based on 7.875% notes issued 2013
|
20,095
|
|
—
|
|
|||
|
7.875% senior secured notes due 2017 - Issued 2010
|
200,000
|
|
200,000
|
|
|||
|
European credit facilities
|
195,259
|
|
202,097
|
|
|||
|
5.625% convertible senior subordinated notes due 2017
|
60,161
|
|
112,881
|
|
|||
|
Other debt
|
61,077
|
|
69,151
|
|
|||
|
Capital leases
|
3,237
|
|
3,110
|
|
|||
|
|
864,829
|
|
587,239
|
|
|||
|
Less amounts due within one year
|
230,658
|
|
145,801
|
|
|||
|
|
$
|
634,171
|
|
$
|
441,438
|
|
|
Aggregate maturities of long-term debt at
March 31, 2013
, were as follows (amounts in thousands):
|
April 1 - December 31, 2013
|
$
|
227,149
|
|
|
2014
|
19,561
|
|
|
|
2015
|
9,964
|
|
|
|
2016
|
15,228
|
|
|
|
2017
|
590,255
|
|
|
|
Thereafter
|
2,672
|
|
|
|
|
$
|
864,829
|
|
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 Tire Corporation of Bryan, Titan Tire Corporation of Freeport and Titan Wheel Corporation of Illinois. The Company’s senior secured notes outstanding balance was
$525.0 million
at
March 31, 2013
including
$200.0 million
issued in 2010 and
$325.0 million
issued in 2013. The 2013 amount was issued at a premium. Otherwise, all the notes have the same terms. The senior secured notes issued in 2013 have an imputed interest rate of
6.277%
and an unamortized premium balance of
$20.1 million
at
March 31, 2013
.
Titan Europe credit facilities
These credit facilities consist primarily of a facility from Intesa Sanpaolo S.p.A and Unicredit Corporate Banking S.p.A totaling
$109.3 million
at
March 31, 2013
. This facility contains various covenants. These covenants are tested on six month intervals and the Company would be noncompliant if the covenants were not met for two successive six month periods. The Company did not meet certain financial covenants at December 31, 2012. The Company was in compliance with these covenants as of March 31, 2013, as the covenants were not met for only one of two testing periods. The credit facilities containing these covenants were paid off in April of 2013.
The Titan Europe credit facilities also contain borrowings from various institutions totaling
$86.0 million
at
March 31, 2013
. Maturity dates on this debt range from less than one year to eleven years and interest rates range from
2%
to
6.9%
. The European facilities are secured by the assets of select European subsidiaries.
11
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
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
$60.2 million
at
March 31, 2013
.
In the first quarter of 2013, the Company closed an Exchange Agreement with a note holder of the convertible notes. The two parties privately negotiated an agreement to exchange approximately
$52.7 million
in aggregate principal amount of the convertible notes for approximately
4.9 million
shares of the Company's common stock plus a cash payment totaling
$14.2 million
. In connection with this exchange, the Company recognized a charge of
$7.3 million
in accordance with accounting standards related to debt conversions.
Revolving credit facility
The Company’s
$150 million
revolving credit facility (credit facility) with agent Bank of America, N.A. has a December 2017 termination date and is collateralized by the accounts receivable and inventory of Titan and certain of its domestic subsidiaries. During the first three months of 2013 and at
March 31, 2013
, there were no borrowings under the credit facility.
Other debt
Brazil Term Loan
In May 2011, the Company entered into a two-year, unsecured
$10.0 million
Term Loan with Bank of America, N.A. (BoA Term Loan) to provide working capital for the Sao Paulo, Brazil manufacturing facility. Borrowings under the BoA Term Loan bear interest at a rate equal to London Interbank Offered Rate (LIBOR) plus
200
basis points. The BoA Term Loan shall be a minimum of
$5.0 million
with the option for an additional
$5.0 million
loan for a maximum of
$10.0 million
. The BoA Term Loan is due May 2013. The Company entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding
$5.0 million
US Dollar based LIBOR loan to a Brazilian Real based Certificate of Deposit Interbank (CDI) loan. See Note 9 for additional information. As of
March 31, 2013
, the Company had
$5.0 million
outstanding on this loan and the interest rate including the effect of the swap agreement was approximately
9%
.
Brazil Revolving Line of Credit
The Company's wholly-owned Brazilian subsidiary, Titan Pneus Do Brasil Ltda (Titan Brazil), has a revolving line of credit (Brazil line of credit) established with Bank of America Merrill Lynch Banco Multiplo S.A. in May 2011. Titan Brazil could borrow up to
16.0 million
Brazilian Reais, which equates to approximately
$7.9 million
dollars as of
March 31, 2013
, for working capital purposes. Under the terms of the Brazil line of credit, borrowings, if any, bear interest at a rate of 1 month LIBOR plus
247
basis points. During the first three months of 2013 and at
March 31, 2013
there were no borrowings outstanding on this line of credit.
Brazil Other Debt
Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling
$6.2 million
at
March 31, 2013
.
Australia Other Debt
Titan National Australia Holdings has capital leases totaling
$1.6 million
at
March 31, 2013
.
Titan Europe Other Debt
Titan Europe has overdraft facilities totaling
$48.3 million
at
March 31, 2013
.
Titan Europe Capital Leases
Titan Europe has capital lease obligations totaling
$3.2 million
at
March 31, 2013
.
12
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
9. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses financial derivatives to mitigate its exposure to volatility in the interest rate and foreign currency exchange rate in Brazil. The Company uses these derivative instruments to hedge exposure in the ordinary course of business and does not invest in derivative instruments for speculative purposes. In order to reduce interest rate and foreign currency risk on the BoA Term Loan, the Company entered into an interest rate swap agreement and cross currency swap transactions with Bank of America Merrill Lynch Banco Multiplo S.A. that are designed to convert the outstanding
$5.0 million
US Dollar based LIBOR loan to a Brazilian Real based CDI loan. The Company has not designated these agreements as a hedging instrument. Changes in the fair value of the cross currency swap are recorded in other income (expense) and changes in the fair value of the interest rate swap agreement are recorded as interest expense (or gain as an offset to interest expense). For the three months ended
March 31, 2013
, the Company recorded
$(0.1) million
of other expense and
$0.1 million
of interest expense related to these derivatives.
The Company also used derivative financial instruments to manage its exposure to market risks from changes in interest rates in Europe. These derivative financial instruments are recognized at fair value. The Company has not designated these financial instruments as hedging instruments. Any gain or loss on the re-measurement of the fair value is taken to interest expense. For the three months ended
March 31, 2013
, the Company recorded an offset to interest expense of
$1.2 million
related to these derivatives.
10. 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, 2013
, future minimum rental commitments under noncancellable operating leases with initial terms of at least one year were as follows (amounts in thousands):
|
April 1 - December 31, 2013
|
$
|
6,196
|
|
|
2014
|
5,302
|
|
|
|
2015
|
4,091
|
|
|
|
2016
|
3,913
|
|
|
|
2017
|
6,119
|
|
|
|
Total future minimum lease payments
|
$
|
25,621
|
|
At
March 31, 2013
, the Company had assets held as capital leases with a net book value of
$9.8 million
included in property, plant and equipment. Total future capital lease obligations relating to these leases are as follows (amounts in thousands):
|
April 1 - December 31, 2013
|
$
|
1,103
|
|
|
2014
|
961
|
|
|
|
2015
|
588
|
|
|
|
2016
|
319
|
|
|
|
2017
|
132
|
|
|
|
Thereafter
|
134
|
|
|
|
Total future capital lease obligation payments
|
3,237
|
|
|
|
Less amount representing interest
|
(161
|
)
|
|
|
Present value of future capital lease obligation payments
|
$
|
3,076
|
|
13
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
11. EMPLOYEE BENEFIT PLANS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors four 401(k) retirement savings plans in the U.S. and a number of defined contribution plans at foreign subsidiaries. The Company contributed approximately
$1.5 million
to the frozen defined pension plans during the three months ended
March 31, 2013
and expects to contribute approximately
$5.3 million
to the frozen pension plans during the remainder of 2013.
The components of net periodic pension cost consisted of the following (amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
2013
|
2012
|
||||||
|
Service cost
|
$
|
172
|
|
$
|
—
|
|
|
|
Interest cost
|
1,355
|
|
1,133
|
|
|||
|
Expected return on assets
|
(1,396
|
)
|
(1,252
|
)
|
|||
|
Amortization of unrecognized prior service cost
|
34
|
|
34
|
|
|||
|
Amortization of net unrecognized loss
|
1,318
|
|
1,293
|
|
|||
|
Net periodic pension cost
|
$
|
1,483
|
|
$
|
1,208
|
|
|
12. ROYALTY EXPENSE
The Company has a trademark license agreement with Goodyear to manufacture and sell certain tires in North America and Latin America under the Goodyear name. The North American and Latin American farm tire royalties were prepaid for seven years as part of the 2011 Goodyear Latin American farm tire acquisition. In May 2012, the Company and Goodyear entered into an agreement under which Titan will sell certain non-farm tire products directly to third party customers and pay a royalty to Goodyear. Royalty expenses recorded were
$3.7 million
and
$2.3 million
for the three months ended March 31,
2013
and 2012, respectively.
13. OTHER INCOME
Other income consisted of the following (amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Discount amortization on prepaid royalty
|
$
|
916
|
|
$
|
1,039
|
|
|
|
Interest income
|
401
|
|
205
|
|
|||
|
Building rental income
|
180
|
|
175
|
|
|||
|
Wheels India Limited equity loss
|
(185
|
)
|
—
|
|
|||
|
Investment gain (loss) related to contractual obligation investments
|
(120
|
)
|
1,268
|
|
|||
|
Other income
|
227
|
|
424
|
|
|||
|
|
$
|
1,419
|
|
$
|
3,111
|
|
|
The income (loss) of the investment in Wheels India Limited is being recorded on a one month lag due to the availability of required financial information from the majority owner.
14
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
14. INCOME TAXES
The Company recorded income tax expense of
$12.2 million
and
$20.1 million
for the quarters ended
March 31, 2013
and 2012, respectively. The Company's effective income tax rate was
39%
and
36%
for the three months ended
March 31, 2013
and 2012, respectively.
The Company's 2013 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 state tax expense, expense for unrecognized tax benefits, foreign earnings, domestic production activities deduction, and tax deductible expenses related to the convertible bond repurchase.
Accounting standards for income taxes provide that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination. The Company's unrecognized tax benefits were
$15.3 million
and
$14.3 million
as of
March 31, 2013
and December 31, 2012, respectively. As of
March 31, 2013
,
$12.2 million
would affect income tax expense if recognized. The majority of the increase in unrecognized tax benefits relates to potential state tax exposures. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties included in the unrecognized tax benefits at
March 31, 2013
and December 31, 2012 was
$2.5 million
and
$2.4 million
, respectively.
15. EARNINGS PER SHARE
Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
|
Three months ended
|
|||||||||||||||||||||
|
March 31, 2013
|
March 31, 2012
|
||||||||||||||||||||
|
Titan Net income
|
Weighted-
average shares
|
Per share
amount
|
Titan Net income
|
Weighted-
average shares
|
Per share
amount
|
||||||||||||||||
|
Basic earnings per share
|
$
|
19,475
|
|
51,816
|
|
$
|
0.38
|
|
$
|
35,419
|
|
42,105
|
|
$
|
0.84
|
|
|||||
|
Effect of stock options/trusts
|
—
|
|
299
|
|
|
|
—
|
|
274
|
|
|
|
|||||||||
|
Effect of convertible notes
|
772
|
|
14,499
|
|
1,143
|
|
11,071
|
|
|||||||||||||
|
Diluted earnings per share
|
$
|
20,247
|
|
66,614
|
|
$
|
0.30
|
|
$
|
36,562
|
|
53,450
|
|
$
|
0.68
|
|
|||||
There were no stock options/trusts or convertible notes that were antidilutive for the periods presented.
16. 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.
15
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
17. SEGMENT INFORMATION
The table below presents information about certain revenues and income from operations used by the chief executive officer of the Company for the three months ended
March 31, 2013
and 2012 (amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Revenues from external customers
|
|
|
|||||
|
Agricultural
|
$
|
310,553
|
|
$
|
295,805
|
|
|
|
Earthmoving/construction
|
209,616
|
|
104,568
|
|
|||
|
Consumer
|
58,218
|
|
62,715
|
|
|||
|
|
$
|
578,387
|
|
$
|
463,088
|
|
|
|
Gross profit
|
|
|
|
|
|||
|
Agricultural
|
$
|
54,070
|
|
$
|
66,092
|
|
|
|
Earthmoving/construction
|
37,495
|
|
22,347
|
|
|||
|
Consumer
|
6,147
|
|
5,699
|
|
|||
|
Unallocated corporate
|
(961
|
)
|
(775
|
)
|
|||
|
|
$
|
96,751
|
|
$
|
93,363
|
|
|
|
Income from operations
|
|
|
|
|
|||
|
Agricultural
|
$
|
41,615
|
|
$
|
60,663
|
|
|
|
Earthmoving/construction
|
20,679
|
|
20,401
|
|
|||
|
Consumer
|
3,142
|
|
3,102
|
|
|||
|
Unallocated corporate
|
(17,553
|
)
|
(25,495
|
)
|
|||
|
Income from operations
|
47,883
|
|
58,671
|
|
|||
|
Interest expense
|
(10,441
|
)
|
(6,295
|
)
|
|||
|
Convertible debt conversion charge
|
(7,273
|
)
|
—
|
|
|||
|
Other income, net
|
1,419
|
|
3,111
|
|
|||
|
Income before income taxes
|
$
|
31,588
|
|
$
|
55,487
|
|
|
Assets by segment were as follows (amounts in thousands):
|
March 31,
2013 |
December 31,
2012 |
||||||
|
Total assets
|
|
|
|
|
|||
|
Agricultural
|
$
|
739,463
|
|
$
|
626,454
|
|
|
|
Earthmoving/construction
|
783,287
|
|
838,806
|
|
|||
|
Consumer
|
153,410
|
|
142,170
|
|
|||
|
Unallocated corporate
|
378,189
|
|
85,677
|
|
|||
|
|
$
|
2,054,349
|
|
$
|
1,693,107
|
|
|
16
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
18. FAIR VALUE MEASUREMENTS
Accounting standards for fair value measurements establish 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 (amounts in thousands):
|
|
March 31, 2013
|
December 31, 2012
|
|||||||||||||||||||||||||||||
|
|
Total
|
Level 1
|
Level 2
|
Level 3
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||||||||||||
|
Contractual obligation investments
|
$
|
7,289
|
|
|
$
|
7,289
|
|
|
$
|
—
|
|
|
$
|
—
|
|
$
|
7,408
|
|
$
|
7,408
|
|
$
|
—
|
|
$
|
—
|
|
||||
|
Interest rate swap
|
961
|
|
—
|
|
961
|
|
—
|
|
1,048
|
|
—
|
|
1,048
|
|
—
|
|
|||||||||||||||
|
Preferred stock
|
250
|
|
—
|
|
—
|
|
250
|
|
250
|
|
—
|
|
—
|
|
250
|
|
|||||||||||||||
|
Derivative financial instruments liability
|
(6,011
|
)
|
—
|
|
(6,011
|
)
|
—
|
|
(7,376
|
)
|
—
|
|
(7,376
|
)
|
—
|
|
|||||||||||||||
|
Total
|
$
|
2,489
|
|
$
|
7,289
|
|
$
|
(5,050
|
)
|
$
|
250
|
|
$
|
1,330
|
|
$
|
7,408
|
|
$
|
(6,328
|
)
|
$
|
250
|
|
|||||||
The following table presents the changes during the periods presented in Titan's Level 3 investments that are measured at fair value on a recurring basis (amounts in thousands):
|
Preferred stock
|
|||
|
Balance at December 31, 2012
|
$
|
250
|
|
|
Total realized and unrealized gains and losses
|
—
|
|
|
|
Balance as of March 31, 2013
|
$
|
250
|
|
19. SUBSEQUENT EVENT
Titan Italy Earthquake Insurance Settlement
In May of 2012, Titan Europe's wheel manufacturing facility in Finale Emilia, Italy experienced damage from an earthquake. The plant was closed for production during initial remedial work. This resulted in a limited transfer of production to other facilities within Titan Europe as well as sourcing product from facilities in the US owned by Titan and competitors. The full restoration of the facility is a lengthy project that will continue through 2014. In April of 2013, Titan reached a preliminary agreement subject to final approval with the insurance companies to settle the claim for
35 million
Euros net of deductible and other fees.
17
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
20. RELATED PARTY TRANSACTIONS
The Company sells products and pays commissions to companies controlled by persons related to the chief executive officer of the Company. The related party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother. The companies which Mr. Fred Taylor is associated with that do business with Titan include the following: Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering. Sales of Titan products to these companies were approximately
$0.6 million
and
$0.4 million
for the first quarter of
2013
and 2012, respectively. Titan had trade receivables due from these companies of approximately
$0.2 million
at
March 31, 2013
, and approximately
$0.2 million
at
December 31, 2012
. On other sales referred to Titan from the above manufacturing representative companies, commissions were approximately
$0.7 million
and
$0.7 million
during the first quarter of
2013
and 2012, respectively.
The Company has a
35.9%
equity stake in Wheels India Limited, a company incorporated in India and listed on the National Stock Exchange in India. The Company had trade payables due to Wheels India of approximately
$0.0 million
at
March 31, 2013
, and approximately
$0.4 million
at
December 31, 2012
.
21. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company's 7.875% senior secured notes and 5.625% convertible senior subordinated notes are guaranteed by the following 100% owned 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 guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. 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.
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Operations
For the Three Months Ended March 31, 2013
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
323,894
|
|
$
|
254,493
|
|
$
|
—
|
|
$
|
578,387
|
|
||||
|
Cost of sales
|
390
|
|
256,226
|
|
225,020
|
|
—
|
|
481,636
|
|
|||||||||
|
Gross profit (loss)
|
(390
|
)
|
67,668
|
|
29,473
|
|
—
|
|
96,751
|
|
|||||||||
|
Selling, general and administrative expenses
|
2,317
|
|
17,824
|
|
22,302
|
|
—
|
|
42,443
|
|
|||||||||
|
Research and development expenses
|
10
|
|
1,313
|
|
1,379
|
|
—
|
|
2,702
|
|
|||||||||
|
Royalty expense
|
—
|
|
1,778
|
|
1,945
|
|
—
|
|
3,723
|
|
|||||||||
|
Income (loss) from operations
|
(2,717
|
)
|
46,753
|
|
3,847
|
|
—
|
|
47,883
|
|
|||||||||
|
Interest expense
|
(7,731
|
)
|
—
|
|
(2,710
|
)
|
—
|
|
(10,441
|
)
|
|||||||||
|
Convertible debt conversion charge
|
(7,273
|
)
|
—
|
|
—
|
|
—
|
|
(7,273
|
)
|
|||||||||
|
Intercompany interest income (expense)
|
497
|
|
—
|
|
(497
|
)
|
—
|
|
—
|
|
|||||||||
|
Other income
|
644
|
|
24
|
|
751
|
|
—
|
|
1,419
|
|
|||||||||
|
Income (loss) before income taxes
|
(16,580
|
)
|
46,777
|
|
1,391
|
|
—
|
|
31,588
|
|
|||||||||
|
Provision (benefit) for income taxes
|
(8,335
|
)
|
16,953
|
|
3,581
|
|
—
|
|
12,199
|
|
|||||||||
|
Equity in earnings of subsidiaries
|
27,634
|
|
—
|
|
18,632
|
|
(46,266
|
)
|
—
|
|
|||||||||
|
Net income (loss)
|
19,389
|
|
29,824
|
|
16,442
|
|
(46,266
|
)
|
19,389
|
|
|||||||||
|
Net loss noncontrolling interests
|
—
|
|
—
|
|
—
|
|
(86
|
)
|
(86
|
)
|
|||||||||
|
Net income (loss) attributable to Titan
|
$
|
19,389
|
|
$
|
29,824
|
|
$
|
16,442
|
|
$
|
(46,180
|
)
|
$
|
19,475
|
|
||||
18
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Operations
For the Three Months Ended March 31, 2012
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net sales
|
$
|
—
|
|
$
|
366,181
|
|
$
|
96,907
|
|
$
|
—
|
|
$
|
463,088
|
|
||||
|
Cost of sales
|
302
|
|
280,031
|
|
89,392
|
|
—
|
|
369,725
|
|
|||||||||
|
Gross profit (loss)
|
(302
|
)
|
86,150
|
|
7,515
|
|
—
|
|
93,363
|
|
|||||||||
|
Selling, general and administrative expenses
|
10,587
|
|
15,157
|
|
5,091
|
|
—
|
|
30,835
|
|
|||||||||
|
Research and development expenses
|
124
|
|
1,232
|
|
152
|
|
—
|
|
1,508
|
|
|||||||||
|
Royalty expense
|
—
|
|
1,693
|
|
656
|
|
—
|
|
2,349
|
|
|||||||||
|
Income (loss) from operations
|
(11,013
|
)
|
68,068
|
|
1,616
|
|
—
|
|
58,671
|
|
|||||||||
|
Interest expense
|
(6,062
|
)
|
—
|
|
(233
|
)
|
—
|
|
(6,295
|
)
|
|||||||||
|
Other income
|
2,174
|
|
314
|
|
623
|
|
—
|
|
3,111
|
|
|||||||||
|
Income (loss) before income taxes
|
(14,901
|
)
|
68,382
|
|
2,006
|
|
—
|
|
55,487
|
|
|||||||||
|
Provision (benefit) for income taxes
|
(6,952
|
)
|
25,114
|
|
1,931
|
|
—
|
|
20,093
|
|
|||||||||
|
Equity in earnings of subsidiaries
|
43,343
|
|
—
|
|
32,552
|
|
(75,895
|
)
|
—
|
|
|||||||||
|
Net income (loss)
|
35,394
|
|
43,268
|
|
32,627
|
|
(75,895
|
)
|
35,394
|
|
|||||||||
|
Net loss noncontrolling interests
|
—
|
|
—
|
|
—
|
|
(25
|
)
|
(25
|
)
|
|||||||||
|
Net income (loss) attributable to Titan
|
$
|
35,394
|
|
$
|
43,268
|
|
$
|
32,627
|
|
$
|
(75,870
|
)
|
$
|
35,419
|
|
||||
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Comprehensive Income
For the Three Months Ended March 31, 2013
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net income (loss)
|
$
|
19,389
|
|
$
|
29,824
|
|
$
|
16,442
|
|
$
|
(46,266
|
)
|
$
|
19,389
|
|
||||
|
Unrealized gain (loss) on investments, net of tax
|
(3
|
)
|
—
|
|
(3
|
)
|
3
|
|
(3
|
)
|
|||||||||
|
Currency translation adjustment, net
|
504
|
|
—
|
|
(504
|
)
|
504
|
|
504
|
|
|||||||||
|
Pension liability adjustments, net of tax
|
951
|
|
781
|
|
170
|
|
(951
|
)
|
951
|
|
|||||||||
|
Comprehensive income (loss)
|
20,841
|
|
30,605
|
|
16,105
|
|
(46,710
|
)
|
20,841
|
|
|||||||||
|
Net comprehensive loss attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
(86
|
)
|
(86
|
)
|
|||||||||
|
Comprehensive income (loss) attributable to Titan
|
$
|
20,841
|
|
$
|
30,605
|
|
$
|
16,105
|
|
$
|
(46,624
|
)
|
$
|
20,927
|
|
||||
19
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Comprehensive Income
For the Three Months Ended March 31, 2012
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Net income (loss)
|
$
|
35,394
|
|
$
|
43,268
|
|
$
|
32,627
|
|
$
|
(75,895
|
)
|
$
|
35,394
|
|
||||
|
Unrealized gain (loss) on investments, net of tax
|
5,917
|
|
—
|
|
5,917
|
|
(5,917
|
)
|
5,917
|
|
|||||||||
|
Currency translation adjustment, net
|
3,567
|
|
—
|
|
3,567
|
|
(3,567
|
)
|
3,567
|
|
|||||||||
|
Pension liability adjustments, net of tax
|
836
|
|
790
|
|
46
|
|
(836
|
)
|
836
|
|
|||||||||
|
Comprehensive income (loss)
|
45,714
|
|
44,058
|
|
42,157
|
|
(86,215
|
)
|
45,714
|
|
|||||||||
|
Net comprehensive loss attributable to noncontrolling interests
|
—
|
|
—
|
|
—
|
|
(25
|
)
|
(25
|
)
|
|||||||||
|
Comprehensive income (loss) attributable to Titan
|
$
|
45,714
|
|
$
|
44,058
|
|
$
|
42,157
|
|
$
|
(86,190
|
)
|
$
|
45,739
|
|
||||
|
(Amounts in thousands)
|
Consolidating Condensed Balance Sheets
March 31, 2013
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Assets
|
|
|
|
|
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
423,372
|
|
$
|
4
|
|
$
|
85,071
|
|
$
|
—
|
|
$
|
508,447
|
|
||||
|
Accounts receivable
|
—
|
|
160,779
|
|
168,589
|
|
—
|
|
329,368
|
|
|||||||||
|
Inventories
|
—
|
|
148,590
|
|
229,777
|
|
—
|
|
378,367
|
|
|||||||||
|
Prepaid and other current assets
|
60,721
|
|
2,762
|
|
43,592
|
|
—
|
|
107,075
|
|
|||||||||
|
Total current assets
|
484,093
|
|
312,135
|
|
527,029
|
|
—
|
|
1,323,257
|
|
|||||||||
|
Property, plant and equipment, net
|
13,170
|
|
209,264
|
|
344,115
|
|
—
|
|
566,549
|
|
|||||||||
|
Investment in subsidiaries
|
556,750
|
|
—
|
|
105,859
|
|
(662,609
|
)
|
—
|
|
|||||||||
|
Other assets
|
38,540
|
|
1,834
|
|
124,169
|
|
—
|
|
164,543
|
|
|||||||||
|
Total assets
|
$
|
1,092,553
|
|
$
|
523,233
|
|
$
|
1,101,172
|
|
$
|
(662,609
|
)
|
$
|
2,054,349
|
|
||||
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Short-term debt
|
$
|
3,995
|
|
$
|
—
|
|
$
|
226,663
|
|
$
|
—
|
|
$
|
230,658
|
|
||||
|
Accounts payable
|
647
|
|
25,672
|
|
184,266
|
|
—
|
|
210,585
|
|
|||||||||
|
Other current liabilities
|
9,065
|
|
53,279
|
|
66,560
|
|
—
|
|
128,904
|
|
|||||||||
|
Total current liabilities
|
13,707
|
|
78,951
|
|
477,489
|
|
—
|
|
570,147
|
|
|||||||||
|
Long-term debt
|
601,261
|
|
—
|
|
32,910
|
|
—
|
|
634,171
|
|
|||||||||
|
Other long-term liabilities
|
44,817
|
|
34,512
|
|
81,786
|
|
—
|
|
161,115
|
|
|||||||||
|
Intercompany accounts
|
(230,075
|
)
|
(40,526
|
)
|
270,601
|
|
—
|
|
—
|
|
|||||||||
|
Titan stockholders' equity
|
662,843
|
|
450,296
|
|
238,386
|
|
(688,682
|
)
|
662,843
|
|
|||||||||
|
Noncontrolling interests
|
—
|
|
—
|
|
—
|
|
26,073
|
|
26,073
|
|
|||||||||
|
Total liabilities and stockholders’ equity
|
$
|
1,092,553
|
|
$
|
523,233
|
|
$
|
1,101,172
|
|
$
|
(662,609
|
)
|
$
|
2,054,349
|
|
||||
20
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Balance Sheets
December 31, 2012
|
||||||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||
|
Assets
|
|
|
|
|
|
||||||||||||||
|
Cash and cash equivalents
|
$
|
103,154
|
|
$
|
4
|
|
$
|
85,956
|
|
$
|
—
|
|
$
|
189,114
|
|
||||
|
Accounts receivable
|
(72
|
)
|
128,917
|
|
168,953
|
|
—
|
|
297,798
|
|
|||||||||
|
Inventories
|
—
|
|
142,070
|
|
224,315
|
|
—
|
|
366,385
|
|
|||||||||
|
Prepaid and other current assets
|
49,438
|
|
17,021
|
|
59,239
|
|
—
|
|
125,698
|
|
|||||||||
|
Total current assets
|
152,520
|
|
288,012
|
|
538,463
|
|
—
|
|
978,995
|
|
|||||||||
|
Property, plant and equipment, net
|
11,497
|
|
208,734
|
|
348,113
|
|
—
|
|
568,344
|
|
|||||||||
|
Investment in subsidiaries
|
527,489
|
|
—
|
|
86,189
|
|
(613,678
|
)
|
—
|
|
|||||||||
|
Other assets
|
35,564
|
|
499
|
|
109,705
|
|
—
|
|
145,768
|
|
|||||||||
|
Total assets
|
$
|
727,070
|
|
$
|
497,245
|
|
$
|
1,082,470
|
|
$
|
(613,678
|
)
|
$
|
1,693,107
|
|
||||
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
Short-term debt
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
145,801
|
|
|
$
|
—
|
|
$
|
145,801
|
|
|
|
Accounts payable
|
1,000
|
|
21,222
|
|
157,843
|
|
—
|
|
180,065
|
|
|||||||||
|
Other current liabilities
|
13,911
|
|
55,290
|
|
66,634
|
|
—
|
|
135,835
|
|
|||||||||
|
Total current liabilities
|
14,911
|
|
76,512
|
|
370,278
|
|
—
|
|
461,701
|
|
|||||||||
|
Long-term debt
|
312,881
|
|
—
|
|
128,557
|
|
—
|
|
441,438
|
|
|||||||||
|
Other long-term liabilities
|
44,512
|
|
35,482
|
|
89,361
|
|
—
|
|
169,355
|
|
|||||||||
|
Intercompany accounts
|
(239,688
|
)
|
(34,272
|
)
|
273,960
|
|
—
|
|
—
|
|
|||||||||
|
Titan stockholders' equity
|
594,454
|
|
419,523
|
|
220,314
|
|
(639,837
|
)
|
594,454
|
|
|||||||||
|
Noncontrolling interests
|
—
|
|
—
|
|
—
|
|
26,159
|
|
26,159
|
|
|||||||||
|
Total liabilities and stockholders’ equity
|
$
|
727,070
|
|
$
|
497,245
|
|
$
|
1,082,470
|
|
$
|
(613,678
|
)
|
$
|
1,693,107
|
|
||||
21
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Cash Flows
For the Three Months Ended March 31, 2013
|
||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Consolidated
|
|||||||||||
|
Net cash provided by (used for) operating activities
|
$
|
(4,453
|
)
|
$
|
9,099
|
|
$
|
16,634
|
|
$
|
21,280
|
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Capital expenditures
|
(1,955
|
)
|
(9,099
|
)
|
(10,120
|
)
|
(21,174
|
)
|
|||||||
|
Other, net
|
—
|
|
—
|
|
(219
|
)
|
(219
|
)
|
|||||||
|
Net cash used for investing activities
|
(1,955
|
)
|
(9,099
|
)
|
(10,339
|
)
|
(21,393
|
)
|
|||||||
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Proceeds from borrowings
|
345,313
|
|
—
|
|
—
|
|
345,313
|
|
|||||||
|
Payment on debt
|
—
|
|
—
|
|
(18,059
|
)
|
(18,059
|
)
|
|||||||
|
Term loan borrowing
|
—
|
|
—
|
|
10,818
|
|
10,818
|
|
|||||||
|
Convertible note conversion
|
(14,090
|
)
|
—
|
|
—
|
|
(14,090
|
)
|
|||||||
|
Proceeds from exercise of stock options
|
739
|
|
—
|
|
—
|
|
739
|
|
|||||||
|
Excess tax benefit from stock options exercised
|
(29
|
)
|
—
|
|
—
|
|
(29
|
)
|
|||||||
|
Payment of financing fees
|
(5,064
|
)
|
—
|
|
—
|
|
(5,064
|
)
|
|||||||
|
Dividends paid
|
(243
|
)
|
—
|
|
—
|
|
(243
|
)
|
|||||||
|
Net cash provided by (used for) financing activities
|
326,626
|
|
—
|
|
(7,241
|
)
|
319,385
|
|
|||||||
|
Effect of exchange rate change on cash
|
—
|
|
—
|
|
61
|
|
61
|
|
|||||||
|
Net increase (decrease) in cash and cash equivalents
|
320,218
|
|
—
|
|
(885
|
)
|
319,333
|
|
|||||||
|
Cash and cash equivalents, beginning of period
|
103,154
|
|
4
|
|
85,956
|
|
189,114
|
|
|||||||
|
Cash and cash equivalents, end of period
|
$
|
423,372
|
|
$
|
4
|
|
$
|
85,071
|
|
$
|
508,447
|
|
|||
|
(Amounts in thousands)
|
Consolidating Condensed Statements of Cash Flows
For the Three Months Ended March 31, 2012
|
||||||||||||||
|
|
Titan
Intl., Inc. (Parent)
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Consolidated
|
|||||||||||
|
Net cash provided by (used for) operating activities
|
$
|
(7,535
|
)
|
$
|
6,025
|
|
$
|
22,158
|
|
$
|
20,648
|
|
|||
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Capital expenditures
|
(1,378
|
)
|
(6,046
|
)
|
(731
|
)
|
(8,155
|
)
|
|||||||
|
Other, net
|
—
|
|
21
|
|
87
|
|
108
|
|
|||||||
|
Net cash used for investing activities
|
(1,378
|
)
|
(6,025
|
)
|
(644
|
)
|
(8,047
|
)
|
|||||||
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|||||||
|
Payment on debt
|
—
|
|
—
|
|
(12,444
|
)
|
(12,444
|
)
|
|||||||
|
Proceeds from exercise of stock options
|
370
|
|
—
|
|
—
|
|
370
|
|
|||||||
|
Excess tax benefit from stock options exercised
|
6
|
|
—
|
|
—
|
|
6
|
|
|||||||
|
Dividends paid
|
(211
|
)
|
—
|
|
—
|
|
(211
|
)
|
|||||||
|
Net cash provided by (used for) financing activities
|
165
|
|
—
|
|
(12,444
|
)
|
(12,279
|
)
|
|||||||
|
Effect of exchange rate change on cash
|
—
|
|
—
|
|
(184
|
)
|
(184
|
)
|
|||||||
|
Net increase (decrease) in cash and cash equivalents
|
(8,748
|
)
|
—
|
|
8,886
|
|
138
|
|
|||||||
|
Cash and cash equivalents, beginning of period
|
125,266
|
|
4
|
|
3,900
|
|
129,170
|
|
|||||||
|
Cash and cash equivalents, end of period
|
$
|
116,518
|
|
$
|
4
|
|
$
|
12,786
|
|
$
|
129,308
|
|
|||
22
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan's financial condition, results of operations, liquidity and other factors which may affect the Company's future results. The MD&A in this quarterly report should be read in conjunction with the MD&A in Titan's 2012 annual report on Form 10-K filed with the Securities and Exchange Commission on February 27, 2013.
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains forward-looking statements, including statements regarding, among other items:
|
•
|
Anticipated trends in the Company’s business
|
|
•
|
Future expenditures for capital projects
|
|
•
|
The Company’s ability to continue to control costs and maintain quality
|
|
•
|
Ability to meet financial covenants and conditions of loan agreements
|
|
•
|
The Company’s business strategies, including its intention to introduce new products
|
|
•
|
Expectations concerning the performance and success of the Company’s existing and new products
|
|
•
|
The Company’s intention to consider and pursue acquisition and divestiture opportunities
|
Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s expectations and are subject to a number of risks and uncertainties (including, but not limited to, the factors discussed in Item 1A, Risk Factors of the Company's most recent annual report on Form 10-K), certain of which are beyond the Company’s control.
Actual results could differ materially from these forward-looking statements as a result of certain factors, including:
|
•
|
The effect of a recession on the Company and its customers and suppliers
|
|
•
|
Changes in the Company’s end-user markets as a result of world economic or regulatory influences
|
|
•
|
Changes in the marketplace, including new products and pricing changes by the Company’s competitors
|
|
•
|
Ability to maintain satisfactory labor relations
|
|
•
|
Unfavorable outcomes of legal proceedings
|
|
•
|
Availability and price of raw materials
|
|
•
|
Levels of operating efficiencies
|
|
•
|
Unfavorable product liability and warranty claims
|
|
•
|
Actions of domestic and foreign governments
|
|
•
|
Results of investments
|
|
•
|
Fluctuations in currency translations
|
|
•
|
Climate change and related laws and regulations
|
|
•
|
Risks associated with environmental laws and regulations
|
Any changes in such factors could lead to significantly different results. The Company cannot provide any assurance that the assumptions referred to in the forward-looking statements or otherwise are accurate or will prove to transpire. Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this document will in fact transpire.
23
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Titan International, Inc. and its subsidiaries are leading manufacturers of wheels, tires, wheel and tire assemblies, and undercarriage systems and components for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets. Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.
Agricultural Market:
Titan's agricultural rims, wheels, tires and undercarriage systems and components are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers and Titan's own distribution centers.
Earthmoving/Construction Market:
The Company manufactures rims, wheels, tires and undercarriage systems and components for various types of off-the-road (OTR) earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders.
Consumer Market:
Titan manufactures bias truck tires in Latin America, provides wheels and tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets. Titan also offers select products for ATVs, turf, and golf cart applications. Likewise, Titan produces a variety of tires for the consumer market.
The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, CNH Global N.V., Deere & Company, Hitachi Construction Machinery, Kubota Corporation and Liebherr Group, in addition to many other off-highway equipment manufacturers. The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.
The table provides highlights for the quarter ended
March 31, 2013
, compared to 2012 (amounts in thousands):
|
|
2013
|
2012
|
% Increase (Decrease)
|
|||||||
|
Net sales
|
$
|
578,387
|
|
$
|
463,088
|
|
25
|
%
|
||
|
Gross profit
|
96,751
|
|
93,363
|
|
4
|
%
|
||||
|
Income from operations
|
47,883
|
|
58,671
|
|
(18
|
)%
|
||||
|
Net income
|
19,389
|
|
35,394
|
|
(45
|
)%
|
||||
The Company recorded sales of
$578.4 million
for the first quarter of
2013
, which were approximately
25%
higher than the first quarter
2012
sales of
$463.1 million
. The higher sales levels were primarily the result of recent acquisitions including the August 2012 acquisition of the Planet Group of companies based in Perth, Australia, and the October 2012 acquisition of Titan Europe, as well as increased demand in the Company's agricultural segment.
The Company's gross profit was
$96.8 million
, or
16.7%
of net sales, for the first quarter of
2013
, compared to
$93.4 million
, or
20.2%
, of net sales, in 2012. Income from operations was
$47.9 million
for the first quarter of
2013
, compared to
$58.7 million
in
2012
. Net income was
$19.4 million
for the first quarter of 2013, compared to net income of
$35.4 million
in
2012
. Basic income per share was
$.38
in the first quarter of
2013
, compared to
$.84
in
2012
.
24
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
CRITICAL ACCOUNTING ESTIMATES
Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The Company's application of these policies involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the estimates, assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.
Asset and Business Acquisitions
The allocation of purchase price for asset and business acquisitions requires management estimates and judgment as to expectations for future cash flows of the acquired assets and business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocations. If the actual results differ from the estimates and judgments used in determining the purchase price allocations, impairment losses could occur. To aid in establishing the value of any intangible assets at the time of acquisition, the Company typically engages a professional appraisal firm.
Inventories
Inventories are valued at lower of cost or market. At
March 31, 2013
, approximately
17%
of the Company's inventories were valued under the last-in, first-out (LIFO) method. The majority of steel material inventory and related work-in-process and finished goods are accounted for under the LIFO method. The remaining inventories were valued under the first-in, first-out (FIFO) method or average cost method. Market value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory.
Income Taxes
Deferred income tax provisions are determined using the liability method whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax basis of assets and liabilities. The Company assesses the realizability of its deferred tax asset positions and recognizes and measures uncertain tax positions in accordance with accounting standards for income taxes.
Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations. The Company has three frozen defined benefit pension plans in the United States and pension plans in six foreign countries. During the first three months of 2013, the Company contributed cash funds of
$1.5 million
to its frozen defined benefit pension plans. Titan expects to contribute approximately
$5.3 million
to these frozen defined benefit pension plans during the remainder of 2013. For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 25 to the Company's financial statements on Form 10-K for the fiscal year ended December 31, 2012.
Product Warranties
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. Actual warranty experience may differ from historical experience. The Company's warranty accrual was
$27.8 million
at March 31, 2013, and
$27.5 million
at December 31, 2012.
SUBSEQUENT EVENT
Titan Italy Earthquake Insurance Settlement
In May of 2012, Titan Europe's wheel manufacturing facility in Finale Emilia, Italy experienced damage from an earthquake. The plant was closed for production during initial remedial work. This resulted in a limited transfer of production to other facilities within Titan Europe as well as sourcing product from facilities in the US owned by Titan and competitors. The full restoration of the facility is a lengthy project that will continue through 2014. In April of 2013, Titan reached a preliminary agreement subject to final approval with the insurance companies to settle the claim for 35 million Euros net of deductible and other fees.
25
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
Highlights for the three months ended March 31, 2013, compared to 2012
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
|
2012
|
||||
|
Net sales
|
$
|
578,387
|
|
$
|
463,088
|
|
|
|
Cost of sales
|
481,636
|
|
369,725
|
|
|||
|
Gross profit
|
96,751
|
|
93,363
|
|
|||
|
Gross profit percentage
|
16.7
|
%
|
20.2
|
%
|
|||
Net Sales
Net sales for the quarter ended
March 31, 2013
, were
$578.4 million
compared to
$463.1 million
in
2012
, an increase of
25%
. Sales increased approximately 35% from the inclusion of recently acquired entities including $148.7 million at Titan Europe. Sales volume was consistent with the prior year. The increase in net sales was partially offset by a price/mix reduction which resulted largely from decreased raw material prices that were primarily passed on to customers and decreased sales approximately 9%, and unfavorable currency translation which decreased sales by approximately 2%.
Cost of Sales and Gross Profit
Cost of sales was
$481.6 million
for the quarter ended
March 31, 2013
, compared to
$369.7 million
in
2012
. The higher cost of sales resulted primarily from the increase in sales levels. The cost of sales increased by approximately
30%
, as compared to an approximate
25%
increase in net sales.
Gross profit for the first quarter of
2013
was
$96.8 million
, or
16.7%
of net sales, compared to
$93.4 million
, or
20.2%
of net sales for the first quarter of
2012
. Gross profit, as a percentage of net sales, decreased as lower raw material costs were passed on to customers before being fully realized by the Company. Titan Europe provided gross profit of $17.9 million, or 12.0% of net sales. Titan Europe margins were negatively affected by decreased earthmoving/construction demand in Europe.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Selling, general and administrative
|
$
|
42,443
|
|
$
|
30,835
|
|
|
|
Percentage of net sales
|
7.3
|
%
|
6.7
|
%
|
|||
Selling, general and administrative (SG&A) expenses for the first quarter of
2013
were
$42.4 million
, or
7.3%
of net sales, compared to
$30.8 million
, or
6.7%
of net sales, for
2012
. The higher SG&A expenses were primarily the result of approximately $18 million of SG&A expenses at recently acquired facilities, partially offset by a decrease of incentive compensation of approximately $8 million.
26
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Research and Development Expenses
Research and development expenses were as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Research and development
|
$
|
2,702
|
|
$
|
1,508
|
|
|
|
Percentage of net sales
|
0.5
|
%
|
0.3
|
%
|
|||
Research and development (R&D) expenses for the first quarter of
2013
were
$2.7 million
, or
0.5%
of net sales, compared to
$1.5 million
, or
0.3%
of net sales, for
2012
. Approximately $1 million of R&D expenses of recently acquired facilities contributed to the increase.
Royalty Expense
Royalty expense was as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Royalty expense
|
$
|
3,723
|
|
$
|
2,349
|
|
|
The Company has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain tires in North America and Latin America under the Goodyear name. The North American and Latin American farm tire royalties were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. In May 2012, the Company and Goodyear entered into an agreement under which Titan will sell certain non-farm tire products directly to third party customers and pay a royalty to Goodyear. Royalty expenses were
$3.7 million
and
$2.3 million
for the first quarter of
2013
and 2012, respectively. As sales subject to the license agreement increased in the first quarter of 2013, the Company's royalty expense increased accordingly.
Income from Operations
Income from operations was as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Income from operations
|
$
|
47,883
|
|
$
|
58,671
|
|
|
|
Percentage of net sales
|
8.3
|
%
|
12.7
|
%
|
|||
Income from operations for the first quarter of
2013
, was
$47.9 million
, or
8.3%
of net sales, compared to
$58.7 million
, or
12.7%
of net sales, in
2012
. This decrease was the net result of the items previously discussed above.
27
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Interest Expense
Interest expense was as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Interest expense
|
$
|
10,441
|
|
$
|
6,295
|
|
|
Interest expense was
$10.4 million
and
$6.3 million
for the quarters ended
March 31, 2013
, and
2012
, respectively. Interest expense for the first quarter of 2013 increased primarily as a result of interest expense at the recently acquired Titan Europe Plc of approximately $3 million.
Convertible Debt Conversion Charge
Convertible debt conversion charge was as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Convertible debt conversion charge
|
$
|
7,273
|
|
$
|
—
|
|
|
In the first quarter of 2013, the Company closed an Exchange Agreement with a note holder of the convertible notes. The two parties privately negotiated an agreement to exchange approximately
$52.7 million
in aggregate principal amount of the convertible notes for approximately
4.9 million
shares of the Company's common stock plus a cash payment totaling
$14.2 million
. In connection with this exchange, the Company recognized a charge of
$7.3 million
in accordance with accounting standards for debt conversion.
Other Income
Other income was as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Other income
|
$
|
1,419
|
|
$
|
3,111
|
|
|
Other income was
$1.4 million
for the quarter ended
March 31, 2013
, as compared to other income of
$3.1 million
in
2012
. The Company recorded income of
$0.9 million
in discount amortization on prepaid royalty for the quarter ended
March 31, 2013
. For the first quarter of 2012, the Company recorded a
$1.3 million
gain on contractual obligation investments and
$1.0 million
in discount amortization on prepaid royalty.
Income Taxes
Income taxes were as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Income tax expense
|
$
|
12,199
|
|
$
|
20,093
|
|
|
The Company recorded income tax expense of
$12.2 million
for the quarter ended
March 31, 2013
, as compared to
$20.1 million
in
2012
. The Company's effective income tax rate was
39%
and
36%
for the three months ended
March 31, 2013
and
2012
, respectively. The Company's 2013 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 state tax expense, expense for unrecognized tax benefits, foreign earnings, domestic production activities deduction, and tax deductible expenses related to the convertible bond repurchase.
28
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Net Income
Net income was as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Net income
|
$
|
19,389
|
|
$
|
35,394
|
|
|
Net income for the first quarter of
March 31, 2013
, was
$19.4 million
, compared to
$35.4 million
in
2012
. For the quarters ended
March 31, 2013
and 2012, basic earnings per share were
$.38
and
$.84
, respectively, and diluted earnings per share were
$.30
and
$.68
, respectively. The Company's net income and earnings per share were lower due to the items previously discussed.
Agricultural Segment Results
Agricultural segment results were as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Net sales
|
$
|
310,553
|
|
$
|
295,805
|
|
|
|
Gross profit
|
54,070
|
|
66,092
|
|
|||
|
Income from operations
|
41,615
|
|
60,663
|
|
|||
Net sales in the agricultural market were
$310.6 million
for the quarter ended
March 31, 2013
, as compared to
$295.8 million
in
2012
, an increase of
5%
. Sales increased approximately 16% from the inclusion of recently acquired entities. Sales volume was approximately 6% higher as the result of increased demand in the Company's agricultural segment. The increase in net sales was partially offset by a price/mix reduction which resulted largely from decreased raw material costs passed through to customers that decreased sales approximately 15%, and unfavorable currency translation which decreased sales by approximately 2%.
Gross profit in the agricultural market was
$54.1 million
for the quarter ended
March 31, 2013
, as compared to
$66.1 million
in
2012
. Income from operations in the agricultural market was
$41.6 million
for the quarter ended
March 31, 2013
, as compared to
$60.7 million
in
2012
. The Company's gross profit and income from operations decreased primarily as lower raw material costs were passed on to customers before being fully realized by the Company.
Earthmoving/Construction Segment Results
Earthmoving/construction segment results were as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Net sales
|
$
|
209,616
|
|
$
|
104,568
|
|
|
|
Gross profit
|
37,495
|
|
22,347
|
|
|||
|
Income from operations
|
20,679
|
|
20,401
|
|
|||
The Company's earthmoving/construction market net sales were
$209.6 million
for the quarter ended
March 31, 2013
, as compared to
$104.6 million
in
2012
, an increase of
100%
. Sales increased approximately 109% from the inclusion of recently acquired entities, primarily Titan Europe which recorded earthmoving/construction sales of $100.0 million. Sales increased approximately 13% as the result of price/mix improvements from stronger demand for larger products used in the mining industry. The increase in net sales was partially offset by decreased volume of 22%.
29
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Gross profit in the earthmoving/construction market was
$37.5 million
for the quarter ended
March 31, 2013
, as compared to
$22.3 million
in
2012
. The Company's earthmoving/construction market income from operations was
$20.7 million
for the quarter ended
March 31, 2013
, as compared to
$20.4 million
in
2012
. The Company's gross profit and income from operations benefited from sales mix changes to larger products that generally carry higher margins. Gross profit and income from operations were negatively affected by decreased European demand in the earthmoving/construction market.
Consumer Segment Results
Consumer segment results were as follows
(amounts in thousands):
|
Three months ended
|
|||||||
|
March 31,
|
|||||||
|
|
2013
|
2012
|
|||||
|
Net sales
|
$
|
58,218
|
|
$
|
62,715
|
|
|
|
Gross profit
|
6,147
|
|
5,699
|
|
|||
|
Income from operations
|
3,142
|
|
3,102
|
|
|||
Consumer market net sales were
$58.2 million
for quarter ended
March 31, 2013
, as compared to
$62.7 million
in
2012
, a decrease of
7%
. The decrease in net sales was primarily the result of unfavorable currency translation on consumer product sales in Latin America.
Gross profit from the consumer market was
$6.1 million
for the quarter ended
March 31, 2013
, as compared to
$5.7 million
in
2012
. Consumer market income from operations was
$3.1 million
for the quarter ended
March 31, 2013
, as compared to operations of
$3.1 million
in
2012
.
Segment Summary
(Amounts in thousands)
|
Three months ended March 31, 2013
|
Agricultural
|
Earthmoving/
Construction
|
Consumer
|
Corporate
Expenses
|
Consolidated
Totals
|
|||||||||||||||
|
Net sales
|
$
|
310,553
|
|
$
|
209,616
|
|
$
|
58,218
|
|
$
|
—
|
|
$
|
578,387
|
|
|||||
|
Gross profit (loss)
|
54,070
|
|
37,495
|
|
6,147
|
|
(961
|
)
|
96,751
|
|
||||||||||
|
Income (loss) from operations
|
41,615
|
|
20,679
|
|
3,142
|
|
(17,553
|
)
|
47,883
|
|
||||||||||
|
Three months ended March 31, 2012
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Net sales
|
$
|
295,805
|
|
104,568
|
|
$
|
62,715
|
|
$
|
—
|
|
$
|
463,088
|
|
||||||
|
Gross profit (loss)
|
66,092
|
|
22,347
|
|
5,699
|
|
(775
|
)
|
93,363
|
|
||||||||||
|
Income (loss) from operations
|
60,663
|
|
20,401
|
|
3,102
|
|
(25,495
|
)
|
58,671
|
|
||||||||||
Corporate Expenses
Income from operations on a segment basis does not include corporate expenses totaling
$17.6 million
for the quarter ended
March 31, 2013
, as compared to
$25.5 million
for
2012
.
Corporate expenses for the first quarter of
2013
were composed of selling and marketing expenses of approximately $8 million and administrative expenses of approximately $10 million.
Corporate expenses for the first quarter of 2012 were composed of selling and marketing expenses of approximately $8 million and administrative expenses of approximately $17 million.
Corporate administrative expenses were approximately $8 million lower in the first quarter of 2013 primarily due to a decrease in incentive compensation of approximately $8 million.
30
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
MARKET RISK SENSITIVE INSTRUMENTS
The Company's risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2012. For more information, see the “Market Risk Sensitive Instruments” discussion in the Company's Form 10-K for the fiscal year ended December 31, 2012.
PENSIONS
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. These plans are described in Note 25 of the Company's Notes to Consolidated Financial Statements in the 2012 Annual Report on Form 10-K.
The Company's recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates and other factors. Certain of these assumptions are determined by the Company with the assistance of outside actuaries. Assumptions are based on past experience and anticipated future trends. These assumptions are reviewed on a regular basis and revised when appropriate. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and the carrying value of the related obligations. Titan expects to contribute approximately
$5.3 million
to these frozen defined pension plans during the remainder of 2013.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
As of
March 31, 2013
, the Company had
$508.4 million
of cash within various bank accounts. The cash balance increased by
$319.3 million
from
December 31, 2012
, due to the following items.
|
(amounts in thousands)
|
March 31,
|
December 31,
|
|
||||||||
|
|
2013
|
2012
|
Change
|
||||||||
|
Cash
|
$
|
508,447
|
|
$
|
189,114
|
|
$
|
319,333
|
|
||
Operating Cash Flows
Summary of cash flows from operating activities:
|
(Amounts in thousands)
|
Three months ended March 31,
|
|
|||||||||
|
|
2013
|
2012
|
Change
|
||||||||
|
Net income
|
$
|
19,389
|
|
$
|
35,394
|
|
$
|
(16,005
|
)
|
||
|
Depreciation and amortization
|
19,984
|
|
11,843
|
|
8,141
|
|
|||||
|
Convertible debt conversion charge
|
7,273
|
|
—
|
|
7,273
|
|
|||||
|
Deferred income tax provision
|
37
|
|
(8,091
|
)
|
8,128
|
|
|||||
|
Accounts receivable
|
(34,978
|
)
|
(54,988
|
)
|
20,010
|
|
|||||
|
Inventories
|
(16,310
|
)
|
(22,449
|
)
|
6,139
|
|
|||||
|
Accounts payable
|
33,902
|
|
35,334
|
|
(1,432
|
)
|
|||||
|
Other current liabilities
|
(4,266
|
)
|
11,580
|
|
(15,846
|
)
|
|||||
|
Other operating activities
|
(3,751
|
)
|
12,025
|
|
(15,776
|
)
|
|||||
|
Cash provided by operating activities
|
$
|
21,280
|
|
$
|
20,648
|
|
$
|
632
|
|
||
For the first quarter of
2013
, operating activities provided cash of
$21.3 million
, which included net income of
$19.4 million
and an increase in accounts payable of
$33.9 million
. Net income included
$20.0 million
of noncash charges for depreciation and amortization. Positive cash inflows were offset by increases in accounts receivable and inventory of
$35.0 million
and
$16.3 million
, respectively.
31
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
In the first quarter of
2012
, operating activities provided cash of
$20.6 million
. This cash was primarily used to fund increases in accounts receivable and inventory of
$55.0 million
and
$22.4 million
, respectively, offset by higher accounts payable of
$35.3 million
. Net income of
$35.4 million
included
$11.8 million
of noncash charges for depreciation and amortization.
Operating cash flows increased
$0.6 million
when comparing the first quarter of
2013
to the first quarter of
2012
. The net income in the first quarter of 2013 was
$16.0 million
lower than net income for the first quarter of 2012. Partially contributing to this was increased depreciation and amortization of
$8.1 million
and a convertible debt conversion charge of
$7.3 million
. When comparing the first three months of 2013 to the first three months of 2012, cash flows from accounts receivable increased
$20.0 million
, which was partially offset by decreased other current liabilities of
$15.8 million
.
The Company's inventory and accounts receivable balances were higher at
March 31, 2013
, as compared to December 31, 2012. Days sales in inventory decreased to 83 days at
March 31, 2013
, compared to 86 days at December 31, 2012. Days sales outstanding decreased to 51 days at
March 31, 2013
, from 54 days at December 31, 2012.
Investing Cash Flows
Summary of cash flows from investing activities:
|
(Amounts in thousands)
|
Three months ended March 31,
|
|
|||||||||
|
|
2013
|
2012
|
Change
|
||||||||
|
Capital expenditures
|
$
|
(21,174
|
)
|
$
|
(8,155
|
)
|
$
|
(13,019
|
)
|
||
|
Other investing activities
|
(219
|
)
|
108
|
|
(327
|
)
|
|||||
|
Cash used for investing activities
|
$
|
(21,393
|
)
|
$
|
(8,047
|
)
|
$
|
(13,346
|
)
|
||
Net cash used for investing activities was
$21.4 million
in the first quarter of
2013
, as compared to
$8.0 million
in the first quarter of
2012
. The Company invested a total of
$21.2 million
in capital expenditures in the first quarter of 2013, compared to
$8.2 million
in 2012. The 2013 and 2012 expenditures represent various equipment purchases and improvements to enhance production capabilities of Titan's existing business and maintaining existing equipment.
Financing Cash Flows
Summary of cash flows from financing activities:
|
(Amounts in thousands)
|
Three months ended March 31,
|
|
|||||||||
|
|
2013
|
2012
|
Change
|
||||||||
|
Proceeds from borrowings
|
$
|
345,313
|
|
$
|
—
|
|
$
|
345,313
|
|
||
|
Term loan borrowing
|
10,818
|
|
—
|
|
10,818
|
|
|||||
|
Proceeds from exercise of stock options
|
739
|
|
370
|
|
369
|
|
|||||
|
Convertible note conversion
|
(14,090
|
)
|
—
|
|
(14,090
|
)
|
|||||
|
Payment of financing fees
|
(5,064
|
)
|
—
|
|
(5,064
|
)
|
|||||
|
Payment on debt
|
(18,059
|
)
|
(12,444
|
)
|
(5,615
|
)
|
|||||
|
Excess tax benefit from stock options exercised
|
(29
|
)
|
6
|
|
(35
|
)
|
|||||
|
Dividends paid
|
(243
|
)
|
(211
|
)
|
(32
|
)
|
|||||
|
Cash provided by (used for) financing activities
|
$
|
319,385
|
|
$
|
(12,279
|
)
|
$
|
331,664
|
|
||
In the first quarter of
2013
,
$319.4 million
of cash was provided by financing activities. This cash was primarily provided by proceeds from the issuance of
$345.3 million
of additional 7.875% senior secured notes due 2017. This was partially offset by payment on debt of
$18.1 million
, primarily at the Company's European facilities.
In the first quarter of
2012
,
$12.3 million
of cash was used for financing activities. This cash was primarily used for the payment on term loan borrowings of
$12.4 million
that was originally borrowed to provide working capital for Titan's Latin American operations.
Financing cash flows increased by
$331.7 million
when comparing the first quarter of 2013 to 2012. This increase was primarily the result of the additional issuance of 7.875% senior secured notes due 2017.
32
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Other Issues
The Company’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances. Historically, Titan tends to have higher production levels in the first and second quarters.
Debt Covenants
The Company’s European credit facilities contain various covenants. These covenants are tested on six month intervals and the Company would be noncompliant if the covenants were not met for two successive six month periods. The financial covenants in these agreements include:
|
•
|
Net indebtedness to EBITDA cover.
|
|
•
|
EBITDA Interest cover.
|
|
•
|
Net debt to Net worth.
|
|
•
|
Cashflow interest cover.
|
The Company did not meet certain financial covenants at December 31, 2012. The Company was in compliance with these covenants as of March 31, 2013, as the covenants were not met for only one of two testing periods. The credit facilities containing these covenants were paid off in the second quarter of 2013.
The Company’s revolving credit facility (credit facility) contains various restrictions, including:
|
•
|
Limits on dividends and repurchases of the Company’s stock.
|
|
•
|
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company.
|
|
•
|
Limitations on investments, dispositions of assets and guarantees of indebtedness.
|
|
•
|
Other customary affirmative and negative covenants.
|
These covenants and restrictions could limit the Company’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends or to take advantage of business opportunities, including future acquisitions. The failure by Titan to meet these covenants could result in the Company ultimately being in default on these loan agreements.
Liquidity Outlook
At
March 31, 2013
, the Company had
$508.4 million
of cash and cash equivalents and no outstanding borrowings on the Company's $150 million credit facility. The cash and cash equivalents balance of
$508.4 million
includes
$84.8 million
held in foreign countries. The Company's current plans do not demonstrate a need to repatriate the foreign amounts to fund U.S. operations, with the exception of intercompany loans to foreign subsidiaries totaling
$24.0 million
at
March 31, 2013
. However, if foreign funds were needed for U.S. operations, the Company would be required to accrue and pay taxes to repatriate the funds.
In April 2013, the Company used approximately $110 million of cash to pay off certain Titan Europe credit facilities and also settled the related derivative financial instruments.
Capital expenditures for the remainder of 2013 are forecasted to be approximately $50 million. Cash payments for interest are currently forecasted to be approximately $30 million for the remainder of 2013 based on
March 31, 2013
debt balances. The forecasted interest payments are comprised primarily of a semi-annual payment of $20.7 million for the 7.875% senior secured notes due on October 1.
In the future, Titan may seek to grow by making acquisitions which will depend on the ability to identify suitable acquisition candidates, to negotiate acceptable terms for their acquisition and to finance those acquisitions.
Subject to the terms of indebtedness, the Company may finance future acquisitions with cash on hand, cash from operations, additional indebtedness and/or by issuing additional equity securities.
Cash on hand, anticipated internal cash flows from operations and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, capital expenditures and potential acquisitions.
33
TITAN INTERNATIONAL, INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
MARKET CONDITIONS AND OUTLOOK
In the first quarter of 2013, Titan experienced higher sales when compared to the sales levels in the first quarter of 2012. The higher sales were primarily the result of increased demand in the Company's agricultural segment, as well as recent acquisitions including the August 2012 acquisition of the Planet Group of companies based in Perth, Australia, and the October 2012 acquisition of Titan Europe. For the remainder of 2013, the Company expects sales to continue at similar levels.
Energy, raw material and petroleum-based product costs have been volatile and may negatively impact the Company’s margins. Many of Titan’s overhead expenses are fixed; therefore, lower seasonal trends may cause negative fluctuations in quarterly profit margins and affect the financial condition of the Company.
In March 2013, the employees covered by their respective collective bargaining agreements at the Company's Bryan, Ohio, Freeport, Illinois, and Des Moines, Iowa facilities, which account for approximately 50% of the Company's U.S. employees, voted to accept a new four year contract. As of December 31, 2012, the employees of these three facilities were working without a contract under the terms of the Company's latest offer.
AGRICULTURAL MARKET OUTLOOK
Agricultural market sales were higher in the first quarter of 2013 when compared to the first quarter of 2012. The Titan Europe acquisition and continued strong demand contributed to the higher sales levels. The increase in the global population and the rising middle class in emerging countries may help grow future demand. The gradual increase in the use of biofuels may help sustain future production. Many variables, including weather, grain prices, export markets and future government policies and payments can greatly influence the overall health of the agricultural economy.
EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
Earthmoving and mining sales were significantly higher in the first quarter of 2013 when compared to the first quarter of 2012. Recent acquisitions contributed to the higher sales levels. Although metals, oil and gas prices may fluctuate in the short-term, in the long-term, these prices are expected to remain at levels that are attractive for continued investment, which should help support future earthmoving and mining sales. The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts and the on-going banking and credit issues. For the remainder of 2013, the Company expects demand to remain weaker driven by the European earthmoving/construction market.
CONSUMER MARKET OUTLOOK
Consumer market sales were lower in the first quarter of 2013, when compared to the first quarter of 2012. The decrease in net sales was primarily the result of unfavorable currency translation on consumer product sales in Latin America. Consumer market sales may fluctuate from period to period.
34
TITAN INTERNATIONAL, INC.
See the Company's 2012 Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information.
Evaluation of Disclosure Controls and Procedures
The Company’s principal executive officer and principal financial officer have concluded the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) are effective as of the end of the period covered by this Form 10-Q based on an evaluation of the effectiveness of disclosure controls and procedures.
Changes in Internal Controls
There were no material changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the first quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluations of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
35
TITAN INTERNATIONAL, INC.
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.
See the Company's 2012 Annual Report filed on Form 10-K (Item 1A). There has been no material change in this information.
31.1 Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
TITAN INTERNATIONAL, INC.
|
|
|
(Registrant)
|
|
|
Date:
|
April 24, 2013
|
By
:
|
/s/ MAURICE M. TAYLOR JR.
|
|
Maurice M. Taylor Jr.
|
|||
|
Chairman and Chief Executive Officer
(Principal Executive Officer)
|
|||
|
By
:
|
/s/ PAUL G. REITZ
|
|
|
Paul G. Reitz
|
||
|
Chief Financial Officer
|
||
|
(Principal Financial Officer)
|
||
36
TABLE OF CONTENTS