UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM
10-K
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x
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
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For
the fiscal year ended December 31, 2007
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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
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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
or other jurisdiction of
incorporation
or organization)
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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)
(217)
228-6011
(Registrant’s
telephone number, including area code)
Securities
registered pursuant to Section 12(b) of the Act:
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Title
of each class
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Name
of each exchange on which
registered
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Common
stock, no par value
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New
York Stock Exchange
(Symbol: TWI)
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Securities
registered pursuant to
Section 12(g) of the Act: None
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined
by
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the
preceding 12 months (or such shorter period that the registrant was required
to
file such reports) and (2) has been subject to such filing requirements for
the
past 90 days. Yes x No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer.
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Large
accelerated filer o
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Accelerated
filer x
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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 large accelerated filer, an
accelerated filer, or a non-accelerated filer.
Large
accelerated filer o Accelerated
filer
x
Non-accelerated
filer o (Do not
check if a smaller reporting
company)
Smaller reporting company o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x
The
aggregate market value of the shares of common stock of the registrant held
by
non-affiliates was approximately $688 million based upon the closing price
of
the common stock on the New York Stock Exchange on June 30, 2007.
As
of
February 25, 2008, a total of 27,432,856 shares of common stock of the
registrant were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Part
III
incorporates information by reference from the registrant's definitive proxy
statement for its annual meeting of stockholders to be held May 15,
2008.
TITAN
INTERNATIONAL, INC.
Index
to
Annual Report on Form 10-K
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Part
I.
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Page
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Item
1.
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Business
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3-9
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Item
1A.
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Risk
Factors
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10
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Item
1B.
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Unresolved
Staff Comments
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10
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Item
2.
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Properties
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11
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Item
3.
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Legal
Proceedings
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11
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Item
4.
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Submission
of Matters to a Vote of Security Holders.
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11
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Part
II.
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||
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Item
5.
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
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12
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Item
6.
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Selected
Financial Data
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13
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Item
7.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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14-34
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Item
7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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35
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Item
8.
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Financial
Statements and Supplementary Data
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35
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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35
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Item
9A.
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Controls
and Procedures
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35
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Item
9B.
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Other
Information
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35
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Part
III.
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||
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Item
10.
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Directors,
Executive Officers and Corporate Governance
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36
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Item
11.
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Executive
Compensation
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36
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
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37
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Item
13.
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Certain
Relationships and Related Transactions, and Director
Independence
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37
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Item
14.
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Principal
Accounting Fees and Services
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37
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Part
IV.
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Item
15.
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Exhibits,
Financial Statement Schedules
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38
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Signatures
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39
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Exhibit
Index
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40
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2
PART
I
ITEM
1 – BUSINESS
INTRODUCTION
Titan
International, Inc. and its subsidiaries (Titan or the Company) are leading
manufacturers of wheels, tires and assemblies for off-highway vehicles used
in
the agricultural, earthmoving/construction and consumer
markets. Titan’s earthmoving/construction market also includes
products supplied to the U.S. government, while the consumer market includes
products for all-terrain vehicles (ATVs) and recreational/utility trailer
applications. 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.
As
one of
the few companies dedicated to the off-highway wheel and tire market, Titan’s
engineering and manufacturing resources are focused on addressing the real-life
concerns of the end-users of our products. Titan’s team of
experienced designers and engineers is working on new and improved engineered
products.
In
2008,
Titan plans to enter the giant off-the-road (OTR) tire market, which will
include 57-inch and 63-inch giant radial tires, the largest tires in the
world. To enter the giant OTR tire market, the Company is investing
in a large capital expansion project at its Bryan, Ohio,
location. The Company has also worked on adding OTR tire capacity
through a production realignment of aligning synergies through retooling,
retraining personnel and redistribution of equipment.
In
2007,
Titan’s agricultural market sales represented 62% of net sales, the
earthmoving/construction market represented 33% and the consumer market
represented 5% of net sales. For information concerning the revenues,
certain expenses, income from operations and assets attributable to each of
the
segments in which the Company operates, see Note 27 to the consolidated
financial statements of Titan, included in Item 8 herein.
COMPETITIVE
STRENGTHS
Titan’s
competitive strengths include the Company’s strong market position in the
off-highway wheel and tire market and the Company’s long-term core customer
relationships. These competitive strengths along with Titan’s
dedication to the off-highway tire and wheel market continue to drive the
Company forward.
Strong
Market
Position: The Company has achieved a strong position in the
domestic market for off-highway wheels, tires and assembly
products. Titan’s ability to offer a broad range of different
products has increased the Company’s visibility and has enhanced its ability to
cross-sell products and consolidate market positions. Innovative
marketing programs have strengthened Titan’s image in the marketplace, and the
Company is reaching an increasing number of customers in the
aftermarket. Years of product design and engineering experience have
enabled Titan to improve existing products and develop new ones that have been
well received in the marketplace. In addition, Titan believes it has
benefited from significant barriers to entry, such as the substantial investment
necessary to replicate the Company’s manufacturing equipment and numerous tools,
dies and molds.
Long-Term
Core Customer
Relationships: The Company’s top
customers, including global leaders in agricultural and construction equipment
manufacturing, have been purchasing wheels from Titan or its predecessors for
many decades on average. Customers including AGCO Corporation,
Caterpillar Inc., CNH Global N.V., Deere & Company, Kubota Corporation and
the U.S. Government have helped sustain Titan’s leadership in wheel, tire and
assembly innovation.
3
BUSINESS
STRATEGY
Titan’s
business strategy is to enter the giant OTR market, to increase its penetration
of the aftermarket for tires, to continue to improve operating efficiencies,
to
maintain emphasis on new product development and to explore possible additional
strategic acquisitions.
Enter
the Giant OTR Tire
Market: In May 2007, Titan’s Board of Directors approved
funding to increase giant OTR mining tire production capacity to include 57-inch
and 63-inch giant radial tires. This funding should allow Titan to
produce up to an estimated 6,000 giant radial tires a year. These
giant tires are in short supply in the mining industry and offer an opportunity
for improved margins and greater demand. Titan estimates this may
increase sales as much as $240 million on an annual basis. The
Company currently plans to be in start-up production of these giant mining
tires
by the end of the second quarter of 2008.
Increase
Aftermarket Tire Business /
OTR Realignment: The Company
has
concentrated on increasing its penetration of the tire
aftermarket. The aftermarket in many cases offers increased profit
margins and is larger and somewhat less cyclical than the OEM
market. The Company’s OTR production realignment was instituted to
increase OTR tire production and align synergies at the Company’s tire
facilities.
Improve
Operating
Efficiencies: The Company continually works to improve the
operating efficiency of its assets and manufacturing
facilities. Titan integrates each facility’s strength, which may
include transferring equipment and business to the facilities that are best
equipped to handle the work. This provides capacity to increase
utilization and spread operating costs over a greater volume of
products. Titan is also continuing a comprehensive program to
refurbish, modernize and enhance the computer technology of its manufacturing
equipment. The Company has centralized and streamlined inventory
controls. These efforts have led to improved management of order
backlogs and have substantially improved Titan’s ability to respond to customer
orders on a timely basis.
Improve
Design Capacity and Increase
New Product Development: Equipment manufacturers constantly
face changing industry dynamics. Titan directs its business and
marketing strategy to understand and address the needs of its customers and
demonstrate the advantages of its products. In particular, the
Company often collaborates with customers in the design of new and upgraded
products. Titan will occasionally recommend modified products to its
customers based on its own market information. These value-added
services enhance Titan’s relationships with its customers. The
Company tests new designs and technologies and develops methods of manufacturing
to improve product quality and performance. Titan’s engineers are
currently working on 57-inch and 63-inch giant OTR tires to be introduced in
2008. Titan’s engineers are also working on a new 15-degree tire and
wheel design for OTR and farm radial assemblies, which improve tire and wheel
life.
Explore
Additional Strategic
Acquisitions: The Company’s expertise
in the manufacture of off-highway steel wheels and tires has permitted it to
take advantage of opportunities to acquire businesses in the United States
that
complement this product line, including companies engaged in the tire market
and
companies that have wheel and tire assembly capabilities. In the
future, Titan may make additional strategic acquisitions of businesses that
have
an off-highway focus.
ACQUISITION
OF CONTINENTAL’S OTR ASSETS
On
July
31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International,
Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North
America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of
Bryan purchased the assets of Continental’s OTR tire facility for approximately
$53 million in cash proceeds. The assets purchased included
Continental’s OTR plant, property and equipment located in Bryan, Ohio, and
inventory and other current assets. The acquisition included an
agreement with Continental to use the General trademark on OTR
tires.
ACQUISITION
OF GOODYEAR’S NORTH AMERICAN FARM TIRE ASSETS
On
December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International,
Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire
assets. Titan Tire purchased the assets of Goodyear’s North American
farm tire business for approximately $100 million in cash
proceeds. The assets purchased include Goodyear’s North American
plant, property and equipment located in Freeport, Illinois, and Goodyear’s
North American farm tire inventory. The acquisition included a
long-term license agreement with The Goodyear Tire & Rubber Company to
manufacture and sell certain off-highway tires in North America, which includes
the right to use the Goodyear trademark.
4
AGRICULTURAL
MARKET
Titan’s
agricultural rims, wheels and tires are manufactured for use on various
agricultural and forestry equipment, including tractors, combines, skidders,
plows, planters and irrigation equipment, and are sold directly to OEMs and
to
the aftermarket through independent distributors, equipment dealers and Titan’s
own distribution centers. The wheels and rims range in diameter from
9 to 54 inches with the 54-inch diameter being the largest agricultural wheel
manufactured in North America. Basic configurations are combined with
distinct variations (such as different centers and a wide range of material
thickness) allowing the Company to offer a broad line of product models to
meet
customer specifications. Titan’s agricultural tires range from 8 to
85 inches in outside diameter and from 4.8 to 44 inches in width. The
Company offers the added value of delivering a complete wheel and tire assembly
to customers.
EARTHMOVING/CONSTRUCTION
MARKET
The
Company manufactures rims, wheels and tires for various types of off-the-road
(OTR) earthmoving, mining, military and construction equipment, including skid
steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled
shovel loaders, articulated dump trucks, load transporters, haul trucks and
backhoe loaders. The earthmoving/construction market is often
referred to as OTR, an acronym for off-the-road. The Company provides
customers with a broad range of earthmoving/construction wheels ranging in
diameter from 20 to 63 inches and in weight from 125 pounds to 7,000
pounds. The 63-inch diameter wheel is the largest manufactured in
North America for the earthmoving/construction market. The
earthmoving/construction wheels and tires produced by Titan are sold to OEMs
and
the aftermarket. Titan’s earthmoving/construction tires range from 30
to 109 inches in outside diameter and in weight from 50 pounds to 6,200
pounds. The Company offers the added value of wheel and tire assembly
for certain applications in the earthmoving/construction market.
CONSUMER
MARKET
Titan
builds a variety of products for all-terrain vehicles (ATV), turf, golf and
trailer applications. Consumer wheels and rims range from 8 to 16
inches in diameter. Likewise, Titan produces a variety of tires for
the consumer market. ATV tires using the new stripwinding
manufacturing process have been introduced to the marketplace, which improves
tread durability. Titan’s sales in the consumer market include sales
to Goodyear, which include an off-take/mixing agreement. This
agreement includes mixed stock, which is a prepared rubber compound used in
tire
production. For the domestic boat, recreational and utility trailer
markets, the Company provides wheels and tires and assembles brakes, actuators
and components. The Company also offers the value-added service of a
wheel and tire assembly for the consumer market.
MARKET
CONDITIONS OUTLOOK
In
2007,
Titan experienced strong demand for the Company’s agricultural and
earthmoving/construction products. This strong demand is expected to
continue into 2008. The strength in the agricultural market is the
result of high commodity prices, which have resulted from the continuing
increase in the use of biofuels. High prices for metals, oil and gas
have created a large demand for the Company’s earthmoving and mining products.
The current overall uncertainty in consumer spending resulting from the housing
market decline makes consumer market projections especially
difficult.
In
May
2007, Titan’s Board of Directors approved funding for the Company to increase
giant OTR mining tire production capacity to include 57-inch and 63-inch giant
OTR radial tires. These tires have an outside diameter of
approximately 140 inches and 160 inches, respectively. This funding
should allow Titan to produce up to an estimated 6,000 giant radial tires a
year. Titan estimates this may increase sales as much as $240 million
on an annual basis. The Company currently plans to be in start-up
production of these giant mining tires by the end of the second quarter of
2008.
5
OPERATIONS
Titan’s
operations include manufacturing wheels, manufacturing tires, and combining
these wheels and tires into assemblies for use in the agricultural,
earthmoving/construction and consumer markets. These operations
entail many manufacturing processes in order to complete the finished
products.
Wheel
Manufacturing
Process: Most agricultural wheels are produced using a rim and
a center disc. A rim is produced by first cutting large steel sheets
to required width and length specifications. These steel sections are
rolled and welded to form a circular rim, which is flared and formed in the
rollform operation. The majority of discs are manufactured using
presses that both blank and form the center to specifications in multiple stage
operations. The Company e-coats wheels using a multi-step process
prior to the final paint top coating.
Large
earthmoving/construction steel wheels are manufactured from hot and cold-rolled
steel sections. Hot-rolled sections are generally used to increase
cross section thickness in high stress areas of large diameter
wheels. A special cold forming process for certain wheels is used to
increase cross section thickness while reducing the number of wheel
components. Rims are built from a series of hoops that are welded
together to form a rim base. The complete rim base is made from
either three or five separate parts that lock together after the rubber tire
has
been fitted to the wheel and inflated.
For
most
consumer market wheels, the Company manufactures rims and center discs from
steel sheets. Rims are rolled and welded, and discs are stamped and
formed from the sheets. The manufacturing process then entails
welding the rims to the centers and painting the assembled product.
Tire
Manufacturing
Process: The
first stage in tire production is the mixing of rubber, carbon black and
chemicals to form various rubber compounds. These rubber compounds
are then extruded and processed with textile or steel materials to make specific
components. These components – beads (wire bundles that anchor the
tire with the wheel), plies (layers of fabric that give the tire strength),
belts (fabric or steel fabric wrapped under the tread in some tires), tread
and
sidewall – are then assembled into an uncured tire carcass. The
uncured carcass is placed into a press that molds and vulcanizes the carcass
under set time, temperature and pressure into a finished tire.
Wheel
and Tire
Assemblies: The Company’s position
as a manufacturer of both wheels and tires allows Titan to mount and deliver
one
of the largest selections of off-highway assemblies in North
America. Titan offers this value-added service of one-stop shopping
for wheel and tire assemblies for the agricultural, earthmoving/construction
and
consumer markets. Customer orders are entered into the Company’s
system either through electronic data interchange or manually. The
appropriate wheel-tire assembly delivery schedule is formulated based on each
customer’s requirements and products are received by the customer on a
just-in-time basis.
Quality
Control: The Company
is ISO
certified at all five main manufacturing facilities located in Bryan, Ohio;
Des
Moines, Iowa; Freeport, Illinois; Quincy, Illinois; and Saltville,
Virginia. The ISO series is a set of related and internationally
recognized standards of management and quality assurance. The
standards specify guidelines for establishing, documenting and maintaining
a
system to ensure quality. The ISO certifications are a testament to
Titan’s dedication to providing quality products for its customers.
RAW
MATERIALS
Steel
and
rubber are the primary raw materials used by the Company in all
segments. To ensure a consistent steel supply, Titan purchases raw
steel from key steel mills and maintains relationships with steel processors
for
steel preparation. The Company is not dependent on any single
producer for its steel supply. Rubber and other raw materials for
tire manufacture represent some of the Company’s largest commodity
expenses. Titan buys rubber in markets where there are several
sources of supply. In addition to the development of key domestic
suppliers, the Company’s strategic procurement plan includes international steel
and rubber suppliers to assure competitive price and quality in the global
marketplace. As is customary in the industry, the Company does not
have long-term contracts for the purchase of steel or rubber and, therefore,
purchases are subject to price fluctuations.
6
CAPITAL
EXPENDITURES
Capital
expenditures for 2007, 2006 and 2005 were $38.0 million, $8.3 million and $6.8
million, respectively. The
2007
capital expenditures include $22.1 million for the giant OTR
project. The remaining capital expenditures in 2007 were used
primarily for updating manufacturing equipment, expanding manufacturing capacity
and for further automation at the Company’s facilities. Capital
expenditures for 2008 are forecasted to be approximately $55 million to $65
million. Approximately $35 million to $45 million of this amount will
be spent on the giant OTR project and the remainder will be used to enhance
the
Company’s existing facilities and manufacturing capabilities.
PATENTS
AND TRADEMARKS
The
Company owns various patents and trademarks and continues to apply for patent
protection for new products. While patents are considered significant
to the operations of the business, at this time Titan does not consider any
one
of them to be of such importance that the patent’s expiration or invalidity
could materially affect the Company’s business. However, due to the
difficult nature of predicting the interpretation of patent laws, the Company
cannot anticipate or predict the material adverse effect on its operations,
cash
flows or financial condition as a result of associated liabilities created
under
such patent interpretations.
MARKETING
AND DISTRIBUTION
The
Company employs an internal sales force and utilizes several manufacturing
representative firms for sales in North America. Sales
representatives are primarily organized within geographic regions.
Titan
distributes wheels and tires directly to OEMs. The distribution of aftermarket
tires occurs primarily through a network of independent and OEM-affiliated
dealers. The Company distributes wheel and tire assemblies directly
to OEMs and aftermarket customers through its distribution network consisting
of
nine facilities in the United States.
SEASONALITY
Agricultural
equipment sales are seasonal by nature. Farmers generally order
equipment to be delivered before the growing season. Shipments to
OEMs usually peak during the Company’s first and second quarters for the spring
planting period. Earthmoving/construction and consumer markets also
historically tend to experience higher demand in the first and second
quarters. These markets are affected by mining, building and economic
conditions.
RESEARCH,
DEVELOPMENT AND ENGINEERING
The
Company’s research, development and engineering staff tests original designs and
technologies and develops new manufacturing methods to improve product
performance. These services enhance the Company’s relationships with
customers. Titan’s engineers are currently working on 57-inch and
63-inch giant OTR tires to be introducedin
2008. Titan’s engineers are also working on a new 15-degree tire and
wheel design for OTR and farm radial assemblies. This revolutionary
technology will simplify maintenance to minimize downtime, provide better air
retention, simplify mounting and increase service life. The Company
continues to work on sidewall improvements including the LSW (low sidewall)
tire
design.
CUSTOMERS
Titan’s
10 largest customers accounted for approximately 47% of net sales for the year
ended December 31, 2007, compared to approximately 53% for the year ended
December 31, 2006. Net sales to Deere & Company in Titan’s
agricultural, earthmoving/construction and consumer markets combined represented
approximately 17% of the Company’s consolidated revenues for each of the years
ended December 31, 2007 and 2006. Net sales to CNH Global N.V. in
Titan’s three markets represented approximately 11% of the Company’s
consolidated revenues for each of the years ended December 31, 2007 and
2006. No other customer accounted for more than 10% of the Company’s
net sales in 2007 or 2006. Management believes the Company is not
totally dependent on any single customer, however, certain products are
dependent on a few customers. While the loss of any substantial
customer could impact Titan’s business, the Company believes that its diverse
product mix and customer base minimizes a longer-term impact caused by any
such
loss.
7
ORDER
BACKLOG
As
of
January 31, 2008, Titan estimates $208 million in firm orders compared to $171
million at January 31, 2007, for the Company’s operations. Orders are
considered firm if the customer would be obligated to accept the product if
manufactured and delivered pursuant to the terms of such orders. The
Company believes that the majority of the current order backlog will be filled
during the present year.
INTERNATIONAL
OPERATIONS
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
the
Company records the Titan Europe Plc investment as an available-for-sale
security and reports the investment at fair value, with unrealized gains and
losses excluded from earnings and reported as a separate component of
comprehensive income in stockholders’ equity. The Company’s stock
ownership interest in Titan Europe Plc was 17.3% at December 31, 2007 and
2006. The fair value of the Company’s investment in Titan Europe Plc
was $34.5 million and $65.9 million at December 31, 2007 and
2006. Titan Europe Plc is publicly traded on the AIM market in
London, England.
EMPLOYEES
At
December 31, 2007, the Company employed approximately 2,700 people in the United
States. Approximately 48% of the Company’s employees in the United
States were covered by collective bargaining agreements. In December
2005, the workers at the Des Moines, Iowa, and Freeport, Illinois, facilities
ratified new labor agreements through November 2010. The workers at
the Bryan, Ohio, facility ratified a new labor agreement in July 2006 with
the
same November 2010 expiration date. The Company believes employee
relations are generally good.
EXPORT
SALES
The
Company had total aggregate export sales of approximately $77.0 million, $57.4
million and $39.0 million, for the years ended December 31, 2007, 2006 and
2005,
respectively.
Exports
to foreign markets are subject to a number of special risks, including but
not
limited to risks with respect to currency exchange rates, economic and political
destabilization, other disruption of markets and restrictive actions by foreign
governments (such as restrictions on transfer of funds, export duties and quotas
and foreign customs). Other risks include changes in foreign laws
regarding trade and investment, difficulties in obtaining distribution and
support, nationalization, reforms of laws and policies of the United States
affecting trade, foreign investment and loans and foreign tax
laws. There can be no assurance that one, or a combination, of these
factors will not have a material adverse effect on the Company’s ability to
increase or maintain its export sales.
The
Company purchases a portion of its raw materials from foreign
suppliers. The production costs, profit margins and competitive
position of the Company are affected by the strength of the currencies in
countries where Titan purchases goods, relative to the strength of the
currencies in countries where the products are sold. The Company’s
results of operations, cash flows and financial position may be affected by
fluctuations in foreign currencies.
ENVIRONMENTAL
LAWS AND REGULATIONS
In
the
ordinary course of business, like other industrial companies, Titan is subject
to extensive and evolving federal, state and local environmental laws and
regulations, and has made provisions for the estimated financial impact of
environmental cleanup. The Company’s policy is to accrue
environmental cleanup-related costs of a non-capital nature when those costs
are
believed to be probable and can be reasonably estimated. Expenditures
that extend the life of the related property, or mitigate or prevent future
environmental contamination, are capitalized. The Company does not currently
anticipate any material capital expenditures for environmental control
facilities. The quantification of environmental exposures requires an
assessment of many factors, including changing laws and regulations, advances
in
environmental technologies, the quality of information available related to
specific sites, the assessment stage of the site investigation, preliminary
findings and the length of time involved in remediation or
settlement. Due to the difficult nature of predicting future
environmental costs, the Company cannot anticipate or predict the material
adverse effect on its operations, cash flows or financial condition as a result
of efforts to comply with, or its liabilities under, environmental
laws.
8
COMPETITION
The
Company competes with several domestic and international companies, some of
which are larger and have greater financial and marketing resources than
Titan. The Company believes it is a primary source of steel wheels
and rims to the majority of its North American customers. Major
competitors in the off-highway wheel market include Carlisle Companies
Incorporated, GKN Wheels, Ltd., Topy Industries, Ltd. and certain other foreign
competitors. Significant competitors in the off-highway tire market
include Bridgestone/Firestone, Carlisle Companies Incorporated, Michelin and
certain other foreign competitors.
The
Company competes primarily on the basis of price, quality, customer service,
design capability and delivery time. The Company’s ability to compete
with international competitors may be adversely affected by currency
fluctuations. In addition, certain of the Company’s OEM customers
could, under individual circumstances, elect to manufacture the Company’s
products to meet their requirements or to otherwise compete with the
Company. There can be no assurance that the Company will not be
adversely affected by increased competition in the markets in which it operates,
or that competitors will not develop products that are more effective, less
expensive or otherwise render certain of Titan’s products less
competitive. From time to time, certain of the Company’s competitors
have reduced their prices in particular product categories, which has prompted
Titan to reduce prices as well. There can be no assurance that
competitors of the Company will not further reduce prices in the future or
that
any such reductions would not have a material adverse effect on the
Company.
NEW
YORK STOCK EXCHANGE CERTIFICATION
The
Company submitted to the New York Stock Exchange during fiscal 2007 the Annual
CEO Certification required by Section 303A.12(a) of the New York Stock Exchange
Listed Company Manual.
AVAILABLE
INFORMATION
The
Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports are made available,
without charge, through the Company’s website located at www.titan-intl.com as
soon as reasonably practicable after they are filed with the Securities and
Exchange Commission (SEC). The SEC maintains an Internet site that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC at www.sec.gov
website. The following documents are also posted on the Company’s
website:
Corporate
Governance
Policy
Business
Conduct Policy
Audit
Committee Charter
Compensation
Committee
Charter
Nominating/Corporate
Governance
Committee Charter
Printed
copies of these documents are available, without charge, by writing
to: Corporate Secretary, Titan International, Inc., 2701 Spruce
Street, Quincy, IL 62301.
9
ITEM
1A – RISK FACTORS
The
Company is subject to various risks and uncertainties relating to or arising
out
of the nature of its business and general business, economic, financing, legal
and other factors or conditions that may affect the Company. Realization of
any
of the following risks could have a material adverse effect on Titan’s business,
financial condition, cash flows and results of operations.
|
·
|
The
Company operates in cyclical industries and, accordingly, its business
is
subject to the numerous and continuing changes in the
economy.
|
|
·
|
The
Company’s debt and related interest expense may limit Titan’s financial
and operating flexibility.
|
|
·
|
The
Company has incurred, and may incur in the future, net
losses.
|
|
·
|
The
Company is exposed to price fluctuations of key commodities, which
are
primarily steel and rubber.
|
|
·
|
The
Company relies on a limited number of suppliers for key commodities,
which
consist primarily of steel and
rubber.
|
|
·
|
Fluctuations
in energy and transportation costs may affect Titan’s operating costs and
the demand for the Company’s
products.
|
|
·
|
The
Company’s revenues are seasonal due to Titan’s dependence on agricultural,
construction and recreational industries, which are seasonal and
typically
have lower sales in the second half of the
year.
|
|
·
|
The
Company may be adversely affected by changes in government regulations
and
policies, especially those related to farm and ethanol subsidies
and those
related to infrastructure
construction.
|
|
·
|
The
Company is subject to corporate governance requirements, and costs
related
to compliance with, or failure to comply with, existing and future
requirements could adversely affect Titan’s
business.
|
|
·
|
The
Company’s customer base is relatively concentrated with Titan’s ten
largest customers historically accounting for approximately 50% of
sales.
|
|
·
|
The
Company’s giant OTR project and OTR realignment may experience unforeseen
obstacles, which may delay the project, increase costs and adversely
affect Titan’s financial results.
|
|
·
|
The
Company faces substantial competition from domestic and international
companies, some of which operate in low wage
markets.
|
|
·
|
The
Company’s business could be negatively impacted if Titan fails to maintain
satisfactory labor relations.
|
|
·
|
Unfavorable
outcomes of legal proceedings could adversely affect the Company’s
financial condition and results of
operations.
|
|
·
|
Acquisitions
may require significant resources and/or result in significant
unanticipated losses, costs or liabilities for the
Company.
|
|
·
|
The
Company may be subject to product liability
claims.
|
|
·
|
The
Company is subject to risks associated with environmental laws and
regulations.
|
|
·
|
The
Company has an investment in Titan Europe Plc which is recorded at
fair
value. Titan Europe Plc’s fair value has fluctuated
significantly due to large changes in their stock price which is
traded on
the AIM market in London, England.
|
ITEM
1B – UNRESOLVED STAFF COMMENTS
None.
10
ITEM
2 – PROPERTIES
The
Company’s properties are detailed by the location, size and focus of each
facility as provided in the table below:
|
Approximate
square footage
|
||||||||||
|
Location
|
Owned
|
Leased
|
Use
|
Segment
|
||||||
|
Des
Moines, Iowa
|
2,047,000 |
Manufacturing,
distribution
|
All
segments
|
|||||||
|
Freeport,
Illinois
|
1,202,000 | 211,000 |
Manufacturing,
distribution
|
All
segments
|
||||||
|
Quincy,
Illinois
|
1,134,000 |
Manufacturing,
distribution
|
All
segments
|
|||||||
|
Brownsville,
Texas
|
993,000 |
Storage
|
See
note (a)
|
|||||||
|
Bryan,
Ohio
|
740,000 |
Manufacturing,
distribution
|
Earthmoving/Construction
|
|||||||
|
Walcott,
Iowa
|
378,000 |
Storage
|
See
note (a)
|
|||||||
|
Greenwood,
S. Carolina
|
110,000 |
Storage
|
See
note (a)
|
|||||||
|
Dublin,
Georgia
|
20,000 |
Distribution
|
All
segments
|
|||||||
|
Saltville,
Virginia
|
14,000 | 245,000 |
Manufacturing,
distribution
|
Earthmoving/Construction
|
||||||
|
Natchez,
Mississippi
|
1,203,000 |
Storage
|
See
note (a)
|
|||||||
|
Cartersville,
Georgia
|
169,000 |
Distribution
|
All
segments
|
|||||||
|
Pendergrass,
Georgia
|
120,000 |
Distribution
|
All
segments
|
|||||||
|
Elko,
Nevada
|
4,000 |
Distribution
|
Earthmoving/Construction
|
|||||||
|
(a)
|
The
Brownsville, Greenwood and Natchez facilities are currently being
used for
storage. The Company’s facilities in Brownsville, Texas;
Greenwood, South Carolina; Natchez, Mississippi, and Walcott, Iowa,
are
not in operation. The Company has a contract for sale on the
Walcott building.
|
The
Company considers each of its facilities to be in good condition and adequate
for present use. Management believes that the Company has sufficient
capacity to meet current market demand with the active
facilities. The Company has no current plans to restart manufacturing
at the storage facilities described in note (a) above.
ITEM
3 – LEGAL PROCEEDINGS
The
Company is a party to routine legal proceedings arising out of the normal course
of business. Although it is not possible to predict with certainty
the outcome of these unresolved legal actions or the range of possible loss,
the
Company believes at this time that none of these actions, individually or in
the
aggregate, will have a material adverse 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.
ITEM
4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No
matters were submitted to the vote of security holders during the fourth quarter
of 2007.
11
PART
II
|
ITEM
5 – MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
The
Company’s common stock is traded on the New York Stock Exchange (NYSE) under the
symbol TWI. On February 25, 2008, there were approximately 600
holders of record of Titan common stock and an estimated 5,000 beneficial
stockholders. The following table sets forth the high and low sales
prices per share of common stock as reported on the NYSE, as well as information
concerning per share dividends declared for the periods indicated.
|
2007
|
High
|
Low
|
Dividends
Declared
|
|||||||||
|
First
quarter
|
$ | 26.20 | $ | 19.90 | $ | 0.005 | ||||||
|
Second
quarter
|
32.48 | 25.33 | 0.005 | |||||||||
|
Third
quarter
|
33.25 | 23.70 | 0.005 | |||||||||
|
Fourth
quarter
|
35.29 | 24.13 | 0.005 | |||||||||
|
2006
|
||||||||||||
|
First
quarter
|
$ | 17.64 | $ | 16.55 | $ | 0.005 | ||||||
|
Second
quarter
|
19.76 | 16.20 | 0.005 | |||||||||
|
Third
quarter
|
19.40 | 16.65 | 0.005 | |||||||||
|
Fourth
quarter
|
20.85 | 17.52 | 0.005 | |||||||||
PERFORMANCE
COMPARISON GRAPH
The
following performance graph compares cumulative total return for the Company’s
common stockholders over the past five years against the cumulative total return
of the Standard & Poor’s 500 Stock Index, and against the Standard &
Poor’s 600 Construction and Farm Machinery and Heavy Trucks
Index. The graph depicts the value on December 31, 2007, of a $100
investment made on December 31, 2002, in Company common stock and each of the
other two indices, with all dividends reinvested. The Company’s
common stock is currently traded on the NYSE under the symbol TWI.
|
Fiscal
Year Ended December 31,
|
||||||||||||||||||||||||
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
|||||||||||||||||||
|
Titan
International, Inc.
|
$ | 100.00 | $ | 231.54 | $ | 1,145.15 | $ | 1,309.98 | $ | 1,531.87 | $ | 2,378.08 | ||||||||||||
|
S&P
600 Const. & Farm Machinery Index
|
100.00 | 168.58 | 225.95 | 287.22 | 387.32 | 488.11 | ||||||||||||||||||
|
S&P
500 Index
|
100.00 | 128.68 | 142.69 | 149.70 | 173.34 | 182.86 | ||||||||||||||||||
12
ITEM
6 – SELECTED FINANCIAL DATA
The
selected financial data presented below, as of and for the years ended December
31, 2007, 2006, 2005, 2004, and 2003, are derived from the Company’s
consolidated financial statements, as audited by PricewaterhouseCoopers LLP,
an
independent registered public accounting firm, and should be read in conjunction
with the Company’s audited consolidated financial statements and notes
thereto.
(All
amounts in thousands, except per share data)
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Net
sales
|
$ | 837,021 | $ | 679,454 | $ | 470,133 | $ | 510,571 | $ | 491,672 | ||||||||||
|
Gross
profit
|
84,131 | 72,778 | 64,210 | 79,500 | 29,703 | |||||||||||||||
|
Income
(loss) from operations
|
24,838 | 22,011 | 11,999 | 33,322 | (16,220 | ) | ||||||||||||||
|
Noncash
debt conversion charge
|
(13,376 | ) | 0 | (7,225 | ) | 0 | 0 | |||||||||||||
|
(Loss)
income before income taxes
|
(3,884 | ) | 8,574 | (2,885 | ) | 15,215 | (33,668 | ) | ||||||||||||
|
Net
(loss) income
|
(7,247 | ) | 5,144 | 11,042 | 11,107 | (36,657 | ) | |||||||||||||
|
Net
(loss) income per share – basic
|
(.28 | ) | .26 | .61 | .62 | (1.75 | ) | |||||||||||||
|
Net
(loss) income per share – diluted
|
(.28 | ) | .26 | .60 | .61 | (1.75 | ) | |||||||||||||
|
Dividends
declared per common share
|
.02 | .02 | .02 | .02 | .02 | |||||||||||||||
|
(All
amounts in thousands)
|
As
of December 31,
|
|||||||||||||||||||
|
2007
|
2006
|
2005
|
2004
|
2003
|
||||||||||||||||
|
Working
capital
|
$ | 239,985 | $ | 247,009 | $ | 157,984 | $ | 114,898 | $ | 183,971 | ||||||||||
|
Current
assets
|
327,765 | 309,933 | 206,167 | 154,668 | 286,946 | |||||||||||||||
|
Total
assets
|
590,495 | 585,126 | 440,756 | 354,166 | 523,084 | |||||||||||||||
|
Long-term
debt (a)
|
200,000 | 291,266 | 190,464 | 169,688 | 248,397 | |||||||||||||||
|
Stockholders’
equity
|
272,522 | 187,177 | 167,813 | 106,881 | 111,956 | |||||||||||||||
|
(a) Excludes
amounts due within one year and classified as a current
liability.
|
||||||||||||||||||||
13
|
ITEM
7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS
Management’s
discussion and analysis of financial condition and results of operations
(MD&A) is designed to provide readers 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.
FORWARD-LOOKING
STATEMENTS
This
Form
10-K contains forward-looking statements, including statements regarding, among
other items:
|
·
|
Anticipated
trends in the Company’s business
|
|
·
|
Future
expenditures for capital projects
|
|
·
|
The
Company’s ability to continue to control costs and maintain
quality
|
|
·
|
Ability
to meet financial covenants and conditions of loan
agreements
|
|
·
|
The
Company’s business strategies, including its intention to introduce new
products
|
|
·
|
Expectations
concerning the performance and success of the Company’s existing and new
products
|
|
·
|
The
Company’s intention to consider and pursue acquisitions and
divestitures
|
Readers
of this Form 10-K should understand that these forward-looking statements are
based on the Company’s expectations and are subject to a number of risks and
uncertainties, certain of which are beyond the Company’s control.
Actual
results could differ materially from these forward-looking statements as a
result of certain factors, including:
|
·
|
Changes
in the Company’s end-user markets as a result of world economic or
regulatory influences
|
|
·
|
Changes
in the marketplace, including new products and pricing changes by
the
Company’s competitors
|
|
·
|
Availability
and price of raw materials
|
|
·
|
Levels
of operating efficiencies
|
|
·
|
Actions
of domestic and foreign governments
|
|
·
|
Results
of investments
|
|
·
|
Fluctuations
in currency translations
|
|
·
|
Ability
to secure financing at reasonable
terms
|
Any
changes in such factors could lead to significantly different
results. The Company cannot provide any assurance that the
assumptions referred to in the forward-looking statements or otherwise are
accurate or will prove to transpire. Any assumptions that are
inaccurate or do not prove to be correct could have a material adverse effect
on
the Company’s ability to achieve the results as indicated in forward-looking
statements. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this document will in fact transpire.
14
OVERVIEW
Titan
International, Inc. and its subsidiaries are leading manufacturers of wheels,
tires and assemblies for off-highway vehicles used in the agricultural,
earthmoving/construction and consumer markets. Titan’s
earthmoving/construction market also includes products supplied to the U.S.
government, while the consumer market includes products for all-terrain vehicles
(ATVs) and recreational/utility trailer applications. 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.
The
Company’s major OEM customers include large manufacturers of off-highway
equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere
& Company and Kubota Corporation, in addition to many other off-highway
equipment manufacturers. The Company distributes products to OEMs,
independent and OEM-affiliated dealers, and through a network of distribution
facilities.
The
following table provides highlights for the year ended December 31, 2007,
compared to 2006 (amounts
in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Net
sales
|
$ | 837,021 | $ | 679,454 | 23 | % | ||||||
|
Gross
profit
|
84,131 | 72,778 | 16 | % | ||||||||
|
Income
from operations
|
24,838 | 22,011 | 13 | % | ||||||||
The
Company recorded sales of $837.0 million for 2007, which were 23% higher than
2006 sales of $679.5 million. The higher sales level was attributed
to the expanded agricultural and earthmoving product offerings, which includes
General branded off-the-road (OTR) tires. The expanded OTR offerings
came with the added manufacturing capacity from the Bryan, Ohio, OTR facility,
which was acquired in July 2006.
Gross
profit was $84.1 million for 2007, compared to $72.8 million for
2006. Income from operations was $24.8 million for 2007 as compared
to $22.0 million in 2006. The increases in gross profit and income
from operations were primarily due to the higher sales volumes year over
year.
RECENT
DEVELOPMENTS
Affirmative
Preliminary Antidumping Determination on OTR Tires from China
On
February 6, 2008, Titan welcomed the U.S. Commerce Department’s preliminary
decision to impose antidumping duties on imports of new pneumatic off-the-road
(OTR) tires from China. OTR tires are used on construction and agricultural
equipment.
As
a
result of this preliminary determination, Commerce will instruct U.S. Customs
and Border Protection to collect a cash deposit or bond based on these
preliminary rates. Commerce preliminarily determined that Chinese
producers/exporters have sold new pneumatic off-the-road tires in the U.S.
at
10.98 to 210.48 percent less than fair value, with a majority of
exporter/producers at 24.75 percent less than fair value.
The
agency will now continue the
proceeding by holding hearings, conducting verifications of information, and
reaching a final determination by early June of this year. The International
Trade Commission will also investigate the issue of injury and reach a
determination on that issue thereafter.
Titan
Builds First Radial 63-Inch Tire
On
February 15, 2008, Titan announced that Titan Tire Corporation of Bryan had
produced the Company’s first prototype of the giant radial 63-inch tire in its
Ohio facility. Titan announced its commitment to produce these giant
radial tires, used in the mining industry, in May 2007 when the Company’s Board
of Directors approved funding to increase tire production capacity to include
57-inch and 63-inch giant radial tires.
15
RESULTS
OF OPERATIONS
The
following table sets forth the Company’s statement of operations expressed as a
percentage of net sales for the periods indicated. This table and
subsequent discussions should be read in conjunction with the Company’s audited
consolidated financial statements and notes thereto.
|
As
a Percentage of Net Sales
|
||||||||||||
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
of sales
|
89.9 | 89.3 | 86.3 | |||||||||
|
Gross
profit
|
10.1 | 10.7 | 13.7 | |||||||||
|
Selling,
general and administrative expenses
|
6.4 | 6.7 | 7.9 | |||||||||
|
Royalty
expense
|
0.7 | 0.7 | 0.0 | |||||||||
|
Dyneer
legal charge
|
0.0 | 0.0 | 3.2 | |||||||||
|
Income
from operations
|
3.0 | 3.3 | 2.6 | |||||||||
|
Interest
expense
|
(2.3 | ) | (2.5 | ) | (1.8 | ) | ||||||
|
Noncash
convertible debt conversion charge
|
(1.6 | ) | 0.0 | (1.6 | ) | |||||||
|
Other
income, net
|
0.4 | 0.5 | 0.2 | |||||||||
|
(Loss)
income before income taxes
|
(0.5 | ) | 1.3 | (0.6 | ) | |||||||
|
Provision
(benefit) for income taxes
|
0.4 | 0.5 | (2.9 | ) | ||||||||
|
Net
(loss) income
|
(0.9 | )% | 0.8 | % | 2.3 | % | ||||||
In
addition, the following table sets forth components of the Company’s net sales
classified by segment for the years ended December 31, (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Agricultural
|
$ | 515,642 | $ | 421,096 | $ | 310,361 | ||||||
|
Earthmoving/Construction
|
277,206 | 183,357 | 131,982 | |||||||||
|
Consumer
|
44,173 | 75,001 | 27,790 | |||||||||
|
Total
|
$ | 837,021 | $ | 679,454 | $ | 470,133 | ||||||
16
OTR
PRODUCTION REALIGNMENT
Due
to
capacity constraints at Titan’s Bryan, Ohio, OTR tire facility, the Company is
adding OTR tire capacity at its Freeport, Illinois, and Des Moines, Iowa,
facilities. Titan is aligning synergies, which includes retooling,
retraining personnel and redistribution of equipment at the Bryan, Freeport
and
Des Moines facilities. These OTR realignment costs lowered the
Company’s gross profit for 2007 as labor costs that are normally dedicated to
making products were instead used for retooling, retraining and redistribution
of equipment. In 2007, these costs were approximately $22 million to
$24 million.
GIANT
OTR MINING TIRES
In
May
2007, Titan’s Board of Directors approved funding for the Company to increase
giant OTR mining tire production capacity to include 57-inch and 63-inch giant
radial tires. This funding should allow Titan to produce up to an
estimated 6,000 giant radial tires a year. Titan estimates this may
increase sales as much as $240 million on an annual basis. The
Company currently plans to be in start-up production of these giant mining
tires
by the end of the second quarter of 2008.
SENIOR
UNSECURED NOTES
In
December 2006, the Company closed its offering of $200 million 8% senior
unsecured notes. The notes were sold at par and are due January
2012. Titan used the net proceeds from this offering to repay
outstanding existing debt, excluding the 5.25 percent senior unsecured
convertible notes, and for general corporate purposes.
ACQUISITION
OF CONTINENTAL’S OTR ASSETS
On
July
31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International,
Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North
America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of
Bryan purchased the assets of Continental’s OTR tire facility for approximately
$53 million in cash proceeds. The assets purchased included
Continental’s OTR plant, property and equipment located in Bryan, Ohio,
inventory and other current assets. The acquisition included an
agreement with Continental to use the General trademark on OTR
tires. In addition, the Company recorded intangibles related to the
acquisition as noncurrent assets and assumed warranty
liabilities. This acquisition expanded Titan’s product offering into
larger earthmoving, construction and mining tires and added the manufacturing
capacity of the Bryan, Ohio, facility.
ACQUISITION
OF GOODYEAR’S NORTH AMERICAN FARM TIRE ASSETS
On
December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International,
Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire
assets. Titan Tire purchased the assets of Goodyear’s North American
farm tire business for approximately $100 million in cash
proceeds. The assets purchased include Goodyear’s North American
plant, property and equipment located in Freeport, Illinois, and Goodyear’s
North American farm tire inventory. In addition, the Company recorded
intangibles related to the acquisition as noncurrent assets. This
acquisition expanded Titan’s product offering into Goodyear branded farm tires
and added the manufacturing capacity of the Freeport, Illinois,
facility.
17
SENIOR
UNSECURED CONVERTIBLE NOTES CONVERSION
In
January 2007, the Company filed a registration statement relating to an offer
to
the holders of its 5.25% senior unsecured convertible notes due 2009 to convert
their notes into Titan’s common stock at an increased conversion rate (the
“Offer”). Per the Offer, each $1,000 principal amount of notes was
convertible into 81.0000 shares of common stock, which is equivalent to a
conversion price of approximately $12.35 per share. Prior to the Offer, each
$1,000 principal amount of notes was convertible into 74.0741 shares of common
stock, which was equivalent to a conversion price of approximately $13.50 per
share.
The
registration statement relating to the shares of common stock to be offered
was
declared effective February 2007. In March 2007, the Company
announced 100% acceptance of the conversion offer and the $81,200,000 of
accepted notes were converted into 6,577,200 shares of Titan common
stock. Titan recognized a noncash charge of $13.4 million in
connection with this exchange in accordance with SFAS No. 84, “Induced
Conversions of Convertible Debt.”
In
June
of 2005, Titan finalized a private transaction in which the Company issued
3,022,275 shares of common stock in exchange for the cancellation of $33.8
million principal amount of the Company’s outstanding 5.25% senior convertible
notes due 2009, as proposed to the Company by certain note
holders. Titan recognized a noncash charge of $7.2 million in
connection with this exchange in accordance with SFAS No. 84, “Induced
Conversions of Convertible Debt.”
CRITICAL
ACCOUNTING ESTIMATES
Preparation
of the financial statements and related disclosures in compliance with
accounting principles generally accepted in the United States of America
requires the application of appropriate technical accounting rules and guidance,
as well as the use of estimates. The Company’s application of these
policies involves assumptions that require difficult subjective judgments
regarding many factors, which, in and of themselves, could materially impact
the
financial statements and disclosures. A future change in the
estimates, assumptions or judgments applied in determining the following
matters, among others, could have a material impact on future financial
statements and disclosures.
Inventories
Inventories
are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method in 2007 for approximately 67% of
inventories and the last-in, first-out (LIFO) method for approximately 33%
of
inventories. The major rubber material inventory and related
work-in-process and their finished goods are accounted for under the FIFO
method. The major steel material inventory and related
work-in-process and their finished goods are accounted for under the LIFO
method. Market value is estimated based on current selling
prices. Estimated provisions are established for excess and obsolete
inventory, as well as inventory carried above market price based on historical
experience. Should this experience change, adjustments to the
estimated provisions would be necessary.
Impairment
of Goodwill
The
Company reviews goodwill to assess recoverability from future operations during
the fourth quarter of each annual reporting period, and whenever events and
circumstances indicate that the carrying values may not be
recoverable. The Company’s goodwill was $11.7 million at December 31,
2007 and 2006. Significant assumptions relating to future operations
must be made when estimating future cash flows in analyzing goodwill for
impairment. Should unforeseen events occur or operating trends change
significantly, impairment losses could occur.
Valuation
of Investment Accounted for as Available-for-Sale Security
The
Company has an investment in Titan Europe Plc of $34.5 million as of December
31, 2007, representing a 17.3% ownership position. Titan Europe Plc
is publicly traded on the AIM market in London, England. This
investment is recorded as “Investment in Titan Europe Plc” on the consolidated
balance sheet. In accordance with SFAS No. 115, the Company records
the Titan Europe Plc investment as an available-for-sale security and reports
this investment at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders’
equity. Should the fair value decline below the cost basis, the
Company would be required to determine if this decline is other than
temporary. If the decline in fair value were judged to be other than
temporary, an impairment charge would be recorded.
18
The
December 31, 2007, fair value of $34.5 million was below the Company’s cost
basis of $40.3 million. The unrealized loss on the Titan Europe Plc
investment was $5.8 million. The unrealized loss resulted from
decline in the market price of Titan Europe Plc of over 40% in the fourth
quarter of 2007. No impairment charge has been recorded as this
decline below cost basis was judged to be temporary at December 31,
2007. Should unforeseen events occur or investment trends change
significantly, impairment losses could occur. Declared dividends on
this investment are recorded in income as a component of other
income.
Income
Taxes
Deferred
income tax provisions are determined using the liability method whereby deferred
tax assets and liabilities are recognized based upon temporary differences
between the financial statement and income tax basis of assets and
liabilities. The Company assesses the realizability of its deferred
tax asset positions in accordance with SFAS No. 109.
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 relating to any intangibles recorded in the
acquisition. To aid in establishing the value of any intangible
assets at the time of acquisition, the Company typically engages a professional
appraisal firm.
Retirement
Benefit Obligations
Pension
benefit obligations are based on various assumptions used by third-party
actuaries in calculating these amounts. These assumptions include
discount rates, expected return on plan assets, mortality rates and other
factors. Revisions in assumptions and actual results that differ from
the assumptions affect future expenses, cash funding requirements and
obligations. The Company has three frozen defined benefit pension
plans and one defined benefit plan that purchased a final annuity settlement
in
2002. Titan expects to contribute approximately $1 million to these
frozen defined benefit pension plans in 2008. For more information
concerning these costs and obligations, see the discussion of the “Pensions” and
Note 20 to the Company’s financial statements.
The
effect of hypothetical changes to selected assumptions on the Company’s frozen
pension benefit obligations would be as follows (in thousands):
|
December
31, 2007
|
2008
|
|||||
|
Increase
|
Increase
|
Increase
|
||||
|
Percentage
|
(Decrease)
|
(Decrease)
|
(Decrease)
|
|||
|
Assumptions
|
Change
|
PBO
(a)
|
Equity
|
Expense
|
||
|
Pension
|
||||||
|
Discount
rate
|
+/-.5
|
$(4,688)/$5,119
|
$4,688/$(5,119)
|
$(93)/$77
|
||
|
Expected
return on
assets
|
+/-.5
|
$(459)/$459
|
||||
|
(a)
|
Projected
benefit obligation (PBO) for pension
plans.
|
19
FISCAL
YEAR ENDED DECEMBER 31, 2007, COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2006
RESULTS
OF OPERATIONS
The
following tables and discussions provide highlights for the year ended December
31, 2007, compared to 2006 (amounts
in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Net
sales
|
$ | 837,021 | $ | 679,454 | 23 | % | ||||||
|
Cost
of sales
|
752,890 | 606,676 | 24 | % | ||||||||
|
Gross
profit
|
84,131 | 72,778 | 16 | % | ||||||||
|
Gross
profit percentage
|
10.1 | % | 10.7 | % | ||||||||
Net
Sales
Net
sales
for the year ended December 31, 2007, were $837.0 million compared to $679.5
million for the year ended December 31, 2006. The large sales
improvement of $157.6 million, or 23%, for the year ended December 31, 2007,
was
attributed to the expanded agricultural product offering of Goodyear branded
farm tires and the expanded earthmoving, construction and mining product
offering of General branded off-the-road (OTR) tires, along with added
manufacturing capacity from the Bryan, Ohio, facility, which was acquired on
July 31, 2006. In addition, the Company has experienced strong demand
in the agricultural segment.
Cost
of Sales and Gross Profit
Cost
of
sales was $752.9 million for the year ended December 31, 2007, as compared
to
$606.7 million in 2006. Gross profit for the year 2007 was $84.1
million or 10.1% of net sales, compared to $72.8 million, or 10.7% of net sales
for 2006. Due to capacity constraints at Titan’s Bryan, Ohio, OTR
tire facility, the Company is adding OTR tire capacity at its Freeport,
Illinois, and Des Moines, Iowa, tire facilities. Titan is aligning
synergies, which includes retooling, retraining personnel and movement of
equipment at the Bryan, Freeport and Des Moines facilities.
These
OTR
realignment costs lowered the Company’s gross profit for 2007 and for the fourth
quarter of 2006, as labor costs that are normally dedicated to making products
were instead used for retooling, retraining and movement of
equipment. The Company estimates realignment costs to be
approximately $22 million to $24 million for 2007 and approximately $9 million
to $11 million in 2006.
Administrative
Expenses
Selling,
general and administrative expenses were as follows (amounts in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Selling,
general and administrative
|
$ | 53,138 | $ | 45,766 | 16 | % | ||||||
|
Percentage
of net sales
|
6.3 | % | 6.7 | % | ||||||||
Selling,
general and administrative (SG&A) expenses were $53.1 million or 6.3% of net
sales for the year ended December 31, 2007, as compared to $45.8 million or
6.7%
of net sales for 2006. Research and development (R&D) expenses,
which are included in SG&A expenses, were $1.7 million and $1.3 million for
the years ended December 31, 2007 and 2006, respectively. The higher
SG&A expenses for 2007 are primarily the result of the higher selling and
marketing expenses related to higher sales and the CEO and executive
incentives. Selling and marketing expenses were approximately $5
million higher in 2007, when compared to 2006. Expenses recorded for
CEO and executive incentives were approximately $4 million higher in 2007,
when
compared to 2006.
Royalty
Expense
Royalty
expense was as follows (amounts
in thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Royalty
expense
|
$ | 6,155 | $ | 5,001 | 23 | % | ||||||
The
Goodyear North American farm tire asset acquisition included a license agreement
with The Goodyear Tire & Rubber Company to manufacture and sell certain
off-highway tires in North America under the Goodyear name. Royalty
expenses were $6.2 million for the year ended December 31, 2007, as compared
to
$5.0 million in 2006. The increase in royalty expenses is directly
attributable to higher sales levels.
20
Income
from Operations
Income
from operations was as follows (amounts in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Income
from operations
|
$ | 24,838 | $ | 22,011 | 13 | % | ||||||
|
Percentage
of net sales
|
3.0 | % | 3.2 | % | ||||||||
Income
from operations for the year ended December 31, 2007, was $24.8 million or
3.0%
of net sales, compared to $22.0 million or 3.2% in 2006. Income from
operations was affected by the items previously discussed in the cost of sales,
administrative and royalty line items.
Interest
Expense
Interest
expense was as follows (amounts
in thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Interest
expense
|
$ | 18,710 | $ | 17,001 | 10 | % | ||||||
Interest
expense for the year 2007 was $18.7 million compared to $17.0 million in
2006. The increase in interest expense in 2007 as compared to 2006
was the result of a higher average interest rate of approximately 1% in
2007. In 2007, the Company capitalized $0.4 million of interest costs
for the giant OTR project.
Noncash
Convertible Debt Conversion Charge
Noncash
convertible debt conversion charge was as follows (amounts in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Noncash
debt conversion charge
|
$ | 13,376 | $ | 0 | n/a | |||||||
In
March
2007, the Company converted $81.2 million of 5.25% senior convertible notes
into
6,577,200 shares of Titan common stock. Titan recognized a noncash
charge of $13.4 million in connection with this exchange in accordance with
SFAS
No. 84, “Induced Conversions of Convertible Debt.”
Other
Income
Other
income was as follows (amounts in
thousands):
|
2007
|
2006
|
%
Decrease
|
||||||||||
|
Other
income
|
$ | 3,364 | $ | 3,564 | (6 | %) | ||||||
Other
income was $3.4 million for the year ended December 31, 2007, as compared to
$3.6 million in 2006. Interest income included in other income was
$2.7 million and $1.7 million for the years ended December 31, 2007 and 2006,
respectively. In addition, dividend income from the Titan Europe
investment of $1.8 million in 2007 and $1.3 million in 2006 was recorded in
other income. The year ended December 31, 2007, also included a loss
of approximately $(1.1) million on foreign exchange and other expense
items.
Income
Tax Expense
Income
taxes were as follows (amounts in
thousands):
|
2007
|
2006
|
%
Decrease
|
||||||||||
|
Income
taxes
|
$ | 3,363 | $ | 3,430 | (2 | %) | ||||||
The
Company recorded an income tax expense of $3.4 million in 2007 and 2006.
The Company’s effective tax rate was (87%) in 2007 and 40% in
2006. The Company’s 2007 income tax expense and rate differs from the
amount of income tax determined by applying the U.S. Federal income tax rate
to
pre-tax income primarily as a result of the $13.4 million noncash charge taken
in connection with the Company’s convertible debt. This noncash
charge is not deductible for income tax purposes.
21
Net
(Loss) Income
Net
(loss) income was as follows (amounts in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Net
(loss) income
|
$ | (7,247 | ) | $ | 5,144 | n/a | ||||||
Net
loss
for the year ended December 31, 2007, was $(7.2) million, compared to net income
of $5.1 million in 2006. Basic and diluted loss per share was $(.28)
for the year ended December 31, 2007, as compared to basic and diluted income
per share of $.26 in 2006. The Company’s net income and earnings per
share decreased due to the items detailed above and as a result of the $13.4
million noncash convertible debt conversion charge.
Agricultural
Segment Results
Agricultural
segment results were as follows (amounts in
thousands):
|
2007
|
2006
|
%
Increase (Decrease)
|
||||||||||
|
Net
sales
|
$ | 515,642 | $ | 421,096 | 22 | % | ||||||
|
Gross
profit
|
35,742 | 42,511 | (16 | %) | ||||||||
|
Income
from operations
|
25,324 | 27,351 | (7 | %) | ||||||||
Net
sales
in the agricultural market were $515.6 million for the year ended December
31,
2007, as compared to $421.1 million in 2006. The increase in
agricultural segment sales was the result of increased demand from the Company’s
customers, which resulted from record farm income in 2007.
Gross
profit in the agricultural market was $35.7 million for the year 2007, as
compared to $42.5 million in 2006. Income from operations in the
agricultural market was $25.3 million for the year 2007, as compared to $27.4
million in 2006. The decrease in gross profit and income from
operations in the agricultural market was primarily attributed to the related
disruption to production in Titan’s agricultural products resulting from the OTR
realignment initiative.
Earthmoving/Construction
Segment Results
Earthmoving/construction
segment results were as follows (amounts in
thousands):
|
2007
|
2006
|
%
Increase
|
||||||||||
|
Net
sales
|
$ | 277,206 | $ | 183,357 | 51 | % | ||||||
|
Gross
profit
|
47,848 | 28,099 | 70 | % | ||||||||
|
Income
from operations
|
40,833 | 21,837 | 87 | % | ||||||||
The
Company’s earthmoving/construction market net sales were $277.2 million for the
year ended December 31, 2007, as compared to $183.4 million in
2006. The expanded product offering of the General brand for OTR
tires, along with added manufacturing capacity from the Bryan, Ohio, facility
and the OTR realignment initiative accounted for the higher sales levels in
the
earthmoving/construction market in 2007.
Gross
profit in the earthmoving/construction market was $47.8 million, as compared
to
$28.1 million in 2006. The Company’s earthmoving/construction market
income from operations was $40.8 million for the year 2007, up from $21.8
million in 2006. The Bryan, Ohio, facility produces OTR tires for
earthmoving, construction, and mining machinery in sizes larger than the Company
was able to produce before this facility was acquired on July 31,
2006. The increase in gross profit and income from operations in the
earthmoving/construction segment is the result of margins realized on these
larger earthmoving, construction and mining tires and additional OTR
capacity.
22
Consumer
Segment Results
Consumer
segment results were as follows (amounts in
thousands):
|
2007
|
2006
|
%
(Decrease) Increase
|
||||||||||
|
Net
sales
|
$ | 44,173 | $ | 75,001 | (41 | %) | ||||||
|
Gross
profit
|
3,431 | 2,771 | 24 | % | ||||||||
|
Income
from operations
|
2,546 | 1,655 | 54 | % | ||||||||
Consumer
market net sales were $44.2 million for the year ended December 31, 2007, as
compared to $75.0 million in 2006. The Goodyear farm tire acquisition
agreement included an off-take/mixing agreement for certain product sales to
Goodyear. The decrease in consumer market sales was primarily related
to a reduction in sales to The Goodyear Tire and Rubber Company of approximately
$24 million for the twelve months ended December 31, 2007, as compared to
2006.
Gross
profit from the consumer market was $3.4 million as compared to $2.8 million
in
2006. Consumer market income from operations was $2.5 million for the
year 2007 as compared to $1.7 million in 2006. The increase in gross
profit and income from operations in the consumer segment was the result of
a
shift to higher margin products.
Segment
Summary
(Amounts
in thousands)
|
2007
|
Agricultural
|
Earthmoving/
Construction
|
Consumer
|
Corporate
Expenses
|
Consolidated
Totals
|
|||||||||||||||
|
Net
sales
|
$ | 515,642 | $ | 277,206 | $ | 44,173 | $ | 0 | $ | 837,021 | ||||||||||
|
Gross
profit
(loss)
|
35,742 | 47,848 | 3,431 | (2,890 | ) | 84,131 | ||||||||||||||
|
Income
(loss) from
operations
|
25,324 | 40,833 | 2,546 | (43,865 | ) | 24,838 | ||||||||||||||
|
2006
|
||||||||||||||||||||
|
Net
sales
|
$ | 421,096 | $ | 183,357 | $ | 75,001 | $ | 0 | $ | 679,454 | ||||||||||
|
Gross
profit
(loss)
|
42,511 | 28,099 | 2,771 | (603 | ) | 72,778 | ||||||||||||||
|
Income
(loss) from
operations
|
27,351 | 21,837 | 1,655 | (28,832 | ) | 22,011 | ||||||||||||||
Corporate
Expenses
Income
from operations on a segment basis does not include corporate expenses or
depreciation and amortization expense related to property, plant and equipment
carried at the corporate level totaling $43.9 million for the year ended
December 31, 2007, as compared to $28.8 million in 2006.
Corporate
expenses for the year ended December 31, 2007, was composed of the
following: (i) selling and marketing expenses of approximately $17
million; (ii) CEO and executive incentives of approximately $7 million; and
(iii) administrative expenses of approximately $20 million.
Corporate
expenses for the year ended December 31, 2006, was composed of the
following: (i) selling and marketing expenses of approximately $12
million; (ii) CEO and executive incentives of approximately $3 million; and
(iii) administrative expenses of approximately $14 million.
The
increase of approximately $5 million in selling and marketing expenses in 2007
as compared to 2006 resulted primarily from the higher sales
levels. The increase of approximately $4 million in the CEO and
executive incentives is primarily related to the substantial appreciation in
Titan’s stock price during 2007. The increase of approximately $6
million in administrative costs in 2007 was primarily related to higher
professional fees.
23
FISCAL
YEAR ENDED DECEMBER 31, 2006, COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2005
RESULTS
OF OPERATIONS
The
following tables and discussions provide highlights for the year ended December
31, 2006, compared to 2005 (amounts
in
thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Net
sales
|
$ | 679,454 | $ | 470,133 | 45 | % | ||||||
|
Gross
profit
|
72,778 | 64,210 | 13 | % | ||||||||
|
Gross
profit margin
|
10.7 | % | 13.7 | % | ||||||||
Net
Sales
Net
sales
for the year ended December 31, 2006, were $679.5 million compared to $470.1
million for the year ended December 31, 2005. The large sales
improvement of $209.4 million, or 45%, for the year ended December 31, 2006,
was
attributed to the expanded agricultural product offering of Goodyear branded
farm tires and the expanded earthmoving, construction and mining product
offering of Continental & General branded off-the-road (OTR)
tires. These product offerings came with the added manufacturing
capacity from the Freeport, Illinois, facility, which was approximately $186
million in 2006, and the Bryan, Ohio, OTR facility, which was approximately
$41
million from the acquisition date of July 31, 2006 through December 31,
2006.
Cost
of Sales and Gross Profit
Cost
of
sales was $606.7 million for the year ended December 31, 2006, as compared
to
$405.9 million in 2005. Gross profit for the year 2006 was $72.8
million or 10.7% of net sales, compared to $64.2 million, or 13.7% of net sales
for 2005. Due to capacity constraints at Titan’s Bryan, Ohio, OTR
tire facility, the Company is adding OTR tire capacity at its Freeport,
Illinois, and Des Moines, Iowa, tire facilities. Titan is aligning
synergies, which includes retooling, retraining personnel and movement of
equipment at the Bryan, Freeport and Des Moines facilities. These
realignment costs of approximately $9 million to $11 million lowered the
Company’s gross profit for the fourth quarter of 2006, as labor costs that are
normally dedicated to making products were instead used for retooling,
retraining and movement of equipment. These costs resulted in an
approximate 2% reduction in the annual gross profit percentage.
Administrative
Expenses
Selling,
general and administrative expenses were as follows (amounts in
thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Selling,
general and administrative
|
$ | 45,766 | $ | 37,006 | 24 | % | ||||||
|
Percentage
of net sales
|
6.7 | % | 7.9 | % | ||||||||
Selling,
general and administrative (SG&A) expenses were $45.8 million or 6.7% of net
sales for the year ended December 31, 2006, as compared to $37.0 million or
7.9%
of net sales for 2005. Research and development (R&D) expenses,
which were previously shown separately, have been combined with the SG&A
expenses due to the reduced level of R&D expenditures. R&D
expenses were $1.3 million and $0.8 million for the years ended December 31,
2006 and 2005, respectively. SG&A expenses for the year ended
December 31, 2006, were approximately $5 million higher as a result of the
Freeport and Bryan acquisitions and their associated selling
expenses. However, as a result of the higher sales levels, SG&A
expenses decreased by approximately 1% when expressed as a percentage of net
sales.
The
Company’s profit margins have been negatively affected by the depreciation
associated with the idled assets marketed for sale. The Company
incurred $3.6 million and $4.7 million in depreciation related to the idled
assets for the years ended December 31, 2006 and 2005,
respectively. This idled asset depreciation, which was previously
shown separately, is included in the SG&A expenses. As a result
of the Goodyear North American farm tire asset acquisition and the Continental
OTR asset acquisition, the Company is placing these assets back into service
primarily at the Des Moines, Iowa, Freeport, Illinois, and Bryan, Ohio
facilities. Therefore, in December 2006, the idled assets balance of
approximately $14 million was reclassified to property, plant and equipment,
leaving no balance at December 31, 2006.
24
Royalty
Expense
Royalty
expense was as follows (amounts
in thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Royalty
expense
|
$ | 5,001 | $ | 0 | n/a | |||||||
The
December 2005 Goodyear North American farm tire asset acquisition included
a
license agreement with The Goodyear Tire & Rubber Company to manufacture and
sell certain off-highway tires in North America. Royalty expenses for
the year ended December 31, 2006, were $5.0 million. No royalty
expense was recorded in the year ended December 31, 2005, as this license
agreement was not yet in place.
Dyneer
Legal Charge
The
State
Court of California in 2005 allowed the disbursement of restricted cash funds
held in the Vehicular Technologies case. In 2005, Titan recognized
the Dyneer legal charge of approximately $15.2 million for the judgment related
to this case, which is now closed.
Income
from Operations
Income
from operations was as follows (amounts in
thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Income
from operations
|
$ | 22,011 | $ | 11,999 | 83 | % | ||||||
|
Percentage
of net sales
|
3.2 | % | 2.6 | % | ||||||||
Income
from operations for the year ended December 31, 2006, was $22.0 million or
3.2%
of net sales, compared to $12.0 million or 2.6% in 2005. Income from
operations was affected by the items previously discussed in the cost of sales,
administrative, royalty, and legal charge line items.
Interest
Expense
Interest
expense was as follows (amounts
in thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Interest
expense
|
$ | 17,001 | $ | 8,617 | 97 | % | ||||||
Net
interest expense for the year 2006 was $17.0 million compared to $8.6 million
in
2005. The Company’s average debt balances in 2006 were substantially
higher when compared to 2005. The average 2006 debt balances were
higher with the Goodyear farm asset acquisition of approximately $100 million
and the Continental OTR asset acquisition of approximately $53
million. These higher average debt balances in 2006 resulted in an
increase in interest expense of approximately $5 million when compared to
2005. The Company’s average interest rates were 7.7% in 2006,
compared to 6.2% in 2005, resulting in an increase in interest expense of
approximately $3 million.
Noncash
Convertible Debt Conversion Charge
In
June
2005, Titan finalized a private transaction in which the Company issued
3,022,275 shares of common stock in exchange for the cancellation of $33.8
million principal amount of the Company’s outstanding 5.25% senior convertible
notes due 2009, as proposed to the Company by certain note
holders. The Company recognized a noncash charge of $7.2 million in
connection with this exchange in accordance with SFAS No. 84, “Induced
Conversions of Convertible Debt.”
Other
Income
Other
income was as follows (amounts in
thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Other
income
|
$ | 3,564 | $ | 958 | 272 | % | ||||||
Other
income of $3.6 million in 2006 included (i) interest income of $1.7 million,
(ii) dividend income from the Titan Europe Plc investment of $1.3 million,
(iii)
currency exchange gain of $1.0 million and (iv) other expense of $0.4
million. The $3.6 million of other income in 2006 compares to $1.0
million in 2005.
25
Income
Tax Expense
The
Company recorded an income tax expense of $3.4 million in 2006 as compared
to an
income tax benefit of $13.9 million in 2005. As a result of several years
of previous losses, the Company recorded a valuation allowance against its
net
deferred tax asset, consistent with the Company’s accounting
policies. As a result of anticipated utilization of net operating
loss carryforward in connection with its future Federal income tax filings,
the
Company recorded a tax benefit of $13.9 million in 2005 as a result of the
reversal of the Company’s valuation allowance in accordance with SFAS 109. The
Company’s net operating loss carryforward of approximately $32 million expires
in 2023.
Net
Income
Net
income was as follows (amounts in
thousands):
|
2006
|
2005
|
%
Decrease
|
||||||||||
|
Net
income
|
$ | 5,144 | $ | 11,042 | (53 | %) | ||||||
Net
income for the year ended December 31, 2006, was $5.1 million, compared to
$11.0
million in 2005. Basic earnings per share were $.26 for the year
ended December 31, 2006, as compared to $.61 in 2005. Diluted
earnings per share were $.26 for the year ended December 31, 2006, as compared
to $.60 in 2005.
Agricultural
Segment Results
Agricultural
segment results were as follows (amounts in
thousands):
|
2006
|
2005
|
%
Increase (Decrease)
|
||||||||||
|
Net
sales
|
$ | 421,096 | $ | 310,361 | 36 | % | ||||||
|
Income
from operations
|
27,351 | 31,750 | (14 | %) | ||||||||
Net
sales
in the agricultural market were $421.1 million for the year ended December
31,
2006, as compared to $310.4 million in 2005. The expanded product
offering of Goodyear branded farm tires, along with the added manufacturing
capacity from the Freeport, Illinois, facility accounted for the agricultural
market higher sales levels.
Income
from operations in the agricultural market was $27.4 million for the year 2006
as compared to $31.8 million in 2005. The decrease in income from
operations in the agricultural market was attributed to higher sales volumes
in
relation to higher fixed overhead costs including fourth quarter of 2006 costs
normally dedicated to making products were instead used for retooling,
retraining and movement of equipment.
Earthmoving/Construction
Segment Results
Earthmoving/construction
segment results were as follows (amounts in
thousands):
|
2006
|
2005
|
%
Increase
|
||||||||||
|
Net
sales
|
$ | 183,357 | $ | 131,982 | 39 | % | ||||||
|
Income
from operations
|
21,837 | 17,664 | 24 | % | ||||||||
The
Company’s earthmoving/construction market net sales were $183.4 million for the
year ended December 31, 2006, as compared to $132.0 million in
2005. The expanded product offering of the Continental and General
brands for OTR tires, along with added manufacturing capacity from the Bryan,
Ohio, facility accounted for the earthmoving/construction market higher sales
levels in 2006. These sales increases were offset by a decrease in
sales to the United States government, which were approximately $21 million
lower in 2006 as compared to 2005. Sales to the United States
government are dependent on government appropriations and have a tendency for
significant fluctuations.
The
Company’s earthmoving/construction market income from operations was $21.8
million for the year 2006, up from $17.7 million in 2005. The Bryan,
Ohio, facility produces tires for earthmoving, construction, and mining
machinery in sizes larger than the Company was able to produce before this
facility was acquired on July 31, 2006. The increase in income from
operations in the earthmoving/construction segment is the result of margins
realized on these larger earthmoving, construction and mining
tires.
26
Consumer
Segment Results
Consumer
segment results were as follows (amounts in
thousands):
|
2006
|
2005
|
%
Increase (Decrease)
|
||||||||||
|
Net
sales
|
$ | 75,001 | $ | 27,790 | 170 | % | ||||||
|
Income
from operations
|
1,655 | 1,825 | (9 | %) | ||||||||
Consumer
market net sales were $75.0 million for the year ended December 31, 2006, as
compared to $27.8 million in 2005. The Goodyear farm tire acquisition
included an off-take/mixing agreement for certain product sales to Goodyear,
the
majority of which are included in the consumer segment. Sales to The
Goodyear Tire and Rubber Company under this agreement of approximately $48
million in 2006 were the reason for the substantial increase in consumer market
sales. Consumer market income from operations remained stable at $1.7
million for the year 2006 as compared to $1.8 million in 2005.
Corporate
Expenses
Income
from operations on a segment basis does not include corporate expenses or
depreciation and amortization expense related to property, plant and equipment
carried at the corporate level totaling $28.8 million for the year ended
December 31, 2006, as compared to $39.2 million in 2005. Included in
the December 31, 2005, corporate expenses of $39.2 million was $15.2 million
for
the Dyneer legal charge as previously discussed. The December 31,
2005, corporate expenses without the Dyneer legal charge would have been $24.0
million. The increase in corporate expenses without the Dyneer legal
charge related primarily to higher sales and marketing expenses related to
the
acquisition of Freeport and Bryan of approximately $3 million for 2006 as
compared to 2005.
27
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
As
of
December 31, 2007, the Company had $58.3 million of cash balances within various
bank accounts. This cash balance increased by $24.9 million from
December 31, 2006, due to the following cash flow discussion items.
Operating
Cash Flows
For
the
year ended December 31, 2007, operating activities provided cash of $76.0
million. This cash was primarily provided by a decrease in
inventories of $26.6 million and increases of $18.1 million in accounts payable
and $16.7 million in other current liabilities. Positive cash flows
were offset by net loss of $(7.2) million and an increase in accounts receivable
of $24.5 million. Included as a reduction to net income were noncash
charges of $28.6 million for depreciation and amortization and $13.4 million
for
a debt conversion charge.
In
comparison, for the year ended December 31, 2006, cash of $5.3 million was
used
for operating activities. This usage was primarily the result of
increases in accounts receivable and inventories of $26.8 million and $19.5
million, respectively, offset by an increase in other current liabilities of
$13.4 million and net income of $5.1 million. Included as a reduction
to net income were noncash charges for depreciation and amortization of $26.9
million.
Operating
cash flows increased $81.3 million from the year ended December 31, 2006, to
December 31, 2007. This increase was largely the result of cash flows
from inventories increasing $46.1 million and cash flows from accounts payable
increasing by $16.7 million. In 2007, the Company was successful in
decreasing its finished goods inventory at its recently acquired facilities
in
Freeport, Illinois, and Bryan, Ohio. Accounts payable increased in
2007 as a result of higher purchases resulting from higher sales
levels.
For
the
year ended December 31, 2005, positive cash flows from operating activities
of
$23.2 million resulted primarily from income of $11.0 million and a decrease
in
accounts receivable of $5.7 million. Included as a reduction to net
income were noncash charges of $20.7 million for depreciation and amortization
and $7.2 million for a convertible debt conversion charge. Included
as an addition to net income was a noncash benefit of $14.5 million for deferred
income tax.
Operating
cash flows decreased $28.5 million from the year ended December 31, 2005, to
December 31, 2006. This decrease was largely the result of cash flows
from accounts receivable decreasing $32.4 million and cash flows from
inventories decreasing $21.7 million. These decreased cash flows
resulted from large increases in accounts receivable and inventory as the result
of higher sales levels. These decreases were offset by an increase in
noncash deferred income tax charges of $17.1 million.
Investing
Cash Flows
Net
cash
used for investing activities was $46.4 million in 2007, as compared to $52.7
million in 2006 and $76.7 million in 2005. Titan invested $44.6
million for the Continental OTR tire acquisition in 2006, while the Company
invested $100.0 million for the Goodyear North American farm tire acquisition
in
2005.
The
Company invested a total of $38.0 million in capital expenditures in 2007,
compared to $8.3 million in 2006 and $6.8 million in 2005. Of the
$38.0 million of capital expenditures in 2007, approximately $22 million relates
to the Company’s giant OTR mining tire project. The remaining
expenditures represent various equipment purchases and improvements to enhance
production capabilities. The Company estimates that current
commitments related to the OTR Project at this time are approximately $59
million, including the 2007 disbursement of approximately $22
million. In addition to the OTR Project, the Company estimates that
its capital expenditures for other projects for 2008 could be approximately
$18
million.
Investing
cash flows decreased $24.0 million from the year ended December 31, 2005, to
December 31, 2006. This decrease was primarily the result of less
cash used for the Continental off-the-road (OTR) asset acquisition in 2006
as
compared to the cash used for the Goodyear North American farm tire acquisition
in 2005.
28
Financing
Cash Flows
Net
cash
used by financing activities was $4.7 million in 2007. This cash use
was primarily used for payment of debt of $10.2 million offset by proceeds
of
$6.6 million from the exercise of stock options. Net cash provided by
financing activities in 2006 was $90.8 million. This cash was
primarily provided by $88.9 million of net debt proceeds. In
addition, the exercise of stock options provided $5.4 million in cash and the
payment of financing fees used $3.7 million of cash. In 2005, cash of
$53.0 million was provided by financing activities, the result of net debt
proceeds of $53.4 million.
Financing
cash flows decreased $95.5 million from the year ended December 31, 2006, to
the
year ended December 31, 2007. Also, financing cash flows increased
$37.8 million from the year ended December 31, 2005, to December 31,
2006. The large changes from year to year are primarily the result of
changes in total debt borrowings. The net debt amounts changed
primarily as the result of cash used for acquisitions.
Debt
Covenants
The
Company’s revolving credit facility contains various covenants and
restrictions. The financial covenants in this agreement require
that:
|
·
|
Collateral
coverage be equal to or greater than 1.20 times the outstanding
revolver
balance.
|
|
·
|
If
the 30-day average of the outstanding revolver balance exceeds
$225
million, the fixed charge coverage ratio be equal to or greater
than a 1.0
to 1.0 ratio.
|
Restrictions include:
|
·
|
Limits
on payments of dividends and repurchases of the Company’s
stock.
|
|
·
|
Restrictions
on the ability of the Company to make additional borrowings, or to
consolidate, merge or otherwise fundamentally change the ownership
of the
Company.
|
|
·
|
Limitations
on investments, dispositions of assets and guarantees of
indebtedness.
|
|
·
|
Other
customary affirmative and negative
covenants.
|
These
covenants and restrictions could limit the Company’s ability to respond to
market conditions, to provide for unanticipated capital investments, to raise
additional debt or equity capital, to pay dividends or to take advantage of
business opportunities, including future acquisitions. The failure by
Titan to meet these covenants could result in the Company ultimately being
in
default on these loan agreements.
The
Company is in compliance with these covenants and restrictions as of December
31, 2007. The collateral coverage was calculated to be 66.8 times the
outstanding revolver balance at December 31, 2007.
The
fixed
charge coverage ratio did not apply for the quarter ended December 31,
2007. The credit facility usage was $6.1 million at December 31,
2007, consisting exclusively of letters of credit of $6.1 million with no cash
borrowings.
Other
Items
The
Company’s business is subject to seasonal variations in sales that affect
inventory levels and accounts receivable balances. Historically,
Titan tends to experience higher sales demand in the first and second
quarters.
The
Company’s Board of Directors authorized Titan to repurchase up to 10.0 million
shares of its common stock. No Titan stock was repurchased in 2007 or
2006. The Company repurchased 7.5 million shares in prior years
leaving Titan with authorization to repurchase an additional 2.5 million common
shares subject to debt agreement covenants. The Company has no plans
to repurchase any Titan common stock at this time.
29
LIQUIDITY
OUTLOOK
At
December 31, 2007, the Company had unrestricted cash and cash equivalents of
$58.3 million and $243.9 million of unused availability under the terms of
its
revolving credit facility (credit facility). The availability under
the Company’s $250 million credit facility was reduced by $6.1 million for
outstanding letters of credit. The Company expects to contribute
approximately $1 million to its frozen defined benefit pension plans during
2008. The Company has a net operating loss carryforward of
approximately $13 million, expiring primarily in 2023, which is expected to
reduce the Company’s income tax payments in the future.
In
May
2007, Titan’s Board of Directors approved funding for the Company to increase
giant OTR mining tire production capacity to include 57-inch and 63-inch giant
radial tires (the “OTR Project”). The Company estimates that current
commitments related to the OTR Project at this time are approximately $59
million, of which approximately $22 million was disbursed in
2007. Additional capital expenditure commitments will be incurred
through 2008 as the OTR Project moves to completion. The final cost
of these additional OTR capital items have not been finalized at this
time. The Company currently anticipates that cash on hand and
anticipated internal cash flows from operations will allow the Company
sufficient funds for completion of the OTR Project. In addition to
the OTR Project, the Company estimates that its capital expenditures for other
projects for 2008 could be approximately $18 million.
Cash
on
hand and anticipated internal cash flows from operations are expected to provide
sufficient liquidity for working capital needs and capital expenditures
including the OTR Project. The Company has a $250 million credit
facility and currently there are no cash borrowings on the
facility. If the Company were to exhaust the availability on this
facility or were not to meet the financial covenants and conditions of its
loan
agreements, the Company’s ability to secure additional funding may be
limited.
INFLATION
The
Company is subject to the effect of price fluctuations. During 2007,
2006 and 2005, the Company realized price increases for purchases of steel
and
rubber used in the manufacture of its products. While the cost
outlook for commodities used in the Company’s production is not certain,
management believes it can manage these inflationary pressures by introducing
appropriate sales price adjustments. However, these price adjustments
usually lag the inflationary pressures.
30
CONTRACTUAL
OBLIGATIONS
The
Company’s contractual obligations at December 31, 2007, consisted of the
following (in
thousands):
|
Payments
due by period
|
||||||||||||||||||||
|
Contractual
Obligations
|
Total
|
Less
than 1 year
|
1-3 years
|
3-5 years
|
More
than 5 years
|
|||||||||||||||
|
Long-term
debt
|
$ | 200,000 | $ | 0 | $ | 0 | $ | 200,000 | $ | 0 | ||||||||||
|
Interest
expense (a)
|
64,667 | 16,000 | 32,000 | 16,667 | 0 | |||||||||||||||
|
Operating
leases
|
4,713 | 1,915 | 2,207 | 591 | 0 | |||||||||||||||
|
Purchase
obligations
|
6,262 | 2,373 | 3,889 | 0 | 0 | |||||||||||||||
|
Other
long-term liabilities (b)
|
900 | 900 | 0 | 0 | 0 | |||||||||||||||
|
Royalty
payment (c)
|
30,000 | 6,000 | 12,000 | 12,000 | 0 | |||||||||||||||
|
Total
|
$ | 306,542 | $ | 27,188 | $ | 50,096 | $ | 229,258 | $ | 0 | ||||||||||
|
(a)
|
Interest
expense is estimated based on the Company’s year-end 2007 debt balances
and maturities. The estimates assume no revolver
borrowings. The Company’s actual debt balances and interest
rates may fluctuate in the future. Therefore, actual interest
payments may vary from those payments detailed in the above
table.
|
|
(b)
|
Other
long-term liabilities represent the Company’s estimated funding
requirements for the frozen defined benefit pension plans. The Company’s
liability for pensions is based on a number of assumptions, including
discount rates, rates of return on investments, mortality rates and
other
factors. Certain of these assumptions are determined with the
assistance of outside actuaries. Assumptions are based on past
experience and anticipated future trends and are subject to a number
of
risks and uncertainties and may lead to significantly different pension
liability funding requirements.
|
|
(c)
|
The
Company pays a royalty relating to a license agreement with The Goodyear
Tire & Rubber Company to manufacture and sell certain off-highway
tires in North America. Under this agreement, royalty trademark
payments would cease immediately if Titan discontinued using the
Goodyear
trademark. Titan currently plans to continue using the Goodyear
trademark until circumstances require a change. Titan’s royalty
payment to Goodyear for the next five years, the current term of
the
agreement, using the annual 2007 royalty payment of approximately
$6
million as an estimate would total approximately $30
million. The actual royalty amount paid to Goodyear in the
future will vary based on the sales of certain off-highway tires
in North
America and the continuation of the license
agreement.
|
OFF-BALANCE
SHEET ARRANGEMENTS
The
Company has no material off-balance sheet arrangements.
31
MARKET
RISK SENSITIVE INSTRUMENTS
Exchange
Rate Sensitivity
The
Company is exposed to fluctuations in the British pound and Euro world
currencies. Titan does not hedge foreign currency transaction or
translation exposures. The Company’s net investment in foreign
entities translated into U.S. dollars was $34.5 million at December 31, 2007,
and $65.9 million at December 31, 2006. The hypothetical potential
loss in value of the Company’s net investment in foreign entities resulting from
a 10% adverse change in foreign currency exchange rates at December 31, 2007,
would amount to approximately $3.5 million.
Commodity
Price Sensitivity
The
Company does not generally enter into long-term commodity contracts and does
not
use derivative commodity instruments to hedge its exposures to commodity market
price fluctuations. Therefore, the Company is exposed to price
fluctuations of its key commodities, which consist primarily of steel and
rubber. The Company attempts to pass on certain material price
increases and decreases to its customers, depending on market
conditions.
Interest
Rate Sensitivity
The
Company has a $250 million credit facility that has a variable interest
rate. If the credit facility were fully drawn, a change in the
interest rate of 100 basis points, or 1%, would change the Company’s interest
expense by approximately $2.5 million. At December 31, 2007, the
Company had no cash borrowings on the credit facility.
At
December 31, 2007, the fair value of the senior unsecured notes, based on market
prices obtained through independent pricing sources, was approximately $193
million, compared to a carrying value of $200 million.
MARKET
CONDITIONS AND OUTLOOK
In
2007,
Titan experienced strong demand for the Company’s agricultural and
earthmoving/construction products. This strong demand is expected to
continue into 2008. The strength in the agricultural market is the
result of high commodity prices which have resulted from the continuing increase
in the use of biofuels. High prices for metals, oil and gas have
created a large demand for the Company’s earthmoving and mining
products.
In
May
2007, Titan’s Board of Directors approved funding for the Company to increase
giant OTR mining tire production capacity to include 57-inch and 63-inch giant
radial tires. This funding should allow Titan to produce up to an
estimated 6,000 giant radial tires a year. Titan estimates this may
increase sales as much as $240 million on an annual basis. The
Company currently plans to be in start-up production of these giant mining
tires
by the end of the second quarter of 2008.
Higher
energy, raw material and petroleum-based product costs may continue to
negatively impact the Company’s margins. Many of Titan’s overhead
expenses are fixed; therefore, lower seasonal trends may cause negative
fluctuations in quarterly profit margins and affect the financial condition
of
the Company.
AGRICULTURAL
MARKET OUTLOOK
Agricultural
market sales are forecasted to remain strong for 2008. The farm
economy is being helped by strong commodity prices. However, the farm
economy is also affected by high input costs for fuel and
fertilizer. The increasing demand for grain-based ethanol and
soybean-based biodiesel fuel has increased commodity prices and should support
farm income levels in the long-term. Ethanol production is projected
to continue to expand sharply through 2009/2010. The increasing
demand for biofuels has supported all agricultural commodity prices as acreage
has been shifted from other crops to those used in biofuels. Many
variables, including weather, grain prices, export markets and future government
policies and payments can greatly influence the overall health of the
agricultural economy.
32
EARTHMOVING/CONSTRUCTION
MARKET OUTLOOK
Sales
for
the earthmoving/construction market are expected to remain strong in
2008. Metals, oil and gas prices have remained high and at levels
that are attractive for continued investment, which will maintain support for
earthmoving and mining sales. However, the decline in the United
States housing market has caused a decline in equipment used for housing
construction. The Company’s OTR production realignment is allowing
Titan to expand production in earthmoving/construction tire sizes that are
in
short supply. The OTR Project should begin to add significant
capacity for giant mining tires in the second half of 2008. The
earthmoving/construction segment is affected by many variables, including
commodity prices, road construction, infrastructure, government appropriations
and housing starts.
CONSUMER
MARKET OUTLOOK
The
current overall uncertainty in consumer spending resulting from the housing
market decline makes consumer market projections especially
difficult. Titan’s sales in the consumer market include sales to
Goodyear, which fluctuate significantly based upon their future product
requirements, including an off-take/mixing agreement. This agreement
includes mixed stock, which is a prepared rubber compound used in tire
production. The Company’s consumer market sales may fluctuate
significantly related to sales volumes under the off-take/mixing agreement
with
Goodyear. The Company expects the remaining consumer market sales to
be about even in 2008. Many factors affect the consumer market
including weather, competitive pricing, energy prices and consumer
attitude.
PENSIONS
The
Company has three frozen defined benefit pension plans and one defined benefit
plan that purchased a final annuity settlement in 2002. These plans
are described in Note 20 of the Company’s Notes to Consolidated Financial
Statements.
The
Company’s recorded liability for pensions is based on a number of assumptions,
including discount rates, rates of return on investments, mortality rates and
other factors. Certain of these assumptions are determined with the
assistance of outside actuaries. Assumptions are based on past
experience and anticipated future trends. These assumptions are
reviewed on a regular basis and revised when appropriate. Revisions
in assumptions and actual results that differ from the assumptions affect future
expenses, cash funding requirements and the carrying value of the related
obligations. During the twelve months ended December 31, 2007, the
Company contributed cash funds of approximately $1 million to the frozen defined
benefit pension plans. In addition, the Company contributed 0.2
million shares of Titan common stock with an approximate value of $5 million
to
the frozen pension plans in 2007. Titan expects to contribute
approximately $1 million to these frozen defined benefit pension plans during
2008.
In
October 2007, the Titan Tire Bryan pension plan, adopted at the date of the
Continental OTR asset acquisition and frozen from its inception, received cash
transfers of approximately $25 million from Continental Tire North America’s
frozen pension plan for the Bryan, Ohio, location. The amount
transferred into the frozen plan was actuarially approved to be a fully funded
plan.
Titan’s
projected benefit obligation at December 31, 2007, was $95.4 million as compared
to $68.8 million at December 31, 2006. The Company’s defined benefit
pension plans were underfunded by $0.9 million at December 31,
2007. During 2007, the Company recorded net periodic pension cost of
$0.2 million. Accumulated other comprehensive loss recorded for
defined benefit pension plans, net of tax, was $15.6 million and $16.4 million
at December 31, 2007 and 2006, respectively. Other comprehensive
income is recorded as a direct charge to stockholders’ equity and does not
affect net income. Titan will be required to record net periodic
pension cost in the future; these costs may fluctuate based upon revised
assumptions and could negatively affect the Company’s financial position, cash
flows and results of operations.
33
RECENTLY
ISSUED ACCOUNTING STANDARDS
Statement
of Financial Accounting Standards Number 157
In
September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
“Fair Value Measurements,” was issued. This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is evaluating the effect the adoption of this
standard will have on its consolidated financial position, results of operations
and cash flows.
Statement
of Financial Accounting Standards Number 159
In
February 2007, SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities,” was issued. This statement permits entities
to choose to measure many financial instruments and certain other items at
fair
value. This statement is effective for fiscal years beginning after
November 15, 2007. The Company is evaluating the effect the adoption
of this standard will have on its consolidated financial position, results
of
operations and cash flows.
Statement
of Financial Accounting Standards Number 141 (revised 2007)
In
December 2007, SFAS No. 141 (revised 2007), “Business Combinations,” was
issued. This statement requires an acquirer to recognize assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being
the
excess value over the net identifiable assets acquired. This
statement is effective for business combinations for which the acquisition
date
is on or after the beginning of the first annual reporting period beginning
on
or after December 15, 2008. The Company is evaluating the effect the
adoption of this standard will have on its consolidated financial position,
results of operations and cash flows.
Statement
of Financial Accounting Standards Number 160
In
December 2007, SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements,” was issued. This statement establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for
the
deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. The Company is evaluating the effect the adoption of this
standard will have on its consolidated financial position, results of operations
and cash flows.
34
ITEM
7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Reference
is made to Item 7, Part II of this report.
ITEM
8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Reference
is made to Item 15, Part IV of this report, “Exhibits, Financial Statement
Schedules.”
|
ITEM
9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
ITEM
9A – CONTROLS AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
The
Company’s principal executive officer and principal financial officer believe
the Company’s disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) are effective as of the end of the period covered
by this Form 10-K 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
fourth 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.
|
ITEM
9B – OTHER INFORMATION
|
None.
35
PART
III
ITEM
10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The
information required by this item regarding the Company’s directors is
incorporated by reference to the Company’s 2008 Proxy Statement under the
captions “Election of Mr. Cashin, Mr. Febbo and Mr. Quain as Directors,”
“Directors Continuing in Office,” “Committees and Meetings of the Board of
Directors” and “Corporate Governance.”
Executive
Officers
The
names, ages and positions of all executive officers of the Company are listed
below, followed by a brief account of their business experience during the
past
five years. Officers are normally appointed annually by the Board of
Directors at a meeting immediately following the Annual Meeting of
Stockholders. The Chief Executive Officer and Secretary are brother
and sister. There is no arrangement or understanding between any
officer and any other person pursuant to which an officer was
selected.
Maurice
M. Taylor Jr., 63, has been Chief Executive Officer and a Director of the
Company since 1990, when Titan was acquired in a management-led buyout by
investors, including Mr. Taylor. Mr. Taylor served as President of
the Company from 1990 to 2005 and was appointed Chairman in 2005.
Ernest
J.
Rodia, 64, joined the Company in 2005 as Executive Vice President and Chief
Operating Officer. Prior to Titan, Mr. Rodia was employed for over 35
years by Goodyear Tire and Rubber Company, holding various engineering and
manufacturing positions.
Kent
W.
Hackamack, 49, served as Corporate Controller of the Company from 1994 to
1996. Mr. Hackamack was appointed Vice President of Finance and
Treasurer in 1996.
Cheri
T.
Holley, 60, joined the Company in 1994 as General Counsel and
Secretary. Ms. Holley was appointed Vice President in
1996.
Section
16(a) beneficial ownership reporting compliance
The
information required by this item regarding beneficial ownership reporting
compliance is incorporated by reference to the Company’s 2008 Proxy Statement
under the caption “Section 16(a) Beneficial Ownership Reporting
Compliance.”
Business
conduct policy
The
Company adopted a business conduct policy, which is applicable to directors,
officers and employees. The Company has also adopted corporate
governance guidelines. The business conduct policy and corporate
governance guidelines are available under the investor information category
of
the Company’s website, www.titan-intl.com. The
Company intends to satisfy disclosure requirements regarding amendments to
or
waivers from its business conduct policy by posting such information on its
website. A printed copy of the business conduct policy and corporate
governance guidelines are available, without charge, by writing
to: Secretary of Titan International, Inc., 2701 Spruce Street,
Quincy, IL 62301.
ITEM
11 – EXECUTIVE COMPENSATION
The
information required by this item is incorporated by reference to the Company’s
2008 Proxy Statement under the caption “Compensation of Executive
Officers.”
36
|
ITEM
12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Except
for the information concerning equity compensation plans, the information
required by this item is incorporated by reference to the Company’s 2008 Proxy
Statement under the caption “Security Ownership of Certain Beneficial Owners and
Management.”
The
following table provides information about shares of Titan common stock that
may
be issued under Titan’s equity compensation plans, as of December 31,
2007:
|
Plan
Category
|
(i)
Number
of securities to
be
issued upon exercise
of
outstanding options,
warrants
and rights
|
(ii)
Weighted-average
exercise
price of outstanding options, warrants and
rights
|
(iii)
Number
of securities
remaining
available for
future
issuance under equity compensation plans (excluding securities reflected in column (i))
|
|||||||||
|
Equity
compensation plans approved
by security holders
|
699,200 | (a) | 12.26 | 1,217,720 | ||||||||
|
Equity
compensation plans not approved by security holders
|
0 | n/a | 0 | |||||||||
|
Total
|
699,200 | 12.26 | 1,217,720 | |||||||||
|
(a)
|
Amount
includes outstanding stock options under the Company’s 1993 Stock
Incentive Plan, 1994 Non-Employee Director Stock Option Plan and
2005
Equity Incentive Plan.
|
For
additional information regarding the Company’s stock option plans, please see
Note 21 of the Company’s Notes to Consolidated Financial
Statements.
|
ITEM
13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
The
information required by this item is incorporated by reference to the Company’s
2008 Proxy Statement under the caption “Related Party Transactions” and
“Corporate Governance” and also appears in Note 25 of the Company’s Notes to
Consolidated Financial Statements.
ITEM
14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The
information required by this item is incorporated by reference to the Company’s
2008 Proxy Statement under the caption “Audit and Other Fees.”
37
PART
IV
| ITEM 15 – EXHIBITS, FINANCIAL STATEMENT SCHEDULES | ||
|
(a) 1.
|
Financial
Statements
|
|
|
Management’s
Responsibility for Financial Statements and Report on Internal Control
Over Financial Reporting
|
F-1
|
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
|
Consolidated
Statements of Operations for the years ended December 31, 2007, 2006
and
2005
|
F-3
|
|
|
Consolidated
Balance Sheets at December 31, 2007 and 2006
|
F-4
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December
31, 2005, 2006 and 2007
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2007, 2006
and
2005
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
through F-34
|
|
|
2.
|
Financial
Statement Schedule
|
|
|
Schedule
II – Valuation Reserves
|
S-1
|
|
|
3.
|
Exhibits
|
|
|
The
accompanying Exhibit Index is incorporated herein by
reference.
|
||
38
SIGNATURES
Pursuant
to the requirements of Sections 13 or 15(d) 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:
|
February
27, 2008
|
By:
|
/s/ MAURICE
M. TAYLOR JR.
|
|
Maurice
M. Taylor Jr.
|
|||
|
Chairman
and Chief Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has
been
signed below by the following persons on behalf of the registrant and in the
capacities indicated on February 27, 2008.
|
Signatures
|
Capacity
|
|
/s/ MAURICE
M. TAYLOR
JR.
|
Chairman
and Chief Executive Officer
|
|
Maurice M. Taylor Jr.
|
(Principal
Executive Officer)
|
|
/s/ KENT
W.
HACKAMACK
|
Vice
President of Finance and Treasurer
|
|
Kent W. Hackamack
|
(Principal
Financial Officer and
|
|
Principal
Accounting Officer)
|
|
|
/s/ J.
MICHAEL A.
AKERS
|
Director
|
|
J. Michael A. Akers
|
|
|
/s/ ERWIN
H.
BILLIG
|
Director
|
|
Erwin H. Billig
|
|
|
/s/ EDWARD
J.
CAMPBELL
|
Director
|
|
Edward
J.
Campbell
|
|
|
/s/ RICHARD
M. CASHIN
JR.
|
Director
|
|
Richard
M. Cashin
Jr.
|
|
|
/s/ ALBERT J.
FEBBO
|
Director
|
|
Albert
J. Febbo
|
|
|
/s/ MITCHELL
I.
QUAIN
|
Director
|
|
Mitchell
I. Quain
|
|
|
/s/ ANTHONY
L.
SOAVE
|
Director
|
|
Anthony
L. Soave
|
39
TITAN
INTERNATIONAL, INC.
Exhibit
Index
Annual
Report on Form 10-K
|
Exhibit
|
|
|
No.
|
DESCRIPTION
|
|
3.1
(a)
|
Amended
Restated Articles of Incorporation of the Company
|
|
3.2
(b)
|
Bylaws
of the Company
|
|
4.1
(c)
|
Indenture
between the Company and U.S. Bank National Association dated December
28,
2006
|
|
10.1
(d)
|
1994
Non-Employee Director Stock Option Plan
|
|
10.2
(d)
|
1993
Stock Incentive Plan
|
|
10.3
(e)
|
Credit
Agreement dated July 23, 2004, among the Company and LaSalle Bank
National
Association and General Electric Capital Corporation
|
|
10.4
(f)
|
First
Amendment to Credit Agreement among the Company and LaSalle Bank
National
Association
and General Electric Capital Corporation dated February 16,
2005
|
|
10.5
(g)
|
2005
Equity Incentive Plan
|
|
10.6
(h)
|
Second
Amendment to Credit Agreement among the Company and LaSalle Bank
National
Association dated October 21, 2005
|
|
10.7
(i)
|
Third
Amendment to Credit Agreement among the Company and LaSalle Bank
National
Association dated June 28, 2006
|
|
10.8
(j)
|
Fourth
Amendment to Credit Agreement among the Company and LaSalle Bank
National
Association dated February 8, 2007
|
|
10.9
(k)
|
Fifth
Amendment to Credit Agreement among the Company and LaSalle Bank
National
Association dated December 12, 2007
|
|
21*
|
Subsidiaries
of the Registrant
|
|
23*
|
Consent
of Independent Registered Public Accounting Firm
|
|
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
|
*Filed
herewith
|
(a)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s Form
10-Q for the quarterly period ended September 30, 1998 (No.
001-12936).
|
|
(b)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s
Registration Statement on Form S-4 (No.
33-69228).
|
|
(c)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s Form
S-4 (No. 333-141865).
|
|
(d)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-3 (No.
333-61743).
|
|
(e)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s Form
10-Q for the quarterly period ended June 30, 2004 (No.
001-12936).
|
|
(f)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2005 (No.
001-12936).
|
|
(g)
|
Incorporated
by reference to Appendix A of the Company’s Definitive Proxy Statement
filed on March 30, 2005.
|
|
(h)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s
Current Report on Form 8-K filed on October 24,
2005.
|
|
(i)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s
Current Report on Form 8-K filed on June 29,
2006.
|
|
(j)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s
Current Report on Form 8-K filed on February 8,
2007.
|
|
(k)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s
Current Report on Form 8-K filed on December 13,
2007.
|
40
Management’s
Responsibility for Financial Statements
Management
is responsible for the preparation of the Company’s consolidated financial
statements included in this annual report on Form 10-K. Management
believes that the consolidated financial statements fairly reflect the
transactions and the financial statements reasonably present the Company’s
financial position and results of operations in conformity with accounting
principles generally accepted in the United States of America.
The
Board
of Directors of the Company has an Audit Committee comprised entirely of outside
directors who are independent of management. The Committee meets
periodically with management, the internal auditors and the independent
registered public accounting firm to review accounting control, auditing and
financial reporting matters. The Audit Committee is responsible for
the appointment of the independent registered public accounting firm and
approval of their fees.
The
independent registered public accounting firm audits the Company’s consolidated
financial statements in accordance with the standards of the Public Company
Accounting Oversight Board (United States). The consolidated
financial statements as of December 31, 2007, have been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm,
as
stated in their report, which is included herein.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Because of its inherent limitations, internal
control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Management
has performed an evaluation of the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2007, based on criteria
for
effective internal control over financial reporting described in “Internal
Control-Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation,
management concluded the Company maintained effective internal control over
financial reporting as of December 31, 2007.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2007, has been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm, as stated in their report which
is presented in this Annual Report on Form 10-K.
F-1
Report
of Independent Registered Public Accounting Firm
To
the
Board of Directors
and
Stockholders of
Titan
International, Inc.:
In
our
opinion, the consolidated financial statements listed in the accompanying index
under item 15(a)(1) present fairly, in all material respects, the financial
position of Titan International Inc. and its subsidiaries at December 31, 2007
and 2006, and the results of their operations and their cash flows for each
of
the three years in the period ended December 31, 2007 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2) presents fairly,
in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. Also
in our opinion, the Company maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007 based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). The Company's management is responsible for these financial
statements and financial statement schedule, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness
of
internal control over financial reporting, included in Management's Report
on
Internal Control Over Financial Reporting appearing on page F-1. Our
responsibility is to express opinions on these financial statements, on the
financial statement schedule, and on the Company's internal control over
financial reporting based on our integrated audits. We conducted our
audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement and whether effective
internal control over financial reporting was maintained in all material
respects. Our audits of the financial statements included examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing
and
evaluating the design and operating effectiveness of internal control based
on
the assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We believe that
our
audits provide a reasonable basis for our opinions.
A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets
of
the company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts
and
expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
/s/
PricewaterhouseCoopers LLP
St.
Louis, MO
February
27, 2008
F-2
TITAN
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(All
amounts in thousands, except per share data)
|
Year
ended December 31,
|
||||||||||||
|
2007
|
2006
|
2005
|
||||||||||
|
Net
sales
|
$ | 837,021 | $ | 679,454 | $ | 470,133 | ||||||
|
Cost
of sales
|
752,890 | 606,676 | 405,923 | |||||||||
|
Gross
profit
|
84,131 | 72,778 | 64,210 | |||||||||
|
Selling,
general and administrative expenses
|
53,138 | 45,766 | 37,006 | |||||||||
|
Royalty
expense
|
6,155 | 5,001 | 0 | |||||||||
|
Dyneer
legal charge
|
0 | 0 | 15,205 | |||||||||
|
Income
from operations
|
24,838 | 22,011 | 11,999 | |||||||||
|
Interest
expense
|
(18,710 | ) | (17,001 | ) | (8,617 | ) | ||||||
|
Noncash
convertible debt conversion charge
|
(13,376 | ) | 0 | (7,225 | ) | |||||||
|
Other
income, net
|
3,364 | 3,564 | 958 | |||||||||
|
(Loss)
income before income taxes
|
(3,884 | ) | 8,574 | (2,885 | ) | |||||||
|
Provision
(benefit) for income taxes
|
3,363 | 3,430 | (13,927 | ) | ||||||||
|
Net
(loss) income
|
$ | (7,247 | ) | $ | 5,144 | $ | 11,042 | |||||
|
(Loss)
earnings per common share:
|
||||||||||||
|
Basic
|
$ | (.28 | ) | $ | .26 | $ | .61 | |||||
|
Diluted
|
(.28 | ) | .26 | .60 | ||||||||
|
Average
common shares and equivalents outstanding:
|
||||||||||||
|
Basic
|
25,665 | 19,702 | 18,053 | |||||||||
|
Diluted
|
25,665 | 20,044 | 18,284 | |||||||||
See
accompanying Notes to Consolidated Financial Statements.
F-3
TITAN
INTERNATIONAL, INC.
CONSOLIDATED
BALANCE SHEETS
(All
amounts in thousands, except share data)
|
December
31,
|
||||||||
|
Assets
|
2007
|
2006
|
||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 58,325 | $ | 33,412 | ||||
|
Accounts
receivable (net of
allowance of $5,258 and $4,818, respectively)
|
98,394 | 73,882 | ||||||
|
Inventories
|
128,048 | 154,604 | ||||||
|
Deferred
income taxes
|
25,159 | 29,234 | ||||||
|
Prepaid
and other current assets
|
17,839 | 18,801 | ||||||
|
Total
current assets
|
327,765 | 309,933 | ||||||
|
Property,
plant and equipment, net
|
196,078 | 184,616 | ||||||
|
Investment
in Titan Europe Plc
|
34,535 | 65,881 | ||||||
|
Goodwill
|
11,702 | 11,702 | ||||||
|
Other
assets
|
20,415 | 12,994 | ||||||
|
Total
assets
|
$ | 590,495 | $ | 585,126 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Short-term
debt
|
$ | 0 | $ | 98 | ||||
|
Accounts
payable
|
43,992 | 25,884 | ||||||
|
Other
current liabilities
|
43,788 | 36,942 | ||||||
|
Total
current liabilities
|
87,780 | 62,924 | ||||||
|
Long-term
debt
|
200,000 | 291,266 | ||||||
|
Deferred
income taxes
|
14,044 | 27,924 | ||||||
|
Other
long-term liabilities
|
16,149 | 15,835 | ||||||
|
Total
liabilities
|
317,973 | 397,949 | ||||||
|
Commitments
and contingencies: Notes
13, 22 and 23
|
||||||||
|
Stockholders’
equity
|
||||||||
|
Common
stock
(no par, 60,000,000
shares authorized, 30,577,356 issued)
|
30 | 30 | ||||||
|
Additional
paid-in capital
|
303,908 | 258,071 | ||||||
|
Retained
earnings
|
29,012 | 36,802 | ||||||
|
Treasury
stock (at cost, 3,229,055
and 10,678,454 shares, respectively)
|
(29,384 | ) | (96,264 | ) | ||||
|
Accumulated
other comprehensive loss
|
(31,044 | ) | (11,462 | ) | ||||
|
Total
stockholders’ equity
|
272,522 | 187,177 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 590,495 | $ | 585,126 | ||||
See
accompanying Notes to Consolidated Financial Statements.
F-4
TITAN
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(All
amounts in thousands, except share data)
|
Number
of common shares
|
Common
Stock
|
Additional
paid-in
capital
|
Retained
earnings
|
Treasury
stock
|
Accumulated
other comprehensive income (loss)
|
Total
|
||||||||||||||||||||||
|
Balance
January 1, 2005
|
#16,326,426 | $ | 27 | $ | 203,239 | $ | 21,385 | $ | (101,204 | ) | $ | (16,566 | ) | $ | 106,881 | |||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||
|
Net
income
|
11,042 | 11,042 | ||||||||||||||||||||||||||
|
Currency
translation adjustment
|
(3,168 | ) | (3,168 | ) | ||||||||||||||||||||||||
|
Minimum
pension liability, net of tax
|
(18 | ) | (18 | ) | ||||||||||||||||||||||||
|
Comprehensive
income
|
11,042 | (3,186 | ) | 7,856 | ||||||||||||||||||||||||
|
Dividends
paid on common stock
|
(374 | ) | (374 | ) | ||||||||||||||||||||||||
|
Gain
on investee transaction, net of tax
|
10,471 | 10,471 | ||||||||||||||||||||||||||
|
Note
conversion
|
3,022,275 | 3 | 40,928 | 40,931 | ||||||||||||||||||||||||
|
Exercise
of stock options
|
135,860 | 568 | 1,220 | 1,788 | ||||||||||||||||||||||||
|
Issuance
of treasury stock under 401(k) plan
|
18,645 | 93 | 167 | 260 | ||||||||||||||||||||||||
|
Balance
December 31, 2005
|
19,503,206 | 30 | 255,299 | 32,053 | (99,817 | ) | (19,752 | ) | 167,813 | |||||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||
|
Net
income
|
5,144 | 5,144 | ||||||||||||||||||||||||||
|
Unrealized
gain on investment, net of tax
|
6,126 | 6,126 | ||||||||||||||||||||||||||
|
Minimum
pension liability, net of tax
|
3,225 | 3,225 | ||||||||||||||||||||||||||
|
Comprehensive
income
|
5,144 | 9,351 | 14,495 | |||||||||||||||||||||||||
|
Adjustment
to initially apply SFAS No. 158, net of tax
|
(1,061 | ) | (1,061 | ) | ||||||||||||||||||||||||
|
Dividends
paid on common stock
|
(395 | ) | (395 | ) | ||||||||||||||||||||||||
|
Exercise
of stock options
|
382,190 | 2,647 | 3,432 | 6,079 | ||||||||||||||||||||||||
|
Issuance
of treasury stock under 401(k) plan
|
13,506 | 125 | 121 | 246 | ||||||||||||||||||||||||
|
Balance
December 31, 2006
|
19,898,902 | 30 | 258,071 | 36,802 | (96,264 | ) | (11,462 | ) | 187,177 | |||||||||||||||||||
|
Comprehensive
(loss) income:
|
||||||||||||||||||||||||||||
|
Net
loss
|
(7,247 | ) | (7,247 | ) | ||||||||||||||||||||||||
|
Unrealized
loss on investment, net of tax
|
(20,375 | ) | (20,375 | ) | ||||||||||||||||||||||||
|
Defined
benefit pension plan entries, net of tax
|
793 | 793 | ||||||||||||||||||||||||||
|
Comprehensive
income
|
(7,247 | ) | (19,582 | ) | (26,829 | ) | ||||||||||||||||||||||
|
Dividends
paid on common stock
|
(543 | ) | (543 | ) | ||||||||||||||||||||||||
|
Note
conversion
|
6,577,200 | 35,240 | 59,049 | 94,289 | ||||||||||||||||||||||||
|
Exercise
of stock options
|
444,530 | 2,640 | 3,991 | 6,631 | ||||||||||||||||||||||||
|
Issuance
of treasury stock for funding contractual obligations on employee
contracts
|
214,000 | 4,184 | 1,921 | 6,105 | ||||||||||||||||||||||||
|
Issuance
of treasury stock for pension plans
|
200,000 | 3,536 | 1,796 | 5,332 | ||||||||||||||||||||||||
|
Issuance
of treasury stock under 401(k) plan
|
13,669 | 237 | 123 | 360 | ||||||||||||||||||||||||
|
Balance
December 31, 2007
|
#27,348,301 | $ | 30 | $ | 303,908 | $ | 29,012 | $ | (29,384 | ) | $ | (31,044 | ) | $ | 272,522 | |||||||||||||
See
accompanying Notes to Consolidated Financial Statements.
F-5
TITAN
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(All
amounts in thousands)
|
Year
ended December 31,
|
||||||||||||
|
Cash
flows from operating activities:
|
2007
|
2006
|
2005
|
|||||||||
|
Net
(loss) income
|
$ | (7,247 | ) | $ | 5,144 | $ | 11,042 | |||||
|
Adjustments
to reconcile net income to net cash provided
by operating activities:
|
||||||||||||
|
Depreciation
and amortization
|
28,620 | 26,850 | 20,746 | |||||||||
|
Deferred
income tax provision (benefit)
|
1,995 | 2,597 | (14,476 | ) | ||||||||
|
Noncash
convertible debt conversion charge
|
13,376 | 0 | 7,225 | |||||||||
|
Undistributed
earnings of unconsolidated affiliate
|
0 | 0 | (2,024 | ) | ||||||||
|
Excess
tax benefit from stock options exercised
|
0 | (646 | ) | 0 | ||||||||
|
Issuance
of treasury stock under 401(k) plan
|
360 | 246 | 260 | |||||||||
|
(Increase)
decrease in assets:
|
||||||||||||
|
Accounts
receivable
|
(24,512 | ) | (26,770 | ) | 5,669 | |||||||
|
Inventories
|
26,556 | (19,509 | ) | 2,212 | ||||||||
|
Prepaid
and other current assets
|
(1,738 | ) | (3,675 | ) | 1,938 | |||||||
|
Other
assets
|
(1,566 | ) | (3,525 | ) | 852 | |||||||
|
Increase
(decrease) in liabilities:
|
||||||||||||
|
Accounts
payable
|
18,108 | 1,449 | (2,298 | ) | ||||||||
|
Other
current liabilities
|
16,668 | 13,443 | (260 | ) | ||||||||
|
Other
liabilities
|
5,373 | (898 | ) | (7,727 | ) | |||||||
|
Net
cash provided by (used for) operating activities
|
75,993 | (5,294 | ) | 23,159 | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Acquisition
of off-the-road (OTR) assets
|
(8,900 | ) | (44,642 | ) | 0 | |||||||
|
Goodyear
North American farm tire acquisition
|
0 | 0 | (100,000 | ) | ||||||||
|
Capital
expenditures
|
(38,048 | ) | (8,282 | ) | (6,752 | ) | ||||||
|
Decrease
in restricted cash deposits
|
0 | 0 | 24,500 | |||||||||
|
Asset
disposals
|
532 | 198 | 5,509 | |||||||||
|
Net
cash used for investing activities
|
(46,416 | ) | (52,726 | ) | (76,743 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from borrowings
|
0 | 200,000 | 0 | |||||||||
|
Payment
on debt
|
(10,164 | ) | (11,995 | ) | (1,296 | ) | ||||||
|
(Payment)
proceeds on revolving credit facility, net
|
0 | (99,100 | ) | 54,700 | ||||||||
|
Proceeds
from exercise of stock options
|
6,631 | 5,407 | 1,500 | |||||||||
|
Excess
tax benefit from stock options exercised
|
0 | 646 | 0 | |||||||||
|
Payment
of financing fees
|
(625 | ) | (3,725 | ) | (1,500 | ) | ||||||
|
Dividends
paid
|
(506 | ) | (393 | ) | (358 | ) | ||||||
|
Net
cash (used for) provided by financing activities
|
(4,664 | ) | 90,840 | 53,046 | ||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
24,913 | 32,820 | (538 | ) | ||||||||
|
Cash
and cash equivalents, beginning of year
|
33,412 | 592 | 1,130 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 58,325 | $ | 33,412 | $ | 592 | ||||||
See
accompanying Notes to Consolidated Financial Statements.
F-6
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
1.
|
DESCRIPTION
OF BUSINESS AND SIGNIFICANT ACCOUNTING
POLICIES
|
Business
Titan
International, Inc. and its subsidiaries (Titan or the Company) are leading
manufacturers of wheels, tires and assemblies for off-highway vehicles used
in
the agricultural, earthmoving/construction and consumer
markets. Titan’s earthmoving/construction market also includes
products supplied to the U.S. military and other government entities, while
the
consumer market includes all-terrain vehicles (ATVs) and recreational/utility
trailer applications. 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.
Principles
of consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly- and majority-owned subsidiaries. Titan records its investment
in each unconsolidated affiliated company (20% to 49% ownership) at its related
equity in the net assets of such affiliate, as adjusted for equity earnings
and
losses. Investments of less than 20% of non-publicly traded entities
are carried at cost. Investments of less than 20% of publicly traded
entities are carried at fair value in accordance with Statement of Financial
Accounting Standards (SFAS) No. 115, “Accounting for Certain Investments in Debt
and Equity Securities.” The Company records change of interest gains
and losses directly to equity. All significant intercompany accounts
and transactions have been eliminated.
Inventories
Inventories
are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method in 2007 for approximately 67% of
inventories and the last-in, first-out (LIFO) method for approximately 33%
of
inventories. The major rubber material inventory and related
work-in-process and their finished goods are accounted for under the FIFO
method. The major steel material inventory and related
work-in-process and their finished goods are accounted for under the LIFO
method. Market value is estimated based on current selling
prices. Estimated provisions are established for excess and obsolete
inventory, as well as inventory carried above market price based on historical
experience.
Fixed
assets
Property,
plant and equipment have been recorded at cost. Depreciation is
provided using the straight-line method over the following estimated useful
lives of the related assets:
|
Years
|
||||
|
Building
and improvements
|
25 | |||
|
Machinery
and equipment
|
10 | |||
|
Tools,
dies and molds
|
5 | |||
Maintenance
and repairs are expensed as incurred. When property, plant and
equipment are retired or otherwise disposed of, the related cost and accumulated
depreciation are eliminated, and any gain or loss on disposition is included
in
the accompanying consolidated statements of operations.
Interest
is capitalized on fixed asset projects which are constructed over a period
of
time. The amount of interest capitalized is determined by applying an
interest rate to the average amount of accumulated expenditures for the asset
during the period. The interest rate used is based on the rates
applicable to borrowings outstanding during the
period.
F-7
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred
financing costs
Deferred
financing costs are costs incurred in connection with the Company’s revolving
credit facility and senior unsecured notes. The costs associated with the
revolving credit facility are being amortized over the remaining term of the
facility. The costs associated with the senior unsecured notes are
amortized straight line over five years, the term of the
notes. Amortization of deferred financing costs for the debt
facilities approximates the effective interest rate method.
Fair
value of financial instruments
The
Company records all financial instruments, including cash and cash equivalents,
accounts receivable, notes receivable, accounts payable, other accruals and
notes payable at cost, which approximates fair value. Investments in
marketable equity securities are recorded at fair value. The senior
unsecured notes are the only significant financial instrument of the Company
with a fair value different from the recorded value. At December 31,
2007, the fair value of the senior unsecured notes, based on market prices
obtained through independent pricing sources, was approximately $193 million,
compared to a carrying value of $200 million.
Available-for-sale
securities
The
Company has an investment in Titan Europe Plc of $34.5 million as of December
31, 2007, representing a 17.3% ownership position. Titan Europe Plc is
publicly traded on the AIM market in London, England. This investment
is recorded as “Investment in Titan Europe Plc” on the consolidated balance
sheet. In accordance with SFAS No. 115, the Company records the Titan
Europe Plc investment as an available-for-sale security and reports this
investment at fair value, with unrealized gains and losses excluded from
earnings and reported in a separate component of stockholders’
equity. Should the fair value decline below the cost basis, the
Company would be required to determine if this decline is other than
temporary. If the decline in fair value were judged to be other than
temporary, an impairment charge would be recorded. Declared dividends
on this investment are recorded in income as a component of other
income.
Impairment
of fixed assets
The
Company reviews fixed assets to assess recoverability from future operations
whenever events and circumstances indicate that the carrying values may not
be
recoverable. Impairment losses are recognized in operating results
when expected undiscounted future cash flows are less than the carrying value
of
the asset. Impairment losses are measured as the excess of the
carrying value of the asset over the discounted expected future cash flows
or
the estimated fair value of the asset.
Foreign
currency translation
The
financial statements of the Company’s foreign subsidiaries are translated to
United States currency in accordance with SFAS No. 52, “Foreign Currency
Translation.” Assets and liabilities are translated to United States
dollars at period-end exchange rates. Income and expense items are
translated at average rates of exchange prevailing during the
period. Translation adjustments are included in “Accumulated other
comprehensive loss” in stockholders’ equity. As of December 2007, the
Company’s investment in Titan Europe Plc was classified as available-for-sale
securities and this investment is recorded as “Investment in Titan Europe Plc”
on the consolidated balance sheet. Gains and losses that result from
foreign currency transactions are included in the accompanying consolidated
statements of operations.
Impairment
of goodwill
The
Company reviews goodwill to assess recoverability from future operations during
the fourth quarter of each annual reporting period, and whenever events and
circumstances indicate that the carrying values may not be recoverable, as
required by the adoption of SFAS No. 142, Goodwill and Other Intangible
Assets. The carrying amount of $11.7 million of goodwill by segment
at December 31, 2007, was (i) agricultural of $6.9 million, (ii)
earthmoving/construction of $3.6 million and (iii) consumer of $1.2
million. Based on a discounted cash flow method at December 31, 2007,
the Company’s computation showed no impairment. See Note 8 for
additional information.
F-8
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Revenue
recognition
The
Company records sales revenue when products are shipped to customers and both
title and the risks and rewards of ownership are
transferred. Provisions are established for sales returns and
uncollectible accounts based on historical experience. Should these
trends change, adjustments would be necessary to the estimated
provisions.
Cost
of sales
Cost
of
sales is comprised primarily of direct materials and supplies consumed in the
manufacturing of the Company’s products, as well as manufacturing labor,
depreciation expense and overhead expense necessary to acquire and convert
the
purchased materials and supplies into a finished product. Cost of
sales also includes all purchasing, receiving, inspection, internal transfers,
and related distribution costs.
Selling,
general and administrative expense
Selling,
general and administrative expense is comprised primarily of sales commissions,
marketing expense, selling and administrative wages, information system costs,
legal fees, bank charges, audit fees, research and development, depreciation
and
amortization expense on non-manufacturing assets, and other administrative
items.
Research
and development expense
Research
and development (R&D) expenses are expensed as incurred and included as part
of selling, general and administrative expense. R&D costs were
$1.7 million, $1.3 million and $0.8 million for the years of 2007, 2006 and
2005, respectively.
Advertising
Advertising
expenses are included in selling, general and administrative expense and are
expensed as incurred. Advertising expenses were approximately $2
million for the year ended December 31, 2007, and less than $1 million for
the
years ended December 31, 2006 and 2005.
Warranty
costs
The
Company provides limited warranties on workmanship on its products in all market
segments. The provision for estimated warranty costs is made in the
period when such costs become probable and is based on past warranty
experience. Warranty costs were $8.9 million, $5.5 million and $2.6
million for the years of 2007, 2006 and 2005, respectively. Warranty
costs have increased due to the acquisition of the Freeport and Bryan facilities
and the resulting higher sales levels.
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 to determine if a valuation allowance is
necessary.
Earnings
per share
Basic
earnings per share (EPS) is computed by dividing consolidated net earnings
by
the weighted average number of common shares outstanding. Diluted EPS
is computed by dividing adjusted consolidated net earnings by the sum of the
weighted average number of common shares outstanding and the weighted average
number of potential common shares outstanding. Potential common
shares consist of outstanding options under the Company’s stock option plans and
the conversion of the Company’s senior unsecured convertible notes.
Statement
of cash flows
For
purposes of the Consolidated Statements of Cash Flows, the Company considers
short-term debt securities with an original maturity of three months or less
to
be cash equivalents.
Interest
paid
The
Company paid $10.2 million, $15.6 million and $7.5 million for interest in
2007,
2006 and 2005, respectively. In 2006, the increase in interest paid
of approximately $8 million was due to borrowings related to acquisition of
the
Freeport and Bryan facilities. In 2007, the decrease in interest paid
of approximately $5 million was due to higher accrued interest balance resulting
from the timing of interest payments.
F-9
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Income
taxes paid
Titan
paid $2.4 million, $0.2 million and $1.9 million for income taxes in 2007,
2006
and 2005, respectively.
Global
market risk
The
Company manufactures and sells products and purchases goods in the United States
and foreign countries. The Company is potentially subject to foreign
currency exchange risk relating to receipts from customers and payments to
suppliers in foreign currencies. As a result, the Company’s financial
results could be affected by factors such as changes in foreign currency
exchange rates or weak economic conditions in the foreign markets in which
the
Company conducts business. Gains and losses arising from the
settlement of foreign currency transactions are charged to the Consolidated
Statement of Operations for the related period. Translation
adjustments arising from the translation of foreign subsidiary financial
statements are recorded in accumulated other comprehensive income in
stockholders’ equity in the accompanying consolidated balance
sheets.
Environmental
liabilities
Environmental
expenditures that relate to current operations are expensed or capitalized
as
appropriate. Expenditures that relate to an existing condition caused
by past operations and that do not contribute to current or future revenue
are
expensed. Liabilities are recorded when environmental assessments
and/or remedial efforts are probable and can be reasonably
estimated.
Stock-based
compensation
At
December 31, 2007, the Company has three stock-based compensation plans, which
are described in Note 21. In
2005
and prior years, the Company applied the recognition and measurement principles
of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock
Issued to Employees,” and related Interpretations in accounting for those
plans. No stock-based compensation expense was recorded in the
consolidated financial statements under this method, as any stock options
granted had an exercise price equal to the market value of the underlying common
stock on the date of the grant. The following table illustrates the
effect on net income and income per share if the Company had applied the fair
value recognition provisions of SFAS No. 123, “Accounting for Stock-Based
Compensation,” to stock-based compensation for the year ended December 31, 2005
(in
thousands, except share
data):
|
2005
|
||||
|
Net
income – as reported
|
$ | 11,042 | ||
|
Deduct: Total
stock-based compensation expense
|
||||
|
determined
under fair value method for all awards,
|
||||
|
net
of related tax effects
|
(5,255 | ) | ||
|
Pro
forma net income
|
$ | 5,787 | ||
|
Income
per share:
|
||||
|
Basic
– as reported
|
$ | .61 | ||
|
Basic
– pro forma
|
.32 | |||
|
Diluted
– as reported
|
$ | .60 | ||
|
Diluted
– pro forma
|
.32 | |||
The
Company granted no stock options in 2007 or 2006. The
weighted-average fair value of stock options granted in 2005 was $9.56 and
was
calculated at the time of issue using the Black-Scholes option-pricing model
with the following assumptions used for grants:
|
2007 (a)
|
2006 (a)
|
2005
|
||||||||||
|
Stock
price volatility
|
n/a | n/a | 66 | % | ||||||||
|
Risk-free
interest rate
|
─
|
─
|
3.7% - 4.4 | % | ||||||||
|
Expected
life of options
|
─
|
─
|
6
years
|
|||||||||
|
Dividend
yield
|
─
|
─
|
.43% - .62 | % | ||||||||
|
(a)
|
The
Company granted no stock options during 2007 or
2006.
|
F-10
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Reclassification
Certain
amounts from prior years have been reclassified to conform to the current year’s
presentation. The predominant reclassification was that the 2006 and
2005 Consolidated Statements of Operations have been revised to combine idled
assets for sale depreciation, which was previously shown separately, with the
selling, general and administrative expenses.
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.
Recently
issued accounting standards
Statement
of Financial Accounting Standards Number 157
In
September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
“Fair Value Measurements,” was issued. This statement defines fair
value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value
measurements. This statement applies under other accounting
pronouncements that require or permit fair value measurements. This
statement is effective for financial statements issued for fiscal years
beginning after November 15, 2007, and interim periods within those fiscal
years. The Company is evaluating the effect the adoption of this
standard will have on its consolidated financial position, results of operations
and cash flows.
Statement
of Financial Accounting Standards Number 159
In
February 2007, SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities,” was issued. This statement permits entities
to choose to measure many financial instruments and certain other items at
fair
value. This statement is effective for fiscal years beginning after
November 15, 2007. The Company is evaluating the effect the adoption
of this standard will have on its consolidated financial position, results
of
operations and cash flows.
Statement
of Financial Accounting Standards Number 141 (revised 2007)
In
December 2007, SFAS No. 141 (revised 2007), “Business Combinations,” was
issued. This statement requires an acquirer to recognize assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being
the
excess value over the net identifiable assets acquired. This
statement is effective for business combinations for which the acquisition
date
is on or after the beginning of the first annual reporting period beginning
on
or after December 15, 2008. The Company is evaluating the effect the
adoption of this standard will have on its consolidated financial position,
results of operations and cash flows.
Statement
of Financial Accounting Standards Number 160
In
December 2007, SFAS No. 160, “Noncontrolling Interests in Consolidated Financial
Statements,” was issued. This statement establishes accounting and
reporting standards for the noncontrolling interest in a subsidiary and for
the
deconsolidation of a subsidiary. It clarifies that a noncontrolling
interest in a subsidiary is an ownership interest in the consolidated entity
that should be reported as equity in the consolidated financial
statements. This statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008. The Company is evaluating the effect the adoption of this
standard will have on its consolidated financial position, results of operations
and cash flows.
F-11
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
ACQUISITIONS
|
Acquisition
of Continental’s OTR Assets
On
July
31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International,
Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North
America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of
Bryan purchased the assets of Continental’s OTR tire facility for approximately
$53 million in cash proceeds, including an initial cash payment of approximately
$44 million and subsequent payment, made in the third quarter of 2007, of
approximately $9 million. The assets purchased included Continental’s
OTR plant, property and equipment located in Bryan, Ohio, inventory and other
current assets. In addition, the Company recorded intangibles related
to the acquisition as noncurrent assets and assumed certain warranty
liabilities. This acquisition expanded Titan’s product offering into
larger earthmoving, construction and mining tires and added the manufacturing
capacity of the Bryan, Ohio, facility.
The
allocation of the Continental OTR asset acquisition was as follows (in thousands):
|
Inventory
|
$ | 11,053 | ||
|
Prepaid
and other current assets
|
1,350 | |||
|
Property,
plant and equipment
|
42,197 | |||
|
Noncurrent
assets
|
742 | |||
|
Liabilities
assumed
|
(1,800 | ) | ||
| $ | 53,542 |
Acquisition
of Goodyear’s North American Farm Tire Assets
On
December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International,
Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire
assets. Titan Tire purchased the assets of Goodyear’s North American
farm tire business for approximately $100 million in cash
proceeds. The assets purchased include Goodyear’s North American
plant, property and equipment located in Freeport, Illinois, and Goodyear’s
North American farm tire inventory. In addition, the Company recorded
intangibles related to the acquisition as noncurrent assets. This
acquisition expanded Titan’s product offering into Goodyear branded farm tires
and added the manufacturing capacity of the Freeport, Illinois,
facility.
The
allocation of the Goodyear North American farm tire acquisition was as follows
(in
thousands):
|
Inventory
|
$ | 40,246 | ||
|
Prepaid
and other current assets
|
4,680 | |||
|
Property,
plant and equipment
|
55,074 | |||
|
Noncurrent
assets
|
604 | |||
| $ | 100,604 |
F-12
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Pro
forma financial information
The
following unaudited pro forma financial information gives effect to the
acquisition of Continental’s OTR assets and the acquisition of Goodyear’s North
American farm tire assets as if the acquisitions had taken place on January
1,
2005. The pro forma information for the Bryan, Ohio, facility was
derived from a carve-out of Continental’s OTR historical accounting
records. The pro forma information for the Freeport, Illinois,
facility was derived from a carve-out of The Goodyear Tire & Rubber
Company’s historical accounting records.
Pro
forma
information for the year (in
thousands, except per share data):
|
2006
|
2005
|
|||||||
|
Net
sales
|
$ | 761,796 | $ | 828,183 | ||||
|
Income
before income taxes
|
21,786 | 8,383 | ||||||
|
Net
income
|
13,072 | 17,803 | ||||||
|
Diluted
earnings per share
|
.61 | .92 | ||||||
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 acquisitions
actually occurred on January 1, 2005, nor is it necessarily indicative of
Titan’s future consolidated results of operations or financial
position. No pro forma information is presented for 2007 as both
acquisitions were included in the consolidated results for the full
year.
|
3.
|
ACCOUNTS
RECEIVABLE
|
Accounts
receivable at December 31, 2007 and 2006, consisted of the following (in thousands):
|
2007
|
2006
|
|||||||
|
Accounts
receivable
|
$ | 103,652 | $ | 78,700 | ||||
|
Allowance
for doubtful accounts
|
(5,258 | ) | (4,818 | ) | ||||
|
Accounts
receivable, net
|
$ | 98,394 | $ | 73,882 | ||||
The
Company had net accounts receivable of $98.4 million and $73.9 million at
December 31, 2007 and 2006, respectively. These amounts are net of
allowance for doubtful accounts of $5.3 million and $4.8 million for the years
ended 2007 and 2006, respectively.
|
4.
|
INVENTORIES
|
Inventories
at December 31, 2007 and 2006, consisted of the following (in thousands):
|
2007
|
2006
|
|||||||
|
Raw
material
|
$ | 50,368 | $ | 57,814 | ||||
|
Work-in-process
|
21,533 | 16,738 | ||||||
|
Finished
goods
|
61,880 | 84,863 | ||||||
| 133,781 | 159,415 | |||||||
|
Adjustment
to LIFO basis
|
(5,733 | ) | (4,811 | ) | ||||
| $ | 128,048 | $ | 154,604 | |||||
The
Company had inventories of $128.0 million and $154.6 million at December 31,
2007 and 2006, respectively. Included in the above inventory balances
at year-end 2007 and 2006 are reserves for slow-moving and obsolete inventory
of
$4.7 million and $3.2 million, respectively.
F-13
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
5.
|
PREPAID
AND OTHER CURRENT ASSETS
|
Prepaid
and other current assets at December 31, 2007 and 2006, consisted of the
following (in
thousands):
|
2007
|
2006
|
|||||||
|
Prepaid
supplies
|
$ | 10,023 | $ | 9,227 | ||||
|
Other
|
7,816 | 9,574 | ||||||
| $ | 17,839 | $ | 18,801 | |||||
Prepaid
and other current assets consist primarily of prepaid supplies, which were
$10.0
million and $9.2 million at December 31, 2007 and 2006,
respectively.
|
6.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment at December 31, 2007 and 2006, consisted of the following
(in
thousands):
|
2007
|
2006
|
|||||||
|
Land
and improvements
|
$ | 3,098 | $ | 3,088 | ||||
|
Buildings
and improvements
|
78,462 | 78,230 | ||||||
|
Machinery
and equipment
|
276,326 | 269,730 | ||||||
|
Tools,
dies and molds
|
53,873 | 52,205 | ||||||
|
Construction-in-process
|
31,801 | 4,587 | ||||||
| 443,560 | 407,840 | |||||||
|
Less
accumulated depreciation
|
(247,482 | ) | (223,224 | ) | ||||
| $ | 196,078 | $ | 184,616 | |||||
The
large
increase in the construction-in-process balance relates to the giant OTR mining
tire project. At December
31, 2007, there was $22.5 million in construction-in-process related to this
project, including $0.4 million of capitalized interest.
Depreciation
on fixed assets for the years 2007, 2006 and 2005 totaled $26.1 million, $24.3
million, and $19.0 million, respectively.
|
7.
|
INVESTMENT
IN TITAN EUROPE
|
Investment
in Titan Europe Plc at December 31, 2007 and 2006, consisted of the following
(in
thousands):
|
2007
|
2006
|
|||||||
|
Investment
in Titan Europe Plc
|
$ | 34,535 | $ | 65,881 | ||||
The
Company owns a 17.3% ownership in Titan Europe Plc. In accordance
with SFAS No. 115, the Company records the Titan Europe Plc investment as an
available-for-sale security and reports the investment at fair value, with
unrealized gains and losses excluded from earnings and reported as a separate
component of comprehensive income in stockholders’ equity.
The
fair
value of the Company’s investment in Titan Europe Plc was $34.5 million and
$65.9 million at December 31, 2007 and 2006, respectively. Titan
Europe is publicly traded on the AIM market in London, England. The
December 31, 2007, fair value of $34.5 million was below the Company’s cost
basis of $40.3 million. The unrealized loss on the Titan Europe Plc
investment was $5.8 million. The unrealized loss resulted from a
decline in the market price of Titan Europe Plc of over 40% in the fourth
quarter of 2007. No impairment charge has been recorded as this
decline below cost basis was judged to be temporary at December 31,
2007.
Cash
dividends received from Titan Europe Plc were $1.8 million, $1.3 million and
$0.9 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
F-14
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
GOODWILL
|
The
carrying amount of goodwill at December 31, 2007 and 2006, consisted of the
following (in
thousands):
|
2007
|
2006
|
|||||||
|
Agricultural
segment
|
$ | 6,912 | $ | 6,912 | ||||
|
Earthmoving/construction
segment
|
3,552 | 3,552 | ||||||
|
Consumer
segment
|
1,238 | 1,238 | ||||||
| $ | 11,702 | $ | 11,702 | |||||
The
Company reviews goodwill to assess recoverability from future operations during
the fourth quarter of each annual reporting period, and whenever events and
circumstances indicate that the carrying values may not be recoverable as
required by the adoption of SFAS No. 142, Goodwill and Other Intangible
Assets. Based on a discounted cash flow method at December 31, 2007,
the Company’s computation showed no impairment. There can
be no
assurance that future goodwill tests will not result in an impairment
charge.
|
9.
|
OTHER
ASSETS
|
Other
assets at December 31, 2007 and 2006, consisted of the following (in thousands):
|
2007
|
2006
|
|||||||
|
Contractual
obligations
|
$ | 6,277 | $ | 0 | ||||
|
Deferred
financing
|
4,897 | 7,534 | ||||||
|
Other
receivable
|
2,700 | 0 | ||||||
|
Other
|
6,541 | 5,460 | ||||||
| $ | 20,415 | $ | 12,994 | |||||
The
contractual obligations asset of $6.3 million at December 31, 2007, represents
assets held in trusts to provide contractual obligations to certain executive
officers that are due upon retirement or voluntary termination of
employment.
|
10.
|
OTHER
CURRENT LIABILITIES
|
Other
current liabilities at December 31, 2007 and 2006, consisted of the following
(in
thousands):
|
2007
|
2006
|
|||||||
|
Wages
and commissions
|
$ | 10,850 | $ | 8,800 | ||||
|
Accrued
interest
|
7,487 | 322 | ||||||
|
Warranty
|
5,854 | 4,688 | ||||||
|
Insurance
|
4,250 | 4,458 | ||||||
|
Utilities
|
3,599 | 1,941 | ||||||
|
OTR
asset acquisition
|
0 | 8,900 | ||||||
|
Other
|
11,748 | 7,833 | ||||||
| $ | 43,788 | $ | 36,942 | |||||
The
large
increase in accrued interest is the result of the timing of due dates of
interest payments primarily relating to the senior unsecured notes issued in
December 2006. The OTR asset acquisition liability was the remaining
amount due after final settlement, which was paid in the third quarter of
2007.
F-15
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
11.
|
WARRANTY
COSTS
|
Changes
in the warranty liability consisted of the following (in thousands):
|
2007
|
2006
|
|||||||
|
Warranty
liability, January 1
|
$ | 4,688 | $ | 1,838 | ||||
|
Warranty
assumed with asset purchase
|
0 | 1,800 | ||||||
|
Provision
for warranty liabilities
|
8,901 | 5,534 | ||||||
|
Warranty
payments made
|
(7,735 | ) | (4,484 | ) | ||||
|
Warranty
liability, December 31
|
$ | 5,854 | $ | 4,688 | ||||
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 Balance
Sheets.
|
12.
|
OTHER
LONG-TERM LIABILITIES
|
Other
long-term liabilities at December 31, 2007 and 2006, consisted of the following
(in
thousands):
|
2007
|
2006
|
|||||||
|
Accrued
employment liabilities
|
$ | 11,726 | $ | 4,741 | ||||
|
Accrued
pension liabilities
|
2,092 | 8,682 | ||||||
|
Other
|
2,331 | 2,412 | ||||||
| $ | 16,149 | $ | 15,835 | |||||
Accrued
employment liabilities at December 31, 2007, includes approximately $8 million
for contractual and performance obligations upon retirement for certain
executive officers. The large increase in accrued employment
liabilities is primarily the result of approximately $4 million in additional
liability for the CEO’s performance incentives. See Note 20 for
additional information regarding the decrease in accrued pension
liabilities.
|
13.
|
REVOLVING
CREDIT FACILITY AND LONG-TERM DEBT
|
Long-term
debt at December 31, 2007 and 2006, consisted of the following (in thousands):
|
2007
|
2006
|
|||||||
|
Senior
unsecured notes
|
$ | 200,000 | $ | 200,000 | ||||
|
Senior
unsecured convertible notes
|
0 | 81,200 | ||||||
|
Industrial
revenue bonds and other
|
0 | 10,164 | ||||||
| 200,000 | 291,364 | |||||||
|
Less
amounts due within one year
|
0 | 98 | ||||||
| $ | 200,000 | $ | 291,266 | |||||
Aggregate
maturities of long-term debt
are as follows (in
thousands):
|
2008
|
$ | 0 | ||
|
2009
|
0 | |||
|
2010
|
0 | |||
|
2011
|
0 | |||
|
2012
|
200,000 | |||
|
Thereafter
|
0 | |||
| $ | 200,000 |
F-16
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Senior
unsecured notes
In
December 2006, the Company closed its offering of $200 million 8% senior
unsecured notes. The notes were sold at par and are due January
2012. Titan used the net proceeds from this offering to repay
outstanding existing debt, excluding the senior unsecured convertible notes,
and
for general corporate purposes.
Revolving
credit facility
The
Company’s $250 million revolving credit facility (Credit Facility) with agent
LaSalle Bank National Association (a Bank of America company) has an October
2009 termination date and is collateralized by a first priority security
interest in certain assets of Titan and its domestic subsidiaries. At
December 31, 2007, the borrowings under the Credit Facility bore interest at
a
floating rate of prime rate plus 0% to 1% or LIBOR plus 1% to
2%. There were no cash borrowings under this Credit Facility at
December 31, 2007. The facility contains certain financial covenants,
restrictions and other customary affirmative and negative
covenants. The Company is in
compliance with these covenants and restrictions as of December 31,
2007.
Credit
facility amendments
In
February 2007, the Company amended the Credit Facility. The amendment
extended the termination date to October 2009 (previously October
2008). The amendment also lowered borrowing rates, which are now
based on a pricing grid that varies with the amount borrowed. The
borrowings under the Credit Facility bear interest at a floating rate of LIBOR
plus 1% to 2% (previously 2.75%). The amendment lowered the revolving
loan availability from $250 million to $125 million with the ability to request
an increase back to $250 million.
In
December 2007, the Company amended the facility and increased the revolving
loan
availability back to a $250 million Credit Facility.
Senior
unsecured convertible notes
In
January 2007, the Company filed a registration statement relating to an offer
to
the holders of its 5.25% senior unsecured convertible notes due 2009 to convert
their notes into Titan’s common stock at an increased conversion rate (the
“Offer”). Per the Offer, each $1,000 principal amount of notes was
convertible into 81.0000 shares of common stock, which is equivalent to a
conversion price of approximately $12.35 per share. Prior to the Offer, each
$1,000 principal amount of notes was convertible into 74.0741 shares of common
stock, which was equivalent to a conversion price of approximately $13.50 per
share.
The
registration statement relating to the shares of common stock to be offered
was
declared effective February 2007. In March 2007, the Company
announced 100% acceptance of the conversion offer and the $81.2 million of
accepted notes were converted into 6,577,200 shares of Titan common
stock. Titan recognized a noncash chargeof
$13.4
million in connection with this exchange in accordance with SFAS No. 84,
“Induced Conversions of Convertible Debt.”
Industrial
revenue bonds and other
Other
debt primarily consisted of industrial revenue bonds, loans from local and
state
entities, and other long-term notes. All industrial revenue bonds and
other debt were fully paid off in the first quarter of 2007.
F-17
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
14.
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
|
Accumulated
other comprehensive income (loss) consisted of the following (in thousands):
|
Currency
Translation
Adjustments
|
Unrealized
Gain
(Loss) on
Investments
|
Minimum
Pension
Liability
Adjustment
|
Unrecognized
Losses
and
Prior
Service
Cost
|
Total
|
||||||||||||||||
|
Balance
at January 1, 2006
|
$ | (1,183 | ) | $ | 0 | $ | (18,569 | ) | $ | 0 | $ | (19,752 | ) | |||||||
|
Unrealized
gain on investment,
net
of tax of
$3,299
|
0 | 6,126 | 0 | 0 | 6,126 | |||||||||||||||
|
Minimum
pension liability adjustment, net of tax of
$595
|
0 | 0 | 3,225 | 0 | 3,225 | |||||||||||||||
|
Adoption
of SFAS No. 158, net of tax of $651
|
0 | 0 | 15,344 | (16,405 | ) | (1,061 | ) | |||||||||||||
|
Balance
at December 31, 2006
|
(1,183 | ) | 6,126 | 0 | (16,405 | ) | (11,462 | ) | ||||||||||||
|
Unrealized
loss on investment, net
of tax of
$10,971
|
0 | (20,375 | ) | 0 | 0 | (20,375 | ) | |||||||||||||
|
Defined
benefit pension plan entries:
|
||||||||||||||||||||
|
Plan
acquisition, net of tax of $481
|
0 | 0 | 0 | 785 | 785 | |||||||||||||||
|
Unrecognized
prior service cost, net of tax of $53
|
0 | 0 | 0 | 84 | 84 | |||||||||||||||
|
Unrecognized
net loss, net of tax of $26
|
0 | 0 | 0 | (42 | ) | (42 | ) | |||||||||||||
|
Unrecognized
deferred tax liability, net of tax of $22
|
0 | 0 | 0 | (34 | ) | (34 | ) | |||||||||||||
|
Balance
at December 31, 2007
|
$ | (1,183 | ) | $ | (14,249 | ) | $ | 0 | $ | (15,612 | ) | $ | (31,044 | ) | ||||||
|
15.
|
STOCKHOLDERS’
EQUITY
|
The
Company is authorized by the Board of Directors to repurchase an additional
2.5
million common shares subject to debt agreement covenants. The
Company has no plans to repurchase any Titan common stock at this
time. Titan paid cash dividends of $.02 per share of common stock
each year for 2007, 2006 and 2005. Dividends paid totaled $0.5
million, $0.4 million and $0.4 million for 2007, 2006 and 2005,
respectively.
In
March
2007, the Company converted 100% of the 5.25% senior unsecured convertible
notes
due 2009 into Titan common stock at an increased conversion rate. The
exchange resulted in a decrease in treasury stock of $59.0 million and an
increase to additional paid-in-capital of approximately $35.2
million. Stockholder’s equity increased by $80.9 million in total as
a result of this exchange. See Note 17 for additional
information.
|
16.
|
ROYALTY
EXPENSE
|
Royalty
expense consisted of the following (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Royalty
expense
|
$ | 6,155 | $ | 5,001 | $ | 0 | ||||||
The
Goodyear North American farm tire asset acquisition included a license agreement
with The Goodyear Tire & Rubber Company to manufacture and sell certain
off-highway tires in North America under the Goodyear name. Royalty
expenses recorded for the years ended December 31, 2007 and 2006, were $6.2
million and $5.0 million, respectively. No royalty expense was
recorded in 2005, as this license agreement was not yet in place during
2005.
F-18
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
17.
|
NONCASH
CONVERTIBLE DEBT CONVERSION CHARGE
|
Noncash
convertible debt conversion charge consisted of the following (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Noncash
convertible debt charge
|
$ | 13,376 | $ | 0 | $ | 7,225 | ||||||
In
January 2007, the Company filed a registration statement relating to an offer
to
the holders of its 5.25% senior unsecured convertible notes due 2009 to convert
their notes into Titan’s common stock at an increased conversion rate (the
“Offer”). Per the Offer, each $1,000 principal amount of notes was
convertible into 81.0000 shares of common stock, which is equivalent to a
conversion price of approximately $12.35 per share.
Prior
to
the Offer, each $1,000 principal amount of notes was convertible into 74.0741
shares of common stock, which was equivalent to a conversion price of
approximately $13.50 per share. The registration statement relating
to
the
shares of common stock to be offered was declared effective February
2007. In March 2007, the Company announced 100% acceptance of the
conversion offer and the $81.2 million of accepted notes were converted into
6,577,200 shares of Titan common stock.
The
Company recognized a noncash charge of $13.4 million in connection with this
exchange in accordance with Statement of Financial Accounting Standards (SFAS)
No. 84, “Induced Conversions of Convertible Debt.” This charge does
not reflect $1.0 million of interest previously accrued on the
notes. The shares issued for the conversion were issued out of
treasury shares. The exchange resulted in a decrease in treasury
stock of $59.0 million and an increase to additional paid-in capital of
approximately $35.2 million. Stockholder’s equity increased by $80.9
million in total as a result of this exchange.
In
June
of 2005, Titan finalized a private transaction to exchange $33.8 million of
the
Company’s outstanding 5.25% senior unsecured convertible notes due 2009 for
3,022,275 shares of common stock as proposed to the Company by certain note
holders. The Company recognized a noncash charge of $7.2 million in
connection with this exchange in accordance with SFAS No. 84, “Induced
Conversions of Convertible Debt,” during the second quarter of
2005.
|
18.
|
OTHER
INCOME, NET
|
Other
income consisted of the following (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Interest
income
|
$ | 2,717 | $ | 1,681 | $ | 367 | ||||||
|
Dividend
income – Titan Europe Plc
|
1,768 | 1,281 | 0 | |||||||||
|
Equity
income – Titan Europe Plc
|
0 | 0 | 2,938 | |||||||||
|
Foreign
exchange (loss) gain
|
(268 | ) | 975 | (1,338 | ) | |||||||
|
Other
expense
|
(853 | ) | (373 | ) | (1,009 | ) | ||||||
| $ | 3,364 | $ | 3,564 | $ | 958 | |||||||
Interest
income increased in 2007 as the result of higher cash
balances. Dividend income was recorded on the investment in Titan
Europe Plc in 2007 and 2006, the years in which Titan Europe Plc was recorded
as
an available for sale security and reported at fair value.
Equity
income was recorded on the Titan Europe Plc investment in 2005. As a
result of decreased ownership percentage in Titan Europe Plc and lack of
significant influence over Titan Europe Plc, effective December 2005, the
Company no longer uses the equity method to account for its interest in Titan
Europe Plc.
F-19
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
19.
|
INCOME
TAXES
|
Income
(loss) before income taxes, consisted of the following (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Domestic
|
$ | (6,306 | ) | $ | 5,310 | $ | (5,048 | ) | ||||
|
Foreign
|
2,422 | 3,264 | 2,163 | |||||||||
| $ | (3,884 | ) | $ | 8,574 | $ | (2,885 | ) | |||||
The
provision (benefit) for income taxes, was as follows (in thousands):
|
2007
|
2006
|
2005
|
||||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | 562 | $ | 120 | $ | 549 | ||||||
|
State
|
547 | 475 | 0 | |||||||||
|
Foreign
|
1,574 | 183 | 87 | |||||||||
| 2,683 | 778 | 636 | ||||||||||
|
Deferred
|
||||||||||||
|
Federal
|
2,725 | 2,442 | (13,413 | ) | ||||||||
|
State
|
408 | 210 | (1,150 | ) | ||||||||
|
Foreign
|
(2,453 | ) | 0 | 0 | ||||||||
| 680 | 2,652 | (14,563 | ) | |||||||||
|
Provision
(benefit) for income taxes
|
$ | 3,363 | $ | 3,430 | $ | (13,927 | ) | |||||
The
provision (benefit) for income taxes differs from the amount of income tax
determined by applying the statutory U.S. federal income tax rate to pre-tax
income (loss) as a result of the following:
|
2007
|
2006
|
2005
|
||||||||||
|
Statutory
U.S. federal tax rate
|
35.0 | % | 35.0 | % | (35.0 | )% | ||||||
|
Nondeductible
debt conversion charge
|
(120.6 | ) | 0.0 | 87.7 | ||||||||
|
Irish
capital gains tax
|
29.3 | 0.0 | 0.0 | |||||||||
|
Repatriation
of foreign earnings
|
(29.2 | ) | 11.6 | 19.0 | ||||||||
|
Foreign
taxes, net
|
18.8 | (12.0 | ) | (18.1 | ) | |||||||
|
State
taxes, net
|
(16.0 | ) | 6.2 | (2.9 | ) | |||||||
|
Valuation
allowance
|
0.0 | 0.0 | (488.7 | ) | ||||||||
|
Dyneer
legal charge
|
0.0 | 0.0 | (60.7 | ) | ||||||||
|
State
tax rate change
|
0.0 | 0.0 | 21.2 | |||||||||
|
Other,
net
|
(3.9 | ) | (0.8 | ) | (5.2 | ) | ||||||
|
Effective
tax rate
|
(86.6 | )% | 40.0 | % | (482.7 | )% | ||||||
Federal
income taxes are provided on earnings of foreign subsidiaries except to the
extent that such earnings are expected to be indefinitely reinvested
abroad.
F-20
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. Significant components of
the Company’s deferred tax assets and liabilities at December 31, 2007 and 2006,
are as follows (in
thousands):
|
2007
|
2006
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Net
operating loss carryforward
|
$ | 7,062 | $ | 12,618 | ||||
|
Employee
benefits and related costs
|
4,197 | 3,720 | ||||||
|
Warranty
|
2,224 | 1,112 | ||||||
|
Unrealized
loss on available-for-sale security
|
2,034 | 0 | ||||||
|
Allowance
for bad debts
|
1,998 | 1,830 | ||||||
|
Inventory
|
1,417 | 1,351 | ||||||
|
EPA
reserve
|
1,201 | 1,226 | ||||||
|
Pension
|
529 | 4,501 | ||||||
|
Other
|
7,043 | 2,876 | ||||||
|
Deferred
tax assets
|
27,705 | 29,234 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Fixed
assets
|
(16,590 | ) | (16,534 | ) | ||||
|
Unrealized
gain on available-for-sale security
|
0 | (8,937 | ) | |||||
|
Foreign
deferred gain
|
0 | (2,453 | ) | |||||
|
Deferred
tax liabilities
|
(16,590 | ) | (27,924 | ) | ||||
|
Net
deferred tax asset
|
$ | 11,115 | $ | 1,310 | ||||
The
Company recorded an income tax expense of $3.4 million, an income tax expense
of
$3.4 million and an income tax benefit of $13.9 million for the years ended
December 31, 2007, 2006 and 2005, respectively. The Company’s income
tax expense and rate differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pre-tax income primarily as a
result of the $13.4 million noncash charge taken in connection with the 100%
conversion of the Company’s convertible debt. This noncash debt
charge is not deductible for income tax purposes. The Company’s
Federal net operating loss carryforward of approximately $13 million expires
in
2023. In addition, the Company has various state net operating loss
carryforwards which are subject to expiration from 2019 to 2026.
The
Company has applied the provisions of FIN 48, “Accounting for Uncertainty in
Income Taxes”, for the year ended December 31, 2007. No adjustment
was made to retained earnings in adopting FIN 48 and at this time the Company
does not expect any significant increases or decreases to its unrecognized
tax
benefits within 12 months of this reporting date. Titan has
identified its federal tax return and its Illinois state tax return as “major”
tax jurisdictions. The Company is subject to (i) federal tax
examinations for periods 2004 to 2007 and (ii) Illinois state income tax
examinations for years 2005 to 2007.
F-21
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
20.
|
EMPLOYEE
BENEFIT PLANS
|
Pension
plans
The
Company has a frozen defined benefit pension plan covering certain employees
of
Titan Tire Corporation (Titan Tire) and has a frozen defined benefit pension
plan covering certain employees of Titan Tire Corporation of Bryan
(Bryan). In October 2007, the Bryan pension plan, adopted at the date
of the Continental OTR asset acquisition and frozen from its inception, received
cash transfers of approximately $25 million from Continental Tire North
America’s frozen pension plan for the Bryan, Ohio, location. The
amount transferred into the frozen plan was actuarially approved to be a fully
funded plan. The Company also has a frozen contributory defined
benefit pension plan covering certain former eligible bargaining employees
of
its Walcott, Iowa, facility (Walcott). Additionally, the Company
maintains a contributory defined benefit plan that covered former eligible
bargaining employees of Dico, Inc (Dico). This Dico plan purchased a
final annuity settlement contract in October 2002. The Company’s
policy is to fund pension costs as required by law, which is consistent with
the
funding requirements of federal laws and regulations.
The
Company’s defined benefit plans have been aggregated in the following
table. Included in the December 31, 2007, presentation are the Titan
Tire and Walcott plans which have a projected benefit obligation of $71.2
million, exceeding the fair value of plan assets of $69.1 million at December
31, 2007. Included in the December 31, 2006, presentation are the
Titan Tire and Walcott plans, which have a projected benefit obligation and
accumulated benefit obligation of $68.8 million, exceeding the fair value of
plan assets of $60.2 million at December 31, 2006.
The
projected benefit obligation and the accumulated benefit obligation are the
same
amount since the Plans are frozen and there are no future compensation levels
to
factor into the obligations. The Company absolved itself from the
liabilities associated with the Dico plan with the purchase of a final annuity
settlement contract in October 2002. Therefore, the plan no longer
maintains a projected or accumulated benefit obligation. The fair
value of the Dico plan assets was $0.5 million at December 31, 2007, 2006 and
2005.
The
following table provides the change in benefit obligation, change in plan
assets, funded status and amounts recognized in the consolidated balance sheet
of the defined benefit pension plans as of December 31, 2007 and 2006 (in thousands):
|
Change
in benefit obligation:
|
2007
|
2006
|
||||||
|
Benefit
obligation at beginning of year
|
$ | 68,844 | $ | 71,796 | ||||
|
Acquisition
|
23,948 | 0 | ||||||
|
Interest
cost
|
4,109 | 3,934 | ||||||
|
Actuarial
loss (gain)
|
4,898 | (144 | ) | |||||
|
Benefits
paid
|
(6,437 | ) | (6,742 | ) | ||||
|
Benefit
obligation at end of year
|
$ | 95,362 | $ | 68,844 | ||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 60,666 | $ | 56,802 | ||||
|
Acquisition
|
25,214 | 0 | ||||||
|
Actual
return on plan assets
|
8,822 | 6,578 | ||||||
|
Employer
contributions
|
6,234 | 4,028 | ||||||
|
Benefits
paid
|
(6,437 | ) | (6,742 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | 94,499 | $ | 60,666 | ||||
|
Unfunded
status at end of year
|
$ | (863 | ) | $ | (8,178 | ) | ||
|
Amounts
recognized in consolidated balance sheet:
|
||||||||
|
Noncurrent
assets
|
$ | 1,229 | $ | 504 | ||||
|
Noncurrent
liabilities
|
(2,092 | ) | (8,682 | ) | ||||
|
Net
amount recognized in the consolidated balance sheet
|
$ | (863 | ) | $ | (8,178 | ) | ||
F-22
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Amounts
recognized in accumulated other comprehensive loss:
|
||||||||
|
2007
|
2006
|
|||||||
|
Plan
acquisition
|
$ | 1,266 | $ | 0 | ||||
|
Unrecognized
prior service cost
|
(1,574 | ) | (1,711 | ) | ||||
|
Unrecognized
net loss
|
(25,098 | ) | (25,030 | ) | ||||
|
Deferred
tax effect of unrecognized items
|
9,794 | 10,336 | ||||||
|
Net
amount recognized in accumulated other comprehensive loss
|
$ | (15,612 | ) | $ | (16,405 | ) | ||
| The weighted-average assumptions used in the actuarial computation that derived the benefit obligations at December 31 were as follows: | ||||||||
|
|
2007
|
2006
|
||||||
|
Discount
rate
|
5.75 | % | 5.75 | % | ||||
|
Expected
long-term return on plan assets
|
8.50 | % | 8.50 | % | ||||
The
following table provides the components of net periodic pension cost for the
plans, settlement cost and the assumptions used in the measurement of the
Company’s benefit obligation for the years ended December 31, 2007, 2006 and
2005 (in
thousands):
|
Components
of net periodic benefit cost and other amounts
recognized in other comprehensive income
|
||||||||||||
|
Net
periodic benefit cost:
|
2007
|
2006
|
2005
|
|||||||||
|
Interest
cost
|
$ | 4,109 | $ | 3,934 | $ | 4,158 | ||||||
|
Assumed
return on assets
|
(5,561 | ) | (4,673 | ) | (4,809 | ) | ||||||
|
Amortization
of unrecognized prior service cost
|
137 | 137 | 137 | |||||||||
|
Amortization
of unrecognized deferred taxes
|
(56 | ) | (56 | ) | (56 | ) | ||||||
|
Amortization
of net unrecognized loss
|
1,593 | 1,848 | 1,754 | |||||||||
|
Net
periodic pension cost
|
$ | 222 | $ | 1,190 | $ | 1,184 | ||||||
The
estimated net loss, prior service cost, and deferred taxes that will be
amortized from accumulated other comprehensive income into net periodic benefit
cost over the next fiscal year are $1.6 million, $0.1 million and $(0.1)
million, respectively.
The
weighted-average assumptions used in the actuarial computation that derived
net
periodic pension cost for the years ended December 31, 2007, 2006 and
2005:
|
2007
|
2006
|
2005
|
||||||||||
|
Discount
rate
|
5.75 | % | 5.75 | % | 5.75 | % | ||||||
|
Expected
long-term return on plan assets
|
8.50 | % | 8.50 | % | 8.50 | % | ||||||
F-23
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
allocation of the fair value of plan assets was as follows:
|
Percentage
of Plan Assets
at
December 31,
|
Target
Allocation
|
|||||||||||
|
Asset
Category
|
2007
|
2006
|
2008
|
|||||||||
|
U.S.
equities (a)
|
56 | % | 65 | % | 40% - 80 | % | ||||||
|
Fixed
income
|
27 | % | 21 | % | 20% - 50 | % | ||||||
|
Cash
and cash equivalents
|
6 | % | 5 | % | 0% - 20 | % | ||||||
|
International
equities (a)
|
11 | % | 9 | % | 0% - 16 | % | ||||||
| 100 | % | 100 | % | |||||||||
|
(a)
|
Total
equities may not exceed 80% of total plan
assets.
|
The
Company invests in a diversified portfolio consisting of an array of asset
classes in an attempt to maximize returns while minimizing risk. These asset
classes include U.S. equities, fixed income, cash and cash equivalents, and
international equities. The investment objectives are to provide for the growth
and preservation of plan assets on a long-term basis through investments in:
(i)
investment grade securities that provide investment returns that meet or exceed
the Standard & Poor’s 500 Index and (ii) investment grade fixed income
securities that provide investment returns that meet or exceed the Lehman
Government / Corporate Index. The U.S. equities asset category
included the Company’s common stock in the amount of $5.1 million (approximately
five percent of total plan assets) and $2.3 million (approximately four percent
of total plan assets) at December 31, 2007 and 2006, respectively.
The
long-term rate of return for plan assets is determined using a weighted-average
of long-term historical returns on cash and cash equivalents, fixed income
securities, and equity securities considering the anticipated investment
allocation within the plans. The expected return on plan assets is
anticipated to be 8.5% over the long-term. This rate assumes
historical returns of 10% for equities and 7% for fixed income securities using
the plans’ target allocation percentages. Professional investment
firms, none of which are Titan employees, manage the plan assets.
Although
the 2008 minimum pension funding calculations are not finalized, the Company
estimates those funding requirements will be approximately $1
million.
Projected
benefit payments from the plans as of December 31, 2007, are estimated as
follows (in thousands):
|
2008
|
$ | 6,393 | ||
|
2009
|
6,472 | |||
|
2010
|
6,490 | |||
|
2011
|
6,536 | |||
|
2012
|
6,631 | |||
|
2013-2017
|
35,090 |
401(k)
The
Company sponsors five 401(k) retirement savings plans. One plan is
for the benefit of substantially all employees who are not covered by a
collective bargaining arrangement. Titan provides a 25% matching
contribution in the form of the Company’s common stock on the first 6% of the
employee’s contribution in this plan. The Company issued 13,669
shares, 13,506 shares and 18,645 shares of treasury stock in connection with
this 401(k) plan during 2007, 2006 and 2005, respectively. Expenses
to the Company related to this common stock matching contribution were $0.4
million for 2007 and $0.3 million for each of 2006 and 2005.
A
second
plan is for employees covered by a collective bargaining arrangement at Titan
Tire Corporation and does not include a Company matching
contribution. Employees are fully vested with respect to their
contributions.
The
Company’s third plan received a 401(k) plan transfer in 2006 for the employees
covered by a collective bargaining agreement at Titan Tire Corporation of
Freeport. This plan does not include a Company matching
contribution. Employees are fully vested with respect to their
contributions.
F-24
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
A
fourth
plan is for employees covered by a collective bargaining agreement at Titan
Tire
Corporation of Bryan. This plan does not include a Company matching
contribution. Employees are fully vested with respect to their
contributions.
Previously,
the Company adopted a 401(k) plan for the former employees of Titan Tire
Corporation of Natchez. This plan relates to the non-operational
facility in Natchez, Mississippi.
|
21.
|
STOCK
OPTION PLANS
|
On
January 1, 2006, the Company adopted SFAS 123(R), “Share-Based Payment,” using
the modified prospective method of adoption, which does not require restatement
of prior periods. The Company previously applied the recognition and
measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to
Employees,” and related Interpretations in accounting for share-based option
awards. SFAS 123(R) requires companies to estimate the fair value of
share-based option awards on the date of the grant using an option-pricing
model. The value of the portion of the award that is ultimately
expected to vest is recognized as expense over the vesting period. No
stock-based compensation expense was recorded during 2007, 2006, or
2005. See Note 1 for 2005 pro forma information illustrating the
effect on net income and income per share if the Company had applied the
provisions of SFAS 123(R). The Company granted no stock options
during 2007 or 2006. All previously granted stock options were fully
vested before January 1, 2006.
In
accordance with SFAS 123(R), cash flows from income tax benefits resulting
from
tax deductions in excess of compensation cost recognized for share-based option
awards have been classified as financing cash flows prospectively from January
1, 2006. Previously, these excess tax benefits were presented as
operating cash flows.
Stock
Incentive
Plan
The
Company adopted the 1993 Stock Incentive Plan (the Plan) to provide grants
of
stock options as a means of attracting and retaining qualified employees for
the
Company. There will be no additional issuance of stock options under
this plan as it has expired. Options previously granted were fully
vested in 2005 and expire 10 years from the grant date of the
option.
Non-Employee
Director Stock Option
Plan
The
Company adopted the 1994 Non-Employee Director Stock Option Plan (the Director
Plan) to provide for grants of stock options as a means of attracting and
retaining qualified independent directors for the Company. There will
be no additional issuance of stock options under this plan as it has
expired. Options previously granted were fully vested in 2005 and
expire 10 years from the grant date of the option.
2005
Equity Incentive Plan
The
Company adopted the 2005 Equity Incentive Plan to provide stock options as
a
means of attracting and retaining qualified independent directors and employees
for the Company. A total of 2.1 million shares are reserved for the
plan. The exercise price of stock options may not be less than the
fair market value of the common stock on the date of the grant. The
vesting and term of each option is set by the Board of Directors. In
2007 and 2006 no stock options were granted under this plan. In 2005,
a total of 890,380 options were granted under this plan. These
options were fully vested in 2005 and expire 10 years from the grant date of
the
option.
Stock
options outstanding and exercisable as of December 31, 2007, were as
follows:
|
Options
Outstanding
|
Options
Exercisable
|
||||||||||||||||||
|
Price
Range
|
Weighted
Average
Contractual
Life
|
Number
of Options |
Weighted
Average Exercise
Price |
Number
of Options |
Weighted
Average Exercise
Price |
||||||||||||||
|
$
4.54 - $ 6.69
|
3.3
years
|
135,000 | $ | 5.47 | 135,000 | $ | 5.47 | ||||||||||||
|
$
8.00 - $ 9.50
|
1.2
years
|
150,500 | $ | 8.45 | 150,500 | $ | 8.45 | ||||||||||||
|
$13.35
- $14.45
|
7.4
years
|
174,435 | $ | 13.66 | 174,435 | $ | 13.66 | ||||||||||||
|
$17.18
- $18.00
|
5.3
years
|
239,265 | $ | 17.46 | 239,265 | $ | 17.46 | ||||||||||||
| 699,200 | $ | 12.26 | 699,200 | $ | 12.26 | ||||||||||||||
F-25
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following is a summary of activity in the stock option plans for 2005, 2006
and
2007:
|
Shares
Subject
to
Option
|
Weighted-
Average
Exercise
Price
|
|||||||
|
Outstanding,
January 1, 2005
|
802,390 | $ | 11.25 | |||||
|
Granted
|
890,380 | 15.20 | ||||||
|
Exercised
|
(135,860 | ) | 11.04 | |||||
|
Canceled/Expired
|
(9,400 | ) | 13.47 | |||||
|
Outstanding,
December 31, 2005
|
1,547,510 | 13.53 | ||||||
|
Granted
|
0 | - | (a) | |||||
|
Exercised
|
(382,190 | ) | 14.15 | |||||
|
Canceled/Expired
|
(15,260 | ) | 16.00 | |||||
|
Outstanding,
December 31, 2006
|
1,150,060 | 13.29 | ||||||
|
Granted
|
0 | - | (a) | |||||
|
Exercised
|
(444,530 | ) | 14.92 | |||||
|
Canceled/Expired
|
(6,330 | ) | 13.13 | |||||
|
Outstanding,
December 31, 2007
|
699,200 | $ | 12.26 | |||||
|
(a)
|
The
Company granted no stock options during 2006 or
2007.
|
The
total
intrinsic value of stock options exercised in 2007 was $5.2
million. Cash received from the exercise of options was $6.6 million
for 2007. There was no tax benefit realized for the tax deductions
from stock options exercised for 2007.
The
total
intrinsic value of options exercised in 2006 was $1.7 million. Cash
received from the exercise of stock options was $5.4 million for
2006. The tax benefit realized for the tax deductions from stock
options exercised was
$0.6
million for 2006.
The
Company currently uses treasury shares to satisfy any stock option
exercises. At December 31, 2007, the Company had 3.2 million shares
of treasury stock.
|
22.
|
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. Total rental expense was $3.0 million, $3.2 million
and $3.2 million for the years ended December 31, 2007, 2006 and 2005,
respectively.
At
December 31, 2007, future minimum rental commitments under noncancellable
operating leases with initial or remaining terms in excess of one year are
as
follows (in thousands):
|
2008
|
$ | 1,915 | ||
|
2009
|
1,293 | |||
|
2010
|
914 | |||
|
2011
|
560 | |||
|
2012
|
31 | |||
|
Thereafter
|
0 | |||
|
Total
future minimum lease payments
|
$ | 4,713 |
F-26
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
23.
|
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.
|
24.
|
CONCENTRATION
OF CREDIT RISK
|
Net
sales
to Deere & Company in Titan’s agricultural, earthmoving/construction and
consumer markets represented 17% of the Company’s consolidated revenues for the
years ended December 31, 2007 and 2006, and 20% of the Company’s consolidated
revenues for the year ended December 31, 2005. Net sales to CNH
Global N.V. in Titan’s three markets represented 11% of the Company’s
consolidated revenues for each of the years ended December 31, 2007, 2006 and
2005. No other customer accounted for more than 10% of Titan’s net
sales in 2007, 2006 or 2005.
|
25.
|
RELATED
PARTY TRANSACTIONS
|
The
Company sells products and pays commissions to companies controlled by persons
related to the chief executive officer of the Company. During 2007,
2006 and 2005, sales of Titan product to these companies were approximately
$5.1
million, $6.4 million and $6.5 million, respectively. On other sales
referred to Titan from these manufacturing representative companies, commissions
were approximately $1.8 million, $2.0 million and $1.6 million during 2007,
2006
and 2005, respectively. These sales and commissions were made in the
ordinary course of business and were made on terms no less favorable to Titan
than comparable sales and commissions to unaffiliated third
parties. At December 31, 2007 and 2006, Titan had trade receivables
of approximately $0.2 million and $0.6 million due from these companies,
respectively.
|
26.
|
RECENT
DEVELOPMENTS
|
Affirmative
Preliminary Antidumping Determination on OTR Tires from China
On
February 6, 2008, Titan welcomed the U.S. Commerce Department’s preliminary
decision to impose antidumping duties on imports of new pneumatic off-the-road
(OTR) tires from China. OTR tires are used on construction and agricultural
equipment.
As
a
result of this preliminary determination, Commerce will instruct U.S. Customs
and Border Protection to collect a cash deposit or bond based on these
preliminary rates. Commerce preliminarily determined that Chinese
producers/exporters have sold new pneumatic off-the-road tires in the U.S.
at
10.98 to 210.48 percent less than fair value, with a majority of
exporter/producers at 24.75 percent less than fair value.
The
agency will now continue the
proceeding by holding hearings, conducting verifications of information, and
reaching a final determination by early June of this year. The International
Trade Commission will also investigate the issue of injury and reach a
determination on that issue thereafter.
Titan
Builds First Radial 63-Inch Tire
On
February 15, 2008, Titan announced that Titan Tire Corporation of Bryan had
produced the Company’s first prototype of the giant radial 63-inch tire in its
Ohio facility. Titan announced its commitment to produce these giant
radial tires, used in the mining industry, in May 2007 when the Company’s Board
of Directors approved funding to increase tire production capacity to include
57-inch and 63-inch giant radial tires.
F-27
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
27.
|
SEGMENT
AND GEOGRAPHICAL INFORMATION
|
The
Company has aggregated its operating units into reportable segments based on
its
three customer markets: agricultural, earthmoving/construction and
consumer. These segments are based on the information used by the
chief executive officer and chief operating officer to make certain operating
decisions, allocate portions of capital expenditures and assess segment
performance. The accounting policies of the segments are the same as
those described in Note 1, “Description of Business and Significant Accounting
Policies.” Segment external revenues, expenses and income from
operations are determined on the basis of the results of operations of operating
units of manufacturing facilities. Segment assets are generally
determined on the basis of the tangible assets located at such operating units’
manufacturing facilities and the intangible assets associated with the
acquisitions of such operating units. However, certain operating
units’ goodwill and property, plant and equipment balances are carried at the
corporate level.
Titan
is
organized primarily on the basis of products being included in three marketing
segments, with each reportable segment including wheels, tires and wheel/tire
assemblies.
The
table
below presents information about certain revenues and expenses, income (loss)
from operations and segment assets used by the chief operating decision maker
of
the Company as of and for the years ended December 31, 2007, 2006 and 2005
(in thousands):
|
2007
|
Agricultural
|
Earthmoving/
Construction
|
Consumer
|
Reconciling
Items
|
Consolidated
Totals
|
|||||||||||||||
|
Revenues
from external
customers
|
$ | 515,642 | $ | 277,206 | $ | 44,173 | $ | 0 | $ | 837,021 | ||||||||||
|
Depreciation
&
amortization
|
14,255 | 10,330 | 1,320 | 2,715 | (a) | 28,620 | ||||||||||||||
|
Gross
profit
(loss)
|
35,742 | 47,848 | 3,431 | (2,890 | ) (b) | 84,131 | ||||||||||||||
|
Income
(loss) from
operations
|
25,324 | 40,833 | 2,546 | (43,865 | ) (b) | 24,838 | ||||||||||||||
|
Total
assets
|
257,005 | 176,144 | 22,515 | 134,831 | (c) | 590,495 | ||||||||||||||
|
Capital
expenditures
|
11,267 | 22,950 | 1,654 | 2,177 | (d) | 38,048 | ||||||||||||||
|
2006
|
||||||||||||||||||||
|
Revenues
from external
customers
|
$ | 421,096 | $ | 183,357 | $ | 75,001 | $ | 0 | $ | 679,454 | ||||||||||
|
Depreciation
&
amortization
|
15,324 | 7,402 | 1,409 | 2,715 | (a) | 26,850 | ||||||||||||||
|
Gross
profit
(loss)
|
42,511 | 28,099 | 2,771 | (603 | ) (b) | 72,778 | ||||||||||||||
|
Income
(loss) from
operations
|
27,351 | 21,837 | 1,655 | (28,832 | ) (b) | 22,011 | ||||||||||||||
|
Total
assets
|
273,787 | 145,964 | 22,678 | 142,697 | (c) | 585,126 | ||||||||||||||
|
Capital
expenditures
|
5,184 | 2,192 | 339 | 567 | (d) | 8,282 | ||||||||||||||
|
2005
|
||||||||||||||||||||
|
Revenues
from external
customers
|
$ | 310,361 | $ | 131,982 | $ | 27,790 | $ | 0 | $ | 470,133 | ||||||||||
|
Depreciation
&
amortization
|
11,738 | 5,183 | 1,447 | 2,378 | (a) | 20,746 | ||||||||||||||
|
Gross
profit
(loss)
|
42,060 | 21,222 | 2,758 | (1,830 | ) (b) | 64,210 | ||||||||||||||
|
Income
(loss) from
operations
|
31,750 | 17,664 | 1,825 | (39,240 | ) (b) | 11,999 | ||||||||||||||
|
Total
assets
|
239,581 | 89,241 | 22,963 | 88,971 | (c) | 440,756 | ||||||||||||||
|
Capital
expenditures
|
3,365 | 1,615 | 230 | 1,542 | (d) | 6,752 | ||||||||||||||
|
(a)
|
Represents
depreciation expense related to property, plant and equipment carried
at
the corporate level.
|
|
(b)
|
Represents
corporate expenses including those referred to in (a). Loss
from operations includes Dyneer legal charge of $15.2 million in
2005.
|
|
(c)
|
Represents
property, plant and equipment and goodwill related to certain acquisitions
and other corporate assets. Approximately $37 million of the
increase in 2006 from 2005 related to the higher 2006 year-end cash
balance.
|
|
(d)
|
Represents
corporate capital expenditures.
|
F-28
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
table
below presents information by geographic area. Revenues from external
customers were determined based on the location of the selling
subsidiary. Geographic information as of and for the years ended
December 31, 2007, 2006 and 2005 was as follows (in thousands):
|
2007
|
United
States
|
Other
Countries
|
Consolidated
Totals
|
|||||||||
|
Revenues
from external customers
|
$ | 837,021 | $ | 0 | $ | 837,021 | ||||||
|
Long-lived
assets
|
207,780 | 0 | 207,780 | |||||||||
|
2006
|
||||||||||||
|
Revenues
from external customers
|
$ | 679,454 | $ | 0 | $ | 679,454 | ||||||
|
Long-lived
assets (a)
|
196,318 | 0 | 196,318 | |||||||||
|
2005
|
||||||||||||
|
Revenues
from external customers
|
$ | 470,133 | $ | 0 | $ | 470,133 | ||||||
|
Long-lived
assets (b)
|
152,084 | 0 | 152,084 | |||||||||
|
(a)
|
Idled
assets marketed for sale in the amount of $14 million reclassed/included
in the 2006 long-lived assets.
|
|
(b)
|
Idled
assets marketed for sale in the amount of $18 million are not included
in
the 2005 long-lived assets.
|
|
28.
|
EARNINGS
PER SHARE
|
Earnings
per share for 2007, 2006 and 2005, are (amounts in thousands, except
share and
per share data):
|
2007
|
Net
(loss) income
|
Weighted-
average
shares
|
Per
share
amount
|
|||||||||
|
Basic
and diluted loss per share (a)
|
$ | (7,247 | ) | 25,665,015 | $ | (.28 | ) | |||||
|
2006
|
||||||||||||
|
Basic
earnings per share
|
$ | 5,144 | 19,701,614 | $ | .26 | |||||||
|
Effect
of stock options
|
0 | 342,685 | ||||||||||
|
Diluted
earnings per share (b)
|
$ | 5,144 | 20,044,299 | $ | .26 | |||||||
|
2005
|
||||||||||||
|
Basic
earnings per share
|
$ | 11,042 | 18,052,946 | $ | .61 | |||||||
|
Effect
of stock options
|
0 | 230,663 | ||||||||||
|
Diluted
earnings per share (c)
|
$ | 11,042 | 18,283,609 | $ | .60 | |||||||
|
(a)
|
The
effect of stock options has been excluded as they were
anti-dilutive. The weighted-average share amount excluded for
stock options totaled 444,129 shares. The effect of convertible
notes has not been included as they were anti-dilutive. The
weighted-average share amount excluded for convertible notes totaled
1,301,837 shares.
|
|
(b)
|
The
effect of convertible notes has not been included as they were
anti-dilutive. The weighted-average share amount excluded for
convertible notes totaled 6,014,815
shares.
|
|
(c)
|
The
effect of convertible notes has not been included as they were
anti-dilutive. The weighted-average share amount excluded for
convertible notes totaled 7,146,627
shares.
|
F-29
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
29.
|
SUPPLEMENTARY
DATA – QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
|
(All
amounts in thousands, except per share data)
|
Quarter
ended
|
March
31
|
June
30
|
September
30
|
December
31
|
Year
ended
December
31
|
|||||||||||||||
|
2007
|
||||||||||||||||||||
|
Net
sales
|
$ | 226,278 | $ | 210,333 | $ | 195,472 | $ | 204,938 | $ | 837,021 | ||||||||||
|
Gross
profit
|
27,191 | 27,311 | 18,294 | 11,335 | 84,131 | |||||||||||||||
|
Net
(loss) income
|
(2,483 | ) (a) | 4,962 | (878 | ) | (8,848 | ) | (7,247 | ) | |||||||||||
|
Per
share amounts: (b)
|
||||||||||||||||||||
|
Basic
|
(.12 | ) (a) | .18 | (.03 | ) | (.32 | ) | (.28 | ) | |||||||||||
|
Diluted
|
(.12 | ) (a) | .18 | (.03 | ) | (.32 | ) | (.28 | ) | |||||||||||
|
2006
|
||||||||||||||||||||
|
Net
sales
|
$ | 182,577 | $ | 175,194 | $ | 156,120 | $ | 165,563 | $ | 679,454 | ||||||||||
|
Gross
profit
|
31,114 | 22,442 | 17,080 | 2,142 | 72,778 | |||||||||||||||
|
Net
income (loss)
|
8,593 | 5,603 | 488 | (9,540 | ) | 5,144 | ||||||||||||||
|
Per
share amounts:
|
||||||||||||||||||||
|
Basic
|
.44 | .28 | .02 | (.48 | ) | .26 | ||||||||||||||
|
Diluted
(b)
|
.36 | .24 | .02 | (.48 | ) | .26 | ||||||||||||||
|
(a)
|
Noncash
convertible debt conversion charge of $13.4 million was included
in the
quarter ended March 31, 2007.
|
|
(b)
|
As
a result of changes in outstanding share balances, year-end per share
amounts do not agree to the sum of the
quarters.
|
|
30.
|
SUBSIDIARY
GUARANTOR FINANCIAL INFORMATION
|
The
Company’s $200 million 8% senior unsecured notes are guaranteed by each of
Titan’s current and future wholly owned domestic subsidiaries other than its
immaterial subsidiaries (subsidiaries with total assets less than $250,000
and
total revenues less than $250,000). The note guarantees are joint and several
obligations of the guarantors. Non-guarantors consist primarily of foreign
subsidiaries of the Company, which are organized outside the United States
of
America. The following condensed consolidating financial statements are
presented using the equity method of accounting.
|
Consolidating
Condensed Statements of Operations
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
Year
Ended December 31,
2007
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 0 | $ | 837,021 | $ | 0 | $ | 0 | $ | 837,021 | ||||||||||
|
Cost
of sales
|
1,905 | 750,985 | 0 | 0 | 752,890 | |||||||||||||||
|
Gross
(loss) profit
|
(1,905 | ) | 86,036 | 0 | 0 | 84,131 | ||||||||||||||
|
Selling,
general and administrative expenses
|
19,572 | 33,364 | 202 | 0 | 53,138 | |||||||||||||||
|
Royalty
expense
|
0 | 6,155 | 0 | 0 | 6,155 | |||||||||||||||
|
(Loss)
income from operations
|
(21,477 | ) | 46,517 | (202 | ) | 0 | 24,838 | |||||||||||||
|
Interest
expense
|
(18,707 | ) | (3 | ) | 0 | 0 | (18,710 | ) | ||||||||||||
|
Intercompany
interest income (expense)
|
11,472 | (12,324 | ) | 852 | 0 | 0 | ||||||||||||||
|
Noncash
convertible debt conversion charge
|
(13,376 | ) | 0 | 0 | 0 | (13,376 | ) | |||||||||||||
|
Other
income (expense)
|
1,925 | (333 | ) | 1,772 | 0 | 3,364 | ||||||||||||||
|
(Loss)
income before income taxes
|
(40,163 | ) | 33,857 | 2,422 | 0 | (3,884 | ) | |||||||||||||
|
(Benefit)
provision for income taxes
|
(10,423 | ) | 12,866 | 920 | 0 | 3,363 | ||||||||||||||
|
Equity
in earnings of subsidiaries
|
22,493 | 0 | 0 | (22,493 | ) | 0 | ||||||||||||||
|
Net
(loss) income
|
$ | (7,247 | ) | $ | 20,991 | $ | 1,502 | $ | (22,493 | ) | $ | (7,247 | ) | |||||||
F-30
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidating
Condensed Statements of Operations
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
Year
Ended December 31,
2006
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 0 | $ | 679,454 | $ | 0 | $ | 0 | $ | 679,454 | ||||||||||
|
Cost
of sales
|
(194 | ) | 606,870 | 0 | 0 | 606,676 | ||||||||||||||
|
Gross
profit
|
194 | 72,584 | 0 | 0 | 72,778 | |||||||||||||||
|
Selling,
general and administrative expenses
|
15,031 | 30,591 | 144 | 0 | 45,766 | |||||||||||||||
|
Royalty
expense
|
0 | 5,001 | 0 | 0 | 5,001 | |||||||||||||||
|
(Loss)
income from operations
|
(14,837 | ) | 36,992 | (144 | ) | 0 | 22,011 | |||||||||||||
|
Interest
expense
|
(16,553 | ) | (448 | ) | 0 | 0 | (17,001 | ) | ||||||||||||
|
Intercompany
interest income (expense)
|
4,495 | (5,457 | ) | 962 | 0 | 0 | ||||||||||||||
|
Other
income, net
|
432 | 686 | 2,446 | 0 | 3,564 | |||||||||||||||
|
(Loss)
income before income taxes
|
(26,463 | ) | 31,773 | 3,264 | 0 | 8,574 | ||||||||||||||
|
(Benefit)
provision for income taxes
|
(10,585 | ) | 12,709 | 1,306 | 0 | 3,430 | ||||||||||||||
|
Equity
in earnings of subsidiaries
|
21,022 | 0 | 0 | (21,022 | ) | 0 | ||||||||||||||
|
Net
income
|
$ | 5,144 | $ | 19,064 | $ | 1,958 | $ | (21,022 | ) | $ | 5,144 | |||||||||
|
Year
Ended December 31,
2005
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 0 | $ | 470,133 | $ | 0 | $ | 0 | $ | 470,133 | ||||||||||
|
Cost
of sales
|
312 | 405,611 | 0 | 0 | 405,923 | |||||||||||||||
|
Gross
(loss) profit
|
(312 | ) | 64,522 | 0 | 0 | 64,210 | ||||||||||||||
|
Selling,
general and administrative expenses
|
11,874 | 24,983 | 149 | 0 | 37,006 | |||||||||||||||
|
Dyneer
legal charge
|
0 | 15,205 | 0 | 0 | 15,205 | |||||||||||||||
|
(Loss)
income from operations
|
(12,186 | ) | 24,334 | (149 | ) | 0 | 11,999 | |||||||||||||
|
Interest
expense
|
(8,426 | ) | (191 | ) | 0 | 0 | (8,617 | ) | ||||||||||||
|
Noncash
convertible debt conversion charge
|
(7,225 | ) | 0 | 0 | 0 | (7,225 | ) | |||||||||||||
|
Intercompany
interest income (expense)
|
4,644 | (5,098 | ) | 454 | 0 | 0 | ||||||||||||||
|
Other
(expense) income, net
|
(606 | ) | (294 | ) | 1,858 | 0 | 958 | |||||||||||||
|
(Loss)
income before income taxes
|
(23,799 | ) | 18,751 | 2,163 | 0 | (2,885 | ) | |||||||||||||
|
Benefit
for income taxes
|
0 | (13,927 | ) | 0 | 0 | (13,927 | ) | |||||||||||||
|
Equity
in earnings of subsidiaries
|
34,841 | 0 | 0 | (34,841 | ) | 0 | ||||||||||||||
|
Net
income
|
$ | 11,042 | $ | 32,678 | $ | 2,163 | $ | (34,841 | ) | $ | 11,042 | |||||||||
F-31
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidating
Condensed Balance Sheets
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
December
31, 2007
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 57,285 | $ | 63 | $ | 977 | $ | 0 | $ | 58,325 | ||||||||||
|
Accounts
receivable
|
(458 | ) | 98,852 | 0 | 0 | 98,394 | ||||||||||||||
|
Inventories
|
0 | 128,048 | 0 | 0 | 128,048 | |||||||||||||||
|
Prepaid
and other current assets
|
26,898 | 16,100 | 0 | 0 | 42,998 | |||||||||||||||
|
Total
current
assets
|
83,725 | 243,063 | 977 | 0 | 327,765 | |||||||||||||||
|
Property,
plant and equipment, net
|
2,291 | 193,787 | 0 | 0 | 196,078 | |||||||||||||||
|
Investment
in Titan Europe Plc
|
(5,812 | ) | 0 | 40,347 | 0 | 34,535 | ||||||||||||||
|
Investment
in subsidiaries
|
18,714 | 0 | 0 | (18,714 | ) | 0 | ||||||||||||||
|
Other
assets
|
12,256 | 19,861 | 0 | 0 | 32,117 | |||||||||||||||
|
Total
assets
|
$ | 111,174 | $ | 456,711 | $ | 41,324 | $ | (18,714 | ) | $ | 590,495 | |||||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||||||||||||||
|
Accounts
payable
|
$ | 2,059 | $ | 41,933 | $ | 0 | $ | 0 | $ | 43,992 | ||||||||||
|
Other
current liabilities
|
10,456 | 33,347 | (15 | ) | 0 | 43,788 | ||||||||||||||
|
Total
current
liabilities
|
12,515 | 75,280 | (15 | ) | 0 | 87,780 | ||||||||||||||
|
Long-term
debt
|
200,000 | 0 | 0 | 0 | 200,000 | |||||||||||||||
|
Other
long-term liabilities
|
22,931 | 7,262 | 0 | 0 | 30,193 | |||||||||||||||
|
Intercompany
accounts
|
(396,794 | ) | 386,883 | 9,911 | 0 | 0 | ||||||||||||||
|
Stockholders’
equity
|
272,522 | (12,714 | ) | 31,428 | (18,714 | ) | 272,522 | |||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 111,174 | $ | 456,711 | $ | 41,324 | $ | (18,714 | ) | $ | 590,495 | |||||||||
|
December
31, 2006
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 33,220 | $ | 69 | $ | 123 | $ | 0 | $ | 33,412 | ||||||||||
|
Accounts
receivable
|
(38 | ) | 73,920 | 0 | 0 | 73,882 | ||||||||||||||
|
Inventories
|
0 | 154,604 | 0 | 0 | 154,604 | |||||||||||||||
|
Prepaid
and other current assets
|
3,937 | 44,036 | 62 | 0 | 48,035 | |||||||||||||||
|
Total
current
assets
|
37,119 | 272,629 | 185 | 0 | 309,933 | |||||||||||||||
|
Property,
plant and equipment, net
|
1,279 | 183,337 | 0 | 0 | 184,616 | |||||||||||||||
|
Investment
in Titan Europe Plc
|
25,534 | 0 | 40,347 | 0 | 65,881 | |||||||||||||||
|
Investment
in subsidiaries
|
14,517 | 0 | 0 | (14,517 | ) | 0 | ||||||||||||||
|
Other
assets
|
8,802 | 15,894 | 0 | 0 | 24,696 | |||||||||||||||
|
Total
assets
|
$ | 87,251 | $ | 471,860 | $ | 40,532 | $ | (14,517 | ) | $ | 585,126 | |||||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||||||||||||||
|
Accounts
payable
|
$ | 1,058 | $ | 24,826 | $ | 0 | $ | 0 | $ | 25,884 | ||||||||||
|
Other
current liabilities
|
3,437 | 33,607 | (11 | ) | 7 | 37,040 | ||||||||||||||
|
Total
current
liabilities
|
4,495 | 58,433 | (11 | ) | 7 | 62,924 | ||||||||||||||
|
Long-term
debt
|
290,700 | 566 | 0 | 0 | 291,266 | |||||||||||||||
|
Other
long-term liabilities
|
10,896 | 30,393 | 2,470 | 0 | 43,759 | |||||||||||||||
|
Intercompany
accounts
|
(406,017 | ) | 398,856 | 7,168 | (7 | ) | 0 | |||||||||||||
|
Stockholders’
equity
|
187,177 | (16,388 | ) | 30,905 | (14,517 | ) | 187,177 | |||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 87,251 | $ | 471,860 | $ | 40,532 | $ | (14,517 | ) | $ | 585,126 | |||||||||
F-32
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidating
Condensed Statements of Cash Flows
|
||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||
|
Year
Ended December 31,
2007
|
||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash provided by operating activities
|
$ | 38,364 | $ | 36,775 | $ | 854 | $ | 75,993 | ||||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
(1,402 | ) | (36,646 | ) | 0 | (38,048 | ) | |||||||||
|
Acquisition
off-the-road (OTR)
assets
|
(8,900 | ) | 0 | 0 | (8,900 | ) | ||||||||||
|
Asset
disposals
|
3 | 529 | 0 | 532 | ||||||||||||
|
Net
cash used for investing
activities
|
(10,299 | ) | (36,117 | ) | 0 | (46,416 | ) | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Payment
of debt
|
(9,500 | ) | (664 | ) | 0 | (10,164 | ) | |||||||||
|
Proceeds
from exercise of stock
options
|
6,631 | 0 | 0 | 6,631 | ||||||||||||
|
Other,
net
|
(1,131 | ) | 0 | 0 | (1,131 | ) | ||||||||||
|
Net
cash used for financing
activities
|
(4,000 | ) | (664 | ) | 0 | (4,664 | ) | |||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
24,065 | (6 | ) | 854 | 24,913 | |||||||||||
|
Cash
and cash equivalents, beginning of year
|
33,220 | 69 | 123 | 33,412 | ||||||||||||
|
Cash
and cash equivalents, end of year
|
$ | 57,285 | $ | 63 | $ | 977 | $ | 58,325 | ||||||||
|
Year
Ended December 31,
2006
|
||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash (used for) provided by operating activities
|
$ | (69,433 | ) | $ | 64,500 | $ | (361 | ) | $ | (5,294 | ) | |||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Acquisition
off-the-road (OTR)
assets
|
0 | (44,642 | ) | 0 | (44,642 | ) | ||||||||||
|
Capital
expenditures
|
(390 | ) | (7,892 | ) | 0 | (8,282 | ) | |||||||||
|
Other,
net
|
149 | 49 | 0 | 198 | ||||||||||||
|
Net
cash used for investing
activities
|
(241 | ) | (52,485 | ) | 0 | (52,726 | ) | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Proceeds
from
borrowings
|
200,000 | 0 | 0 | 200,000 | ||||||||||||
|
Payment
of debt
|
0 | (11,995 | ) | 0 | (11,995 | ) | ||||||||||
|
Payment
on revolving credit
facility, net
|
(99,100 | ) | 0 | 0 | (99,100 | ) | ||||||||||
|
Proceeds
from exercise of stock
options
|
5,407 | 0 | 0 | 5,407 | ||||||||||||
|
Excess
tax benefits from stock
options exercised
|
646 | 0 | 0 | 646 | ||||||||||||
|
Payment
of financing
fees
|
(3,725 | ) | 0 | 0 | (3,725 | ) | ||||||||||
|
Dividends
paid
|
(393 | ) | 0 | 0 | (393 | ) | ||||||||||
|
Net
cash provided by (used for)
financing activities
|
102,835 | (11,995 | ) | 0 | 90,840 | |||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
33,161 | 20 | (361 | ) | 32,820 | |||||||||||
|
Cash
and cash equivalents, beginning of year
|
59 | 49 | 484 | 592 | ||||||||||||
|
Cash
and cash equivalents, end of year
|
$ | 33,220 | $ | 69 | $ | 123 | $ | 33,412 | ||||||||
F-33
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidating
Condensed Statements of Cash Flows
|
||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||
|
Year
Ended December 31,
2005
|
||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash (used for) provided by operating activities
|
$ | (77,943 | ) | $ | 101,650 | $ | (548 | ) | $ | 23,159 | ||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Goodyear
North American farm
tire acquisition
|
0 | (100,000 | ) | 0 | (100,000 | ) | ||||||||||
|
Capital
expenditures
|
(882 | ) | (5,870 | ) | 0 | (6,752 | ) | |||||||||
|
Decrease
in restricted cash
deposits
|
24,500 | 0 | 0 | 24,500 | ||||||||||||
|
Asset
disposals
|
0 | 5,509 | 0 | 5,509 | ||||||||||||
|
Net
cash provided by (used for)
investing activities
|
23,618 | (100,361 | ) | 0 | (76,743 | ) | ||||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Payment
of debt
|
0 | (1,296 | ) | 0 | (1,296 | ) | ||||||||||
|
Proceeds
on revolving credit
facility, net
|
54,700 | 0 | 0 | 54,700 | ||||||||||||
|
Proceeds
from exercise of stock
options
|
1,500 | 0 | 0 | 1,500 | ||||||||||||
|
Payment
of financing
fees
|
(1,500 | ) | 0 | 0 | (1,500 | ) | ||||||||||
|
Dividends
paid
|
(358 | ) | 0 | 0 | (358 | ) | ||||||||||
|
Net
cash provided by (used for)
financing activities
|
54,342 | (1,296 | ) | 0 | 53,046 | |||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
17 | (7 | ) | (548 | ) | (538 | ) | |||||||||
|
Cash
and cash equivalents, beginning of year
|
42 | 56 | 1,032 | 1,130 | ||||||||||||
|
Cash
and cash equivalents, end of year
|
$ | 59 | $ | 49 | $ | 484 | $ | 592 | ||||||||
F-34
TITAN
INTERNATIONAL, INC.
SCHEDULE
II – VALUATION
RESERVES
|
Description
|
Balance
at
beginning
of
year
|
Additions
to
costs
and
expenses
|
Deductions
|
Balance
at
end
of
year
|
||||||||||||
|
Year
ended December 31, 2007
|
||||||||||||||||
|
Reserve
deducted in the balance sheet from the assets to which it
applies
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 4,818,000 | $ | 461,000 | $ | (21,000 | ) | $ | 5,258,000 | |||||||
|
Year
ended December 31, 2006
|
||||||||||||||||
|
Reserve
deducted in the balance sheet from the assets to which it
applies
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 5,654,000 | $ | 1,596,000 | $ | (2,432,000 | ) | $ | 4,818,000 | |||||||
|
Year
ended December 31, 2005
|
||||||||||||||||
|
Reserve
deducted in the balance sheet from the assets to which it
applies
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 4,259,000 | $ | 1,455,000 | $ | (60,000 | ) | $ | 5,654,000 | |||||||
S-1