UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
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FORM
10-K
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þ
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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,
2009
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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 þ
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 þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing requirements for the
past 90 days. Yes þ No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o No o
Indicate
by check mark 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. þ
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
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Large
accelerated filer o
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Accelerated
filer þ
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Non-accelerated
filer o (Do
not check if a smaller reporting company)
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Smaller
reporting company o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
The
aggregate market value of the shares of common stock of the registrant held by
non-affiliates was approximately $240 million based upon the closing price of
the common stock on the New York Stock Exchange on June 30, 2009.
As of
February 15, 2010, a total of 35,275,510 shares of common stock of the
registrant were outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive proxy statement for the annual meeting of
stockholders to be held on May 13, 2010, are incorporated by reference into Part
III of this Form 10-K.
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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3-10
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Item 1A.
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Risk
Factors
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11-14
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Item 1B.
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Unresolved
Staff Comments
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15
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Item 2.
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Properties
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15
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Item 3.
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Legal
Proceedings
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15
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Item 4.
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Submission
of Matters to a Vote of Security Holders
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15
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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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16
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Item 6.
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Selected
Financial Data
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17
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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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18-39
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Item 7A.
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Quantitative
and Qualitative Disclosures about Market Risk
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40
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Item 8.
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Financial
Statements and Supplementary Data
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40
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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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40
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Item 9A.
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Controls
and Procedures
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40
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Item 9B.
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Other
Information
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40
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Part
III.
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Item 10.
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Directors,
Executive Officers and Corporate Governance
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41
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Item 11.
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Executive
Compensation
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41
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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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42
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Item 13.
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Certain
Relationships and Related Transactions, and Director
Independence
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42
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Item 14.
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Principal
Accounting Fees and Services
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42
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Part
IV.
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Item 15.
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Exhibits,
Financial Statement Schedules
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43
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Signatures
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44
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Exhibit
Index
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45
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2
PART I
ITEM
1 – BUSINESS
INTRODUCTION
Titan
International, Inc. and its subsidiaries (Titan or the Company) hold the unique
position of manufacturing both wheels and tires for its target
markets. As a leading manufacturer in the off-highway industry, Titan
produces a broad range of specialty products to meet the specifications of
original equipment manufacturers (OEMs) and aftermarket customers in the
agricultural, earthmoving/construction and consumer markets. Titan’s
earthmoving/ construction market includes wheels and tires supplied to the
mining industry, while the consumer market includes products for all-terrain
vehicles (ATVs) and recreational/utility trailers.
As one of
the few companies dedicated to off-highway wheel and tire products, Titan’s
engineering and manufacturing resources are focused on designing quality
products that address the real-life concerns of our
end-users. Titan’s team of experienced engineers continually works on
new and improved engineered products that evolve with today’s applications for
the off-highway wheel and tire markets.
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·
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History
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Titan
traces its roots to the Electric Wheel Company in Quincy, Illinois, which was
founded in 1890. The Company was incorporated in 1983. The
Company has grown through two major asset acquisitions in recent
years. In 2005, Titan Tire Corporation, a subsidiary of the Company,
acquired The Goodyear Tire & Rubber Company’s North American farm tire
assets. In 2006, Titan Tire Corporation of Bryan, a subsidiary of the
Company, acquired the off-the-road (OTR) tire assets of Continental Tire North
America, Inc. These asset acquisitions have allowed Titan to achieve
higher sales levels and enhance product offering in the Company’s target
markets.
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·
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Market
Sales
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In 2009,
Titan’s agricultural market sales represented 77% of net sales, the
earthmoving/construction market represented 20% and the consumer market
represented 3% 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 26 to the consolidated
financial statements of Titan, included in Item 8 herein.
COMPETITIVE
STRENGTHS
Titan’s
strong market position in the off-highway wheel and tire market and its
long-term core customer relationships contribute to the Company’s competitive
strengths. These strengths, along with Titan’s dedication to the
off-highway wheel and tire market, continue to drive the Company
forward.
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·
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Strong
Market Position
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Titan’s
ability to offer a broad range of specialized wheels, tires and assemblies has
resulted in the Company’s strong position in the domestic off-highway
market. Through a diverse dealer network, the Company is able to
reach an increasing number of customers in the aftermarket and build Titan’s
image and brand recognition. The Company’s acquisition of the
Goodyear Farm Tire brand in North America contributes to overall visibility and
customer confidence. 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, many of which are used in custom
processes.
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·
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Long-Term
Core Customer Relationships
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The
Company’s top customers, including global leaders in agricultural and
construction equipment manufacturing, have been purchasing products from Titan
or its predecessors for numerous years. Customers including AGCO
Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company and Kubota
Corporation have helped sustain Titan’s leadership in wheel, tire and assembly
innovation.
3
BUSINESS
STRATEGY
Titan’s
business strategy is to continue its growth into the giant OTR market, increase
its presence in the tire aftermarket, continue to improve operating
efficiencies, maintain emphasis on new product development and explore possible
additional strategic acquisitions.
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·
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Giant
Mining Tire Product
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In May
2007, Titan’s Board of Directors approved funding for the Company to increase
OTR mining tire production capacity to include giant mining
tires. These giant tires offer an opportunity for a new product
offering in the earthmoving marketplace. The “Big Daddy” giant tire
is approximately 13 feet tall and weighs in at approximately 12,500
pounds. The Company began start-up production of these giant mining
tires in the third quarter of 2008.
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·
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Increase
Aftermarket Tire Business
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The
Company has concentrated on increasing its presence in the tire aftermarket,
which historically has tended to be somewhat less cyclical than the OEM
market. The aftermarket also offers the potential for higher profit
margins and is larger in most cases.
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·
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Improve
Operating Efficiencies
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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.
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·
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Enhance
Design Capacity and New Product
Development
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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 enhanced 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 recently introduced designs for giant
mining wheels and tires, which went into start-up production in third quarter
2008. These giant tires employ an innovative steel radial
construction technology, new to the OTR tire industry, to enhance performance
and durability. Titan’s engineers are also working on a new 15-degree
tire and wheel design for OTR and farm radial assemblies to improve tire and
wheel life.
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·
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Explore
Additional Strategic Acquisitions
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The
Company’s expertise in the manufacture of off-highway 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.
In
September 2009, Titan signed a letter of intent with The Goodyear Tire &
Rubber Company to purchase certain farm tire assets, including the Goodyear
Dunlop Tires France (GDTF) Amiens North factory. This agreement is
non-binding and will be subject to GDTF’s satisfactory completion of a social
plan related to consumer tire activity at the Amiens North facility, along with
completion of due diligence, a definitive acquisition agreement and other
standard acquisition approval requirements. At this time, the due
diligence process continues. There is no assurance that definitive
agreements will be executed or that the acquisition will be
consummated.
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 products to meet
customer specifications. Titan’s agricultural tires range from
approximately 1 foot to approximately 7 foot in outside diameter and from 5 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 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 OEM and
aftermarket 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. Titan’s
earthmoving/construction tires range from approximately 3 feet to approximately
13 feet in outside diameter and in weight from 50 pounds to 12,500
pounds. The Company offers the added value of wheel and tire assembly
for certain applications in the earthmoving/construction market.
CONSUMER
MARKET
Titan
builds select products for ATVs, turf, golf car 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.
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MARKET
SALES
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||||||||||||||||||||||||
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Year
ended December 31,
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||||||||||||||||||||||||
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(Amounts
in thousands)
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2009
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2008
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2007
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|||||||||||||||||||||
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%
of Total
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%
of Total
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%
of Total
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||||||||||||||||||||||
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Net Sales
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Net Sales
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Net Sales
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Net Sales
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Net Sales
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Net Sales
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|||||||||||||||||||
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Agricultural
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$ | 563,528 | 77 | % | $ | 729,895 | 70 | % | $ | 515,642 | 62 | % | ||||||||||||
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Earthmoving/construction
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144,589 | 20 | % | 281,008 | 27 | % | 277,206 | 33 | % | |||||||||||||||
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Consumer
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19,482 | 3 | % | 25,797 | 3 | % | 44,173 | 5 | % | |||||||||||||||
| $ | 727,599 | $ | 1,036,700 | $ | 837,021 | |||||||||||||||||||
MARKET
CONDITIONS OUTLOOK
The
magnitude and duration of the worldwide recession and economic crisis makes it
extremely difficult to forecast future sales levels. In 2009, Titan
experienced a sales decline across the board. This decline was more severe in
the second half of the year. Titan may experience possible sales declines
in each of the Company’s markets for the first part of 2010. Although
the short-term outlook may include possible sales declines, the Company has seen
signs that the market may currently be experiencing the bottom of the
cycle. The Company is cautiously optimistic that sales may move
higher as Titan goes forward through 2010, however, there can be no assurance
that the decline in sales will not continue.
Energy,
raw material and petroleum-based product costs have been exceptionally volatile
and may negatively impact the Company’s margins. Many of Titan’s
overhead expenses are fixed; therefore, lower seasonal trends may cause negative
fluctuations in quarterly profit margins and affect the financial condition of
the Company.
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.
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·
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Wheel
Manufacturing Process
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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.
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·
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Tire
Manufacturing Process
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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.
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·
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Wheel
and Tire Assemblies
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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
established based on each customer’s requirements and products are received by
the customer on a just-in-time basis.
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·
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Quality
Control
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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 usually
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 2009, 2008 and 2007 were $39.5 million, $80.0 million and $38.0
million, respectively. Included in capital expenditures were amounts
for the giant OTR project of approximately $23 million in 2009, approximately
$60 million in 2008 and approximately $22 million in 2007. The
remaining capital expenditures in each year were used primarily for updating
manufacturing equipment, expanding manufacturing capacity and for further
automation at the Company’s facilities. Capital expenditures for 2010
are forecasted to be approximately $12 million to $16 million. These
capital expenditures are anticipated to be used to enhance the Company’s
existing facilities and manufacturing capabilities.
PATENTS,
TRADEMARKS AND ROYALTIES
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.
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. Titan currently plans to continue using the Goodyear
trademark until circumstances require a change. The current term of
the agreement with Goodyear is for the next three years.
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
eight 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
its customers. Titan’s engineers recently introduced designs for giant OTR
tires, which began start-up production in third quarter 2008. These
giant tires employ an innovative steel radial construction technology, new to
the OTR tire industry, to enhance performance and durability. 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. Research and development (R&D) expenses are expensed as
incurred. R&D costs were $8.9 million, $3.5 million and $1.7
million for the years of 2009, 2008 and 2007, respectively.
7
CUSTOMERS
Titan’s
10 largest customers accounted for approximately 54% of net sales for the year
ended December 31, 2009, compared to approximately 51% for the year ended
December 31, 2008. Net sales to Deere & Company in Titan’s
agricultural, earthmoving/construction and consumer markets combined represented
approximately 24% and 22% of the Company’s consolidated revenues for the years
ended December 31, 2009 and 2008, respectively. Net sales to CNH
Global N.V. in Titan’s three markets represented approximately 13% and 12% of
the Company’s consolidated revenues for the years ended December 31, 2009 and
2008, respectively. No other customer accounted for more than 10% of
the Company’s net sales in 2009 or 2008. 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 may minimize a longer-term impact
caused by any such loss.
ORDER
BACKLOG
As of
January 31, 2010, Titan estimates $134 million in firm orders compared to $201
million at January 31, 2009, 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 Accounting Standards Codification (ASC) 320 Investments – Debt
and Equity Securities, 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. 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. The Company’s stock ownership interest in Titan Europe Plc
was 22.9% at December 31, 2009, and 17.2% at December 31, 2008. The
fair value of the Company’s investment in Titan Europe Plc was $6.5 million and
$2.6 million at December 31, 2009 and 2008. Titan Europe Plc is
publicly traded on the AIM market in London, England.
EMPLOYEES
At
December 31, 2009, the Company employed approximately 2,400 people in the United
States. Approximately 46% of the Company’s employees in the United
States were covered by collective bargaining agreements. All of the
Company’s labor agreements for its (i) Bryan, Ohio; (ii) Des Moines, Iowa; and
(iii) Freeport, Illinois, facilities expire on November 19, 2010 for the
employees covered by their respective collective bargaining
agreements. The Company believes employee relations are generally
good.
EXPORT
SALES
The
Company had total aggregate export sales of approximately $82.7 million, $128.8
million and $77.0 million, for the years ended December 31, 2009, 2008 and 2007,
respectively.
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.
CONVERTIBLE
SENIOR SUBORDINATED NOTES DUE 2017
On
December 21, 2009, the Company closed its offering of $172.5 million principal
amount of 5.625% Convertible Senior Subordinated Notes due 2017 (Notes), which
included the exercise in full of the initial purchasers’ option to purchase
$22.5 million principal amount of additional Notes to cover over-allotments. The
Notes were offered and sold in a private offering to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended and to
other investors pursuant to another applicable exemption from
registration.
Titan
received net proceeds from the offering of approximately $166 million after
deducting initial purchasers’ discounts and estimated offering expenses. Titan
intends to use the proceeds from the offering for general corporate purposes,
including financing potential future acquisitions and repayment of existing debt
obligations.
The Notes
will bear cash interest semiannually at an annual rate of
5.625%. Upon conversion, the Company will deliver a number of shares
of its common stock as described in the indenture. The initial base
conversion rate for the Notes is 93.0016 shares of Titan common stock per $1,000
principal amount of Notes, equivalent to an initial base conversion price of
approximately $10.75 per share of Titan common stock. If the price of
Titan common stock at the time of determination exceeds the base conversion
price, the base conversion rate will be increased by an additional number of
shares (up to 9.3002 shares of Titan common stock per $1,000 principal amount of
Notes) as determined pursuant to a formula described in the
indenture. The base conversion rate will be subject to adjustment in
certain events. The initial base conversion price represents a
premium of 37.5% relative to the December 15, 2009, closing sale price of Titan
common stock.
Titan
will have the right to redeem the Notes in whole or in part at a specified
redemption price on or after January 20, 2014 if the closing sale price of its
common stock exceeds 130% of the base conversion price then in effect for 20 or
more trading days in a period of 30 consecutive trading days ending on the
trading day immediately prior to the date of the redemption notice. The Notes
will be subordinated in right of payment to Titan’s existing 8% senior notes due
2012.
9
NEW
YORK STOCK EXCHANGE CERTIFICATION
The
Company submitted to the New York Stock Exchange during fiscal 2009 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 a website at www.sec.gov that
contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. 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: Titan International, Inc.,
c/o
Corporate Secretary, 2701 Spruce Street, Quincy, IL 62301.
10
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 is exposed to price fluctuations of key
commodities.
|
The
Company does not generally enter into long-term commodity contracts and does not
use derivative commodity instruments to hedge exposures to commodity market
price fluctuations. Therefore, the Company is exposed to price
fluctuations of key commodities, which consist primarily of steel and
rubber. Although the Company attempts to pass on certain material
price increases to its customers, there is no assurance that the Company will be
able to do so in the future. Any increase in the price of steel and
rubber that is not passed on to customers could have an adverse material effect
on Titan’s results of operations.
|
·
|
The
Company relies on a limited number of
suppliers.
|
The
Company currently relies on a limited number of suppliers for certain key
commodities, which consist primarily of steel and rubber, in the manufacturing
of Titan products. The loss of key suppliers or their inability to
meet price, quality, quantity and delivery requirements could have a significant
adverse impact on the Company’s results of operations.
|
·
|
The
economic crisis and recession has and may continue to affect the Company
and its customers.
|
The
global economy has faced an extended worldwide recession and economic
crisis. This recession and economic crisis has put pressure on the
liquidity of and demand from customers. The resulting decrease in
Titan’s sales has adversely affected results of operations. The
magnitude and duration of this recession and economic crisis make it extremely
difficult to forecast future sales levels. A continuation of the
recession or worsening of the economic crisis could have an adverse material
effect on Titan’s results of operations.
|
·
|
The
Company’s revolving credit facility and debt obligation contain
covenants.
|
The
Company’s revolving credit facility and debt obligations contain covenants and
restrictions. In connection with the convertible senior subordinated
note offering, Titan agreed to add an additional mutually agreeable covenant to
the Company’s revolving credit facility, which is not yet in
place. These covenants and restrictions could limit Titan’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 to meet these items could result in the
Company ultimately being in default. Titan’s ability to comply with
the covenants may be affected by events beyond its control, including prevailing
economic, financial and industry conditions.
|
·
|
The
Company operates in cyclical industries and is subject to numerous changes
in the economy.
|
The
Company sales are substantially dependent on three major industries:
agricultural equipment, earthmoving/construction equipment and consumer
products. The business activity levels in these industries are
subject to specific industry and general economic cycles. Any
downturn in these industries or the general economy could have an adverse
material effect on Titan’s business.
The
agricultural equipment industry is affected by crop prices, farm income and
farmland values, weather, export markets and government policies. The
earthmoving/construction industry is affected by the levels of government and
private construction spending and replacement demand. The consumer products
industry is affected by consumer disposable income, weather, competitive
pricing, energy prices and consumer attitudes. In addition, the performance of
these industries is sensitive to interest rate changes and varies with the
overall level of economic activity.
11
|
·
|
The Company’s customer base is
relatively concentrated.
|
The
Company’s ten largest customers, which are primarily original equipment
manufacturers (OEMs), accounted for approximately 54% of Titan’s net sales for
2009. Net sales to Deere & Company and CNH Global
N.V. represented 24% and 13% , respectively, of total 2009 net
sales. No other customer accounted for more than 10% of net sales in
2009. As a result, Titan’s business could be adversely affected if
one of its larger customers reduces its purchases from Titan due to work
stoppages or slow-downs, financial difficulties, as a result of termination
provisions, competitive pricing or other reasons. There is also
continuing pressure from the OEMs to reduce costs, including the cost of
products and services purchased from outside suppliers such as
Titan. The Company has had long-term relationships with major
customers and expects to continue these relationships. There can be
no assurance that Titan will be able to maintain such ongoing
relationships. Any failure to maintain the Company’s relationship
with a leading customer could have an adverse effect on results of
operations.
|
·
|
The
Company’s revenues are seasonal in nature due to Titan’s dependence on
seasonal industries.
|
The
agricultural, earthmoving/construction and recreational industries are seasonal,
with typically lower sales during the second half of the year. This
seasonality in demand has resulted in fluctuations in the Company’s revenues and
operating results. Because much of Titan’s overhead expenses are
fixed, seasonal trends can cause reductions in quarterly profit margins and
financial condition, especially during slower periods.
|
·
|
The
Company may be adversely affected by changes in government regulations and
policies.
|
Domestic
and foreign political developments and government regulations and policies
directly affect the agricultural, earthmoving/construction and consumer products
industries in the United States and abroad. Regulations and policies in the
agricultural industry include those encouraging farm acreage reduction in the
United States and granting ethanol subsidies. Regulations and policies relating
to the earthmoving/ construction industry include the construction of roads,
bridges and other items of infrastructure. The modification of existing laws,
regulations or policies or the adoption of new laws, regulations or policies
could have an adverse effect on any one or more of these industries and
therefore on Titan’s business.
|
·
|
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 is subject to corporate governance requirements under the Sarbanes-Oxley
Act of 2002, as well as new rules and regulations subsequently adopted by the
Securities and Exchange Commission (SEC), the Public Company Accounting
Oversight Board (PCAOB) and the New York Stock Exchange (NYSE). These laws,
rules and regulations continue to evolve and may become increasingly restrictive
in the future. Failure to comply with these laws, rules and regulations may have
an adverse material effect on Titan’s reputation, financial condition and the
value of the Company’s securities.
|
·
|
The
Company faces substantial competition from domestic and international
companies.
|
The
Company competes with several domestic and international competitors, some of
which are larger and have greater financial and marketing resources than
Titan. Titan 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 OEM customers could,
under certain circumstances, elect to manufacture certain products to meet their
own requirements or to otherwise compete with Titan.
There can
be no assurance that Titan’s businesses will not be adversely affected by
increased competition in the Company’s markets or that competitors will not
develop products that are more effective or less expensive than Titan products
or which could render certain products less competitive. From time to
time certain competitors have reduced prices in particular product categories,
which has caused Titan to reduce prices. There can be no assurance that in the
future Titan’s competitors will not further reduce prices or that any such
reductions would not have a material adverse effect on Titan’s
business.
12
|
·
|
The
Company could be negatively impacted if Titan fails to maintain
satisfactory labor relations.
|
At
December 31, 2009, approximately 46% of Titan employees in the United States
were covered by three collective bargaining agreements. Upon the
expiration of any of the collective bargaining agreements, however, Titan may be
unable to negotiate new collective bargaining agreements on terms that are cost
effective to the Company. The business operations may be affected as
a result of labor disputes or difficulties and delays in the process of
renegotiating collective bargaining agreements.
In 1998,
the employees in the Des Moines, Iowa, facility went on strike for approximately
40 months. Titan’s labor agreements expire in November
2010. The Company cannot be assured that there will not be any other
labor disruptions or strikes at Titan facilities that adversely affect
business.
|
·
|
Unfavorable
outcomes of legal proceedings could adversely affect results of
operations.
|
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.
|
·
|
Acquisitions
may require significant resources and/or result in significant losses,
costs or liabilities.
|
Any
future acquisitions will depend on the ability to identify suitable acquisition
candidates, to negotiate acceptable terms for their acquisition and to finance
those acquisitions. Titan will also face competition for suitable
acquisition candidates that may increase costs. In addition,
acquisitions require significant managerial attention, which may be diverted
from current operations. Furthermore, acquisitions of businesses or
facilities entail a number of additional risks, including:
- problems
with effective integration of operations
- the
inability to maintain key pre-acquisition customer, supplier and employee
relationships
- the
potential that expected benefits or synergies are not realized and operating
costs increase
- exposure
to unanticipated liabilities
Many of
these risks would be accentuated if Titan acquires businesses overseas due to
the operations, employees and customers would largely be located outside of the
United States and the Company’s acquisition strategy has recently focused on
domestic businesses. In September 2009, Titan signed a letter of
intent with The Goodyear Tire & Rubber Company to purchase certain farm tire
assets, including the Goodyear Dunlop Tires France (GDTF) Amiens North
factory. This agreement is non-binding and will be subject to GDTF’s
satisfactory completion of a social plan related to consumer tire activity at
the Amiens North facility, along with completion of due diligence, a definitive
acquisition agreement and other standard acquisition approval
requirements. At this time, the due diligence process
continues. There is no assurance that definitive agreements will be
executed or that the acquisition will be consummated.
Subject
to the terms of indebtedness, the Company may finance future acquisitions with
cash from operations, additional indebtedness and/or by issuing additional
equity securities. These commitments may impair the operation of
Titan’s businesses. In addition, the Company could face financial
risks associated with incurring additional indebtedness such as reducing
liquidity and access to financing markets and increasing the amount of cash flow
required to service such indebtedness.
13
|
·
|
The Company has export sales and purchases
raw material from foreign
suppliers.
|
The
Company had total aggregate export sales of approximately $82.7 million, $128.8
million and $77.0 million, for the years ended December 31, 2009, 2008 and 2007,
respectively.
Export Sales – 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 United States laws and policies 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.
Foreign Suppliers – The
Company purchases 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.
|
·
|
The
Company may be subject to product liability and warranty
claims.
|
The
Company warrants its products to be free of certain defects and accordingly may
be subject in the ordinary course of business to product liability or product
warranty claims. Losses may result or be alleged to result from
defects in Titan products, which could subject the Company to claims for
damages, including consequential damages. There can be no assurance
that Company insurance will be adequate for liabilities actually incurred or
that adequate insurance will be available on terms acceptable to the Company.
Any claims relating to defective products that result in liability exceeding
Titan’s insurance coverage could have a material adverse effect on financial
condition and results of operations. Further, claims of defects could result in
negative publicity against Titan, which could adversely affect the Company’s
business.
|
·
|
The
Company has incurred, and may incur in the future, net
losses.
|
The
Company reported net loss of $(24.6) million and $(7.2) million for the years
ended December 31, 2009, and 2007, respectively. As a result of the
2009 net loss, the Company has a net operating loss carryforward for income tax
purposes. If Titan would continue to incur net losses, the Company
may not be able to realize the tax benefit of these net operating
losses.
|
·
|
The
Company is subject to risks associated with climate change and climate
change regulations.
|
Governmental
regulatory bodies in the United States and other countries have, or are,
contemplating introducing regulatory changes in response to the potential
impacts of climate change. Laws and regulations regarding climate
change and energy usage may impact the Company directly through higher costs for
energy and raw materials. The Company’s customers may also be
affected by climate change regulations that may impact future
purchases. Physical climate change may potentially have a large
impact on the Company’s two largest industry segments, agriculture and
earthmoving/construction. The potential impacts of climate change and
climate change regulations are highly uncertain at this time, and 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 climate
change and climate change regulations.
|
·
|
The
Company is subject to risks associated with environmental laws and
regulations.
|
The
Company’s operations are subject to federal, state, local and foreign laws and
regulations governing, among other things, emissions to air, discharge to waters
and the generation, handling, storage, transportation, treatment and disposal of
waste and other materials. The Company’s operations entail risks in
these areas, and there can be no assurance that Titan will not incur material
costs or liabilities. In addition, potentially significant
expenditures could be required in order to comply with evolving environmental
and health and safety laws, regulations or requirements that may be adopted or
imposed in the future.
14
ITEM
1B – UNRESOLVED STAFF COMMENTS
None.
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 |
Manufacturing,
distribution
|
All
segments
|
|||||||
|
Quincy,
Illinois
|
1,134,000 |
Manufacturing,
distribution
|
All
segments
|
|||||||
|
Brownsville,
Texas
|
993,000 |
Storage
|
See
note (a)
|
|||||||
|
Bryan,
Ohio
|
714,000 |
Manufacturing,
distribution
|
All
segments
|
|||||||
|
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)
|
|||||||
|
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, and Natchez, Mississippi, are not in
operation.
|
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 2009.
15
PART II
ITEM
5 – MARKET FOR 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. Titan executed a five-for-four stock split effective
August 15, 2008. All share and per share data, except shares
authorized, have been adjusted to reflect the effect of the stock split for all
periods presented. On February 15, 2010, there were approximately 500
holders of record of Titan common stock and an estimated 6,500 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.
|
2009
|
High
|
Low
|
Dividends
Declared
|
|||||||||
|
First
quarter
|
$ | 11.44 | $ | 3.05 | $ | 0.005 | ||||||
|
Second
quarter
|
10.45 | 4.82 | 0.005 | |||||||||
|
Third
quarter
|
9.87 | 5.79 | 0.005 | |||||||||
|
Fourth
quarter
|
10.35 | 7.55 | 0.005 | |||||||||
|
2008
|
||||||||||||
|
First
quarter *
|
$ | 27.86 | $ | 19.36 | $ | 0.004 | ||||||
|
Second
quarter *
|
36.31 | 24.53 | 0.004 | |||||||||
|
Third
quarter *
|
37.77 | 19.78 | 0.005 | |||||||||
|
Fourth
quarter
|
21.10 | 5.40 | 0.005 | |||||||||
*
Adjusted to reflect the five-for-four stock split that took place in
2008.
PERFORMANCE
COMPARISON GRAPH
The
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 600 Construction and Farm Machinery and Heavy Trucks
Index, and against the Standard & Poor’s 500 Stock Index. The
graph depicts the value on December 31, 2009, of a $100 investment made on
December 31, 2004, in Company common stock and each of the other two indices,
with all dividends reinvested. Titan’s common stock is traded on the
NYSE under the symbol TWI.
|
Fiscal
Year Ended December 31,
|
||||||||||||||||||||||||
|
2004
|
2005
|
2006
|
2007
|
2008
|
2009
|
|||||||||||||||||||
|
Titan
International, Inc.
|
$ | 100.00 | $ | 114.39 | $ | 133.77 | $ | 207.67 | $ | 68.59 | $ | 67.61 | ||||||||||||
|
S&P
500 Index
|
100.00 | 104.91 | 121.48 | 128.16 | 80.74 | 102.11 | ||||||||||||||||||
|
S&P
600 Const. & Farm Machinery Index
|
100.00 | 127.11 | 171.42 | 216.03 | 136.11 | 147.58 | ||||||||||||||||||
16
ITEM
6 – SELECTED FINANCIAL DATA
The
selected financial data presented below, as of and for the years ended December
31, 2009, 2008, 2007, 2006, and 2005, 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 Management’s Discussion and Analysis of Financial Condition
and Results of Operations and our audited consolidated financial statements and
notes thereto.
(All
amounts in thousands, except per share data)
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Net
sales
|
$ | 727,599 | $ | 1,036,700 | $ | 837,021 | $ | 679,454 | $ | 470,133 | ||||||||||
|
Gross
profit
|
55,965 | 139,714 | 84,131 | 72,778 | 64,210 | |||||||||||||||
|
Noncash
goodwill impairment charge
|
11,702 | 0 | 0 | 0 | 0 | |||||||||||||||
|
Income
(loss) from operations
|
(18,894 | ) | 73,321 | 24,838 | 22,011 | 11,999 | ||||||||||||||
|
Noncash
Titan Europe Plc charge
|
0 | (37,698 | ) | 0 | 0 | 0 | ||||||||||||||
|
Noncash
debt conversion charge
|
0 | 0 | (13,376 | ) | 0 | (7,225 | ) | |||||||||||||
|
Income
(loss) before income taxes
|
(32,002 | ) | 23,010 | (3,884 | ) | 8,574 | (2,885 | ) | ||||||||||||
|
Net
income (loss)
|
(24,645 | ) | 13,337 | (7,247 | ) | 5,144 | 11,042 | |||||||||||||
|
Net
income (loss) per share – basic *
|
(.71 | ) | .39 | (.23 | ) | .21 | .49 | |||||||||||||
|
Net
income (loss) per share – diluted *
|
(.71 | ) | .38 | (.23 | ) | .21 | .48 | |||||||||||||
|
Dividends
declared per common share *
|
.020 | .018 | .016 | .016 | .016 | |||||||||||||||
|
* Adjusted to reflect the
five-for-four stock split that took place in 2008.
|
||||||||||||||||||||
|
(All
amounts in thousands)
|
As
of December 31,
|
|||||||||||||||||||
|
2009
|
2008
|
2007
|
2006
|
2005
|
||||||||||||||||
|
Working
capital
|
$ | 375,144 | $ | 232,564 | $ | 239,985 | $ | 247,009 | $ | 157,984 | ||||||||||
|
Current
assets
|
445,216 | 369,199 | 327,765 | 309,933 | 206,167 | |||||||||||||||
|
Total
assets
|
736,463 | 654,782 | 590,495 | 585,126 | 440,756 | |||||||||||||||
|
Long-term
debt (a)
|
366,300 | 200,000 | 200,000 | 291,266 | 190,464 | |||||||||||||||
|
Stockholders’
equity
|
261,953 | 279,188 | 272,522 | 187,177 | 167,813 | |||||||||||||||
|
(a) Excludes
amounts due within one year and classified as a current
liability.
|
||||||||||||||||||||
17
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 acquisition and divestiture
opportunities
|
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, including those in Item 1A, Part I of this report, “Risk
Factors,” certain of which are beyond the Company’s control.
Actual
results could differ materially from these forward-looking statements as a
result of certain factors, including:
|
·
|
The
effect of the economic crisis and recession on the Company and its
customers and suppliers
|
|
·
|
Changes
in the Company’s end-user markets as a result of world economic or
regulatory influences
|
|
·
|
Changes
in the marketplace, including new products and pricing changes by the
Company’s competitors
|
|
·
|
Ability
to maintain satisfactory labor
relations
|
|
·
|
Unfavorable
outcomes of legal proceedings
|
|
·
|
Availability
and price of raw materials
|
|
·
|
Levels
of operating efficiencies
|
|
·
|
Unfavorable
product liability and warranty
claims
|
|
·
|
Actions
of domestic and foreign governments
|
|
·
|
Results
of investments
|
|
·
|
Fluctuations
in currency translations
|
|
·
|
Ability
to secure financing at reasonable
terms
|
|
·
|
Laws
and regulations related to climate
change
|
|
·
|
Risks
associated with environmental laws and
regulations
|
Any
changes in such factors could lead to significantly different
results. The Company cannot provide any assurance that the
assumptions referred to in the forward-looking statements or otherwise are
accurate or will prove to transpire. Any assumptions that are
inaccurate or do not prove to be correct could have a material adverse effect on
the Company’s ability to achieve the results as indicated in forward-looking
statements. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this document will in fact transpire.
18
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, 2009,
compared to 2008 (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Net
sales
|
$ | 727,599 | $ | 1,036,700 | ||||
|
Income
(loss) from operations
|
(18,894 | ) | 73,321 | |||||
|
Net
income (loss)
|
(24,645 | ) | 13,337 | |||||
The
Company recorded sales of $727.6 million for 2009, which were approximately 30%
lower than the 2008 sales of $1,036.7 million. The significantly
lower sales levels resulted from reduced demand for the Company’s products
across the board, a consequence of the worldwide recession and global economic
crisis. Many of the Company’s major customers implemented extended
shutdowns during the second half of 2009, Titan in turn extended shutdowns at
its production facilities to manage the lower demand. These items had
a negative impact on Titan’s annual 2009 sales for the agricultural market, down
approximately 23%, earthmoving/construction market, down approximately 49%, and
consumer market, down approximately 24%, when compared to the previous
year.
The
following operating results were primarily related to the significantly lower
sales levels and the associated negative impact on the Company’s operating
margins as well as a noncash goodwill impairment charge of $11.7
million. Loss from operations was $(18.9) million for 2009 compared
to income from operations of $73.3 million for previous year. Titan’s
net loss was $(24.6) million for 2009 compared to net income of $13.3 million in
2008. Diluted loss per share was $(.71) in 2009, compared to diluted
earnings per share of $.38 in 2008.
SUBSEQUENT
EVENTS
Special
Meeting of Stockholders (Definitive proxy filed January 29,
2010)
A Special
Meeting of Stockholders (Special Meeting) of Titan International, Inc. is to be
held on March 4, 2010, at 10:00 a.m. Central Time, at the Holiday Inn, 4821 Oak
Street, Quincy, IL 62305, to consider and act upon the following
matters:
|
1)
|
To
approve an amendment to the Company’s Amended and Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock
from 60,000,000 shares to 120,000,000 shares;
and
|
|
2)
|
To
transact such other business as may properly come before the Special
Meeting or any adjournments or postponements
thereof.
|
The
Company’s board of directors has fixed the “record date” to be the close of
business on January 15, 2010. Only those stockholders whose names
appear of record at the Company’s close of
business on January 15, 2010, as holders of record of the Company common stock,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments thereof.
19
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,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
|
Cost
of sales
|
92.3 | 86.5 | 89.9 | |||||||||
|
Gross
profit
|
7.7 | 13.5 | 10.1 | |||||||||
|
Selling,
general and administrative expenses
|
6.4 | 5.2 | 6.2 | |||||||||
|
Research
and development
|
1.2 | 0.3 | 0.2 | |||||||||
|
Royalty
expense
|
1.1 | 0.9 | 0.7 | |||||||||
|
Noncash
goodwill impairment charge
|
1.6 | 0.0 | 0.0 | |||||||||
|
Income
(loss) from operations
|
(2.6 | ) | 7.1 | 3.0 | ||||||||
|
Interest
expense
|
(2.2 | ) | (1.5 | ) | (2.3 | ) | ||||||
|
Noncash
Titan Europe Plc charge
|
0.0 | (3.6 | ) | 0.0 | ||||||||
|
Noncash
convertible debt conversion charge
|
0.0 | 0.0 | (1.6 | ) | ||||||||
|
Other
income, net
|
0.4 | 0.2 | 0.4 | |||||||||
|
Income
(loss) before income taxes
|
(4.4 | ) | 2.2 | (0.5 | ) | |||||||
|
Income
tax provision (benefit)
|
(1.0 | ) | 0.9 | 0.4 | ||||||||
|
Net
income (loss)
|
(3.4 | )% | 1.3 | % | (0.9 | )% | ||||||
In
addition, the following table sets forth components of the Company’s net sales
classified by segment for the years ended December 31, (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Agricultural
|
$ | 563,528 | $ | 729,895 | $ | 515,642 | ||||||
|
Earthmoving/Construction
|
144,589 | 281,008 | 277,206 | |||||||||
|
Consumer
|
19,482 | 25,797 | 44,173 | |||||||||
|
Total
|
$ | 727,599 | $ | 1,036,700 | $ | 837,021 | ||||||
CONVERTIBLE
SENIOR SUBORDINATED NOTES DUE 2017
On
December 21, 2009, the Company closed its offering of $172.5 million principal
amount of 5.625% Convertible Senior Subordinated Notes due 2017 (Notes), which
included the exercise in full of the initial purchasers’ option to purchase
$22.5 million principal amount of additional Notes to cover over-allotments. The
Notes were offered and sold in a private offering to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended and to
other investors pursuant to another applicable exemption from
registration.
Titan
received net proceeds from the offering of approximately $166 million after
deducting initial purchasers’ discounts and estimated offering expenses. Titan
intends to use the proceeds from the offering for general corporate purposes,
including financing potential future acquisitions and repayment of existing debt
obligations.
20
STOCK
SPLIT
In June
2008, Titan’s Board of Directors approved a five-for-four stock split with a
record date of July 31, 2008, and a payable date of August 15,
2008. The Company gave five shares for every four shares held as of
the record date. Stockholders received one additional share for every
four shares owned as of the record date and received cash in lieu of fractional
shares. All share and per share data, except shares authorized, have
been adjusted to reflect the effect of the stock split for all periods
presented.
GIANT
OTR PROJECT
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 (Giant OTR Project). The Company began start-up
production of these giant mining tires in the third quarter of
2008.
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
(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.
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 ASC 470-20 Debt –
Debt with Conversion and Other Options.
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 2009 for approximately 74% of
inventories and the last-in, first-out (LIFO) method for approximately 26% 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 experience change, adjustments to the estimated
provisions would be necessary.
Income
Taxes
Deferred
income tax provisions are determined using the liability method whereby deferred
tax assets and liabilities are recognized based upon temporary differences
between the financial statement and income tax basis of assets and
liabilities. The Company assesses the realizability of its deferred
tax asset positions and recognizes and measures uncertain tax positions in
accordance with ASC 740 Income Taxes.
As a
result of the 2009 net loss, the Company has a net operating loss carryforward
for income tax purposes. If Titan would continue to incur net losses,
the Company may not be able to realize the tax benefit of these net operating
losses.
21
Impairment
of Goodwill
The
Company reviews goodwill for impairment during the fourth quarter of each annual
reporting period, and whenever events and circumstances indicate that the
carrying values may not be recoverable. The Company evaluates the
recoverability of goodwill by estimating the future discounted cash flows of the
reporting unit to which the goodwill relates and using an earnings before
interest, taxes, depreciation, and amortization (EBITDA) multiple
approach. In determining the estimated future cash flows, the Company
considers current and projected future levels of income as well as business
trends and economic conditions. When the Company’s estimated fair
value of the reporting unit is less than the carrying value, a second step of
the impairment analysis is performed. In this second step, the
implied fair value of goodwill is calculated as the excess of the fair value of
a reporting unit over the fair values assigned to its assets and
liabilities. If the implied fair value of goodwill is less than the
carrying value of the reporting unit’s goodwill, the difference is recognized as
an impairment loss.
In the
fourth quarter of 2009, the Company recorded a noncash charge for the impairment
of goodwill of $11.7 million on both a pre-tax and after-tax
basis. The charge was associated with the reporting units of the
Company’s agricultural ($6.9 million), earthmoving/construction ($3.6 million),
and consumer ($1.2 million) segments. The Company performed a fourth
quarter 2009 goodwill assessment using a discounted cash flow model that
employed a 12.25% discount rate and 2.5% terminal growth rate assumption and an
EBITDA multiple approach.
The key
factors contributing to the goodwill impairment were: (i) depressed
sales levels, which began to accelerate during the third quarter of 2009,
continued in the fourth quarter resulting from reduced demand for the Company’s
products across the board, a consequence of the worldwide recession and global
economic crisis, (ii) many of the Company’s major customers implemented
additional shutdowns during the fourth quarter of 2009, Titan in turn extended
shutdowns at its production facilities to manage the lower demand, (iii)
operating losses which began in the third quarter, continued into the fourth
quarter associated with lower product demand, (iv) decline in the reporting
units’ forecasted financial performance as a result of ongoing weak economic
conditions, and (v) in December 2009, in association with Titan’s convertible
note issuance, the rating agencies of Moody’s Investor Service and Standard and
Poor’s Rating Services issued a revised outlook on the Company’s future
performance to negative from stable.
Significant
assumptions relating to future operations must be made when estimating future
cash flows in analyzing goodwill for impairment. Assumptions utilized
in analyzing goodwill are highly judgmental, especially given the worldwide
recession and global economic crisis.
Retirement
Benefit Obligations
Pension
benefit obligations are based on various assumptions used by third-party
actuaries in calculating these amounts. These assumptions include
discount rates, expected return on plan assets, mortality rates and other
factors. Revisions in assumptions and actual results that differ from
the assumptions affect future expenses, cash funding requirements and
obligations. The Company has three frozen defined benefit pension
plans and one defined benefit plan that previously purchased a final annuity
settlement. Titan expects to contribute approximately $3 million to
these frozen defined pension plans in 2010. 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 (amounts in
thousands):
|
December
31, 2009
|
2010
|
|||||
|
Increase
|
Increase
|
Increase
|
||||
|
Percentage
|
(Decrease)
|
(Decrease)
|
(Decrease)
|
|||
|
Assumptions
|
Change
|
PBO
(a)
|
Equity
|
Expense
|
||
|
Pension
|
||||||
|
Discount rate
|
+/-.5
|
$(4,434)/$4,873
|
$4,434/$(4,873)
|
$(263)/$285
|
||
|
Expected return on
assets
|
+/-.5
|
$(327)/$327
|
||||
|
(a)
|
Projected
benefit obligation (PBO) for pension
plans.
|
22
FISCAL
YEAR ENDED DECEMBER 31, 2009, COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2008
RESULTS
OF OPERATIONS
Highlights for the year
ended December 31, 2009, compared to 2008 (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Net
sales
|
$ | 727,599 | $ | 1,036,700 | (30 | )% | ||||||
|
Cost
of sales
|
671,634 | 896,986 | (25 | )% | ||||||||
|
Gross
profit
|
55,965 | 139,714 | (60 | )% | ||||||||
|
Gross
profit percentage
|
7.7 | % | 13.5 | % | ||||||||
Net
Sales
Net sales
for the year ended December 31, 2009, were $727.6 million compared to $1,036.7
million for the year ended December 31, 2008. The significantly lower
sales levels were primarily the result of reduced demand for the Company’s
products in all segments, a consequence of the worldwide recession and global
economic crisis. Many of the Company’s major customers implemented
extended shutdowns during the second half of 2009, Titan in turn extended
shutdowns at its production facilities to manage the lower
demand. These items had a negative impact on Titan’s annual 2009
sales for the agricultural market, down approximately 23%,
earthmoving/construction market, down approximately 49%, and consumer market,
down approximately 24%, when compared to the previous year.
Cost
of Sales and Gross Profit
Cost of
sales was $671.6 million for the year ended December 31, 2009, as compared to
$897.0 million in 2008. The lower cost of sales resulted primarily
from the significant reduction in the sales levels recorded in
2009.
Gross
profit for the year 2009 was $56.0 million, or 7.7% of net sales, compared to
$139.7 million, or 13.5% of net sales for 2008. In response to
significantly lower demand from customers, Titan scheduled extended shutdowns at
all Company production facilities during the second half of
2009. These extended shutdowns, in conjunction with lower production
levels when operating, drastically reduced the Company’s manufacturing
efficiencies. These lower efficiencies resulted in the gross profit
and percentage reductions. The major reduction in the operating
results was primarily related to the significantly lower sales levels and the
associated negative impact on the Company’s operating margins.
Selling,
General and Administrative Expenses
Selling, general and
administrative expenses were as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Selling,
general and administrative
|
$ | 46,734 | $ | 53,661 | (13 | )% | ||||||
|
Percentage
of net sales
|
6.4 | % | 5.2 | % | ||||||||
Selling,
general and administrative (SG&A) expenses were $46.7 million, or 6.4% of
net sales, for the year ended December 31, 2009, as compared to $53.7 million,
or 5.2% of net sales, for 2008. The Company continues to strive to
achieve low administrative expenses. Titan was able to reduce
SG&A expense by approximately $7 million as a result of the 2009 business
contraction. Selling expenses were reduced by approximately $3
million and administrative expenses were reduced by approximately $4
million.
Research
and Development Expenses
Research and development
expenses were as follows (amounts in
thousands):
|
2009
|
2008
|
% Increase
|
||||||||||
|
Research
and development
|
$ | 8,850 | $ | 3,490 | 154 | % | ||||||
|
Percentage
of net sales
|
1.2 | % | 0.3 | % | ||||||||
Research
and development (R&D) expenses were $8.9 million, or 1.2% of net sales, for
the year ended December 31, 2009, as compared to $3.5 million, or 0.3% of net
sales, for 2008. The additional R&D costs recorded during the
year of approximately $5 million primarily related to the Giant OTR
products.
23
Royalty
Expense
Royalty expense was as
follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Royalty
expense
|
$ | 7,573 | $ | 9,242 | (18 | )% | ||||||
The
Company has a license agreement with The Goodyear Tire & Rubber Company to
manufacture and sell certain off-highway tires in North America under the
Goodyear name. Royalty expenses were $7.6 million for the year ended
December 31, 2009, as compared to $9.2 million in 2008. As sales
subject to the license agreement were lower, the Company’s royalty expense for
2009 was reduced accordingly.
Noncash
Goodwill Impairment Charge
Noncash goodwill impairment
charge was as follows (amounts in
thousands):
|
2009
|
2008
|
% Increase
|
||||||||||
|
Noncash
goodwill charge
|
$ | 11,702 | $ | 0 | n/a | |||||||
In the
fourth quarter of 2009, the Company recorded a noncash charge for the impairment
of goodwill of $11.7 million on both a pre-tax and after-tax
basis. The charge was associated with the reporting units of the
Company’s agricultural ($6.9 million), earthmoving/construction ($3.6 million),
and consumer ($1.2 million) segments. The Company performed a fourth
quarter 2009 goodwill assessment using a discounted cash flow model that
employed a 12.25% discount rate and 2.5% terminal growth rate assumption and an
EBITDA multiple approach.
The key
factors contributing to the goodwill impairment were: (i) depressed
sales levels, which began to accelerate during the third quarter of 2009,
continued in the fourth quarter resulting from reduced demand for the Company’s
products across the board, a consequence of the worldwide recession and global
economic crisis, (ii) many of the Company’s major customers implemented
additional shutdowns during the fourth quarter of 2009, Titan in turn extended
shutdowns at its production facilities to manage the lower demand, (iii)
operating losses which began in the third quarter, continued into the fourth
quarter associated with lower product demand, (iv) decline in the reporting
units’ forecasted financial performance as a result of ongoing weak economic
conditions, and (v) in December 2009, in association with Titan’s convertible
note issuance, the rating agencies of Moody’s Investor Service and Standard and
Poor’s Rating Services issued a revised outlook on the Company’s future
performance to negative from stable.
Income
(loss) from Operations
Income (loss) from
operations was as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Income
(loss) from operations
|
$ | (18,894 | ) | $ | 73,321 | n/a | ||||||
|
Percentage
of net sales
|
(2.6 | )% | 7.1 | % | ||||||||
Loss from
operations for the year ended December 31, 2009, was $(18.9) million, or (2.6) %
of net sales, compared to income from operations of $73.3 million, or 7.1% of
net sales, in 2008. The reduction in income from operations was the
net result of the items previously discussed in the sales, cost of sales,
administrative, royalty and noncash goodwill impairment charge line
items.
Interest
Expense
Interest expense was as
follows (amounts in
thousands):
|
2009
|
2008
|
% Increase
|
||||||||||
|
Interest
expense
|
$ | 16,246 | $ | 15,122 | 7 | % | ||||||
Interest
expense for the year 2009 was $16.2 million compared to $15.1 million in
2008. The Company’s interest expense for 2009 increased as a result
of the higher year-end debt balances. The Company capitalized
interest costs related to the giant OTR project of $2.0 million in 2009 and $3.2
million in 2008.
24
Noncash
Titan Europe Plc charge
Noncash Titan Europe Plc
charge was as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Noncash
Titan Europe Plc charge
|
$ | 0 | $ | (37,698 | ) | (100 | )% | |||||
The
unrealized loss on the Titan Europe Plc investment in 2008 was $(37.7)
million. The unrealized loss was due to a substantial decline in
Titan Europe Plc’s publicly quoted price on the AIM market in London, England,
at year end 2008. A noncash charge of $37.7 million was recorded at
year end December 31, 2008.
Other
Income
Other income was as follows
(amounts in
thousands):
|
2009
|
2008
|
% Increase
|
||||||||||
|
Other
income
|
$ | 3,138 | $ | 2,509 | 25 | % | ||||||
Other
income was $3.1 million for the year ended December 31, 2009, as compared to
$2.5 million in 2008. The major items included in 2009
were: (i) gain on senior note repurchases of $1.4 million; (ii)
investment gain on contractual obligations of $1.3 million; (iii) interest
income of $0.2 million; and (iv) other income of $0.2 million.
The major
items included in 2008 were: (i) dividend income from the Titan
Europe Plc investment of $1.7 million; (ii) interest income of $1.4 million;
(iii) investment loss on contractual obligations of $(1.9) million; and (iv)
other income of $1.3 million.
Income
Tax Provision (Benefit)
Income tax provision
(benefit) was as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Income
tax provision (benefit)
|
$ | (7,357 | ) | $ | 9,673 | n/a | ||||||
The
Company recorded an income tax benefit of $(7.4) million in 2009 and income tax
expense of $9.7 million in 2008. The Company’s effective tax rate was 23%
in 2009 and 42% in 2008. 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 $11.7 million
noncash goodwill impairment charge. This noncash goodwill charge is
not deductible for income tax purposes.
Net
Income (Loss)
Net income (loss) was as
follows (amounts in
thousands):
|
2009
|
2008
|
% Increase
|
||||||||||
|
Net
income (loss)
|
$ | (24,645 | ) | $ | 13,337 | n/a | ||||||
Net loss
for the year ended December 31, 2009, was $(24.6) million, compared to net
income of $13.3 million in 2008. Basic loss per share was $(.71) for
the year ended December 31, 2009, as compared to earnings per share of $.39 in
2008. Diluted loss per share was $(.71) for the year ended December
31, 2009, as compared to earnings per share of $.38 in 2008. The
Company’s net income and earnings per share were lower due to the items
previously discussed.
25
Agricultural
Segment Results
Agricultural segment results
were as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Net
sales
|
$ | 563,528 | $ | 729,895 | (23 | )% | ||||||
|
Gross
profit
|
51,955 | 89,782 | (42 | )% | ||||||||
|
Income
from operations
|
26,980 | 74,241 | (64 | )% | ||||||||
Net sales
in the agricultural market were $563.5 million for the year ended December 31,
2009, as compared to $729.9 million in 2008. The significantly lower
sales levels resulted from reduced demand for the Company’s products, as many of
the Company’s major customers implemented extended shutdowns during the second
half of 2009 as a consequence of the worldwide recession and economic
crisis. Titan in turn scheduled extended shutdowns at its production
facilities to manage lower demand.
Gross
profit in the agricultural market was $52.0 million for the year 2009, as
compared to $89.8 million in 2008. Income from operations in the
agricultural market was $27.0 million for the year 2009, as compared to $74.2
million in 2008. The reduction in gross profit and income from
operations in the agricultural market was primarily attributed to lower farm
equipment sales and the corresponding reduction in manufacturing efficiencies
associated with the agricultural segment. The income from operations
was also decreased by a noncash goodwill impairment charge of $6.9
million.
Earthmoving/Construction
Segment Results
Earthmoving/construction
segment results were as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Net
sales
|
$ | 144,589 | $ | 281,008 | (49 | )% | ||||||
|
Gross
profit
|
3,595 | 46,047 | (92 | )% | ||||||||
|
Income
(loss) from operations
|
(7,999 | ) | 38,422 | n/a | ||||||||
The
Company’s earthmoving/construction market net sales were $144.6 million for the
year ended December 31, 2009, as compared to $281.0 million in
2008. The significantly lower sales levels resulted from reduced
demand for the Company’s products, as many of the Company’s major customers
implemented extended shutdowns during the second half of 2009 as a consequence
of the worldwide recession and economic crisis. Titan in turn
scheduled extended shutdowns at its production facilities to manage lower
demand. Also negatively impacting this segment was the major
reduction in the construction market related to commercial, residential and
infrastructure.
Gross
profit in the earthmoving/construction market was $3.6 million for the year
2009, as compared to $46.0 million in 2008. The Company’s
earthmoving/construction market loss from operations was $(8.0) million for the
year 2009, as compared to income from operations of $38.4 million in
2008. Gross profit and income from operations declined as a result of
the major sales contraction and the substantial negative manufacturing
efficiencies associated with the earthmoving/construction
segment. The income from operations was also decreased by a noncash
goodwill impairment charge of $3.6 million.
26
Consumer
Segment Results
Consumer segment results
were as follows (amounts in
thousands):
|
2009
|
2008
|
% Decrease
|
||||||||||
|
Net
sales
|
$ | 19,482 | $ | 25,797 | (24 | )% | ||||||
|
Gross
profit
|
1,604 | 3,938 | (59 | )% | ||||||||
|
Income
(loss) from operations
|
(206 | ) | 3,303 | n/a | ||||||||
Consumer
market net sales were $19.5 million for the year ended December 31, 2009, as
compared to $25.8 million in 2008. The reduction in consumer market
sales is attributed to the large contraction in consumer discretionary spending
resulting from the recession and economic crisis.
Gross
profit from the consumer market was $1.6 million in 2009 as compared to $3.9
million in 2008. Consumer market loss from operations was $(0.2)
million for the year 2009, as compared to income from operations of $3.3 million
in 2008. Gross profit and income from operations declined primarily
as a result of reduced sales levels and the negative manufacturing efficiencies
related to the 2009 extended shutdowns. The income from operations
was also reduced by a noncash goodwill impairment charge of $1.2
million.
Segment
Summary
(Amounts
in thousands)
|
2009
|
Agricultural
|
Earthmoving/
Construction
|
Consumer
|
Corporate
Expenses
|
Consolidated
Totals
|
|||||||||||||||
|
Net sales
|
$ | 563,528 | $ | 144,589 | $ | 19,482 | $ | 0 | $ | 727,599 | ||||||||||
|
Gross profit
(loss)
|
51,955 | 3,595 | 1,604 | (1,189 | ) | 55,965 | ||||||||||||||
|
Income (loss) from
operations
|
26,980 | (7,999 | ) | (206 | ) | (37,669 | ) | (18,894 | ) | |||||||||||
|
2008
|
||||||||||||||||||||
|
Net sales
|
$ | 729,895 | $ | 281,008 | $ | 25,797 | $ | 0 | $ | 1,036,700 | ||||||||||
|
Gross profit
(loss)
|
89,782 | 46,047 | 3,938 | (53 | ) | 139,714 | ||||||||||||||
|
Income (loss) from
operations
|
74,241 | 38,422 | 3,303 | (42,645 | ) | 73,321 | ||||||||||||||
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 $37.7 million for the year ended
December 31, 2009, as compared to $42.6 million in 2008.
Corporate
expenses for the year ended December 31, 2009, were composed of selling and
marketing expenses of approximately $18 million and administrative expenses of
approximately $20 million.
Corporate
expenses for the year ended December 31, 2008, were composed of selling and
marketing expenses of approximately $20 million and administrative expenses of
approximately $23 million.
The lower
corporate expenses for 2009 as compared to the previous year resulted from cost
reductions and reduced spending due to the lower sales levels.
27
FISCAL
YEAR ENDED DECEMBER 31, 2008, COMPARED TO FISCAL YEAR ENDED DECEMBER
31, 2007
RESULTS
OF OPERATIONS
Highlights for the year
ended December 31, 2008, compared to 2007 (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Net
sales
|
$ | 1,036,700 | $ | 837,021 | 24 | % | ||||||
|
Cost
of sales
|
896,986 | 752,890 | 19 | % | ||||||||
|
Gross
profit
|
139,714 | 84,131 | 66 | % | ||||||||
|
Gross
profit percentage
|
13.5 | % | 10.1 | % | ||||||||
Net
Sales
Net sales
for the year ended December 31, 2008, were $1,036.7 million compared to $837.0
million for the year ended December 31, 2007. The large sales
improvement of $199.7 million, or 24%, for the year ended December 31, 2008, was
attributed to strong demand in the Company’s agricultural market, which reported
higher sales of approximately 42% for 2008 as compared to the previous
year. Titan believes it has benefited in 2008 from a preliminary
ruling from the U.S. Department of Commerce, affirming that exporters of
Chinese-manufactured tires have been selling certain off-the-road tires in the
U.S.A. at less than normal value and received subsidies, resulting in duties
being imposed on certain imported tires.
Cost
of Sales and Gross Profit
Cost of
sales was $897.0 million for the year ended December 31, 2008, as compared to
$752.9 million in 2007. The higher cost of sales resulted from the
record sales levels achieved in 2008. Additional costs recorded
during the year related to expenses associated with hiring and training workers
to be utilized in giant OTR production, which were estimated to be approximately
$6 million for 2008.
Gross
profit for the year 2008 was $139.7 million, or 13.5% of net sales, compared to
$84.1 million, or 10.1% of net sales, for 2007. The gross profit
margin for 2008 showed a significant improvement of over three percentage points
compared to the previous year, as the Company continues its efforts to improve
efficiencies and align sale prices with production cost.
Selling,
General and Administrative Expenses
Selling, general and
administrative expenses were as follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Selling,
general and administrative
|
$ | 53,661 | $ | 51,449 | 4 | % | ||||||
|
Percentage
of net sales
|
5.2 | % | 6.2 | % | ||||||||
Selling,
general and administrative (SG&A) expenses were $53.7 million, or 5.2% of
net sales, for the year ended December 31, 2008, as compared to $51.4 million,
or 6.2% of net sales, for 2007. SG&A expense rose primarily as
the result of higher selling costs of approximately $2 million year over
year. SG&A percentage of net sales improved approximately one
percentage point due to the Company’s SG&A expenses remaining relatively
unchanged while sales achieved record levels.
Research
and Development Expenses
Research and development
expenses were as follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Research
and development
|
$ | 3,490 | $ | 1,689 | 107 | % | ||||||
|
Percentage
of net sales
|
0.3 | % | 0.2 | % | ||||||||
Research
and development (R&D) expenses were $3.5 million, or 0.3% of net sales, for
the year ended December 31, 2008, as compared to $1.7 million, or 0.2% of net
sales, for 2007. The additional R&D costs recorded during the
year primarily related to the Giant OTR products.
28
Royalty
Expense
Royalty expense was as
follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Royalty
expense
|
$ | 9,242 | $ | 6,155 | 50 | % | ||||||
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 $9.2 million for the year ended December 31, 2008, as compared to
$6.2 million in 2007. The higher royalty expense was the result of
the strong sales in the agricultural segment.
Income
from Operations
Income from operations was
as follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Income
from operations
|
$ | 73,321 | $ | 24,838 | 195 | % | ||||||
|
Percentage
of net sales
|
7.1 | % | 3.0 | % | ||||||||
Income
from operations for the year ended December 31, 2008, was $73.3 million, or 7.1%
of net sales, compared to $24.8 million, or 3.0% of net sales, in
2007. Income from operations was affected by the items previously
discussed in the sales, cost of sales, SG&A and royalty line
items.
Interest
Expense
Interest expense was as
follows (amounts in
thousands):
|
2008
|
2007
|
% Decrease
|
||||||||||
|
Interest
expense
|
$ | 15,122 | $ | 18,710 | (19 | )% | ||||||
Interest
expense for the year 2008 was $15.1 million compared to $18.7 million in
2007. The reduction in interest costs was primarily the result of
capitalization of interest of $3.2 million related to the giant OTR project in
2008. In 2007, the Company capitalized $0.4 million of interest costs
for the giant OTR project.
Noncash
Titan Europe Plc charge
Noncash Titan Europe Plc
charge was as follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Noncash
Titan Europe Plc charge
|
$ | (37,698 | ) | $ | 0 | n/a | ||||||
The
unrealized loss on the Titan Europe Plc investment was $37.7
million. The unrealized loss was due to a substantial decline in
Titan Europe Plc’s publicly quoted price on the AIM market in London, England,
at year end 2008. A noncash charge of $37.7 million was recorded at
year end December 31, 2008.
Noncash
Convertible Debt Conversion Charge
Noncash convertible debt
conversion charge was as follows (amounts in
thousands):
|
2008
|
2007
|
% Decrease
|
||||||||||
|
Noncash
debt conversion charge
|
$ | 0 | $ | 13,376 | (100 | )% | ||||||
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 ASC
470-20 Debt with Conversion and Other Options.
29
Other
Income
Other income was as follows
(amounts in
thousands):
|
2008
|
2007
|
% Decrease
|
||||||||||
|
Other
income
|
$ | 2,509 | $ | 3,364 | (25 | )% | ||||||
Other
income was $2.5 million for the year ended December 31, 2008, as compared to
$3.4 million in 2007. The major items included in other income
are: (i) dividend income from the Titan Europe Plc investment was
$1.7 million and $1.8 million in 2008 and 2007, respectively, (ii) interest
income was $1.4 million and $2.7 million for the years ended December 31, 2008
and 2007, respectively, and (iii) other expense of $(0.6) million and $(1.1)
million in 2008 and 2007, respectively. The reduction in interest
income was primarily the result of lower interest rates.
Income
Tax Expense
Income taxes were as follows
(amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Income
taxes
|
$ | 9,673 | $ | 3,363 | 188 | % | ||||||
The
Company recorded an income tax expense of $9.7 million in 2008 and $3.4 million
in 2007. The Company’s effective tax rate was 42.0% in 2008 and (87)% in
2007. 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 was not deductible for income tax purposes.
Net
Income (Loss)
Net income (loss) was as
follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Net
income (loss)
|
$ | 13,337 | $ | (7,247 | ) | n/a | ||||||
Net
income for the year ended December 31, 2008, was $13.3 million, compared to net
loss of $(7.2) million in 2007. Basic income per share was $.39 for
the year ended December 31, 2008, as compared to basic loss per share of $(.23)
in 2007. Diluted income per share was $.38 for the year ended
December 31, 2008, as compared to diluted loss per share of $(.23) in
2007. The Company’s net income and earnings per share improvements
were due to the items detailed above.
Agricultural
Segment Results
Agricultural segment results
were as follows (amounts in
thousands):
|
2008
|
2007
|
% Increase
|
||||||||||
|
Net
sales
|
$ | 729,895 | $ | 515,642 | 42 | % | ||||||
|
Gross
profit
|
89,782 | 35,742 | 151 | % | ||||||||
|
Income
from operations
|
74,241 | 25,324 | 193 | % | ||||||||
Net sales
in the agricultural market were $729.9 million for the year ended December 31,
2008, as compared to $515.6 million in 2007. The robust agricultural
segment sales were the result of significantly higher demand from the Company’s
customers, an effect of record farm income and crop prices.
Gross
profit in the agricultural market was $89.8 million for the year 2008, as
compared to $35.7 million in 2007. Income from operations in the
agricultural market was $74.2 million for the year 2008, as compared to $25.3
million in 2007. The significant improvement in gross profit and
income from operations in the agricultural market was attributed to robust farm
equipment sales and the Company continuing to align sales prices with production
costs.
30
Earthmoving/Construction
Segment Results
Earthmoving/construction
segment results were as follows (amounts in
thousands):
|
2008
|
2007
|
%
Increase
(Decrease)
|
||||||||||
|
Net
sales
|
$ | 281,008 | $ | 277,206 | 1 | % | ||||||
|
Gross
profit
|
46,047 | 47,848 | (4 | )% | ||||||||
|
Income
from operations
|
38,422 | 40,833 | (6 | )% | ||||||||
The
Company’s earthmoving/construction market net sales were $281.0 million for the
year ended December 31, 2008, as compared to $277.2 million in
2007. The increase of $3.8 million primarily resulted from the
continued strong earthmoving and mining sales.
Gross
profit in the earthmoving/construction market was $46.0 million for the year
2008, as compared to $47.8 million in 2007. The Company’s
earthmoving/construction market income from operations was $38.4 million for the
year 2008, as compared to $40.8 million in 2007. The Company’s gross
profit was negatively impacted by costs associated with hiring and training
workers to be utilized in giant OTR production, estimated to be approximately $6
million for 2008.
Consumer
Segment Results
Consumer segment results
were as follows (amounts in
thousands):
|
2008
|
2007
|
%
(Decrease) Increase
|
||||||||||
|
Net
sales
|
$ | 25,797 | $ | 44,173 | (42 | )% | ||||||
|
Gross
profit
|
3,938 | 3,431 | 15 | % | ||||||||
|
Income
from operations
|
3,303 | 2,546 | 30 | % | ||||||||
Consumer
market net sales were $25.8 million for the year ended December 31, 2008, as
compared to $44.2 million in 2007. The Goodyear farm tire acquisition
agreement included an off-take/mixing agreement for certain product sales to
Goodyear. The reduction in consumer market sales was primarily
related to lower sales to The Goodyear Tire and Rubber Company of approximately
$15 million for the twelve months ended December 31, 2008, as compared to the
previous year.
Gross
profit from the consumer market was $3.9 million in 2008 as compared to $3.4
million in 2007. Consumer market income from operations was $3.3
million for the year 2008 as compared to $2.5 million in 2007. The
improvement 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)
|
2008
|
Agricultural
|
Earthmoving/
Construction
|
Consumer
|
Corporate
Expenses
|
Consolidated
Totals
|
|||||||||||||||
|
Net sales
|
$ | 729,895 | $ | 281,008 | $ | 25,797 | $ | 0 | $ | 1,036,700 | ||||||||||
|
Gross profit
(loss)
|
89,782 | 46,047 | 3,938 | (53 | ) | 139,714 | ||||||||||||||
|
Income (loss) from
operations
|
74,241 | 38,422 | 3,303 | (42,645 | ) | 73,321 | ||||||||||||||
|
2007
|
||||||||||||||||||||
|
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 | ||||||||||||||
31
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 $42.6 million for the year ended
December 31, 2008, as compared to $43.9 million in 2007.
Corporate
expenses for the year ended December 31, 2008, were composed of selling and
marketing expenses of approximately $20 million and administrative expenses of
approximately $23 million.
Corporate
expenses for the year ended December 31, 2007, were composed of selling and
marketing expenses of approximately $17 million and administrative expenses of
approximately $27 million.
The
higher selling and marketing expenses for 2008 as compared to the previous year
resulted from the record sales levels and the associated selling
costs. The lower administrative costs resulted primarily from a
reduction in management incentives.
32
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows
As of
December 31, 2009, the Company had $229.2 million of cash balances within
various bank accounts. This cash balance increased by $167.5 million
from December 31, 2008, due to the following cash flow discussion
items.
|
(amounts
in thousands)
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
Change
|
||||||||||
|
Cash
|
$ | 229,182 | $ | 61,658 | $ | 167,524 | ||||||
Operating
Cash Flows
Summary
of cash flows from operating activities:
|
(amounts
in thousands)
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
Change
|
||||||||||
|
Net
income (loss)
|
$ | (24,645 | ) | $ | 13,337 | $ | (37,982 | ) | ||||
|
Depreciation
and amortization
|
34,296 | 30,368 | 3,928 | |||||||||
|
Deferred
income tax provision
|
(2,950 | ) | 13,987 | (16,937 | ) | |||||||
|
Noncash
goodwill impairment charge
|
11,702 | 0 | 11,702 | |||||||||
|
Noncash
Titan Europe Plc charge
|
0 | 24,504 | (24,504 | ) | ||||||||
|
Accounts
receivable
|
59,018 | (28,137 | ) | 87,155 | ||||||||
|
Inventories
|
37,170 | (19,258 | ) | 56,428 | ||||||||
|
Accounts
payable
|
(41,301 | ) | 21,555 | (62,856 | ) | |||||||
|
Other
operating activities
|
(977 | ) | (5,186 | ) | 4,209 | |||||||
|
Cash
provided by operating activities
|
$ | 72,313 | $ | 51,170 | $ | 21,143 | ||||||
For the
year ended December 31, 2009, operating activities provided cash of $72.3
million. This cash was primarily provided by decreases in accounts
receivable of $59.0 million and inventories of $37.2
million. Positive cash flows were offset by net loss of $(24.6)
million and decreases in accounts payable of $41.3 million. Included
as a reduction to net income were noncash charges of $34.3 million for
depreciation and amortization and $11.7 for the noncash goodwill impairment
charge.
In
comparison, for the year ended December 31, 2008, operating activities provided
cash of $51.2 million. This cash was primarily provided by net income
of $13.3 million and an increase of $21.6 million in accounts
payable. Positive cash flows were offset by increases in accounts
receivable of $28.1 million and inventories of $19.3
million. Included as a reduction to net income were noncash charges
of $30.4 million for depreciation and amortization and $24.5 million for the
noncash Titan Europe Plc charge.
Operating
cash flows increased $21.1 million from the year ended December 31, 2008, to
December 31, 2009. This increase was largely the result of cash flows
from accounts receivable and inventories increasing $87.2 million and $56.4
million, respectively. These increases in cash flows from 2008 to
2009 were offset by decreases in cash flow from accounts payable of $62.9
million and decreased net income. In 2008, accounts receivable,
inventories and accounts payable were higher to support record sales
levels. In 2009, as a result of significantly lower sales levels, the
Company brought the levels of accounts receivable, inventories and accounts
payable down dramatically.
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.
Operating
cash flows decreased $24.8 million from the year ended December 31, 2007, to
December 31, 2008. This reduction was largely the result of cash
flows from inventories decreasing $45.8 million and 2008 including a reduction
to net income for the noncash Titan Europe Plc charge of $24.5 million, while
2007 included a reduction to income for a noncash debt conversion charge of
$13.4 million. The decreases were offset by a rise in net income of
$20.6 million. The higher inventory balances in 2008 were primarily
due to raw materials. Raw materials inventories were increased in
2008 to support Titan’s all-time record sales levels.
33
Investing
Cash Flows
Summary
of cash flows from investing activities:
|
(amounts
in thousands)
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
Change
|
||||||||||
|
Capital
expenditures
|
$ | (39,537 | ) | $ | (79,953 | ) | $ | 40,416 | ||||
|
Acquisition
of shares of Titan Europe Plc
|
(2,399 | ) | 0 | (2,399 | ) | |||||||
|
Other
investing activities
|
1,042 | 104 | 938 | |||||||||
|
Cash
used for investing activities
|
$ | (40,894 | ) | $ | (79,849 | ) | $ | 38,955 | ||||
Net cash
used for investing activities was $40.9 million in 2009, as compared to $79.8
million in 2008 and $46.4 million in 2007. The Company invested a
total of $39.5 million in capital expenditures in 2009, compared to $80.0
million in 2008 and $38.0 million in 2007. Capital expenditures
include Giant OTR Project expenditures of approximately $23 million in 2009,
approximately $60 million in 2008, and approximately $22 million in
2007.
The
remaining capital expenditures of approximately $16 million in 2009,
approximately $20 million in 2008, and approximately $16 million in 2007,
represent various equipment purchases and improvements to enhance production
capabilities of Titan’s existing business.
Cash used
for investing decreased $39.0 million from the year ended December 31, 2008, to
December 31, 2009. This reduction in cash use was primarily the
result of less cash being used for capital expenditures related to the Giant OTR
project.
Financing
Cash Flows
Summary
of cash flows from financing activities:
|
(amounts
in thousands)
|
Year
ended December 31,
|
|||||||||||
|
2009
|
2008
|
Change
|
||||||||||
|
Proceeds
from borrowings
|
$ | 172,500 | $ | 0 | $ | 172,500 | ||||||
|
Repurchase
of senior notes due 2012
|
(4,726 | ) | 0 | (4,726 | ) | |||||||
|
Proceeds
(payments) on credit facility
|
(25,000 | ) | 25,000 | (50,000 | ) | |||||||
|
Proceeds
from exercise of stock options
|
1,142 | 3,536 | (2,394 | ) | ||||||||
|
Excess
tax benefit from stock options
|
0 | 4,131 | (4,131 | ) | ||||||||
|
Payment
of financing fees
|
(7,107 | ) | (70 | ) | (7,037 | ) | ||||||
|
Other
financing activities
|
(704 | ) | (585 | ) | (119 | ) | ||||||
|
Cash
provided by activities
|
$ | 136,105 | $ | 32,012 | $ | 104,093 | ||||||
Net cash
provided by financing activities was $136.1 million in 2009. This
cash was provided primarily by convertible senior subordinated notes proceeds of
$172.5 million. This was offset by payments on the Company’s credit
facility of $25 million, payment of financing fees of $7.1 million and
repurchase of senior notes of $4.7 million.
Net cash
provided by financing activities was $32.0 million in 2008. This cash
was provided primarily by revolving credit facility proceeds of $25.0
million. The exercise of stock options provided $3.5 million and
excess tax benefit from stock options exercised provided $4.1
million.
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.
Financing
cash flows increased $104.1 million to the year ended December 31, 2009, from
the year ended December 31, 2008. Also, financing cash flows
increased $36.7 million to the year ended December 31, 2008, from the year ended
December 31, 2007. The large changes from year to year are primarily
the result of changes in total debt borrowings.
34
Debt
Covenants
The
Company’s revolving credit facility contains various covenants and
restrictions. The financial covenants in this agreement require
that:
|
·
|
Collateral
coverage be equal to or greater than 1.2 times the outstanding revolver
balance.
|
|
·
|
If
the 30-day average of the outstanding revolver balance exceeds $125
million, the fixed charge coverage ratio be equal to or greater than a 1.0
to 1.0 ratio.
|
Restrictions
include:
|
·
|
Limits
on payments of dividends and repurchases of the Company’s
stock.
|
|
·
|
Restrictions
on the ability of the Company to make additional borrowings, or to
consolidate, merge or otherwise fundamentally change the ownership of the
Company.
|
|
·
|
Limitations
on investments, dispositions of assets and guarantees of
indebtedness.
|
|
·
|
Other
customary affirmative and negative
covenants.
|
These
covenants and restrictions could limit the Company’s ability to respond to
market conditions, to provide for unanticipated capital investments, to raise
additional debt or equity capital, to pay dividends or to take advantage of
business opportunities, including future acquisitions. The failure by
Titan to meet these covenants could result in the Company ultimately being in
default on these loan agreements.
The
Company is in compliance with these covenants and restrictions as of December
31, 2009. The collateral coverage ratio was not applicable as there
were no outstanding borrowings under the revolving credit facility at December
31, 2009.
The fixed
charge coverage ratio did not apply for the quarter ended December 31,
2009. In connection with the convertible senior subordinated note
offering, Titan agreed to add an additional mutually agreeable covenant to the
Company’s revolving credit facility, which is not yet in place.
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.
LIQUIDITY
OUTLOOK
At
December 31, 2009, the Company had $229.2 million of cash and cash equivalents
and no outstanding borrowings on the Company’s $150.0 million credit
facility. Titan expects to contribute approximately $3 million to its
frozen defined benefit pension plans during 2010.
On
December 21, 2009, the Company closed its offering of $172.5 million principal
amount of 5.625% Convertible Senior Subordinated Notes due 2017 (Notes). The
Notes were offered and sold in a private offering to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933, as amended and to
other investors pursuant to another applicable exemption from
registration.
Titan
received net proceeds from the offering of approximately $166 million after
deducting initial purchasers’ discounts and estimated offering expenses. Titan
intends to use the proceeds from the offering for general corporate purposes,
including financing potential future acquisitions and repayment of existing debt
obligations.
Capital
expenditures for 2010 are forecasted to be approximately $12 million to $16
million. Cash payments for interest are currently forecasted to be
approximately $25 million in 2010 based on year-end 2009 debt
balances.
In the
future, Titan may seek to grow by making acquisitions which will depend on the
ability to identify suitable acquisition candidates, to negotiate acceptable
terms for their acquisition and to finance those acquisitions. In
September 2009, Titan signed a letter of intent with The Goodyear Tire &
Rubber Company to purchase certain farm tire assets, including the Goodyear
Dunlop Tires France (GDTF) Amiens North factory. This agreement is
non-binding and will be subject to GDTF’s satisfactory completion of a social
plan related to consumer tire activity at the Amiens North facility, along with
completion of due diligence, a definitive acquisition agreement and other
standard acquisition approval requirements. At this time, the due
diligence process continues. There is no assurance that definitive
agreements will be executed or that the acquisition will be
consummated.
35
Subject
to the terms of indebtedness, the Company may finance future acquisitions with
cash on hand, cash from operations, additional indebtedness and/or by issuing
additional equity securities.
Cash on
hand, anticipated internal cash flows from operations and utilization of
remaining available borrowings are expected to provide sufficient liquidity for
working capital needs, capital expenditures and potential
acquisitions. If the Company were to exhaust all currently available
working capital sources or not meet the financial covenants and conditions of
its loan agreements, the Company’s ability to secure additional funding would be
negatively impacted.
INFLATION
The
Company is subject to the effect of price fluctuations. During 2009,
2008 and 2007, the Company realized price increases for certain 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.
CONTRACTUAL
OBLIGATIONS
The
Company’s contractual obligations at December 31, 2009, consisted of the
following (amounts in
thousands):
|
Payments
due by period
|
||||||||||||||||||||
|
Contractual Obligations
|
Total
|
Less
than 1 year
|
1-3 years
|
3-5 years
|
More
than 5 years
|
|||||||||||||||
|
Senior
Notes due 2012
|
$ | 193,800 | $ | 0 | $ | 193,800 | $ | 0 | $ | 0 | ||||||||||
|
Convertible
Notes due 2017
|
172,500 | 0 | 0 | 0 | 172,500 | |||||||||||||||
|
Interest
expense (a)
|
89,872 | 25,207 | 35,556 | 19,406 | 9,703 | |||||||||||||||
|
Operating
leases
|
2,305 | 1,495 | 797 | 13 | 0 | |||||||||||||||
|
Purchase
obligations
|
3,949 | 2,766 | 1,128 | 55 | 0 | |||||||||||||||
|
Other
long-term liabilities (b)
|
24,500 | 2,600 | 8,300 | 7,200 | 6,400 | |||||||||||||||
|
Royalty
payment (c)
|
22,800 | 7,600 | 15,200 | 0 | 0 | |||||||||||||||
|
Total
|
$ | 509,726 | $ | 39,668 | $ | 254,781 | $ | 26,674 | $ | 188,603 | ||||||||||
|
(a)
|
Interest
expense is estimated based on the Company’s year-end 2009 debt balances,
maturities and interest rates. 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. Titan currently plans to continue using
the Goodyear trademark until circumstances require a
change. Titan’s royalty payment to Goodyear for the next three
years, the current term of the agreement, using the annual 2009 royalty
payment of approximately $7.6 million as an estimate would total
approximately $22.8 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.
36
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 $6.5 million at December 31, 2009, and
$2.6 million at December 31, 2008. 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, 2009, would
amount to approximately $0.6 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
|
·
|
Revolving credit
facility The Company has a $150 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 $1.5
million. At December 31, 2009, there were no borrowings under
the credit facility.
|
|
·
|
Senior unsecured 8% notes due
2012 At December 31, 2009, the fair value of the senior
unsecured notes due January 2012, based on market prices obtained through
independent pricing sources, was approximately $190.9 million, compared to
a carrying value of $193.8 million.
|
|
·
|
Convertible senior subordinated
5.625% notes due 2017 At December 31, 2009, the fair
value of the convertible senior subordinated notes due January 2017, based
on market prices obtained through independent pricing sources, was
approximately $182.9 million, compared to a carrying value of $172.5
million.
|
MARKET
CONDITIONS AND OUTLOOK
The
magnitude and duration of the worldwide recession and economic crisis makes it
extremely difficult to forecast future sales levels. In 2009, Titan
experienced a sales decline across the board. This decline was more severe in
the second half of the year. Titan may experience sales declines in
each of the Company’s markets for the first part of 2010. Although
the short-term outlook is for continued sales declines, the Company has seen
signs that the market may currently be experiencing the bottom of the
cycle. The Company is cautiously optimistic that sales may move
higher in the latter part of 2010, however, there can be no assurance that the
decline in sales will not continue.
Energy,
raw material and petroleum-based product costs have been exceptionally volatile
and may negatively impact the Company’s margins. Many of Titan’s
overhead expenses are fixed; therefore, lower seasonal trends may cause negative
fluctuations in quarterly profit margins and affect the financial condition of
the Company.
AGRICULTURAL
MARKET OUTLOOK
Agricultural
market sales are forecasted to be lower in 2010 when compared to the previous
year’s sales levels. Commodity prices have declined from last year’s
highs, but remain above the long-term average. The gradual increase
in the use of biofuels may help sustain future production. However,
the magnitude and duration of the worldwide economic crisis makes it extremely
difficult to forecast future sales levels. Many variables, including
weather, grain prices, export markets and future government policies and
payments can greatly influence the overall health of the agricultural
economy. For 2010, the Company expects challenging conditions for the
agricultural market.
37
EARTHMOVING/CONSTRUCTION
MARKET OUTLOOK
Sales for
the earthmoving/construction market are expected to be challenging in 2010 as a
result of the worldwide economic crisis. The magnitude and duration
of this crisis makes it extremely difficult to forecast future sales
levels. Metals, oil and gas prices have retreated from last year’s
highs as a result of the economic crisis. In the long-term, these
prices are expected to return to levels that are attractive for continued
investment, which should help support future earthmoving and mining
sales. However, many producers are currently delaying new investments
which will affect future sales levels. The significant decline in the
United States housing market continues to cause a major reduction in demand for
equipment used for construction. The earthmoving/construction segment
is affected by many variables, including commodity prices, road construction,
infrastructure, government appropriations, housing starts and the current
banking and credit crisis. For 2010, the Company expects some
improvement compared to the previous year’s dramatically depressed sales levels
in the earthmoving/construction market.
CONSUMER
MARKET OUTLOOK
Consumer
discretionary spending has experienced a major contraction as a result of the
worldwide recession, housing market decline, and high unemployment
rates. Many of the Company’s consumer market sales are ultimately
used in items which fall into the discretionary spending
category. There is no clear consensus among economists as to when
consumer spending will rebound. Many factors continue to affect the
consumer market including weather, competitive pricing, energy prices and
consumer attitude. For 2010, the Company expects continued weakness
in consumer spending related to Titan’s consumer market.
PENSIONS
The
Company has three frozen defined benefit pension plans and one defined benefit
plan that previously purchased a final annuity settlement. These
plans are described in Note 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 by the
Company with the assistance of outside actuaries. Assumptions are
based on past experience and anticipated future trends. These
assumptions are reviewed on a regular basis and revised when
appropriate. Revisions in assumptions and actual results that differ
from the assumptions affect future expenses, cash funding requirements and the
carrying value of the related obligations. During the twelve months
ended December 31, 2009, the Company contributed cash funds of $0.2 million to
the frozen defined benefit pension plans. Titan expects to contribute
approximately $3 million to these frozen defined benefit pension plans during
2010.
Titan’s
projected benefit obligation at December 31, 2009, was $93.7 million as compared
to $90.5 million at December 31, 2008. The Company’s defined benefit
pension plans were underfunded by $24.5 million at December 31,
2009. During 2009, the Company recorded net periodic pension expense
of $4.9 million. Accumulated other comprehensive loss recorded for
defined benefit pension plans, net of tax, was $28.0 million and $33.6 million
at December 31, 2009 and 2008, respectively. Other comprehensive
income (loss) 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.
38
RECENTLY
ISSUED ACCOUNTING STANDARDS
Accounting
Guidance on Business Combinations
In
January 2009, the Company adopted revised accounting guidance on business
combinations. This guidance requires an acquirer to recognize assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired. The adoption
of this guidance had no material effect on the Company’s financial position,
results of operations or cash flows.
Accounting
Guidance on Interim Disclosures about Fair Value of Financial
Instruments
In April
2009, the Financial Accounting Standards Board (FASB) issued accounting guidance
on interim disclosures about fair value of financial
instruments. This guidance amends previous guidance to require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial
statements. This guidance also amends previous guidance to require
disclosures in summarized financial information at interim reporting
periods. This guidance was effective for interim reporting periods
ending after June 15, 2009. The adoption of this guidance had no
material effect on the Company’s financial position, results of operations or
cash flows.
Accounting
Guidance on Subsequent Events
In June
2009, the Company adopted accounting guidance on subsequent
events. The objective of this guidance was to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. This
guidance was effective for interim periods ending after June 15,
2009. The adoption of this guidance had no material effect on the
Company’s financial position, results of operations or cash flows.
Accounting
Guidance on Accounting Standards Codification and Generally Accepted Accounting
Principles
In June
2009, FASB issued accounting guidance on the FASB Accounting Standards
Codification (Codification) and the hierarchy of GAAP. This guidance
establishes the Codification as the single source of
authoritative GAAP to be applied by nongovernmental entities, except for
the rules and interpretive releases of the SEC under authority of federal
securities laws, which are sources of authoritative GAAP for SEC
registrants. This guidance was effective for financial statements
issued for interim and annual periods ending after September 15,
2009. The adoption of this guidance had no material effect on the
Company’s financial position, results of operations or cash
flows.
39
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 have
concluded the Company’s disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective as of the end of the
period covered by this Form 10-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.
40
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 2010 Proxy Statement under the
captions “Election of Mr. Taylor and Mr. Akers 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., 65, 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.
Kent W.
Hackamack, 51, 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, 62, 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 2010 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: Titan International, Inc., c/o Corporate Secretary, 2701 Spruce
Street, Quincy, IL 62301.
ITEM
11 – EXECUTIVE COMPENSATION
The
information required by this item is incorporated by reference to the Company’s
2010 Proxy Statement under the caption “Compensation of Executive
Officers.”
41
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 2010 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,
2009:
|
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
|
390,536 | (a) | 9.96 | 1,217,720 | ||||||||
|
Equity
compensation plans not approved by security holders
|
0 | n/a | 0 | |||||||||
|
Total
|
390,536 | 9.96 | 1,217,720 | |||||||||
|
(a)
|
Amount
includes outstanding stock options under the Company’s 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
2010 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
2010 Proxy Statement under the caption “Audit and Other Fees.”
42
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, 2009, 2008 and
2007
|
F-3
|
|
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
F-4
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity for the years ended December
31, 2007, 2008 and 2009
|
F-5
|
|
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007
|
F-6
|
|
|
Notes
to Consolidated Financial Statements
|
F-7
through F-33
|
|
|
2.
|
Financial
Statement Schedule
|
|
|
Schedule
II – Valuation Reserves
|
S-1
|
|
|
3.
|
Exhibits
|
|
|
The
accompanying Exhibit Index is incorporated herein by
reference.
|
43
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
25, 2010
|
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 25, 2010.
|
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/ 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
|
44
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
|
|
4.2
(d)
|
Indenture
between the Company and U.S. Bank National Association dated December 21,
2009
|
|
10.1
(e)
|
1994
Non-Employee Director Stock Option Plan
|
|
10.2
(f)
|
2005
Equity Incentive Plan
|
|
10.3*
|
Amended
and Restated Credit Agreement among the Company and Bank of America, N.A.
dated as of January 30, 2009
|
|
10.4
(g)
|
Maurice
M. Taylor, Jr. Employment Agreement
|
|
10.5
(g)
|
Kent
W. Hackamack Employment Agreement
|
|
10.6
(g)
|
Cheri
T. Holley Employment Agreement
|
|
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.
1-12936).
|
|
(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 same numbered exhibit contained in the Company’s
Current Report on Form 8-K filed on December 21,
2009.
|
|
(e)
|
Incorporated
by reference to the Company’s Registration Statement on Form S-3 (No.
333-61743).
|
|
(f)
|
Incorporated
by reference to Appendix A of the Company’s Definitive Proxy Statement
filed on March 30, 2005.
|
|
(g)
|
Incorporated
by reference to the same numbered exhibit contained in the Company’s Form
10-Q for the quarterly period ended June 30, 2006 (No.
1-12936).
|
45
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, 2009, 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, 2009, 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, 2009.
The
effectiveness of the Company’s internal control over financial reporting as of
December 31, 2009, 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, 2009
and 2008, and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2009 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, 2009 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
25, 2010
F-2
TITAN
INTERNATIONAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
(All
amounts in thousands, except per share data)
|
Year ended December
31,
|
||||||||||||
|
2009
|
2008
|
2007
|
||||||||||
|
Net
sales
|
$ | 727,599 | $ | 1,036,700 | $ | 837,021 | ||||||
|
Cost
of sales
|
671,634 | 896,986 | 752,890 | |||||||||
|
Gross
profit
|
55,965 | 139,714 | 84,131 | |||||||||
|
Selling,
general and administrative expenses
|
46,734 | 53,661 | 51,449 | |||||||||
|
Research
and development expenses
|
8,850 | 3,490 | 1,689 | |||||||||
|
Royalty
expense
|
7,573 | 9,242 | 6,155 | |||||||||
|
Noncash
goodwill impairment charge
|
11,702 | 0 | 0 | |||||||||
|
Income
(loss) from operations
|
(18,894 | ) | 73,321 | 24,838 | ||||||||
|
Interest
expense
|
(16,246 | ) | (15,122 | ) | (18,710 | ) | ||||||
|
Noncash
Titan Europe Plc charge
|
0 | (37,698 | ) | 0 | ||||||||
|
Noncash
convertible debt conversion charge
|
0 | 0 | (13,376 | ) | ||||||||
|
Other
income
|
3,138 | 2,509 | 3,364 | |||||||||
|
Income
(loss) before income taxes
|
(32,002 | ) | 23,010 | (3,884 | ) | |||||||
|
Income
tax provision (benefit)
|
(7,357 | ) | 9,673 | 3,363 | ||||||||
|
Net
income (loss)
|
$ | (24,645 | ) | $ | 13,337 | $ | (7,247 | ) | ||||
|
Earnings
(loss) per common share:
|
||||||||||||
|
Basic
|
$ | (.71 | ) | $ | .39 | $ | (.23 | ) | ||||
|
Diluted
|
(.71 | ) | .38 | (.23 | ) | |||||||
|
Average
common shares and equivalents outstanding:
|
||||||||||||
|
Basic
|
34,708 | 34,410 | 32,081 | |||||||||
|
Diluted
|
34,708 | 34,838 | 32,081 | |||||||||
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
|
2009
|
2008
|
||||||
|
Current
assets
|
||||||||
|
Cash
and cash equivalents
|
$ | 229,182 | $ | 61,658 | ||||
|
Accounts
receivable (net of
allowance of $3,958 and $6,639, respectively)
|
67,513 | 126,531 | ||||||
|
Inventories
|
110,136 | 147,306 | ||||||
|
Deferred
income taxes
|
11,108 | 12,042 | ||||||
|
Prepaid
and other current assets
|
27,277 | 21,662 | ||||||
|
Total
current assets
|
445,216 | 369,199 | ||||||
|
Property,
plant and equipment, net
|
254,461 | 248,442 | ||||||
|
Goodwill
|
0 | 11,702 | ||||||
|
Deferred
income taxes
|
7,253 | 7,256 | ||||||
|
Other
assets
|
29,533 | 18,183 | ||||||
|
Total
assets
|
$ | 736,463 | $ | 654,782 | ||||
|
Liabilities
and Stockholders’ Equity
|
||||||||
|
Current
liabilities
|
||||||||
|
Short-term
debt
|
$ | 0 | $ | 25,000 | ||||
|
Accounts
payable
|
24,246 | 65,547 | ||||||
|
Other
current liabilities
|
45,826 | 46,088 | ||||||
|
Total
current liabilities
|
70,072 | 136,635 | ||||||
|
Long-term
debt
|
366,300 | 200,000 | ||||||
|
Other
long-term liabilities
|
38,138 | 38,959 | ||||||
|
Total
liabilities
|
474,510 | 375,594 | ||||||
|
Commitments
and contingencies: Notes
12, 22 and 23
|
||||||||
|
Stockholders’
equity
|
||||||||
|
Common stock
(no par, 60,000,000
shares authorized, 37,475,288 issued)
|
30 | 30 | ||||||
|
Additional
paid-in capital
|
299,519 | 300,024 | ||||||
|
Retained
earnings
|
16,377 | 41,726 | ||||||
|
Treasury stock
(at cost, 2,214,347 and 2,443,604 shares,
respectively)
|
(20,274 | ) | (22,332 | ) | ||||
|
Treasury
stock reserved for contractual obligations
|
(5,393 | ) | (5,501 | ) | ||||
|
Accumulated
other comprehensive loss
|
(28,306 | ) | (34,759 | ) | ||||
|
Total
stockholders’ equity
|
261,953 | 279,188 | ||||||
|
Total
liabilities and stockholders’ equity
|
$ | 736,463 | $ | 654,782 | ||||
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
|
Treasury
stock reserved for contractual obligations
|
Accumulated
other comprehensive income (loss)
|
Total
|
|||||||||||||||||||||||||
|
Balance
January 1, 2007
|
#24,871,735 | $ | 30 | $ | 258,071 | $ | 36,802 | $ | (96,264 | ) | $ | 0 | $ | (11,462 | ) | $ | 187,177 | |||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||
|
Net
loss
|
(7,247 | ) | (7,247 | ) | ||||||||||||||||||||||||||||
|
Unrealized
loss on investment, net of tax
|
(20,375 | ) | (20,375 | ) | ||||||||||||||||||||||||||||
|
Pension
liability adjustments, net of tax
|
793 | 793 | ||||||||||||||||||||||||||||||
|
Comprehensive
loss
|
(26,829 | ) | ||||||||||||||||||||||||||||||
|
Dividends
paid on common stock
|
(543 | ) | (543 | ) | ||||||||||||||||||||||||||||
|
Note
conversion
|
8,221,500 | 35,240 | 59,049 | 94,289 | ||||||||||||||||||||||||||||
|
Exercise
of stock options
|
555,663 | 2,640 | 3,991 | 6,631 | ||||||||||||||||||||||||||||
|
Issuance
of treasury stock for funding contractual obligations on employee
contracts
|
267,500 | 4,184 | 1,921 | 6,105 | ||||||||||||||||||||||||||||
|
Issuance
of treasury stock for pension plans
|
250,000 | 3,536 | 1,796 | 5,332 | ||||||||||||||||||||||||||||
|
Issuance
of treasury stock under 401(k) plan
|
17,086 | 237 | 123 | 360 | ||||||||||||||||||||||||||||
|
Balance
December 31, 2007
|
34,183,484 | 30 | 303,908 | 29,012 | (29,384 | ) | 0 | (31,044 | ) | 272,522 | ||||||||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||
|
Net
income
|
13,337 | 13,337 | ||||||||||||||||||||||||||||||
|
Noncash
Titan Europe Plc charge
|
14,249 | 14,249 | ||||||||||||||||||||||||||||||
|
Pension
liability adjustments, net of tax
|
(17,964 | ) | (17,964 | ) | ||||||||||||||||||||||||||||
|
Comprehensive
income
|
9,622 | |||||||||||||||||||||||||||||||
|
Dividends
paid on common stock
|
(623 | ) | (623 | ) | ||||||||||||||||||||||||||||
|
Noncash
Titan Europe Plc charge
|
(10,471 | ) | (10,471 | ) | ||||||||||||||||||||||||||||
|
Cash
paid for fractional shares resulting from stock split
|
(70 | ) | (70 | ) | ||||||||||||||||||||||||||||
|
Exercise
of stock options
|
313,463 | 5,389 | 2,278 | 7,667 | ||||||||||||||||||||||||||||
|
Issuance
of treasury stock for funding contractual obligations on employee
contracts
|
512,640 | 898 | 4,603 | (5,501 | ) | 0 | ||||||||||||||||||||||||||
|
Issuance
of treasury stock under 401(k) plan
|
22,097 | 370 | 171 | 541 | ||||||||||||||||||||||||||||
|
Balance
December 31, 2008
|
35,031,684 | 30 | 300,024 | 41,726 | (22,332 | ) | (5,501 | ) | (34,759 | ) | 279,188 | |||||||||||||||||||||
|
Comprehensive
income (loss):
|
||||||||||||||||||||||||||||||||
|
Net
loss
|
(24,645 | ) | (24,645 | ) | ||||||||||||||||||||||||||||
|
Pension
liability adjustments, net of tax
|
5,538 | 5,538 | ||||||||||||||||||||||||||||||
|
Unrealized
gain on investment, net of tax
|
915 | 915 | ||||||||||||||||||||||||||||||
|
Comprehensive
loss
|
(18,192 | ) | ||||||||||||||||||||||||||||||
|
Dividends
paid on common stock
|
(704 | ) | (704 | ) | ||||||||||||||||||||||||||||
|
Exercise
of stock options
|
170,000 | (384 | ) | 1,526 | 1,142 | |||||||||||||||||||||||||||
|
Contractual
obligation transactions
|
(7 | ) | 108 | 101 | ||||||||||||||||||||||||||||
|
Issuance
of treasury stock under 401(k) plan
|
59,257 | (114 | ) | 532 | 418 | |||||||||||||||||||||||||||
|
Balance
December 31, 2009
|
#35,260,941 | $ | 30 | $ | 299,519 | $ | 16,377 | $ | (20,274 | ) | $ | (5,393 | ) | $ | (28,306 | ) | $ | 261,953 | ||||||||||||||
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:
|
2009
|
2008
|
2007
|
|||||||||
|
Net
income (loss)
|
$ | (24,645 | ) | $ | 13,337 | $ | (7,247 | ) | ||||
|
Adjustments
to reconcile net income to net cash
|
||||||||||||
|
provided
by operating activities:
|
||||||||||||
|
Depreciation and amortization
|
34,296 | 30,368 | 28,620 | |||||||||
|
Deferred
income tax provision
|
(2,950 | ) | 13,987 | 1,995 | ||||||||
|
Gain
on senior note repurchase
|
(1,398 | ) | 0 | 0 | ||||||||
|
Noncash goodwill impairment charge
|
11,702 | 0 | 0 | |||||||||
|
Noncash Titan Europe Plc charge
|
0 | 24,504 | 0 | |||||||||
|
Noncash convertible debt conversion charge
|
0 | 0 | 13,376 | |||||||||
|
Excess tax benefit from stock options exercised
|
0 | (4,131 | ) | 0 | ||||||||
|
Issuance of treasury stock under 401(k) plan
|
418 | 541 | 360 | |||||||||
|
(Increase)
decrease in assets:
|
||||||||||||
|
Accounts receivable
|
59,018 | (28,137 | ) | (24,512 | ) | |||||||
|
Inventories
|
37,170 | (19,258 | ) | 26,556 | ||||||||
|
Prepaid and other current assets
|
(5,615 | ) | (3,823 | ) | (1,738 | ) | ||||||
|
Other assets
|
(2,031 | ) | 575 | (1,566 | ) | |||||||
|
Increase
(decrease) in liabilities:
|
||||||||||||
|
Accounts payable
|
(41,301 | ) | 21,555 | 18,108 | ||||||||
|
Other current liabilities
|
(462 | ) | 6,393 | 16,668 | ||||||||
|
Other liabilities
|
8,111 | (4,741 | ) | 5,373 | ||||||||
|
Net
cash provided by operating activities
|
72,313 | 51,170 | 75,993 | |||||||||
|
Cash
flows from investing activities:
|
||||||||||||
|
Capital
expenditures
|
(39,537 | ) | (79,953 | ) | (38,048 | ) | ||||||
|
Acquisition
of shares of Titan Europe Plc
|
(2,399 | ) | 0 | 0 | ||||||||
|
Acquisition
of off-the-road (OTR) assets
|
0 | 0 | (8,900 | ) | ||||||||
|
Other
|
1,042 | 104 | 532 | |||||||||
|
Net
cash used for investing activities
|
(40,894 | ) | (79,849 | ) | (46,416 | ) | ||||||
|
Cash
flows from financing activities:
|
||||||||||||
|
Proceeds
from borrowings
|
172,500 | 0 | 0 | |||||||||
|
Repurchase
of senior notes
|
(4,726 | ) | 0 | 0 | ||||||||
|
Payment
on debt
|
0 | 0 | (10,164 | ) | ||||||||
|
Proceeds
(payment) on revolving credit facility, net
|
(25,000 | ) | 25,000 | 0 | ||||||||
|
Proceeds
from exercise of stock options
|
1,142 | 3,536 | 6,631 | |||||||||
|
Excess
tax benefit from stock options exercised
|
0 | 4,131 | 0 | |||||||||
|
Payment
of financing fees
|
(7,107 | ) | (70 | ) | (625 | ) | ||||||
|
Dividends
paid
|
(704 | ) | (585 | ) | (506 | ) | ||||||
|
Net
cash provided by (used for) financing activities
|
136,105 | 32,012 | (4,664 | ) | ||||||||
|
Net
increase in cash and cash equivalents
|
167,524 | 3,333 | 24,913 | |||||||||
|
Cash
and cash equivalents, beginning of year
|
61,658 | 58,325 | 33,412 | |||||||||
|
Cash
and cash equivalents, end of year
|
$ | 229,182 | $ | 61,658 | $ | 58,325 | ||||||
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. Investments of less than 20%
of publicly traded entities are carried at fair value in accordance with
Accounting Standards Codification (ASC) 320 Investments – Debt and Equity
Securities. The Company has considered the applicable guidance in ASC
323 Investments – Equity Method and Joint Ventures and has concluded that the
Company’s 22.9% investment in Titan Europe Plc should be accounted for as an
available-for-sale security and recorded at fair value in accordance with ASC
320 Investments – Debt and Equity Securities. The Company has
determined after considering the facts and circumstances relating to the
investment that the equity method of accounting is not appropriate as the
Company does not have significant influence over Titan Europe
Plc. All significant intercompany accounts and transactions have been
eliminated.
Stock
split
In June
2008, Titan’s Board of Directors approved a five-for-four stock split. Titan
executed a five-for-four stock split that became effective August 15, 2008, for
stockholders of record on July 31, 2008. The Company gave five shares
for every four shares held as of the record date. Stockholders
received one additional share for every four shares owned as of the record date
and received cash in lieu of fractional shares. All share and per
share data, except shares authorized, have been adjusted to reflect the effect
of the stock split for all periods presented.
Inventories
Inventories
are valued at the lower of cost or market. Cost is determined using
the first-in, first-out (FIFO) method in 2009 for approximately 74% of
inventories and the last-in, first-out (LIFO) method for approximately 26% 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.
Deferred
financing costs
Deferred
financing costs are costs incurred in connection with the Company’s revolving
credit facility, senior unsecured notes and convertible senior subordinated
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. The costs associated with the
convertible senior subordinated notes are amortized straight line over seven
years, the term of the notes. Amortization of deferred financing
costs for the debt facilities approximates the effective interest rate
method.
F-7
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 a
weighted average 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.
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 and convertible senior subordinated notes are the only
significant financial instruments of the Company with a fair value different
from the recorded value. At December 31, 2009, the fair value of the
senior unsecured 8% notes due January 2012, based on market prices obtained
through independent pricing sources, was approximately $190.9 million, compared
to a carrying value of $193.8 million. At December 31, 2009,
the fair value of the convertible senior subordinated 5.625% notes due January
2017, based on market prices obtained through independent pricing sources, was
approximately $182.9 million, compared to a carrying value of $172.5
million.
Available-for-sale
securities
The
Company has an investment in Titan Europe Plc that was valued at $6.5 million as
of December 31, 2009, representing a 22.9% ownership position, at that
time. Titan Europe Plc is publicly traded on the AIM market in
London, England. The investment in Titan Europe Plc is included as a
component of other assets on the Consolidated Balance Sheets. The
Company has considered the applicable guidance in ASC 323 Investments – Equity
Method and Joint Ventures and has concluded that the Company’s investment in
Titan Europe Plc should continue to be accounted for as an available-for-sale
security and recorded at fair value in accordance with ASC 320 Investments –
Debt and Equity Securities as the Company does not have significant influence
over Titan Europe Plc. In accordance with ASC 320, 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. See Note 6 for additional information.
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.
F-8
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Foreign
currency translation
The
financial statements of the Company’s foreign subsidiaries are translated to
United States currency in accordance with ASC 830 Foreign Currency
Matters. 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 2009, the
Company’s investment in Titan Europe Plc was classified as available-for-sale
securities and this investment is included as a component of other assets on the
Consolidated Balance Sheets. 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 for impairment during the fourth quarter of each annual
reporting period, and whenever events and circumstances indicate that the
carrying values may not be recoverable. In the fourth quarter of
2009, the Company recorded a noncash charge for the impairment of goodwill of
$11.7 million on both a pre-tax and after-tax basis. The charge was
associated with the reporting units of the Company’s agricultural ($6.9
million), earthmoving/construction ($3.6 million), and consumer ($1.2 million)
segments. The Company had no remaining goodwill after the
impairment. See Note 8 for additional information.
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 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 (SG&A) 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. R&D
costs were $8.9 million, $3.5 million and $1.7 million for the years of 2009,
2008 and 2007, respectively. The additional R&D costs recorded
during the past two years primarily related to the Giant OTR
products.
Advertising
Advertising
expenses are included in SG&A expense and are expensed as
incurred. Advertising costs were approximately $2 million for each of
the years ended December 31, 2009, 2008 and 2007.
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. See Note 10 for additional information.
F-9
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Cash
equivalents
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 $16.7 million, $16.6 million and $10.2 million for interest in
2009, 2008 and 2007, respectively.
Income
taxes paid
Titan
paid $0.4 million, $8.0 million and $2.4 million for income taxes in 2009, 2008
and 2007, 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, 2009, the Company has two stock-based compensation plans, which are
described in Note 21. The Company granted no stock options in 2009,
2008 or 2007.
Reclassification
Certain
amounts from prior years have been reclassified to conform to the current year’s
presentation.
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.
F-10
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Recently
issued accounting standards
Accounting
Guidance on Business Combinations
In
January 2009, the Company adopted revised accounting guidance on business
combinations. This guidance requires an acquirer to recognize assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquiree at their fair values on the acquisition date, with goodwill being the
excess value over the net identifiable assets acquired. The adoption
of this guidance had no material effect on the Company’s financial position,
results of operations or cash flows.
Accounting
Guidance on Interim Disclosures about Fair Value of Financial
Instruments
In April
2009, the Financial Accounting Standards Board (FASB) issued accounting guidance
on interim disclosures about fair value of financial
instruments. This guidance amends previous guidance to require
disclosures about fair value of financial instruments for interim reporting
periods of publicly traded companies as well as in annual financial
statements. This guidance also amends previous guidance to require
disclosures in summarized financial information at interim reporting
periods. This guidance was effective for interim reporting periods
ending after June 15, 2009. The adoption of this guidance had no
material effect on the Company’s financial position, results of operations or
cash flows.
Accounting
Guidance on Subsequent Events
In June
2009, the Company adopted accounting guidance on subsequent
events. The objective of this guidance was to establish general
standards of accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. This
guidance was effective for interim periods ending after June 15,
2009. The adoption of this guidance had no material effect on the
Company’s financial position, results of operations or cash flows.
Accounting
Guidance on Accounting Standards Codification and Generally Accepted Accounting
Principles
In June
2009, FASB issued accounting guidance on the FASB Accounting Standards
Codification (Codification) and the hierarchy of GAAP. This guidance
establishes the Codification as the single source of
authoritative GAAP to be applied by nongovernmental entities, except for
the rules and interpretive releases of the SEC under authority of federal
securities laws, which are sources of authoritative GAAP for SEC
registrants. This guidance was effective for financial statements
issued for interim and annual periods ending after September 15,
2009. The adoption of this guidance had no material effect on the
Company’s financial position, results of operations or cash
flows.
F-11
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
2.
|
ACCOUNTS
RECEIVABLE
|
Accounts
receivable at December 31, 2009 and 2008, consisted of the following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Accounts
receivable
|
$ | 71,471 | $ | 133,170 | ||||
|
Allowance
for doubtful accounts
|
(3,958 | ) | (6,639 | ) | ||||
|
Accounts
receivable, net
|
$ | 67,513 | $ | 126,531 | ||||
The
Company had net accounts receivable of $67.5 million and $126.5 million at
December 31, 2009 and 2008, respectively. These amounts are net of
allowance for doubtful accounts of $4.0 million and $6.6 million for the years
ended 2009 and 2008, respectively.
|
3.
|
INVENTORIES
|
Inventories
at December 31, 2009 and 2008, consisted of the following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Raw
material
|
$ | 44,336 | $ | 73,927 | ||||
|
Work-in-process
|
21,378 | 26,820 | ||||||
|
Finished
goods
|
46,067 | 56,488 | ||||||
| 111,781 | 157,235 | |||||||
|
Adjustment
to LIFO basis
|
(1,645 | ) | (9,929 | ) | ||||
| $ | 110,136 | $ | 147,306 | |||||
The
Company had inventories of $110.1 million and $147.3 million at December 31,
2009 and 2008, respectively. Included in the above inventory balances
at year-end 2009 and 2008 are reserves for slow-moving and obsolete inventory of
$2.3 million and $3.8 million, respectively. The LIFO reduction
changed primarily as a result of fluctuations within the composition of LIFO
inventory layers in association with the major inventory reduction.
|
4.
|
PREPAID
AND OTHER CURRENT ASSETS
|
Prepaid
and other current assets at December 31, 2009 and 2008, consisted of the
following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Prepaid
supplies
|
$ | 14,019 | $ | 12,436 | ||||
|
Prepaid
income taxes
|
3,514 | 3,141 | ||||||
|
Other
|
9,744 | 6,085 | ||||||
| $ | 27,277 | $ | 21,662 | |||||
The
Company had prepaid and other current assets of $27.3 million and $21.7 million
at December 31, 2009 and 2008, respectively. The major component
consisted primarily of prepaid supplies, which were $14.0 million and $12.4
million at December 31, 2009 and 2008, respectively.
F-12
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
5.
|
PROPERTY,
PLANT AND EQUIPMENT
|
Property,
plant and equipment at December 31, 2009 and 2008, consisted of the following
(amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Land
and improvements
|
$ | 2,993 | $ | 3,343 | ||||
|
Buildings
and improvements
|
97,238 | 99,650 | ||||||
|
Machinery
and equipment
|
359,244 | 318,327 | ||||||
|
Tools,
dies and molds
|
77,926 | 62,856 | ||||||
|
Construction-in-process
|
16,383 | 37,536 | ||||||
| 553,784 | 521,712 | |||||||
|
Less
accumulated depreciation
|
(299,323 | ) | (273,270 | ) | ||||
| $ | 254,461 | $ | 248,442 | |||||
The
Company had property, plant and equipment of $254.5 million and $248.4 million
at December 31, 2009 and 2008, respectively. Depreciation related to
property, plant and equipment for the years 2009, 2008 and 2007 totaled $31.7
million, $27.5 million, and $26.1 million, respectively.
|
6.
|
INVESTMENT
IN TITAN EUROPE
|
Investment
in Titan Europe Plc at December 31, 2009 and 2008, consisted of the following
(amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Investment
in Titan Europe Plc
|
$ | 6,456 | $ | 2,649 | ||||
Titan
Europe Plc is publicly traded on the AIM market in London,
England. During the first quarter of 2009, the Company purchased $2.4
million of additional shares in Titan Europe Plc, thereby increasing its
investment from 17.2% to a 22.9% ownership percentage. The Company
has considered the applicable guidance in ASC 323 Investments – Equity Method
and Joint Ventures and has concluded that the Company’s investment in Titan
Europe Plc should continue to be accounted for as an available-for-sale security
and recorded at fair value in accordance with ASC 320 Investments – Debt and
Equity Securities as the Company does not have significant influence over Titan
Europe Plc. The investment in Titan Europe Plc is included as a
component of other assets on the Consolidated Balance Sheets. Titan’s
cost basis in Titan Europe is $5.0 million. Titan’s other
comprehensive income includes a gain on the Titan Europe investment of $0.9
million, which is net of tax of $0.5 million. The increased value in
the Titan Europe Plc investment at December 31, 2009, was due to a higher
publicly quoted Titan Europe Plc market price and additional purchased
shares.
|
7.
|
OTHER
ASSETS
|
Other
assets at December 31, 2009 and 2008, consisted of the following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Deferred
financing
|
$ | 9,084 | $ | 3,260 | ||||
|
Investment
in Titan Europe Plc
|
6,456 | 2,649 | ||||||
|
Contractual
obligations
|
5,869 | 4,426 | ||||||
|
Other
|
8,124 | 7,848 | ||||||
| $ | 29,533 | $ | 18,183 | |||||
Other
assets were $29.5 million and $18.2 million at December 31, 2009 and 2008,
respectively. The higher balance in other assets primarily related to
deferred financing, which increased to $9.1 million at December 31, 2009, from
$3.3 million at December 31, 2008. The deferred financing increase
was due to approximately $6 million of deferred financing related to the
December 2009 convertible note offering.
F-13
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
8.
|
GOODWILL
|
The
changes in the carrying amount of goodwill by reporting units for the year ended
December 31, 2009, were as follows (amounts in
thousands):
|
Agricultural
Segment
|
Earthmoving/
Construction
Segment
|
Consumer
Segment
|
Total
|
|||||||||||||
|
Balance at January 1,
2008
|
$ | 6,912 | $ | 3,552 | $ | 1,238 | $ | 11,702 | ||||||||
|
Additions/disposals
|
0 | 0 | 0 | 0 | ||||||||||||
|
Balance at December 31,
2008
|
6,912 | 3,552 | 1,238 | 11,702 | ||||||||||||
|
Noncash goodwill
impairment charge
|
(6,912 | ) | (3,552 | ) | (1,238 | ) | (11,702 | ) | ||||||||
|
Balance at December 31,
2009
|
$ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
The
Company reviews goodwill for impairment during the fourth quarter of each annual
reporting period, and whenever events and circumstances indicate that the
carrying values may not be recoverable. The Company evaluates the
recoverability of goodwill by estimating the future discounted cash flows of the
reporting unit to which the goodwill relates and using an earnings before
interest, taxes, depreciation, and amortization (EBITDA) multiple
approach. In determining the estimated future cash flows, the Company
considers current and projected future levels of income as well as business
trends and economic conditions. When the Company’s estimated fair
value of the reporting unit is less than the carrying value, a second step of
the impairment analysis is performed. In this second step, the
implied fair value of goodwill is calculated as the excess of the fair value of
a reporting unit over the fair values assigned to its assets and
liabilities. If the implied fair value of goodwill is less than the
carrying value of the reporting unit’s goodwill, the difference is recognized as
an impairment loss.
In the
fourth quarter of 2009, the Company recorded a noncash charge for the impairment
of goodwill of $11.7 million on both a pre-tax and million after-tax
basis. The charge was associated with the reporting units of the
Company’s agricultural ($6.9 million), earthmoving/construction ($3.6 million),
and consumer ($1.2 million) segments. The Company performed a fourth
quarter 2009 goodwill assessment using a discounted cash flow model that
employed a 12.25% discount rate and 2.5% terminal growth rate assumption and an
EBITDA multiple approach.
The key
factors contributing to the goodwill impairment were: (i) depressed
sales levels, which began to accelerate during the third quarter of 2009,
continued in the fourth quarter resulting from reduced demand for the Company’s
products across the board, a consequence of the worldwide recession and global
economic crisis, (ii) many of the Company’s major customers implemented
additional shutdowns during the fourth quarter of 2009, Titan in turn extended
shutdowns at its production facilities to manage the lower demand, (iii)
operating losses which began in the third quarter, continued into the fourth
quarter associated with lower product demand, (iv) decline in the reporting
units’ forecasted financial performance as a result of ongoing weak economic
conditions, and (v) in December 2009, in association with Titan’s convertible
note issuance, the rating agencies of Moody’s Investor Service and Standard and
Poor’s Rating Services issued a revised outlook on the Company’s future
performance to negative from stable.
Significant
assumptions relating to future operations must be made when estimating future
cash flows in analyzing goodwill for impairment. Assumptions utilized
in analyzing goodwill are highly judgmental, especially given the worldwide
recession and global economic crisis.
F-14
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
9.
|
OTHER
CURRENT LIABILITIES
|
Other
current liabilities at December 31, 2009 and 2008, consisted of the
following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Warranty
|
$ | 9,169 | $ | 7,488 | ||||
|
Wages
and commissions
|
8,384 | 11,765 | ||||||
|
Accrued
interest
|
7,656 | 7,554 | ||||||
|
Insurance
|
5,958 | 6,161 | ||||||
|
Utilities
|
2,289 | 3,103 | ||||||
|
Other
|
12,370 | 10,017 | ||||||
| $ | 45,826 | $ | 46,088 | |||||
Other
current liabilities were $45.8 million and $46.1 million at December 31, 2009
and 2008, respectively. Reductions in wages and commissions of
approximately $3 million and utilities of approximately $1 million were offset
by increases of approximately $4 million in the other line items described in
the table above.
|
10.
|
WARRANTY
COSTS
|
Changes
in the warranty liability consisted of the following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Warranty
liability, January 1
|
$ | 7,488 | $ | 5,854 | ||||
|
Provision
for warranty liabilities
|
18,629 | 13,567 | ||||||
|
Warranty
payments made
|
(16,948 | ) | (11,933 | ) | ||||
|
Warranty
liability, December 31
|
$ | 9,169 | $ | 7,488 | ||||
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.
|
11.
|
OTHER
LONG-TERM LIABILITIES
|
Other
long-term liabilities at December 31, 2009 and 2008, consisted of the following
(amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Accrued
pension liabilities
|
$ | 25,091 | $ | 29,291 | ||||
|
Accrued
employment liabilities
|
9,481 | 7,218 | ||||||
|
Other
|
3,566 | 2,450 | ||||||
| $ | 38,138 | $ | 38,959 | |||||
Other
long-term liabilities were $38.1 million and $39.0 million at December 31, 2009
and 2008, respectively. The reduction in other long-term
liabilities related to accrued pension liabilities, which decreased
approximately $4 million at December 31, 2009, from year-end
2008. This reduction was partially offset by increases of
approximately $2 million in accrued employment liabilities and approximately $1
million in the other line item.
F-15
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
12.
|
REVOLVING
CREDIT FACILITY AND LONG-TERM DEBT
|
Long-term
debt at December 31, 2009 and 2008, consisted of the following (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Senior
unsecured 8% notes due 2012
|
$ | 193,800 | $ | 200,000 | ||||
|
Convertible
senior subordinated 5.625% notes due 2017
|
172,500 | 0 | ||||||
|
Revolving
credit facility
|
0 | 25,000 | ||||||
| 366,300 | 225,000 | |||||||
|
Less
amounts due within one year
|
0 | 25,000 | ||||||
| $ | 366,300 | $ | 200,000 | |||||
Aggregate maturities of long-term debt
are as follows (amounts in
thousands):
|
2010
|
$ | 0 | ||
|
2011
|
0 | |||
|
2012
|
193,800 | |||
|
2013
|
0 | |||
|
2014
|
0 | |||
|
Thereafter
|
172,500 | |||
| $ | 366,300 |
Senior
unsecured 8% notes due 2012
The
Company’s senior unsecured 8% notes are due January 2012. In the
first quarter of 2009, the Company repurchased $6.2 million of principal value
of senior notes for approximately $4.8 million resulting in a $1.4 million gain
on the note repurchases. The senior notes outstanding balance was
$193.8 million at December 31, 2009.
Convertible
senior subordinated 5.625% notes due 2017
The
Company’s convertible senior subordinated 5.625% notes (Notes) are due January
2017. The initial base conversion rate for the Notes is 93.0016
shares of Titan common stock per $1,000 principal amount of Notes, equivalent to
an initial base conversion price of approximately $10.75 per share of Titan
common stock. If the price of Titan common stock at the time of
determination exceeds the base conversion price, the base conversion rate will
be increased by an additional number of shares (up to 9.3002 shares of Titan
common stock per $1,000 principal amount of Notes) as determined pursuant to a
formula described in the indenture. The base conversion rate will be
subject to adjustment in certain events.
Revolving
credit facility
The
Company’s $150 million revolving credit facility (credit facility) with agent
Bank of America, N.A. has a January 2012 termination date and is collateralized
by a first priority security interest in certain assets of Titan and its
domestic subsidiaries. At December 31, 2009, there were no borrowings
under the credit facility. During 2009, the borrowings under the
credit facility bore an approximate 3¼% interest rate.
On
January 30, 2009, Titan International, Inc. amended and restated its credit
facility with Bank of America, N.A. The amendment included a
multi-year extension that extended the credit facility termination date to
January 2012 from the previous October 2009 date. The amendment
created an accordion feature within the credit facility that set the initial
loan availability at $150 million with the ability to request increases up to a
maximum availability of $250 million.
The
credit facility contains certain financial covenants, restrictions and other
customary affirmative and negative covenants. In connection with the
convertible senior subordinated note offering, Titan agreed to add an additional
mutually agreeable covenant to the Company’s revolving credit
facility. Titan is in compliance with these covenants and
restrictions as of December 31, 2009.
F-16
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
13.
|
ACCUMULATED
OTHER COMPREHENSIVE INCOME (LOSS)
|
Accumulated
other comprehensive income (loss) consisted of the following (amounts in
thousands):
|
Currency
Translation
Adjustments
|
Unrealized
Gain
(Loss) on
Investments
|
Unrecognized
Losses
and
Prior
Service
Cost
|
Total
|
|||||||||||||
|
Balance
at January 1, 2008
|
$ | (1,183 | ) | $ | (14,249 | ) | $ | (15,612 | ) | $ | (31,044 | ) | ||||
|
Noncash
Titan Europe Plc charge
|
0 | 14,249 | 0 | 14,249 | ||||||||||||
|
Defined
benefit pension plan entries:
|
||||||||||||||||
|
Unrecognized
prior service cost, net of tax of $52
|
0 | 0 | 85 | 85 | ||||||||||||
|
Unrecognized
net loss, net of tax of $11,041
|
0 | 0 | (18,014 | ) | (18,014 | ) | ||||||||||
|
Unrecognized
deferred tax liability, net of tax of $21
|
0 | 0 | (35 | ) | (35 | ) | ||||||||||
|
Balance
at December 31, 2008
|
(1,183 | ) | 0 | (33,576 | ) | (34,759 | ) | |||||||||
|
Unrealized
gain on investment, net of tax of $493
|
0 | 915 | 0 | 915 | ||||||||||||
|
Defined
benefit pension plan entries:
|
||||||||||||||||
|
Unrecognized
prior service cost, net of tax of $51
|
0 | 0 | 85 | 85 | ||||||||||||
|
Unrecognized
net gain, net of tax of $3,364
|
0 | 0 | 5,488 | 5,488 | ||||||||||||
|
Unrecognized
deferred tax liability, net of tax of $21
|
0 | 0 | (35 | ) | (35 | ) | ||||||||||
|
Balance
at December 31, 2009
|
$ | (1,183 | ) | $ | 915 | $ | (28,038 | ) | $ | (28,306 | ) | |||||
|
14.
|
STOCKHOLDERS’
EQUITY
|
The
Company is authorized by the Board of Directors to repurchase up to 2.5 million
common shares subject to debt agreement covenants. The Company
repurchased no Titan common shares in 2009, 2008, or 2007. The
Company has no plans at this time to repurchase any Titan common
stock. Titan paid cash dividends of $.02 per share of common stock
for 2009, $.018 per share of common stock for 2008 and $.016 per share for
common stock for 2007. Dividends paid totaled $0.7 million, $0.6
million and $0.5 million for 2009, 2008 and 2007, respectively.
|
15.
|
FAIR
VALUE MEASUREMENTS
|
The
adoption of guidance in ASC 820 Fair Value Measurements for nonfinancial assets
and nonfinancial liabilities, effective January 1, 2009, did not have a material
impact on Titan’s consolidated financial position, results of operations or cash
flows.
ASC 820
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. These tiers are defined as:
|
|
Level
1 – Quoted prices in active markets for identical
instruments;
|
|
|
Level
2 – Inputs other than quoted prices in active markets that are either
directly or indirectly observable.
|
|
|
Level
3 – Unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own
assumptions.
|
Assets
and liabilities measured at fair value on a recurring basis consisted of the
following (amounts in
thousands):
|
December 31, 2009
|
December 31, 2008
|
|||||||||||||||||||||||
|
Total
|
Level 1
|
Levels 2&3
|
Total
|
Level 1
|
Levels 2&3
|
|||||||||||||||||||
|
Investment
in Titan Europe Plc
|
$ | 6,456 | $ | 6,456 | $ | 0 | $ | 2,649 | $ | 2,649 | $ | 0 | ||||||||||||
|
Investments
for contractual obligations
|
5,869 | 5,869 | 0 | 4,426 | 4,426 | 0 | ||||||||||||||||||
|
Total
|
$ | 12,325 | $ | 12,325 | $ | 0 | $ | 7,075 | $ | 7,075 | $ | 0 | ||||||||||||
F-17
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
16.
|
ROYALTY
EXPENSE
|
Royalty
expense consisted of the following (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Royalty
expense
|
$ | 7,573 | $ | 9,242 | $ | 6,155 | ||||||
The
Company has a license agreement with The Goodyear Tire & Rubber Company to
manufacture and sell certain off-highway tires in North America under the
Goodyear name. Royalty expenses recorded for the years ended December
31, 2009, 2008 and 2007, were $7.6 million, $9.2 million and $6.2 million,
respectively.
|
17.
|
NONCASH
CONVERTIBLE DEBT CONVERSION CHARGE
|
Noncash
convertible debt conversion charge consisted of the following (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Noncash
convertible debt charge
|
$ | 0 | $ | 0 | $ | 13,376 | ||||||
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
(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.
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 ASC 470-20 Debt –
Debt with Conversion and Other Options.
|
18.
|
OTHER
INCOME, NET
|
Other
income consisted of the following (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Gain
on senior note repurchases
|
$ | 1,398 | $ | 0 | $ | 0 | ||||||
|
Investment
gain (loss) related to contractual obligations
|
1,343 | (1,852 | ) | 172 | ||||||||
|
Interest
income
|
211 | 1,352 | 2,717 | |||||||||
|
Dividend
income – Titan Europe Plc
|
0 | 1,711 | 1,768 | |||||||||
|
Other
income (expense)
|
186 | 1,298 | (1,293 | ) | ||||||||
| $ | 3,138 | $ | 2,509 | $ | 3,364 | |||||||
Other
income recorded for the years ended December 31, 2009, 2008 and 2007, was $3.1
million, $2.5 million and $3.4 million, respectively. The other
income items are described in the table above.
F-18
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
19.
|
INCOME
TAXES
|
Income
(loss) before income taxes, consisted of the following (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Domestic
|
$ | (31,863 | ) | $ | 21,727 | $ | (6,306 | ) | ||||
|
Foreign
|
(139 | ) | 1,283 | 2,422 | ||||||||
| $ | (32,002 | ) | $ | 23,010 | $ | (3,884 | ) | |||||
The
income tax provision (benefit) was as follows (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Current
|
||||||||||||
|
Federal
|
$ | (3,526 | ) | $ | 7,814 | $ | 562 | |||||
|
State
|
160 | 34 | 547 | |||||||||
|
Foreign
|
(1,041 | ) | 1,031 | 1,574 | ||||||||
| (4,407 | ) | 8,879 | 2,683 | |||||||||
|
Deferred
|
||||||||||||
|
Federal
|
(2,721 | ) | 811 | 2,725 | ||||||||
|
State
|
(229 | ) | (17 | ) | 408 | |||||||
|
Foreign
|
0 | 0 | (2,453 | ) | ||||||||
| (2,950 | ) | 794 | 680 | |||||||||
|
Income
tax provision (benefit)
|
$ | (7,357 | ) | $ | 9,673 | $ | 3,363 | |||||
The
income tax provision 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:
|
2009
|
2008
|
2007
|
||||||||||
|
Statutory
U.S. federal tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
Nondeductible
goodwill impairment
|
(12.8 | ) | 0.0 | 0.0 | ||||||||
|
Nondeductible
debt conversion charge
|
0.0 | 0.0 | (120.6 | ) | ||||||||
|
Irish
capital gains tax
|
0.0 | 0.0 | 29.3 | |||||||||
|
Repatriation
of foreign earnings
|
0.0 | 1.9 | (29.2 | ) | ||||||||
|
Foreign
taxes, net
|
1.6 | (1.9 | ) | 18.8 | ||||||||
|
State
taxes, net
|
(0.1 | ) | 4.8 | (16.0 | ) | |||||||
|
Other,
net
|
(0.7 | ) | 2.2 | (3.9 | ) | |||||||
|
Effective
tax rate
|
23.0 | % | 42.0 | % | (86.6 | )% | ||||||
F-19
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, 2009 and 2008,
are as follows (amounts in
thousands):
|
2009
|
2008
|
|||||||
|
Deferred
tax assets:
|
||||||||
|
Unrealized
loss on investments
|
$ | 13,401 | $ | 13,954 | ||||
|
Net
operating loss carryforwards
|
13,481 | 2,004 | ||||||
|
Pension
|
9,789 | 11,130 | ||||||
|
Employee
benefits and related costs
|
4,821 | 4,044 | ||||||
|
Warranty
|
3,533 | 2,862 | ||||||
|
Allowance
for bad debts
|
1,963 | 2,523 | ||||||
|
Inventory
|
968 | 1,970 | ||||||
|
EPA
reserve
|
858 | 1,121 | ||||||
|
Other
|
3,894 | 4,636 | ||||||
|
Deferred
tax assets
|
52,708 | 44,244 | ||||||
|
Deferred
tax liabilities:
|
||||||||
|
Fixed
assets
|
(34,347 | ) | (24,946 | ) | ||||
|
Deferred
tax liabilities
|
(34,347 | ) | (24,946 | ) | ||||
|
Net
deferred tax asset
|
$ | 18,361 | $ | 19,298 | ||||
The
Company recorded an income tax benefit of $(7.4) million for the year ended
December 31, 2009, and income tax expense of $9.7 million and $3.4 million for
the years ended December 31, 2008 and 2007, 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 $11.7 million noncash goodwill impairment
charge. This noncash goodwill charge is not deductible for income tax
purposes. The Company’s Federal net operating loss carryforward of
approximately $30 million expires in 2029. In addition, the Company
has various state net operating loss carryforwards which are subject to
expiration from 2019 to 2029.
The
Company has applied the provisions of FIN 48, “Accounting for Uncertainty in
Income Taxes”, for the year ended December 31, 2009. No adjustment
was made to retained earnings in adopting FIN 48 in 2007 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 2006 to 2009 and (ii) Illinois state
income tax examinations for years 2006 to 2009.
F-20
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). 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, 2009, presentation are the Titan
Tire, Bryan and Walcott plans which have a projected benefit obligation of $93.7
million, exceeding the fair value of plan assets of $68.6 million at December
31, 2009. Included in the December 31, 2008, presentation are the
Titan Tire, Bryan and Walcott plans which have a projected benefit obligation of
$90.5 million, exceeding the fair value of plan assets of $61.3 million at
December 31, 2008.
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, 2009, 2008 and
2007.
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, 2009 and 2008 (amounts in
thousands):
|
Change
in benefit obligation:
|
2009
|
2008
|
||||||
|
Benefit
obligation at beginning of year
|
$ | 90,545 | $ | 95,362 | ||||
|
Interest
cost
|
5,456 | 5,295 | ||||||
|
Actuarial
(gain) loss
|
4,657 | (3,507 | ) | |||||
|
Benefits
paid
|
(6,950 | ) | (6,605 | ) | ||||
|
Benefit
obligation at end of year
|
$ | 93,708 | $ | 90,545 | ||||
|
Change
in plan assets:
|
||||||||
|
Fair
value of plan assets at beginning of year
|
$ | 61,796 | $ | 94,499 | ||||
|
Actual
return on plan assets
|
14,145 | (26,323 | ) | |||||
|
Employer
contributions
|
169 | 225 | ||||||
|
Benefits
paid
|
(6,950 | ) | (6,605 | ) | ||||
|
Fair
value of plan assets at end of year
|
$ | 69,160 | $ | 61,796 | ||||
|
Unfunded
status at end of year
|
$ | (24,548 | ) | $ | (28,749 | ) | ||
|
Amounts
recognized in consolidated balance sheet:
|
||||||||
|
Noncurrent
assets
|
$ | 543 | $ | 542 | ||||
|
Noncurrent
liabilities
|
(25,091 | ) | (29,291 | ) | ||||
|
Net
amount recognized in the consolidated balance sheet
|
$ | (24,548 | ) | $ | (28,749 | ) | ||
F-21
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Amounts
recognized in accumulated other comprehensive loss:
|
||||||||
|
2009
|
2008
|
|||||||
|
Unrecognized
prior service cost
|
$ | (1,301 | ) | $ | (1,438 | ) | ||
|
Unrecognized
net loss
|
(44,034 | ) | (52,886 | ) | ||||
|
Deferred
tax effect of unrecognized items
|
17,297 | 20,748 | ||||||
|
Net
amount recognized in accumulated other comprehensive loss
|
$ | (28,038 | ) | $ | (33,576 | ) | ||
|
The
weighted-average assumptions used in the actuarial computation that
derived the benefit obligations at December 31 were as
follows:
|
2009
|
2008
|
||||||
|
Discount
rate
|
5.75 | % | 6.25 | % | ||||
|
Expected
long-term return on plan assets
|
7.50 | % | 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, 2009, 2008 and
2007 (amounts in
thousands):
|
Components
of net periodic benefit cost and other
amounts
recognized in other comprehensive income
|
||||||||||||
|
Net
periodic benefit cost:
|
2009
|
2008
|
2007
|
|||||||||
|
Interest
cost
|
$ | 5,456 | $ | 5,295 | $ | 4,109 | ||||||
|
Assumed
return on assets
|
(4,939 | ) | (7,828 | ) | (5,561 | ) | ||||||
|
Amortization
of unrecognized prior service cost
|
137 | 137 | 137 | |||||||||
|
Amortization
of unrecognized deferred taxes
|
(56 | ) | (56 | ) | (56 | ) | ||||||
|
Amortization
of net unrecognized loss
|
4,303 | 1,588 | 1,593 | |||||||||
|
Net
periodic pension (income) cost
|
$ | 4,901 | $ | (864 | ) | $ | 222 | |||||
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 $3.6 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, 2009, 2008 and 2007 were
as follows:
|
2009
|
2008
|
2007
|
||||||||||
|
Discount
rate
|
6.25 | % | 5.75 | % | 5.75 | % | ||||||
|
Expected
long-term return on plan assets
|
8.50 | % | 8.50 | % | 8.50 | % | ||||||
F-22
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
|
2009
|
2008
|
2010
|
|||||||||
|
U.S.
equities (a)
|
61 | % | 53 | % | 40% - 80 | % | ||||||
|
Fixed
income
|
26 | % | 34 | % | 20% - 50 | % | ||||||
|
Cash
and cash equivalents
|
4 | % | 8 | % | 0% - 20 | % | ||||||
|
International
equities (a)
|
9 | % | 5 | % | 0% - 16 | % | ||||||
| 100 | % | 100 | % | |||||||||
|
(a)
|
Total
equities may not exceed 80% of total plan
assets.
|
ASC 820
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. These tiers are defined as:
|
|
Level
1 – Quoted prices in active markets for identical
instruments;
|
|
|
Level
2 – Inputs other than quoted prices in active markets that are either
directly or indirectly observable.
|
|
|
Level
3 – Unobservable inputs in which little or no market data exists,
therefore requiring an entity to develop its own
assumptions.
|
The fair
value of the plan assets by asset categories was as follows (amounts in
thousands):
|
Fair Value Measurements as of December 31,
2009
|
||||||||||||||||
|
Total
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Money
market funds
|
$ | 3,067 | $ | 3,067 | $ | 0 | $ | 0 | ||||||||
|
Domestic
common stock
|
28,761 | 28,761 | 0 | 0 | ||||||||||||
|
Foreign
common stock
|
2,887 | 2,887 | 0 | 0 | ||||||||||||
|
Corporate
bonds
|
4,722 | 4,722 | 0 | 0 | ||||||||||||
|
Foreign
bonds
|
275 | 275 | 0 | 0 | ||||||||||||
|
U.S.
government securities
|
1,658 | 1,658 | 0 | 0 | ||||||||||||
|
Mortgaged-backed
securities
|
97 | 0 | 97 | 0 | ||||||||||||
|
Mutual
funds
|
1,024 | 1,024 | 0 | 0 | ||||||||||||
|
Common
/ collective trusts
|
26,669 | 0 | 26,669 | 0 | ||||||||||||
|
Totals
|
$ | 69,160 | $ | 42,394 | $ | 26,766 | $ | 0 | ||||||||
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 Barclays Capital Aggregate Bond
Index. The U.S. equities asset category included the Company’s common
stock in the amount of $1.5 million (approximately two percent of total plan
assets) at both December 31, 2009 and 2008 year end.
The
long-term rate of return for plan assets is determined using a weighted-average
of long-term historical approximate 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 7.5% over the long-term. This rate assumes
long-term historical returns of approximately 9% for equities and approximately
6% 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 2010 minimum pension funding calculations are not finalized, the Company
estimates those funding requirements will be approximately $3
million.
F-23
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
Projected
benefit payments from the plans as of December 31, 2009, are estimated as
follows (amounts in
thousands):
|
2010
|
$ | 6,544 | ||
|
2011
|
6,611 | |||
|
2012
|
6,699 | |||
|
2013
|
6,878 | |||
|
2014
|
6,980 | |||
|
2015-2019
|
36,057 |
401(k)
The
Company sponsors four 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 59,257
shares, 22,097 shares and 17,086 shares of treasury stock in connection with
this 401(k) plan during 2009, 2008 and 2007, respectively. Expenses
to the Company related to this common stock matching contribution were $0.4
million, $0.6 million and $0.4 million for 2009, 2008 and 2007.
The other
three 401(k) plans are for employees covered by collective bargaining
arrangements at (i) Titan Tire Corporation; (ii) Titan Tire Corporation of
Freeport; and (iii) Titan Tire Corporation of Bryan. These three
plans do not include a Company matching contribution. Employees are
fully vested with respect to their contributions.
|
21.
|
STOCK
OPTION PLANS
|
The
Company accounts for stock options using ASC 718 Compensation – Stock
Compensation. No stock-based compensation expense was recorded during
2009, 2008, or 2007. The Company granted no stock options during
2009, 2008 or 2007. All previously granted stock options were fully
vested before January 1, 2007.
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 are fully vested 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 1.2 million shares are available for
future issuance under the equity incentive 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 2009, 2008 and 2007 no stock options
were granted under this equity incentive plan.
Stock
options outstanding and exercisable as of December 31, 2009, were as
follows:
|
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||
|
Weighted
Average
|
Number
of
|
Weighted
Average
|
Number
of
|
Weighted
Average
|
|||||||||||||||
|
Price Range
|
Contractual Life
|
Options
|
Exercise Price
|
Options
|
Exercise Price
|
||||||||||||||
| $ | 3.63 - $ 5.35 |
1.2
years
|
112,500 | $ | 4.45 | 112,500 | $ | 4.45 | |||||||||||
| $ | 10.68 - $13.74 |
5.7
years
|
278,036 | $ | 12.20 | 278,036 | $ | 12.20 | |||||||||||
| 390,536 | $ | 9.96 | 390,536 | $ | 9.96 | ||||||||||||||
F-24
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
The
following is a summary of activity in the stock option plans for 2007, 2008 and
2009:
|
Shares
Subject
to Option
|
Weighted-
Average
Exercise Price
|
|||||||
|
Outstanding,
January 1, 2007
|
1,437,575 | $ | 10.63 | |||||
|
Granted
|
0 | - | (a) | |||||
|
Exercised
|
(555,663 | ) | 11.94 | |||||
|
Canceled/Expired
|
(7,913 | ) | 10.50 | |||||
|
Outstanding,
December 31, 2007
|
873,999 | 9.81 | ||||||
|
Granted
|
0 | - | (a) | |||||
|
Exercised
|
(313,463 | ) | 11.29 | |||||
|
Canceled/Expired
|
0 | - | ||||||
|
Outstanding,
December 31, 2008
|
560,536 | 8.98 | ||||||
|
Granted
|
0 | - | (a) | |||||
|
Exercised
|
(170,000 | ) | 6.72 | |||||
|
Canceled/Expired
|
0 | - | ||||||
|
Outstanding,
December 31, 2009
|
390,536 | $ | 9.96 | |||||
|
(a)
|
The
Company granted no stock options during 2007, 2008 or
2009.
|
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 2008 was $5.1 million. Cash
received from the exercise of stock options was $3.5 million for
2008. The tax benefit realized for the tax deductions from stock
options exercised was $4.1 million for 2008.
The total
intrinsic value of options exercised in 2009 was $0.2 million. Cash
received from the exercise of stock options was $1.1 million for
2009. There was no tax benefit realized for the tax deductions from
stock options exercised for 2009.
The
Company currently uses treasury shares to satisfy any stock option
exercises. At December 31, 2009, the Company had 2.2 million shares
of treasury stock.
|
22.
|
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.
F-25
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
23.
|
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 $2.5 million, $2.9 million
and $3.0 million for the years ended December 31, 2009, 2008 and 2007,
respectively.
At
December 31, 2009, future minimum rental commitments under noncancellable
operating leases with initial or remaining terms in excess of one year are as
follows (amounts in
thousands):
|
2010
|
$ | 1,495 | ||
|
2011
|
733 | |||
|
2012
|
64 | |||
|
2013
|
13 | |||
|
Thereafter
|
0 | |||
|
Total
future minimum lease payments
|
$ | 2,305 |
|
24.
|
CONCENTRATION
OF CREDIT RISK
|
Net sales
to Deere & Company in Titan’s agricultural, earthmoving/construction and
consumer markets represented 24% of the Company’s consolidated revenues for the
year ended December 31, 2009, 22% of the Company’s consolidated revenues for the
year ended December 31, 2008, and 17% of the Company’s consolidated revenues for
the year ended December 31, 2007. Net sales to CNH Global N.V. in
Titan’s three markets represented 13% of the Company’s consolidated revenues for
the year ended December 31, 2009, 12% of the Company’s consolidated revenues for
the year ended December 31, 2008, and 11% of the Company’s consolidated revenues
for the year ended December 31, 2007. No other customer accounted for
more than 10% of Titan’s net sales in 2009, 2008 or 2007.
|
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. The related
party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother. The
companies which Mr. Fred Taylor is associated with that do business with Titan
include the following: Blackstone OTR, LLC; FBT Enterprises; OTR
Wheel Engineering; and Wheel & Rim Supply, Inc. During 2009, 2008
and 2007, sales of Titan product to these companies were approximately $1.0
million, $6.2 million and $5.1 million, respectively. Titan had trade
receivables due from these companies of approximately $0.1 million at December
31, 2009, and approximately $0.2 million at December 31, 2008. On
other sales referred to Titan from these manufacturing representative companies,
commissions were approximately $1.3 million, $2.0 million and $1.8 million
during 2009, 2008 and 2007, 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.
|
26.
|
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 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.
F-26
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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, 2009, 2008 and 2007 (amounts in
thousands):
|
2009
|
2008
|
2007
|
||||||||||
|
Revenues from external
customers
|
||||||||||||
|
Agricultural
|
$ | 563,528 | $ | 729,895 | $ | 515,642 | ||||||
|
Earthmoving/construction
|
144,589 | 281,008 | 277,206 | |||||||||
|
Consumer
|
19,482 | 25,797 | 44,173 | |||||||||
| $ | 727,599 | $ | 1,036,700 | $ | 837,021 | |||||||
|
Gross profit (loss)
|
||||||||||||
|
Agricultural
|
$ | 51,955 | $ | 89,782 | $ | 35,742 | ||||||
|
Earthmoving/construction
|
3,595 | 46,047 | 47,848 | |||||||||
|
Consumer
|
1,604 | 3,938 | 3,431 | |||||||||
|
Unallocated
corporate
|
(1,189 | ) | (53 | ) | (2,890 | ) | ||||||
| $ | 55,965 | $ | 139,714 | $ | 84,131 | |||||||
|
Income (loss) from
operations
|
||||||||||||
|
Agricultural
|
$ | 26,980 | $ | 74,241 | $ | 25,324 | ||||||
|
Earthmoving/construction
|
(7,999 | ) | 38,422 | 40,833 | ||||||||
|
Consumer
|
(206 | ) | 3,303 | 2,546 | ||||||||
|
Unallocated
corporate
|
(37,669 | ) | (42,645 | ) | (43,865 | ) | ||||||
|
Consolidated
income (loss) from operations
|
(18,894 | ) | 73,321 | 24,838 | ||||||||
|
Interest
expense
|
(16,246 | ) | (15,122 | ) | (18,710 | ) | ||||||
|
Noncash
Titan Europe Plc charge
|
0 | (37,698 | ) | 0 | ||||||||
|
Noncash
convertible debt conversion charge
|
0 | 0 | (13,376 | ) | ||||||||
|
Other
income, net
|
3,138 | 2,509 | 3,364 | |||||||||
|
Income
(loss) before income taxes
|
$ | (32,002 | ) | $ | 23,010 | $ | (3,884 | ) | ||||
|
Capital expenditures
|
||||||||||||
|
Agricultural
|
$ | 8,461 | $ | 10,946 | $ | 11,267 | ||||||
|
Earthmoving/construction
|
29,593 | 67,203 | 22,950 | |||||||||
|
Consumer
|
254 | 406 | 1,654 | |||||||||
|
Unallocated
corporate
|
1,229 | 1,398 | 2,177 | |||||||||
| $ | 39,537 | $ | 79,953 | $ | 38,048 | |||||||
|
Depreciation &
amortization
|
||||||||||||
|
Agricultural
|
$ | 17,531 | $ | 16,004 | $ | 14,255 | ||||||
|
Earthmoving/construction
|
12,836 | 10,831 | 10,330 | |||||||||
|
Consumer
|
535 | 594 | 1,320 | |||||||||
|
Unallocated
corporate
|
3,394 | 2,939 | 2,715 | |||||||||
| $ | 34,296 | $ | 30,368 | $ | 28,620 | |||||||
|
Total assets
|
||||||||||||
|
Agricultural
|
$ | 257,523 | $ | 360,030 | $ | 257,005 | ||||||
|
Earthmoving/construction
|
188,169 | 188,486 | 176,144 | |||||||||
|
Consumer
|
8,305 | 9,401 | 22,515 | |||||||||
|
Unallocated
corporate (a)
|
282,466 | 96,865 | 134,831 | |||||||||
| $ | 736,463 | $ | 654,782 | $ | 590,495 | |||||||
(a) Unallocated
assets include cash of approximately $229 million, $61 million, and $58 million
at year-end 2009, 2008 and 2007, respectively.
F-27
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, 2009, 2008 and 2007 was as follows (amounts in
thousands):
|
2009
|
United
States
|
Other
Countries
|
Consolidated
Totals
|
|||||||||
|
Revenues
from external customers
|
$ | 727,599 | $ | 0 | $ | 727,599 | ||||||
|
Long-lived
assets
|
254,461 | 0 | 254,461 | |||||||||
|
2008
|
||||||||||||
|
Revenues
from external customers
|
$ | 1,036,700 | $ | 0 | $ | 1,036,700 | ||||||
|
Long-lived
assets
|
260,144 | 0 | 260,144 | |||||||||
|
2007
|
||||||||||||
|
Revenues
from external customers
|
$ | 837,021 | $ | 0 | $ | 837,021 | ||||||
|
Long-lived
assets
|
207,780 | 0 | 207,780 | |||||||||
|
27.
|
SUBSEQUENT
EVENTS
|
Evaluation
of subsequent events
The
Company has performed an evaluation of subsequent events through February 25,
2010, which is the date the financial statements were filed with the Securities
and Exchange Commission.
Special
Meeting of Stockholders (Definitive proxy filed January 29,
2010)
A Special
Meeting of Stockholders (Special Meeting) of Titan International, Inc. is to be
held on March 4, 2010, at 10:00 a.m. Central Time, at the Holiday Inn, 4821 Oak
Street, Quincy, IL 62305, to consider and act upon the following
matters:
|
1)
|
To
approve an amendment to the Company’s Amended and Restated Articles of
Incorporation to increase the number of authorized shares of Common Stock
from 60,000,000 shares to 120,000,000 shares;
and
|
|
2)
|
To
transact such other business as may properly come before the Special
Meeting or any adjournments or postponements
thereof.
|
The
Company’s board of directors has fixed the “record date” to be the close of
business on January 15, 2010. Only those stockholders whose names
appear of record at the Company’s close of
business on January 15, 2010, as holders of record of the Company common stock,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments thereof.
F-28
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
28.
|
EARNINGS
PER SHARE
|
Earnings
per share for 2009, 2008 and 2007, are (amounts in thousands, except share and
per share data):
|
2009
|
Net
income (loss)
|
Weighted-
average shares
|
Per
share
amount
|
|||||||||
|
Basic
and diluted loss per share (a)
|
$ | (24,645 | ) | 34,707,891 | $ | (.71 | ) | |||||
|
2008
|
||||||||||||
|
Basic
earnings per share
|
$ | 13,337 | 34,409,754 | $ | .39 | |||||||
|
Effect
of stock options/trusts
|
0 | 428,474 | ||||||||||
|
Diluted
earnings per share
|
$ | 13,337 | 34,838,228 | $ | .38 | |||||||
|
2007
|
||||||||||||
|
Basic
and diluted loss per share (b)
|
$ | (7,247 | ) | 32,081,268 | $ | (.23 | ) | |||||
|
(a)
|
The
effect of stock options/trusts has been excluded as they were
anti-dilutive. The weighted-average share amount excluded for
stock options/trusts totaled 559,110 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 483,481
shares.
|
|
(b)
|
The
effect of stock options has been excluded as they were
anti-dilutive. The weighted-average share amount excluded for
stock options totaled 555,162 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
1,627,296 shares.
|
|
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
|
||||||||||||||||
|
2009
|
|
||||||||||||||||||||
|
Net
sales
|
$ | 232,604 | $ | 206,983 | $ | 141,496 | $ | 146,516 | $ | 727,599 | |||||||||||
|
Gross
profit (loss)
|
30,063 | 29,746 | (3,030 | ) | (814 | ) | 55,965 | ||||||||||||||
|
Net
income (loss)
|
7,041 | 5,910 | (11,113 | ) | (26,483 | ) |
(b)
|
(24,645 | ) | ||||||||||||
|
Per
share amounts:
|
|||||||||||||||||||||
|
Basic
|
.20 | .17 | (.32 | ) | (.76 | ) |
(b)
|
(.71 | ) | ||||||||||||
|
Diluted
|
.20 | .17 | (.32 | ) | (.76 | ) |
(b)
|
(.71 | ) | ||||||||||||
|
2008
|
|||||||||||||||||||||
|
Net
sales
|
$ | 253,525 | $ | 269,114 | $ | 255,463 | $ | 258,598 | $ | 1,036,700 | |||||||||||
|
Gross
profit
|
32,344 | 41,946 | 37,423 | 28,001 | 139,714 | ||||||||||||||||
|
Net
income (loss)
|
8,134 | 13,306 | 10,303 | (18,406 | ) |
(c)
|
13,337 | ||||||||||||||
|
Per
share amounts: (a)
|
|||||||||||||||||||||
|
Basic
|
.24 | .39 | .30 | (.53 | ) |
(c)
|
.39 | ||||||||||||||
|
Diluted
|
.23 | .38 | .30 | (.53 | ) |
(c)
|
.38 | ||||||||||||||
|
(a)
|
As
a result of changes in outstanding share balances, year-end per share
amounts do not agree to the sum of the quarters.
Adjusted
to reflect the five-for-four stock split that took place in
2008.
|
|
(b)
|
Noncash
goodwill impairment charge of $11.7 million was included in the quarter
ended December 31, 2009.
|
|
(c)
|
Noncash
Titan Europe Plc charge of $24.5 million, net of tax, was included in the
quarter ended December 31,
2008.
|
F-29
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
30.
|
SUBSIDIARY
GUARANTOR FINANCIAL INFORMATION
|
The
Company’s 8% senior unsecured notes and 5.625% convertible senior subordinated
notes are guaranteed by each of Titan’s current and future wholly owned domestic
subsidiaries other than its immaterial subsidiaries (subsidiaries with total
assets less than $250,000 and total revenues less than $250,000.) The note
guarantees are full and unconditional, joint and several obligations of the
guarantors. Non-guarantors consist primarily of foreign subsidiaries of the
Company, which are organized outside the United States of America. The following
condensed consolidating financial statements are presented using the equity
method of accounting.
|
Consolidating
Condensed Statements of Operations
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
Year Ended December 31,
2009
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 0 | $ | 727,599 | $ | 0 | $ | 0 | $ | 727,599 | ||||||||||
|
Cost
of sales
|
(6 | ) | 671,640 | 0 | 0 | 671,634 | ||||||||||||||
|
Gross
profit (loss)
|
6 | 55,959 | 0 | 0 | 55,965 | |||||||||||||||
|
Selling,
general and administrative expenses
|
16,549 | 30,093 | 92 | 0 | 46,734 | |||||||||||||||
|
Research
and development expenses
|
67 | 8,783 | 0 | 0 | 8,850 | |||||||||||||||
|
Royalty
expense
|
0 | 7,573 | 0 | 0 | 7,573 | |||||||||||||||
|
Noncash
goodwill impairment charge
|
0 | 11,702 | 0 | 0 | 11,702 | |||||||||||||||
|
Loss
from operations
|
(16,610 | ) | (2,192 | ) | (92 | ) | 0 | (18,894 | ) | |||||||||||
|
Interest
expense
|
(16,246 | ) | 0 | 0 | 0 | (16,246 | ) | |||||||||||||
|
Other
income
|
2,850 | 288 | 0 | 0 | 3,138 | |||||||||||||||
|
Loss
before income taxes
|
(30,006 | ) | (1,904 | ) | (92 | ) | 0 | (32,002 | ) | |||||||||||
|
Income
tax provision (benefit)
|
(6,897 | ) | (439 | ) | (21 | ) | 0 | (7,357 | ) | |||||||||||
|
Equity
in earnings of subsidiaries
|
(1,536 | ) | 0 | 0 | 1,536 | 0 | ||||||||||||||
|
Net
income (loss)
|
$ | (24,645 | ) | $ | (1,465 | ) | $ | (71 | ) | $ | 1,536 | $ | (24,645 | ) | ||||||
|
Year Ended December 31,
2008
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Net
sales
|
$ | 0 | $ | 1,036,700 | $ | 0 | $ | 0 | $ | 1,036,700 | ||||||||||
|
Cost
of sales
|
(922 | ) | 897,908 | 0 | 0 | 896,986 | ||||||||||||||
|
Gross
profit
|
922 | 138,792 | 0 | 0 | 139,714 | |||||||||||||||
|
Selling,
general and administrative expenses
|
20,332 | 33,251 | 78 | 0 | 53,661 | |||||||||||||||
|
Research
and development expenses
|
17 | 3,473 | 0 | 0 | 3,490 | |||||||||||||||
|
Royalty
expense
|
0 | 9,242 | 0 | 0 | 9,242 | |||||||||||||||
|
Income
(loss) from operations
|
(19,427 | ) | 92,826 | (78 | ) | 0 | 73,321 | |||||||||||||
|
Interest
expense
|
(15,122 | ) | 0 | 0 | 0 | (15,122 | ) | |||||||||||||
|
Noncash
Titan Europe Plc charge
|
(37,698 | ) | 0 | 0 | 0 | (37,698 | ) | |||||||||||||
|
Other
income (expense)
|
832 | (33 | ) | 1,710 | 0 | 2,509 | ||||||||||||||
|
Income
(loss) before income taxes
|
(71,415 | ) | 92,793 | 1,632 | 0 | 23,010 | ||||||||||||||
|
Income
tax provision (benefit)
|
(30,024 | ) | 39,011 | 686 | 0 | 9,673 | ||||||||||||||
|
Equity
in earnings of subsidiaries
|
54,728 | 0 | 0 | (54,728 | ) | 0 | ||||||||||||||
|
Net
income
|
$ | 13,337 | $ | 53,782 | $ | 946 | $ | (54,728 | ) | $ | 13,337 | |||||||||
F-30
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
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
profit (loss)
|
(1,905 | ) | 86,036 | 0 | 0 | 84,131 | ||||||||||||||
|
Selling,
general and administrative expenses
|
19,555 | 31,692 | 202 | 0 | 51,449 | |||||||||||||||
|
Research
and development
|
17 | 1,672 | 0 | 0 | 1,689 | |||||||||||||||
|
Royalty
expense
|
0 | 6,155 | 0 | 0 | 6,155 | |||||||||||||||
|
Income
(loss) 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 | ||||||||||||||
|
Income
(loss) before income taxes
|
(40,163 | ) | 33,857 | 2,422 | 0 | (3,884 | ) | |||||||||||||
|
Income
tax provision (benefit)
|
(10,423 | ) | 12,866 | 920 | 0 | 3,363 | ||||||||||||||
|
Equity
in earnings of subsidiaries
|
22,493 | 0 | 0 | (22,493 | ) | 0 | ||||||||||||||
|
Net
income (loss)
|
$ | (7,247 | ) | $ | 20,991 | $ | 1,502 | $ | (22,493 | ) | $ | (7,247 | ) | |||||||
|
Consolidating
Condensed Balance Sheets
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
December 31, 2009
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 229,004 | $ | 11 | $ | 167 | $ | 0 | $ | 229,182 | ||||||||||
|
Accounts
receivable
|
(201 | ) | 67,714 | 0 | 0 | 67,513 | ||||||||||||||
|
Inventories
|
0 | 110,136 | 0 | 0 | 110,136 | |||||||||||||||
|
Prepaid
and other current assets
|
19,857 | 18,528 | 0 | 0 | 38,385 | |||||||||||||||
|
Total current
assets
|
248,660 | 196,389 | 167 | 0 | 445,216 | |||||||||||||||
|
Property,
plant and equipment, net
|
7,602 | 246,859 | 0 | 0 | 254,461 | |||||||||||||||
|
Investment
in subsidiaries
|
10,748 | 0 | 0 | (10,748 | ) | 0 | ||||||||||||||
|
Other
assets
|
23,870 | 6,460 | 6,456 | 0 | 36,786 | |||||||||||||||
|
Total
assets
|
$ | 290,880 | $ | 449,708 | $ | 6,623 | $ | (10,748 | ) | $ | 736,463 | |||||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||||||||||||||
|
Accounts
payable
|
$ | 1,086 | $ | 23,160 | $ | 0 | $ | 0 | $ | 24,246 | ||||||||||
|
Other
current liabilities
|
8,288 | 37,538 | 0 | 0 | 45,826 | |||||||||||||||
|
Total current
liabilities
|
9,374 | 60,698 | 0 | 0 | 70,072 | |||||||||||||||
|
Long-term
debt
|
366,300 | 0 | 0 | 0 | 366,300 | |||||||||||||||
|
Other
long-term liabilities
|
5,574 | 32,564 | 0 | 0 | 38,138 | |||||||||||||||
|
Intercompany
accounts
|
(352,321 | ) | 377,281 | (24,960 | ) | 0 | 0 | |||||||||||||
|
Stockholders’
equity
|
261,953 | (20,835 | ) | 31,583 | (10,748 | ) | 261,953 | |||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 290,880 | $ | 449,708 | $ | 6,623 | $ | (10,748 | ) | $ | 736,463 | |||||||||
F-31
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidating
Condensed Balance Sheets
|
||||||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||||||
|
December 31, 2008
|
||||||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Eliminations
|
Consolidated
|
||||||||||||||||
|
Assets
|
||||||||||||||||||||
|
Cash
and cash equivalents
|
$ | 59,011 | $ | 60 | $ | 2,587 | $ | 0 | $ | 61,658 | ||||||||||
|
Accounts
receivable
|
(127 | ) | 126,658 | 0 | 0 | 126,531 | ||||||||||||||
|
Inventories
|
0 | 147,306 | 0 | 0 | 147,306 | |||||||||||||||
|
Prepaid
and other current assets
|
17,117 | 16,573 | 14 | 0 | 33,704 | |||||||||||||||
|
Total current
assets
|
76,001 | 290,597 | 2,601 | 0 | 369,199 | |||||||||||||||
|
Property,
plant and equipment, net
|
6,160 | 242,282 | 0 | 0 | 248,442 | |||||||||||||||
|
Investment
in subsidiaries
|
31,474 | 0 | 0 | (31,474 | ) | 0 | ||||||||||||||
|
Other
assets
|
15,842 | 18,650 | 2,649 | 0 | 37,141 | |||||||||||||||
|
Total
assets
|
$ | 129,477 | $ | 551,529 | $ | 5,250 | $ | (31,474 | ) | $ | 654,782 | |||||||||
|
Liabilities
and Stockholders’ Equity
|
||||||||||||||||||||
|
Short-term
debt
|
$ | 25,000 | $ | 0 | $ | 0 | $ | 0 | $ | 25,000 | ||||||||||
|
Accounts
payable
|
3,106 | 62,441 | 0 | 0 | 65,547 | |||||||||||||||
|
Other
current liabilities
|
10,548 | 34,540 | 1,000 | 0 | 46,088 | |||||||||||||||
|
Total current
liabilities
|
38,654 | 96,981 | 1,000 | 0 | 136,635 | |||||||||||||||
|
Long-term
debt
|
200,000 | 0 | 0 | 0 | 200,000 | |||||||||||||||
|
Other
long-term liabilities
|
3,943 | 35,016 | 0 | 0 | 38,959 | |||||||||||||||
|
Intercompany
accounts
|
(392,308 | ) | 419,738 | (27,430 | ) | 0 | 0 | |||||||||||||
|
Stockholders’
equity
|
279,188 | (206 | ) | 31,680 | (31,474 | ) | 279,188 | |||||||||||||
|
Total
liabilities and stockholders’ equity
|
$ | 129,477 | $ | 551,529 | $ | 5,250 | $ | (31,474 | ) | $ | 654,782 | |||||||||
|
Consolidating
Condensed Statements of Cash Flows
|
||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||
|
Year Ended December 31,
2009
|
||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash provided by operating activities
|
$ | 36,592 | $ | 35,742 | $ | (21 | ) | $ | 72,313 | |||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
(2,704 | ) | (36,833 | ) | 0 | (39,537 | ) | |||||||||
|
Acquisition
of shares of Titan Europe Plc
|
0 | 0 | (2,399 | ) | (2,399 | ) | ||||||||||
|
Other, net
|
0 | 1,042 | 0 | 1,042 | ||||||||||||
|
Net cash used for investing
activities
|
(2,704 | ) | (35,791 | ) | (2,399 | ) | (40,894 | ) | ||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Proceeds from
borrowings
|
172,500 | 0 | 0 | 172,500 | ||||||||||||
|
Repurchase
of senior notes
|
(4,726 | ) | 0 | 0 | (4,726 | ) | ||||||||||
|
Payment
on debt
|
(25,000 | ) | 0 | 0 | (25,000 | ) | ||||||||||
|
Proceeds from exercise of stock
options
|
1,142 | 0 | 0 | 1,142 | ||||||||||||
|
Payment of financing
fees
|
(7,107 | ) | 0 | 0 | (7,107 | ) | ||||||||||
|
Other, net
|
(704 | ) | 0 | 0 | (704 | ) | ||||||||||
|
Net cash provided by financing
activities
|
136,105 | 0 | 0 | 136,105 | ||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
169,993 | (49 | ) | (2,420 | ) | 167,524 | ||||||||||
|
Cash
and cash equivalents, beginning of period
|
59,011 | 60 | 2,587 | 61,658 | ||||||||||||
|
Cash
and cash equivalents, end of period
|
$ | 229,004 | $ | 11 | $ | 167 | $ | 229,182 | ||||||||
F-32
TITAN
INTERNATIONAL, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
Consolidating
Condensed Statements of Cash Flows
|
||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||
|
Year Ended December 31,
2008
|
||||||||||||||||
|
Titan
|
Non-
|
|||||||||||||||
|
Intl.,
Inc.
|
Guarantor
|
Guarantor
|
||||||||||||||
|
(Parent)
|
Subsidiaries
|
Subsidiaries
|
Consolidated
|
|||||||||||||
|
Net
cash provided by (used for) operating activities
|
$ | (25,759 | ) | $ | 75,319 | $ | 1,610 | $ | 51,170 | |||||||
|
Cash
flows from investing activities:
|
||||||||||||||||
|
Capital
expenditures
|
(4,534 | ) | (75,419 | ) | 0 | (79,953 | ) | |||||||||
|
Other, net
|
7 | 97 | 0 | 104 | ||||||||||||
|
Net cash used for investing
activities
|
(4,527 | ) | (75,322 | ) | 0 | (79,849 | ) | |||||||||
|
Cash
flows from financing activities:
|
||||||||||||||||
|
Proceeds on revolving credit
facility
|
25,000 | 0 | 0 | 25,000 | ||||||||||||
|
Proceeds from exercise of stock
options
|
3,536 | 0 | 0 | 3,536 | ||||||||||||
|
Excess tax benefit from stock
options exercised
|
4,131 | 0 | 0 | 4,131 | ||||||||||||
|
Other, net
|
(655 | ) | 0 | 0 | (655 | ) | ||||||||||
|
Net cash provided by financing
activities
|
32,012 | 0 | 0 | 32,012 | ||||||||||||
|
Net
increase (decrease) in cash and cash equivalents
|
1,726 | (3 | ) | 1,610 | 3,333 | |||||||||||
|
Cash
and cash equivalents, beginning of year
|
57,285 | 63 | 977 | 58,325 | ||||||||||||
|
Cash
and cash equivalents, end of year
|
$ | 59,011 | $ | 60 | $ | 2,587 | $ | 61,658 | ||||||||
|
Year Ended December 31,
2007
|
||||||||||||||||
|
(Amounts
in thousands)
|
||||||||||||||||
|
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 | ||||||||
F-33
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, 2009
|
||||||||||||||||
|
Reserve
deducted in the balance sheet from the assets to which it
applies
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 6,639,000 | $ | 1,248,000 | $ | (3,929,000 | ) | $ | 3,958,000 | |||||||
|
Year
ended December 31, 2008
|
||||||||||||||||
|
Reserve
deducted in the balance sheet from the assets to which it
applies
|
||||||||||||||||
|
Allowance
for doubtful accounts
|
$ | 5,258,000 | $ | 1,489,000 | $ | (108,000 | ) | $ | 6,639,000 | |||||||
|
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 | |||||||
S-1