-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EFdLRN0Y14QtK1+aHCL1D/seI4eLdRruC9ih2kpVb80HAjNyNPnI0Utc9Ho/liTA MH2dCaNSTBYSsiGW3eLTpw== 0000950124-03-001434.txt : 20030430 0000950124-03-001434.hdr.sgml : 20030430 20030429180723 ACCESSION NUMBER: 0000950124-03-001434 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20030331 FILED AS OF DATE: 20030430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TITAN INTERNATIONAL INC CENTRAL INDEX KEY: 0000899751 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 363228472 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12936 FILM NUMBER: 03670504 BUSINESS ADDRESS: STREET 1: 2701 SPRUCE ST CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172286011 MAIL ADDRESS: STREET 1: 2701 SPRUCE ST CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: TITAN WHEEL INTERNATIONAL INC DATE OF NAME CHANGE: 19930403 10-Q 1 k76509e10vq.txt QUARTERLY REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED: MARCH 31, 2003 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-12936 TITAN INTERNATIONAL, INC. (Exact name of Registrant as specified in its Charter) ILLINOIS 36-3228472 (State of Incorporation) (I.R.S. Employer Identification No.) 2701 SPRUCE STREET, QUINCY, IL 62301 (Address of principal executive offices, including Zip Code) (217) 228-6011 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. SHARES OUTSTANDING AT CLASS APRIL 29, 2003 ----- --------------------- COMMON STOCK, NO PAR VALUE PER SHARE 20,913,442 ================================================================================ TITAN INTERNATIONAL, INC. TABLE OF CONTENTS
Page Number ----------- Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2003 and 2002 1 Consolidated Condensed Balance Sheets as of March 31, 2003, and December 31, 2002 2 Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2003 and 2002 3 Notes to Consolidated Condensed Financial Statements 4-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 21 Item 4. Controls and Procedures 21 Part II. Other Information 22 Signatures & Certification 23 Certification 24-25
PART I. FINANCIAL INFORMATION Item 1. Financial Statements TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (Amounts in thousands, except earnings per share data)
THREE MONTHS ENDED MARCH 31, 2003 2002 ---- ---- Net sales $ 128,984 $ 123,716 Cost of sales 118,589 111,577 --------- --------- Gross profit 10,395 12,139 Selling, general & administrative expenses 11,417 10,298 Research and development expenses 668 786 --------- --------- (Loss) income from operations (1,690) 1,055 Interest expense (4,975) (5,203) Other income 478 328 --------- --------- Loss before income taxes (6,187) (3,820) Benefit for income taxes (309) (955) --------- --------- Net loss $ (5,878) $ (2,865) ========= ========= Loss per share: Basic $ (.28) $ (.14) Diluted $ (.28) $ (.14) Average shares outstanding: Basic 20,789 20,727 Diluted 20,789 20,727
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data)
MARCH 31, DECEMBER 31, 2003 2002 ----------- ----------- ASSETS Current assets Cash and cash equivalents $ 11,472 $ 22,049 Accounts receivable (net allowance of $3,615 and $3,172, respectively) 110,016 82,588 Inventories 114,466 109,142 Deferred income taxes 12,009 12,009 Prepaid and other current assets 30,274 28,781 ----------- ----------- Total current assets 278,237 254,569 Property, plant and equipment, net 181,301 186,540 Restricted cash deposits 26,803 26,803 Other assets 45,721 46,248 Goodwill, net 17,702 17,839 ----------- ----------- Total assets $ 549,764 $ 531,999 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term debt (including current portion of long-term debt) $ 18,660 $ 10,615 Accounts payable 59,154 49,007 Other current liabilities 30,985 24,684 ----------- ----------- Total current liabilities 108,799 84,306 Deferred income taxes 12,009 12,009 Other long-term liabilities 43,150 42,538 Long-term debt 247,789 249,119 ----------- ----------- Total liabilities 411,747 387,972 ----------- ----------- Stockholders' equity Common stock (no par, 60,000,000 shares authorized; 27,555,081 issued) 27 27 Additional paid-in capital 208,566 210,231 Retained earnings 41,723 47,705 Treasury stock (at cost: 6,840,553 and 6,764,199 shares, respectively) (87,354) (88,963) Accumulated other comprehensive loss (24,945) (24,973) ---------- ---------- Total stockholders' equity 138,017 144,027 ----------- ----------- Total liabilities and stockholders' equity $ 549,764 $ 531,999 =========== ===========
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
THREE MONTHS ENDED MARCH 31, 2003 2002 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (5,878) $ (2,865) Adjustments to reconcile net loss to net cash provided by (used for) operating activities: Depreciation and amortization 7,867 8,877 (Increase) decrease in current assets: Accounts receivable (26,835) (20,213) Inventories (5,102) 12,216 Prepaid and other current assets (1,421) 812 Increase (decrease) in current liabilities: Accounts payable 9,692 (3,109) Other current liabilities 6,147 4,305 Other, net 496 (268) -------- -------- Net cash used for operating activities (15,034) (245) -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (1,800) (2,331) Other, net 58 29 -------- -------- Net cash used for investing activities (1,742) (2,302) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 7,299 0 Payment of debt (1,057) (134) Proceeds from revolving loan agreement, net 0 1,500 Decrease in restricted cash deposits 0 886 Repurchase of common stock (244) 0 Dividends paid (104) (104) Other, net 188 177 -------- -------- Net cash provided by financing activities 6,082 2,325 -------- -------- Effect of exchange rate changes on cash 117 (376) Net decrease in cash and cash equivalents (10,577) (598) Cash and cash equivalents at beginning of period 22,049 9,214 -------- -------- Cash and cash equivalents at end of period $ 11,472 $ 8,616 ======== ========
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) A. ACCOUNTING POLICIES In the opinion of Titan International, Inc. ("Titan" or the "Company"), the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of March 31, 2003, the results of operations and cash flows for the three months ended March 31, 2003 and 2002. Accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company's 2002 Annual Report on Form 10-K. These interim financial statements have been prepared pursuant to the Securities and Exchange Commission's rules for Form 10-Q's and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2002 Annual Report on Form 10-K. Details in those notes have not changed significantly, except as a result of normal interim transactions and certain matters discussed hereafter. Stock-based compensation At March 31, 2003, the Company has two stock-based compensation plans, which are described in Note 22 to the Company's financial statements on Form 10-K for the fiscal year ended December 31, 2002. The Company applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for those plans. The Company granted no stock options during the first quarter of 2003 and no stock-based compensation expense was required to be recorded. The total stock-based compensation expense determined under the fair value method for all awards, net of related tax effects, for the first quarter of 2003 is computed to be an immaterial amount. 4 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) B. INVENTORIES Inventories consisted of the following (in thousands):
March 31, December 31, 2003 2002 -------- ----------- Raw materials $ 34,579 $ 32,927 Work-in-process 18,536 18,209 Finished goods 58,451 56,218 -------- -------- 111,566 107,354 LIFO reserve 2,900 1,788 -------- -------- $114,466 $109,142 ======== ========
The LIFO reserve changed primarily as a result of price fluctuations within the composition of LIFO inventory layers. C. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net reflects accumulated depreciation of $226.8 million and $220.7 million at March 31, 2003, and December 31, 2002, respectively. D. GOODWILL Goodwill, net reflects accumulated amortization of $5.6 million at March 31, 2003, and December 31, 2002. Goodwill amortization was ceased in January 2002, pursuant to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142. The carrying amount of goodwill by segment at March 31, 2003 was (i) agricultural of $9.7 million, (ii) earthmoving/construction of $6.3 million, and (iii) consumer of $1.7 million. The decrease in net goodwill to $17.7 million at March 31, 2003, from $17.8 million at December 31, 2002, is the result of currency exchange fluctuations. 5 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) E. WARRANTY COSTS The Company provides limited warranties on workmanship on its products in all market segments. The Company's products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year. The Company calculates a provision for warranty expense based on past warranty experience. Warranty accruals are included as a component of other current liabilities on the Consolidated Condensed Balance Sheets. Changes in the warranty liability consisted of the following (in thousands): Warranty liability, January 1, 2003 $ 1,617 Provision for warranty liabilities for 2003 sales 577 Warranty payments made in 2003 (543) ---------- Warranty liability, March 31, 2003 $ 1,651 ==========
F. INCOME TAXES The Company's effective income tax benefit on the net loss for the first quarter of 2003 was 5%, compared to 25% for the first quarter of 2002. The Company's income tax benefit differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pretax loss primarily as a result of income tax expense to be paid in foreign jurisdictions and the application of a valuation allowance on the domestic net deferred tax asset balance. As a result of several periods of recurring losses, the Company began reserving its net deferred tax asset position at December 31, 2002, consistent with the Company's accounting policies. The Company continues to monitor its income tax position and will review the necessity of the valuation allowance at the end of each reporting period. To the extent it is determined deferred tax assets will be realized in excess of deferred tax liabilities, some or all of the valuation allowance will be recorded as income. 6 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) G. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
March 31, December 31, 2003 2002 ------------ ------------ Senior subordinated notes $ 136,750 $ 136,750 Term loan 95,700 96,525 Revolving loan agreement 0 0 Industrial revenue bonds and other (a) 33,999 26,459 ----------- ----------- 266,449 259,734 Less: Amounts due within one year 18,660 10,615 ----------- ----------- $ 247,789 $ 249,119 =========== ===========
(a) The increase in other debt resulted primarily from an increase in short-term debt of $7.3 million at the Company's foreign subsidiaries. Aggregate maturities of long-term debt at March 31, 2003, were as follows (in thousands): April 1 - December 31, 2003 $ 16,862 2004 13,151 2005 16,375 2006 71,678 2007 137,413 Thereafter 10,970 ----------- $ 266,449 ===========
H. COMPREHENSIVE LOSS Comprehensive loss, which includes net loss of $(5.9) million and no net effects of foreign currency translation adjustments, totaled $(5.9) million for the first quarter of 2003, compared to $(3.9) million in the first quarter of 2002. 7 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) I. SEGMENT INFORMATION The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three months ended March 31, 2003 and 2002 (in thousands):
Revenues Income (loss) from external Intersegment from 2003 customers revenues (a) operations ---- --------------- ------------- ------------ Agricultural $ 78,102 $ 24,946 $ 3,387 Earthmoving/construction 41,044 11,195 1,547 Consumer 9,838 2,754 208 Reconciling items (b) 0 0 (6,832) ---------- ---------- ---------- Consolidated totals $ 128,984 $ 38,895 $ (1,690) ========== ========== ========== 2002 ---- Agricultural $ 75,245 $ 43,025 $ 5,105 Earthmoving/construction 36,934 14,559 1,886 Consumer 11,537 6,387 481 Reconciling items (b) 0 0 (6,417) ---------- ---------- ---------- Consolidated totals $ 123,716 $ 63,971 $ 1,055 ========== ========== ==========
(a) Intersegment revenues have declined due to the closure of certain Company distribution facilities in 2002. (b) Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level. 8 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) I. SEGMENT INFORMATION (CONTINUED)
March 31, December 31, Total assets 2003 2002 ------------ ---------- ----------- Agricultural $ 280,386 $ 258,704 Earthmoving/construction 151,429 138,811 Consumer 32,332 37,199 Reconciling items (a) 85,617 97,285 ---------- ---------- Consolidated totals $ 549,764 $ 531,999 ========== ==========
(a) Represents property, plant and equipment and goodwill related to certain acquisitions and other corporate assets. J. LEASE COMMITMENTS The Company leases certain buildings and equipment under operating leases, including a lease for the building in Brownsville, Texas. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company. At March 31, 2003, future minimum commitments under noncancellable operating leases with initial or remaining terms of one year were as follows (in thousands): April 1 - December 31, 2003 $ 4,218 2004 3,214 2005 1,022 2006 774 2007 648 Thereafter 149 ----------- $ 10,025 ===========
9 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) K. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards Number 146 In June 2002, Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Exit or Disposal Costs," was issued. This statement requires companies to recognize certain liabilities and costs associated with exit or disposal activities when incurred rather than when management commits to an exit plan. Adoption of this standard was required for any exit or disposal activities initiated subsequent to December 31, 2002. SFAS No. 146 was adopted in the first quarter of 2003 with no material effect on the Company's financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 45 In November 2002, Financial Accounting Standards Board Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued. FIN No. 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN No. 45 is effective for guarantees issued or modified starting January 1, 2003. The additional disclosures required by FIN No. 45 are required for periods ending December 31, 2002, and after. The Company has provided additional disclosure with respect to warranties in accordance with FIN No. 45. The Company does not expect the adoption of this interpretation to have a material effect on its financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 46 In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities," was issued. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the activities of the variable interest entity or is entitled to receive a majority of the entity's residual returns. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. For older entities, the requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 1, 2003. The Company does not expect the adoption of this interpretation to have a material effect on its financial position, cash flows or results of operations. 10 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES Preparation of the financial statements and related disclosures in compliance with generally accepted accounting principles 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 judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial results. Revenue Recognition The Company records sales revenue and cost of sales when products are shipped to customers and both title and the risks and rewards of ownership are transferred. Provisions are established for sales returns and uncollectible accounts based on historical experience. Should these experience trends change, adjustments to the estimated provisions would be necessary. Product Costing Inventories are valued at the lower of cost or market. For operations in the United States, cost is determined using the last-in, first-out (LIFO) method for approximately 41% of inventories and the first-in, first-out (FIFO) method for the remainder of inventories. Inventory of foreign subsidiaries is valued using the FIFO method. Market is estimated based on current selling prices. Estimated provisions are established for excess and obsolete inventory, as well as inventory carried above market price, based on historical experience. Should this experience change, adjustments to the estimated provisions would be necessary. Impairment of 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 fair value of the asset. Significant assumptions relating to future operations must be made when estimating future cash flows. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur. 11 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES (CONTINUED) Valuation of Investments Accounted for Under the Equity Method The Company assesses the carrying value of its equity investments whenever events and circumstances indicate that the carrying value may not be recoverable. Investment write-downs, if necessary, are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. Any such write-downs are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the fair value of the asset. Significant assumptions relating to future investment results must be made when estimating the future cash flows associated with these investments. Should unforeseen events occur or should investment trends change significantly, impairment losses could occur. Impairment of Goodwill The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur. Retirement Benefit Obligations Pension benefit obligations are based on various assumptions used by the Company's 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. For more information concerning these costs and obligations, see the additional discussion of the "Pensions" and Note 21 to the Company's financial statements on Form 10-K for the fiscal year ended December 31, 2002. 12 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Sales Net sales for the quarter ended March 31, 2003, were $129.0 million, compared to 2002 first quarter net sales of $123.7 million. The increase was attributed to the Company's foreign subsidiaries, which recorded a $7.7 million increase in net sales. The majority of the increase in sales at the foreign subsidiaries was primarily due to a favorable currency exchange rate. Cost of Sales Cost of sales was $118.6 million for the first quarter of 2003, compared to $111.6 million in 2002. Gross profit for the first quarter of 2003 was $10.4 million or 8.1% of net sales, compared to $12.1 million or 9.8% of net sales for the first quarter of 2002. Gross profit, as a percentage of net sales, was negatively impacted by increases of approximately $4.3 million in higher raw material prices, increased employee benefits, and insurance costs. The Company's profit margins continue to be affected by the excess capacity at the idle Natchez, Mississippi, facility. Depreciation on the fixed assets at this facility and minimal operating costs continue to be incurred. A third party appraisal indicates the fair value of the fixed assets of this facility is in excess of the carrying value of $19.3 million. The Company continually assesses its capacity requirements and makes necessary changes as dictated by customer demand. Administrative Expenses Selling, general and administrative (SG&A) and research and development (R&D) expenses for the first quarter of 2003 were $12.1 million or 9.4% of net sales, compared to $11.1 million or 9.0% of net sales for 2002. The Company had increased SG&A and R&D costs of approximately $1.1 million in the areas of employee benefits, professional fees, and insurances. Operating Results and Other Loss from operations for the first quarter of 2003 was $(1.7) million or (1.3)% of net sales, compared to income from operations of $1.1 million or 0.9% in 2002. Operating results were primarily impacted by the increased costs as previously discussed in the "Cost of Sales" and "Administrative Expenses" sections. Net interest expense was $5.0 million for the first quarter of 2003, compared to $5.2 million in 2002. The decreased interest expense for the first quarter of 2003 was primarily due to an average interest rate that was approximately one-half percent lower as compared to the first quarter of 2002. 13 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) The Company's effective income tax benefit on the net loss for the first quarter of 2003 was 5%, compared to 25% for the first quarter of 2002. The Company's income tax benefit differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pretax loss primarily as a result of income tax expense to be paid in foreign jurisdictions and the application of a valuation allowance on the domestic net deferred tax asset balance. As a result of several periods of recurring losses, the Company began reserving its net deferred tax asset position at December 31, 2002, consistent with the Company's accounting policies. The Company continues to monitor its income tax position and will review the necessity of the valuation allowance at the end of each reporting period. To the extent it is determined deferred tax assets will be realized in excess of deferred tax liabilities, some or all of the valuation allowance will be recorded as income. Net Loss Net loss for the first quarter of 2003 was $(5.9) million compared to $(2.9) million in 2002. Basic and diluted loss per share was $(.28) for the first quarter of 2003 compared to $(.14) in 2002. Net loss and loss per share increased primarily due to increased raw material prices, employee benefits, professional fees, and insurance costs as previously discussed. Agricultural Segment Results Net sales in the agricultural market were $78.1 million for the first quarter of 2003 as compared to $75.2 million in 2002. Agricultural market net sales increased primarily as a result of currency exchange fluctuations. Income from operations in the agricultural market was $3.4 million for the first quarter of 2003 as compared to $5.1 million for the first quarter of 2002. The decrease in income from operations in the agricultural market was primarily attributed to increased raw material prices, employee benefits, professional fees, and insurance costs as previously discussed. Earthmoving/Construction Segment Results The Company's earthmoving/construction market net sales were $41.0 million for the first quarter of 2003 as compared to $36.9 million for the first quarter of 2002. Currency exchange fluctuations accounted for a large part of this sales increase, and sales to new customers also contributed. Income from operations in the earthmoving/construction market was $1.5 million for the first quarter of 2003 versus $1.9 million in 2002. The decrease in income from operations in the earthmoving/construction market was primarily due to increased raw material prices, employee benefits, professional fees, and insurance costs as previously discussed. 14 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Consumer Segment Results Consumer market net sales were $9.8 million for the first quarter of 2003 as compared to $11.5 million for the first quarter of 2002. Consumer market sales decreased primarily as a result of lower sales to boat trailer manufacturers. Consumer market income from operations was $0.2 million for the first quarter of 2003 as compared to $0.5 million for 2002. The decrease in income from operations in the consumer market was primarily attributed to the lower sales levels and increased costs as previously discussed. Corporate Expenses Income from operations on a segment basis does not include corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $6.8 million for the first quarter of 2003 as compared to $6.4 million for the first quarter of 2002. Foreign Subsidiaries Sales Net sales at foreign subsidiaries for the quarter ended March 31, 2003, were $35.7 million, compared to 2002 first quarter sales of $28.0 million. The increase in sales at foreign subsidiaries of $7.7 million was primarily due to a favorable currency exchange rate of approximately $5.9 million. In addition, the foreign subsidiaries have been successful in obtaining new customer sales. MARKET RISK SENSITIVE INSTRUMENTS The Company's risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2002. LIQUIDITY AND CAPITAL RESOURCES Cash Flows As of March 31, 2003, the Company had $11.5 million of unrestricted cash deposited within various bank accounts. The unrestricted cash balance decreased by $10.6 million from December 31, 2002, due to the cash flow items discussed in the following paragraphs. 15 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) In the first quarter of 2003, negative cash flows from operating activities of $15.0 million resulted primarily from a $26.8 million increase in accounts receivable and a net loss of $5.9 million, offset by accounts payable increases of $9.7 million and depreciation and amortization of $7.9 million. The increase in receivables is primarily due to a seasonal increase in sales volume in the first quarter of 2003 when compared to the fourth quarter of 2002. The increase in accounts payable results from this same seasonal increase. The Company invested $1.8 million in capital expenditures in the first quarter of 2003. The expenditures represent various equipment purchases and building improvements to enhance production capabilities. The Company estimates that its total capital expenditures for 2003 could range between $10 million and $15 million. In the three months ended March 31, 2003, positive cash flows from financing activities of $6.1 million resulted primarily from an increase of $6.2 million in total debt. Debt Funding The Company's term loan and revolving loan agreements contain various covenants and restrictions. The financial covenants in these loan agreements require that the (i) Company's adjusted minimum tangible net worth be equal to or greater than $150 million, (ii) value of equipment, accounts receivable, and inventory be equal to or greater than three times the outstanding principal balance of the term loan, and (iii) value of accounts receivable and inventory be equal to or greater than $100 million. Restrictions include (i) limits on payments of dividends and repurchases of the Company's stock, (ii) restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company, and (iii) limitations on investments, dispositions of assets and guarantees of indebtedness. 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. If the Company were unable to meet these covenants, the Company would be in default on these loan agreements. The Company is in compliance with these covenants and restrictions as of March 31, 2003. The Company's adjusted minimum tangible net worth is required to be equal to or greater than $150 million and the Company computed it to be $170.4 million at March 31, 2003. The value of the equipment, accounts receivable and inventory are required to be equal to or greater than 3.00 times the outstanding principal balance of the term loan and is calculated to be 4.45 times this balance at March 31, 2003. The value of the accounts receivable and inventory must be equal to or greater than $100 million and is computed to be $224.5 million at March 31, 2003. 16 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) Other Issues The Company's business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances. There have been no significant changes in interest rates, debt borrowings, or related covenants during the first three months of 2003. The Company had restricted cash of $26.8 million at March 31, 2003. Restricted cash of $15.0 million is held as collateral on the revolving loan agreement, under which the Company had no borrowings outstanding at March 31, 2003. The remaining $11.8 million is collateral on outstanding letters of credit for an industrial revenue bond of $9.6 million and another letter of credit for $2.2 million. Liquidity Outlook At March 31, 2003, the Company had unrestricted cash and cash equivalents of $11.5 million and no amounts had been drawn on the $20 million revolving loan agreement. Due to losses sustained by the Company, loss carryback tax returns were filed to obtain domestic tax refunds. In April of 2003, the Company received domestic tax refunds totaling $7.7 million. Increased raw material prices, employee benefits, professional fees, and insurance costs are having a negative impact on the profitability and the financial ratios of the Company. Economic uncertainty makes it difficult to determine precisely when the Company will see significant sales increases and lower operating costs. Because of changes in the equity markets, interest rates and actuarial fluctuations, the Company may be required to fund the Company's pension plans in amounts estimated to be approximately $6 million in the year 2003. Cash on hand, including tax refunds received in April 2003, 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 payments required on short-term debt for the near term. However, if the Company were to exhaust all currently available working capital sources or were not to meet the financial covenants and conditions of its loan agreements, the Company might find it extremely difficult to secure additional funding in order to meet working capital requirements. 17 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK Economic uncertainty makes it difficult to determine precisely when the Company will see significant sales increases and lower operating costs. If current economic conditions and higher operating costs persist, these issues will continue to have a negative impact on the Company's margins. To combat these obstacles, the Company continues to seek opportunities to lower costs and pursue new channels for increasing sales. The Company is working with equipment dealers to offer Titan wheels and tires directly through their dealerships. Also, Titan is cultivating relationships with many smaller companies that can benefit from the Company's engineering expertise and commitment to the off-highway sector. Titan is attempting to institute price increases to help offset higher operating costs for raw materials, employee benefits, professional fees, and insurance. These planned price increases and further efficiencies should result in improved margins for our products. These measures will help Titan withstand the economic pressure expected to persist throughout 2003 in the Company's three market segments: agricultural, earthmoving/construction, and consumer. Agricultural Segment Agricultural market sales are expected to remain stable for the rest of 2003. The expected upturn in the agricultural market is being hampered by economic uncertainties and concerns about dry weather. Signups for assistance under the new Farm Bill have been slow and, therefore, payments have been delayed. Many variables, including weather, export markets, and future government policies and payments can greatly influence the overall health of the agricultural economy. Earthmoving/Construction Segment A number of negative pressures continue to impact in the earthmoving/construction segment. Housing construction has remained resilient through the economic downturn, but is expected to incur a minor slowdown in 2003. Capital investment at private companies is still depressed. Governmental entities continue to curtail construction spending as they work to balance their budgets. Despite these negative pressures, recent sales figures in the earthmoving/construction segment indicate that the market may be bottoming out. Construction machinery sales increased in the first quarter of 2003 after more than a year of declines. Therefore, the Company believes that sales in the earthmoving/construction segment may be stable to slightly higher for the rest of 2003. Consumer Segment Sales in the consumer market are expected to be lower for the remainder of 2003. The all-terrain vehicle (ATV) tire aftermarket is expected to continue to offer future growth opportunities. Many items affect the consumer market including weather, competitive pricing, energy prices, and consumer attitude, which remains cautious. 18 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards Number 146 In June 2002, Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Exit or Disposal Costs," was issued. This statement requires companies to recognize certain liabilities and costs associated with exit or disposal activities when incurred rather than when management commits to an exit plan. Adoption of this standard was required for any exit or disposal activities initiated subsequent to December 31, 2002. SFAS No. 146 was adopted in the first quarter of 2003 with no material effect on the Company's financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 45 In November 2002, Financial Accounting Standards Board Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued. FIN No. 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN No. 45 is effective for guarantees issued or modified starting January 1, 2003. The additional disclosures required by FIN No. 45 are required for periods ending December 31, 2002, and after. The Company has provided additional disclosure with respect to warranties in accordance with FIN No. 45. The Company does not expect the adoption of this interpretation to have a material effect on its financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 46 In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities," was issued. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the activities of the variable interest entity or is entitled to receive a majority of the entity's residual returns. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. For older entities, the requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 1, 2003. The Company does not expect the adoption of this interpretation to have a material effect on its financial position, cash flows or results of operations. 19 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PENSIONS The Company has three defined benefit pension plans. These plans are described in Note 21 of the Company's Notes to Consolidated Financial Statements in the 2002 Form 10-K. The Company's recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates and other factors. Certain of these assumptions are determined 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. Because of changes in the equity markets, interest rates and actuarial fluctuations, the Company may be required to fund the Company's pension plans in amounts estimated to be approximately $6 million in the year 2003. SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q contains forward-looking statements, including statements regarding, among other items, (i) anticipated trends in the Company's business, (ii) future expenditures for capital projects, (iii) the Company's ability to continue to control costs and maintain quality, (iv) meeting financial covenants and conditions of loan agreements, (v) the Company's business strategies, including its intention to introduce new products, (vi) expectations concerning the performance and commercial success of the Company's existing and new products and (vii) the Company's intention to consider and pursue acquisitions. Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company's expectations and are subject to a number of risks and uncertainties, 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, (i) changes in the Company's end-user markets as a result of world economic or regulatory influences, (ii) changes in the competitive marketplace, including new products and pricing changes by the Company's competitors, (iii) availability and price of raw materials, (iv) levels of operating efficiencies, (v) actions of domestic and foreign governments, (vi) results of investments, and (vii) ability to secure financing at reasonable terms. Any changes in such factors could lead to significantly different results. 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. 20 TITAN INTERNATIONAL, INC. PART I. FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Company's 2002 Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information. ITEM 4. CONTROLS AND PROCEDURES The Company's principal executive officer and principal financial officer believe the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) are effective based on their most recent evaluation, which was completed within 90 days of the filing of this Form 10-Q. There were no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 21 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION ITEMS 1 THROUGH 4 ARE NOT APPLICABLE. ITEM 5. OTHER INFORMATION In a press release dated April 25, 2003, the Company stated it received notification from the New York Stock Exchange (NYSE) that its common stock had fallen below the NYSE's continued listing criteria relating to minimum share price. The NYSE requires that a company's common stock trade at a minimum average share price of $1.00 over a 30-day trading period. Under NYSE guidelines, Titan must return to compliance with the continued listing criteria within six months following receipt of the NYSE's notification, subject to certain NYSE conditions. Should Titan's shares cease being traded on the NYSE, the Company believes that an alternative trading venue will be available. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K The Company did not file any reports on Form 8-K during the quarter ended March 31, 2003. 22 TITAN INTERNATIONAL, INC. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TITAN INTERNATIONAL, INC. (REGISTRANT) DATE: April 29, 2003 BY: /s/ Maurice M. Taylor Jr. ---------------------- -------------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer BY: /s/ Kent W. Hackamack -------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) CERTIFICATION Each of the undersigned hereby certifies that, to the best of their knowledge, this report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. TITAN INTERNATIONAL, INC. (REGISTRANT) DATE: April 29, 2003 BY: /s/ Maurice M. Taylor Jr. ------------------ -------------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer BY: /s/ Kent W. Hackamack -------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 23 TITAN INTERNATIONAL, INC. CERTIFICATION I, Maurice M. Taylor Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATE: April 29, 2003 BY: /s/ Maurice M. Taylor Jr. ------------------------ --------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer 24 TITAN INTERNATIONAL, INC. CERTIFICATION I, Kent W. Hackamack, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report. 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and d) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. DATE: April 29, 2003 BY: /s/ Kent W. Hackamack ------------------- ----------------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 25 -----END PRIVACY-ENHANCED MESSAGE-----