Fourth quarter highlights:
- Sales for fourth quarter 2013 were $494.4 million compared to $493.6 million in the fourth quarter of 2012.
- Gross profit for the fourth quarter 2013 was $49.3 million, or 10.0% of net sales, compared to $51.5 million in fourth quarter 2012, or 10.4% of net sales.
- Fourth quarter income from operations was $0.6 million compared to $(1.1) million last year.
- Earnings per share for the fourth quarter 2013 are $(0.29) and $(0.29) for basic and fully diluted, respectively, compared to $0.17 and $0.16 for 2012, basic and fully diluted, respectively. Adjusted earnings per share for the fourth quarter 2013 are $(0.03) and $(0.03) for basic and fully diluted, respectively, compared to $0.09 and $0.09 for 2012, basic and fully diluted, respectively.
Full year summary:
- Sales for the full year 2013 were $2,163.6 million up 18.8%, compared to $1,820.7 million in 2012.
- Gross profit was $295.2 million, or 13.6% of net sales for the year ending December 31, 2013 compared to $294.1 million, or 16.2% at December 31, 2012.
- Income from operations was $102.4 million, or 4.7% of net sales for fiscal year 2013 compared to $174.7 million, or 9.6% of net sales for 2012.
- Earnings per share for the full year 2013 are $0.66 and $0.64 for basic and fully diluted, respectively, compared to $2.47 and $2.05 for 2012, basic and fully diluted, respectively. Adjusted earnings per share for the full year 2013 are $0.82 and $0.78 for basic and fully diluted, respectively, compared to $2.33 and $1.93 for 2012, basic and fully diluted, respectively.
Statement of Chief Executive Officer:
Maurice Taylor, CEO and Chairman comments, "We entered 2013 very hopeful but were challenged by the market conditions and internal missteps. The union negotiations at our three tire plants were not completed until the end of first quarter which we had hopes of finalizing in 2012. The wheel and tire farm business was strong in 2013 but due to the building of farm tire inventory at the OE level in 2012, there was a significant amount of destocking that occurred in 2013. Similar conditions were experienced in the construction market as this sector showed minimal signs of recovery in 2013 yet forecast were too optimistic resulting in an inventory surplus. Due to falling rubber prices, the business experienced a material financial hit in 2013 as price reductions had to be passed on to our customers and margins were therefore sacrificed. The mining business was also hit hard in 2013. The tire inventory levels at the mines were higher than expected. Tires are being replaced at a 30% discount given the lower rubber prices, therefore companies are reducing inventory to the lowest levels to replace with cheaper tires.
"I believe my 2014 goals that were released in December of 2013 are still reasonable. Revenue is set for $2.4 to $2.7 billion and EBITDA expectations are $240-$270 million. The overall farm economy will remain strong and the construction sector will begin to rebound but the mining business will remain challenged at least through the first half of 2014. ITM, Titan's steel undercarriage frame manufacturer, expects an improvement in the business this year compared to 2013 and I am confident in her forecast.
"Titan has worked hard to grow the business and invested capital towards maximizing our potential. We remain optimistic we can streamline the enterprise and improve our performance going forward. We have added to our Board of Directors and executive management in recent months. We look forward to the younger management setting a new pace for Titan. These younger guns will have the opportunity to run more of the business."
Sales: Titan recorded sales of $494.4 million for the fourth quarter of 2013, compared to fourth quarter 2012 sales of $493.6 million. For the year, net sales for 2013 were $2,163.6 million, compared to $1,820.7 million in 2012, an increase of 18.8%. Year to date sales increased approximately 30% due to recent acquisitions of which $484.3 million is attributed to revenue from Titan Europe. The increase in net sales was partially offset by a price/mix reduction which resulted largely from decreased raw material prices that were passed on to customers and decreased sales approximately 9% and unfavorable currency translation which decreased sales by approximately 2%.
Gross profit: Gross profit for the fourth quarter of 2013 was $49.3 million, or 10.0% of net sales, compared to $51.5 million, or 10.4% of net sales for the fourth quarter of 2012. Gross profit for the year ended December 31, 2013, was $295.2 million, or 13.6% of net sales, compared to $294.1 million, or 16.2% of net sales in 2012. Gross profit, as a%age of net sales, decreased as a result of the Titan Europe acquisition and lower raw material costs that were passed on to customers before being fully realized by the Company. Increased warranty provisions relating to earthmoving tires also contributed to the decreased gross profit. Titan Europe provided gross profit of $65.3 million, or 11.4% of net sales. Titan Europe margins were negatively affected by decreased earthmoving/construction demand in Europe.
Warranty Expense: The provision for warranty liability was $43.3 million at December 31, 2013 or 2.0% of sales compared to $33.7 million at December 31, 2012 or 1.9% of sales.
Selling, general and administrative expenses: Selling, general and administrative (SG&A) expenses for the fourth quarter of 2013 were $42.5 million, or 8.6% of net sales, compared to $46.4 million, or 9.4% of net sales, for 2012. SG&A expenses for the twelve months ended December 31, 2013 were $167.4 million, or 7.7% of net sales, compared to $126.2 million, or 6.9% of net sales, for 2012. The increase in SG&A expenses year to date were primarily the result of higher SG&A expenses at recently acquired facilities.
Income from operations: Income from operations for the fourth quarter of 2013, was $0.6 million, or 0.1% of net sales, compared to $(1.1) million, or (0.2)% of net sales, in 2012. Income from operations for the twelve months ended December 31, 2013, was $102.4 million, or 4.7% of net sales, compared to $174.7 million, or 9.6% of net sales, in 2012.
Interest expense: Interest expense was $11.2 million and $9.0 million for the quarters ended December 31, 2013, and 2012, respectively. Full year interest expense was $47.1 million and $27.7 million for the twelve months ended December 31, 2013, and 2012, respectively. The increase in interest expense is primarily the result of approximately $9 million of interest for the additional 7.875% senior secured notes issued first quarter 2013 and approximately $6 million of interest for the 6.875% senior secured notes issued in the fourth quarter of 2013.
Non-cash convertible debt charge: In the first quarter 2013, Titan agreed to convert approximately $52.7 million of the 5.625% convertible notes into approximately 4.9 million shares of the Company's common stock plus a cash payment totaling $14.2 million. In connection with this exchange, the Company recognized a charge of $7.3 million in accordance with accounting standards for debt conversion.
Loss on note repurchase: In the fourth quarter of 2013, Titan satisfied and discharged the indenture relating to the 7.875% senior secured notes due October 2017 by completing a tender offer settlement and redemption, the Company recorded expenses of approximately $22.7 million representing the early tender premium, unamortized deferred financing and other fees.
Gain on Earthquake Insurance Recovery: Titan Europe's wheel manufacturing facility in Finale Emilia, Italy experienced damage from the May 2012 earthquake. The plant was closed for production during initial remedial work. In the second quarter of 2013, Titan received a final insurance settlement payment of $38.7 million, which offset the earthquake insurance receivable and resulted in a gain of $22.5 million.
Gain on acquisition: In the second quarter of 2013, Titan received a final insurance settlement payment for the above mentioned earthquake. As a result of this payment, the purchase price allocation of the Titan Europe acquisition has changed from that reported in the Form 10-K for the year ended December 31, 2012, and the 10-Q for the quarter ended March 31, 3013, and Titan has recorded a bargain purchase gain of $11.7 million for the year ended December 31, 2012.
Capital expenditures: Titan's capital expenditures were $25.2 million for the fourth quarter of 2013 and $29.4 million for the fourth quarter 2012. Year-to-date expenditures were $80.1 million for 2013 compared to $65.7 million for 2012.
Deferred Tax Asset Valuation Allowance: During the quarter ended June 30, 2013, Titan recognized a non-cash charge of $11.7 million to establish a valuation allowance on the Italy net deferred tax assets. This valuation allowance was needed due to the reassessment of the realizability of the deferred tax asset as a result of the insurance proceeds from the earthquake becoming non-taxable resulting from the Italian tax law changes. Adjusted net income (See appendix below) for the nine months ended 2013 includes the non-cash income tax charge as a result of a change in a deferred tax asset valuation allowance.
Debt balance: Total long term debt balance was $497.7 million at December 31, 2013 compared to $441.4 million on December 31, 2012. Titan issued an additional $325 million in 7.875% senior secured notes in the first quarter of 2013. Short-term debt balance was $75.1 million at December 31, 2013 and $145.8 million at December 31, 2012. Net debt (debt less cash and investments) was $294.1 million at December, 2013, compared to $252.3 million at December 31, 2012.
On October 7, 2013, the Company closed on an offering of $400.0 million 6.875% senior secured notes due 2020. Titan used the net proceeds from the offering towards financing the repurchase of the Company's 7.875% senior secured notes due 2017 including tender and consent payments, accrued interest and expenses associated therewith.
In the fourth quarter of 2013, Titan satisfied and discharged the indenture relating to the 7.875% senior secured notes due October 2017 (senior secured notes due 2017) by completing a tender offer settlement and redemption of all of its outstanding $525 million principal amount of the notes, including $325 million issued in 2013. In connection with this tender offer and redemption, the Company recorded expenses of $22.7 million.
Equity balance: The Company's equity was $798.0 million at December 31, 2013 compared to $632.4 million at December 31, 2012.
Purchase of Voltyre-Prom: On October 4, 2013, Titan in partnership with One Equity Partners and the Russian Direct Investment Fund closed the acquisition of an 85% interest in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, for approximately $94.1 million. Titan will act as operating partner with responsibility for Voltyre-Prom's daily operations on behalf of the consortium of which Titan holds a 30% interest. The fair value of the consideration transferred and noncontrolling interests exceeded the fair value of the identified assets acquired less liabilities assumed. Therefore, goodwill of $21.0 million was recorded on the transaction, which is not expected to be deductible for tax purposes. An initial noncontrolling interest of $14.5 million, representing the 15% not owned by the partnership, was recorded at the acquisition date. In January 2014, the partnership of Titan, OEP, and RDIF purchased an additional 14% to bring total Voltyre-Prom ownership to 99%. The Company continues to evaluate the preliminary purchase price allocation, primarily the value of certain deferred taxes and goodwill, and may revise the purchase price allocation in future periods as these estimates are finalized.
Company description: Titan International Inc. (TWI), a holding Company, owns subsidiaries that supply wheels, tires, assemblies and undercarriage product for off-highway equipment used in agricultural, earthmoving/construction and consumer (including all terrain vehicles) applications. nick