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| EX-99.1 - PRESS RELEASE DATED DECEMBER 14, 2009 - TITAN INTERNATIONAL INC | ex991.htm |
| 8-K - TITAN INTERNATIONAL, INC. FORM 8-K DECEMBER 14, 2009 - TITAN INTERNATIONAL INC | form8k.htm |
Exhibit 99.2
RISK
FACTORS
Any of
the following risks and the risks described in our Annual Report on Form 10-K
for the year ended December 31, 2008, and additional risks and uncertainties not
currently known to us or those we currently view to be immaterial, may also
materially and adversely affect our business, financial condition or results of
operations.
The
worldwide 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 our customers. The resulting decrease in
our sales has adversely affected our 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 materially adversely affect
our results of operations.
Our
revolving credit facility contains, and future debt obligations likely will
contain, covenants.
Our
revolving credit facility contains various covenants and restrictions including
a fixed charge coverage ratio and minimum collateral coverage. In
connection with this offering, we have agreed to add an additional mutually
agreeable covenant to our current revolving credit facility. Any future
debt financing could also contain covenants. These covenants and
restrictions could limit our 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 covenants
could result in the Company ultimately being in default. Our ability
to comply with the covenants may be affected by events beyond our control,
including prevailing economic, financial and industry conditions.
We
operate in cyclical industries and, accordingly, our business is subject to the
numerous and continuing changes in the economy.
Our sales
are substantially dependent on three major industries, the agricultural
equipment industry, the earthmoving/construction equipment industry (including
military) and the consumer products industry (including trailers and
ATVs). The business activity levels in these industries are subject
to specific industry and general economic cycles. Accordingly, any
downturn in these industries or general economy could materially adversely
affect our 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.
Our
customer base is relatively concentrated.
Our ten
largest customers, which are primarily original equipment manufacturers
(“OEMs”), accounted for approximately 51% and 47% of our net sales for 2008 and
2007, respectively. Net sales to Deere & Company represented 22% and 17% of
our total net sales for 2008 and 2007, respectively. Net sales to CNH Global
N.V. represented 12% and 11% of our total net sales for 2008 and
2007, respectively. No other customer accounted for more than 10% of our net
sales in 2008 and 2007. As a result, our business could be adversely affected if
one of our larger customers reduces its purchases from us 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 us. Although we have had long-term relationships with
our major customers and expect that we will be able to continue these
relationships, there can be no assurance that we will be able to maintain such
relationships on terms favorable to us or at all. Any failure to maintain our
relationship with a leading customer could have an adverse effect on our results
of operations.
1
We
face substantial competition from international and domestic
companies.
We
compete with several international and domestic competitors, some of which are
larger and have greater financial and marketing resources than us. We compete
primarily on the basis of price, quality, customer service, design capability
and delivery time. Our ability to compete with international competitors may be
adversely affected by currency fluctuations. In addition, certain of our OEM
customers could, under certain circumstances, elect to manufacture certain of
our products to meet their own requirements or to otherwise compete with us.
There can be no assurance that our businesses will not be adversely affected by
increased competition in the markets in which we operate or that our competitors
will not develop products that are more effective or less expensive than our
products or which could render certain of our products less competitive. From
time to time certain of our competitors have reduced their prices in particular
product categories, which has caused us to reduce our prices. There can be no
assurance that in the future our competitors will not further reduce prices or
that any such reductions would not have a material adverse effect on our
business.
Acquisitions
and joint ventures may require significant resources and/or result in
significant unanticipated losses, costs or liabilities.
In the
last several years we closed two significant acquisitions. In the
future we may seek to grow by making acquisitions or entering into joint
ventures or similar arrangements. Any future acquisitions will depend
on our ability to identify suitable acquisition candidates, to negotiate
acceptable terms for their acquisition and to finance those
acquisitions. We will also face competition for suitable acquisition
candidates that may increase our costs. In addition, acquisitions
(including our two recent acquisitions) require significant managerial
attention, which may be diverted from our other
operations. Furthermore, acquisitions of businesses or facilities
entail a number of additional risks, including:
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problems
with effective integration of
operations;
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the
inability to maintain key pre-acquisition customer, supplier and employee
relationships;
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the
potential that expected benefits or synergies are not realized and
operating costs increase; and
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exposure
to unanticipated liabilities.
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Many of
these risks would be accentuated if we acquire businesses overseas because the
operations, employees and customers would largely be located outside of the
United States and our acquisition strategy has historically focused only 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 a 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 our indebtedness, we may finance future acquisitions with cash
from operations, additional indebtedness and/or by issuing additional equity
securities. These commitments may impair the operation of our
businesses. In addition, we could face financial risks associated
with incurring additional indebtedness such as reducing our liquidity and access
to financing markets and increasing the amount of cash flow required to service
such indebtedness.
2
Our
business could be negatively impacted if Titan fails to maintain satisfactory
labor relations.
At
December 31, 2008, approximately 49% of our employees in the United States were
covered by two collective bargaining agreements. Upon the expiration of any of
our collective bargaining agreements, however, we may be unable to negotiate new
collective bargaining agreements on terms favorable to us, and our business
operations may be affected as a result of labor disputes or difficulties and
delays in the process of renegotiating our collective bargaining agreements. In
1998, the employees in our Des Moines, Iowa and Natchez, Mississippi facilities
went on strike for 40 and 39 months, respectively. Our labor agreements expire
in November 2010. We cannot assure you that there will not be any other labor
disruptions or strikes at our facilities that adversely affect our
business.
We
have incurred, and may incur in the future, net losses.
Although
we generated net income in 2008, we have incurred significant net losses
previously. Reported net losses were $7.2 million, $36.7 million, $35.9 million,
and $34.8 million for the years ended December 31, 2007, 2003, 2002 and 2001,
respectively.
We
are exposed to price fluctuations of key commodities.
We do not
generally enter into long-term commodity contracts and do not use derivative
commodity instruments to hedge our exposures to commodity market price
fluctuations. Therefore, we are exposed to price fluctuations of our key
commodities, which consist primarily of steel and rubber. Although we attempt to
pass on certain material price increases to our customers, there is no assurance
that we will be able to do so in the future. Any increase in the
price of steel and rubber that is not passed on to our customers could have an
adverse material effect on our results of operations.
We
rely on a limited number of suppliers.
We
currently rely on a limited number of suppliers for certain key commodities,
which consist primarily of steel and rubber, in the manufacturing of our
products. The loss of our key suppliers or their inability to meet our price,
quality, quantity and delivery requirements could have a significant adverse
impact on our results of operations.
We
may be subject to claims for damages for defective products, which could
adversely affect our results of operations.
We
warrant our 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 our
products, which could subject us to claims for damages, including consequential
damages. We cannot assure you that any insurance we maintain will be adequate
for liabilities actually incurred or that adequate insurance will be available
on terms acceptable to us. Any claims relating to defective products that result
in liability exceeding our insurance coverage could have an adverse effect on
our financial condition and results of operations. Further, claims of defects
could result in negative publicity against us, which could adversely affect our
business.
We
are subject to risks associated with non-compliance with environmental
regulations.
Our
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. Our operations entail risks in these areas, and there can
be no assurance that we 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.
3
Our
revenues are seasonal due to Titan’s dependence on agricultural, construction
and recreational industries, which are seasonal.
The
agricultural, construction and recreational industries are seasonal, with
typically lower sales during our second half of the year. This seasonality in
demand has resulted in fluctuations in our revenues and operating results.
Because much of our overhead expenses are fixed, seasonal trends can cause
reductions in our quarterly profit margins and financial condition, especially
during our slower periods.
We
have export sales and purchase raw material from foreign suppliers.
The
Company had total aggregate export sales of approximately $128.8 million, $77.0
million and $57.4 million, for the years ended December 31, 2008, 2007 and 2006,
respectively.
Exports
to foreign markets are subject to a number of special risks, including but not
limited to risks with respect to currency exchange rates, economic and political
destabilization, other disruption of markets and restrictive actions by foreign
governments (such as restrictions on transfer of funds, export duties and quotas
and foreign customs). Other risks include changes in foreign laws
regarding trade and investment, difficulties in obtaining distribution and
support, nationalization, reforms of laws and policies of the United States
affecting trade, foreign investment and loans and foreign tax
laws. There can be no assurance that one, or a combination of these
factors will not have a material adverse effect on the Company’s ability to
increase or maintain its export sales.
The
Company purchases a portion of its raw materials from foreign
suppliers. The production costs, profit margins and competitive
position of the Company are affected by the strength of the currencies in
countries where Titan purchases goods, relative to the strength of the
currencies in countries where the products are sold. The Company’s
results of operations, cash flows and financial position may be affected by
fluctuations in foreign currencies.
We
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 relating to
the agricultural industry include those encouraging farm acreage reduction in
the United States and restricting deforestation techniques. Regulations and
policies relating to the earthmoving/construction industry include those
regarding 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 our business.
Our
success depends on attracting and retaining key personnel and qualified
employees.
Our
continued success and viability are dependent, to a certain extent, upon our
ability to attract and retain qualified personnel in all areas of our
businesses, especially management positions. In the event we are unable to
attract and retain qualified personnel, our businesses may be adversely
affected. Mr. Taylor, our President and Chief Executive Officer, has been
instrumental in the development and implementation of our business strategy. We
do not maintain key-person life insurance policies on any of our executive
officers. We have outstanding agreements with certain of our executive employees
selected by the board of directors, which provide that the individuals will not
receive any benefits if they voluntarily leave the company. In the event of a
termination of the individual’s employment after a change of control (defined
generally as an acquisition of 20% or more of our outstanding voting shares),
the executive is entitled to receive salary, bonus and other fringe benefits. In
addition, all unvested options and certain benefits become vested. Messrs.
Taylor and Hackamack and Ms. Holley are each a party to such an agreement. The
loss or interruption of the continued full-time services of any of our executive
officers, including Mr. Taylor, could have a material adverse effect on our
business.
The
Company’s goodwill may become impaired based on future cash flow
testing.
The
Company reviews goodwill to assess recoverability from future operations during
the fourth quarter of each annual reporting period, and whenever events and
circumstances indicate that the carrying values may not be
recoverable. The Company had goodwill of $11.7 million at September
30, 2009. Significant assumptions relating to future operations must
be made when estimating future cash flows in analyzing goodwill for
impairment. Should unforeseen events occur or operating trends
continue, impairment losses could occur. Due to the difficult nature
of predicting future markets and business outcomes, the Company cannot always
anticipate or predict when a goodwill impairment loss may be required by the
Company in the future.
4
The
Company may be negatively impacted by changes regarding
investments.
The
Company has an investment in Titan Europe Plc which is publicly traded on the
AIM market in London, England. This investment is recorded as a
component of other assets on the consolidated balance sheet. 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, net of tax. If the Company were to record the
Titan Europe Plc investment as an equity method investment and Titan Europe Plc
incurred material losses, the Company may be negatively impacted up to its
investment balance which was approximately $9 million at September 30,
2009.
The
Company is undergoing a filing review process required by
Sarbanes-Oxley.
On
December 1, 2009, Titan International, Inc. received a comment letter from the
Securities and Exchange Commission under the normal review process as required
by Sarbanes-Oxley. The Company was previously reviewed under this
process in 2002, 2005, and 2007. The current filings under review
are: Form 10-K for the year ended December 31, 2008; Forms 10-Q for
the periods ended March 31, 2009, June 30, 2009 and September 30, 2009; and
Definitive Proxy Statement on Schedule 14A filed March 30,
2009. The Company responded to the Commission regarding their
review on December 14, 2009. It is common practice for the Commission
to have additional comments regarding the Company’s initial
responses. Comment letters and responses are made available on the
Commission’s website when the review process has been completed.
Unfavorable
outcomes of legal proceedings could adversely affect our financial condition and
results of operations.
We are 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, we believe at this time
that none of these actions, individually or in the aggregate, will have a
material adverse effect on our financial condition or results of operations.
However, due to the uncertainties involved in litigation, we cannot anticipate
or predict material adverse effects on our financial condition, cash flows or
results of operations as a result of efforts to comply with, or our liabilities
pertaining to, legal judgments.
We
are subject to corporate governance requirements, and costs related to
compliance with, or failure to comply with, existing and future requirements
could adversely affect our business.
We face
corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well
as new rules and regulations subsequently adopted by the SEC, the Public Company
Accounting Oversight Board and the NYSE. These laws, rules and regulations
continue to evolve and may become increasingly stringent in the future. Our
failure to comply with these laws, rules and regulations may materially
adversely affect our reputation, financial condition and the value of our
securities, including the Notes.
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