SEC Company Response from TITAN INTERNATIONAL INC (TWI) (CIK 0000899751) (TWI) — Jan 4, 2008
TITAN INTERNATIONAL INC (TWI) (CIK 0000899751)
Date: Jan. 4, 2008 · CIK: 0000899751 · Accession: 0000899751-08-000002
AI Filing Summary & Sentiment
Referenced dates: December 19, 2007
Letter
United States Securities and Exchange Commission Washington, D.C. 20549-7010 RE: Titan International, Inc. Form 10-K for the fiscal year ended December 31, 2006 File No. 1-12936
Dear Mr. Decker,
We have received your faxed letter dated December 19, 2007, regarding the review of the above mentioned filing of Titan International, Inc. (the Company). Please see the attached Exhibit A for the Company’s responses to your letter.
In connection with our response to the Comment Letter, the Company hereby acknowledges that:
·
the Company is responsible for the adequacy and accuracy of the disclosure in the filings;
·
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and
·
the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
Please do not hesitate to contact Kent Hackamack at 217-221-4330 or Cheri Holley at 217-221-4484 if you have any questions concerning our response.
Sincerely,
/s/
Kent W.
Hackamack
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CORRESP
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commentresponse.htm
TITAN
INTERNATIONAL, INC.
January
4, 2008
Rufus
Decker
Accounting
Branch Chief
United
States
Securities
and Exchange Commission
Washington,
D.C. 20549-7010
RE:
Titan International, Inc.
Form
10-K for the fiscal year ended
December 31, 2006
File
No. 1-12936
Dear
Mr.
Decker,
We
have
received your faxed letter dated December 19, 2007, regarding the review of
the
above mentioned filing of Titan International, Inc. (the
Company). Please see the attached Exhibit A for the Company’s
responses to your letter.
In
connection with our response to the Comment Letter, the Company hereby
acknowledges that:
·
the
Company is responsible for the adequacy and accuracy of the disclosure
in
the filings;
·
staff
comments or changes to disclosure in response to staff comments do
not
foreclose the Commission from taking any action with respect to the
filing; and
·
the
Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
Please
do
not hesitate to contact Kent Hackamack at 217-221-4330 or Cheri Holley at
217-221-4484 if you have any questions concerning our response.
Sincerely,
/s/
Kent W.
Hackamack
/s/
Cheri T.
Holley
Kent
W. Hackamack
Cheri
T. Holley
Vice
President of Finance and Treasurer
Vice
President, Secretary
and
General Counsel
EXHIBIT
A
– COMMENTS & RESPONSES
FORM
10-K FOR THE YEAR ENDED
DECEMBER 31, 2006
General
1.
Where
a comment below requests additional disclosures or other revisions
to be
made, please show us in your response what the revisions will look
like.
These revisions should be included in your future filings, including
your
interim filings.
Response
to comment 1:
Titan
International, Inc. (Titan or the Company) has provided intended disclosure
for
comments below which request additional disclosure or other revisions to be
made. These revisions, when applicable, will be included in the
future filings of the Company.
Management’s
Discussion and
Analysis of Financial Condition and Results of Operations
Results
of Operations, page
20
2.
We
note your discussion of segment results beginning on page 22. Please
revise to provide a more comprehensive analysis of segment operating
results for each segment, including a discussion of gross profit,
and
selling, general and administrative expenses. Please also consider
including a table in your segment MD&A showing the operating results
of each segment, including corporate, that reconciles to your consolidated
results.
Response
to comment 2:
The
Company provides segment analysis for net sales and income from operations
without corporate expenses, the measures used by Titan’s chief operating
decision maker in assessing segment performance. Selling, general and
administrative (SG&A) expenses are principally held at the corporate
level. The Company quantifies changes from one period to the next
related to SG&A when discussing corporate activities.
Segment
income from operations is comprised primarily of gross profit and minor SG&A
expenses. Per your request of including more comprehensive analysis,
the Company in future filings will calculate and provide a more enhanced
quantitative analysis of the movements in income from operations, which will
primarily be movements related to gross profit amounts. The Company
will provide a table summarizing the segments and reconciling to consolidated
results in future filings.
Corporate
Expenses, page
23
3.
It
appears from your discussion on page F-29 that total corporate expenses
amounted to $39.2 million in 2005, not $24.0 million as disclosed
on page
23. Please revise your comparison of 2006 to 2005 by also discussing
the
Dyneer legal charge of $15.2 million that was recorded in
2005.
Response
to comment 3:
The
updated corporate expense comparison would be as follows (additions are
underlined):
Income
from operations on a segment basis does not include corporate expenses or
depreciation and amortization expense related to property, plant and equipment
carried at the corporate level totaling $28.8 million for the year ended
December 31, 2006, as compared to $39.2 million
in
2005. Included in the
December 31,
2005, corporate expenses of $39.2 million was $15.2 million for the Dyneer
legal
charge as previously discussed. The December 31, 2005, corporate
expenses without the Dyneer legal charge would have been $24.0
million. The increase in corporate expenses without the
Dyneer legal
charge related primarily to higher sales and marketing expenses related
to the acquisition of Freeport and Bryan of approximately $3 million for 2006
as
compared to 2005.
A
-
1
Liquidity
and Capital
Resources, page 27
4.
Please
revise to provide a more robust analysis of the reasons for changes
in
your operating, investing and financing cash flows. Your revised
discussions should not only quantify the impact of the line item(s)
which
contributed most to the changes but should also provide detailed
explanations of the reasons for the
fluctuations.
Response
to comment 4:
The
Company will provide additional analysis of cash flows when applicable in the
future. The updated cash flows analysis for the December 31, 2006,
Form 10-K would be as follows (additions are underlined):
Operating
cash flows
For
the
year ended December 31, 2006, cash of $5.5 million was used for operating
activities. This usage was primarily the result of increases in
accounts receivable and inventories of $26.8 million and $19.5 million,
respectively, offset by an increase in other current liabilities of $13.4
million and noncash charges included in net income of $26.9 million for
depreciation and amortization. Net income of $5.1 million was offset
by other operating activities.
In
comparison, for the year ended December 31, 2005, positive cash flows from
operating activities of $22.9 million resulted primarily from net income of
$11.0 million, noncash charges included in net income of $20.7 million for
depreciation and amortization and a $7.2 million noncash convertible debt
conversion charge offset by a noncash deferred income tax benefit of $14.5
million.
Operating
cash flows
decreased $28.4 million from the year ended December 31, 2005, to December
31,
2006. This decrease was largely the result of cash flows from
accounts receivable decreasing $32.4 million and cash flows from inventories
decreasing $21.7 million. These decreased cash flows resulted from
large increases in accounts receivable and inventory as the result of higher
sales levels. These decreases were offset by an increase in noncash
deferred income tax charges of $17.1 million.
For
the
year ended December 31, 2004, positive cash flows from operating activities
of
$18.1 million resulted primarily from income of $11.1 million and noncash
depreciation and amortization charges included in net income of $24.9 million
offset by accounts receivable and inventories increases of $10.8 million and
$8.8 million.
Investing
cash flows
Net
cash
used for investing activities was $52.7 million in 2006, as compared to $76.7
million used in 2005 and $62.4 million positive cash flows in
2004. Titan invested $44.6 million for the Continental OTR tire
acquisition in 2006, while the Company invested $100.0 million for the Goodyear
North American farm tire acquisition in 2005. In 2004, the Titan
Europe Plc sale provided $40.8 million in cash.
The
Company invested a total of $8.3 million in capital expenditures in 2006,
compared to $6.8 million in 2005 and $4.3 million in 2004. The
Company estimates that capital expenditures for 2007 could range between $16
million and $18 million. A decrease in restricted cash provided $24.5
million and asset sales provided $5.5 million in 2005.
Investing
cash flows
decreased $24.0 million from the year ended December 31, 2005, to December
31,
2006. This decrease was primarily the result of less cash used for
the Continental off-the-road (OTR) asset acquisition in 2006 as compared to
the
cash used for the Goodyear North American farm tire acquisition in
2005. Investing cash flows decreased $139.1 million from December 31,
2004, to December 31, 2005. This decrease is primarily the result of
the cash usage for the Goodyear North American farm tire acquisition in 2005
as
compared to the cash provided by the Titan Europe Plc sale in
2004.
A
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2
Financing
cash flows
Net
cash
provided by financing activities in 2006 was $91.1 million. This cash
was primarily provided by $88.9 million of net debt proceeds. In
addition, the exercise of stock options provided $5.4 million in cash and the
payment of financing fees used $3.7 million of cash. In 2005, cash of
$53.3 million was provided by financing activities, the result of net debt
proceeds of $53.4 million. In 2004, $85.8 million in cash was used
for financing activities, primarily the result of net debt payments of $65.8
million.
Financing
cash flows
increased $37.8 million from the year ended December 31, 2005, to December
31,
2006. Also, financing cash flows increased $139.1 million from the
year ended December 31, 2004, to December 31, 2005. The large changes
from year to year are primarily the result of changes in total debt
borrowings. The net debt amounts changed primarily as the result of
cash provided by or used for acquisitions and divestitures.
Contractual
Obligations,
page 29
5.
We
note from your disclosures on page F-20 that you are obligated to
pay
royalty fees under a license agreement with The Goodyear Tire & Rubber
Company. It appears that these fees may not be included in your
contractual obligations table on page 29. If not already disclosed,
please
revise to include these payments in your contractual obligations
table.
Please also revise your contractual obligations to disclose the
assumptions used to calculate payments required by this
agreement.
Response
to comment 5:
The
December 2005 Goodyear North American farm tire asset acquisition included
a
license agreement with The Goodyear Tire & Rubber Company to manufacture and
sell certain off-highway tires in North America. The Company did not
include the royalty payments in the contractual obligations table since, under
this agreement, royalty payments would cease immediately if Titan discontinued
using the Goodyear trademark. Therefore, no royalty moneys would be
due to Goodyear in the future. Titan will footnote the contractual
obligations table with the following information regarding the Goodyear royalty
expense. The updated contractual obligations table for December 31,
2006, would have reflected the following footnote:
(d)
The
Company pays a royalty expense that relates to a license agreement
with
The Goodyear Tire & Rubber Company to manufacture and sell certain
off-highway tires in North America. Under this agreement,
royalty payments would cease immediately if Titan discontinued using
the
Goodyear trademark. Titan currently plans to continue using the
Goodyear trademark until circumstances require a
change. Titan’s royalty payment to Goodyear for the next six
years, the current term of the agreement, using the annual 2006 royalty
payment of approximately $5 million as an estimate would total
approximately $30 million. The actual royalty amount paid to
Goodyear in the future will vary based on the sales of certain off-highway
tires in North America and the continuation of the license
agreement.
A
-
3
Consolidated
Financial
Statements
Consolidated
Statements of
Cash Flows, page F-7
6.
We
note the line item titled “other, net” which constituted approximately 80%
of your net cash used for operating activities for the year ended
December
31, 2006. It appears that you may be netting cash flows related to
other
assets and other liabilities in your operating activities, which
is not
appropriate. Please revise to present cash flows related to deferred
charges and other assets separate from those related to deferred
credits
and other liabilities. Please also revise to include separate line
items
for items that are individually significant to net cash used in operating
activities. See SFAS 95.
Response
to comment 6:
The
Company notes that the “Other, net” cash usage of (4,423) is approximately 80%
of the net cash used of (5,540). However, if you add the individual
usage lines in cash flows from operating activities, the total usage is
(55,023). The “Other, net” amount of (4,423) is approximately 8% of
(55,023.)
The
Company will revise cash flows to present other assets and other liabilities
separately. The revised operating cash flows for December 31, 2006
would be as follows (additions are underlined):
Cash