form10q.htm


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
TITAN INTERNATIONAL, INC. LOGO

 
FORM 10-Q
 

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended: March 31, 2008

OR

o
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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer o
Accelerated filer x
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  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 25, 2008
     
Common stock, no par value per share
 
27,438,727


 
TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS
 
   
Page
Part I.
Financial Information
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 2008 and 2007
1
     
 
Consolidated Condensed Balance Sheets as of
March 31, 2008, and December 31, 2007
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2008
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2008 and 2007
4
     
 
Notes to Consolidated Condensed Financial Statements
5-15
     
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
16-28
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
28
     
Item 4.
Controls and Procedures
28
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
29
     
Item 6.
Exhibits
29
     
 
Signatures
29
 


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,
 
   
2008
   
2007
 
 Net sales
  $ 253,525     $ 226,278  
 Cost of sales
    221,181       199,087  
    Gross profit
    32,344       27,191  
 Selling, general & administrative expenses
    14,077       11,284  
 Royalty expense
    2,147       1,564  
    Income from operations
    16,120       14,343  
 Interest expense
    (3,984 )     (5,749 )
 Noncash convertible debt conversion charge
    0       (13,376 )
 Other income (expense)
    1,420       (185 )
   Income (loss) before income taxes
    13,556       (4,967 )
Provision (benefit) for income taxes
    5,422       (2,484 )
 Net income (loss)
  $ 8,134     $ (2,483 )
                 
Earnings (loss) per common share:
               
Basic
  $ .30     $ (.12 )
Diluted
    .29       (.12 )
Average common shares outstanding:
               
Basic
    27,412       20,814  
Diluted
    27,790       20,814  
 
 
See accompanying Notes to Consolidated Condensed Financial Statements.

1


TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
 
   
March 31,
   
December 31,
 
Assets
 
2008
   
2007
 
Current assets
           
   Cash and cash equivalents
  $ 47,595     $ 58,325  
   Accounts receivable
    133,820       98,394  
   Inventories
    124,196       128,048  
   Deferred income taxes
    19,615       25,159  
   Prepaid and other current assets
    16,573       17,839  
     Total current assets
    341,799       327,765  
                 
   Property, plant and equipment, net
    210,512       196,078  
   Investment in Titan Europe Plc
    32,783       34,535  
   Goodwill
    11,702       11,702  
   Other assets
    19,269       20,415  
                 
Total assets
  $ 616,065     $ 590,495  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 62,656     $ 43,992  
Other current liabilities
    41,609       43,788  
Total current liabilities
    104,265       87,780  
                 
Long-term debt
    200,000       200,000  
Deferred income taxes
    13,431       14,044  
Other long-term liabilities
    17,155       16,149  
Total liabilities
    334,851       317,973  
                 
Stockholders’ equity
               
Common stock (no par, 60,000,000 shares authorized, 30,577,356 issued)
    30       30  
Additional paid-in capital
    304,724       303,908  
Retained earnings
    37,009       29,012  
Treasury stock (at cost, 3,144,500 and 3,229,055 shares, respectively)
    (28,625 )     (29,384 )
Accumulated other comprehensive loss
    (31,924 )     (31,044 )
Total stockholders’ equity
    281,214       272,522  
                 
Total liabilities and stockholders’ equity
  $ 616,065     $ 590,495  
 

See accompanying Notes to Consolidated Condensed Financial Statements.

2


TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(Amounts in thousands, except share data)

   
Number of common shares
   
Common Stock
   
Additional
paid-in
capital
   
Retained earnings
   
Treasury
stock
   
Accumulated other comprehensive income (loss)
   
Total
 
                                           
Balance January 1, 2008
    #27,348,301     $ 30     $ 303,908     $ 29,012     $ (29,384 )   $ (31,044 )   $ 272,522  
                                                         
Comprehensive income:
                                                       
Net income
                            8,134                       8,134  
Amortization of pension adjustments, net of tax
                                            259       259  
Unrealized loss on investment, net of tax
                                            (1,139 )     (1,139 )
Comprehensive income
                            8,134               (880 )     7,254  
Dividends paid on common stock
                            (137 )                     (137 )
Exercise of stock options
    80,450               726               722               1,448  
Issuance of treasury stock under 401(k) plan
    4,105               90               37               127  
                                                         
Balance March 31, 2008
    27,432,856     $ 30     $ 304,724     $ 37,009     $ (28,625 )   $ (31,924 )   $ 281,214  

 
See accompanying Notes to Consolidated Condensed Financial Statements.

3


TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Amounts in thousands)

   
Three months ended
 
   
March 31,
 
   
2008
   
2007
 
Cash flows from operating activities:
           
Net income (loss)
  $ 8,134     $ (2,483 )
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    7,153       7,465  
Deferred income tax provision
    5,386       (2,845 )
Noncash convertible debt conversion charge
    0       13,376  
Excess tax benefit from stock options exercised
    0       (849 )
Issuance of treasury stock under 401(k) plan
    127       85  
(Increase) decrease in current assets:
               
Accounts receivable
    (35,426 )     (47,431 )
Inventories
    3,852       10,646  
Prepaid and other current assets
    1,266       1,250  
Other assets
    423       500  
Increase (decrease) in current liabilities:
               
Accounts payable
    18,664       24,274  
Other current liabilities
    (2,179 )     11,891  
Other liabilities
    1,423       (135 )
Net cash provided by operating activities
    8,823       15,744  
                 
Cash flows from investing activities:
               
Capital expenditures
    (20,873 )     (4,064 )
Other
    9       52  
Net cash used for investing activities
    (20,864 )     (4,012 )
                 
Cash flows from financing activities:
               
Payment on debt
    0       (10,164 )
Proceeds from exercise of stock options
    1,448       3,553  
Excess tax benefit from stock options exercised
    0       849  
Payment of financing fees
    0       (313 )
Dividends paid
    (137 )     (99 )
Net cash provided by (used for) financing activities
    1,311       (6,174 )
                 
Net (decrease) increase in cash and cash equivalents
    (10,730 )     5,558  
                 
Cash and cash equivalents at beginning of period
    58,325       33,412  
                 
Cash and cash equivalents at end of period
  $ 47,595     $ 38,970  
 

See accompanying Notes to Consolidated Condensed Financial Statements.

4

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

1.  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 and necessary to present fairly the Company’s financial position as of March 31, 2008, and the results of operations and cash flows for the three months ended March 31, 2008 and 2007.
 
Accounting policies have continued without significant change and are described in the Summary of Significant Accounting Policies contained in the Company’s 2007 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 2007 Annual Report on Form 10-K.  Certain amounts from prior years have been reclassified to conform to the current year’s presentation.
 
2.  ACCOUNTS RECEIVABLE
 
Accounts receivable consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2008
   
2007
 
Accounts receivable
  $ 139,270     $ 103,652  
Allowance for doubtful accounts
    (5,450 )     (5,258 )
Accounts receivable, net
  $ 133,820     $ 98,394  

The Company had net accounts receivable balance of $133.8 million at March 31, 2008, and $98.4 million at December 31, 2007.  These amounts are net of allowance for doubtful accounts of $5.5 million at March 31, 2008, and $5.3 million at December 31, 2007.
 
3.  INVENTORIES
 
Inventories consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2008
   
2007
 
Raw materials
  $ 51,368     $ 50,368  
Work-in-process
    19,297       21,533  
Finished goods
    58,413       61,880  
      129,078       133,781  
Adjustment to LIFO basis
    (4,882 )     (5,733 )
    $ 124,196     $ 128,048  

Inventories were $124.2 million at March 31, 2008, and $128.0 million at December 31, 2007.  At March 31, 2008, cost is determined using the first-in, first-out (FIFO) method for approximately 68% of inventories and the last-in, first-out (LIFO) method for approximately 32% of the inventories.  At December 31, 2007, the FIFO method was used for approximately 67% of inventories and LIFO was used for approximately 33% of the inventories.  Included in the inventory balances were reserves for slow-moving and obsolete inventory of $4.6 million at March 31, 2008, and $4.7 million at December 31, 2007.

5

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 

4.  PROPERTY, PLANT AND EQUIPMENT, NET
 
Property, plant and equipment, net consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2008
   
2007
 
Land and improvements
  $ 3,343     $ 3,098  
Buildings and improvements
    78,461       78,462  
Machinery and equipment
    280,403       276,326  
Tools, dies and molds
    54,109       53,873  
Construction-in-process
    48,078       31,801  
      464,394       443,560  
Less accumulated depreciation
    (253,882 )     (247,482 )
    $ 210,512     $ 196,078  

At March 31, 2008, there was $39.2 million in construction-in-process related to the giant OTR mining tire project, including $1.0 million of capitalized interest.  Depreciation on fixed assets for the three months ended March 31, 2008 and 2007, totaled $6.4 million and $6.6 million, respectively.
 
5.  INVESTMENT IN TITAN EUROPE PLC
Investment in unconsolidated affiliate consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2008
   
2007
 
Investment in Titan Europe Plc
  $ 32,783     $ 34,535  

The Company owns a 17.3% ownership interest in Titan Europe Plc.  In accordance with SFAS No. 115, the Company records the Titan Europe Plc investment as an available-for-sale security and reports the investment at fair value, with unrealized gains and losses excluded from earnings and reported in a separate component of stockholders’ equity.

The Company’s investment in Titan Europe Plc was $32.8 million at March 31, 2008, and $34.5 million at December 31, 2007.  Titan Europe Plc is publicly traded on the AIM market in London, England.  The March 31, 2008, fair value of $32.8 million was below the Company’s cost basis of $40.3 million.  The unrealized loss on the Titan Europe Plc investment was $7.5 million.  No impairment charge has been recorded as this decline below cost basis was judged to be temporary at March 31, 2008.  See Note 21 for recent development.
 
6.  GOODWILL

The carrying amount of goodwill by segment consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2008
   
2007
 
Agricultural segment
  $ 6,912     $ 6,912  
Earthmoving/construction segment
    3,552       3,552  
Consumer segment
    1,238       1,238  
    $ 11,702     $ 11,702  

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.  No goodwill charges were recorded in the first three months of 2008 or 2007.  There can be no assurance that future goodwill tests will not result in a charge to earnings.

6

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

7.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2008
   
2007
 
Senior unsecured notes
  $ 200,000     $ 200,000  
Less:  Amounts due within one year
    0       0  
    $ 200,000     $ 200,000  

Aggregate maturities of long-term debt at March 31, 2008, were as follows (in thousands):
 
April 1 – December 31, 2008
  $ 0  
2009
    0  
2010
    0  
2011
    0  
2012
    200,000  
Thereafter
    0  
 
  $ 200,000  
 
Senior unsecured notes
The Company’s $200 million 8% senior unsecured notes are due 2012.

Revolving credit facility
The Company’s $250 million revolving credit facility (Credit Facility) with agent LaSalle Bank National Association (a Bank of America company) has an October 2009 termination date and is collateralized by a first priority security interest in certain assets of Titan and its domestic subsidiaries.  At March 31, 2008, any borrowings under the Credit Facility would have borne interest at a floating rate of prime rate plus 0% to 1% or LIBOR plus 1% to 2%.

There were no cash borrowings under this Credit Facility at March 31, 2008.  Outstanding letters of credit on the facility were $6.1 million at March 31, 2008, leaving $243.9 million of unused availability on the revolving credit facility.  The facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants.  The Company is in compliance with these covenants and restrictions as of March 31, 2008.
 
8.  WARRANTY

Changes in the warranty liability consisted of the following (in thousands):
 
 
2008
   
2007
 
Warranty liability, January 1
  $ 5,854     $ 4,688  
Provision for warranty liabilities
    1,609       2,129  
Warranty payments made
    (1,602 )     (1,619 )
Warranty liability, March 31
  $ 5,861     $ 5,198  

The Company provides limited warranties on workmanship on its products in all market segments.  The majority of the Company’s products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year.  The Company calculates a provision for warranty expense based on past warranty experience.  Warranty accruals are included as a component of other current liabilities on the Consolidated Condensed Balance Sheets.
 

7

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 
9.  EMPLOYEE BENEFIT PLANS

The Company has three frozen defined benefit pension plans and one defined benefit plan that purchased a final annuity settlement in 2002.  The Company also sponsors five 401(k) retirement savings plans.
The components of net periodic pension (income) cost consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2008
   
2007
 
Interest cost
  $ 1,324     $ 941  
Expected return on assets
    (1,954 )     (1,256 )
Amortization of unrecognized prior service cost
    34       34  
Amortization of unrecognized deferred taxes
    (14 )     (14 )
Amortization of net unrecognized loss
    397       398  
Net periodic pension (income) cost
  $ (213 )   $ 103  

The Company expects to contribute approximately $1 million to the pension plans during the remainder of 2008.
 
10.  LEASE COMMITMENTS

The Company leases certain buildings and equipment under operating leases.  Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company.

At March 31, 2008, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):

April 1 – December 31, 2008
  $ 1,464  
2009
    1,306  
2010
    930  
2011
    580  
2012
    39  
Thereafter
    0  
Total future minimum lease payments
  $ 4,319  
 
11.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2008
   
2007
 
Royalty expense
  $ 2,147     $ 1,564  

The Goodyear North American farm tire asset acquisition included a license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name.  Royalty expenses recorded were $2.1 million and $1.6 million for the first quarter of 2008 and 2007, respectively.

8

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

12.  NONCASH CONVERTIBLE DEBT CONVERSION CHARGE

In January 2007, the Company filed a registration statement relating to an offer to the holders of its 5.25% senior unsecured convertible notes due 2009 to convert their notes into Titan’s common stock at an increased conversion rate (the “Offer”).  Per the Offer, each $1,000 principal amount of notes was convertible into 81.0000 shares of common stock, which is equivalent to a conversion price of approximately $12.35 per share.

Prior to the Offer, each $1,000 principal amount of notes was convertible into 74.0741 shares of common stock, which was equivalent to a conversion price of approximately $13.50 per share.  The registration statement relating
to the shares of common stock to be offered was declared effective February 2007.  In March 2007, the Company announced 100% acceptance of the conversion offer and the $81.2 million of accepted notes were converted into 6,577,200 shares of Titan common stock.

The Company recognized a noncash charge of $13.4 million in connection with this exchange in accordance with Statement of Financial Accounting Standards (SFAS) No. 84, “Induced Conversions of Convertible Debt.”  This charge does not reflect $1.0 million of interest previously accrued on the notes.  The shares issued for the conversion were issued out of treasury shares.  The exchange resulted in a decrease in treasury stock of $59.0 million and an increase to additional paid-in capital of approximately $35.2 million.  Stockholders’ equity increased by $80.9 million in total as a result of this exchange.
 
13.  OTHER INCOME

Other income consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2008
   
2007
 
Interest income
  $ 515     $ 518  
Debt termination expense
    0       (675 )
Other income (expense)
    905       (28 )
    $ 1,420     $ (185 )

Interest income of $0.5 million for the quarter ended March 31, 2008 and 2007, related to the Company’s cash balances.  Debt termination expense of $0.7 million for the quarter ended March 31, 2007, related to fees and expenses for the conversion of the Company’s convertible notes.  Other income for the quarter ended March 31, 2008, includes income of approximately $1 million from a legal settlement.
 
14.  INCOME TAXES

Income tax expense consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2008
   
2007
 
Income tax expense (benefit)
  $ 5,422     $ (2,484 )

The Company recorded income tax expense of $5.4 million and income tax benefit of $(2.5) million for the quarters ended March 31, 2008 and 2007, respectively.  The Company’s effective income tax rate was 40% and 50% for the three months ended March 31, 2008 and 2007, respectively.  The Company’s income tax expense and rate for the first quarter of 2007 differ from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $13.4 million noncash charge taken in connection with the 100% conversion of the Company’s convertible debt.  This noncash debt charge was not deductible for income tax purposes.

9

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

15.  COMPREHENSIVE INCOME

The Company’s comprehensive income (loss) consisted of the following:  (i) for the quarter ended March 31, 2008, net income of $8.1 million, amortization of pension adjustments of $0.3 million and unrealized loss on the Titan Europe Plc investment of $(1.1) million for a total comprehensive income of $7.3 million; (ii) for the quarter ended March 31, 2007, net loss of $(2.5) million and unrealized loss on the Titan Europe Plc investment of $(1.2) million for a total comprehensive loss of $(3.7) million.
 
16.  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, 2008 and 2007 (in thousands):

   
Three months ended March 31,
 
   
2008
   
2007
 
Revenues from external customers
           
Agricultural
  $ 173,486     $ 135,296  
Earthmoving/construction
    73,833       75,118  
Consumer
    6,206       15,864  
Consolidated totals
  $ 253,525     $ 226,278  
                 
Gross Profit
               
Agricultural
  $ 19,693     $ 10,826  
Earthmoving/construction
    11,911       15,892  
Consumer
    1,049       1,100  
Reconciling items (a)
    (309 )     (627 )
Consolidated totals
  $ 32,344     $ 27,191  
                 
Income from Operations
               
Agricultural
  $ 16,443     $ 8,038  
Earthmoving/construction
    9,802       13,875  
Consumer
    869       848  
Reconciling items (a)
    (10,994 )     (8,418 )
Consolidated totals
  $ 16,120     $ 14,343  

Assets by segment were as follows (in thousands):
   
March 31,
   
December 31,
 
Total Assets
 
2008
   
2007
 
Agricultural segment
  $ 298,701     $ 257,005  
Earthmoving/construction segment
    203,608       176,144  
Consumer segment
    17,679       22,515  
Reconciling items (b)
    96,077       134,831  
Consolidated totals
  $ 616,065     $ 590,495  

(a)  
Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level.

(b)  
Represents corporate property, plant and equipment and other corporate assets.
 
10

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

17.  EARNINGS PER SHARE
 
Earnings per share (EPS) were as follows (amounts in thousands, except per share data):

   
Three months ended,
 
   
March 31, 2008
   
March 31, 2007
 
   
Net
Income
   
Weighted average shares
   
Per share amount
   
Net
Loss
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 8,134       27,412     $ .30     $ (2,483 )     20,814     $ (.12 )
Effect of stock options
    0       378               0       0          
Diluted EPS
  $ 8,134       27,790     $ .29     $ (2,483 )     20,814     $ (.12 )
 
As a result of the net loss for the three months ended March 31, 2007, the effect of stock options and convertible notes has been excluded, as the effect would have been antidilutive.  The weighted average share amount excluded was 399,000 shares for stock options and 5,280,000 shares for convertible notes.

18.  LITIGATION

The Company is a party to routine legal proceedings arising out of the normal course of business.  Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes at this time that none of these actions, individually or in the aggregate, will have a material adverse affect on the consolidated financial condition, results of operations or cash flows of the Company.  However, due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations or cash flows as a result of efforts to comply with or its liabilities pertaining to legal judgments.
 
19.  FAIR VALUE MEASUREMENTS

In September 2006, Statement of Financial Accounting Standards (SFAS) No. 157, “Fair Value Measurements,” was issued.  This statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements.  This statement applies under other accounting pronouncements that require or permit fair value measurements.  FASB Staff Position (FSP) 157-2 amended SFAS No. 157 to delay the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities to fiscal years beginning after November 15, 2008.

The adoption of SFAS No. 157 for financial assets and financial liabilities, effective January 1, 2008, did not have a material impact on Titan’s consolidated financial position, results of operations or cash flows.  The Company is evaluating the effect the adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities will have on its consolidated financial position, results of operations and cash flows.

SFAS No. 157 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers include:  Level 1 – defined as quoted prices in active markets for identical instruments; Level 2 – defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3 – defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis consisted of the following (in thousands):
   
Fair Value Measurements as of March 31, 2008
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Investment in Titan Europe Plc
  $ 32,783     $ 32,783     $ 0     $ 0  
Investments for contractual obligations
    5,793       5,793       0       0  
Total
  $ 38,576     $ 38,576     $ 0     $ 0  

11

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)

20.  RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards Number 141 (revised 2007)
In December 2007, SFAS No. 141 (revised 2007), “Business Combinations,” was issued.  This statement requires an acquirer to recognize assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired.  This statement is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.  The Company is evaluating the effect the adoption of this standard will have on its consolidated financial position, results of operations and cash flows.

Statement of Financial Accounting Standards Number 160
In December 2007, SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements,” was issued.  This statement establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary.  It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008.  The Company is evaluating the effect the adoption of this standard will have on its consolidated financial position, results of operations and cash flows.

Statement of Financial Accounting Standards Number 161
In March 2008, SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities,” was issued.  This statement requires enhanced disclosures about an entity’s derivative and hedging activities.  This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008.  The Company is evaluating the effect the adoption of this standard will have on its consolidated financial position, results of operations and cash flows.
 
21.  RECENT DEVELOPMENTS
 
Preliminary Proxy Statement
On April 11, 2008, Titan filed a preliminary proxy statement regarding a special meeting of Titan stockholders.  The special meeting would be to approve the issuance of up to 9,000,000 shares of the Company’s common stock in connection with a proposed offer to purchase up to all the outstanding ordinary shares of Titan Europe Plc (Titan Europe).

Before the offer may be made, the Company’s stockholders would need to approve the issuance of up to 9,000,000 shares of the Company’s common stock to acquire Titan Europe.  The making of the proposed offer would also be subject to various approvals and pre-conditions.  There can be no assurance that all conditions would be met and that the proposed offer would be made, or that it would be successful if made.  The proxy statement is preliminary and is subject to approval by the Securities and Exchange Commission before a definitive proxy statement would be issued and the special Titan stockholder meeting arrangements would be made.

Supply Agreement with Deere & Company
On April 18, 2008, the Company announced that Titan Tire Corporation signed a three-year agreement to supply farm tires to various John Deere affiliates.
 
12

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 
22.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s $200 million 8% senior unsecured notes are guaranteed by each of Titan’s current and future wholly owned domestic subsidiaries other than its immaterial subsidiaries (subsidiaries with total assets less than $250,000 and total revenues less than $250,000.) The note guarantees are joint and several obligations of the guarantors. Non-guarantors consist primarily of foreign subsidiaries of the Company, which are organized outside the United States of America. The following condensed consolidating financial statements are presented using the equity method of accounting.
 
   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Three Months Ended March 31, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 253,525     $ 0     $ 0     $ 253,525  
Cost of sales
    59       221,122       0       0       221,181  
Gross (loss) profit
    (59 )     32,403       0       0       32,344  
Selling, general and administrative expenses
    5,396       8,668       13       0       14,077  
Royalty expense
    0       2,147       0       0       2,147  
(Loss) income from operations
    (5,455 )     21,588       (13 )     0       16,120  
Interest expense
    (3,984 )     0       0       0       (3,984 )
Other income (expense)
    1,500       (81 )     1       0       1,420  
(Loss) income before income taxes
    (7,939 )     21,507       (12 )     0       13,556  
(Benefit) provision for income taxes
    (3,176 )     8,603       (5 )     0       5,422  
Equity in earnings of subsidiaries
    12,897       0       0       (12,897 )     0  
Net income (loss)
  $ 8,134     $ 12,904     $ (7 )   $ (12,897 )   $ 8,134  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Three Months Ended March 31, 2007
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 226,278     $ 0     $ 0     $ 226,278  
Cost of sales
    384       198,703       0       0       199,087  
Gross (loss) profit
    (384 )     27,575       0       0       27,191  
Selling, general and administrative expenses
    3,506       7,703       75       0       11,284  
Royalty expense
    0       1,564       0       0       1,564  
(Loss) income from operations
    (3,890 )     18,308       (75 )     0       14,343  
Interest expense
    (5,746 )     (3 )     0       0       (5,749 )
Intercompany interest income (expense)
    1,134       (1,406 )     272       0       0  
Noncash convertible debt conversion charge
    (13,376 )     0       0       0       (13,376 )
Other (expense) income
    (226 )     42       (1 )     0       (185 )
(Loss) income before income taxes
    (22,104 )     16,941       196       0       (4,967 )
(Benefit) provision for income taxes
    (11,052 )     8,470       98       0       (2,484 )
Equity in earnings of subsidiaries
    8,569       0       0       (8,569 )     0  
Net (loss) income
  $ (2,483 )   $ 8,471     $ 98     $ (8,569 )   $ (2,483 )

13

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 
   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
March 31, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 46,641     $ 19     $ 935     $ 0     $ 47,595  
Accounts receivable
    (1,755 )     135,575       0       0       133,820  
Inventories
    0       124,196       0       0       124,196  
Prepaid and other current assets
    20,738       15,435       15       0       36,188  
  Total current assets
    65,624       275,225       950       0       341,799  
Property, plant and equipment, net
    4,067       206,445       0       0       210,512  
Investment in Titan Europe Plc
    (7,564 )     0       40,347       0       32,783  
Investment in subsidiaries
    25,619       0       0       (25,619 )     0  
Other assets
    11,317       19,654       0       0       30,971  
Total assets
  $ 99,063     $ 501,324     $ 41,297     $ (25,619 )   $ 616,065  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,882     $ 60,774     $ 0     $ 0     $ 62,656  
Other current liabilities
    (342 )     41,951       0       0       41,609  
  Total current liabilities
    1,540       102,725       0       0       104,265  
Long-term debt
    200,000       0       0       0       200,000  
Other long-term liabilities
    23,661       6,925       0       0       30,586  
Intercompany accounts
    (407,352 )     397,354       9,998       0       0  
Stockholders’ equity
    281,214       (5,680 )     31,299       (25,619 )     281,214  
Total liabilities and stockholders’ equity
  $ 99,063     $ 501,324     $ 41,297     $ (25,619 )   $ 616,065  

   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
December 31, 2007
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 57,285     $ 63     $ 977     $ 0     $ 58,325  
Accounts receivable
    (458 )     98,852       0       0       98,394  
Inventories
    0       128,048       0       0       128,048  
Prepaid and other current assets
    26,898       16,100       0       0       42,998  
Total current assets
    83,725       243,063       977       0       327,765  
Property, plant and equipment, net
    2,291       193,787       0       0       196,078  
Investment in Titan Europe Plc
    (5,812 )     0       40,347       0       34,535  
Investment in subsidiaries
    18,714       0       0       (18,714 )     0  
Other assets
    12,256       19,861       0       0       32,117  
Total assets
  $ 111,174     $ 456,711     $ 41,324     $ (18,714 )   $ 590,495  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 2,059     $ 41,933     $ 0     $ 0     $ 43,992  
Other current liabilities
    10,456       33,347       (15 )     0       43,788  
Total current liabilities
    12,515       75,280       (15 )     0       87,780  
Long-term debt
    200,000       0       0       0       200,000  
Other long-term liabilities
    22,931       7,262       0       0       30,193  
Intercompany accounts
    (396,794 )     386,883       9,911       0       0  
Stockholders’ equity
    272,522       (12,714 )     31,428       (18,714 )     272,522  
Total liabilities and stockholders’ equity
  $ 111,174     $ 456,711     $ 41,324     $ (18,714 )   $ 590,495  
 
 
14

TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 
   
Consolidating Condensed Statements of Cash Flows
 
(Amounts in thousands)
                       
   
For the Three Months Ended March 31, 2008
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash (used for) provided by operating activities
  $ (10,082 )   $ 18,947     $ (42 )   $ 8,823  
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    (1,873 )     (19,000 )     0       (20,873 )
  Other, net
    0       9       0       9  
    Net cash used for investing activities
    (1,873 )     (18,991 )     0       (20,864 )
                                 
Cash flows from financing activities:
                               
  Proceeds from exercise of stock options
    1,448       0       0       1,448  
  Other, net
    (137 )     0       0       (137 )
    Net cash provided by financing activities
    1,311       0       0       1,311  
                                 
Net decrease in cash and cash equivalents
    (10,644 )     (44 )     (42 )     (10,730 )
Cash and cash equivalents, beginning of period
    57,285       63       977       58,325  
Cash and cash equivalents, end of period
  $ 46,641     $ 19     $ 935     $ 47,595  
 
   
Consolidating Condensed Statements of Cash Flows
 
(Amounts in thousands)
                       
   
For the Three Months Ended March 31, 2007
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ 16,135     $ (640 )   $ 249     $ 15,744  
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    (212 )     (3,852 )     0       (4,064 )
  Other, net
    0       52       0       52  
    Net cash used for investing activities
    (212 )     (3,800 )     0       (4,012 )
                                 
Cash flows from financing activities:
                               
  Payment of debt
    (9,500 )     (664 )     0       (10,164 )
  Proceeds from exercise of stock options
    3,553       0       0       3,553  
  Excess tax benefit from stock options exercised
    849       0       0       849  
  Payment of financing fees
    (313 )     0       0       (313 )
  Intercompany activities
    (5,200 )     5,070       130       0  
  Other, net
    (99 )     0       0       (99 )
    Net cash (used for) provided by financing activities
    (10,710 )     4,406       130       (6,174 )
                                 
Net increase (decrease) in cash and cash equivalents
    5,213       (34 )     379       5,558  
Cash and cash equivalents, beginning of period
    33,220       69       123       33,412  
Cash and cash equivalents, end of period
  $ 38,433     $ 35     $ 502     $ 38,970  
 

15

TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan’s financial condition, results of operations, liquidity and other factors which may affect the Company’s future results.  The MD&A in this quarterly report should be read in conjunction with the MD&A in Titan’s 2007 annual report on Form 10-K filed with the Securities and Exchange Commission on February 28, 2008.

FORWARD-LOOKING STATEMENTS
 
This Form 10-Q contains forward-looking statements, including statements regarding, among other items:
 
·  
Anticipated trends in the Company’s business
 
·  
Future expenditures for capital projects
 
·  
The Company’s ability to continue to control costs and maintain quality
 
·  
Ability to meet financial covenants and conditions of loan agreements
 
·  
The Company’s business strategies, including its intention to introduce new products
 
·  
Expectations concerning the performance and success of the Company’s existing and new products
 
·  
The Company’s intention to consider and pursue acquisitions and divestitures

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:
 
·  
Changes in the Company’s end-user markets as a result of world economic or regulatory influences
 
·  
Changes in the marketplace, including new products and pricing changes by the Company’s competitors
 
·  
Availability and price of raw materials
 
·  
Levels of operating efficiencies
 
·  
Actions of domestic and foreign governments
 
·  
Results of investments
 
·  
Fluctuations in currency translations
 
·  
Ability to secure financing at reasonable terms

Any changes in such factors could lead to significantly different results.  The Company cannot provide any assurance that the assumptions referred to in the forward-looking statements or otherwise are accurate or will prove to transpire.  Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements.  The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this document will in fact transpire.


16

TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

OVERVIEW
 
Titan International, Inc. and its subsidiaries are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets.  Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies.  The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.

Agricultural Market:  Titan’s agricultural rims, wheels and tires are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers and Titan’s own distribution centers.

Earthmoving/Construction Market:  The Company manufactures rims, wheels and tires for various types of off-the-road (OTR) earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders.  The earthmoving/construction market is often referred to as OTR, an acronym for off-the-road.

Consumer Market:  Titan builds a variety of products for all-terrain vehicles (ATV), turf, golf and trailer applications.  Titan’s sales in the consumer market include sales to Goodyear, which are under an off-take/mixing agreement.  This agreement includes mixed stock, which is a prepared rubber compound used in tire production.  The Company provides wheels/tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets.

The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company and Kubota Corporation, in addition to many other off-highway equipment manufacturers.  The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.
 
The following table provides highlights for the quarter ended March, 2008, compared to 2007 (amounts in thousands):