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: June 30, 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
 
July 28, 2008
     
Common stock, no par value per share
 
27,592,296

 
 

 

TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS
 
   
Page
Part I.
Financial Information
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended June 30, 2008 and 2007
1
     
 
Consolidated Condensed Balance Sheets as of
June 30, 2008, and December 31, 2007
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Six Months Ended June 30, 2008
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 2008 and 2007
4
     
 
Notes to Consolidated Condensed Financial Statements
5-17
     
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
18-32
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
33
     
Item 4.
Controls and Procedures
33
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
33
     
Item 1A.
Risk Factors
33
     
Item 4.
Submission of Matters to a Vote of Security Holders
34
     
Item 6.
Exhibits
34
     
 
Signatures
34
 
 
 

 

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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Net sales
  $ 269,114     $ 210,333     $ 522,639     $ 436,611  
Cost of sales
    227,168       183,022       448,349       382,109  
Gross profit
    41,946       27,311       74,290       54,502  
Selling, general & administrative expenses
    15,289       12,683       29,366       23,967  
Royalty expense
    2,268       1,452       4,415       3,016  
Income from operations
    24,389       13,176       40,509       27,519  
Interest expense
    (3,708 )     (4,430 )     (7,692 )     (10,179 )
Noncash convertible debt conversion charge
    0       0       0       (13,376 )
Other income
    1,497       1,731       2,917       1,546  
Income before income taxes
    22,178       10,477       35,734       5,510  
Provision for income taxes
    8,872       5,515       14,294       3,031  
Net income
  $ 13,306     $ 4,962     $ 21,440     $ 2,479  
                                 
Earnings per common share:
                               
Basic
  $ .48     $ .18     $ .78     $ .10  
Diluted
    .48       .18       .77       .10  
Average common shares outstanding:
                               
Basic
    27,486       27,213       27,449       24,031  
Diluted
    27,819       27,749       27,805       24,499  
 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
1

 

TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)


   
June 30,
   
December 31,
 
Assets
 
2008
   
2007
 
Current assets
           
Cash and cash equivalents
  $ 69,385     $ 58,325  
Accounts receivable
    139,438       98,394  
Inventories
    118,083       128,048  
Deferred income taxes
    17,780       25,159  
Prepaid and other current assets
    21,469       17,839  
Total current assets
    366,155       327,765  
                 
Property, plant and equipment, net
    221,951       196,078  
Investment in Titan Europe Plc
    40,782       34,535  
Goodwill
    11,702       11,702  
Other assets
    19,540       20,415  
                 
Total assets
  $ 660,130     $ 590,495  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 70,975     $ 43,992  
Other current liabilities
    50,407       43,788  
Total current liabilities
    121,382       87,780  
                 
Long-term debt
    200,000       200,000  
Deferred income taxes
    16,230       14,044  
Other long-term liabilities
    16,854       16,149  
Total liabilities
    354,466       317,973  
                 
Stockholders’ equity
               
Common stock (no par, 60,000,000 shares authorized, 30,577,356 issued)
    30       30  
Additional paid-in capital
    309,195       303,908  
Retained earnings
    50,177       29,012  
Treasury stock (at cost, 2,993,829 and 3,229,055 shares, respectively)
    (27,272 )     (29,384 )
Accumulated other comprehensive loss
    (26,466 )     (31,044 )
Total stockholders’ equity
    305,664       272,522  
                 
Total liabilities and stockholders’ equity
  $ 660,130     $ 590,495  
 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
2

 

TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
(All 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
                            21,440                       21,440  
Amortization of pension adjustments, net of tax
                                            517       517  
Unrealized gain on investment, net of tax
                                            4,061       4,061  
Comprehensive income
                            21,440               4,578       26,018  
Dividends paid on common stock
                            (275 )                     (275 )
Exercise of stock options
    226,850               5,096               2,037               7,133  
Issuance of treasury stock under 401(k) plan
    8,376               191               75               266  
                                                         
Balance June 30, 2008
    #27,583,527     $ 30     $ 309,195     $ 50,177     $ (27,272 )   $ (26,466 )   $ 305,664  

 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
3

 

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


   
Six months ended
 
   
June 30,
 
   
2008
   
2007
 
Cash flows from operating activities:
           
Net income
  $ 21,440     $ 2,479  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    14,392       14,722  
Deferred income tax provision
    7,379       2,060  
Noncash convertible debt conversion charge
    0       13,376  
Excess tax benefit from stock options exercised
    (3,913 )     (849 )
Issuance of treasury stock under 401(k) plan
    266       214  
(Increase) decrease in current assets:
               
Accounts receivable
    (41,044 )     (43,713 )
Inventories
    9,965       19,150  
Prepaid and other current assets
    (3,947 )     1,270  
Other assets
    (567 )     (142 )
Increase in current liabilities:
               
Accounts payable
    26,983       17,659  
Other current liabilities
    10,531       14,660  
Other liabilities
    1,539       2,491  
Net cash provided by operating activities
    43,024       43,377  
                 
Cash flows from investing activities:
               
Capital expenditures
    (38,912 )     (11,577 )
Other
    89       156  
Net cash used for investing activities
    (38,823 )     (11,421 )
                 
Cash flows from financing activities:
               
Payment on debt
    0       (10,164 )
Proceeds from exercise of stock options
    3,220       6,017  
Excess tax benefit from stock options exercised
    3,913       849  
Payment of financing fees
    0       (313 )
Dividends paid
    (274 )     (233 )
Net cash provided by (used for) financing activities
    6,859       (3,844 )
                 
Net increase in cash and cash equivalents
    11,060       28,112  
                 
Cash and cash equivalents at beginning of period
    58,325       33,412  
                 
Cash and cash equivalents at end of period
  $ 69,385     $ 61,524  
 

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 June 30, 2008, the results of operations for the three and six months ended June 30, 2008 and 2007, and cash flows for the six months ended June 30, 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 periods have been reclassified to conform to the current period financial presentation.
 
2.  ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2008
   
2007
 
Accounts receivable
  $ 145,281     $ 103,652  
Allowance for doubtful accounts
    (5,843 )     (5,258 )
Accounts receivable, net
  $ 139,438     $ 98,394  

The Company had net accounts receivable balance of $139.4 million at June 30, 2008, and $98.4 million at December 31, 2007.  These amounts are net of allowance for doubtful accounts of $5.8 million at June 30, 2008, and $5.3 million at December 31, 2007.
 
3.  INVENTORIES
Inventories consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2008
   
2007
 
Raw materials
  $ 54,268     $ 50,368  
Work-in-process
    14,510       21,533  
Finished goods
    55,808       61,880  
      124,586       133,781  
Adjustment to LIFO basis
    (6,503 )     (5,733 )
    $ 118,083     $ 128,048  

Inventories were $118.1 million at June 30, 2008, and $128.0 million at December 31, 2007.  At June 30, 2008, cost is determined using the first-in, first-out (FIFO) method for approximately 66% of inventories and the last-in, first-out (LIFO) method for approximately 34% 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 $4.5 million at June 30, 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):
   
June 30,
   
December 31,
 
   
2008
   
2007
 
Land and improvements
  $ 3,343     $ 3,098  
Buildings and improvements
    78,671       78,462  
Machinery and equipment
    285,216       276,326  
Tools, dies and molds
    54,467       53,873  
Construction-in-process
    59,861       31,801  
      481,558       443,560  
Less accumulated depreciation
    (259,607 )     (247,482 )
    $ 221,951     $ 196,078  

At June 30, 2008, there was $53.8 million in construction-in-process related to the giant OTR mining tire project, including $1.9 million of capitalized interest.  Depreciation on fixed assets for the six months ended June 30, 2008 and 2007, totaled $13.0 million and $13.4 million, respectively.

5.  INVESTMENT IN TITAN EUROPE PLC
Investment in unconsolidated affiliate consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2008
   
2007
 
Investment in Titan Europe Plc
  $ 40,782     $ 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, net of tax.

The Company’s investment in Titan Europe Plc was $40.8 million at June 30, 2008, and $34.5 million at December 31, 2007.  Titan Europe Plc is publicly traded on the AIM market in London, England.

In April 2008, Titan filed a preliminary proxy statement regarding a special meeting of Titan stockholders to approve the issuance of 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.  See Note 21 for additional information.
 
6.  GOODWILL
The carrying amount of goodwill by segment consisted of the following (in thousands):
   
June 30,
   
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 six 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):
   
June 30,
   
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 June 30, 2008, were as follows (in thousands):
July 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 June 30, 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 June 30, 2008.  Outstanding letters of credit on the facility were $6.1 million at June 30, 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 June 30, 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
    4,511       4,670  
Warranty payments made
    (4,099 )     (3,777 )
Warranty liability, June 30
  $ 6,266     $ 5,581  

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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Interest cost
  $ 1,324     $ 941     $ 2,648     $ 1,882  
Expected return on assets
    (1,954 )     (1,256 )     (3,908 )     (2,512 )
Amortization of unrecognized prior service cost
    34       34       68       68  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (28 )     (28 )
Amortization of net unrecognized loss
    397       398       794       796  
Net periodic pension (income) cost
  $ (213 )   $ 103     $ (426 )   $ 206  

During the first half of 2008, the Company contributed cash funds of $0.1 million to the frozen defined pension plans.  The Company expects to contribute approximately $0.1 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 and payment of property taxes, maintenance and insurance by the Company.

At June 30, 2008, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
July 1 – December 31, 2008
  $ 994  
2009
    1,306  
2010
    930  
2011
    580  
2012
    39  
Thereafter
    0  
Total future minimum lease payments
  $ 3,849  
 
11.  ROYALTY EXPENSE
Royalty expense consisted of the following (in thousands):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Royalty expense
  $ 2,268     $ 1,452     $ 4,415     $ 3,016  

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 $2.3 million and $1.5 million for the three months ended June 30, 2008 and 2007, respectively.  Royalty expenses were $4.4 million and $3.0 million for the six months ended June 30, 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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Dividend income – Titan Europe Plc
  $ 1,234     $ 1,132     $ 1,234     $ 1,132  
Interest income
    359       687       874       1,205  
Debt termination expense
    0       (13 )     0       (688 )
Other (expense) income
    (96 )     (75 )     809       (103 )
    $ 1,497     $ 1,731     $ 2,917     $ 1,546  

Debt termination expense of $0.7 million related to fees and expenses for the March 2007 conversion of the Company’s 5.25% senior unsecured convertible notes.
 
14.  INCOME TAXES
Income tax expense consisted of the following (in thousands):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Income tax expense
  $ 8,872     $ 5,515     $ 14,294     $ 3,031  

The Company recorded income tax expense of $8.9 million and $14.3 million for the three and six months ended June 30, 2008, respectively, as compared to $5.5 million and $3.0 million for the three and six months ended June 30, 2007.  The Company’s effective income tax rate was 40% and 55% for the six months ended June 30, 2008 and 2007, respectively.  The Company’s income tax expense and rate for the six months ended June 30, 2007, differs 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 charge is not deductible for income tax purposes.

 
9

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

15.  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 and six months ended June 30, 2008 and 2007 (in thousands):

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Revenues from external customers
                       
Agricultural
  $ 185,615     $ 124,104     $ 359,101     $ 259,400  
Earthmoving/construction
    76,471       72,342       150,304       147,460  
Consumer
    7,028       13,887       13,234       29,751  
Consolidated totals
  $ 269,114     $ 210,333     $ 522,639     $ 436,611  
                                 
Gross profit
                               
Agricultural
  $ 25,388     $ 12,175     $ 45,081     $ 23,001  
Earthmoving/construction
    15,675       14,300       27,586       30,192  
Consumer
    1,381       1,222       2,430       2,322  
Reconciling items (a)
    (498 )     (386 )     (807 )     (1,013 )
Consolidated totals
  $ 41,946     $ 27,311     $ 74,290     $ 54,502  
                                 
Income from operations
                               
Agricultural
  $ 22,010     $ 10,058     $ 38,453     $ 18,096  
Earthmoving/construction
    13,393       12,864       23,195       26,739  
Consumer
    1,190       982       2,059       1,830  
Reconciling items (a)
    (12,204 )     (10,728 )     (23,198 )     (19,146 )
Consolidated totals
  $ 24,389     $ 13,176     $ 40,509     $ 27,519  

Assets by segment were as follows (in thousands):
   
June 30,
   
December 31,
 
Total Assets
 
2008
   
2007
 
Agricultural segment
  $ 296,946     $ 257,005  
Earthmoving/construction segment
    209,814       176,144  
Consumer segment
    17,929       22,515  
Reconciling items (b)
    135,441       134,831  
Consolidated totals
  $ 660,130     $ 590,495  
                 
 

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

(b)  
Represents property, plant and equipment carried at the corporate level and other corporate assets.

 
10

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

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

   
Three months ended,
 
   
June 30, 2008
   
June 30, 2007
 
   
Net
Income
   
Weighted average shares
   
Per share
amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 13,306       27,486     $ .48     $ 4,962       27,213     $ .18  
Effect of stock options/trusts
    0       333               0       536          
Diluted EPS
  $ 13,306       27,819     $ .48     $ 4,962       27,749     $ .18  
 

   
Six months ended,
 
   
June 30, 2008
   
June 30, 2007
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 21,440       27,449     $ .78     $ 2,479       24,031     $ .10  
Effect of stock options/trusts
    0       356               0       468          
Diluted EPS
  $ 21,440       27,805     $ .77     $ 2,479       24,499     $ .10  

The effect of convertible notes has been excluded for the six months ended June 30, 2007, as the effect would have been antidilutive.  The weighted average share amount excluded was 2,625,000 shares.
 
17.  COMPREHENSIVE INCOME
The Company’s quarterly comprehensive income consisted of the following:  (i) for the quarter ended June 30, 2008, net income of $13.3 million, amortization of pension adjustments of $0.3 million and unrealized gain on the Titan Europe Plc investment of $5.2 million for a total comprehensive income of $18.8 million; (ii) for the quarter ended June 30, 2007, net income of $5.0 million, amortization of pension adjustments of $0.5 million and unrealized loss on the Titan Europe Plc investment of $(0.9) million for a total comprehensive income of $4.6 million.

The Company’s year-to-date comprehensive income consisted of the following:  (i) for the six months ended June 30, 2008, net income of $21.4 million, amortization of pension adjustments of $0.5 million and unrealized gain on the Titan Europe Plc investment of $4.1 million for a total comprehensive income of $26.0 million; (ii) for the six months ended June 30, 2007, net income of $2.5 million, amortization of pension adjustments of $0.5 million and unrealized loss on the Titan Europe Plc investment of $(2.1) million for a total comprehensive income of $0.9 million.
 
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.

 
11

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

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 June 30, 2008
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Investment in Titan Europe Plc
  $ 40,782     $ 40,782     $ 0     $ 0  
Investments for contractual obligations
    5,887       5,887       0       0  
Total
  $ 46,669     $ 46,669     $ 0     $ 0  
 
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.

 
12

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

21.  PRELIMINARY PROXY STATEMENT
In April 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.

In order to hold a special meeting of Titan International, Inc. stockholders to approve the issue of up to 9,000,000 shares of Titan International, Inc.’s common stock, the Company needs a final proxy containing interim data for both Titan International, Inc. and Titan Europe Plc through June 30, 2008.  The Titan Europe Plc information must be reconciled with U.S. Generally Accepted Accounting Principles (GAAP).  If the information is obtained by the end of July 2008, Titan anticipates it will be able to file a final proxy with the SEC by the end of August.  The stockholders meeting will be held 30 days after the filing of the final proxy to vote on the issuance of up to 9,000,000 shares of Titan International, Inc. common stock.

22.  STOCK SPLIT
In June 2008, Titan’s Board of Directors approved a five-for-four stock split with a record date of July 31, 2008, and a payable date of August 15, 2008.  The Company will give five shares for every four shares held as of the record date.  Stockholders will receive one additional share for every four shares owned as of the record date and will receive cash in lieu of fractional shares.

The following unaudited pro forma earnings per share information gives effect to the five-for four stock split as if the split had taken place on January 1, 2007.  Pro forma earnings per share (EPS) are as follows (amounts in thousands, except per share data):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2008
   
2007
   
2008
   
2007
 
Pro forma earnings per common share:
                       
Basic
  $ .39     $ .15     $ .62     $ .08  
Diluted
    .38       .14       .62       .08  
Pro forma average common shares outstanding:
                               
Basic
    34,358       34,016       34,311       30,039  
Diluted
    34,774       34,686       34,756       30,624  

 
13

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

23.  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 full and unconditional, 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 June 30, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 269,114     $ 0     $ 0     $ 269,114  
Cost of sales
    255       226,913       0       0       227,168  
Gross (loss) profit
    (255 )     42,201       0       0       41,946  
Selling, general and administrative expenses
    5,815       9,426       48       0       15,289  
Royalty expense
    0       2,268       0       0       2,268  
(Loss) income from operations
    (6,070 )     30,507       (48 )     0       24,389  
Interest expense
    (3,708 )     0       0       0       (3,708 )
Other income (expense)
    386       (122 )     1,233       0       1,497  
(Loss) income before income taxes
    (9,392 )     30,385       1,185       0       22,178  
(Benefit) provision for income taxes
    (3,756 )     12,153       475       0       8,872  
Equity in earnings of subsidiaries
    18,942       0       0       (18,942 )     0  
Net income
  $ 13,306     $ 18,232     $ 710     $ (18,942 )   $ 13,306  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Three Months Ended June 30, 2007
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 210,333     $ 0     $ 0     $ 210,333  
Cost of sales
    149       182,873       0       0       183,022  
Gross (loss) profit
    (149 )     27,460       0       0       27,311  
Selling, general and administrative expenses
    6,015       6,624       44       0       12,683  
Royalty expense
    0       1,452       0       0       1,452  
(Loss) income from operations
    (6,164 )     19,384       (44 )     0       13,176  
Interest expense
    (4,429 )     (1 )     0       0       (4,430 )
Intercompany interest income (expense)
    5,262       (5,535 )     273       0       0  
Other income (expense)
    608       (14 )     1,137       0       1,731  
(Loss) income before income taxes
    (4,723 )     13,834       1,366       0       10,477  
(Benefit) provision for income taxes
    (2,486 )     7,282       719       0       5,515  
Equity in earnings of subsidiaries
    7,199       0       0       (7,199 )     0  
Net income
  $ 4,962     $ 6,552     $ 647     $ (7,199 )   $ 4,962  


 
14

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


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Six Months Ended June 30, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 522,639     $ 0     $ 0     $ 522,639  
Cost of sales
    314       448,035       0       0       448,349  
Gross (loss) profit
    (314 )     74,604       0       0       74,290  
Selling, general and administrative expenses
    11,211       18,094       61       0       29,366  
Royalty expense
    0       4,415       0       0       4,415  
(Loss) income from operations
    (11,525 )     52,095       (61 )     0       40,509  
Interest expense
    (7,692 )     0       0       0       (7,692 )
Other income (expense)
    1,886       (203 )     1,234       0       2,917  
(Loss) income before income taxes
    (17,331 )     51,892       1,173       0       35,734  
(Benefit) provision for income taxes
    (6,932 )     20,756       470       0       14,294  
Equity in earnings of subsidiaries
    31,839       0       0       (31,839 )     0  
Net income
  $ 21,440     $ 31,136     $ 703     $ (31,839 )   $ 21,440  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Six Months Ended June 30, 2007
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 436,611     $ 0     $ 0     $ 436,611  
Cost of sales
    533       381,576       0       0       382,109  
Gross (loss) profit
    (533 )     55,035       0       0       54,502  
Selling, general and administrative expenses
    9,521       14,327       119       0       23,967  
Royalty expense
    0       3,016       0       0       3,016  
(Loss) income from operations
    (10,054 )     37,692       (119 )     0       27,519  
Interest expense
    (10,175 )     (4 )     0       0       (10,179 )
Intercompany interest income (expense)
    6,396       (6,941 )     545       0       0  
Noncash convertible debt conversion charge
    (13,376 )     0       0       0       (13,376 )
Other income
    382       28       1,136       0       1,546  
(Loss) income before income taxes
    (26,827 )     30,775       1,562       0       5,510  
(Benefit) provision for income taxes
    (13,538 )     15,752       817       0       3,031  
Equity in earnings of subsidiaries
    15,768       0       0       (15,768 )     0  
Net income
  $ 2,479     $ 15,023     $ 745     $ (15,768 )   $ 2,479  


 
15

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


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
June 30, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 68,244     $ 240     $ 901     $ 0     $ 69,385  
Accounts receivable
    (1,272 )     140,710       0       0       139,438  
Inventories
    0       118,083       0       0       118,083  
Prepaid and other current assets
    20,115       17,884       1,250       0       39,249  
  Total current assets
    87,087       276,917       2,151       0       366,155  
Property, plant and equipment, net
    4,851       217,100       0       0       221,951  
Investment in Titan Europe Plc
    435       0       40,347       0       40,782  
Investment in subsidiaries
    38,569       0       0       (38,569 )     0  
Other assets
    10,956       20,286       0       0       31,242  
Total assets
  $ 141,898     $ 514,303     $ 42,498     $ (38,569 )   $ 660,130  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 8,527     $ 62,448     $ 0     $ 0     $ 70,975  
Other current liabilities
    2,059       48,341       7       0       50,407  
  Total current liabilities
    10,586       110,789       7       0       121,382  
Long-term debt
    200,000       0       0       0       200,000  
Other long-term liabilities
    26,632       6,452       0       0       33,084  
Intercompany accounts
    (400,984 )