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: September 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
 
October 24, 2008
     
Common stock, no par value per share
 
34,519,044

 
 

 

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 Nine Months Ended September 30, 2008 and 2007
1
     
 
Consolidated Condensed Balance Sheets as of
September 30, 2008, and December 31, 2007
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Nine Months Ended September 30, 2008
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 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 6.
Exhibits
33
     
 
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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Net sales
  $ 255,463     $ 195,472     $ 778,102     $ 632,083  
Cost of sales
    218,040       177,178       666,389       559,287  
Gross profit
    37,423       18,294       111,713       72,796  
Selling, general & administrative expenses
    13,789       14,123       43,155       38,090  
Royalty expense
    2,371       1,474       6,786       4,490  
Income from operations
    21,263       2,697       61,772       30,216  
Interest expense
    (3,734 )     (4,472 )     (11,426 )     (14,651 )
Noncash convertible debt conversion charge
    0       0       0       (13,376 )
Other (expense) income
    (358 )     975       2,559       2,521  
Income (loss) before income taxes
    17,171       (800 )     52,905       4,710  
Provision for income taxes
    6,868       78       21,162       3,109  
Net income (loss)
  $ 10,303     $ (878 )   $ 31,743     $ 1,601  
Earnings per common share *:
                               
Basic
  $ .30     $ (.03 )   $ .92     $ .05  
Diluted
    .30       (.03 )     .91       .05  
Average common shares outstanding *:
                               
Basic
    34,499       34,139       34,373       31,421  
Diluted
    34,883       34,139       34,798       31,988  

* Adjusted to reflect August 15, 2008, five-for-four stock split.
 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
1

 

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


   
September 30,
   
December 31,
 
Assets
 
2008
   
2007
 
Current assets
           
Cash and cash equivalents
  $ 35,639     $ 58,325  
Accounts receivable
    148,474       98,394  
Inventories
    143,699       128,048  
Deferred income taxes
    17,622       25,159  
Prepaid and other current assets
    21,616       17,839  
Total current assets
    367,050       327,765  
                 
Property, plant and equipment, net
    236,737       196,078  
Investment in Titan Europe Plc
    11,623       34,535  
Goodwill
    11,702       11,702  
Other assets
    18,361       20,415  
                 
Total assets
  $ 645,473     $ 590,495  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 84,946     $ 43,992  
Other current liabilities
    45,775       43,788  
Total current liabilities
    130,721       87,780  
                 
Long-term debt
    200,000       200,000  
Deferred income taxes
    6,025       14,044  
Other long-term liabilities
    11,029       16,149  
Total liabilities
    347,775       317,973  
                 
Stockholders’ equity
               
Common stock (no par, 60,000,000 shares authorized, 37,475,288 issued *)
    30       30  
Additional paid-in capital
    309,519       303,908  
Retained earnings
    60,307       29,012  
Treasury stock (at cost, 2,963,160 and 3,229,055 shares, respectively)
    (26,997 )     (29,384 )
Accumulated other comprehensive loss
    (45,161 )     (31,044 )
Total stockholders’ equity
    297,698       272,522  
                 
Total liabilities and stockholders’ equity
  $ 645,473     $ 590,495  

* Adjusted to reflect August 15, 2008, five-for-four stock split.

 
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
    #34,183,484     $ 30     $ 303,908     $ 29,012     $ (29,384 )   $ (31,044 )   $ 272,522  
                                                         
Comprehensive income:
                                                       
Net income
                            31,743                       31,743  
Amortization of pension adjustments, net of tax
                                            776       776  
Unrealized loss on investment, net of tax
                                            (14,893 )     (14,893 )
Comprehensive income
                            31,743               (14,117 )     17,626  
Dividends paid on common stock
                            (448 )                     (448 )
Cash paid for  fractional shares resulting from stock split
                    (70 )                             (70 )
Exercise of stock options
    313,463               5,389               2,278               7,667  
Issuance of treasury stock under 401(k) plan
    15,181               292               109               401  
                                                         
Balance September 30, 2008
    #34,512,128     $ 30     $ 309,519     $ 60,307     $ (26,997 )   $ (45,161 )   $ 297,698  

* Adjusted to reflect August 15, 2008, five-for-four stock split.
 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
3

 

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


   
Nine months ended
 
   
September 30,
 
   
2008
   
2007
 
Cash flows from operating activities:
           
Net income
  $ 31,743     $ 1,601  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    21,543       21,467  
Deferred income tax provision
    7,537       1,907  
Noncash convertible debt conversion charge
    0       13,376  
Excess tax benefit from stock options exercised
    (4,131 )     (849 )
Issuance of treasury stock under 401(k) plan
    400       342  
(Increase) decrease in assets:
               
Accounts receivable
    (50,080 )     (43,577 )
Inventories
    (15,651 )     22,051  
Prepaid and other current assets
    (4,252 )     (1,883 )
Other assets
    (108 )     (357 )
Increase (decrease) in liabilities:
               
Accounts payable
    40,954       28,762  
Other current liabilities
    6,082       9,737  
Other liabilities
    (3,869 )     2,558  
Net cash provided by operating activities
    30,168       55,135  
                 
Cash flows from investing activities:
               
Capital expenditures
    (60,144 )     (20,869 )
Acquisition off-the-road (OTR) assets
    0       (8,900 )
Other
    104       453  
Net cash used for investing activities
    (60,040 )     (29,316 )
                 
Cash flows from financing activities:
               
Payment on debt
    0       (10,164 )
Proceeds from exercise of stock options
    3,537       6,103  
Excess tax benefit from stock options exercised
    4,131       849  
Payment of financing fees
    0       (313 )
   Dividends paid
    (412 )     (369 )
Other
    (70 )     0  
Net cash provided by (used for) financing activities
    7,186       (3,894 )
                 
Net (decrease) increase in cash and cash equivalents
    (22,686 )     21,925  
                 
Cash and cash equivalents at beginning of period
    58,325       33,412  
                 
Cash and cash equivalents at end of period
  $ 35,639     $ 55,337  
                 
 

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 September 30, 2008, the results of operations for the three and nine months ended September 30, 2008 and 2007, and cash flows for the nine months ended September 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.

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 gave five shares for every four shares held as of the record date.  Stockholders received one additional share for every four shares owned as of the record date and received cash in lieu of fractional shares.  All share and per share data, except shares authorized, have been adjusted to reflect the effect of the stock split for all periods presented.
 
2.  ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2008
   
2007
 
Accounts receivable
  $ 154,515     $ 103,652  
Allowance for doubtful accounts
    (6,041 )     (5,258 )
Accounts receivable, net
  $ 148,474     $ 98,394  

The Company had net accounts receivable balance of $148.5 million at September 30, 2008, and $98.4 million at December 31, 2007.  These amounts are net of allowance for doubtful accounts of $6.0 million at September 30, 2008, and $5.3 million at December 31, 2007.

 
5

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

3.  INVENTORIES
Inventories consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2008
   
2007
 
Raw materials
  $ 73,618     $ 50,368  
Work-in-process
    28,545       21,533  
Finished goods
    53,047       61,880  
      155,210       133,781  
Adjustment to LIFO basis
    (11,511 )     (5,733 )
    $ 143,699     $ 128,048  

Inventories were $143.7 million at September 30, 2008, and $128.0 million at December 31, 2007.  At September 30, 2008, cost is determined using the first-in, first-out (FIFO) method for approximately 63% of inventories and the last-in, first-out (LIFO) method for approximately 37% 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 $4.3 million at September 30, 2008, and $4.7 million at December 31, 2007.
 
4.  PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2008
   
2007
 
Land and improvements
  $ 3,343     $ 3,098  
Buildings and improvements
    91,649       78,462  
Machinery and equipment
    298,946       276,326  
Tools, dies and molds
    56,744       53,873  
Construction-in-process
    51,782       31,801  
      502,464       443,560  
Less accumulated depreciation
    (265,727 )     (247,482 )
    $ 236,737     $ 196,078  

Depreciation on fixed assets for the nine months ended September 30, 2008 and 2007, totaled $19.4 million and $19.5 million, respectively.
 
5.  INVESTMENT IN TITAN EUROPE PLC
Investment in unconsolidated affiliate consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2008
   
2007
 
Investment in Titan Europe Plc
  $ 11,623     $ 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 $11.6 million at September 30, 2008, and $34.5 million at December 31, 2007.  Titan Europe Plc is publicly traded on the AIM market in London, England.

 
6

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

6.  GOODWILL
The carrying amount of goodwill by segment consisted of the following (in thousands):
   
September 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 nine months of 2008 or 2007.  There can be no assurance that future goodwill tests will not result in a charge to earnings.
 
7.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
   
September 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 September 30, 2008, were as follows (in thousands):
October 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 September 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 September 30, 2008.  Outstanding letters of credit on the facility were $6.1 million at September 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 September 30, 2008.

 
7

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

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
    8,574       5,803  
Warranty payments made
    (8,005 )     (4,756 )
Warranty liability, September 30
  $ 6,423     $ 5,735  

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.
 
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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Interest cost
  $ 1,324     $ 941     $ 3,972     $ 2,823  
Expected return on assets
    (1,954 )     (1,256 )     (5,862 )     (3,768 )
Amortization of unrecognized prior service cost
    34       34       102       102  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (42 )     (42 )
Amortization of net unrecognized loss
    397       398       1,191       1,194  
Net periodic pension (income) cost
  $ (213 )   $ 103     $ (639 )   $ 309  

During the first nine months 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 September 30, 2008, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
October 1 – December 31, 2008
  $ 542  
2009
    1,306  
2010
    930  
2011
    580  
2012
    39  
Thereafter
    0  
Total future minimum lease payments
  $ 3,397  

 
8

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

11.  ROYALTY EXPENSE
Royalty expense consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Royalty expense
  $ 2,371     $ 1,474     $ 6,786     $ 4,490  

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 $2.4 million and $1.5 million for the three months ended September 30, 2008 and 2007, respectively.  Royalty expenses were $6.8 million and $4.5 million for the nine months ended September 30, 2008 and 2007, respectively.
 
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 (EXPENSE) INCOME
Other (expense) income consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Interest income
  $ 338     $ 835     $ 1,212     $ 2,040  
Dividend income – Titan Europe Plc
    0       0       1,234       1,132  
Other (expense) income
    (696 )     140       113       (651 )
    $ (358 )   $ 975     $ 2,559     $ 2,521  

Other (expense) income was $(0.4) million and $1.0 million for the three months ended September 30, 2008 and 2007, respectively.  Other income was $2.6 million and $2.5 million for the nine months ended September 30, 2008 and 2007, respectively.

 
9

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

14.  INCOME TAXES
Income tax expense consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Income tax expense
  $ 6,868     $ 78     $ 21,162     $ 3,109  

The Company recorded income tax expense of $6.9 million and $21.2 million for the three and nine months ended September 30, 2008, respectively, as compared to $0.1 million and $3.1 million for the three and nine months ended September 30, 2007.  The Company’s effective income tax rate was 40% and 66% for the nine months ended September 30, 2008 and 2007, respectively.

The Company’s income tax expense and rate for the nine months ended September 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.
 
15.  EARNINGS PER SHARE
Earnings per share (EPS) are as follows (amounts in thousands, except per share data):
   
Three months ended,
 
   
September 30, 2008
   
September 30, 2007
 
   
Net
Income
   
Weighted average shares
   
Per share
amount
   
Net
Loss
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 10,303       34,499     $ .30     $ (878 )     34,139     $ (.03 )
Effect of stock options/trusts
    0       384               0       0          
Diluted EPS
  $ 10,303       34,883     $ .30     $ (878 )     34,139     $ (.03 )
 

   
Nine months ended,
 
   
September 30, 2008
   
September 30, 2007
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 31,743       34,373     $ .92     $ 1,601       31,421     $ .05  
Effect of stock options/trusts
    0       425               0       567          
Diluted EPS
  $ 31,743       34,798     $ .91     $ 1,601       31,988     $ .05  

The effect of stock options has been excluded for the three months ended September 30, 2007, as the effect would have been antidilutive.  The weighted average share amount excluded was 533,000 shares.  The effect of convertible notes has been excluded for the nine months ended September 30, 2007, as the effect would have been antidilutive.  The weighted average share amount excluded was 2,176,000 shares.

All share data has been adjusted to reflect the August 15, 2008, five-for-four stock split.

 
10

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

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 and nine months ended September 30, 2008 and 2007 (in thousands):

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
Revenues from external customers
                       
Agricultural
  $ 179,162     $ 118,530     $ 538,263     $ 377,930  
Earthmoving/construction
    71,287       69,431       221,591       216,891  
Consumer
    5,014       7,511       18,248       37,262  
Consolidated totals
  $ 255,463     $ 195,472     $ 778,102     $ 632,083  
                                 
Gross profit
                               
Agricultural
  $ 23,633     $ 7,050     $ 68,714     $ 30,051  
Earthmoving/construction
    11,072       10,916       38,658       41,108  
Consumer
    1,008       584       3,438       2,906  
Reconciling items (a)
    1,710       (256 )     903       (1,269 )
Consolidated totals
  $ 37,423     $ 18,294     $ 111,713     $ 72,796  
                                 
Income from operations
                               
Agricultural
  $ 19,465     $ 4,242     $ 57,918     $ 22,338  
Earthmoving/construction
    9,454       8,955       32,649       35,694  
Consumer
    854       371       2,913       2,201  
Reconciling items (a)
    (8,510 )     (10,871 )     (31,708 )     (30,017 )
Consolidated totals
  $ 21,263     $ 2,697     $ 61,772     $ 30,216  

Assets by segment were as follows (in thousands):
   
September 30,
   
December 31,
 
Total Assets
 
2008
   
2007
 
Agricultural segment
  $ 376,656     $ 257,005  
Earthmoving/construction segment
    178,465       176,144  
Consumer segment
    16,469       22,515  
Reconciling items (b)
    73,883       134,831  
Consolidated totals
  $ 645,473     $ 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.

 
11

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

17.  COMPREHENSIVE INCOME (LOSS)
The Company’s quarterly comprehensive loss consisted of the following:  (i) for the quarter ended September 30, 2008, net income of $10.3 million, amortization of pension adjustments of $0.3 million and unrealized loss on the Titan Europe Plc investment of $(19.0) million for a total comprehensive loss of $(8.4) million; (ii) for the quarter ended September 30, 2007, net loss of $(0.9) million, amortization of pension adjustments of $0.3 million and unrealized gain on the Titan Europe Plc investment of $0.3 million for a total comprehensive loss of $(0.3) million.

The Company’s year-to-date comprehensive income consisted of the following:  (i) for the nine months ended September 30, 2008, net income of $31.7 million, amortization of pension adjustments of $0.8 million and unrealized loss on the Titan Europe Plc investment of $(14.9) million for a total comprehensive income of $17.6 million; (ii) for the nine months ended September 30, 2007, net income of $1.6 million, amortization of pension adjustments of $0.8 million and unrealized loss on the Titan Europe Plc investment of $(1.8) million for a total comprehensive income of $0.6 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.
 
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, except for items that are measured at fair value on a recurring basis, 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 September 30, 2008
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Investment in Titan Europe Plc
  $ 11,623     $ 11,623     $ 0     $ 0  
Investments for contractual obligations
    5,221       5,221       0       0  
Total
  $ 16,844     $ 16,844     $ 0     $ 0  


 
12

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

20  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 September 30, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 255,463     $ 0     $ 0     $ 255,463  
Cost of sales
    (1,988 )     220,028       0       0       218,040  
Gross profit
    1,988       35,435       0       0       37,423  
Selling, general and administrative expenses
    4,461       9,323       5       0       13,789  
Royalty expense
    0       2,371       0       0       2,371  
(Loss) income from operations
    (2,473 )     23,741       (5 )     0       21,263  
Interest expense
    (3,734 )     0       0       0       (3,734 )
Other (expense) income
    (398 )     40       0       0       (358 )
(Loss) income before income taxes
    (6,605 )     23,781       (5 )     0       17,171  
(Benefit) provision for income taxes
    (2,642 )     9,512       (2 )     0       6,868  
Equity in earnings of subsidiaries
    14,266       0       0       (14,266 )     0  
Net income (loss)
  $ 10,303     $ 14,269     $ (3 )   $ (14,266 )   $ 10,303  
 

   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Three Months Ended September 30, 2007
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 195,472     $ 0     $ 0     $ 195,472  
Cost of sales
    12       177,166       0       0       177,178  
Gross (loss) profit
    (12 )     18,306       0       0       18,294  
Selling, general and administrative expenses
    3,672       10,412       39       0       14,123  
Royalty expense
    0       1,474       0       0       1,474  
(Loss) income from operations
    (3,684 )     6,420       (39 )     0       2,697  
Interest expense
    (4,473 )     1       0       0       (4,472 )
Intercompany interest income (expense)
    2,371       (2,666 )     295       0       0  
Other income (expense)
    1,178       (204 )     1       0       975  
(Loss) income before income taxes
    (4,608 )     3,551       257       0       (800 )
(Benefit) provision for income taxes
    (7,209 )     6,903       384       0       78  
Equity in earnings of subsidiaries
    (3,479 )     0       0       3,479       0  
Net loss
  $ (878 )   $ (3,352 )   $ (127 )   $ 3,479     $ (878 )


 
13

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


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Nine Months Ended September 30, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 778,102     $ 0     $ 0     $ 778,102  
Cost of sales
    (1,674 )     668,063       0       0       666,389  
Gross profit
    1,674       110,039       0       0       111,713  
Selling, general and administrative expenses
    15,672       27,417       66       0       43,155  
Royalty expense
    0       6,786       0       0       6,786  
(Loss) income from operations
    (13,998 )     75,836       (66 )     0       61,772  
Interest expense
    (11,426 )     0       0       0       (11,426 )
Other income (expense)
    1,488       (163 )     1,234       0       2,559  
(Loss) income before income taxes
    (23,936 )     75,673       1,168       0       52,905  
(Benefit) provision for income taxes
    (9,574 )     30,268       468       0       21,162  
Equity in earnings of subsidiaries
    46,105       0       0       (46,105 )     0  
Net income
  $ 31,743     $ 45,405     $ 700     $ (46,105 )   $ 31,743  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Nine Months Ended September 30, 2007
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 632,083     $ 0     $ 0     $ 632,083  
Cost of sales
    545       558,742       0       0       559,287  
Gross (loss) profit
    (545 )     73,341       0       0       72,796  
Selling, general and administrative expenses
    13,193       24,739       158       0       38,090  
Royalty expense
    0       4,490       0       0       4,490  
(Loss) income from operations
    (13,738 )     44,112       (158 )     0       30,216  
Interest expense
    (14,648 )     (3 )     0       0       (14,651 )
Intercompany interest income (expense)
    8,767       (9,607 )     840       0       0  
Noncash convertible debt conversion charge
    (13,376 )     0       0       0       (13,376 )
Other income (expense)
    1,560       (176 )     1,137       0       2,521  
(Loss) income before income taxes
    (31,435 )     34,326       1,819       0       4,710  
(Benefit) provision for income taxes
    (20,747 )     22,655       1,201       0       3,109  
Equity in earnings of subsidiaries
    12,289       0       0       (12,289 )     0  
Net income
  $ 1,601     $ 11,671     $ 618     $ (12,289 )   $ 1,601  


 
14

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


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
September 30, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 33,498     $ 18     $ 2,123     $ 0     $ 35,639  
Accounts receivable
    4       148,470       0       0       148,474  
Inventories
    0       143,699       0       0       143,699  
Prepaid and other current assets
    21,663       17,559       16       0       39,238  
  Total current assets
    55,165       309,746       2,139       0       367,050  
Property, plant and equipment, net
    5,535       231,202       0       0       236,737  
Investment in Titan Europe Plc
    (28,724 )     0       40,347       0       11,623  
Investment in subsidiaries
    46,571       0       0       (46,571 )     0  
Other assets
    9,836       20,227       0       0       30,063  
Total assets
  $ 88,383     $ 561,175     $ 42,486     $ (46,571 )   $ 645,473  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 4,846     $ 80,100     $ 0     $ 0     $ 84,946  
Other current liabilities
    910       44,865       0       0       45,775  
  Total current liabilities
    5,756       124,965       0       0       130,721  
Long-term debt
    200,000       0       0       0       200,000  
Other long-term liabilities
    10,952       6,102       0       0       17,054  
Intercompany accounts
    (426,023 )     415,841       10,182       0       0  
Stockholders’ equity
    297,698       14,267       32,304       (46,571 )     297,698  
Total liabilities and stockholders’ equity
  $ 88,383     $ 561,175     $ 42,486     $ (46,571 )   $ 645,473  

   
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