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, 2009

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). * Yes o  No o
  (* The registrant has not yet been phased into the interactive data file requirements at this time.)
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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 24, 2009
     
Common stock, no par value per share
 
35,195,950

 
 

 

 
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, 2009 and 2008
1
     
 
Consolidated Condensed Balance Sheets as of
March 31, 2009, and December 31, 2008
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2009
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2009 and 2008
4
     
 
Notes to Consolidated Condensed Financial Statements
5-15
     
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
16-27
     
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,
 
   
2009
   
2008
 
Net sales
  $ 232,604     $ 253,525  
Cost of sales
    202,541       221,181  
Gross profit
    30,063       32,344  
Selling, general & administrative expenses
    13,527       14,077  
Royalty expense
    2,459       2,147  
Income from operations
    14,077       16,120  
Interest expense
    (3,944 )     (3,984 )
Other income
    1,409       1,420  
Income before income taxes
    11,542       13,556  
Provision for income taxes
    4,501       5,422  
Net income
  $ 7,041     $ 8,134  
Earnings per common share:
               
Basic
  $ .20     $ .24  
Diluted
    .20       .23  
Average common shares outstanding:
               
Basic
    34,624       34,264  
Diluted
    35,177       34,738  
                 

 
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
 
2009
   
2008
 
Current assets
 
 
   
 
 
Cash and cash equivalents
  $ 20,230     $ 61,658  
Accounts receivable
    125,802       126,531  
Inventories
    167,631       147,306  
Deferred income taxes
    12,042       12,042  
Prepaid and other current assets
    19,860       21,662  
Total current assets
    345,565       369,199  
                 
Property, plant and equipment, net
    261,077       248,442  
Goodwill
    11,702       11,702  
Deferred income taxes
    7,744       7,256  
Other assets
    18,285       18,183  
                 
Total assets
  $ 644,373     $ 654,782  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
   Short-term debt
  $ 0     $ 25,000  
Accounts payable
    53,961       65,547  
Other current liabilities
    45,779       46,088  
Total current liabilities
    99,740       136,635  
                 
Long-term debt
    218,800       200,000  
Other long-term liabilities
    39,779       38,959  
Total liabilities
    358,319       375,594  
                 
Stockholders’ equity
               
Common stock (no par, 60,000,000 shares authorized, 37,475,288 issued)
    30       30  
Additional paid-in capital
    299,772       300,024  
Retained earnings
    48,591       41,726  
Treasury stock (at cost, 2,303,764 and 2,443,604 shares, respectively)
    (21,077 )     (22,332 )
Treasury stock reserved for contractual obligations
    (5,501 )     (5,501 )
Accumulated other comprehensive loss
    (35,761 )     (34,759 )
Total stockholders’ equity
    286,054       279,188  
                 
Total liabilities and stockholders’ equity
  $ 644,373     $ 654,782  

 

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
   
Treasury stock reserved for contractual obligations
   
Accumulated other comprehensive income (loss)
   
 
 
 
Total
 
                                                 
Balance January 1, 2009
    #35,031,684     $ 30     $ 300,024     $ 41,726     $ (22,332 )   $ (5,501 )   $ (34,759 )   $ 279,188  
                                                                 
Comprehensive income:
                                                               
Net income
                            7,041                               7,041  
Pension liability adjustments, net of tax
                                                    679       679  
Unrealized loss on investment, net of tax
                                                    (1,681 )     (1,681 )
Comprehensive income
                                                            6,039  
Dividends on common stock
                            (176 )                             (176 )
Exercise of stock options
    125,000               (255 )             1,122                       867  
Issuance of treasury stock under 401(k) plan
    14,840               3               133                       136  
                                                                 
Balance March 31, 2009
    #35,171,524     $ 30     $ 299,772     $ 48,591     $ (21,077 )   $ (5,501 )   $ (35,761 )   $ 286,054  

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,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net income
  $ 7,041     $ 8,134  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    7,966       7,153  
Deferred income tax provision
    0       5,386  
Gain on senior note repurchase
    (1,398 )     0  
Excess tax benefit from stock options exercised
    (67 )     0  
Issuance of treasury stock under 401(k) plan
    136       127  
(Increase) decrease in assets:
               
Accounts receivable
    729       (35,426 )
Inventories
    (20,325 )     3,852  
Prepaid and other current assets
    1,802       1,266  
Other assets
    25       423  
Increase (decrease) in liabilities:
               
Accounts payable
    (11,586 )     18,664  
Other current liabilities
    (243 )     (2,179 )
Other liabilities
    1,916       1,423  
Net cash (used for) provided by operating activities
    (14,004 )     8,823  
                 
Cash flows from investing activities:
               
Capital expenditures
    (19,933 )     (20,873 )
Acquisition of shares of Titan Europe Plc
    (2,399 )     0  
Other
    12       9  
Net cash used for investing activities
    (22,320 )     (20,864 )
                 
Cash flows from financing activities:
               
Repurchase of senior notes
    (4,726 )     0  
Proceeds from exercise of stock options
    800       1,448  
Excess tax benefit from stock options exercised
    67       0  
Payment of financing fees
    (1,070 )     0  
Dividends paid
    (175 )     (137 )
Net cash (used for) provided by financing activities
    (5,104 )     1,311  
                 
Net decrease in cash and cash equivalents
    (41,428 )     (10,730 )
                 
Cash and cash equivalents at beginning of period
    61,658       58,325  
                 
Cash and cash equivalents at end of period
  $ 20,230     $ 47,595  

 
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, 2009, and the results of operations and cash flows for the three months ended March 31, 2009 and 2008.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2008 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 2008 Annual Report on Form 10-K.  Certain amounts from prior years have been reclassified to conform to the current year’s 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.
 
Cash dividends
The Company declared cash dividends of $.005 and $.004 per share of common stock for the three months ended March 31, 2009 and 2008, respectively.
 
2.  ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2009
   
2008
 
Accounts receivable
  $ 132,647     $ 133,170  
Allowance for doubtful accounts
    (6,845 )     (6,639 )
Accounts receivable, net
  $ 125,802     $ 126,531  

The Company had net accounts receivable balance of $125.8 million at March 31, 2009, and $126.5 million at December 31, 2008.  These amounts are net of allowance for doubtful accounts of $6.8 million at March 31, 2009, and $6.6 million at December 31, 2008.
 
 
5

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

3.  INVENTORIES

Inventories consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2009
   
2008
 
Raw materials
  $ 69,814     $ 73,927  
Work-in-process
    22,245       26,820  
Finished goods
    80,211       56,488  
      172,270       157,235  
Adjustment to LIFO basis
    (4,639 )     (9,929 )
    $ 167,631     $ 147,306  

Inventories were $167.6 million at March 31, 2009, and $147.3 million at December 31, 2008.  At March 31, 2009, cost is determined using the first-in, first-out (FIFO) method for approximately 72% of inventories and the last-in, first-out (LIFO) method for approximately 28% of the inventories.  At December 31, 2008, the FIFO method was used for approximately 78% of inventories and LIFO was used for approximately 22% of the inventories.  Included in the inventory balances were reserves for slow-moving and obsolete inventory of $3.8 million at both March 31, 2009 and December 31, 2008.
 
4.  PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2009
   
2008
 
Land and improvements
  $ 3,343     $ 3,343  
Buildings and improvements
    99,852       99,650  
Machinery and equipment
    328,490       318,327  
Tools, dies and molds
    63,854       62,856  
Construction-in-process
    45,920       37,536  
      541,459       521,712  
Less accumulated depreciation
    (280,382 )     (273,270 )
    $ 261,077     $ 248,442  

At March 31, 2009, there was $35.2 million in construction-in-process related to the giant OTR mining tire project, including $0.7 million of capitalized interest.  Depreciation on fixed assets for the three months ended March 31, 2009 and 2008, totaled $7.3 million and $6.4 million, respectively.

 
6

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

5.  INVESTMENT IN TITAN EUROPE PLC

Investment in Titan Europe Plc consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2009
   
2008
 
Investment in Titan Europe Plc
  $ 2,462     $ 2,649  

Titan Europe Plc is publicly traded on the AIM market in London, England.  During the first quarter of 2009, the Company purchased $2.4 million of additional shares in Titan Europe Plc, thereby increasing its investment from 17.2% to a 22.9% ownership percentage.  The Company has considered the applicable guidance in APB 18, “The Equity Method of Accounting for Investments in Common Stock,” and FIN 35, “Criteria for Applying the Equity Method of Accounting for Investments in Common Stock,” and has concluded that the Company’s investment in Titan Europe Plc should continue to be accounted for as an available-for-sale security and recorded at fair value in accordance with FAS 115, “Accounting for Certain Investments in Debt and Equity Securities.”  The Company has determined that the equity method of accounting for this investment is not appropriate after considering all of the facts and circumstances relating to the investment.  In particular, the Company has concluded that its inability to obtain the needed quarterly financial information from Titan Europe Plc is an indication that the Company does not have the ability to exercise significant influence over the financial and operating policies of this investee.  The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Condensed Balance Sheets.  The reduced value in the Titan Europe Plc investment at March 31, 2009, was due to a decrease in the publicly quoted Titan Europe Plc market price.
 
6.  GOODWILL

The carrying amount of goodwill by segment consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2009
   
2008
 
Agricultural
  $ 6,912     $ 6,912  
Earthmoving/construction
    3,552       3,552  
Consumer
    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 2009 or 2008.  There can be no assurance that future goodwill tests will not result in a charge to earnings.
 
7.  WARRANTY

Changes in the warranty liability consisted of the following (in thousands):
 
 
2009
   
2008
 
Warranty liability, January 1
  $ 7,488     $ 5,854  
Provision for warranty liabilities
    3,025       1,609  
Warranty payments made
    (2,971 )     (1,602 )
Warranty liability, March 31
  $ 7,542     $ 5,861  

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)

8.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2009
   
2008
 
Senior unsecured notes
  $ 193,800     $ 200,000  
Revolving credit facility
    25,000       25,000  
      218,800       225,000  
Less:  Amounts due within one year
    0       25,000  
    $ 218,800     $ 200,000  

Aggregate maturities of long-term debt at March 31, 2009, were as follows (in thousands):
April 1 – December 31, 2009
  $ 0  
2010
    0  
2011
    0  
2012
    218,800  
Thereafter
    0  
 
  $ 218,800  
 
Senior unsecured notes
The Company’s 8% senior unsecured notes are due January 2012.  In the first quarter of 2009, the Company repurchased $6.2 million of principal value of senior notes for approximately $4.8 million resulting in a $1.4 million gain on the senior note repurchases.  The senior notes outstanding balance was $193.8 million at March 31, 2009.

Revolving credit facility
The Company’s $150 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2012 termination date and is collateralized by a first priority security interest in certain assets of Titan and its domestic subsidiaries.  At March 31, 2009, the borrowings under the credit facility bore an approximate 3¼% interest rate.

Cash borrowings under this credit facility were $25.0 million and outstanding letters of credit were $5.0 million at March 31, 2009, leaving $120.0 million of unused availability on the credit facility.

The credit 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, 2009.

Revolving credit facility amendment & restatement
On January 30, 2009, Titan International, Inc. amended and restated its credit facility with Bank of America, N.A.  The amendment included a multi-year extension that extended the credit facility termination date to January 2012 from the previous October 2009 date.  The amendment created an accordion feature within the credit facility that set the initial loan availability at $150 million with the ability to request increases up to a maximum availability of $250 million.  The amendment adjusted the borrowing rates within a pricing grid that includes a minimum 1½% LIBOR rate.
 
 
8

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

9.  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, 2009, 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, 2009
  $ 1,334  
2010
    1,430  
2011
    691  
2012
    40  
Thereafter
    1  
Total future minimum lease payments
  $ 3,496  
 
10.  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 four 401(k) retirement savings plans.

The components of net periodic pension cost (income) consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2009
   
2008
 
Interest cost
  $ 1,364     $ 1,324  
Expected return on assets
    (1,234 )     (1,954 )
Amortization of unrecognized prior service cost
    34       34  
Amortization of unrecognized deferred taxes
    (14 )     (14 )
Amortization of net unrecognized loss
    1,076       397  
Net periodic pension cost (income)
  $ 1,226     $ (213 )

The Company expects to contribute approximately $1 million to the pension plans during the remainder of 2009.
 
11.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2009
   
2008
 
Royalty expense
  $ 2,459     $ 2,147  

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 $2.5 million and $2.1 million for the first quarter of 2009 and 2008, respectively.

 
9

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

12.  OTHER INCOME

Other income consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2009
   
2008
 
Gain on senior note repurchases
  $ 1,398     $ 0  
Interest income
    64       515  
Other (expense) income
    (53 )     905  
    $ 1,409     $ 1,420  

The gain on senior note repurchases of $1.4 million resulted from the Company’s repurchase of $6.2 million of principal value of senior notes for approximately $4.8 million in the first quarter of 2009.
 
13.  INCOME TAXES

Income tax expense consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2009
   
2008
 
Income tax expense
  $ 4,501     $ 5,422  

The Company recorded income tax expense of $4.5 million and $5.4 million for the quarters ended March 31, 2009 and 2008, respectively.  The Company’s effective income tax rate was 39% and 40% for the three months ended March 31, 2009 and 2008, respectively.

14.  COMPREHENSIVE INCOME

The Company’s comprehensive income consisted of the following:  (i) for the quarter ended March 31, 2009, net income of $7.0 million, amortization of pension adjustments of $0.7 million and unrealized loss on the Titan Europe Plc investment of $(1.7) million for a total comprehensive income of $6.0 million; (ii) 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.

15.  EARNINGS PER SHARE

Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
   
Three months ended
 
   
March 31, 2009
   
March 31, 2008
 
   
Net
Income
   
Weighted average shares
   
Per share amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 7,041       34,624     $ .20     $ 8,134       34,264     $ .24  
Effect of stock options/trusts
    0       553               0       474          
Diluted EPS
  $ 7,041       35,177     $ .20     $ 8,134       34,738     $ .23  
 
 
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 months ended March 31, 2009 and 2008 (in thousands):
   
Three months ended March 31,
 
   
2009
   
2008
 
Revenues from external customers
           
Agricultural
  $ 187,328     $ 173,486  
Earthmoving/construction
    39,927       73,833  
Consumer
    5,349       6,206  
    $ 232,604     $ 253,525  
                 
Gross profit
               
Agricultural
  $ 24,920     $ 19,693  
Earthmoving/construction
    4,884       11,911  
Consumer
    788       1,049  
Unallocated corporate
    (529 )     (309 )
    $ 30,063     $ 32,344  
                 
Income from operations
               
Agricultural
  $ 20,085     $ 16,443  
Earthmoving/construction
    3,840       9,802  
Consumer
    637       869  
Unallocated corporate
    (10,485 )     (10,994 )
Consolidated income from operations
    14,077       16,120  
Interest expense
    (3,944 )     (3,984 )
Other income, net
    1,409       1,420  
Income before income taxes
  $ 11,542     $ 13,556  

Assets by segment were as follows (in thousands):
   
March 31,
   
December 31,
 
Total Assets
 
2009
   
2008
 
Agricultural
  $ 399,652     $ 360,030  
Earthmoving/construction
    182,559       188,486  
Consumer
    12,276       9,401  
Unallocated corporate
    49,886       96,865  
Consolidated totals
  $ 644,373     $ 654,782  
 
17.  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)

18.  FAIR VALUE MEASUREMENTS

The adoption of SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, effective January 1, 2009, did not have a material impact on Titan’s consolidated financial position, results of operations or 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, 2009
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Investment in Titan Europe Plc
  $ 2,462     $ 2,462     $ 0     $ 0  
Investments for contractual obligations
    4,322       4,322       0       0  
Total
  $ 6,784     $ 6,784     $ 0     $ 0  
 
19.  RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards Number 141 (revised 2007)
In January 2009, the Company adopted, SFAS No. 141 (revised 2007), “Business Combinations.”  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.  The adoption of SFAS No. 141 (revised 2007) had no material effect on the Company’s financial position, results of operations or cash flows.

FASB Staff Position No. FAS 107-1 and APB 28-1
In April 2009, FASB Staff Position (FSP) No. FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments,” was issued.  This FSP amends FASB Statement No. 107, “Disclosures about Fair Value of Financial Instruments,’ to require disclosures about fair value of financial instruments for interim reporting periods of publicly traded companies as well as in annual financial statements.  This FSP also amends APB Opinion No. 28, “Interim Financial Reporting,” to require disclosures in summarized financial information at interim reporting periods.  This FSP is effective for interim reporting periods ending after June 15, 2009.

FASB Staff Position No. FAS 115-2 and FAS 124-2
In April 2009, FSP No. FAS 115-2 and FAS 124-2, “Recognition and Presentation of Other-Than-Temporary Impairments,” was issued.  This FSP amends the other-than-temporary impairment guidance in U.S. GAAP for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements.  This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.  This FSP is effective for interim reporting periods ending after June 15, 2009.  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)
 
20.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 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 March 31, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 232,604     $ 0     $ 0     $ 232,604  
Cost of sales
    221       202,320       0       0       202,541  
Gross (loss) profit
    (221 )     30,284       0       0       30,063  
Selling, general and administrative expenses
    4,691       8,834       2       0       13,527  
Royalty expense
    0       2,459       0       0       2,459  
(Loss) income from operations
    (4,912 )     18,991       (2 )     0       14,077  
Interest expense
    (3,944 )     0       0       0       (3,944 )
Other income
    1,296       113       0       0       1,409  
(Loss) income before income taxes
    (7,560 )     19,104       (2 )     0       11,542  
(Benefit) provision for income taxes
    (2,948 )     7,450       (1 )     0       4,501  
Equity in earnings of subsidiaries
    11,653       0       0       (11,653 )     0  
Net income (loss)
  $ 7,041     $ 11,654     $ (1 )   $ (11,653 )   $ 7,041  


   
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  

 
13

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

 
   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
March 31, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 20,011     $ 18     $ 201     $ 0     $ 20,230  
Accounts receivable
    (296 )     126,098       0       0       125,802  
Inventories
    0       167,631       0       0       167,631  
Prepaid and other current assets
    13,932       17,970       0       0       31,902  
  Total current assets
    33,647       311,717       201       0       345,565  
Property, plant and equipment, net
    7,171       253,906       0       0       261,077  
Investment in subsidiaries
    37,959       0       0       (37,959 )     0  
Other assets
    16,807       18,461       2,463       0       37,731  
Total assets
  $ 95,584     $ 584,084     $ 2,664     $ (37,959 )   $ 644,373  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 4,343     $ 49,618     $ 0     $ 0     $ 53,961  
Other current liabilities
    2,443       42,336       1,000       0       45,779  
  Total current liabilities
    6,786       91,954       1,000       0       99,740  
Long-term debt
    218,800       0       0       0       218,800  
Other long-term liabilities
    4,331       35,448       0       0       39,779  
Intercompany accounts
    (420,387 )     450,379       (29,992 )     0       0  
Stockholders’ equity
    286,054       6,303       31,656       (37,959 )     286,054  
Total liabilities and stockholders’ equity
  $ 95,584     $ 584,084     $ 2,664     $ (37,959 )   $ 644,373  


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
December 31, 2008
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 59,011     $ 60     $ 2,587     $ 0     $ 61,658  
Accounts receivable
    (127 )     126,658       0       0       126,531  
Inventories
    0       147,306       0       0       147,306  
Prepaid and other current assets
    17,117       16,573       14       0       33,704  
Total current assets
    76,001       290,597       2,601       0       369,199  
Property, plant and equipment, net
    6,160       242,282       0       0       248,442  
Investment in subsidiaries
    31,474       0       0       (31,474 )     0  
Other assets
    15,842       18,650       2,649       0       37,141  
Total assets
  $ 129,477     $ 551,529     $ 5,250     $ (31,474 )   $ 654,782  
                                         
Liabilities and Stockholders’ Equity
                                       
Short-term debt
  $ 25,000     $ 0     $ 0     $ 0     $ 25,000  
Accounts payable
    3,106       62,441       0       0       65,547  
Other current liabilities
    10,548       34,540       1,000       0       46,088  
Total current liabilities
    38,654       96,981       1,000       0       136,635  
Long-term debt
    200,000       0       0       0       200,000  
Other long-term liabilities
    3,943       35,016       0       0       38,959  
Intercompany accounts
    (392,308 )     419,738       (27,430 )     0       0  
Stockholders’ equity
    279,188       (206 )     31,680       (31,474 )     279,188  
Total liabilities and stockholders’ equity
  $ 129,477     $ 551,529     $ 5,250     $ (31,474 )   $ 654,782  

 
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, 2009
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash (used for) provided by operating activities
  $ (32,630 )   $ 18,613     $ 13     $ (14,004 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    (1,266 )     (18,667 )     0       (19,933 )
  Acquisition of shares of Titan Europe Plc
    0       0       (2,399 )     (2,399 )
  Other, net
    0       12       0       12  
    Net cash used for investing activities
    (1,266 )     (18,655 )     (2,399 )     (22,320 )
                                 
Cash flows from financing activities:
                               
  Payment on senior note
    (4,726 )     0       0       (4,726 )
  Proceeds from exercise of stock options
    800       0       0       800  
  Payment of financing fees
    (1,070 )     0       0       (1,070 )
  Other, net
    (108 )     0       0       (108 )
    Net cash used for financing activities
    (5,104 )     0       0       (5,104 )
                                 
Net decrease in cash and cash equivalents
    (39,000 )     (42 )     (2,386 )     (41,428 )
Cash and cash equivalents, beginning of period
    59,011       60       2,587       61,658  
Cash and cash equivalents, end of period
  $ 20,011     $ 18     $ 201     $ 20,230  


   
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  

 
 
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 2008 annual report on Form 10-K filed with the Securities and Exchange Commission on February 26, 2009.

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:
 
·  
The effect of the current banking and credit crisis on the Company and its customers and suppliers
 
·  
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