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, 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

 
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
 
July 28, 2009
     
Common stock, no par value per share
 
35,258,529

 
 

 

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, 2009 and 2008
1
     
 
Consolidated Condensed Balance Sheets as of
June 30, 2009, and December 31, 2008
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Six Months Ended June 30, 2009
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 2009 and 2008
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,
 
   
2009
   
2008
   
2009
   
2008
 
Net sales
  $ 206,983     $ 269,114     $ 439,587     $ 522,639  
Cost of sales
    177,237       227,168       379,778       448,349  
Gross profit
    29,746       41,946       59,809       74,290  
Selling, general & administrative expenses
    14,626       15,289       28,153       29,366  
Royalty expense
    2,200       2,268       4,659       4,415  
Income from operations
    12,920       24,389       26,997       40,509  
Interest expense
    (3,878 )     (3,708 )     (7,822 )     (7,692 )
Other income
    647       1,497       2,056       2,917  
Income before income taxes
    9,689       22,178       21,231       35,734  
Provision for income taxes
    3,779       8,872       8,280       14,294  
Net income
  $ 5,910     $ 13,306     $ 12,951     $ 21,440  
Earnings per common share:
                               
Basic
  $ .17     $ .39     $ .37     $ .62  
Diluted
    .17       .38       .37       .62  
Average common shares outstanding:
                               
Basic
    34,704       34,358       34,664       34,311  
Diluted
    35,265       34,774       35,221       34,756  
 
 
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
 
2009
   
2008
 
Current assets
           
Cash and cash equivalents
  $ 20,684     $ 61,658  
Accounts receivable
    104,723       126,531  
Inventories
    150,023       147,306  
Deferred income taxes
    12,042       12,042  
Prepaid and other current assets
    20,388       21,662  
Total current assets
    307,860       369,199  
                 
Property, plant and equipment, net
    263,398       248,442  
Goodwill
    11,702       11,702  
Deferred income taxes
    5,913       7,256  
Other assets
    23,101       18,183  
                 
Total assets
  $ 611,974     $ 654,782  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
   Short-term debt
  $ 0     $ 25,000  
Accounts payable
    31,332       65,547  
Other current liabilities
    50,060       46,088  
Total current liabilities
    81,392       136,635  
                 
Long-term debt
    193,800       200,000  
Other long-term liabilities
    41,193       38,959  
Total liabilities
    316,385       375,594  
                 
Stockholders’ equity
               
Common stock (no par, 60,000,000 shares authorized, 37,475,288 issued)
    30       30  
Additional paid-in capital
    299,641       300,024  
Retained earnings
    54,325       41,726  
Treasury stock (at cost, 2,234,338 and 2,443,604 shares, respectively)
    (20,453 )     (22,332 )
Treasury stock reserved for contractual obligations
    (5,501 )     (5,501 )
Accumulated other comprehensive loss
    (32,453 )     (34,759 )
Total stockholders’ equity
    295,589       279,188  
                 
Total liabilities and stockholders’ equity
  $ 611,974     $ 654,782  
 
 
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
   
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
                            12,951                               12,951  
Pension liability adjustments, net of tax
                                                    1,359       1,359  
Unrealized gain on investment, net of tax
                                                    947       947  
Comprehensive income
                                                            15,257  
Dividends on common stock
                            (352 )                             (352 )
Exercise of stock options
    170,000               (298 )             1,526                       1,228  
Issuance of treasury stock under 401(k) plan
    39,266               (85 )             353                       268  
                                                                 
Balance June 30, 2009
    35,240,950     $ 30     $ 299,641     $ 54,325     $ (20,453 )   $ (5,501 )   $ (32,453 )   $ 295,589  
 

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,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net income
  $ 12,951     $ 21,440  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    16,289       14,392  
Deferred income tax provision
    0       7,379  
Gain on senior note repurchase
    (1,398 )     0  
Excess tax benefit from stock options exercised
    (86 )     (3,913 )
Issuance of treasury stock under 401(k) plan
    268       266  
(Increase) decrease in current assets:
               
Accounts receivable
    21,808       (41,044 )
Inventories
    (2,717 )     9,965  
Prepaid and other current assets
    1,274       (3,947 )
Other assets
    (637 )     (567 )
Increase (decrease) in current liabilities:
               
Accounts payable
    (34,215 )     26,983  
Other current liabilities
    4,057       10,531  
Other liabilities
    4,426       1,539  
Net cash provided by operating activities
    22,020       43,024  
                 
Cash flows from investing activities:
               
Capital expenditures
    (31,702 )     (38,912 )
Acquisition of shares of Titan Europe Plc
    (2,399 )     0  
Other
    1,026       89  
Net cash used for investing activities
    (33,075 )     (38,823 )
                 
Cash flows from financing activities:
               
Repurchase of senior notes
    (4,726 )     0  
Payment on debt
    (25,000 )     0  
Proceeds from exercise of stock options
    1,142       3,220  
Excess tax benefit from stock options exercised
    86       3,913  
Payment of financing fees
    (1,070 )     0  
Dividends paid
    (351 )     (274 )
Net cash (used for) provided by financing activities
    (29,919 )     6,859  
                 
Net (decrease) increase in cash and cash equivalents
    (40,974 )     11,060  
                 
Cash and cash equivalents at beginning of period
    61,658       58,325  
                 
Cash and cash equivalents at end of period
  $ 20,684     $ 69,385  
                 
 

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, 2009, the results of operations for the three and six months ended June 30, 2009 and 2008, and cash flows for the six months ended June 30, 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 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.

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals and notes payable at cost, which approximates fair value.  Investments in marketable equity securities are recorded at fair value.  The senior unsecured notes are the only significant financial instrument of the Company with a fair value different from the recorded value.  At June 30, 2009, the fair value of the senior unsecured notes, based on market prices obtained through independent pricing sources, was approximately $174.7 million, compared to a carrying value of $193.8 million.
 
Cash dividends
The Company declared cash dividends of $.005 and $.010 per share of common stock for the three and six months ended June 30, 2009, and $.004 and $.008 per share for the three and six months ended June 30, 2008, respectively.  The second quarter 2009 cash dividend of $.005 per share of common stock was paid July15, 2009, to stockholders of record on June 30, 2009.
 
Subsequent events
The Company has performed an evaluation of subsequent events through July 30, 2009, which is the date the financial statements were filed with the Securities and Exchange Commission.

2.  ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Accounts receivable
  $ 112,026     $ 133,170  
Allowance for doubtful accounts
    (7,303 )     (6,639 )
Accounts receivable, net
  $ 104,723     $ 126,531  

The Company had net accounts receivable balance of $104.7 million at June 30, 2009, and $126.5 million at December 31, 2008.  These amounts are net of allowance for doubtful accounts of $7.3 million at June 30, 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):
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Raw materials
  $ 60,518     $ 73,927  
Work-in-process
    21,571       26,820  
Finished goods
    69,819       56,488  
      151,908       157,235  
Adjustment to LIFO basis
    (1,885 )     (9,929 )
    $ 150,023     $ 147,306  

Inventories were $150.0 million at June 30, 2009, and $147.3 million at December 31, 2008.  At June 30, 2009, cost is determined using the first-in, first-out (FIFO) method for approximately 75% of inventories and the last-in, first-out (LIFO) method for approximately 25% 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.  The change in the adjustment to LIFO basis was primarily the result of lower raw material costs in the current year.  Included in the inventory balances were reserves for slow-moving and obsolete inventory of $4.0 million at June 30, 2009, and $3.8 million at December 31, 2008.
 
4.  PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Land and improvements
  $ 2,955     $ 3,343  
Buildings and improvements
    96,831       99,650  
Machinery and equipment
    343,245       318,327  
Tools, dies and molds
    70,375       62,856  
Construction-in-process
    33,904       37,536  
      547,310       521,712  
Less accumulated depreciation
    (283,912 )     (273,270 )
    $ 263,398     $ 248,442  

At June 30, 2009, there was $24.7 million in construction-in-process related to the giant OTR mining tire project, including $1.2 million of capitalized interest.  Depreciation on fixed assets for the six months ended June 30, 2009 and 2008, totaled $15.0 million and $13.0 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):
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Investment in Titan Europe Plc
  $ 6,505     $ 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 increased value in the Titan Europe Plc investment at June 30, 2009, was due to a higher publicly quoted Titan Europe Plc market price and additional purchased shares.
 
6.  GOODWILL

The carrying amount of goodwill by segment consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2009
   
2008
 
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 impairments were recorded in the first six 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
    7,008       4,511  
Warranty payments made
    (7,101 )     (4,099 )
Warranty liability, June 30
  $ 7,395     $ 6,266  

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):
   
June 30,
   
December 31,
 
   
2009
   
2008
 
Senior unsecured notes
  $ 193,800     $ 200,000  
Revolving credit facility
    0       25,000  
      193,800       225,000  
Less:  Amounts due within one year
    0       25,000  
    $ 193,800     $ 200,000  

Aggregate maturities of long-term debt at June 30, 2009, were as follows (in thousands):
July 1 – December 31, 2009
  $ 0  
2010
    0  
2011
    0  
2012
    193,800  
Thereafter
    0  
    $ 193,800  

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 June 30, 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 June 30, 2009, there were no cash borrowings under the credit facility.  Outstanding letters of credit were $5.0 million at June 30, 2009, leaving $145.0 million of unused availability on the credit facility.  During the first six months of 2009, the borrowings under the credit facility bore an approximate 3¼% interest rate.

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 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 June 30, 2009.

 
8

 
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 previously purchased a final annuity settlement.  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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Interest cost
  $ 1,364     $ 1,324     $ 2,728     $ 2,648  
Expected return on assets
    (1,234 )     (1,954 )     (2,468 )     (3,908 )
Amortization of unrecognized prior service cost
    34       34       68       68  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (28 )     (28 )
Amortization of net unrecognized loss
    1,076       397       2,152       794  
Net periodic pension cost (income)
  $ 1,226     $ (213 )   $ 2,452     $ (426 )

During the first half of 2009, 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 2009.
 
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, 2009, 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, 2009
  $ 852  
2010
    1,455  
2011
    716  
2012
    52  
Thereafter
    1  
Total future minimum lease payments
  $ 3,076  
 
11.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Royalty expense
  $ 2,200     $ 2,268     $ 4,659     $ 4,415  

The Company has 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 $2.2 million and $2.3 million for the quarters ended June 30, 2009 and 2008, respectively.  Royalty expenses were $4.7 million and $4.4 million for the six months ended June 30, 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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Gain on senior note repurchases
  $ 0     $ 0     $ 1,398     $ 0  
Dividend income – Titan Europe Plc
    0       1,234       0       1,234  
Interest income
    48       359       112       874  
Other income (expense)
    599       (96 )     546       809  
    $ 647     $ 1,497     $ 2,056     $ 2,917  

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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Income tax expense
  $ 3,779     $ 8,872     $ 8,280     $ 14,294  

The Company recorded income tax expense of $3.8 million and $8.3 million for the three and six months ended June 30, 2009, respectively, as compared to $8.9 million and $14.3 million for the three and six months ended June 30, 2008.  The Company’s effective income tax rate was 39% and 40% for the six months ended June 30, 2009 and 2008, respectively.
 
14.  COMPREHENSIVE INCOME

The Company’s quarterly comprehensive income consisted of the following:  (i) for the quarter ended June 30, 2009, net income of $5.9 million, amortization of pension adjustments of $0.7 million and unrealized gain on the Titan Europe Plc investment of $2.6 million for a total comprehensive income of $9.2 million; (ii) 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.

The Company’s year-to-date comprehensive income consisted of the following:  (i) for the six months ended June 30, 2009, net income of $13.0 million, amortization of pension adjustments of $1.4 million and unrealized gain on the Titan Europe Plc investment of $0.9 million for a total comprehensive income of $15.3 million; (ii) 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.

 
10

 
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, 2009 and 2008 (in thousands):

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2009
   
2008
   
2009
   
2008
 
Revenues from external customers
                       
Agricultural
  $ 160,344     $ 185,615     $ 347,672     $ 359,101  
Earthmoving/construction
    42,426       76,471       82,353       150,304  
Consumer
    4,213       7,028       9,562       13,234  
    $ 206,983     $ 269,114     $ 439,587     $ 522,639  
                                 
Gross profit
                               
Agricultural
  $ 24,002     $ 25,388     $ 48,922     $ 45,081  
Earthmoving/construction
    5,658       15,675       10,542       27,586  
Consumer
    608       1,381       1,396       2,430  
Corporate expenses
    (522 )     (498 )     (1,051 )     (807 )
    $ 29,746     $ 41,946     $ 59,809     $ 74,290  
                                 
Income from operations
                               
Agricultural
  $ 19,220     $ 22,010     $ 39,305     $ 38,453  
Earthmoving/construction
    2,822       13,393       6,662       23,195  
Consumer
    487       1,190       1,124       2,059  
Corporate expenses
    (9,609 )     (12,204 )     (20,094 )     (23,198 )
Income from operations
    12,920       24,389       26,997       40,509  
Interest expense
    (3,878 )     (3,708 )     (7,822 )     (7,692 )
Other income
    647       1,497       2,056       2,917  
Income before income taxes
  $ 9,689     $ 22,178     $ 21,231     $ 35,734  

Assets by segment were as follows (in thousands):
   
June 30,
   
December 31,
 
Total Assets
 
2009
   
2008
 
Agricultural segment
  $ 347,709     $ 360,030  
Earthmoving/construction segment
    196,879       188,486  
Consumer segment
    9,939       9,401  
Other assets
    57,447       96,865  
    $ 611,974     $ 654,782  
                 
 

 
11

 
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, 2009
   
June 30, 2008
 
   
Net
Income
   
Weighted average shares
   
Per share
amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 5,910       34,704     $ .17     $ 13,306       34,358     $ .39  
Effect of stock options/trusts
    0       561               0       416          
Diluted EPS
  $ 5,910       35,265     $ .17     $ 13,306       34,774     $ .38  
 

   
Six months ended,
 
   
June 30, 2009
   
June 30, 2008
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 12,951       34,664     $ .37     $ 21,440       34,311     $ .62  
Effect of stock options/trusts
    0       557               0       445          
Diluted EPS
  $ 12,951       35,221     $ .37     $ 21,440       34,756     $ .62  

The weighted-average diluted shares outstanding for the three and six months ended June 30, 2009, exclude stock options to purchase approximately 0.3 million shares for both periods, because such options have an exercise price in excess of the average market price of the Company’s common stock during the period.
 
17.  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 are defined as:
 
 
Level 1 – Quoted prices in active markets for identical instruments;
 
 
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
 
 
Level 3 – 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, 2009
 
   
Total
   
Level 1
   
Level 2
   
Level 3
 
Investment in Titan Europe Plc
  $ 6,505     $ 6,505     $ 0     $ 0  
Investments for contractual obligations
    4,871       4,871       0       0  
Total
  $ 11,376     $ 11,376     $ 0     $ 0  

 
 
12

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

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.  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 was effective for interim reporting periods ending after June 15, 2009.  The adoption of this FSP had no material effect on the Company’s financial position, results of operations or cash flows.

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 was effective for interim reporting periods ending after June 15, 2009.  The adoption of this FSP had no material effect on the Company’s financial position, results of operations or cash flows.

Statement of Financial Accounting Standards Number 165
In June 2009, the Company adopted SFAS No. 165, “Subsequent Events.”  The objective of this statement was to establish general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued.  This statement was effective for interim periods ending after June 15, 2009.  The adoption of this standard had no material effect on the Company’s financial position, results of operations or cash flows.

Statement of Financial Accounting Standards Number 168
In June 2009, SFAS No. 168, “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles,” was issued.  This Statement establishes the FASB Accounting Standards Codification, ("Codification") as the single source of authoritative GAAP to be applied by nongovernmental entities, except for the rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants.  This Statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption of this standard is expected to have no material effect on the Company’s financial position, results of operations or cash flows.

 
13

 
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 June 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 206,983     $ 0     $ 0     $ 206,983  
Cost of sales
    213       177,024       0       0       177,237  
Gross (loss) profit
    (213 )     29,959       0       0       29,746  
Selling, general and administrative expenses
    4,270       10,315       41       0       14,626  
Royalty expense
    0       2,200       0       0       2,200  
(Loss) income from operations
    (4,483 )     17,444       (41 )     0       12,920  
Interest expense
    (3,878 )     0       0       0       (3,878 )
Other income
    556       91       0       0       647  
(Loss) income before income taxes
    (7,805 )     17,535       (41 )     0       9,689  
(Benefit) provision for income taxes
    (3,044 )     6,839       (16 )     0       3,779  
Equity in earnings of subsidiaries
    10,671       0       0       (10,671 )     0  
Net income (loss)
  $ 5,910     $ 10,696     $ (25 )   $ (10,671 )   $ 5,910  


   
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  


 
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, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 439,587     $ 0     $ 0     $ 439,587  
Cost of sales
    434       379,344       0       0       379,778  
Gross (loss) profit
    (434 )     60,243       0       0       59,809  
Selling, general and administrative expenses
    8,961       19,149       43       0       28,153  
Royalty expense
    0       4,659       0       0       4,659  
(Loss) income from operations
    (9,395 )     36,435       (43 )     0       26,997  
Interest expense
    (7,822 )     0       0       0       (7,822 )
Other income
    1,852       204       0       0       2,056  
(Loss) income before income taxes
    (15,365 )     36,639       (43 )     0       21,231  
(Benefit) provision for income taxes
    (5,992 )     14,289       (17 )     0       8,280  
Equity in earnings of subsidiaries
    22,324       0       0       (22,324 )     0  
Net income
  $ 12,951     $ 22,350     $ (26 )   $ (22,324 )   $ 12,951  


   
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  


 
15

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


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
June 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 20,513     $ 25     $ 146     $ 0     $ 20,684  
Accounts receivable
    (66 )     104,789       0       0       104,723  
Inventories
    0       150,023       0       0       150,023  
Prepaid and other current assets
    14,989       17,441       0       0       32,430  
  Total current assets
    35,436       272,278       146       0       307,860  
Property, plant and equipment, net
    7,515       255,883       0       0       263,398  
Investment in subsidiaries
    43,578       0       0       (43,578 )     0  
Other assets
    15,135       19,076       6,505       0       40,716  
Total assets
  $ 101,664     $ 547,237     $ 6,651     $ (43,578 )   $ 611,974  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 2,313     $ 29,019     $ 0     $ 0     $ 31,332  
Other current liabilities
    10,689       38,371       1,000       0       50,060  
  Total current liabilities
    13,002       67,390       1,000       0       81,392  
Long-term debt
    193,800       0       0       0       193,800  
Other long-term liabilities
    4,718       36,475       0       0       41,193  
Intercompany accounts
    (405,445 )     431,356       (25,911 )     0       0  
Stockholders’ equity
    295,589       12,016       31,562       (43,578 )     295,589  
Total liabilities and stockholders’ equity
  $ 101,664     $ 547,237     $ 6,651     $ (43,578 )   $ 611,974  


   
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