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, 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 þ  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 þ
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 þ

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 26, 2009
     
Common stock, no par value per share
 
35,260,941

 
 

 

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, 2009 and 2008
1
     
 
Consolidated Condensed Balance Sheets as of
September 30, 2009, and December 31, 2008
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Nine Months Ended September 30, 2009
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 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 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,
 
   
2009
   
2008
   
2009
   
2008
 
Net sales
  $ 141,496     $ 255,463     $ 581,083     $ 778,102  
Cost of sales
    144,526       218,040       524,304       666,389  
Gross profit (loss)
    (3,030 )     37,423       56,779       111,713  
Selling, general & administrative expenses
    11,272       13,789       39,425       43,155  
Royalty expense
    1,464       2,371       6,123       6,786  
Income (loss) from operations
    (15,766 )     21,263       11,231       61,772  
Interest expense
    (3,997 )     (3,734 )     (11,819 )     (11,426 )
Other income (expense)
    644       (358 )     2,700       2,559  
Income (loss) before income taxes
    (19,119 )     17,171       2,112       52,905  
Income tax provision (benefit)
    (8,006 )     6,868       274       21,162  
Net income (loss)
  $ (11,113 )   $ 10,303     $ 1,838     $ 31,743  
Earnings (loss) per common share:
                               
Basic
  $ (.32 )   $ .30     $ .05     $ .92  
Diluted
    (.32 )     .30       .05       .91  
Average common shares outstanding:
                               
Basic
    34,746       34,499       34,692       34,373  
Diluted
    34,746       34,883       35,251       34,798  
 

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
 
2009
   
2008
 
Current assets
           
Cash and cash equivalents
  $ 45,360     $ 61,658  
Accounts receivable
    80,205       126,531  
Inventories
    124,833       147,306  
Deferred income taxes
    12,042       12,042  
Prepaid and other current assets
    23,898       21,662  
Total current assets
    286,338       369,199  
                 
Property, plant and equipment, net
    260,360       248,442  
Goodwill
    11,702       11,702  
Deferred income taxes
    4,039       7,256  
Other assets
    26,155       18,183  
                 
Total assets
  $ 588,594     $ 654,782  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
   Short-term debt
  $ 0     $ 25,000  
Accounts payable
    25,064       65,547  
Other current liabilities
    40,933       46,088  
Total current liabilities
    65,997       136,635  
                 
Long-term debt
    193,800       200,000  
Other long-term liabilities
    42,001       38,959  
Total liabilities
    301,798       375,594  
                 
Stockholders’ equity
               
Common stock (no par, 60,000,000 shares authorized, 37,475,288 issued)
    30       30  
Additional paid-in capital
    299,614       300,024  
Retained earnings
    43,036       41,726  
Treasury stock (at cost, 2,216,759 and 2,443,604 shares, respectively)
    (20,296 )     (22,332 )
Treasury stock reserved for contractual obligations
    (5,501 )     (5,501 )
Accumulated other comprehensive loss
    (30,087 )     (34,759 )
Total stockholders’ equity
    286,796       279,188  
                 
Total liabilities and stockholders’ equity
  $ 588,594     $ 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
                            1,838                               1,838  
Pension liability adjustments, net of tax
                                                    2,039       2,039  
Unrealized gain on investment, net of tax
                                                    2,633       2,633  
Comprehensive income
                                                            6,510  
Dividends on common stock
                            (528 )                             (528 )
Exercise of stock options
    170,000               (298 )             1,526                       1,228  
Issuance of treasury stock under 401(k) plan
    56,845               (112 )             510                       398  
                                                                 
Balance September 30, 2009
   #  35,258,529     $ 30     $ 299,614     $ 43,036     $ (20,296 )   $ (5,501 )   $ (30,087 )   $ 286,796  

 
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,
 
   
2009
   
2008
 
Cash flows from operating activities:
           
Net income
  $ 1,838     $ 31,743  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    24,759       21,543  
Deferred income tax provision
    550       7,537  
Gain on senior note repurchase
    (1,398 )     0  
Excess tax benefit from stock options exercised
    (86 )     (4,131 )
Issuance of treasury stock under 401(k) plan
    398       400  
(Increase) decrease in assets:
               
Accounts receivable
    46,326       (50,080 )
Inventories
    22,473       (15,651 )
Prepaid and other current assets
    (2,236 )     (4,252 )
Other assets
    (1,753 )     (108 )
Increase (decrease) in liabilities:
               
Accounts payable
    (40,483 )     40,954  
Other current liabilities
    (5,070 )     6,082  
Other liabilities
    6,330       (3,869 )
Net cash provided by operating activities
    51,648       30,168  
                 
Cash flows from investing activities:
               
Capital expenditures
    (36,482 )     (60,144 )
Acquisition of shares of Titan Europe Plc
    (2,399 )     0  
Other
    1,030       104  
Net cash used for investing activities
    (37,851 )     (60,040 )
                 
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       3,537  
Excess tax benefit from stock options exercised
    86       4,131  
Payment of financing fees
    (1,070 )     0  
Dividends paid
    (527 )     (412 )
Other
    0       (70 )
Net cash (used for) provided by financing activities
    (30,095 )     7,186  
                 
Net decrease in cash and cash equivalents
    (16,298 )     (22,686 )
                 
Cash and cash equivalents at beginning of period
    61,658       58,325  
                 
Cash and cash equivalents at end of period
  $ 45,360     $ 35,639  

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

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 September 30, 2009, the fair value of the senior unsecured notes, based on market prices, was approximately $186.5 million, compared to a carrying value of $193.8 million.
 
Cash dividends
The Company declared cash dividends of $.005 and $.015 per share of common stock for the three and nine months ended September 30, 2009, and $.005 and $.013 per share for the three and nine months ended September 30, 2008, respectively.  The third quarter 2009 cash dividend of $.005 per share of common stock was paid October 15, 2009, to stockholders of record on September 30, 2009.
 
Subsequent events
The Company has performed an evaluation of subsequent events through October 28, 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):
   
September 30,
   
December 31,
 
   
2009
   
2008
 
Accounts receivable
  $ 86,871     $ 133,170  
Allowance for doubtful accounts
    (6,666 )     (6,639 )
Accounts receivable, net
  $ 80,205     $ 126,531  

The Company had net accounts receivable balance of $80.2 million at September 30, 2009, and $126.5 million at December 31, 2008.  These amounts are net of allowance for doubtful accounts of $6.7 million at September 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):
   
September 30,
   
December 31,
 
   
2009
   
2008
 
Raw materials
  $ 48,442     $ 73,927  
Work-in-process
    22,939       26,820  
Finished goods
    55,857       56,488  
      127,238       157,235  
Adjustment to LIFO basis
    (2,405 )     (9,929 )
    $ 124,833     $ 147,306  

Inventories were $124.8 million at September 30, 2009, and $147.3 million at December 31, 2008.  At September 30, 2009, cost is determined using the first-in, first-out (FIFO) method for approximately 77% of inventories and the last-in, first-out (LIFO) method for approximately 23% 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 the result of lower raw material costs in the current year and lower inventory levels.  Included in the inventory balances were reserves for slow-moving and obsolete inventory of $3.4 million at September 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):
   
September 30,
   
December 31,
 
   
2009
   
2008
 
Land and improvements
  $ 2,993     $ 3,343  
Buildings and improvements
    96,924       99,650  
Machinery and equipment
    352,070       318,327  
Tools, dies and molds
    75,185       62,856  
Construction-in-process
    24,413       37,536  
      551,585       521,712  
Less accumulated depreciation
    (291,225 )     (273,270 )
    $ 260,360     $ 248,442  

At September 30, 2009, there was $17.6 million in construction-in-process related to the giant OTR mining tire project, including $1.7 million of capitalized interest.  Depreciation on fixed assets for the nine months ended September 30, 2009 and 2008, totaled $22.8 million and $19.4 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):
   
September 30,
   
December 31,
 
   
2009
   
2008
 
Investment in Titan Europe Plc
  $ 9,099     $ 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 Accounting Standards Codification (ASC) 323 Investments – Equity Method and Joint Ventures 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 ASC 320 Investments – 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 September 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):
   
September 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 nine 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
    12,735       8,574  
Warranty payments made
    (11,398 )     (8,005 )
Warranty liability, September 30
  $ 8,825     $ 6,423  

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):
   
September 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 September 30, 2009, were as follows (in thousands):
October 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 September 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 September 30, 2009, there were no cash borrowings under the credit facility.  Outstanding letters of credit were $5.0 million at September 30, 2009, leaving $145.0 million of unused availability on the credit facility.  During the first nine 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 to a January 2012 termination 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 September 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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Interest cost
  $ 1,364     $ 1,324     $ 4,092     $ 3,972  
Expected return on assets
    (1,235 )     (1,954 )     (3,703 )     (5,862 )
Amortization of unrecognized prior service cost
    34       34       102       102  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (42 )     (42 )
Amortization of net unrecognized loss
    1,076       397       3,228       1,191  
Net periodic pension cost (income)
  $ 1,225     $ (213 )   $ 3,677     $ (639 )

During the first nine months 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 September 30, 2009, 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, 2009
  $ 418  
2010
    1,429  
2011
    721  
2012
    52  
Thereafter
    1  
Total future minimum lease payments
  $ 2,621  
 
11.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Royalty expense
  $ 1,464     $ 2,371     $ 6,123     $ 6,786  

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 $1.5 million and $2.4 million for the three months ended September 30, 2009 and 2008, respectively.  Royalty expenses were $6.1 million and $6.8 million for the nine months ended September 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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Gain on senior note repurchases
  $ 0     $ 0     $ 1,398     $ 0  
Dividend income – Titan Europe Plc
    0       0       0       1,234  
Interest income
    35       338       147       1,212  
Other income (expense)
    609       (696 )     1,155       113  
    $ 644     $ (358 )   $ 2,700     $ 2,559  

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 provision (benefit) consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Income tax provision (benefit)
  $ (8,006 )   $ 6,868     $ 274     $ 21,162  

The Company recorded income tax benefit of $(8.0) million and income tax provision of $0.3 million for the three and nine months ended September 30, 2009, respectively, as compared to income tax provision of $6.9 million and $21.2 million for the three and nine months ended September 30, 2008.  The Company’s effective income tax rate was 13% and 40% for the nine months ended September 30, 2009 and 2008, respectively.  The 2009 effective income tax rate was impacted by a reduction to the Company’s income tax provision of $0.5 million that related to one of the Company’s foreign subsidiaries.  At this time, Titan currently projects a full year 2009 tax rate of approximately 40% for the Company.
 
14.  COMPREHENSIVE INCOME (LOSS)

The Company’s quarterly comprehensive loss consisted of the following:  (i) for the quarter ended September 30, 2009, net loss of $(11.1) million, amortization of pension adjustments of $0.7 million and unrealized gain on the Titan Europe Plc investment of $1.7 million for a total comprehensive loss of $(8.7) million; (ii) 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.

The Company’s year-to-date comprehensive income consisted of the following:  (i) for the nine months ended September 30, 2009, net income of $1.8 million, amortization of pension adjustments of $2.1 million and unrealized gain on the Titan Europe Plc investment of $2.6 million for a total comprehensive income of $6.5 million; (ii) 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.

 
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 nine months ended September 30, 2009 and 2008 (in thousands):

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2009
   
2008
   
2009
   
2008
 
Revenues from external customers
                       
Agricultural
  $ 105,426     $ 179,162     $ 453,098     $ 538,263  
Earthmoving/construction
    30,732       71,287       113,085       221,591  
Consumer
    5,338       5,014       14,900       18,248  
    $ 141,496     $ 255,463     $ 581,083     $ 778,102  
                                 
Gross profit (loss)
                               
Agricultural
  $ (522 )   $ 23,633     $ 48,400     $ 68,714  
Earthmoving/construction
    (1,815 )     11,072       8,727       38,658  
Consumer
    (142 )     1,008       1,254       3,438  
Corporate expenses
    (551 )     1,710       (1,602 )     903  
    $ (3,030 )   $ 37,423     $ 56,779     $ 111,713  
                                 
Income (loss) from operations
                               
Agricultural
  $ (3,775 )   $ 19,465     $ 35,530     $ 57,918  
Earthmoving/construction
    (2,951 )     9,454       3,711       32,649  
Consumer
    (282 )     854       842       2,913  
Corporate expenses
    (8,758 )     (8,510 )     (28,852 )     (31,708 )
Income (loss) from operations
    (15,766 )     21,263       11,231       61,772  
Interest expense
    (3,997 )     (3,734 )     (11,819 )     (11,426 )
Other income (expense)
    644       (358 )     2,700       2,559  
Income (loss) before income taxes
  $ (19,119 )   $ 17,171     $ 2,112     $ 52,905  

Assets by segment were as follows (in thousands):
   
September 30,
   
December 31,
 
Total Assets
 
2009
   
2008
 
Agricultural segment
  $ 295,729     $ 360,030  
Earthmoving/construction segment
    191,977       188,486  
Consumer segment
    12,353       9,401  
Other assets
    88,535       96,865  
    $ 588,594     $ 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,
 
   
September 30, 2009
   
September 30, 2008
 
   
Net
Loss
   
Weighted average shares
   
Per share
amount
   
Net
Income
   
Weighted average shares
   
Per share
amount
 
Basic EPS
  $ (11,113 )     34,746     $ (.32 )   $ 10,303       34,499     $ .30  
Effect of stock options/trusts
    0       0               0       384          
Diluted EPS
  $ (11,113 )     34,746     $ (.32 )   $ 10,303       34,883     $ .30  
 
 
   
Nine months ended,
 
   
September 30, 2009
   
September 30, 2008
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 1,838       34,692     $ .05     $ 31,743       34,373     $ .92  
Effect of stock options/trusts
    0       559               0       425          
Diluted EPS
  $ 1,838       35,251     $ .05     $ 31,743       34,798     $ .91  

The effect of stock options/trusts has been excluded for the three months ended September 30, 2009, as the effect would have been antidilutive.  The weighted average share amount excluded was 0.6 million shares.  The weighted-average diluted shares outstanding for the three and nine months ended September 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 guidance in ASC 820 Fair Value Measurements 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.

ASC 820 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):

   
September 30, 2009
   
December 31, 2008
 
   
Total
   
Level 1
   
Levels 2 & 3
   
Total
   
Level 1
   
Levels 2 & 3
 
Investment in Titan Europe Plc
  $ 9,099     $ 9,099     $ 0     $ 2,649     $ 2,649     $ 0  
Investments for contractual obligations
    5,454       5,454       0       4,426       4,426       0  
Total
  $ 14,553     $ 14,553     $ 0     $ 7,075     $ 7,075     $ 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

Accounting Guidance on Business Combinations
In January 2009, the Company adopted revised accounting guidance on business combinations.  This guidance 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 this guidance had no material effect on the Company’s financial position, results of operations or cash flows.

Accounting Guidance on Interim Disclosures about Fair Value of Financial Instruments
In April 2009, the Financial Accounting Standards Board (FASB) issued accounting guidance on interim disclosures about fair value of financial instruments.  This guidance amends previous guidance 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 guidance also amends previous guidance to require disclosures in summarized financial information at interim reporting periods.  This guidance was effective for interim reporting periods ending after June 15, 2009.  The adoption of this guidance had no material effect on the Company’s financial position, results of operations or cash flows.

Accounting Guidance on Other-Than-Temporary-Impairments
In April 2009, accounting guidance on recognition and presentation of other-than-temporary impairments was issued.  This guidance amends the other-than-temporary impairment guidance in U.S. Generally Accepted Accounting Principles (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 guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities.  This guidance was effective for interim reporting periods ending after June 15, 2009.  The adoption of this guidance had no material effect on the Company’s financial position, results of operations or cash flows.

Accounting Guidance on Subsequent Events
In June 2009, the Company adopted accounting guidance on subsequent events.  The objective of this guidance 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 guidance was effective for interim periods ending after June 15, 2009.  The adoption of this guidance had no material effect on the Company’s financial position, results of operations or cash flows.

Accounting Guidance on Accounting Standards Codification and Generally Accepted Accounting Principles
In June 2009, FASB issued accounting guidance on the FASB Accounting Standards Codification (Codification) and the hierarchy of GAAP.  This guidance establishes the 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 guidance was effective for financial statements issued for interim and annual periods ending after September 15, 2009.  The adoption of this guidance had 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 September 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 141,496     $ 0     $ 0     $ 141,496  
Cost of sales
    273       144,253       0       0       144,526  
Gross loss
    (273 )     (2,757 )     0       0       (3,030 )
Selling, general and administrative expenses
    3,514       7,736       22       0       11,272  
Royalty expense
    0       1,464       0       0       1,464  
Loss from operations
    (3,787 )     (11,957 )     (22 )     0       (15,766 )
Interest expense
    (3,997 )     0       0       0       (3,997 )
Other income
    618       26       0       0       644  
Loss before income taxes
    (7,166 )     (11,931 )     (22 )     0       (19,119 )
Income tax provision (benefit)
    3,070       (11,085 )     9       0       (8,006 )
Equity in loss of subsidiaries
    (877 )     0       0       877       0  
Net loss
  $ (11,113 )   $ (846 )   $ (31 )   $ 877     $ (11,113 )
 

   
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  
Income (loss) from operations
    (2,473 )     23,741       (5 )     0       21,263  
Interest expense
    (3,734 )     0       0       0       (3,734 )
Other income (expense)
    (398 )     40       0       0       (358 )
Income (loss) before income taxes
    (6,605 )     23,781       (5 )     0       17,171  
Income tax provision (benefit)
    (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  
 
 
14

 
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, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 581,083     $ 0     $ 0     $ 581,083  
Cost of sales
    707       523,597       0       0       524,304  
Gross profit (loss)
    (707 )     57,486       0       0       56,779  
Selling, general and administrative expenses
    12,475       26,885       65       0       39,425  
Royalty expense
    0       6,123       0       0       6,123  
Income (loss) from operations
    (13,182 )     24,478       (65 )     0       11,231  
Interest expense
    (11,819 )     0       0       0       (11,819 )
Other income
    2,470       230       0       0       2,700  
Income (loss) before income taxes
    (22,531 )     24,708       (65 )     0       2,112  
Income tax provision (benefit)
    (2,922 )     3,204       (8 )     0       274  
Equity in earnings of subsidiaries
    21,447       0       0       (21,447 )     0  
Net income (loss)
  $ 1,838     $ 21,504     $ (57 )   $ (21,447 )   $ 1,838  


   
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  
Income (loss) 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  
Income (loss) before income taxes
    (23,936 )     75,673       1,168       0       52,905  
Income tax provision (benefit)
    (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  
 
 
15

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

   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
September 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 45,136     $ 29     $ 195     $ 0     $ 45,360  
Accounts receivable
    0       80,205       0       0       80,205  
Inventories
    0       124,833       0       0       124,833  
Prepaid and other current assets
    17,746       18,194       0       0       35,940  
  Total current assets
    62,882       223,261       195       0       286,338  
Property, plant and equipment, net
    7,709       252,651       0       0       260,360  
Investment in subsidiaries
    33,433       0       0       (33,433 )     0  
Other assets
    14,354       18,443       9,099       0       41,896  
Total assets
  $ 118,378     $ 494,355     $ 9,294     $ (33,433 )   $ 588,594  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 2,050     $ 23,014     $ 0     $ 0     $ 25,064  
Other current liabilities
    12,644       28,289       0       0       40,933  
  Total current liabilities
    14,694       51,303       0       0       65,997  
Long-term debt
    193,800       0       0       0       193,800  
Other long-term liabilities
    5,105       36,896       0       0