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, 2010

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
 
April 22, 2010
     
Common stock, no par value per share
 
35,289,584

 
 

 
 
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, 2010 and 2009
1
     
 
Consolidated Condensed Balance Sheets as of
March 31, 2010, and December 31, 2009
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2010
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2010 and 2009
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 1A.
Risk Factors
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,
 
   
2010
   
2009
 
Net sales
  $ 196,448     $ 232,604  
Cost of sales
    170,361       202,541  
Gross profit
    26,087       30,063  
Selling, general and administrative expenses
    11,809       12,528  
Research and development expenses
    2,027       999  
Royalty expense
    2,121       2,459  
Income from operations
    10,130       14,077  
Interest expense
    (7,056 )     (3,944 )
Other income
    333       1,409  
Income before income taxes
    3,407       11,542  
Provision for income taxes
    1,329       4,501  
Net income
  $ 2,078     $ 7,041  
Earnings per common share:
               
Basic
  $ .06     $ .20  
Diluted
    .06       .20  
Average common shares outstanding:
               
Basic
    34,772       34,624  
Diluted
    35,329       35,177  
 

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
 
2010
   
2009
 
Current assets
               
Cash and cash equivalents
  $ 215,215     $ 229,182  
Accounts receivable
    102,302       67,513  
Inventories
    129,598       110,136  
Deferred income taxes
    9,833       11,108  
Prepaid and other current assets
    24,178       27,277  
Total current assets
    481,126       445,216  
                 
Property, plant and equipment, net
    249,304       254,461  
Deferred income taxes
    7,396       7,253  
Other assets
    27,402       29,533  
                 
Total assets
  $ 765,228     $ 736,463  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 46,678     $ 24,246  
Other current liabilities
    50,039       45,826  
Total current liabilities
    96,717       70,072  
                 
Long-term debt
    366,300       366,300  
Other long-term liabilities
    38,576       38,138  
Total liabilities
    501,593       474,510  
                 
Stockholders’ equity
               
Common stock (no par, 120,000,000 shares authorized, 37,475,288 issued)
    30       30  
Additional paid-in capital
    299,512       299,519  
Retained earnings
    18,279       16,377  
Treasury stock (at cost, 2,199,778 and 2,214,347 shares, respectively)
    (20,144 )     (20,274 )
Treasury stock reserved for contractual obligations
    (5,393 )     (5,393 )
Accumulated other comprehensive loss
    (28,649 )     (28,306 )
Total stockholders’ equity
    263,635       261,953  
                 
Total liabilities and stockholders’ equity
  $ 765,228     $ 736,463  

 
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, 2010
   # 35,260,941     $ 30     $ 299,519     $ 16,377     $ (20,274 )   $ (5,393 )   $ (28,306 )   $ 261,953  
                                                                 
Comprehensive income:
                                                               
Net income
                            2,078                               2,078  
Pension liability adjustments, net of tax
                                                    575       575  
Unrealized loss on investment, net of tax
                                                    (918 )     (918 )
Comprehensive income
                                                            1,735  
Dividends on common stock
                            (176 )                             (176 )
Issuance of treasury stock under 401(k) plan
    14,569               (7 )             130                       123  
                                                                 
Balance March 31, 2010
   # 35,275,510     $ 30     $ 299,512     $ 18,279     $ (20,144 )   $ (5,393 )   $ (28,649 )   $ 263,635  

 
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,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net income
  $ 2,078     $ 7,041  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    9,281       7,966  
Deferred income tax provision
    1,275       0  
Gain on senior note repurchase
    0       (1,398 )
Excess tax benefit from stock options exercised
    0       (67 )
Issuance of treasury stock under 401(k) plan
    123       136  
(Increase) decrease in assets:
               
Accounts receivable
    (34,789 )     729  
Inventories
    (19,462 )     (20,325 )
Prepaid and other current assets
    3,099       1,802  
Other assets
    46       25  
Increase (decrease) in liabilities:
               
Accounts payable
    22,432       (11,586 )
Other current liabilities
    4,413       (243 )
Other liabilities
    1,365       1,916  
Net cash used for operating activities
    (10,139 )     (14,004 )
                 
Cash flows from investing activities:
               
Capital expenditures
    (3,508 )     (19,933 )
Acquisition of shares of Titan Europe Plc
    0       (2,399 )
Other
    42       12  
Net cash used for investing activities
    (3,466 )     (22,320 )
                 
Cash flows from financing activities:
               
Repurchase of senior notes
    0       (4,726 )
Proceeds from exercise of stock options
    0       800  
Excess tax benefit from stock options exercised
    0       67  
Payment of financing fees
    (186 )     (1,070 )
Dividends paid
    (176 )     (175 )
Net cash used for financing activities
    (362 )     (5,104 )
                 
Net decrease in cash and cash equivalents
    (13,967 )     (41,428 )
                 
Cash and cash equivalents at beginning of period
    229,182       61,658  
                 
Cash and cash equivalents at end of period
  $ 215,215     $ 20,230  

 
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, 2010, and the results of operations and cash flows for the three months ended March 31, 2010 and 2009.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2009 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 2009 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 8% notes due 2012 (senior notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $193.8 million and $172.5 million at March 31, 2010, respectively.  The fair value of these notes at March 31, 2010, as obtained through independent pricing sources, was approximately $193.8 million for the senior notes and approximately $182.9 million for the convertible notes.
 
Cash dividends
The Company declared cash dividends of $.005 per share of common stock for each of the three months ended March 31, 2010 and 2009.
 
2.  ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2010
   
2009
 
Accounts receivable
  $ 106,676     $ 71,471  
Allowance for doubtful accounts
    (4,374 )     (3,958 )
Accounts receivable, net
  $ 102,302     $ 67,513  

The Company had net accounts receivable balance of $102.3 million at March 31, 2010, and $67.5 million at December 31, 2009.  These amounts are net of allowance for doubtful accounts of $4.4 million at March 31, 2010, and $4.0 million at December 31, 2009.

 
5

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

3.  INVENTORIES

Inventories consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2010
   
2009
 
Raw materials
  $ 44,376     $ 44,336  
Work-in-process
    24,563       21,378  
Finished goods
    60,638       46,067  
      129,577       111,781  
Adjustment to LIFO basis
    21       (1,645 )
    $ 129,598     $ 110,136  

Inventories were $129.6 million at March 31, 2010, and $110.1 million at December 31, 2009.  At March 31, 2010, cost is determined using the first-in, first-out (FIFO) method for approximately 74% of inventories and the last-in, first-out (LIFO) method for approximately 26% of the inventories.  At December 31, 2009, the FIFO method was used for approximately 74% of inventories and LIFO was used for approximately 26% of the inventories.  Included in the inventory balances were reserves for slow-moving and obsolete inventory of $2.5 million at March 31, 2010, and $2.3 million at December 31, 2009.


4.  PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2010
   
2009
 
Land and improvements
  $ 2,993     $ 2,993  
Buildings and improvements
    97,263       97,238  
Machinery and equipment
    358,937       359,244  
Tools, dies and molds
    78,267       77,926  
Construction-in-process
    18,514       16,383  
      555,974       553,784  
Less accumulated depreciation
    (306,670 )     (299,323 )
    $ 249,304     $ 254,461  

The Company had property, plant and equipment of $249.3 million and $254.5 million at March 31, 2010 and December 31, 2009, respectively.  Depreciation on fixed assets for the three months ended March 31, 2010 and 2009, totaled $8.6 million and $7.3 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,
 
   
2010
   
2009
 
Investment in Titan Europe Plc
  $ 5,043     $ 6,456  

Titan Europe Plc is publicly traded on the AIM market in London, England.  The Company’s investment in Titan Europe represents a 22.9% ownership percentage.  The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe Plc should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe Plc.  The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Condensed Balance Sheets.  Titan’s cost basis in Titan Europe is $5.0 million.  The decreased value in the Titan Europe Plc investment at March 31, 2010, was due to a lower publicly quoted Titan Europe Plc market price and a lower exchange rate.
 
6.  WARRANTY

Changes in the warranty liability consisted of the following (in thousands):
 
 
2010
   
2009
 
Warranty liability, January 1
  $ 9,169     $ 7,488  
Provision for warranty liabilities
    3,629       3,025  
Warranty payments made
    (3,377 )     (2,971 )
Warranty liability, March 31
  $ 9,421     $ 7,542  

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)

7.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2010
   
2009
 
Senior unsecured 8% notes due 2012
  $ 193,800     $ 193,800  
Convertible senior subordinated 5.625% notes due 2017
    172,500       172,500  
Revolving credit facility
    0       0  
      366,300       366,300  
Less:  Amounts due within one year
    0       0  
    $ 366,300     $ 366,300  

Aggregate maturities of long-term debt at March 31, 2010, were as follows (in thousands):
April 1 – December 31, 2010
  $ 0  
2011
    0  
2012
    193,800  
2013
    0  
2014
    0  
Thereafter
    172,500  
 
  $ 366,300  
 
Senior unsecured 8% notes due 2012
The Company’s senior unsecured 8% notes (senior 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 Company’s senior notes outstanding balance was $193.8 million at March 31, 2010.

Convertible senior subordinated 5.625% notes due 2017
The Company’s convertible senior subordinated 5.625% notes (convertible notes) are due January 2017.   The initial base conversion rate for the convertible notes is 93.0016 shares of Titan common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan common stock.  If the price of Titan common stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan common stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture.  The base conversion rate will be subject to adjustment in certain events.  The Company’s convertible notes balance was $172.5 million at March 31, 2010.

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.  During the first quarter of 2010 and at March 31, 2010, there were no borrowings under the credit facility.
 
The credit facility has an accordion feature that sets 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.   Titan is in compliance with these covenants and restrictions as of March 31, 2010.

 
8

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

8.  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, 2010, 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, 2010
  $ 1,135  
2011
    735  
2012
    64  
2013
    14  
Thereafter
    1  
Total future minimum lease payments
  $ 1,949  
 
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 Company expects to contribute approximately $2 million to the pension plans during the remainder of 2010.

The components of net periodic pension cost consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Interest cost
  $ 1,300     $ 1,364  
Expected return on assets
    (1,227 )     (1,234 )
Amortization of unrecognized prior service cost
    34       34  
Amortization of unrecognized deferred taxes
    (14 )     (14 )
Amortization of net unrecognized loss
    907       1,076  
Net periodic pension cost
  $ 1,000     $ 1,226  
 
10.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Royalty expense
  $ 2,121     $ 2,459  

The Company has a trademark 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 $2.1 million and $2.5 million for the first quarter of 2010 and 2009, respectively.

 
9

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

11.  OTHER INCOME

Other income consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Gain on senior note repurchases
  $ 0     $ 1,398  
Investment gain (loss) on contractual obligations
    196       (103 )
Interest income
    94       64  
Other income
    43       50  
    $ 333     $ 1,409  

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.
 
12.  INCOME TAXES

Income tax expense consisted of the following (in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Income tax expense
  $ 1,329     $ 4,501  

The Company recorded income tax expense of $1.3 million and $4.5 million for the quarters ended March 31, 2010 and 2009, respectively.  The Company’s effective income tax rate was 39% for both of the three months ended March 31, 2010 and 2009.
 
13.  COMPREHENSIVE INCOME

The Company’s comprehensive income consisted of the following:  (i) for the quarter ended March 31, 2010, net income of $2.1 million, amortization of pension adjustments of $0.5 million and unrealized loss on the Titan Europe Plc investment of $(0.9) million for a total comprehensive income of $1.7 million; (ii) 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.
 
14.  EARNINGS PER SHARE

Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
   
Three months ended
 
   
March 31, 2010
   
March 31, 2009
 
   
Net
Income
   
Weighted average shares
   
Per share amount
   
Net
Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 2,078       34,772     $ .06     $ 7,041       34,624     $ .20  
Effect of stock options/trusts
    0       557               0       553          
Diluted EPS
  $ 2,078       35,329     $ .06     $ 7,041       35,177     $ .20  
 
The effect of convertible notes has been excluded for the three months ended March 31, 2010, as the effect would have been antidilutive.  The weighted average share amount excluded for convertible notes totaled 16.0 million shares.

 
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 months ended March 31, 2010 and 2009 (in thousands):

   
Three months ended March 31,
 
   
2010
   
2009
 
Revenues from external customers
           
Agricultural
  $ 151,112     $ 187,328  
Earthmoving/construction
    41,815       39,927  
Consumer
    3,521       5,349  
    $ 196,448     $ 232,604  
                 
Gross profit
               
Agricultural
  $ 23,890     $ 24,920  
Earthmoving/construction
    3,150       4,884  
Consumer
    668       788  
Unallocated corporate
    (1,621 )     (529 )
    $ 26,087     $ 30,063  
                 
Income from operations
               
Agricultural
  $ 19,955     $ 20,085  
Earthmoving/construction
    690       3,840  
Consumer
    581       637  
Unallocated corporate
    (11,096 )     (10,485 )
Consolidated income from operations
    10,130       14,077  
Interest expense
    (7,056 )     (3,944 )
Other income, net
    333       1,409  
Income before income taxes
  $ 3,407     $ 11,542  

Assets by segment were as follows (in thousands):
   
March 31,
   
December 31,
 
Total Assets
 
2010
   
2009
 
Agricultural
  $ 314,692     $ 257,523  
Earthmoving/construction
    195,753       188,169  
Consumer
    8,669       8,305  
Unallocated corporate
    246,114       282,466  
Consolidated totals
  $ 765,228     $ 736,463  
 
16.  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 effect 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)

17.  FAIR VALUE MEASUREMENTS

ASC 820 Fair Value Measurements 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):

   
March 31, 2010
   
December 31, 2009
 
   
Total
   
Level 1
   
Levels 2&3
   
Total
   
Level 1
   
Levels 2&3
 
Investments for contractual obligations
  $ 6,064     $ 6,064     $ 0     $ 5,869     $ 5,869     $ 0  
Investment in Titan Europe Plc
    5,043       5,043       0       6,456       6,456       0  
Total
  $ 11,107     $ 11,107     $ 0     $ 12,325     $ 12,325     $ 0  
 
18.  RECENTLY ISSUED ACCOUNTING STANDARDS
 
Fair Value Measurements and Disclosures
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.”  This guidance requires new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements.  This guidance requires separate presentation about purchases, sales, issuances, and settlements for activity in Level 3 fair value measurements.   ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value.  The guidance for new disclosures and clarifications of existing disclosures was effective for interim and annual reporting periods beginning after December 15, 2009.  The adoption of this part of the guidance had no material effect on the Company’s financial position, results of operations or cash flows.  The guidance related to presentation of Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010.  The adoption of this part of the guidance is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
 
Subsequent Events
In February 2010, the FASB issued ASU 2010-9, “Subsequent Events (Topic 855) – Amendments to Certain Recognition and Disclosure Requirements.”   This guidance removes the requirement for an entity that files financial statements with the Securities and Exchange Commission to disclose a date through which subsequent events have been evaluated.  This guidance was effective immediately.  The adoption of this guidance had no material effect on the Company’s financial position, results of operations or cash flows.

 
12

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

19.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 8% senior unsecured notes and 5.625% convertible senior subordinated 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, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 196,448     $ 0     $ 0     $ 196,448  
Cost of sales
    1,324       169,037       0       0       170,361  
Gross profit (loss)
    (1,324 )     27,411       0       0       26,087  
Selling, general and administrative expenses
    4,864       6,906       39       0       11,809  
Research and development expenses
    0       2,027       0       0       2,027  
Royalty expense
    0       2,121       0       0       2,121  
Income (loss) from operations
    (6,188 )     16,357       (39 )     0       10,130  
Interest expense
    (7,056 )     0       0       0       (7,056 )
Other income (expense)
    290       44       (1 )     0       333  
Income (loss) before income taxes
    (12,954 )     16,401       (40 )     0       3,407  
Provision (benefit) for income taxes
    (5,052 )     6,396       (15 )     0       1,329  
Equity in earnings of subsidiaries
    9,980       0       0       (9,980 )     0  
Net income (loss)
  $ 2,078     $ 10,005     $ (25 )   $ (9,980 )   $ 2,078  


   
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 profit (loss)
    (221 )     30,284       0       0       30,063  
Selling, general and administrative expenses
    4,688       7,838       2       0       12,528  
Research and development expenses
    3       996       0       0       999  
Royalty expense
    0       2,459       0       0       2,459  
Income (loss) 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  
Income (loss) before income taxes
    (7,560 )     19,104       (2 )     0       11,542  
Provision (benefit) 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  


 
13

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


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
March 31, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 215,046     $ 25     $ 144     $ 0     $ 215,215  
Accounts receivable
    0       102,302       0       0       102,302  
Inventories
    0       129,598       0       0       129,598  
Prepaid and other current assets
    15,876       18,135       0       0       34,011  
  Total current assets
    230,922       250,060       144       0       481,126  
Property, plant and equipment, net
    2,487       246,817       0       0       249,304  
Investment in subsidiaries
    17,745       0       0       (17,745 )     0  
Other assets
    23,577       6,178       5,043       0       34,798  
  Total assets
  $ 274,731     $ 503,055     $ 5,187     $ (17,745 )   $ 765,228  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,491     $ 45,187     $ 0     $ 0     $ 46,678  
Other current liabilities
    2,708       47,331       0       0       50,039  
  Total current liabilities
    4,199       92,518       0       0       96,717  
Long-term debt
    366,300       0       0       0       366,300  
Other long-term liabilities
    5,978       32,598       0       0       38,576  
Intercompany accounts
    (365,381 )     391,737       (26,356 )     0       0  
Stockholders’ equity
    263,635       (13,798 )     31,543       (17,745 )     263,635  
  Total liabilities and stockholders’ equity
  $ 274,731     $ 503,055     $ 5,187     $ (17,745 )   $ 765,228  

   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
December 31, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 229,004     $ 11     $ 167     $ 0     $ 229,182  
Accounts receivable
    (201 )     67,714       0       0       67,513  
Inventories
    0       110,136       0       0       110,136  
Prepaid and other current assets
    19,857       18,528       0       0       38,385  
Total current assets
    248,660       196,389       167       0       445,216  
Property, plant and equipment, net
    7,602       246,859       0       0       254,461  
Investment in subsidiaries
    10,748       0       0       (10,748 )     0  
Other assets
    23,870       6,460       6,456       0       36,786  
  Total assets
  $ 290,880     $ 449,708     $ 6,623     $ (10,748 )   $ 736,463  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,086     $ 23,160     $ 0     $ 0     $ 24,246  
Other current liabilities
    8,288       37,538       0       0       45,826  
Total current liabilities
    9,374       60,698       0       0       70,072  
Long-term debt
    366,300       0       0       0       366,300  
Other long-term liabilities
    5,574       32,564       0       0       38,138  
Intercompany accounts
    (352,321 )     377,281       (24,960 )     0       0  
Stockholders’ equity
    261,953       (20,835 )     31,583       (10,748 )     261,953  
  Total liabilities and stockholders’ equity
  $ 290,880     $ 449,708     $ 6,623     $ (10,748 )   $ 736,463  


 
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, 2010
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ (13,596 )   $ 3,480     $ (23 )   $ (10,139 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    0       (3,508 )     0       (3,508 )
  Other, net
    0       42       0       42  
    Net cash used for investing activities
    0       (3,466 )     0       (3,466 )
                                 
Cash flows from financing activities:
                               
  Payment of financing fees
    (186 )     0       0       (186 )
  Other, net
    (176 )     0       0       (176 )
    Net cash used for financing activities
    (362 )     0       0       (362 )
                                 
Net increase (decrease) in cash and cash equivalents
    (13,958 )     14       (23 )     (13,967 )
Cash and cash equivalents, beginning of period
    229,004       11       167       229,182  
Cash and cash equivalents, end of period
  $ 215,046     $ 25     $ 144     $ 215,215  


   
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 provided by (used for) 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  
 

 
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 2009 annual report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2010.

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 acquisition and divestiture opportunities

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 economic crisis and recession 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
 
·  
Ability to maintain satisfactory labor relations
 
·  
Unfavorable outcomes of legal proceedings
 
·  
Availability and price of raw materials
 
·  
Levels of operating efficiencies
 
·  
Unfavorable product liability and warranty claims
 
·  
Actions of domestic and foreign governments
 
·  
Results of investments
 
·  
Fluctuations in currency translations
 
·  
Ability to secure financing at reasonable terms
 
·  
Laws and regulations related to climate change
 
·  
Risks associated with environmental laws and regulations

Any changes in such factors could lead to significantly different results.  The Company cannot provide any assurance that the assumptions referred to in the forward-looking statements or otherwise are accurate or will prove to transpire.  Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements.  The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.  In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this document will in fact transpire.

 
16

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

OVERVIEW
 
Titan International, Inc. and its subsidiaries are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets.  Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies.  The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.

Agricultural Market:  Titan’s agricultural rims, wheels and tires are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers and Titan’s own distribution centers.

Earthmoving/Construction Market:  The Company manufactures rims, wheels and tires for various types of off-the-road (OTR) earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders.  The earthmoving/construction market is often referred to as OTR, an acronym for off-the-road.

Consumer Market:  Titan builds select products for all-terrain vehicles (ATV), turf, golf and trailer applications.  The Company provides wheels/tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets.

The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company and Kubota Corporation, in addition to many other off-highway equipment manufacturers.  The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.

The following table provides highlights for the quarter ended March, 2010, compared to 2009 (amounts in thousands):
   
Three months ended March 31,
       
   
2010
   
2009
   
% Decrease
 
Net sales
  $ 196,448     $ 232,604       (16 )%
Gross profit
    26,087       30,063       (13 )%
Income from operations
    10,130       14,077       (28 )%
Net income
    2,078       7,041       (70 )%

The Company recorded sales of $196.4 million for the first quarter of 2010, which were 16% lower than the first quarter 2009 sales of $232.6 million.  The lower sales were primarily the result of reduced demand in the Company’s agricultural market which was down by approximately 19% when compared to last year’s first quarter.

The following operating results were primarily related to the reduced sales levels and the associated negative impact on the Company’s operating profit.  The Company’s gross profit was $26.1 million for the first quarter of 2010, compared to $30.1 million in 2009.  Net income was $2.1 million for the quarter, compared to $7.0 million in 2009.  Basic earnings per share were $.06 in the first quarter of 2010, compared to $.20 in 2009.

 
17

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

 
 
CRITICAL ACCOUNTING ESTIMATES
 
Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates.  The Company’s application of these policies involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures.  A future change in the estimates, assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.

Inventories
Inventories are valued at lower of cost or market.  Cost is determined using the first-in, first-out (FIFO) method for approximately 74% of inventories and the last-in, first-out (LIFO) method for approximately 26% of inventories.  The major rubber material inventory and related work-in-process and their finished goods are accounted for under the FIFO method.  The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method.  Market value is estimated based on current selling prices.  Estimated provisions are established for slow-moving and obsolete inventory, as well as inventory carried above market price based on historical experience.  Should there be an adverse change in experience, increases to estimated provisions would be necessary.

Income Taxes
Deferred income tax provisions are determined using the liability method whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax basis of assets and liabilities.  The Company assesses the realizability of its deferred tax asset positions and recognizes and measures uncertain tax positions in accordance with ASC 740 Income Taxes.

As a result of the 2009 net loss, the Company has a net operating loss carryforward for income tax purposes.  If Titan would continue to incur net losses, the Company may not be able to realize the tax benefit of these net operating losses.

Asset and Business Acquisitions
The allocation of purchase price for asset and business acquisitions requires management estimates and judgment as to expectations for future cash flows of the acquired assets and business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocations.  If the actual results differ from the estimates and judgments used in determining the purchase price allocations, impairment losses could occur relating to any intangibles recorded in the acquisition.  To aid in establishing the value of any intangible assets at the time of acquisition, the Company typically engages a professional appraisal firm.

Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts.  These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations.  The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement.  During the first three months of 2010, the Company contributed cash funds of $0.1 million to its frozen pension plans.  Titan expects to contribute approximately $2 million to these frozen defined pension plans during the remainder of 2010.  For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 20 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2009.

 
18

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

RESULTS OF OPERATIONS
 
Highlights for the three months ended March 31, 2010, compared to 2009 (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Net sales
  $ 196,448     $ 232,604  
Cost of sales
    170,361       202,541  
Gross profit
  $ 26,087     $ 30,063  
Gross profit margin
    13.3 %     12.9 %

Net Sales
Net sales for the quarter ended March 31, 2010, were $196.4 million, compared to $232.6 million in 2009.  The sales decreased by approximately 16%, primarily the result of reduced demand in the Company’s agricultural market, which was down by approximately 19% when compared to last year’s first quarter.  The Company believes the agricultural industry, along with the earthmoving/construction and consumer markets, are continuing to be affected by the on-going uncertainty in domestic and global economic conditions.

Cost of Sales and Gross Profit
Cost of sales was $170.4 million for the first quarter of 2010, compared to $202.5 million in 2009.  The lower cost of sales resulted primarily from the reduction in the quarterly sales levels.  The cost of sales decreased by approximately 16%, the same percentage as the net sales.

Gross profit for the first quarter of 2010 was $26.1 million, or 13.3% of net sales, compared to $30.1 million, or 12.9% of net sales, for the first quarter of 2009.  The gross profit margin showed a slight improvement despite the reduction in sales, primarily due to improved manufacturing efficiencies, including reduced headcount, in the Company’s agricultural segment.

Selling, General and Administrative Expenses
Selling, general and administrative expenses were as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Selling, general and administrative
  $ 11,809     $ 12,528  
Percentage of net sales
    6.0 %     5.4 %

Selling, general and administrative (SG&A) expenses for the first quarter of 2010 were $11.8 million, or 6.0% of net sales, compared to $12.5 million, or 5.4% of net sales, for 2009.  When the SG&A expenses are expressed as a percentage of net sales, the percentage is higher due to the lower sales levels.  Selling expenses decreased approximately $0.5 million, primarily as the result of the lower sales levels.

Research and Development Expenses
Research and development expenses were as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Research and development
  $ 2,027     $ 999  
Percentage of net sales
    1.0 %     0.4 %

Research and development (R&D) expenses were $2.0 million, or 1.0% of net sales, for the first quarter of 2010 as compared to $1.0 million, or 0.4% of net sales, for the first quarter of 2009.  The additional R&D costs recorded during the first quarter of approximately $1 million primarily related to the giant off-the-road (OTR) products.

 
19

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations

Royalty Expense
Royalty expense was as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Royalty expense
  $ 2,121     $ 2,459  

The Company has a trademark 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 were $2.1 million and $2.5 million for the first quarter of 2010 and 2009, respectively.  As sales subject to the trademark license agreement were lower, the Company’s royalty expense for the first quarter of 2010 was reduced accordingly.

Income from Operations
Income from operations was as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Income from operations
  $ 10,130     $ 14,077  
Percentage of net sales
    5.2 %     6.1 %

Income from operations for the first quarter of 2010 was $10.1 million, or 5.2% of net sales, compared to $14.1 million, or 6.1% of net sales, in 2009.  This reduction was the net result of the items discussed in the (i) sales, (ii) cost of sales, (iii) selling general and administrative, (iv) research and development and (v) royalty line items.

Interest Expense
Interest expense was as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Interest expense
  $ 7,056     $ 3,944  

Interest expense was $7.1 million for the first quarter of 2010, compared to $3.9 million in 2009.  The Company’s interest expense for the first quarter of 2010 increased from the previous year primarily as a result of interest expense related to the convertible senior subordinated 5.625% notes that were issued in December of 2009.

Other Income
Other income was as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010
   
2009
 
Other income
  $ 333     $ 1,409  

Other income for the first quarter of 2010 was $0.3 million, compared to $1.4 million in 2009.  A gain on senior note repurchases of $1.4 million was included in other income for the first quarter of 2009.
 
Income Taxes
Income taxes were as follows (amounts in thousands):
   
Three months ended March 31,
 
   
2010