form10q.htm  

 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
TITAN INTERNATIONAL, INC. LOGO
 
FORM 10-Q
 

þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly Period Ended: June 30, 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
 
July 23, 2010
     
Common stock, no par value per share
 
35,347,860

 
 

 

TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS
 
   
Page
Part I.
Financial Information
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Consolidated Condensed Statements of Operations
for the Three and Six Months Ended June 30, 2010 and 2009
1
     
 
Consolidated Condensed Balance Sheets as of
June 30, 2010, and December 31, 2009
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Six Months Ended June 30, 2010
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Six Months Ended June 30, 2010 and 2009
4
     
 
Notes to Consolidated Condensed Financial Statements
5-17
     
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
18-33
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
33
     
Item 4.
Controls and Procedures
33
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
34
     
Item 1A.
Risk Factors
34
     
Item 6.
Exhibits
34
     
 
Signatures
34
 
 
 

 

PART I.  FINANCIAL INFORMATION
 
Item 1.   Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)


   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net sales
  $ 229,656     $ 206,983     $ 426,104     $ 439,587  
Cost of sales
    195,753       177,237       366,114       379,778  
Gross profit
    33,903       29,746       59,990       59,809  
Selling, general & administrative expenses
    12,162       11,767       23,971       24,295  
Research and development expenses
    1,900       2,859       3,927       3,858  
Royalty expense
    2,413       2,200       4,534       4,659  
Income from operations
    17,428       12,920       27,558       26,997  
Interest expense
    (6,790 )     (3,878 )     (13,846 )     (7,822 )
Gain (loss) on senior note repurchase
    (2,722 )     0       (2,722 )     1,398  
Other income (expense)
    (427 )     647       (94 )     658  
Income before income taxes
    7,489       9,689       10,896       21,231  
Provision for income taxes
    2,920       3,779       4,249       8,280  
Net income
  $ 4,569     $ 5,910     $ 6,647     $ 12,951  
Earnings per common share:
                               
Basic
  $ .13     $ .17     $ .19     $ .37  
Diluted
    .12       .17       .19       .37  
Average common shares outstanding:
                               
Basic
    34,815       34,704       34,794       34,664  
Diluted
    51,407       35,265       35,347       35,221  
 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
1

 

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


   
June 30,
   
December 31,
 
Assets
 
2010
   
2009
 
Current assets
           
Cash and cash equivalents
  $ 158,253     $ 229,182  
Accounts receivable
    117,899       67,513  
Inventories
    138,418       110,136  
Deferred income taxes
    5,607       11,108  
Prepaid and other current assets
    24,008       27,277  
Total current assets
    444,185       445,216  
                 
Property, plant and equipment, net
    248,813       254,461  
Deferred income taxes
    4,788       7,253  
Other assets
    33,415       29,533  
                 
Total assets
  $ 731,201     $ 736,463  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 48,036     $ 24,246  
Other current liabilities
    52,360       45,826  
Total current liabilities
    100,396       70,072  
                 
Long-term debt
    318,948       366,300  
Other long-term liabilities
    38,703       38,138  
Total liabilities
    458,047       474,510  
                 
Stockholders’ equity
               
Common stock (no par, 120,000,000 shares authorized, 37,475,288 issued)
    30       30  
Additional paid-in capital
    299,348       299,519  
Retained earnings
    22,671       16,377  
Treasury stock (at cost, 2,140,704 and 2,214,347 shares, respectively)
    (19,613 )     (20,274 )
Treasury stock reserved for contractual obligations
    (5,393 )     (5,393 )
Accumulated other comprehensive loss
    (23,889 )     (28,306 )
Total stockholders’ equity
    273,154       261,953  
                 
Total liabilities and stockholders’ equity
  $ 731,201     $ 736,463  
 


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, 2010
   # 35,260,941     $ 30     $ 299,519     $ 16,377     $ (20,274 )   $ (5,393 )   $ (28,306 )   $ 261,953  
                                                                 
Comprehensive income:
                                                               
Net income
                            6,647                               6,647  
Pension liability adjustments, net of tax
                                                    1,149       1,149  
Unrealized gain on investment, net of tax
                                                    3,268       3,268  
Comprehensive income
                                                            11,064  
Dividends on common stock
                            (353 )                             (353 )
Exercise of stock options
    45,000               (163 )             404                       241  
Issuance of treasury stock under 401(k) plan
    28,643               (8 )             257                       249  
                                                                 
Balance June 30, 2010
   # 35,334,584     $ 30     $ 299,348     $ 22,671     $ (19,613 )   $ (5,393 )   $ (23,889 )   $ 273,154  
 


See accompanying Notes to Consolidated Condensed Financial Statements.

 
3

 

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

   
Six months ended
 
   
June 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net income
  $ 6,647     $ 12,951  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    18,635       16,289  
Deferred income tax provision
    5,501       0  
(Gain) loss on senior note repurchase
    2,722       (1,398 )
Excess tax benefit from stock options exercised
    0       (86 )
Issuance of treasury stock under 401(k) plan
    250       268  
(Increase) decrease in current assets:
               
Accounts receivable
    (50,386 )     21,808  
Inventories
    (28,282 )     (2,717 )
Prepaid and other current assets
    3,269       1,274  
Other assets
    (493 )     (637 )
Increase (decrease) in current liabilities:
               
Accounts payable
    23,790       (34,215 )
Other current liabilities
    6,734       4,057  
Other liabilities
    2,419       4,426  
Net cash provided by (used for) operating activities
    (9,194 )     22,020  
                 
Cash flows from investing activities:
               
Capital expenditures
    (11,735 )     (31,702 )
Acquisition of shares of Titan Europe Plc
    0       (2,399 )
Other
    43       1,026  
Net cash used for investing activities
    (11,692 )     (33,075 )
                 
Cash flows from financing activities:
               
Repurchase of senior notes
    (49,744 )     (4,726 )
Payment on debt
    0       (25,000 )
Proceeds from exercise of stock options
    240       1,142  
Excess tax benefit from stock options exercised
    0       86  
Payment of financing fees
    (186 )     (1,070 )
Dividends paid
    (353 )     (351 )
Net cash used for financing activities
    (50,043 )     (29,919 )
                 
Net decrease in cash and cash equivalents
    (70,929 )     (40,974 )
                 
Cash and cash equivalents at beginning of period
    229,182       61,658  
                 
Cash and cash equivalents at end of period
  $ 158,253     $ 20,684  
                 
 


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, necessary to present fairly the Company’s financial position as of June 30, 2010, the results of operations for the three and six months ended June 30, 2010 and 2009, and cash flows for the six months ended June 30, 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 financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable and other accruals at cost, which approximates fair value.  Investments in marketable equity securities are recorded at fair value.  The senior unsecured 8% notes due January 2012 (senior notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $146.4 million and $172.5 million at June 30, 2010, respectively.  The fair value of these notes at June 30, 2010, as obtained through independent pricing sources, was approximately $143.5 million for the senior notes and approximately $203.9 million for the convertible notes.
 
Cash dividends
The Company declared cash dividends of $.005 and $.010 per share of common stock for each of the three and six months ended June 30, 2010 and 2009.  The second quarter 2010 cash dividend of $.005 per share of common stock was paid July 15, 2010, to stockholders of record on June 30, 2010.
 
2.  ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Accounts receivable
  $ 122,134     $ 71,471  
Allowance for doubtful accounts
    (4,235 )     (3,958 )
Accounts receivable, net
  $ 117,899     $ 67,513  

The Company had net accounts receivable balance of $117.9 million at June 30, 2010, and $67.5 million at December 31, 2009.  These amounts are net of allowance for doubtful accounts of $4.2 million at June 30, 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):
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Raw materials
  $ 51,740     $ 44,336  
Work-in-process
    20,844       21,378  
Finished goods
    66,100       46,067  
      138,684       111,781  
Adjustment to LIFO basis
    (266 )     (1,645 )
    $ 138,418     $ 110,136  

Inventories were $138.4 million at June 30, 2010, and $110.1 million at December 31, 2009.  At June 30, 2010, cost is determined using the first-in, first-out (FIFO) method for approximately 69% of inventories and the last-in, first-out (LIFO) method for approximately 31% 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 $2.3 million at both June 30, 2010, and December 31, 2009.
 
4.  PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Land and improvements
  $ 2,993     $ 2,993  
Buildings and improvements
    97,287       97,238  
Machinery and equipment
    362,581       359,244  
Tools, dies and molds
    82,132       77,926  
Construction-in-process
    18,781       16,383  
      563,774       553,784  
Less accumulated depreciation
    (314,961 )     (299,323 )
    $ 248,813     $ 254,461  

The Company had property, plant and equipment of $248.8 million and $254.5 million at June 30, 2010, and December 31, 2009, respectively.  Depreciation on fixed assets for the six months ended June 30, 2010 and 2009, totaled $17.3 million and $15.0 million, respectively.

 
6

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

5.  INVESTMENT IN TITAN EUROPE PLC

Investment in Titan Europe Plc consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Investment in Titan Europe Plc
  $ 11,484     $ 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.  Titan’s other comprehensive income includes a gain on the Titan Europe Plc investment of $4.2 million, which is net of tax of $2.3 million.  The increased value in the Titan Europe Plc investment at June 30, 2010, was due primarily to a higher publicly quoted Titan Europe Plc market price.
 
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
    8,613       7,008  
Warranty payments made
    (7,294 )     (7,101 )
Warranty liability, June 30
  $ 10,488     $ 7,395  

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.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following (in thousands):
   
June 30,
   
December 31,
 
   
2010
   
2009
 
Senior unsecured 8% notes due January 2012
  $ 146,448     $ 193,800  
Convertible senior subordinated 5.625% notes due 2017
    172,500       172,500  
Revolving credit facility
    0       0  
      318,948       366,300  
Less:  Amounts due within one year
    0       0  
    $ 318,948     $ 366,300  


 
7

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

Aggregate maturities of long-term debt at June 30, 2010, were as follows (in thousands):
July 1 – December 31, 2010
  $ 0  
2011
    0  
2012
    146,448  
2013
    0  
2014
    0  
Thereafter
    172,500  
    $ 318,948  

Senior unsecured 8% notes due January 2012
The Company’s senior unsecured 8% notes (senior notes) are due January 2012.  In the second quarter of 2010, the Company repurchased $47.4 million of principal value of senior notes resulting in a loss on senior note repurchase of $2.7 million.  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 $146.4 million at June 30, 2010.

Tender offer and loss on senior note repurchase
In May 2010, the Company commenced a tender offer to purchase its issued and outstanding senior unsecured 8% notes due January 2012.  As of the expiration of the tender offer on June 10, 2010, there were $47.4 million of the notes tendered and accepted for payment which represented 24.4% of the principal amount of notes outstanding.  In connection with the tender offer, Titan recorded expenses of $2.7 million in the second quarter of 2010.  These expenses were related to: (i) early tender premium of $2.3 million, (ii) unamortized deferred financing fees of $0.3 million and (iii) other fees of $0.1 million.

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 June 30, 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 six months of 2010 and at June 30, 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 June 30, 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 June 30, 2010, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
July 1 – December 31, 2010
  $ 771  
2011
    734  
2012
    63  
2013
    14  
Thereafter
    1  
Total future minimum lease payments
  $ 1,583  

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 $1 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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Interest cost
  $ 1,300     $ 1,364     $ 2,600     $ 2,728  
Expected return on assets
    (1,227 )     (1,234 )     (2,454 )     (2,468 )
Amortization of unrecognized prior service cost
    34       34       68       68  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (28 )     (28 )
Amortization of net unrecognized loss
    907       1,076       1,814       2,152  
Net periodic pension cost
  $ 1,000     $ 1,226     $ 2,000     $ 2,452  


10.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Royalty expense
  $ 2,413     $ 2,200     $ 4,534     $ 4,659  

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 $2.4 million and $2.2 million for the quarters ended June 30, 2010 and 2009, respectively.  Royalty expenses were $4.5 million and $4.7 million for the six months ended June 30, 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
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Investment gain (loss) on contractual obligations
  $ (549 )   $ 548     $ (353 )   $ 445  
Interest income
    80       48       174       112  
Other income
    42       51       85       101  
    $ (427 )   $ 647     $ (94 )   $ 658  
 
12.  INCOME TAXES

Income tax expense consisted of the following (in thousands):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Income tax expense
  $ 2,920     $ 3,779     $ 4,249     $ 8,280  

The Company recorded income tax expense of $2.9 million and $4.2 million for the three and six months ended June 30, 2010, respectively, as compared to $3.8 million and $8.3 million for the three and six months ended June 30, 2009.  The Company’s effective income tax rate was 39% for both of the six months ended June 30, 2010 and 2009.
 
13.  COMPREHENSIVE INCOME
 
Comprehensive income consisted of the following (in thousands):
   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net income
  $ 4,569     $ 5,910     $ 6,647     $ 12,951  
Unrealized gain on investment, net of tax
    4,186       2,628       3,268       947  
Pension liability adjustments, net of tax
    574       680       1,149       1,359  
    $ 9,329     $ 9,218     $ 11,064     $ 15,257  


 
10

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

14.  SEGMENT INFORMATION

The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three and six months ended June 30, 2010 and 2009 (in thousands):

   
Three months ended
   
Six months ended
 
   
June 30,
   
June 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues from external customers
                       
Agricultural
  $ 175,716     $ 160,344     $ 326,828     $ 347,672  
Earthmoving/construction
    49,498       42,426       91,313       82,353  
Consumer
    4,442       4,213       7,963       9,562  
    $ 229,656     $ 206,983     $ 426,104     $ 439,587  
                                 
Gross profit
                               
Agricultural
  $ 29,028     $ 24,002     $ 52,918     $ 48,922  
Earthmoving/construction
    4,649       5,658       7,799       10,542  
Consumer
    807       608       1,475       1,396  
Unallocated corporate
    (581 )     (522 )     (2,202 )     (1,051 )
    $ 33,903     $ 29,746     $ 59,990     $ 59,809  
                                 
Income from operations
                               
Agricultural
  $ 24,827     $ 19,220     $ 44,782     $ 39,305  
Earthmoving/construction
    2,313       2,822       3,003       6,662  
Consumer
    715       487       1,296       1,124  
Unallocated corporate
    (10,427 )     (9,609 )     (21,523 )     (20,094 )
Income from operations
    17,428       12,920       27,558       26,997  
Interest expense
    (6,790 )     (3,878 )     (13,846 )     (7,822 )
Other income (expense)
    (3,149 )     647       (2,816 )     2,056  
Income before income taxes
  $ 7,489     $ 9,689     $ 10,896     $ 21,231  

Assets by segment were as follows (in thousands):
   
June 30,
   
December 31,
 
Total Assets
 
2010
   
2009
 
Agricultural segment
  $ 333,515     $ 257,523  
Earthmoving/construction segment
    195,848       188,169  
Consumer segment
    10,969       8,305  
Unallocated corporate
    190,869       282,466  
    $ 731,201     $ 736,463  
 

 
11

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

15.  EARNINGS PER SHARE

Earnings per share (EPS) are as follows (amounts in thousands, except per share data):

   
Three months ended,
 
   
June 30, 2010
   
June 30, 2009
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 4,569       34,815     $ .13     $ 5,910       34,704     $ .17  
Effect of stock options/trusts
    0       549               0       561          
  Effect of convertible notes
    1,614       16,043               0       0          
Diluted EPS
  $ 6,183       51,407     $ .12     $ 5,910       35,265     $ .17  
 

   
Six months ended,
 
   
June 30, 2010
   
June 30, 2009
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 6,647       34,794     $ .19     $ 12,951       34,664     $ .37  
Effect of stock options/trusts
    0       553               0       557          
Diluted EPS
  $ 6,647       35,347     $ .19     $ 12,951       35,221     $ .37  

The effect of convertible notes has been excluded for the six months ended June 30, 2010, as the effect would have been antidilutive.  The weighted average share amount excluded for convertible notes totaled 16.0 million shares.
 
16.  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):

   
June 30, 2010
   
December 31, 2009
 
   
Total
   
Level 1
   
Levels 2&3
   
Total
   
Level 1
   
Levels 2&3
 
Investment in Titan Europe Plc
  $ 11,484     $ 11,484     $ 0     $ 6,456     $ 6,456     $ 0  
Investments for contractual obligations
    5,516       5,516       0       5,869       5,869       0  
Total
  $ 17,000     $ 17,000     $ 0     $ 12,325     $ 12,325     $ 0  


 
12

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

17.  LITIGATION

The Company is a party to routine legal proceedings arising out of the normal course of business.  Although it is not possible to predict with certainty the outcome of these unresolved legal actions or the range of possible loss, the Company believes at this time that none of these actions, individually or in the aggregate, will have a material adverse affect on the consolidated financial condition, results of operations or cash flows of the Company.  However, due to the difficult nature of predicting unresolved and future legal claims, the Company cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations or cash flows as a result of efforts to comply with or its liabilities pertaining to legal judgments.

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.
 
19.  SUBSEQUENT EVENTS
 
Senior Unsecured Note Repurchase
On July 2, 2010, the Company closed on a transaction to purchase $6.5 million of its issued and outstanding senior unsecured 8% notes due January 2012.  In connection with this transaction, Titan will record expenses of approximately $0.3 million in the third quarter of 2010.  These expenses relate primarily to a tender premium of $45 per $1,000 principal amount of the notes.  After this transaction, Titan’s senior note outstanding balance was $139.9 million as of July 2, 2010, compared to a balance of $146.4 million at June 30, 2010.

Denman Tire machinery & equipment
On July 21, 2010, Titan Tire Corporation, a subsidiary of the Company, purchased the Denman Tire machinery & equipment, including other inventory items, for $3.0 million.  The purchase did not include any land or buildings.  The Company plans to move the machinery and equipment to existing Titan facilities.

 
13

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

 
20.  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 June 30, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 229,656     $ 0     $ 0     $ 229,656  
Cost of sales
    285       195,468       0       0       195,753  
Gross profit (loss)
    (285 )     34,188       0       0       33,903  
Selling, general and administrative expenses
    4,917       7,243       2       0       12,162  
Research and development expenses
    0       1,900       0       0       1,900  
Royalty expense
    0       2,413       0       0       2,413  
Income (loss) from operations
    (5,202 )     22,632       (2 )     0       17,428  
Interest expense
    (6,790 )     0       0       0       (6,790 )
Loss on senior note repurchase
    (2,722 )     0       0       0       (2,722 )
Other income (expense)
    (464 )     36       1       0       (427 )
Income (loss) before income taxes
    (15,178 )     22,668       (1 )     0       7,489  
Provision (benefit) for income taxes
    (5,919 )     8,840       (1 )     0       2,920  
Equity in earnings of subsidiaries
    13,828       0       0       (13,828 )     0  
Net income (loss)
  $ 4,569     $ 13,828     $ 0     $ (13,828 )   $ 4,569  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Three Months Ended June 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 206,983     $ 0     $ 0     $ 206,983  
Cost of sales
    213       177,024       0       0       177,237  
Gross profit (loss)
    (213 )     29,959       0       0       29,746  
Selling, general and administrative expenses
    4,237       7,489       41       0       11,767  
Research and development expenses
    33       2,826       0       0       2,859  
Royalty expense
    0       2,200       0       0       2,200  
Income (loss) from operations
    (4,483 )     17,444       (41 )     0       12,920  
Interest expense
    (3,878 )     0       0       0       (3,878 )
Other income
    556       91       0       0       647  
Income (loss) before income taxes
    (7,805 )     17,535       (41 )     0       9,689  
Provision (benefit) for income taxes
    (3,044 )     6,839       (16 )     0       3,779  
Equity in earnings of subsidiaries
    10,671       0       0       (10,671 )     0  
Net income (loss)
  $ 5,910     $ 10,696     $ (25 )   $ (10,671 )   $ 5,910  


 
14

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

   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Six Months Ended June 30, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 426,104     $ 0     $ 0     $ 426,104  
Cost of sales
    1,609       364,505       0       0       366,114  
Gross profit (loss)
    (1,609 )     61,599       0       0       59,990  
Selling, general and administrative expenses
    9,781       14,149       41       0       23,971  
Research and development expenses
    0       3,927       0       0       3,927  
Royalty expense
    0       4,534       0       0       4,534  
Income (loss) from operations
    (11,390 )     38,989       (41 )     0       27,558  
Interest expense
    (13,846 )     0       0       0       (13,846 )
Loss on senior note repurchase
    (2,722 )     0       0       0       (2,722 )
Other income (expense)
    (174 )     80       0       0       (94 )
Income (loss) before income taxes
    (28,132 )     39,069       (41 )     0       10,896  
Provision (benefit) for income taxes
    (10,971 )     15,236       (16 )     0       4,249  
Equity in earnings of subsidiaries
    23,808       0       0       (23,808 )     0  
Net income (loss)
  $ 6,647     $ 23,833     $ (25 )   $ (23,808 )   $ 6,647  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Six Months Ended June 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 439,587     $ 0     $ 0     $ 439,587  
Cost of sales
    434       379,344       0       0       379,778  
Gross profit (loss)
    (434 )     60,243       0       0       59,809  
Selling, general and administrative expenses
    8,925       15,327       43       0       24,295  
Research and development expenses
    36       3,822       0       0       3,858  
Royalty expense
    0       4,659       0       0       4,659  
Income (loss) from operations
    (9,395 )     36,435       (43 )     0       26,997  
Interest expense
    (7,822 )     0       0       0       (7,822 )
Gain on senior note repurchase
    1,398       0       0       0       1,398  
Other income
    454       204       0       0       658  
Income (loss) before income taxes
    (15,365 )     36,639       (43 )     0       21,231  
Provision (benefit) for income taxes
    (5,992 )     14,289       (17 )     0       8,280  
Equity in earnings of subsidiaries
    22,324       0       0       (22,324 )     0  
Net income (loss)
  $ 12,951     $ 22,350     $ (26 )   $ (22,324 )   $ 12,951  


 
15

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


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
June 30, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 158,091     $ 21     $ 141     $ 0     $ 158,253  
Accounts receivable
    0       117,899       0       0       117,899  
Inventories
    0       138,418       0       0       138,418  
Prepaid and other current assets
    12,646       16,969       0       0       29,615  
  Total current assets
    170,737       273,307       141       0       444,185  
Property, plant and equipment, net
    2,283       246,530       0       0       248,813  
Investment in subsidiaries
    28,490       0       0       (28,490 )     0  
Other assets
    19,491       7,228       11,484       0       38,203  
  Total assets
  $ 221,001     $ 527,065     $ 11,625     $ (28,490 )   $ 731,201  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,225     $ 46,811     $ 0     $ 0     $ 48,036  
Other current liabilities
    4,737       47,623       0       0       52,360  
  Total current liabilities
    5,962       94,434       0       0       100,396  
Long-term debt
    318,948       0       0       0       318,948  
Other long-term liabilities
    6,382       32,321       0       0       38,703  
Intercompany accounts
    (383,445 )     403,362       (19,917 )     0       0  
Stockholders’ equity
    273,154       (3,052 )     31,542       (28,490 )     273,154  
  Total liabilities and stockholders’ equity
  $ 221,001     $ 527,065     $ 11,625     $ (28,490 )   $ 731,201  

   
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