form10q.htm  




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

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

For Quarterly Period Ended: September 30, 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
 
October 25, 2010
     
Common stock, no par value per share
 
35,355,477

 
 

 

TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS




   
Page
Part I.
Financial Information
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Consolidated Condensed Statements of Operations
for the Three and Nine Months Ended September 30, 2010 and 2009
1
     
 
Consolidated Condensed Balance Sheets as of
September 30, 2010, and December 31, 2009
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Nine Months Ended September 30, 2010
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Nine Months Ended September 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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net sales
  $ 222,818     $ 141,496     $ 648,922     $ 581,083  
Cost of sales
    194,872       144,526       560,986       524,304  
Gross profit (loss)
    27,946       (3,030 )     87,936       56,779  
Selling, general & administrative expenses
    12,037       10,114       36,008       34,409  
Research and development expenses
    1,112       1,158       5,039       5,016  
Royalty expense
    2,275       1,464       6,809       6,123  
Income (loss) from operations
    12,522       (15,766 )     40,080       11,231  
Interest expense
    (5,867 )     (3,997 )     (19,713 )     (11,819 )
Gain (loss) on note repurchase
    (473 )     0       (3,195 )     1,398  
Other income
    401       644       307       1,302  
Income (loss) before income taxes
    6,583       (19,119 )     17,479       2,112  
Income tax provision (benefit)
    2,568       (8,006 )     6,817       274  
Net income (loss)
  $ 4,015     $ (11,113 )   $ 10,662     $ 1,838  
Earnings (loss) per common share:
                               
Basic
  $ .12     $ (.32 )   $ .31     $ .05  
Diluted
    .11       (.32 )     .30       .05  
Average common shares outstanding:
                               
Basic
    34,868       34,746       34,819       34,692  
Diluted
    51,773       34,746       51,740       35,251  
 


See accompanying Notes to Consolidated Condensed Financial Statements.

 
1

 

TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Amounts in thousands, except share data)
 
   
September 30,
   
December 31,
 
Assets
 
2010
   
2009
 
Current assets
           
Cash and cash equivalents
  $ 159,315     $ 229,182  
Accounts receivable
    114,140       67,513  
Inventories
    135,976       110,136  
Deferred income taxes
    3,065       11,108  
Prepaid and other current assets
    20,826       27,277  
Total current assets
    433,322       445,216  
                 
Property, plant and equipment, net
    248,689       254,461  
Deferred income taxes
    1,671       7,253  
Other assets
    44,012       29,533  
                 
Total assets
  $ 727,694     $ 736,463  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 47,135     $ 24,246  
Other current liabilities
    43,886       45,826  
Total current liabilities
    91,021       70,072  
                 
Long-term debt
    312,448       366,300  
Other long-term liabilities
    38,431       38,138  
Total liabilities
    441,900       474,510  
                 
Stockholders’ equity
               
Common stock (no par, 120,000,000 shares authorized, 37,475,288 issued)
    30       30  
Additional paid-in capital
    299,862       299,519  
Retained earnings
    26,509       16,377  
Treasury stock (at cost, 2,127,428 and 2,214,347 shares, respectively)
    (19,494 )     (20,274 )
Treasury stock reserved for contractual obligations
    (2,936 )     (5,393 )
Accumulated other comprehensive loss
    (18,177 )     (28,306 )
Total stockholders’ equity
    285,794       261,953  
                 
Total liabilities and stockholders’ equity
  $ 727,694     $ 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
                            10,662                               10,662  
Pension liability adjustments, net of tax
                                                    1,724       1,724  
Unrealized gain on investment, net of tax
                                                    8,405       8,405  
Comprehensive income
                                                            20,791  
Dividends on common stock
                            (530 )                             (530 )
Exercise of stock options
    45,000               (163 )             404                       241  
Contractual obligation transactions
                    501                       2,457               2,958  
Issuance of treasury stock under 401(k) plan
    41,919               5               376                       381  
                                                                 
Balance September 30, 2010
    #35,347,860     $ 30     $ 299,862     $ 26,509     $ (19,494 )   $ (2,936 )   $ (18,177 )   $ 285,794  

 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
3

 

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

   
Nine months ended
 
   
September 30,
 
   
2010
   
2009
 
Cash flows from operating activities:
           
Net income
  $ 10,662     $ 1,838  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    27,617       24,759  
Deferred income tax provision
    8,043       550  
(Gain) loss on note repurchase
    3,195       (1,398 )
Excess tax benefit from stock options exercised
    0       (86 )
Issuance of treasury stock under 401(k) plan
    382       398  
(Increase) decrease in assets:
               
Accounts receivable
    (46,627 )     46,326  
Inventories
    (25,840 )     22,473  
Prepaid and other current assets
    6,451       (2,236 )
Other assets
    (458 )     (1,753 )
Increase (decrease) in liabilities:
               
Accounts payable
    22,889       (40,483 )
Other current liabilities
    (1,740 )     (5,070 )
Other liabilities
    3,074       6,330  
Net cash provided by operating activities
    7,648       51,648  
                 
Cash flows from investing activities:
               
Capital expenditures
    (20,056 )     (36,482 )
Acquisition of shares of Titan Europe Plc
    0       (2,399 )
Other
    91       1,030  
Net cash used for investing activities
    (19,965 )     (37,851 )
                 
Cash flows from financing activities:
               
Repurchase of senior notes
    (56,674 )     (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
    (586 )     (1,070 )
Dividends paid
    (530 )     (527 )
Net cash used for financing activities
    (57,550 )     (30,095 )
                 
Net decrease in cash and cash equivalents
    (69,867 )     (16,298 )
                 
Cash and cash equivalents at beginning of period
    229,182       61,658  
                 
Cash and cash equivalents at end of period
  $ 159,315     $ 45,360  

 

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 September 30, 2010, the results of operations for the three and nine months ended September 30, 2010 and 2009, and cash flows for the nine months ended September 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 unsecured notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $139.9 million and $172.5 million at September 30, 2010, respectively.  The fair value of these notes at September 30, 2010, as obtained through independent pricing sources, was approximately $148.3 million for the senior unsecured notes and approximately $263.7 million for the convertible notes.
 
Cash dividends
The Company declared cash dividends of $.005 and $.015 per share of common stock for each of the three and nine months ended September 30, 2010 and 2009.  The third quarter 2010 cash dividend of $.005 per share of common stock was paid October 15, 2010, to stockholders of record on September 30, 2010.
 
2.  ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Accounts receivable
  $ 118,275     $ 71,471  
Allowance for doubtful accounts
    (4,135 )     (3,958 )
Accounts receivable, net
  $ 114,140     $ 67,513  

The Company had net accounts receivable balance of $114.1 million at September 30, 2010, and $67.5 million at December 31, 2009.  These amounts are net of allowance for doubtful accounts of $4.1 million at September 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):
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Raw materials
  $ 56,557     $ 44,336  
Work-in-process
    23,064       21,378  
Finished goods
    60,476       46,067  
      140,097       111,781  
Adjustment to LIFO basis
    (4,121 )     (1,645 )
    $ 135,976     $ 110,136  

Inventories were $136.0 million at September 30, 2010, and $110.1 million at December 31, 2009.  At September 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 $2.1 million at September 30, 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):
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Land and improvements
  $ 3,040     $ 2,993  
Buildings and improvements
    97,391       97,238  
Machinery and equipment
    370,090       359,244  
Tools, dies and molds
    83,550       77,926  
Construction-in-process
    17,041       16,383  
      571,112       553,784  
Less accumulated depreciation
    (322,423 )     (299,323 )
    $ 248,689     $ 254,461  

The Company had property, plant and equipment of $248.7 million and $254.5 million at September 30, 2010, and December 31, 2009, respectively.  Depreciation on fixed assets for the three months ended September 30, 2010 and 2009, totaled $8.4 million and $7.8 million, respectively.  Depreciation on fixed assets for the nine months ended September 30, 2010 and 2009, totaled $25.7 million and $22.8 million, respectively.

 
6

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

5.  INVESTMENT IN TITAN EUROPE PLC

Investment in Titan Europe Plc consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Investment in Titan Europe Plc
  $ 19,386     $ 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 $9.3 million, which is net of tax of $5.0 million.  The increased value in the Titan Europe Plc investment at September 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
    12,469       12,735  
Warranty payments made
    (11,181 )     (11,398 )
Warranty liability, September 30
  $ 10,457     $ 8,825  

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):
   
September 30,
   
December 31,
 
   
2010
   
2009
 
Senior unsecured 8% notes due January 2012
  $ 139,948     $ 193,800  
Convertible senior subordinated 5.625% notes due 2017
    172,500       172,500  
Revolving credit facility
    0       0  
      312,448       366,300  
Less:  Amounts due within one year
    0       0  
    $ 312,448     $ 366,300  


 
7

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

Aggregate maturities of long-term debt at September 30, 2010, were as follows (in thousands):
October 1 – December 31, 2010
  $ 0  
2011
    0  
2012
    139,948  
2013
    0  
2014
    0  
Thereafter
    172,500  
    $ 312,448  

Senior unsecured 8% notes due January 2012
The Company’s senior unsecured 8% notes (senior unsecured notes) are due January 2012.  In the nine months ended September 30, 2010, the Company repurchased $53.9 million of principal value of senior unsecured notes resulting in a loss on note repurchase of $3.2 million.  In the first quarter of 2009, the Company repurchased $6.2 million of principal value of senior unsecured notes for approximately $4.8 million resulting in a $1.4 million gain on the note repurchases.  The Company’s senior unsecured notes outstanding balance was $139.9 million at September 30, 2010.

Tender offer and loss on senior unsecured note repurchase
In May 2010, the Company commenced a tender offer to purchase its outstanding senior unsecured 8% notes due January 2012.  As of the expiration of the tender offer in June 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 July 2010, the Company repurchased an additional $6.5 million of senior unsecured notes outstanding.  In connection with the tender offer and additional note repurchase, Titan recorded expenses of $3.2 million in the nine months ended September 30, 2010.  These expenses were related to: (i) early tender premium of $2.6 million, (ii) unamortized deferred financing fees of $0.4 million and (iii) other fees of $0.2 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 September 30, 2010.

Revolving credit facility
The Company’s $100 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2014 termination date and is collateralized by the accounts receivable and inventory of Titan and certain of its domestic subsidiaries.  During the first nine months of 2010 and at September 30, 2010, there were no borrowings under the credit facility.  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 September 30, 2010.

In September 2010, Titan amended its credit facility with Bank of America, N.A.  The amendment extended the credit facility termination date to January 2014 from the previous January 2012 date.  The amendment also reduced the revolving commitment to $100 million from $150 million and released the lender’s lien on property, plant and equipment.
 
 
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 September 30, 2010, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):
October 1 – December 31, 2010
  $ 303  
2011
    392  
2012
    64  
2013
    14  
Thereafter
    1  
Total future minimum lease payments
  $ 774  
 
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 $0.4 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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Interest cost
  $ 1,300     $ 1,364     $ 3,900     $ 4,092  
Expected return on assets
    (1,227 )     (1,235 )     (3,681 )     (3,703 )
Amortization of unrecognized prior service cost
    34       34       102       102  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (42 )     (42 )
Amortization of net unrecognized loss
    907       1,076       2,721       3,228  
Net periodic pension cost (income)
  $ 1,000     $ 1,225     $ 3,000     $ 3,677  
 
10.  ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Royalty expense
  $ 2,275     $ 1,464     $ 6,809     $ 6,123  

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 $2.3 million and $1.5 million for the quarters ended September 30, 2010 and 2009, respectively.  Royalty expenses were $6.8 million and $6.1 million for the nine months ended September 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
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Investment gain on contractual obligations
  $ 638     $ 583     $ 285     $ 1,028  
Interest income
    92       35       266       147  
Other income (expense)
    (329 )     26       (244 )     127  
    $ 401     $ 644     $ 307     $ 1,302  

In September 2010, Titan recorded other expense of $0.4 million related to deferred financing fees when the Company’s credit facility was amended.

12.  INCOME TAXES

Income tax provision (benefit) consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Income tax provision (benefit)
  $ 2,568     $ (8,006 )   $ 6,817     $ 274  

The Company recorded income tax provision of $2.6 million and $6.8 million for the three and nine months ended September 30, 2010, respectively, as compared to income tax benefit of $(8.0) million and income tax provision of $0.3 million for the three and nine months ended September 30, 2009.  The Company’s effective income tax rate was 39% and 13% for the nine months ended September 30, 2010 and 2009, respectively.  The 2009 effective income tax rate was impacted by a reduction to the Company’s income tax provision of $0.5 million that related to one of the Company’s foreign subsidiaries.
 
13.  COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Net income (loss)
  $ 4,015     $ (11,113 )   $ 10,662     $ 1,838  
Unrealized gain on investment, net of tax
    5,137       1,686       8,405       2,633  
Pension liability adjustments, net of tax
    575       680       1,724       2,039  
    $ 9,727     $ (8,747 )   $ 20,791     $ 6,510  
 
 
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 nine months ended September 30, 2010 and 2009 (in thousands):

   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2010
   
2009
   
2010
   
2009
 
Revenues from external customers
                       
Agricultural
  $ 170,675     $ 105,426     $ 497,503     $ 453,098  
Earthmoving/construction
    47,848       30,732       139,161       113,085  
Consumer
    4,295       5,338       12,258       14,900  
    $ 222,818     $ 141,496     $ 648,922     $ 581,083  
                                 
Gross profit (loss)
                               
Agricultural
  $ 25,283     $ (522 )   $ 78,201     $ 48,400  
Earthmoving/construction
    2,495       (1,815 )     10,294       8,727  
Consumer
    827       (142 )     2,302       1,254  
Corporate expenses
    (659 )     (551 )     (2,861 )     (1,602 )
    $ 27,946     $ (3,030 )   $ 87,936     $ 56,779  
                                 
Income (loss) from operations
                               
Agricultural
  $ 21,440     $ (3,775 )   $ 66,222     $ 35,530  
Earthmoving/construction
    1,077       (2,951 )     4,080       3,711  
Consumer
    734       (282 )     2,030       842  
Corporate expenses
    (10,729 )     (8,758 )     (32,252 )     (28,852 )
Income (loss) from operations
    12,522       (15,766 )     40,080       11,231  
Interest expense
    (5,867 )     (3,997 )     (19,713 )     (11,819 )
Other income (expense)
    (72 )     644       (2,888 )     2,700  
Income (loss) before income taxes
  $ 6,583     $ (19,119 )   $ 17,479     $ 2,112  

Assets by segment were as follows (in thousands):
   
September 30,
   
December 31,
 
Total Assets
 
2010
   
2009
 
Agricultural segment
  $ 328,603     $ 257,523  
Earthmoving/construction segment
    191,881       188,169  
Consumer segment
    11,761       8,305  
Other assets
    195,449       282,466  
    $ 727,694     $ 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,
 
   
September 30, 2010
   
September 30, 2009
 
   
Net
Income
   
Weighted average shares
   
Per share
amount
   
Net
Loss
   
Weighted average shares
   
Per share
amount
 
Basic EPS
  $ 4,015       34,868     $ .12     $ (11,113 )     34,746     $ (.32 )
Effect of stock options/trusts
    0       529               0       0          
Effect of  convertible notes
    1,598       16,376               0       0          
Diluted EPS
  $ 5,613       51,773     $ .11     $ (11,113 )     34,746     $ (.32 )
 

   
Nine months ended,
 
   
September 30, 2010
   
September 30, 2009
 
   
Net Income
   
Weighted average shares
   
Per share amount
   
Net Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 10,662       34,819     $ .31     $ 1,838       34,692     $ .05  
Effect of stock options/trusts
    0       545               0       559          
Effect of convertible notes
    4,827       16,376               0       0          
Diluted EPS
  $ 15,489       51,740     $ .30     $ 1,838       35,251     $ .05  

The effect of stock options/trusts has been excluded for the three months ended September 30, 2009, as the effect would have been antidilutive.  The weighted average share amount excluded was 0.6 million shares.


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):
   
September 30, 2010
   
December 31, 2009
 
   
Total
   
Level 1
   
Levels 2&3
   
Total
   
Level 1
   
Levels 2&3
 
Investment in Titan Europe Plc
  $ 19,386     $ 19,386     $ 0     $ 6,456     $ 6,456     $ 0  
Investments for contractual obligations
    9,112       9,112       0       5,869       5,869       0  
Total
  $ 28,498     $ 28,498     $ 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 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.

Receivables
In July 2010, FASB issued ASU No. 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.”  This guidance amends Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses.  The disclosures as of the end of a reporting period are effective for reporting periods ending on or after December 15, 2010.  The disclosures about activity that occurs during a reporting period are effective for reporting periods beginning on or after December 15, 2010.  The adoption of this ASU is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
 
19.  SUBSEQUENT EVENTS
 
Senior Secured 7.875% Notes due 2017
On October 1, 2010, the Company closed on an offering of $200 million senior secured 7.875% notes due 2017.  Titan used a portion of the net proceeds from the offering to finance the repurchase of $138.9 million of its 8% senior unsecured notes due January 2012 and to pay all consent payments, accrued interest and costs and expenses associated therewith.  The Company intends to use the remaining net proceeds from this offering of approximately $44 million for general corporate purposes, which may include potential future acquisitions.
 
Senior Unsecured 8% Note due January 2012 Repurchase
On October 1, 2010, the Company closed on a tender transaction to purchase $138.9 million, or 99.2%, of its outstanding senior unsecured 8% notes due January 2012.  In connection with this transaction, Titan will record expenses of approximately $12 million in the fourth quarter of 2010.  These expenses relate primarily to a tender and consent premium of $75 per $1,000 principal amount of the notes.  After this transaction, Titan’s senior unsecured 8% note due January 2012 outstanding balance was $1.1 million as of October 1, 2010, compared to a balance of $139.9 million at September 30, 2010.

 
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 September 30, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 222,818     $ 0     $ 0     $ 222,818  
Cost of sales
    387       194,485       0       0       194,872  
Gross income (loss)
    (387 )     28,333       0       0       27,946  
Selling, general and administrative expenses
    4,843       7,185       9       0       12,037  
Research and development expenses
    0       1,112       0       0       1,112  
Royalty expense
    0       2,275       0       0       2,275  
Income (loss) from operations
    (5,230 )     17,761       (9 )     0       12,522  
Interest expense
    (5,867 )     0       0       0       (5,867 )
Loss on note repurchase
    (473 )     0       0       0       (473 )
Other income
    377       24       0       0       401  
Income (loss) before income taxes
    (11,193 )     17,785       (9 )     0       6,583  
Income tax provision (benefit)
    (4,366 )     6,937       (3 )     0       2,568  
Equity in income of subsidiaries
    10,842       0       0       (10,842 )     0  
Net income (loss)
  $ 4,015     $ 10,848     $ (6 )   $ (10,842 )   $ 4,015  



   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Three Months Ended September 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 141,496     $ 0     $ 0     $ 141,496  
Cost of sales
    273       144,253       0       0       144,526  
Gross loss
    (273 )     (2,757 )     0       0       (3,030 )
Selling, general and administrative expenses
    3,512       6,580       22       0       10,114  
Research and development expenses
    2       1,156       0       0       1,158  
Royalty expense
    0       1,464       0       0       1,464  
Loss from operations
    (3,787 )     (11,957 )     (22 )     0       (15,766 )
Interest expense
    (3,997 )     0       0       0       (3,997 )
Other income
    618       26       0       0       644  
Loss before income taxes
    (7,166 )     (11,931 )     (22 )     0       (19,119 )
Income tax provision (benefit)
    3,070       (11,085 )     9       0       (8,006 )
Equity in loss of subsidiaries
    (877 )     0       0       877       0  
Net loss
  $ (11,113 )   $ (846 )   $ (31 )   $ 877     $ (11,113 )


 
14

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


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Nine Months Ended September 30, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 648,922     $ 0     $ 0     $ 648,922  
Cost of sales
    1,996       558,990       0       0       560,986  
Gross profit (loss)
    (1,996 )     89,932       0       0       87,936  
Selling, general and administrative expenses
    14,624       21,334       50       0       36,008  
Research and development expenses
    0       5,039       0       0       5,039  
Royalty expense
    0       6,809       0       0       6,809  
Income (loss) from operations
    (16,620 )     56,750       (50 )     0       40,080  
Interest expense
    (19,713 )     0       0       0       (19,713 )
Loss on note repurchase
    (3,195 )     0       0       0       (3,195 )
Other income
    203       104       0       0       307  
Income (loss) before income taxes
    (39,325 )     56,854       (50 )     0       17,479  
Income tax provision (benefit)
    (15,337 )     22,173       (19 )     0       6,817  
Equity in earnings of subsidiaries
    34,650       0       0       (34,650 )     0  
Net income (loss)
  $ 10,662     $ 34,681     $ (31 )   $ (34,650 )   $ 10,662  


   
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
   
For the Nine Months Ended September 30, 2009
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 581,083     $ 0     $ 0     $ 581,083  
Cost of sales
    707       523,597       0       0       524,304  
Gross profit (loss)
    (707 )     57,486       0       0       56,779  
Selling, general and administrative expenses
    12,437       21,907       65       0       34,409  
Research and development expenses
    38       4,978       0       0       5,016  
Royalty expense
    0       6,123       0       0       6,123  
Income (loss) from operations
    (13,182 )     24,478       (65 )     0       11,231  
Interest expense
    (11,819 )     0       0       0       (11,819 )
Gain on note repurchase
    1,398       0       0       0       1,398  
Other income
    1,072       230       0       0       1,302  
Income (loss) before income taxes
    (22,531 )     24,708       (65 )     0       2,112  
Income tax provision (benefit)
    (2,922 )     3,204       (8 )     0       274  
Equity in earnings of subsidiaries
    21,447       0       0       (21,447 )     0  
Net income (loss)
  $ 1,838     $ 21,504     $ (57 )   $ (21,447 )   $ 1,838  


 
15

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


   
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
   
September 30, 2010
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 159,158     $ 24     $ 133     $ 0     $ 159,315  
Accounts receivable
    0       114,140       0       0       114,140  
Inventories
    0       135,976       0       0       135,976  
Prepaid and other current assets
    7,004       16,887       0       0       23,891  
  Total current assets
    166,162       267,027       133       0       433,322  
Property, plant and equipment, net
    3,483       245,206       0       0       248,689  
Investment in subsidiaries
    36,234       0       0       (36,234 )     0  
Other assets
    19,427       6,870       19,386       0       45,683  
Total assets
  $ 225,306     $ 519,103     $ 19,519     $ (36,234 )   $ 727,694  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,554     $ 45,581     $ 0     $ 0     $ 47,135  
Other current liabilities
    487       43,399       0       0       43,886  
  Total current liabilities
    2,041       88,980       0       0       91,021  
Long-term debt
    312,448       0       0       0       312,448  
Other long-term liabilities
    6,785       31,646       0       0       38,431  
Intercompany accounts
    (381,762 )     393,776       (12,014 )     0       0  
Stockholders’ equity
    285,794       4,701       31,533       (36,234 )     285,794  
Total liabilities and stockholders’ equity
  $ 225,306     $ 519,103     $ 19,519     $ (36,234 )   $ 727,694  


   
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