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, 2011

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 21, 2011
     
Common stock, no par value per share
 
42,072,631

 
 

 



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, 2011 and 2010
1
     
 
Consolidated Condensed Balance Sheets as of
March 31, 2011, and December 31, 2010
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2011
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2011 and 2010
4
     
 
Notes to Consolidated Condensed Financial Statements
5-19
     
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
20-31
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
32
     
Item 4.
Controls and Procedures
32
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
33
     
Item 1A.
Risk Factors
33
     
Item 6.
Exhibits
33
     
 
Signatures
33


 
 
 

 

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,
 
   
2011
   
2010
 
Net sales
  $ 280,829     $ 196,448  
Cost of sales
    224,557       170,361  
Gross profit
    56,272       26,087  
Selling, general and administrative expenses
    25,293       11,809  
Research and development expenses
    1,183       2,027  
Royalty expense
    2,917       2,121  
Income from operations
    26,879       10,130  
Interest expense
    (6,280 )     (7,056 )
Noncash convertible debt conversion charge
    (16,135 )     0  
Other income
    193       333  
Income before income taxes
    4,657       3,407  
Provision for income taxes
    7,693       1,329  
Net income (loss)
  $ (3,036 )   $ 2,078  
Earnings (loss) per common share:
               
Basic
  $ (.07 )   $ .06  
Diluted
    (.07 )     .06  
Average common shares outstanding:
               
Basic
    40,511       34,772  
Diluted
    40,511       35,329  
                 
Dividends declared per common share:
  $ .005     $ .005  

 

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
 
2011
   
2010
 
Current assets
 
 
   
 
 
Cash and cash equivalents
  $ 230,048     $ 239,500  
Accounts receivable
    139,025       89,004  
Inventories
    133,679       127,982  
Deferred income taxes
    12,791       12,791  
Prepaid and other current assets
    18,031       18,663  
Total current assets
    533,574       487,940  
                 
Property, plant and equipment, net
    242,064       248,054  
Other assets
    49,332       51,476  
                 
Total assets
  $ 824,970     $ 787,470  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 45,186     $ 35,281  
Other current liabilities
    65,547       57,072  
Total current liabilities
    110,733       92,353  
                 
Long-term debt
    312,881       373,564  
Deferred income taxes
    9,385       1,970  
Other long-term liabilities
    41,114       41,268  
Total liabilities
    474,113       509,155  
                 
Stockholders’ equity
               
Common stock(no par, 120,000,000 shares authorized,
44,092,997 and 37,475,288 issued, respectively)
    37       30  
Additional paid-in capital
    375,746       300,540  
Retained earnings
    12,782       16,028  
Treasury stock (at cost, 2,076,040 and 2,108,561 shares, respectively)
    (19,033 )     (19,324 )
Treasury stock reserved for deferred compensation
    (1,233 )     (1,917 )
Accumulated other comprehensive loss
    (17,442 )     (17,042 )
Total stockholders’ equity
    350,857       278,315  
                 
Total liabilities and stockholders’ equity
  $ 824,970     $ 787,470  


 

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 deferred compensation
   
Accumulated other comprehensive income (loss)
   
 
 
 
Total
 
   
 
   
 
                     
 
   
 
       
Balance January 1, 2011
     #35,366,727     $  30     $ 300,540     $ 16,028     $ (19,324 )   $ (1,917 )   $ (17,042 )   $ 278,315  
                                                                 
Comprehensive income (loss):
                                                               
Net loss
                            (3,036 )                             (3,036 )
Pension liability adjustments, net of tax
                                                    593       593  
Unrealized loss on investment, net of tax
                                                    (993 )     (993 )
Comprehensive loss
                                                            (3,436 )
Dividends on common stock
                            (210 )                             (210 )
Note conversion
     6,617,709        7       73,902                                       73,909  
Exercise of stock options
     26,125               (4 )             234                       230  
Stock-based compensation
                    393                                       393  
Deferred compensation transactions
                    846                       684               1,530  
Issuance of treasury stock under 401(k) plan
     6,396               69               57                       126  
                                                                 
Balance March 31, 2011
     #42,016,957     $  37     $ 375,746     $ 12,782     $ (19,033 )   $ (1,233 )   $ (17,442 )   $ 350,857  


 
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,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income (loss)
  $ (3,036 )   $ 2,078  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    9,299       9,281  
Deferred income tax provision
    7,415       1,275  
Noncash convertible debt conversion charge
    16,135       0  
Stock-based compensation
    393       0  
Issuance of treasury stock under 401(k) plan
    126       123  
(Increase) decrease in assets:
               
Accounts receivable
    (50,021 )     (34,789 )
Inventories
    (5,697 )     (19,462 )
Prepaid and other current assets
    632       3,099  
Other assets
    10       46  
Increase in liabilities:
               
Accounts payable
    9,905       22,432  
Other current liabilities
    8,442       4,413  
Other liabilities
    802       1,365  
Net cash used for operating activities
    (5,595 )     (10,139 )
                 
Cash flows from investing activities:
               
Capital expenditures
    (3,469 )     (3,508 )
Other
    623       42  
Net cash used for investing activities
    (2,846 )     (3,466 )
                 
Cash flows from financing activities:
               
Repurchase of senior unsecured notes
    (1,064 )     0  
Proceeds from exercise of stock options
    230       0  
Payment of financing fees
    0       (186 )
Dividends paid
    (177 )     (176 )
Net cash used for financing activities
    (1,011 )     (362 )
                 
Net decrease in cash and cash equivalents
    (9,452 )     (13,967 )
                 
Cash and cash equivalents at beginning of period
    239,500       229,182  
                 
Cash and cash equivalents at end of period
  $ 230,048     $ 215,215  

 
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 for a fair statement of the Company’s financial position as of March 31, 2011, and the results of operations and cash flows for the three months ended March 31, 2011 and 2010.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2010 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 2010 Annual Report on Form 10-K.

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 secured 7.875% notes due 2017 (senior secured notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $200.0 million and $112.9 million at March 31, 2011, respectively.  The fair value of these notes at March 31, 2011, as obtained through independent pricing sources, was approximately $214.0 million for the senior secured notes and approximately $317.8 million for the convertible notes.  The increase in the fair value of the convertible notes is due primarily to the increased value of the underlying common stock.

 
Cash dividends
The Company declared cash dividends of $.005 per share of common stock for each of the three months ended March 31, 2011 and 2010.


2.  ACCOUNTS RECEIVABLE
 
Accounts receivable consisted of the following (in thousands):
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Accounts receivable
  $ 143,258     $ 92,893  
Allowance for doubtful accounts
    (4,233 )     (3,889 )
Accounts receivable, net
  $ 139,025     $ 89,004  


 
5

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


3.  INVENTORIES
 
Inventories consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Raw materials
  $ 54,169     $ 56,414  
Work-in-process
    18,103       16,860  
Finished goods
    64,010       59,680  
      136,282       132,954  
Adjustment to LIFO basis
    (2,603 )     (4,972 )
    $ 133,679     $ 127,982  

At March 31, 2011, cost is determined using the first-in, first-out (FIFO) method for approximately 66% of inventories and the last-in, first-out (LIFO) method for approximately 34% of the inventories.  At December 31, 2010, the FIFO method was used for approximately 64% of inventories and LIFO was used for approximately 36% of the inventories.  Included in the inventory balances were provisions for slow-moving and obsolete inventory of $7.6 million at March 31, 2011, and $7.4 million at December 31, 2010.


4.  PROPERTY, PLANT AND EQUIPMENT, NET
 
Property, plant and equipment, net consisted of the following (in thousands):
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Land and improvements
  $ 3,061     $ 3,061  
Buildings and improvements
    98,234       98,233  
Machinery and equipment
    385,153       383,231  
Tools, dies and molds
    84,901       84,134  
Construction-in-process
    8,040       8,741  
      579,389       577,400  
Less accumulated depreciation
    (337,325 )     (329,346 )
    $ 242,064     $ 248,054  

Depreciation on fixed assets for the three months ended March 31, 2011 and 2010, totaled $8.8 million and $8.6 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,
 
   
2011
   
2010
 
Investment in Titan Europe Plc
  $ 21,165     $ 22,693  

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 Accounting Standards Codification (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 accumulated other comprehensive income includes a gain on the Titan Europe Plc investment of $10.5 million, which is net of tax of $5.6 million.  The decreased value in the Titan Europe Plc investment at March 31, 2011, was due primarily to a lower publicly quoted Titan Europe Plc market price.


6.  WARRANTY
 
Changes in the warranty liability consisted of the following (in thousands):

 
 
2011
   
2010
 
Warranty liability, January 1
  $ 12,471     $ 9,169  
Provision for warranty liabilities
    5,256       3,629  
Warranty payments made
    (3,743 )     (3,377 )
Warranty liability, March 31
  $ 13,984     $ 9,421  

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):
   
March 31,
   
December 31,
 
   
2011
   
2010
 
7.875% senior notes due 2017
  $ 200,000     $ 200,000  
5.625% convertible senior notes due 2017
    112,881       172,500  
8% senior unsecured notes due January 2012
    0       1,064  
      312,881       373,564  
Less:  Amounts due within one year
    0       0  
    $ 312,881     $ 373,564  


 
7

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



Aggregate maturities of long-term debt at March 31, 2011, were as follows (in thousands):

April 1 – December 31, 2011
  $ 0  
2012
    0  
2013
    0  
2014
    0  
2015
    0  
Thereafter
    312,881  
 
 
  $ 312,881  
 
7.875% senior secured notes due 2017
The Company’s 7.875% senior secured notes (senior secured notes) are due October 2017.  These notes are secured by the land and buildings of the following subsidiaries of the Company:  Titan Tire Corporation, Titan Wheel Corporation of Illinois, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan.  The Company’s senior secured notes outstanding balance was $200.0 million at March 31, 2011.

5.625% convertible senior subordinated notes due 2017
The Company’s 5.625% convertible senior subordinated 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 $112.9 million at March 31, 2011.

In the first quarter of 2011, the Company closed an Exchange Agreement with a note holder of the convertible notes, pursuant to which such holder converted approximately $59.6 million in aggregate principal amount of the Convertible Notes into approximately 6.6 million shares of the Company’s common stock, plus a payment for the accrued and unpaid interest.  In connection with the exchange, the Company recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.

8% senior unsecured notes due 2012
In the first quarter of 2011, Titan satisfied and discharged the indenture relating to the 8% senior unsecured notes due January 2012 by depositing with the trustee $1.1 million cash representing the outstanding principal of such notes and interest payments due on July 15, 2011, and at maturity on January 15, 2012.  Titan irrevocably instructed the trustee to apply the deposited money toward the interest and principal of the notes.

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 quarter of 2011 and at March 31, 2011, 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 March 31, 2011.
 
 

 
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, 2011, 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, 2011
  $ 370  
2012
    79  
2013
    18  
2014
    1  
Thereafter
    0  
Total future minimum lease payments
  $ 468  


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 2011.

The components of net periodic pension cost consisted of the following (in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Interest cost
  $ 1,272     $ 1,300  
Expected return on assets
    (1,315 )     (1,227 )
Amortization of unrecognized prior service cost
    34       34  
Amortization of unrecognized deferred taxes
    (14 )     (14 )
Amortization of net unrecognized loss
    936       907  
Net periodic pension cost
  $ 913     $ 1,000  


10.  ROYALTY EXPENSE

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 $2.9 million and $2.1 million for the first quarter of 2011 and 2010, 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,
 
   
2011
   
2010
 
Investment gain on marketable securities
  $ 93     $ 196  
Interest income
    145       94  
Other income (expense)
    (45 )     43  
    $ 193     $ 333  


12.  INCOME TAXES

The Company recorded income tax expense of $7.7 million and $1.3 million for the quarters ended March 31, 2011 and 2010, respectively.  The Company’s effective income tax rate was 165% and 39% for the three months ended March 31, 2011 and 2010, respectively.  The Company’s 2011 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $16.1 million noncash charge taken in connection with the Company’s convertible debt.  This noncash charge is not deductible for income tax purposes.


13.  COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consisted of the following (in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net income (loss)
  $ (3,036 )   $ 2,078  
Unrealized loss on investment, net of tax
    (993 )     (918 )
Pension liability adjustments, net of tax
    593       575  
    $ (3,436 )   $ 1,735  
                 


 
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 months ended March 31, 2011 and 2010 (in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Revenues from external customers
           
Agricultural
  $ 209,997     $ 151,112  
Earthmoving/construction
    66,511       41,815  
Consumer
    4,321       3,521  
    $ 280,829     $ 196,448  
                 
Gross profit
               
Agricultural
  $ 47,700     $ 23,890  
Earthmoving/construction
    8,195       3,150  
Consumer
    1,002       668  
Unallocated corporate
    (625 )     (1,621 )
    $ 56,272     $ 26,087  
                 
Income from operations
               
Agricultural
  $ 42,868     $ 19,955  
Earthmoving/construction
    6,288       690  
Consumer
    916       581  
Unallocated corporate
    (23,193 )     (11,096 )
Consolidated income from operations
    26,879       10,130  
Interest expense
    (6,280 )     (7,056 )
Noncash convertible debt conversion charge
    (16,135 )     0  
Other income, net
    193       333  
Income before income taxes
  $ 4,657     $ 3,407  

Assets by segment were as follows (in thousands):

   
March 31,
   
December 31,
 
Total Assets
 
2011
   
2010
 
Agricultural
  $ 347,432     $ 304,048  
Earthmoving/construction
    193,276       181,249  
Consumer
    9,239       5,863  
Unallocated corporate
    275,023       296,310  
Consolidated totals
  $ 824,970     $ 787,470  
                 


 
11

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


15.  EARNINGS PER SHARE

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

 
 
Three months ended
 
 
 
March 31, 2011
   
March 31, 2010
 
 
 
Net
 Loss
   
Weighted average shares
   
 
 Per share amount
   
Net
 Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ (3,036 )     40,511     $ (.07 )   $ 2,078       34,772     $ .06  
  Effect of stock options/trusts
    0       0               0       557          
Diluted EPS
  $ (3,036 )     40,511     $ (.07 )   $ 2,078       35,329     $ .06  
 

The effect of convertible notes has been excluded for both of the three months ended March 31, 2011 and 2010, as the effect would have been antidilutive.  The weighted average share amount excluded for convertible notes totaled 12.3 million shares and 16.0 million shares for the three months ended March 31, 2011 and 2010, respectively.

The effect of stock options/trusts has been excluded for the three months ended March 31, 2011, as the effect would have been antidilutive.  The weighted average share amount excluded was 0.3 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):

 
 
March 31, 2011
   
December 31, 2010
 
 
 
Total
   
Level 1
   
Levels 2&3
   
Total
   
Level 1
   
Levels 2&3
 
Investment in Titan Europe Plc
  $ 21,165     $ 21,165     $ 0     $ 22,693     $ 22,693     $ 0  
Investment in marketable securities
    12,791       12,791       0       11,168       11,168       0  
    Total
  $ 33,956     $ 33,956     $ 0     $ 33,861     $ 33,861     $ 0  


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 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.

 
12

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



18.  RECENTLY ISSUED ACCOUNTING STANDARDS
 
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2010 Annual Report on Form 10-K.
 

 

19.  SUBSEQUENT EVENTS

Purchase of Goodyear’s Latin American Farm Tire Business
 
On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company’s Latin American farm tire business for approximately $98.6 million U.S. dollars, subject to post-closing conditions and adjustments.  The transaction includes Goodyear’s Sao Paulo, Brazil manufacturing plant, property, equipment and inventories and a licensing agreement that allows Titan to sell Goodyear-brand farm tires in Latin America for seven years and extends the North American licensing agreement for seven years.


 
13

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


20.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 5.625% convertible senior subordinated notes are guaranteed by the following subsidiaries of the Company:  Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, Titan Tire Corporation of Texas, Titan Wheel Corporation of Illinois, and Titan Wheel Corporation of Virginia.  The note guarantees are full and unconditional, joint and several obligations of the guarantors.  The following condensed consolidating financial statements are presented using the equity method of accounting.  Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.



 
 
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
 
 
For the Three Months Ended March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 280,829     $ 0     $ 0     $ 280,829  
Cost of sales
    361       223,754       442       0       224,557  
Gross profit (loss)
    (361 )     57,075       (442 )     0       56,272  
Selling, general and administrative expenses
    15,405       2,725       7,163       0       25,293  
Research and development expenses
    0       1,183       0       0       1,183  
Royalty expense
    0       2,917       0       0       2,917  
Income (loss) from operations
    (15,766 )     50,250       (7,605 )     0       26,879  
Interest expense
    (6,280 )     0       0       0       (6,280 )
Noncash convertible debt conversion charge
    (16,135 )     0       0       0       (16,135 )
Other income (expense)
    317       (202 )     78       0       193  
Income (loss) before income taxes
    (37,864 )     50,048       (7,527 )     0       4,657  
Provision (benefit) for income taxes
    (8,039 )     18,518       (2,786 )     0       7,693  
Equity in earnings of subsidiaries
    26,789       (60 )     60       (26,789 )     0  
Net income (loss)
  $ (3,036 )   $ 31,470     $ (4,681 )   $ (26,789 )   $ (3,036 )

 
 
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       168,550       487       0       170,361  
Gross profit (loss)
    (1,324 )     27,898       (487 )     0       26,087  
Selling, general and administrative expenses
    4,864       2,334       4,611       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 )     21,416       (5,098 )     0       10,130  
Interest expense
    (7,056 )     0       0       0       (7,056 )
Other income (expense)
    290       (2 )     45       0       333  
Income (loss) before income taxes
    (12,954 )     21,414       (5,053 )     0       3,407  
Provision (benefit) for income taxes
    (5,052 )     8,352       (1,971 )     0       1,329  
Equity in earnings of subsidiaries
    9,980       (88 )     88       (9,980 )     0  
Net income (loss)
  $ 2,078     $ 12,974     $ (2,994 )   $ (9,980 )   $ 2,078  
 
 
14

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



 
 
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
 
 
March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 229,924     $ 7     $ 117     $ 0     $ 230,048  
Accounts receivable
    0       139,025       0       0       139,025  
Inventories
    0       133,679       0       0       133,679  
Prepaid and other current assets
    14,063       16,389       370       0       30,822  
  Total current assets
    243,987       289,100       487       0       533,574  
Property, plant and equipment, net
    7,667       229,385       5,012       0       242,064  
Investment in subsidiaries
    61,855       9,057       20       (70,932 )     0  
Other assets
    21,573       1,060       26,699       0       49,332  
  Total assets
  $ 335,082     $ 528,602     $ 32,218     $ (70,932 )   $ 824,970  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 790     $ 44,006     $ 390     $ 0     $ 45,186  
Other current liabilities
    20,332       42,860       2,355       0       65,547  
  Total current liabilities
    21,122       86,866       2,745       0       110,733  
Long-term debt
    312,881       0       0       0       312,881  
Other long-term liabilities
    16,980       27,671       5,848       0       50,499  
Intercompany accounts
    (366,758 )     189,850       176,908       0       0  
Stockholders’ equity
    350,857       224,215       (153,283 )     (70,932 )     350,857  
  Total liabilities and stockholders’ equity
  $ 335,082     $ 528,602     $ 32,218     $ (70,932 )   $ 824,970  

 
 
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
 
 
December 31, 2010
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 239,362     $ 6     $ 132     $ 0     $ 239,500  
Accounts receivable
    0       89,004       0       0       89,004  
Inventories
    0       127,982       0       0       127,982  
Prepaid and other current assets
    14,732       16,240       482       0       31,454  
Total current assets
    254,094       233,232       614       0       487,940  
Property, plant and equipment, net
    7,678       235,143       5,233       0       248,054  
Investment in subsidiaries
    39,465       9,057       20       (48,542 )     0  
Other assets
    22,183       869       28,424       0       51,476  
  Total assets
  $ 323,420     $ 478,301     $ 34,291     $ (48,542 )   $ 787,470  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,406     $ 33,473     $ 402     $ 0     $ 35,281  
Other current liabilities
    16,066       39,186       1,820       0       57,072  
Total current liabilities
    17,472       72,659       2,222       0       92,353  
Long-term debt
    373,564       0       0       0       373,564  
Other long-term liabilities
    9,161       28,083       5,994       0       43,238  
Intercompany accounts
    (355,092 )     178,164       176,928       0       0  
Stockholders’ equity
    278,315       199,395       (150,853 )     (48,542 )     278,315  
  Total liabilities and stockholders’ equity
  $ 323,420     $ 478,301     $ 34,291     $ (48,542 )   $ 787,470  

 
 
15

 
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, 2011
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ (8,115 )   $ 2,487     $ 33     $ (5,595 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    (312 )     (3,100 )     (57 )     (3,469 )
  Other, net
    0       614       9       623  
    Net cash used for investing activities
    (312 )     (2,486 )     (48 )     (2,846 )
                                 
Cash flows from financing activities:
                               
  Repurchase of senior unsecured notes
    (1,064 )     0       0       (1,064 )
  Proceeds from exercise of stock options
    230       0       0       230  
  Dividends paid
    (177 )     0       0       (177 )
    Net cash used for financing activities
    (1,011 )     0       0       (1,011 )
                                 
Net increase (decrease) in cash and cash equivalents
    (9,438 )     1       (15 )     (9,452 )
Cash and cash equivalents, beginning of period
    239,362       6       132       239,500  
Cash and cash equivalents, end of period
  $ 229,924     $ 7     $ 117     $ 230,048  


   
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 )   $ 3,427     $ 30     $ (10,139 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    0       (3,460 )     (48 )     (3,508 )
  Other, net
    0       37       5       42  
    Net cash used for investing activities
    0       (3,423 )     (43 )     (3,466 )
                                 
Cash flows from financing activities:
                               
  Payment of financing fees
    (186 )     0       0       (186 )
  Dividends paid
    (176 )     0       0       (176 )
    Net cash used for financing activities
    (362 )     0       0       (362 )
                                 
Net increase (decrease) in cash and cash equivalents
    (13,958 )     4       (13 )     (13,967 )
Cash and cash equivalents, beginning of period
    229,004       11       167       229,182  
Cash and cash equivalents, end of period
  $ 215,046     $ 15     $ 154     $ 215,215  
                                 
                                 
                                 
 
 
16

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


21.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 7.875% senior secured notes are guaranteed by the following subsidiaries of the Company:  Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois.  The note guarantees are full and unconditional, joint and several obligations of the guarantors.  The following condensed consolidating financial statements are presented using the equity method of accounting.  Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.


 
 
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
 
 
For the Three Months Ended March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 274,961     $ 5,868     $ 0     $ 280,829  
Cost of sales
    361       217,995       6,201       0       224,557  
Gross profit (loss)
    (361 )     56,966       (333 )     0       56,272  
Selling, general and administrative expenses
    15,405       2,649       7,239       0       25,293  
Research and development expenses
    0       1,183       0       0       1,183  
Royalty expense
    0       2,917       0       0       2,917  
Income (loss) from operations
    (15,766 )     50,217       (7,572 )     0       26,879  
Interest expense
    (6,280 )     0       0       0       (6,280 )
Noncash convertible debt conversion charge
    (16,135 )     0       0       0       (16,135 )
Other income (expense)
    317       (235 )     111       0       193  
Income (loss) before income taxes
    (37,864 )     49,982       (7,461 )     0       4,657  
Provision (benefit) for income taxes
    (8,039 )     18,493       (2,761 )     0       7,693  
Equity in earnings of subsidiaries
    26,789       (60 )     60       (26,789 )     0  
Net income (loss)
  $ (3,036 )   $ 31,429     $ (4,640 )   $ (26,789 )   $ (3,036 )

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