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, 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 þ  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 31, 2011
     
Common stock, no par value per share
 
42,202,681

 
 

 

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, 2011 and 2010
1
     
 
Consolidated Condensed Balance Sheets as of September 30, 2011, and December 31, 2010
2
     
 
Consolidated Condensed Statement of Changes in Equity for the Nine Months Ended September 30, 2011
3
     
 
Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2011 and 2010
4
     
 
Notes to Consolidated Condensed Financial Statements
5-24
     
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
25-42
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
43
     
Item 4.
Controls and Procedures
43
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
44
     
Item 1A.
Risk Factors
44
     
Item 6.
Exhibits
44
     
 
Signatures
45



 
 

 

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,
 
   
2011
   
2010
   
2011
   
2010
 
Net sales
  $ 398,805     $ 222,818     $ 1,084,081     $ 648,922  
Cost of sales
    345,811       194,872       910,481       560,986  
Gross profit
    52,994       27,946       173,600       87,936  
Selling, general & administrative expenses
    8,548       12,037       50,414       36,008  
Research and development expenses
    796       1,112       2,993       5,039  
Royalty expense
    2,263       2,275       7,530       6,809  
Income from operations
    41,387       12,522       112,663       40,080  
Interest expense
    (6,616 )     (5,867 )     (19,045 )     (19,713 )
Noncash convertible debt conversion charge
    0       0       (16,135 )     0  
Loss on senior note repurchase
    0       (473 )     0       (3,195 )
Other income (expense)
    (556 )     401       1,907       307  
Income before income taxes
    34,215       6,583       79,390       17,479  
Provision for income taxes
    12,690       2,568       35,345       6,817  
Net income
    21,525       4,015       44,045       10,662  
Net income attributable to noncontrolling interests
    362       0       354       0  
Net income attributable to Titan
  $ 21,163     $ 4,015     $ 43,691     $ 10,662  
Earnings per common share:
                               
Basic
  $ .50     $ .12     $ 1.05     $ .31  
Diluted
    .42       .11       .89       .30  
Average common shares outstanding:
                               
Basic
    42,028       34,868       41,512       34,819  
Diluted
    53,061       51,773       52,970       51,740  
                                 
Dividends declared per common share:
  $ .005     $ .005     $ .015     $ .015  

 


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,
 
   
2011
   
2010
 
Assets
       
As Restated
 
Current assets:
           
Cash and cash equivalents
  $ 94,274     $ 239,500  
Marketable securities
    28,129       5  
Accounts receivable
    213,884       89,004  
Inventories
    183,150       118,143  
Deferred income taxes
    16,887       16,040  
Prepaid and other current assets
    31,082       18,658  
Total current assets
    567,406       481,350  
                 
Property, plant and equipment, net
    333,575       248,054  
Other assets
    110,233       51,476  
                 
Total assets
  $ 1,011,214     $ 780,880  
                 
Liabilities and Equity
               
Current liabilities:
               
Short-term debt
  $ 8,227     $ 0  
  Accounts payable
    98,898       35,281  
Other current liabilities
    88,542       57,072  
Total current liabilities
    195,667       92,353  
                 
Long-term debt
    317,881       373,564  
Deferred income taxes
    37,080       1,664  
Other long-term liabilities
    68,234       41,268  
Total liabilities
    618,862       508,849  
                 
Equity:
               
Titan stockholder’s 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
    378,881       300,540  
Retained earnings
    52,803       9,744  
Treasury stock (at cost, 1,899,304 and 2,108,561 shares, respectively)
    (17,446 )     (19,324 )
Treasury stock reserved for deferred compensation
    (1,233 )     (1,917 )
Accumulated other comprehensive loss
    (22,973 )     (17,042 )
Total Titan stockholders’ equity
    390,069       272,031  
Noncontrolling interests
    2,283       0  
Total equity
    392,352       272,031  
                 
Total liabilities and equity
  $ 1,011,214     $ 780,880  

 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
2

 

TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN 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 deferred compensation
   
Accumulated other comprehensive income (loss)
   
 
 
Total Titan
   
 
 
Noncontrolling interest
   
 
 
 
Total
 
                                                             
Balance January 1, 2011 (as restated)
    #35,366,727     $ 30     $ 300,540     $ 9,744     $ (19,324 )   $ (1,917 )   $ (17,042 )   $ 272,031     $ 0     $ 272,031  
                                                                                 
Comprehensive income:
                                                                               
Net income
                            43,691                               43,691       354       44,045  
Currency translation adjustment
                                                    (9,929 )     (9,929 )             (9,929 )
Pension liability adjustments, net of tax
                                                    1,779       1,779               1,779  
Unrealized gain on investments, net of tax
                                                    2,219       2,219               2,219  
Comprehensive income
                                                            37,760       354       38,114  
Dividends on common stock
                            (632 )                             (632 )             (632 )
Note conversion
    6,617,709       7       73,902                                       73,909               73,909  
Exercise of stock options
    66,375               (119 )             596                       477               477  
Acquisitions
    125,524               1,708               1,127                       2,835       1,929       4,764  
Stock-based compensation
                    1,748                                       1,748               1,748  
Deferred compensation transactions
                    846                       684               1,530               1,530  
Issuance of treasury stock under 401(k) plan
    17,358               256               155                       411               411  
                                                                                 
Balance September 30, 2011
    #42,193,693     $ 37     $ 378,881     $ 52,803     $ (17,446 )   $ (1,233 )   $ (22,973 )   $ 390,069     $ 2,283     $ 392,352  

 




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,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income
  $ 44,045     $ 10,662  
Adjustments to reconcile net income to net cash
               
used for operating activities:
               
Depreciation and amortization
    32,753       27,617  
Deferred income tax provision
    8,038       8,043  
Noncash convertible debt conversion charge
    16,135       0  
Stock-based compensation
    1,748       0  
Issuance of treasury stock under 401(k) plan
    411       382  
Gain on acquisition
    (919 )     0  
Loss on senior note repurchase
    0       3,195  
(Increase) decrease in current assets, net of acquisitions:
               
Accounts receivable
    (132,294 )     (46,627 )
Inventories
    (47,366 )     (25,840 )
Prepaid and other current assets
    (9,456 )     6,451  
Other assets
    2,870       (458 )
Increase (decrease) in current liabilities, net of acquisitions:
               
Accounts payable
    69,540       22,889  
Other current liabilities
    10,224       (1,740 )
Other liabilities
    (7,412 )     3,074  
Net cash provided by (used for) operating activities
    (11,683 )     7,648  
                 
Cash flows from investing activities:
               
Capital expenditures
    (17,901 )     (20,056 )
Acquisitions, net of cash acquired
    (99,118 )     0  
Purchases of marketable securities
    (30,000 )     0  
Other
    1,941       91  
Net cash used for investing activities
    (145,078 )     (19,965 )
                 
Cash flows from financing activities:
               
Repurchase of senior unsecured notes
    (1,064 )     (56,674 )
Payment on debt
    (629 )     0  
Term loan borrowing
    14,148       0  
Proceeds from exercise of stock options
    477       240  
Payment of financing fees
    0       (586 )
Dividends paid
    (598 )     (530 )
Net cash provided by (used for) financing activities
    12,334       (57,550 )
                 
Effect of exchange rate changes on cash
    (799 )     0  
                 
Net decrease in cash and cash equivalents
    (145,226 )     (69,867 )
                 
Cash and cash equivalents at beginning of period
    239,500       229,182  
                 
Cash and cash equivalents at end of period
  $ 94,274     $ 159,315  
 
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 September 30, 2011, the results of operations for the three and nine months ended September 30, 2011 and 2010, and cash flows for the nine months ended September 30, 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.

Sales
Sales and revenues are presented net of sales taxes and other related taxes.

Marketable securities
The Company reports investments in marketable securities classified as available-for-sale at fair value.  Unrealized gains or losses on available-for-sale marketable securities are reported, net of tax, as a component of other comprehensive income.  For unrealized losses which are determined to be other-than-temporary, the loss is recorded as a component of other income (loss).  Realized gains and losses on marketable securities are recorded as a component of other income (loss).

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 September 30, 2011, respectively.  The fair value of these notes at September 30, 2011, as obtained through independent pricing sources, was approximately $210.0 million for the senior secured notes and approximately $192.4 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 and $.015 per share of common stock for each of the three and nine months ended September 30, 2011 and 2010.  The third quarter 2011 cash dividend of $.005 per share of common stock was paid October 15, 2011, to stockholders of record on September 30, 2011.
 
Restatement
The Company amended its 2010 Annual Report on Form 10-K on November 9, 2011 to restate its December 31, 2010 consolidated financial statements.  The December 31, 2010 condensed balance sheet in this Form 10-Q includes the effect of this restatement.  For additional information, see the Form 10-K/A filed on November 9, 2011.

 

 
5

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

2. ACQUISITIONS

Acquisition of AII Holding, Inc.
On April 1, 2011, Titan purchased a 70% controlling interest in AII Holding, Inc. (AII) for $1.3 million of Titan stock and payment of $2.3 million for AII’s debt.  The fair value of the identified assets acquired less liabilities assumed exceeded the fair value of the consideration transferred and noncontrolling interest.  Therefore, a bargain purchase gain of $0.9 million was recorded on the transaction.  
 
Acquisition of Goodyear’s Latin American Farm Tire Business
On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company’s (Goodyear) Latin American farm tire business for approximately $98.6 million U.S. dollars, subject to post-closing conditions and adjustments.  In addition, there were approximately $1.3 million of acquisition related costs recorded as selling, general and administrative costs during the nine months ended September 30, 2011.  The transaction includes Goodyear’s Sao Paulo, Brazil manufacturing plant, property, equipment; inventories; 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.  Net sales and net income before taxes from the acquisition date included in the statement of operations was $185.9 million and $11.5 million, respectively.
 
The Company funded the acquisition with cash on hand.  The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values.  Inventory was valued using the comparative sales method.  Real and personal property was valued at fair value.  The excess of the purchase price over the identifiable assets acquired and liabilities assumed was reflected as goodwill.  The goodwill was allocated to the agricultural segment.  The Company continues to evaluate the preliminary purchase price allocation, primarily the value of certain deferred taxes and goodwill, and may revise the purchase price allocation in future periods as these estimates are finalized.
 
The preliminary purchase price allocation of the Latin American farm tire business consisted of the following  (in thousands):
Cash
  $ 1,018  
Inventories
    14,562  
Prepaid & other current assets
    4,929  
Property, plant & equipment
    108,905  
Goodwill
    21,388  
Other assets
    39,263  
Other current liabilities
    (21,127 )
Deferred income taxes
    (29,477 )
Other noncurrent liabilities
    (40,823 )
Net assets acquired
  $ 98,638  

The preliminary purchase price allocation includes $42.5 million for prepaid royalty.  The prepaid royalty is for a seven year period and was calculated using a 2% royalty discounted at a 10% rate.  The prepaid royalty and discount will be amortized over the seven year period of the agreement.  The current portion of the prepaid royalty was $3.9 million and is included in prepaid & other current assets.  The noncurrent portion of the prepaid royalty was $38.6 million and is included in other assets.  At September 30, 2011, the current balance of the prepaid royalty was $4.1 million and the noncurrent balance of the prepaid royalty was $35.0 million.

The preliminary purchase price allocation includes $53.9 million for supply agreement liability which was valued using the incremental income method.  The supply agreement liability was recorded as the supply agreements are for sales at below market prices.  The liability will be amortized with an offset to cost of sales over the three year life of the agreement.  The current portion of the supply agreement was $18.0 million and is included in other current liabilities.  The noncurrent portion of the supply agreement was $35.9 million and is included in other noncurrent liabilities.  At September 30, 2011, the current balance of the supply agreement liability was $15.8 million and the noncurrent balance of the supply agreement liability was $23.6 million.

 
6

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

Pro forma financial information
The following unaudited pro forma financial information gives effect to the acquisition of Goodyear’s Latin American farm tire business as if the acquisition had taken place on January 1, 2010.  The pro forma financial information for the Sao Paulo, Brazil manufacturing facility was derived from The Goodyear Tire & Rubber Company’s historical accounting records.  These amounts have been calculated by adjusting the historical results of the Sao Paulo, Brazil facility to reflect the additional depreciation and the amortization of the prepaid royalty discount and supply agreement liability assuming the fair value adjustments had taken place.

Pro forma financial information for the three and nine months ended September 30, 2011 and 2010, is as follows :
(in thousands, except per share data)
 
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Net sales
  $ 398,805     $ 250,818     $ 1,112,481     $ 732,922  
Net income
    21,525       8,936       48,175       25,426  
Net income attributable to Titan
    21,163       8,936       47,821       25,426  
Basic earnings per share
  $ .50     $ .26     $ 1.15     $ .73  
Diluted earnings per share
    .42       .20       .95       .58  

The pro forma information is presented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2010, nor is it necessarily indicative of Titan’s future consolidated results of operations or financial position.
 
3.  MARKETABLE SECURITIES
Marketable securities are recorded at fair value and consisted of the following (in thousands):
   
As of September 30, 2011
 
         
Unrealized
   
Unrealized
   
Recorded
 
   
Cost
   
Gains
   
Losses
   
Basis
 
Money market funds
  $ 6     $ 0     $ 0     $ 6  
Preferred stocks
    2,551       0       (156 )     2,395  
Common stocks
    27,444       229       (1,945 )     25,728  
Total
  $ 30,001     $ 229     $ (2,101 )   $ 28,129  
 
4.  ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Accounts receivable
  $ 218,250     $ 92,893  
Allowance for doubtful accounts
    (4,366 )     (3,889 )
Accounts receivable, net
  $ 213,884     $ 89,004  
 
 
7

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

5.  INVENTORIES
Inventories consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2011
   
2010
 
         
As Restated
 
Raw materials
  $ 97,419     $ 56,414  
Work-in-process
    28,458       16,860  
Finished goods
    68,470       49,841  
      194,347       123,115  
Adjustment to LIFO basis
    (11,197 )     (4,972 )
    $ 183,150     $ 118,143  

At September 30, 2011, approximately 32% of the Company’s inventories were valued under the last-in, first-out (LIFO) method.  At December 31, 2010, approximately 39% of the Company’s inventories were valued under the LIFO method.  The remaining inventories were valued under the first-in, first-out (FIFO) method or average cost method.  All inventories are valued at lower of cost or market.
 
6.  PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Land and improvements
  $ 19,416     $ 3,061  
Buildings and improvements
    118,320       98,233  
Machinery and equipment
    452,638       383,231  
Tools, dies and molds
    87,230       84,134  
Construction-in-process
    13,580       8,741  
      691,184       577,400  
Less accumulated depreciation
    (357,609 )     (329,346 )
    $ 333,575     $ 248,054  

Depreciation on fixed assets for the three months ended September 30, 2011 and 2010, totaled $11.1 million and $8.4 million, respectively.  Depreciation on fixed assets for the nine months ended September 30, 2011 and 2010, totaled $31.4 million and $25.7 million, respectively.

 
8

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

7.  INVESTMENT IN TITAN EUROPE PLC
Investment in Titan Europe Plc consisted of the following (in thousands):
   
September 30,
   
December 31,
 
   
2011
   
2010
 
Investment in Titan Europe Plc
  $ 27,979     $ 22,693  

Titan Europe Plc is publicly traded on the AIM market in London, England.  The Company’s investment in Titan Europe represents a 21.8% 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 Plc is $5.0 million.  Titan’s accumulated other comprehensive income includes a gain on the Titan Europe Plc investment of $14.9 million, which is net of tax of $8.0 million.  The increased value in the Titan Europe Plc investment at September 30, 2011, was due primarily to a higher publicly quoted Titan Europe Plc market price.


8.  GOODWILL
Changes in goodwill consisted of the following (in thousands):
   
2011
   
2010
 
Agricultural segment
           
Goodwill balance, January 1
  $ 0     $ 0  
Acquisitions
    21,388       0  
Foreign currency translation
    (2,640 )     0  
Goodwill balance, September 30
  $ 18,748     $ 0  

The Company’s goodwill balance is related to the acquisition of Goodyear’s Latin American farm tire business which included the Sao Paulo, Brazil manufacturing facility.  The Company is in the process of finalizing the preliminary purchase price allocation for the acquisition.  The final amount of goodwill recorded on this transaction may be adjusted based on the finalized purchase price allocation.  Goodwill is included as a component of other assets in the Consolidated Condensed Balance Sheets.
 
9.  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
    18,052       12,469  
Warranty payments made
    (14,979 )     (11,181 )
Warranty liability, September 30
  $ 15,544     $ 10,457  

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.

 
9

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

10.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
   
September 30,
   
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  
Other debt
    13,227       0  
8% senior unsecured notes due January 2012
    0       1,064  
      326,108       373,564  
Less:  Amounts due within one year
    8,227       0  
    $ 317,881     $ 373,564  
                 

Aggregate maturities of long-term debt at September 30, 2011, were as follows (in thousands):
October 1 – December 31, 2011
  $ 8,227  
2012
    0  
2013
    5,000  
2014
    0  
2015
    0  
Thereafter
    312,881  
    $ 326,108  

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 September 30, 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 September 30, 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.
 
 
10

 
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 
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 2011 and at September 30, 2011, there were no borrowings under the credit facility.  Outstanding letters of credit were $12.0 million at September 30, 2011, leaving $88.0 million of unused availability on 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, 2011.
 
Other debt
Brazil Term Loan
In May 2011, the Company entered into a two-year, unsecured $10.0 million Term Loan with Bank of America, N.A. (BoA term loan) to provide working capital for the Sao Paolo, Brazil manufacturing facility.  Borrowings under the BoA term loan bear interest at a rate equal to LIBOR plus 200 basis points.  The BoA term loan shall be a minimum of $5.0 million with the option for an additional $5.0 million loan for a maximum of $10.0 million.  The BoA loan is due May 2013.  The Company entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan.    See Note 11 for additional information.  As of September 30, 2011, the Company had $5.0 million outstanding on this loan and the interest rate including the effect of the swap agreement was approximately 14%.

Brazil Revolving Line of Credit
The Company’s wholly-owned Brazilian subsidiary, Titan Pneus Do Brasil Ltda (Titan Brazil), has a revolving line of credit (Brazil line of credit) established with Bank of America Merrill Lynch Banco Multiplo S.A. in May 2011 that is secured by a $12.0 million line of credit between the Company and Bank of America N.A. under the $100.0 million credit facility.  Titan Brazil could borrow up to 16.0 million Brazilian Reais, which equates to approximately $8.6 million dollars as of September 30, 2011, for working capital purposes.  Under the terms of the Brazil line of credit, borrowings, if any, bear interest at a rate of LIBOR plus 247 basis points.  At September 30, 2011 there was $7.8 million outstanding and the interest rate was approximately 3%.
 
11.  DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses a financial derivative to mitigate its exposure to volatility in the interest rate and foreign currency exchange rate in Brazil.  The Company uses this derivate instrument to hedge exposure in the ordinary course of business and does not invest in derivative instruments for speculative purposes.  In order to reduce interest rate and foreign currency risk on the BoA Term Loan, the Company entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan.  The Company has not designated this agreement as a hedging instrument.  Changes in the fair value of the cross currency swap are recorded in other income (expense) and changes in the fair value of the interest rate swap agreement are recorded as interest expense (or gain as an offset to interest expense).  For the three months ended September 30, 2011, the Company recorded interest expense of $0.1 million related to this derivative.  For the nine months ended September 30, 2011, the Company recorded interest expense of $0.2 million related to this derivative.

 
11

 
TITAN INTERNATIONAL, INC.
Notes to Consolidated Condensed Financial Statements
(Unaudited)
 
12.  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, 2011, 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, 2011
  $ 174  
2012
    395  
2013
    343  
2014
    244  
Thereafter
    0  
Total future minimum lease payments
  $ 1,156  
 
13.  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 $0.6 million to the frozen pension plans during the remainder of 2011.

The components of net periodic pension cost consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Interest cost
  $ 1,272     $ 1,300     $ 3,816     $ 3,900  
Expected return on assets
    (1,314 )     (1,227 )     (3,944 )     (3,681 )
Amortization of unrecognized prior service cost
    34       34       102       102  
Amortization of unrecognized deferred taxes
    (14 )     (14 )     (42 )     (42 )
Amortization of net unrecognized loss
    937       907       2,809       2,721  
Net periodic pension cost
  $ 915     $ 1,000     $ 2,741     $ 3,000  
 
14.  ROYALTY EXPENSE
The Company has a trademark license agreement with Goodyear to manufacture and sell certain off-highway tires in North America and Latin America under the Goodyear name.  The North American and Latin American royalties were prepaid for seven years as a part of the Goodyear Latin American farm tire acquisition.  Royalty expenses recorded were $2.3 million and $2.3 million for the quarters ended September 30, 2011 and 2010, respectively.  Royalty expenses were $7.5 million and $6.8 million for the nine months ended September 30, 2011 and 2010, respectively.

 
12

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

15.  OTHER INCOME
Other income consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Discount amortization on prepaid royalty
  $ 1,041     $ 0     $ 2,120     $ 0  
Gain on purchase transaction
    0       0       919       0  
Interest income
    119       92       357       266  
Investment gain (loss) on contractual obligations
    (1,255 )     638       (1,111 )     285  
Other expense
    (461 )     (329 )     (378 )     (244 )
    $ (556 )   $ 401     $ 1,907     $ 307  
 
16.  INCOME TAXES
The Company recorded income tax expense of $12.7 million and $35.3 million for the three and nine months ended September 30, 2011, respectively, as compared to $2.6 million and $6.8 million for the three and nine months ended September 30, 2010.  The Company’s effective income tax rate was 45% and 39% for the nine months ended September 30, 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 exchange agreement on the Company’s convertible debt.  This noncash charge is not fully deductible for income tax purposes.
 
17.  COMPREHENSIVE INCOME
Comprehensive income consisted of the following (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
          Net income attributable to Titan
  $ 21,163     $ 4,015     $ 43,691     $ 10,662  
          Unrealized gain (loss) on investments, net of tax
    (11,433 )     5,137       2,219       8,405  
          Currency translation adjustment
    (12,861 )     0       (9,929 )     0  
          Pension liability adjustments, net of tax
    594       575       1,779       1,724  
  Comprehensive income (loss) attributable to Titan
    (2,537 )     9,727       37,760       20,791  
          Net income attributable to noncontrolling interests
    362       0       354       0  
 
  $ (2,175 )   $ 9,727     $ 38,114     $ 20,791  


 
13

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

18.  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, 2011 and 2010 (in thousands):
   
Three months ended
   
Nine months ended
 
   
September 30,
   
September 30,
 
   
2011
   
2010
   
2011
   
2010
 
Revenues from external customers
                       
Agricultural
  $ 246,456     $ 170,675     $ 713,721     $ 497,503  
Earthmoving/construction
    81,078       47,848       224,484       139,161  
Consumer
    71,271       4,295       145,876       12,258  
    $ 398,805     $ 222,818     $ 1,084,081     $ 648,922  
                                 
Gross profit
                               
Agricultural
  $ 39,008     $ 25,283     $ 133,874     $ 78,201  
Earthmoving/construction
    8,814       2,495       28,227       10,294  
Consumer
    5,812       827       13,567       2,302  
Unallocated corporate
    (640 )     (659 )     (2,068 )     (2,861 )
    $ 52,994     $ 27,946     $ 173,600     $ 87,936  
                                 
Income from operations
                               
Agricultural
  $ 34,580     $ 21,440     $ 120,248     $ 66,222  
Earthmoving/construction
    7,418       1,077       23,408       4,080  
Consumer
    3,615       734       9,352       2,030  
Unallocated corporate
    (4,226 )     (10,729 )     (40,345 )     (32,252 )
Income from operations
    41,387       12,522       112,663       40,080  
Interest expense
    (6,616 )     (5,867 )     (19,045 )     (19,713 )
Noncash debt charge
    0       0       (16,135 )     0  
Loss on senior note repurchase
    0       (473 )     0       (3,195 )
Other income (expense)
    (556 )     401       1,907       307  
Income before income taxes
  $ 34,215     $ 6,583     $ 79,390     $ 17,479  

Assets by segment were as follows (in thousands):
   
September 30,
   
December 31,
 
Total Assets
 
2011
   
2010
 
         
As Restated
 
Agricultural segment
  $ 464,908     $ 304,048  
Earthmoving/construction segment
    192,956       171,410  
Consumer segment
    146,741       5,863  
Unallocated corporate
    206,609       299,559  
    $ 1,011,214     $ 780,880  
 


 
14

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

19.  EARNINGS PER SHARE
Earnings per share (EPS) are as follows (amounts in thousands, except per share data):
   
Three months ended,
 
   
September 30, 2011
   
September 30, 2010
 
   
Titan Net Income
   
Weighted average shares
   
Per share amount
   
Titan Net Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 21,163       42,028     $ .50     $ 4,015       34,868     $ .12  
Effect of stock options/trusts
    0       238               0       529          
  Effect of convertible notes
    1,091       10,795               1,598       16,376          
Diluted EPS
  $ 22,254       53,061     $ .42     $ 5,613       51,773     $ .11  
 

   
Nine months ended,
 
   
September 30, 2011
   
September 30, 2010
 
   
Titan Net Income
   
Weighted average shares
   
Per share amount
   
Titan Net Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ 43,691       41,512     $ 1.05     $ 10,662       34,819     $ .31  
Effect of stock options/trusts
    0       287               0       545          
Effect of convertible notes
    3,385       11,171               4,827       16,376          
Diluted EPS
  $ 47,076       52,970     $ .89     $ 15,489       51,740     $ .30  

There were no stock options/trusts or convertible notes that were antidilutive for the periods presented.
 
20.  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, 2011
   
December 31, 2010
 
   
Total
   
Level 1
   
Levels 2&3
   
Total
   
Level 1
   
Levels 2&3
 
Marketable securities
  $ 28,129     $ 28,129     $ 0     $ 0     $ 0     $ 0  
Investment in Titan Europe Plc
    27,979       27,979       0       22,693       22,693       0  
Investments for contractual obligations
    11,585       11,585       0       11,168       11,168       0  
Total
  $ 67,693     $ 67,693     $ 0     $ 33,861     $ 33,861     $ 0  


 
15

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

21.  RECENTLY ISSUED ACCOUNTING STANDARDS

Business Combinations
In December 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-29, “Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations.”  This update addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations.  The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only.  The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings.  The amendments in this update were effective prospectively for business combinations for which the acquisition date was on or after the beginning of the first annual reporting period beginning on or after December 15, 2010.  The adoption of this guidance did not have a material effect on the Company’s financial position, results of operations or cash flows.

Fair Value Measurement
In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.”  This update establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS).  The amendments in this update are effective during interim and annual periods beginning after December 15, 2011.  The adoption of this update is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) – Presentation of Comprehensive Income.”  The objective of this update is to improve the comparability, consistency, and transparency of financial reporting to increase the prominence of items reported in other comprehensive income.  This update requires that all nonowner changes in stockholders’ equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements.  The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  The adoption of this update is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Goodwill Impairment Testing
In September 2011, the FASB issued ASU No. 2011-08, “Intangibles–Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.”  The objective of this update is to simplify how entities test goodwill for impairment.  The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350.  The amendments in this update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  Early adoption is permitted.  The adoption of this update is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.


 
16

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

22.  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.



 
17

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

 
23.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION
The Company’s 5.625% convertible senior subordinated notes are guaranteed by the following 100% owned 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 guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions.  The following condensed consolidating financial statements are presented using the equity method of accounting for the parent and guarantor subsidiaries.  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 September 30, 2011
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 299,695     $ 99,110     $ 0     $ 398,805  
Cost of sales
    380       255,509       89,922       0       345,811  
Gross profit (loss)
    (380 )     44,186       9,188       0       52,994  
Selling, general and administrative expenses
    (4,443 )     2,467       10,524       0       8,548  
Research and development expenses
    0       796       0       0       796  
Royalty expense
    0       1,620       643       0       2,263  
Income (loss) from operations
    4,063       39,303       (1,979 )     0       41,387  
Interest expense
    (6,114 )     0       (502 )     0       (6,616 )
Other income (expense)
    (552 )     5       (9 )     0       (556 )
Income (loss) before income taxes
    (2,603 )     39,308       (2,490 )     0       34,215  
Provision (benefit) for income taxes
    (988 )     14,605       (927 )     0       12,690  
Equity in earnings of subsidiaries
    23,140       (127 )     127       (23,140 )     0  
Net income (loss)
    21,525       24,576       (1,436 )     (23,140 )     21,525  
Net income attributable to noncontrolling interests
    0       0       0       362       362  
Net income (loss) attributable to Titan
  $ 21,525     $ 24,576     $ (1,436 )   $ (23,502 )   $ 21,163  

   
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       194,077       408       0       194,872  
Gross profit (loss)
    (387 )     28,741       (408 )     0       27,946  
Selling, general and administrative expenses
    4,843       1,967       5,227       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 )     23,387       (5,635 )     0       12,522  
Interest expense
    (5,867 )     0       0       0       (5,867 )
Loss on senior note repurchase
    (473 )     0       0       0       (473 )
Other income (expense)
    377       4       20       0       401  
Income (loss) before income taxes
    (11,193 )     23,391       (5,615 )     0       6,583  
Provision (benefit) for income taxes
    (4,366 )     9,123       (2,189 )     0       2,568  
Equity in earnings of subsidiaries
    10,842       (69 )     69       (10,842 )     0  
Net income (loss)
  $ 4,015     $ 14,199     $ (3,357 )   $ (10,842 )   $ 4,015  

 
18

 
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, 2011
 
   
Titan
         
Non-
             
   
Intl., Inc.
   
Guarantor
   
Guarantor
             
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 890,916     $ 193,165     $ 0     $ 1,084,081  
Cost of sales
    1,282       733,379       175,820       0       910,481  
Gross profit (loss)
    (1,282 )     157,537       17,345       0       173,600  
Selling, general and administrative expenses
    15,513       7,654       27,247       0       50,414  
Research and development expenses
    4       2,989       0       0       2,993  
Royalty expense
    0       6,304       1,226       0       7,530  
Income (loss) from operations
    (16,799 )     140,590       (11,128 )     0       112,663  
Interest expense
    (18,426 )     0       (619 )     0       (19,045 )
Noncash convertible debt conversion charge
    (16,135 )     0       0       0       (16,135 )
Other income (expense)
    1,644       (236 )     499       0       1,907  
Income (loss) before income taxes
    (49,716 )     140,354       (11,248 )     0       79,390  
Provision (benefit) for income taxes
    (12,424 )     51,931       (4,162 )     0       35,345  
Equity in earnings of subsidiaries
    81,337       (260 )     260       (81,337 )     0  
Net income (loss)
    44,045       88,163       (6,826 )     (81,337 )     44,045  
Net income attributable to noncontrolling interests
    0       0       0       354