TWI 06.30.2013 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: June 30, 2013
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 þ
Accelerated filer ¨
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
Shares Outstanding at
Class
 
July 22, 2013
 
 
 
Common stock, no par value per share
 
53,539,136




TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
 
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Net sales
$
593,291

 
$
459,233

 
$
1,171,678

 
$
922,321

Cost of sales
506,636

 
377,147

 
988,272

 
746,872

Gross profit
86,655

 
82,086

 
183,406

 
175,449

Selling, general and administrative expenses
43,653

 
23,410

 
86,096

 
54,245

Research and development expenses
2,801

 
1,189

 
5,503

 
2,697

Royalty expense
3,295

 
2,652

 
7,018

 
5,001

Supply agreement termination income

 
(26,134
)
 

 
(26,134
)
Income from operations
36,906

 
80,969

 
84,789

 
139,640

Interest expense
(13,069
)
 
(6,217
)
 
(23,510
)
 
(12,512
)
Convertible debt conversion charge

 

 
(7,273
)
 

Gain on earthquake insurance recovery
22,451

 

 
22,451

 

Other income (expense)
(2,429
)
 
613

 
(1,010
)
 
3,724

Income before income taxes
43,859

 
75,365

 
75,447

 
130,852

Provision for income taxes
21,003

 
31,040

 
33,202

 
51,133

Net income
22,856

 
44,325

 
42,245

 
79,719

Net income (loss) attributable to noncontrolling interests
(361
)
 
269

 
(447
)
 
244

Net income attributable to Titan
$
23,217

 
$
44,056

 
$
42,692

 
$
79,475

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic
$
.43

 
$
1.05

 
$
.81

 
$
1.89

Diluted
$
.40

 
$
.84

 
$
.74

 
$
1.53

Average common shares and equivalents outstanding:
 
 
 

 
 
 
 

Basic
53,426

 
42,158

 
52,625

 
42,132

Diluted
59,504

 
53,516

 
59,527

 
53,492

 
 
 
 
 
 
 
 
Dividends declared per common share:
$
.005

 
$
.005

 
$
.010

 
$
.010

 










See accompanying Notes to Consolidated Financial Statements.

1



TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(All amounts in thousands)

 
Three months ended
 
June 30,
 
2013
 
2012
Net income
$
22,856

 
$
44,325

Unrealized (loss) on investments, net of tax of $0 and $3,276, respectively

 
(5,580
)
Currency translation adjustment, net
(25,171
)
 
(8,136
)
Pension liability adjustments, net of tax of $586 and $491, respectively
1,070

 
836

Comprehensive income (loss)
(1,245
)
 
31,445

Net comprehensive income (loss) attributable to noncontrolling interests
(3,167
)
 
269

Comprehensive income attributable to Titan
$
1,922

 
$
31,176



 
 
 
 
 
Six months ended
 
June 30,
 
2013
 
2012
Net income
$
42,245

 
$
79,719

Unrealized gain (loss) on investments, net of tax of $0 and $199, respectively
(3
)
 
337

Currency translation adjustment, net
(25,367
)
 
(4,569
)
Pension liability adjustments, net of tax of $1,113 and $982, respectively
2,021

 
1,672

Comprehensive income
18,896

 
77,159

Net comprehensive income (loss) attributable to noncontrolling interests
(3,158
)
 
244

Comprehensive income attributable to Titan
$
22,054

 
$
76,915






















See accompanying Notes to Consolidated Financial Statements.

2



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

 
June 30,

December 31,
Assets
2013

2012
Current assets
 

 
Cash and cash equivalents
$
424,387


$
189,114

  Accounts receivable, net
335,854


297,798

Inventories
368,963


366,385

Deferred income taxes
30,208


50,558

Prepaid and other current assets
87,557


92,268

Total current assets
1,246,969


996,123

Property, plant and equipment, net
554,154


568,344

Goodwill
22,343


24,941

Deferred income taxes
7,566


8,383

Other assets
113,515


112,444

Total assets
$
1,944,547


$
1,710,235

Liabilities and Equity
 


 

Current liabilities
 


 

Short-term debt
$
105,110


$
145,801

Accounts payable
211,878


180,065

Other current liabilities
134,172


141,214

Total current liabilities
451,160


467,080

Long-term debt
638,846


441,438

Deferred income taxes
50,305


62,259

Other long-term liabilities
103,518


107,096

Total liabilities
1,243,829


1,077,873

Equity
 


 

Titan stockholders' equity





  Common stock (no par, 120,000,000 shares authorized, 55,253,092 and 50,350,048 issued,
  respectively)



Additional paid-in capital
556,455


507,199

Retained earnings
215,564


173,407

Treasury stock (at cost, 1,724,107 and 1,787,844 shares, respectively)
(15,873
)

(16,445
)
Treasury stock reserved for deferred compensation
(1,075
)

(1,075
)
Accumulated other comprehensive loss
(77,107
)

(56,469
)
Total Titan stockholders’ equity
677,964


606,617

Noncontrolling interests
22,754


25,745

Total equity
700,718


632,362

Total liabilities and equity
$
1,944,547


$
1,710,235

 
 





See accompanying Notes to Consolidated Financial Statements.

3



TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN EQUITY (UNAUDITED)
(All amounts in thousands, except share data)


 
 Number of
common shares
 
Additional
paid-in
capital
 
Retained earnings
 
Treasury stock
 
Treasury stock
 reserved for
deferred compensation
 
Accumulated other comprehensive income (loss)
 
Total Titan Equity
 
Noncontrolling interest
 
Total Equity
Balance January 1, 2013
48,562,204

 
$
507,199

 
$
173,407

 
$
(16,445
)
 
$
(1,075
)
 
$
(56,469
)
 
$
606,617

 
$
25,745

 
$
632,362

Net income


 


 
42,692

 


 


 


 
42,692

 
(447
)
 
42,245

Currency translation adjustment
 
 
 
 
 
 
 
 
 
 
(22,656
)
 
(22,656
)
 
(2,711
)
 
(25,367
)
Pension liability adjustments, net of tax


 


 


 


 


 
2,021

 
2,021

 
 
 
2,021

Unrealized loss on investment


 


 


 


 


 
(3
)
 
(3
)
 
 
 
(3
)
Dividends on common stock


 


 
(535
)
 


 


 


 
(535
)
 
 
 
(535
)
Note conversion
4,903,044

 
45,903

 
 
 
 
 
 
 
 
 
45,903

 
 
 
45,903

Exercise of stock options
48,568

 
405

 


 
436

 


 


 
841

 
 
 
841

Acquisition


 


 


 


 


 


 

 
167

 
167

Stock-based compensation


 
2,800

 


 


 


 


 
2,800

 
 
 
2,800

Tax benefit related to stock-based compensation


 
(42
)
 


 


 


 


 
(42
)
 
 
 
(42
)
Issuance of treasury stock under 401(k) plan
15,169

 
190

 


 
136

 


 


 
326

 
 
 
326

Balance June 30, 2013
53,528,985

 
$
556,455

 
$
215,564

 
$
(15,873
)
 
$
(1,075
)
 
$
(77,107
)
 
$
677,964

 
$
22,754

 
$
700,718

 
















See accompanying Notes to Consolidated Financial Statements.

4



TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
 
Six months ended June 30,
Cash flows from operating activities:
2013
 
2012
Net income
$
42,245

 
$
79,719

Adjustments to reconcile net income to net cash
 

 
 

provided by operating activities:
 

 
 

Depreciation and amortization
40,031

 
23,553

Amortization of debt premium
(1,202
)
 

Deferred income tax provision
9,213

 
572

Convertible debt conversion charge
7,273

 

Gain on earthquake insurance recovery
(22,451
)
 

Supply agreement termination income

 
(26,134
)
Stock-based compensation
2,800

 
2,175

Excess tax benefit from stock options exercised
42

 
(190
)
Insurance proceeds
35,808

 

Issuance of treasury stock under 401(k) plan
326

 
293

(Increase) decrease in assets:
 

 
 

Accounts receivable
(48,349
)
 
(51,659
)
Inventories
(14,599
)
 
(26,335
)
Prepaid and other current assets
(15,634
)
 
(11,305
)
Other assets
4,818

 
2,342

Increase (decrease) in liabilities:
 

 
 

Accounts payable
42,014

 
37,346

Other current liabilities
(402
)
 
(259
)
Other liabilities
4,677

 
18,565

Net cash provided by operating activities
86,610

 
48,683

Cash flows from investing activities:
 

 
 

Capital expenditures
(36,068
)
 
(19,006
)
Acquisitions, net of cash acquired
(1,671
)
 

Additional equity investment in Wheels India
(8,017
)
 

Insurance proceeds
2,879

 

Other
179

 
453

Net cash used for investing activities
(42,698
)
 
(18,553
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
345,313

 

Payment on debt
(155,082
)
 
(14,226
)
Term loan borrowing
25,157

 
4,378

Convertible note conversion
(14,090
)
 

Proceeds from exercise of stock options
841

 
887

Excess tax benefit from stock options exercised
(42
)
 
190

Payment of financing fees
(5,452
)
 

Dividends paid
(511
)
 
(423
)
Net cash provided by (used for) financing activities
196,134

 
(9,194
)
Effect of exchange rate changes on cash
(4,773
)
 
(656
)
Net increase in cash and cash equivalents
235,273

 
20,280

Cash and cash equivalents, beginning of period
189,114

 
129,170

Cash and cash equivalents, end of period
$
424,387

 
$
149,450

 
 
 
 
Supplemental information:
 
 
 
Interest paid
$
16,375

 
$
11,856

Income taxes paid
$
37,207

 
$
46,944

Noncash investing and financing information:
 
 
 
Issuance of common stock for convertible debt payment
$
45,903

 
$

 See accompanying Notes to Consolidated Financial Statements.

5



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 June 30, 2013, and the results of operations and cash flows for the three and six months ended June 30, 2013 and 2012.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company's 2012 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 2012 Annual Report on Form 10-K.

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

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 due to their short term or stated rates.  Investments in marketable equity securities are recorded at fair value.  The 7.875% senior secured notes due 2017 (senior secured notes) and 5.625% convertible senior subordinated notes due 2017 (convertible notes) are carried at cost of $544.1 million and $60.2 million at June 30, 2013, respectively. The fair value of the senior secured notes at June 30, 2013, as obtained through an independent pricing source, was approximately $579.5 million.

Cash dividends
The Company declared cash dividends of $.005 and $.010 per share of common stock for each of the three and six months ended June 30, 2013, and 2012. The second quarter 2013 cash dividend of $.005 per share of common stock was paid July 15, 2013, to stockholders of record on June 28, 2013.

Interest paid
Titan paid $0.8 million and $0.3 million for interest for the quarters ended June 30, 2013 and 2012, respectively, and $16.4 million and $11.9 million for interest for the six months ended June 30, 2013 and 2012, respectively.
 
Income taxes paid
Titan paid $27.2 million and $37.0 million for income taxes for the quarters ended June 30, 2013 and 2012, respectively, and $37.2 million and $46.9 million for income taxes for the six months ended June 30, 2013 and 2012, respectively.
 
Use of estimates
The policies utilized by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America and require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts could differ from these estimates and assumptions.

Reclassification
Certain amounts from prior years have been reclassified to conform to the current year's presentation.

Subsequent Events
The Company has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date of issuance of the financial statements.

6



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


2. ACQUISITIONS

Acquisition of Titan Europe Plc.
On October 31, 2012, Titan acquired over 97% of the outstanding stock of Titan Europe Plc (Titan Europe) and in December 2012, the remaining 3% interest was acquired. Titan Europe is an international engineering group which designs and manufactures wheels, undercarriage components and assemblies for tracked and wheeled "off-road vehicles". The Titan Europe acquisition allowed the Company to expand its global presence and expand its product line. Prior to the acquisition, Titan held a 21.8% ownership percentage in Titan Europe. Titan Europe shareholders received one share of new Titan common stock for every 11 Titan Europe shares held. A total of 6,257,051 new shares of Titan were issued with a value of $121.8 million. In addition, Titan paid cash of $5.6 million for option payouts and partial shares. Titan's previous investment in Titan Europe had a fair value on the acquisition date of $31.7 million based on Titan Europe's stock price on the AIM market in London. Total consideration including the value of stock issued, cash payments, and the fair value of previously held Titan Europe shares totaled $159.1 million. A gain of $26.7 million was recorded on Titan's previously held interest in Titan Europe which was recorded as Noncash Titan Europe Plc gain in the consolidated statement of operations. This gain was previously recorded in other comprehensive income.

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 Company continues to evaluate the preliminary purchase price allocation, primarily the value of certain deferred taxes and property, plant & equipment, and may revise the purchase price allocation in future periods as these estimates are finalized.

The purchase price allocation of the Titan Europe acquisition consisted of the following (amounts in thousands):
Cash
$
39,122

Accounts receivable
128,585

Inventories
178,407

Deferred income taxes - current asset
22,068

Prepaid & other current assets
21,745

Earthquake insurance receivable
17,024

Property, plant & equipment
217,309

Investment in Wheels India Limited
36,804

Other assets
8,414

Short term debt
(96,822
)
Accounts payable
(142,752
)
Other current liabilities
(56,391
)
Long term debt
(158,183
)
Deferred income taxes - noncurrent liability
(12,636
)
Other noncurrent liabilities
(31,874
)
Net assets acquired
$
170,820


The purchase price allocation has changed from that reported in the Form 10-K for the year ended December 31, 2012, and the 10-Q for the quarter ended March 31, 2013. Titan Europe's wheel manufacturing facility in Finale Emilia, Italy experienced damage from an earthquake in May 2012, prior to Titan's acquisition of Titan Europe.  The plant was closed for production during initial remedial work. This resulted in a limited transfer of production to other facilities within Titan Europe as well as sourcing product from facilities in the US owned by Titan and competitors.  In the second quarter of 2013, Titan received a final insurance settlement payment of $38.7 million. As a result of this information, Titan has recorded an earthquake insurance receivable of $17.0 million, decreased the current deferred income taxes by $5.3 million, and recorded bargain purchase gain of $11.7 million for the year ended December 31, 2012.


7



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 Titan Europe Plc as if the acquisition had taken place on January 1, 2012. The pro forma financial information for Titan Europe Plc was derived from the historical accounting records of Titan Europe. The Titan Europe results were adjusted to reflect additional depreciation.
 
Pro forma financial information is as follows (in thousands, except per share data):
 
 
Six Months ended June 30, 2012
Net sales
 
$
1,313,277

Net income
 
87,344

Net income attributable to Titan
 
87,100

Basic earnings per share
 
$
1.80

Diluted earnings per share
 
1.50


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, 2012, nor is it necessarily indicative of Titan's future consolidated results of operations or financial position.


3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (amounts in thousands):
 
June 30,
2013
 
December 31,
2012
Accounts receivable
$
343,599

 
$
302,928

Allowance for doubtful accounts
(7,745
)
 
(5,130
)
Accounts receivable, net
$
335,854

 
$
297,798

 
Accounts receivable are reduced by an allowance for doubtful accounts which is based on historical losses.


4. INVENTORIES

Inventories consisted of the following (amounts in thousands):
 
June 30,
2013
 
December 31,
2012
Raw material
$
134,840

 
$
153,308

Work-in-process
56,789

 
69,030

Finished goods
184,750

 
154,785

 
376,379

 
377,123

Adjustment to LIFO basis
(7,416
)
 
(10,738
)
 
$
368,963

 
$
366,385

 
At June 30, 2013, approximately 14% of the Company's inventories were valued under the last-in, first-out (LIFO) method. At December 31, 2012, approximately 16% 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. The LIFO reserve decreased primarily as a result of the composition of inventory. An overall increase in raw material relative to total inventory resulted in a greater decrease in the FIFO cost versus the LIFO cost.



8



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

5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (amounts in thousands):
 
June 30,
2013
 
December 31, 2012
Land and improvements
$
64,270

 
$
66,012

Buildings and improvements
190,173

 
192,135

Machinery and equipment
566,225

 
555,261

Tools, dies and molds
103,112

 
117,341

Construction-in-process
57,396

 
49,136

 
981,176

 
979,885

Less accumulated depreciation
(427,022
)
 
(411,541
)
 
$
554,154

 
$
568,344

 
Depreciation on fixed assets for the six months ended June 30, 2013 and 2012, totaled $37.8 million and $22.6 million, respectively.

Included in the total building and improvements are capital leases of $4.4 million and $4.5 million at June 30, 2013, and December 31, 2012, respectively. Included in the total of machinery and equipment are capital leases of $35.8 million and $36.0 million at June 30, 2013, and December 31, 2012, respectively.


6. GOODWILL AND INTANGIBLE ASSETS

Changes in goodwill consisted of the following (amounts in thousands):
 
2013
 
2012
 
 
 
Earthmoving/
 
 
 
 
 
Earthmoving/
 
 
 
Agricultural
 
Construction
 
 
 
Agricultural
 
Construction
 
 
 
Segment
 
Segment
 
Total
 
Segment
 
Segment
 
Total
Goodwill balance, January 1
$
11,522

 
$
13,419

 
$
24,941

 
$
19,841

 
$

 
$
19,841

   Acquisition adjustment

 

 

 
(7,289
)
 

 
(7,289
)
   Foreign currency translation
(993
)
 
(1,605
)
 
(2,598
)
 
(904
)
 

 
(904
)
Goodwill balance, June 30
$
10,529

 
$
11,814

 
$
22,343

 
$
11,648

 
$

 
$
11,648

 
The Company's agricultural segment 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's earthmoving/construction goodwill balance is related to the acquisition of Planet Group in August 2012. The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. The Company's consumer segment does not have any recorded goodwill.


9



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

The components of intangible assets consisted of the following (amounts in thousands):
 
Weighted- Average Useful Lives (in Years)
 
June 30,
2013
 
December 31, 2012
Amortizable intangible assets:
 
 
 
 
 
     Customer relationships
14.0
 
17,125

 
19,357

     Patents, trademarks and other
2.2
 
3,297

 
3,658

          Total at cost
 
 
20,422

 
23,015

     Less accumulated amortization
 
 
(2,777
)
 
(1,807
)
 
 
 
17,645

 
21,208

 
Amortization related to intangible assets for the six months ended June 30, 2013 and 2012, totaled $1.2 million and $0.1 million, respectively. Intangible assets are included as a component of other assets in the consolidated condensed balance sheet.

The estimated aggregate amortization expense at June 30, 2013, is as follows (amounts in thousands):
July 1 - December 31, 2013
$
1,053

2014
2,103

2015
1,732

2016
1,158

2017
1,096

Thereafter
10,503

 
$
17,645



7. WARRANTY

Changes in the warranty liability consisted of the following (amounts in thousands):
 
2013
 
2012
Warranty liability, January 1
$
27,482

 
$
17,659

Provision for warranty liabilities
24,078

 
15,568

Warranty payments made
(17,079
)
 
(12,040
)
Warranty liability, June 30
$
34,481

 
$
21,187


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.












10



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

8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
 
Long-term debt consisted of the following (amounts in thousands):
 
June 30,
2013
 
December 31,
2012
7.875% senior secured notes due 2017 - Issued 2013
$
325,000

 
$

Unamortized premium based on 7.875% notes issued 2013
19,111

 

7.875% senior secured notes due 2017 - Issued 2010
200,000

 
200,000

European credit facilities
82,114

 
202,097

5.625% convertible senior subordinated notes due 2017
60,161

 
112,881

Other debt
54,744

 
69,151

Capital leases
2,826

 
3,110

 
743,956

 
587,239

Less amounts due within one year
105,110

 
145,801

 
$
638,846

 
$
441,438

 
Aggregate maturities of long-term debt at June 30, 2013, were as follows (amounts in thousands):
July 1 - December 31, 2013
$
102,426

2014
20,762

2015
9,857

2016
18,814

2017
589,589

Thereafter
2,508

 
$
743,956

 
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 Tire Corporation of Bryan, Titan Tire Corporation of Freeport and Titan Wheel Corporation of Illinois.  The Company’s senior secured notes outstanding balance was $525.0 million at June 30, 2013 including $200.0 million issued in 2010 and $325.0 million issued in 2013. The 2013 amount was issued at a premium. Otherwise, all the notes have the same terms. The senior secured notes issued in 2013 have an imputed interest rate of 6.277% and an unamortized premium balance of $19.1 million at June 30, 2013.

Titan Europe credit facilities
The Titan Europe credit facilities contain borrowings from various institutions totaling $82.1 million at June 30, 2013. Maturity dates on this debt range from less than one year to eleven years and interest rates range from 2% to 6.9%. The European facilities are secured by the assets of select European subsidiaries.



11



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

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 $60.2 million at June 30, 2013.

In the first quarter of 2013, the Company closed an Exchange Agreement with a note holder of the convertible notes. The two parties privately negotiated an agreement to exchange approximately $52.7 million in aggregate principal amount of the convertible notes for approximately 4.9 million shares of the Company's common stock plus a cash payment totaling $14.2 million. In connection with this exchange, the Company recognized a charge of $7.3 million in accordance with accounting standards related to debt conversions.

Revolving credit facility
The Company’s $150 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a December 2017 termination date and is collateralized by the accounts receivable and inventory of Titan and certain of its domestic subsidiaries.  During the first six months of 2013 and at June 30, 2013, there were no borrowings under the credit facility.

Other debt
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. Titan Brazil could borrow up to 16.0 million Brazilian Reais, which equates to approximately $7.2 million dollars as of June 30, 2013, for working capital purposes. Under the terms of the Brazil line of credit, borrowings, if any, bear interest at a rate of 1 month LIBOR plus 247 basis points. During the first six months of 2013 and at June 30, 2013 there were no borrowings outstanding on this line of credit.

Brazil Other Debt
Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling $9.3 million at June 30, 2013.

Australia Other Debt
Titan National Australia Holdings has capital leases totaling $1.2 million at June 30, 2013.

Titan Europe Other Debt
Titan Europe has overdraft facilities totaling $44.2 million at June 30, 2013.

Titan Europe Capital Leases
Titan Europe has capital lease obligations totaling $2.8 million at June 30, 2013.



12



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

9. DERIVATIVE FINANCIAL INSTRUMENTS

Prior to the April 2013 payoff of its Term Loan with Bank of America, N.A. (BoA Term Loan), the Company used financial derivatives to mitigate its exposure to volatility in the interest rate and foreign currency exchange rate in Brazil. The Company used these derivative instruments to hedge exposure in the ordinary course of business and did 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 transactions with Bank of America Merrill Lynch Banco Multiplo S.A. that was designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan. The Company did not designate these agreements as a hedging instrument. Changes in the fair value of the cross currency swap were recorded in other income (expense) and changes in the fair value of the interest rate swap agreement were recorded as interest expense (or gain as an offset to interest expense). For the three months ended June 30, 2013, the Company recorded $(0.5) million of other expense and $0.0 million of interest expense related to these derivatives. For the six months ended June 30, 2013, the Company recorded $(0.6) million of other expense and $0.1 million of interest expense related to these derivatives.

The Company also used derivative financial instruments to manage its exposure to market risks from changes in interest rates in Europe. These derivative financial instruments are recognized at fair value. The Company has not designated these financial instruments as hedging instruments. Any gain or loss on the re-measurement of the fair value is taken to interest expense. For the three months ended June 30, 2013, the Company recorded interest expense of $0.0 million related to these derivatives. For the six months ended June 30, 2013, the Company recorded an offset to interest expense of $1.1 million related to these derivatives.


10. LEASE COMMITMENTS

The Company leases certain buildings and equipment under operating leases.  Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company. 

At June 30, 2013, future minimum rental commitments under noncancellable operating leases with initial terms of at least one year were as follows (amounts in thousands):
July 1 - December 31, 2013
$
7,401

2014
7,320

2015
4,627

2016
3,590

2017
5,776

Total future minimum lease payments
$
28,714


At June 30, 2013, the Company had assets held as capital leases with a net book value of $9.4 million included in property, plant and equipment. Total future capital lease obligations relating to these leases are as follows (amounts in thousands):
July 1 - December 31, 2013
$
854

2014
899

2015
522

2016
304

2017
135

Thereafter
112

Total future capital lease obligation payments
2,826

Less amount representing interest
(171
)
Present value of future capital lease obligation payments
$
2,655




13



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

11. EMPLOYEE BENEFIT PLANS

The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors four 401(k) retirement savings plans in the U.S. and a number of defined contribution plans at foreign subsidiaries. The Company contributed approximately $3.2 million to the pension plans during the six months ended June 30, 2013 and expects to contribute approximately $3.6 million to the pension plans during the remainder of 2013.

The components of net periodic pension cost consisted of the following (amounts in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Service cost
$
214

 
$

 
$
386

 
$

Interest cost
1,350

 
1,133

 
2,704

 
2,266

Expected return on assets
(1,396
)
 
(1,252
)
 
(2,792
)
 
(2,504
)
Amortization of unrecognized prior service cost
34

 
34

 
68

 
68

Amortization of net unrecognized loss
1,317

 
1,293

 
2,635

 
2,586

      Net periodic pension cost
$
1,519

 
$
1,208

 
$
3,001

 
$
2,416



12. ROYALTY EXPENSE

The Company has a trademark license agreement with Goodyear to manufacture and sell certain tires in North America and Latin America under the Goodyear name.  The North American and Latin American farm tire royalties were prepaid for seven years as part of the 2011 Goodyear Latin American farm tire acquisition. In May 2012, the Company and Goodyear entered into an agreement under which Titan will sell certain non-farm tire products directly to third party customers and pay a royalty to Goodyear. Royalty expenses recorded were $3.3 million and $2.7 million for the quarters ended June 30, 2013 and 2012, respectively. Royalty expenses were $7.0 million and $5.0 million for the six months ended June 30, 2013 and 2012, respectively.


13. SUPPLY AGREEMENT TERMINATION INCOME

Supply agreement termination income consisted of the following (amounts in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Supply agreement termination income
$

 
$
26,134

 
$

 
$
26,134


The Company's April 2011 acquisition of Goodyear's farm tire business included a three year supply agreement with Goodyear for certain non-farm tire products. A liability was recorded as the supply agreement was for sales at below market prices. In May 2012, the Company and Goodyear terminated this supply agreement and entered into an agreement under which Titan will sell these products directly to third party customers and pay a royalty to Goodyear. The remaining balance of the supply agreement liability was recorded as income as the Company is no longer obligated to sell the products at below market prices.



14



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

14. GAIN ON EARTHQUAKE INSURANCE RECOVERY

Gain on earthquake insurance recovery consisted of the following (amounts in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Gain on earthquake insurance recovery
$
22,451

 
$

 
$
22,451

 
$


Titan Europe's wheel manufacturing facility in Finale Emilia, Italy experienced damage from an earthquake in May 2012, prior to Titan's acquisition of Titan Europe.  The plant was closed for production during initial remedial work. This resulted in a limited transfer of production to other facilities within Titan Europe as well as sourcing product from facilities in the US owned by Titan and competitors.  In the second quarter of 2013, Titan received a final insurance settlement payment of $38.7 million, which offset the earthquake insurance receivable and resulted in a gain of $22.5 million.


15. OTHER INCOME (EXPENSE)

Other income (expense) consisted of the following (amounts in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Interest income
$
1,530

 
$
180

 
$
1,931

 
$
385

Discount amortization on prepaid royalty
787

 
933

 
1,703

 
1,972

Other income
468

 
181

 
1,238

 
665

Wheels India Limited equity gain
460

 

 
275

 

Building rental income
224

 
188

 
404

 
363

Investment gain (loss) related to contractual obligation investments
213

 
(473
)
 
93

 
795

Currency exchange loss
(6,111
)
 
(396
)
 
(6,654
)
 
(456
)
 
$
(2,429
)
 
$
613

 
$
(1,010
)
 
$
3,724


The Company's investment in Wheels India Limited increased from 35.9% to 41.7% during the second quarter of 2013.


16. INCOME TAXES

The Company recorded income tax expense of $21.0 million and $33.2 million for the three and six months ended June 30, 2013, respectively, as compared to $31.0 million and $51.1 million for the three and six months ended June 30, 2012. The Company's effective income tax rate was 44% and 39% for the six months ended June 30, 2013 and 2012, respectively.

The Company's 2013 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 Italian law changing the insurance proceeds from the earthquake to non-taxable. In addition, as a result of the reassessment of the realizability of the deferred tax assets, the valuation allowance was established on the Italy net deferred tax assets. This valuation allowance was needed due to the decrease in expectations related to taxable income related to the insurance proceeds becoming non-taxable as a result of the tax law change. Other items contributing to the rate difference are state tax expense, expense for unrecognized tax benefits, foreign earnings, domestic production activities deduction, and tax deductible expenses related to the convertible bond repurchase.


15



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

Accounting standards for income taxes provide that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination. The Company's unrecognized tax benefits were $17.9 million and $14.3 million as of June 30, 2013 and December 31, 2012, respectively. As of June 30, 2013, $14.2 million would affect income tax expense if recognized. The majority of the increase in unrecognized tax benefits relates to potential state tax exposures. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties included in the unrecognized tax benefits at June 30, 2013 and December 31, 2012 was $3.0 million and $2.4 million, respectively.


17. EARNINGS PER SHARE

Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
 
Three months ended
 
June 30, 2013
 
June 30, 2012
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
Basic earnings per share
$
23,217

 
53,426

 
$
0.43

 
$
44,056

 
42,158

 
$
1.05

   Effect of stock options/trusts

 
280

 
 

 

 
270

 
 

   Effect of convertible notes
609

 
5,798

 
 
 
1,143

 
11,088

 
 
Diluted earnings per share
$
23,826

 
59,504

 
$
0.40

 
$
45,199

 
53,516

 
$
0.84


 
Six months ended
 
June 30, 2013
 
June 30, 2012
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
Basic earnings per share
$
42,692

 
52,625

 
$
0.81

 
$
79,475

 
42,132

 
$
1.89

   Effect of stock options/trusts

 
290

 
 

 

 
272

 
 

   Effect of convertible notes
1,381

 
6,612

 
 
 
2,286

 
11,088

 
 
Diluted earnings per share
$
44,073

 
59,527

 
$
0.74

 
$
81,761

 
53,492

 
$
1.53


There were no stock options/trusts or convertible notes that were antidilutive for the periods presented.


18. 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.



16



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

19. SEGMENT INFORMATION

The table below presents information about certain revenues and income from operations used by the chief executive officer of the Company for the three and six months ended June 30, 2013 and 2012 (amounts in thousands):

Three months ended
 
Six months ended

June 30,
 
June 30,
 
2013
 
2012
 
2013
 
2012
Revenues from external customers
 
 
 
 

 

Agricultural
$
323,943

 
$
288,993

 
$
634,496

 
$
584,798

Earthmoving/construction
208,226

 
110,541

 
417,842

 
215,109

Consumer
61,122

 
59,699

 
119,340

 
122,414

 
$
593,291

 
$
459,233

 
$
1,171,678

 
$
922,321

Gross profit
 

 
 

 
 
 
 
Agricultural
$
56,150

 
$
59,501

 
$
110,220

 
$
125,593

Earthmoving/construction
26,820

 
19,562

 
64,315

 
41,909

Consumer
4,331

 
3,773

 
10,478

 
9,472

Unallocated corporate
(646
)
 
(750
)
 
(1,607
)
 
(1,525
)
 
$
86,655

 
$
82,086

 
$
183,406

 
$
175,449

Income from operations
 

 
 

 
 
 
 
Agricultural
$
45,686

 
$
54,562

 
$
87,301

 
$
115,225

Earthmoving/construction
8,519

 
17,516

 
29,198

 
37,917

Consumer
1,027

 
27,416

 
4,169

 
30,518

Unallocated corporate
(18,326
)
 
(18,525
)
 
(35,879
)
 
(44,020
)
      Income from operations
36,906

 
80,969

 
84,789

 
139,640

 
 
 
 
 
 
 
 
Interest expense
(13,069
)
 
(6,217
)
 
(23,510
)
 
(12,512
)
Convertible debt conversion charge

 

 
(7,273
)
 

Gain on earthquake insurance recovery
22,451

 

 
22,451

 

Other income (expense), net
(2,429
)
 
613

 
(1,010
)
 
3,724

      Income before income taxes
$
43,859

 
$
75,365

 
$
75,447

 
$
130,852


Assets by segment were as follows (amounts in thousands):
 
June 30,
2013
 
December 31,
2012
Total assets
 

 
 

Agricultural
$
716,139

 
$
630,222

Earthmoving/construction
798,040

 
851,995

Consumer
144,476

 
142,341

Unallocated corporate
285,892

 
85,677

 
$
1,944,547

 
$
1,710,235

 

17



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


20. FAIR VALUE MEASUREMENTS

Accounting standards for fair value measurements establish 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 (amounts in thousands):
 
June 30, 2013
 
December 31, 2012
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Contractual obligation investments
$
7,502


$
7,502


$


$

 
$
7,408

 
$
7,408

 
$

 
$

Interest rate swap

 

 

 

 
1,048

 

 
1,048

 

Preferred stock
250

 

 

 
250

 
250

 

 

 
250

Derivative financial instruments liability
(145
)
 

 
(145
)
 

 
(7,376
)
 

 
(7,376
)
 

Total
$
7,607

 
$
7,502

 
$
(145
)
 
$
250

 
$
1,330

 
$
7,408

 
$
(6,328
)
 
$
250



The following table presents the changes during the periods presented in Titan's Level 3 investments that are measured at fair value on a recurring basis (amounts in thousands):
 
Preferred stock
Balance at December 31, 2012
$
250

  Total realized and unrealized gains and losses

Balance as of June 30, 2013
$
250



21. RELATED PARTY TRANSACTIONS

The Company sells products and pays commissions to companies controlled by persons related to the chief executive officer of the Company.  The related party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother.  The companies which Mr. Fred Taylor is associated with that do business with Titan include the following:  Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering.  Sales of Titan products to these companies were approximately $0.8 million and $1.4 million for the three and six months ended June 30, 2013, respectively, as compared to $0.7 million and $1.1 million for the three and six months ended June 30, 2012. Titan had trade receivables due from these companies of approximately $0.3 million at June 30, 2013, and approximately $0.2 million at December 31, 2012.  On other sales referred to Titan from the above manufacturing representative companies, commissions were approximately $0.6 million and $1.3 million for the three and six months ended June 30, 2013, respectively as compared to $0.7 million and $1.4 million for the three and six months ended June 30, 2012.

The Company has a 41.7% equity stake in Wheels India Limited, a company incorporated in India and listed on the National Stock Exchange in India. The Company had trade payables due to Wheels India of approximately $0.2 million at June 30, 2013, and approximately $0.4 million at December 31, 2012.


18



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

In the second quarter of 2013, the Company sold Titan Wheels Australia, a 100% owned subsidiary, to Titan National Australia Holdings, a 56% owned subsidiary operating as the Planet Corporation Group. The Company maintained financial control over Titan Wheels Australia and no gain or loss was recognized for the transaction.


22. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consisted of the following (amounts in thousands):

 
Currency
Translation
Adjustments
 
Unrealized
Gain (Loss) on
Investments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at April 1, 2013
$
(21,084
)
 
$

 
$
(34,728
)
 
$
(55,812
)
Other comprehensive income (loss) before
 
 
 
 
 
 
 
reclassifications
(22,365
)
 

 

 
(22,365
)
Reclassification adjustments:
 

 
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
 
 
  service cost, net of tax of $(586)

 

 
1,070

 
1,070

Balance at June 30, 2013
$
(43,449
)
 
$

 
$
(33,658
)
 
$
(77,107
)

 
Currency
Translation
Adjustments
 
Unrealized
Gain (Loss) on
Investments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2013
$
(20,793
)
 
$
3

 
$
(35,679
)
 
$
(56,469
)
Other comprehensive income (loss) before
 
 
 
 
 
 
 
reclassifications
(22,656
)
 
(3
)
 

 
(22,659
)
Reclassification adjustments:
 

 
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
 
 
  service cost, net of tax of $(1,113)

 

 
2,021

 
2,021

Balance at June 30, 2013
$
(43,449
)
 
$

 
$
(33,658
)
 
$
(77,107
)


23. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company's 7.875% senior secured notes and 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, and Titan Wheel Corporation of Illinois. 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. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.


19



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

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended June 30, 2013
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
323,482

 
$
269,809

 
$

 
$
593,291

Cost of sales
277

 
261,789

 
244,570

 

 
506,636

Gross profit (loss)
(277
)
 
61,693

 
25,239

 

 
86,655

Selling, general and administrative expenses
2,130

 
20,300

 
21,223

 

 
43,653

Research and development expenses
(28
)
 
1,400

 
1,429

 

 
2,801

Royalty expense

 
1,850

 
1,445

 

 
3,295

Income (loss) from operations
(2,379
)
 
38,143

 
1,142

 

 
36,906

Interest expense
(10,833
)
 

 
(2,236
)
 

 
(13,069
)
Gain on earthquake insurance recovery

 

 
22,451

 

 
22,451

Intercompany interest income (expense)
2,192

 

 
(2,192
)
 

 

Other income (expense)
904

 
2

 
(3,335
)
 

 
(2,429
)
Income (loss) before income taxes
(10,116
)
 
38,145

 
15,830

 

 
43,859

Provision for income taxes
6,491

 
13,637

 
875

 

 
21,003

Equity in earnings of subsidiaries
39,463

 

 
14,892

 
(54,355
)
 

Net income (loss)
22,856

 
24,508

 
29,847

 
(54,355
)
 
22,856

Net loss noncontrolling interests

 

 
(361
)
 

 
(361
)
Net income (loss) attributable to Titan
$
22,856

 
$
24,508

 
$
30,208

 
$
(54,355
)
 
$
23,217

 
(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended June 30, 2012
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
373,035

 
$
86,198

 
$

 
$
459,233

Cost of sales
257

 
297,636

 
79,254

 

 
377,147

Gross profit (loss)
(257
)
 
75,399

 
6,944

 

 
82,086

Selling, general and administrative expenses
3,396

 
15,062

 
4,952

 

 
23,410

Research and development expenses
48

 
1,081

 
60

 

 
1,189

Royalty expense

 
1,779

 
873

 

 
2,652

Supply agreement termination income

 

 
(26,134
)
 

 
(26,134
)
Income (loss) from operations
(3,701
)
 
57,477

 
27,193

 

 
80,969

Interest expense
(6,045
)
 

 
(172
)
 

 
(6,217
)
Other income
283

 
313

 
17

 

 
613

Income (loss) before income taxes
(9,463
)
 
57,790

 
27,038

 

 
75,365

Provision for income taxes
1,884

 
18,872

 
10,284

 

 
31,040

Equity in earnings of subsidiaries
55,672

 

 
18,822

 
(74,494
)
 

Net income (loss)
44,325

 
38,918

 
35,576

 
(74,494
)
 
44,325

Net income noncontrolling interests

 

 
269

 

 
269

Net income (loss) attributable to Titan
$
44,325

 
$
38,918

 
$
35,307

 
$
(74,494
)
 
$
44,056



20



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

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Six Months Ended June 30, 2013
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
647,376

 
$
524,302

 
$

 
$
1,171,678

Cost of sales
667

 
518,015

 
469,590

 

 
988,272

Gross profit (loss)
(667
)
 
129,361

 
54,712

 

 
183,406

Selling, general and administrative expenses
4,447

 
38,124

 
43,525

 

 
86,096

Research and development expenses
(18
)
 
2,713

 
2,808

 

 
5,503

Royalty expense

 
3,628

 
3,390

 

 
7,018

Income (loss) from operations
(5,096
)
 
84,896

 
4,989