Document


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, 2016
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)
Delaware
 
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 ¨
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 of Titan International, Inc. outstanding: 54,046,512 shares common stock, $0.0001 par value, as of July 20, 2016.




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,
 
2016

2015

2016

2015
 
 
 
 
 
 
 
 
Net sales
$
330,214

 
$
376,067

 
$
652,008

 
$
778,126

Cost of sales
285,139

 
325,014

 
575,045

 
684,279

Gross profit
45,075

 
51,053

 
76,963

 
93,847

Selling, general and administrative expenses
36,302

 
37,848

 
71,364

 
73,522

Research and development expenses
2,714

 
2,779

 
5,193

 
5,865

Royalty expense
2,109

 
2,895

 
4,403

 
6,120

Income (loss) from operations
3,950

 
7,531

 
(3,997
)
 
8,340

Interest expense
(7,982
)
 
(8,642
)
 
(16,494
)
 
(17,398
)
Foreign exchange gain
2,182

 
3,647

 
7,005

 
9,613

Other income
3,049

 
3,259

 
6,954

 
5,576

Income (loss) before income taxes
1,199

 
5,795

 
(6,532
)
 
6,131

Provision for income taxes
3,648

 
1,515

 
4,652

 
2,911

Net income (loss)
(2,449
)
 
4,280

 
(11,184
)
 
3,220

Net loss attributable to noncontrolling interests
(550
)
 
(2,491
)
 
(133
)
 
(3,783
)
Net income (loss) attributable to Titan
(1,899
)
 
6,771

 
(11,051
)
 
7,003

   Redemption value adjustment
(1,900
)
 
2,580

 
(7,108
)
 
(350
)
Net income (loss) applicable to common shareholders
$
(3,799
)
 
$
9,351

 
$
(18,159
)
 
$
6,653

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic
$
(.07
)
 
$
.17

 
$
(.34
)
 
$
.12

Diluted
$
(.07
)
 
$
.17

 
$
(.34
)
 
$
.12

Average common shares and equivalents outstanding:
 
 
 

 
 
 
 

Basic
53,884

 
53,686

 
53,869

 
53,674

Diluted
53,884

 
59,489

 
53,869

 
53,858

 
 
 
 
 
 
 
 
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 (LOSS) (UNAUDITED)
(All amounts in thousands)

 
Three months ended
 
June 30,
 
2016
 
2015
Net income (loss)
$
(2,449
)
 
$
4,280

Currency translation adjustment, net
4,346

 
4,436

Pension liability adjustments, net of tax of $(133) and $(706), respectively
448

 
1,488

Comprehensive income
2,345

 
10,204

Net comprehensive income (loss) attributable to redeemable and noncontrolling interests
706

 
(1,904
)
Comprehensive income attributable to Titan
$
1,639

 
$
12,108



 
Six months ended
 
June 30,
 
2016
 
2015
Net income (loss)
$
(11,184
)
 
$
3,220

Currency translation adjustment, net
21,931

 
(40,950
)
Pension liability adjustments, net of tax of $(304) and $(806), respectively
735

 
1,497

Comprehensive income (loss)
11,482

 
(36,233
)
Net comprehensive income (loss) attributable to redeemable and noncontrolling interests
6,106

 
(4,917
)
Comprehensive income (loss) attributable to Titan
$
5,376

 
$
(31,316
)


























See accompanying Notes to Consolidated Financial Statements.

2



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

 
June 30,
 
December 31,
 
2016
 
2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
207,238

 
$
200,188

  Accounts receivable, net
196,718

 
177,389

Inventories
273,744

 
269,791

Prepaid and other current assets
72,352

 
62,633

Total current assets
750,052

 
710,001

Property, plant and equipment, net
449,472

 
450,020

Deferred income taxes
7,158

 
5,967

Other assets
101,790

 
104,242

Total assets
$
1,308,472

 
$
1,270,230

 
 
 
 
Liabilities
 

 
 

Current liabilities
 

 
 

Short-term debt
$
89,038

 
$
31,222

Accounts payable
145,568

 
123,154

Other current liabilities
122,252

 
115,721

Total current liabilities
356,858

 
270,097

Long-term debt
414,570

 
475,443

Deferred income taxes
16,852

 
14,509

Other long-term liabilities
86,180

 
88,324

Total liabilities
874,460

 
848,373

 
 
 
 
Redeemable noncontrolling interest
100,777

 
77,174

 
 
 
 
Equity
 

 
 

Titan stockholders' equity


 


  Common stock ($0.0001 par value, 120,000,000 shares authorized, 55,253,092 issued, 53,984,344 outstanding)

 

Additional paid-in capital
481,930

 
497,008

Retained earnings
37,746

 
49,297

Treasury stock (at cost, 1,268,748 and 1,339,583 shares, respectively)
(11,784
)
 
(12,420
)
Treasury stock reserved for deferred compensation
(1,075
)
 
(1,075
)
Accumulated other comprehensive loss
(171,324
)
 
(187,751
)
Total Titan stockholders’ equity
335,493

 
345,059

Noncontrolling interests
(2,258
)
 
(376
)
Total equity
333,235

 
344,683

Total liabilities and equity
$
1,308,472

 
$
1,270,230

 


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, 2016
53,913,509

 
$
497,008

 
$
49,297

 
$
(12,420
)
 
$
(1,075
)
 
$
(187,751
)
 
$
345,059

 
$
(376
)
 
$
344,683

Net loss *


 


 
(11,051
)
 


 


 


 
(11,051
)
 
(1,665
)
 
(12,716
)
Currency translation adjustment, net of tax *
 
 
 
 
 
 
 
 
 
 
19,183

 
19,183

 
(177
)
 
19,006

Pension liability adjustments, net of tax


 


 


 


 


 
735

 
735

 
 
 
735

Dividends on common stock


 


 
(540
)
 


 


 


 
(540
)
 
 
 
(540
)
Restricted stock awards
8,750

 
(79
)
 
 
 
79

 
 
 
 
 

 
 
 

Acquisition of additional interest


 
(8,548
)
 
40

 


 


 
(3,491
)
 
(11,999
)
 
(40
)
 
(12,039
)
Redemption value adjustment


 
(7,108
)
 
 
 


 
 
 
 
 
(7,108
)
 
 
 
(7,108
)
Stock-based compensation


 
931

 


 


 


 


 
931

 
 
 
931

Issuance of treasury stock under 401(k) plan
62,085

 
(274
)
 


 
557

 


 


 
283

 
 
 
283

Balance June 30, 2016
53,984,344

 
$
481,930

 
$
37,746

 
$
(11,784
)
 
$
(1,075
)
 
$
(171,324
)
 
$
335,493

 
$
(2,258
)
 
$
333,235

 
* Net loss excludes $1,532 of net gain attributable to redeemable noncontrolling interest. Currency translation adjustment excludes $2,924 of currency translation related to redeemable noncontrolling interest.

















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:
2016
 
2015
Net income (loss)
$
(11,184
)
 
$
3,220

Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
 

 
 

Depreciation and amortization
30,615

 
36,604

Deferred income tax provision
600

 
(5,602
)
Stock-based compensation
931

 
1,339

Excess tax benefit from stock-based compensation

 
538

Issuance of treasury stock under 401(k) plan
283

 
304

Foreign currency translation loss
6,740

 
9,366

(Increase) decrease in assets:
 

 
 

Accounts receivable
(9,789
)
 
(37,149
)
Inventories
5,258

 
8,721

Prepaid and other current assets
(7,583
)
 
2,868

Other assets
(1,318
)
 
(688
)
Increase (decrease) in liabilities:
 

 
 

Accounts payable
15,007

 
4,423

Other current liabilities
3,523

 
(1,988
)
Other liabilities
(3,411
)
 
(14,114
)
Net cash provided by operating activities
29,672

 
7,842

Cash flows from investing activities:
 

 
 

Capital expenditures
(18,050
)
 
(22,505
)
Other
1,294

 
2,708

Net cash used for investing activities
(16,756
)
 
(19,797
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
1,559

 
13,239

Payment on debt
(10,248
)
 
(8,517
)
Proceeds from exercise of stock options

 
144

Excess tax benefit from stock-based compensation

 
(538
)
Dividends paid
(540
)
 
(538
)
Net cash provided by (used for) financing activities
(9,229
)
 
3,790

Effect of exchange rate changes on cash
3,363

 
(5,802
)
Net increase (decrease) in cash and cash equivalents
7,050

 
(13,967
)
Cash and cash equivalents, beginning of period
200,188

 
201,451

Cash and cash equivalents, end of period
$
207,238

 
$
187,484

 
 
 
 
Supplemental information:
 
 
 
Interest paid
$
16,510

 
$
20,063

Income taxes paid, net of refunds received
$
3,367

 
$
(884
)














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, 2016, and the results of operations and cash flows for the three and six months ended June 30, 2016 and 2015.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company's 2015 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 2015 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, and other accruals 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 6.875% senior secured notes due 2020 (senior secured notes) and 5.625% convertible senior subordinated notes due 2017 (convertible notes) are carried at cost of $395.4 million and $60.0 million at June 30, 2016, respectively. The fair value of the senior secured notes at June 30, 2016, as obtained through an independent pricing source, was approximately $348.0 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, 2016 and 2015. The second quarter 2016 cash dividend of $.005 per share of common stock was paid July 15, 2016, to stockholders of record on June 30, 2016.

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.

Recently issued accounting standards
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." This update supersedes the revenue recognition requirements in Topic 605, Revenue Recognition. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This guidance also requires disclosure about the nature, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in this update were deferred by ASU No. 2015-14, "Revenue form Contracts with Customers (Topic 606) Deferral of Effective Date", and are now effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The Company will adopt the guidance in the year beginning on January 1, 2018, and is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.





6



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

In April 2016, the FASB issued ASU No. 2016-10, "Identifying Performance Obligations and Licensing." This ASU clarifies the following aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, "Narrow-Scope Improvements and Practical Expedients." This ASU affects only narrow aspects of Topic 606 related to: assessing the collectability criterion; presentation of sales tax; noncash consideration; and contract modifications and completed contracts at transition. The amendments in these updates affect the guidance in ASU 2014-09, and the effective dates are the same as those for ASU No. 2014-09.

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." This update amends existing guidance to require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update were effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. As a result of adopting this update, $5.0 million of debt issuance cost was reclassified from other long-term assets to long-term debt as of December 31, 2015.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." This update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, "Simplifying the Transition to Equity Method of Accounting." This update eliminates the requirement to retroactively adopt the equity method of accounting when an investment qualifies for use of the equity method as a result of the increase in the level of ownership. The amendments in this update are effective for fiscal years, including interim periods within those years, beginning after December 15, 2016. Early application is permitted. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, "Improvements to Employee Share-Based Payment Accounting." This update involves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted in any interim or annual period. The Company is currently assessing the impact that adopting this new accounting guidance will have on the Company's consolidated financial statements.

Reclassification
Certain amounts from prior years have been reclassified to conform to the current year's presentation. The Company has implemented new technology resources which allow for more accurate segregation of sales and profit by segment. The previous year segment information has been updated to be consistent.


2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (amounts in thousands):
 
June 30,
2016
 
December 31,
2015
Accounts receivable
$
201,014

 
$
181,916

Allowance for doubtful accounts
(4,296
)
 
(4,527
)
Accounts receivable, net
$
196,718

 
$
177,389

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



7



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

3. INVENTORIES
 
Inventories consisted of the following (amounts in thousands):
 
June 30,
2016
 
December 31,
2015
Raw material
$
72,516

 
$
85,490

Work-in-process
31,582

 
31,866

Finished goods
171,261

 
158,997

 
275,359

 
276,353

Adjustment to LIFO
(1,615
)
 
(6,562
)
 
$
273,744

 
$
269,791

 
Inventories are valued at lower of cost or market. The majority of inventories are valued under the first-in, first-out (FIFO) method or average cost method. At June 30, 2016, approximately 7% of the Company's inventories were valued under the last-in, first-out (LIFO) method compared to 8% at December 31, 2015.


4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (amounts in thousands):
 
June 30,
2016
 
December 31,
2015
Land and improvements
$
46,017

 
$
46,776

Buildings and improvements
234,649

 
241,666

Machinery and equipment
568,519

 
540,549

Tools, dies and molds
106,618

 
102,723

Construction-in-process
40,695

 
36,500

 
996,498

 
968,214

Less accumulated depreciation
(547,026
)
 
(518,194
)
 
$
449,472

 
$
450,020

 
Depreciation on fixed assets for the six months ended June 30, 2016 and 2015, totaled $28.9 million and $34.0 million, respectively.
 
Included in the total building and improvements are capital leases of $3.1 million and $3.7 million at June 30, 2016, and December 31, 2015, respectively. Included in the total of machinery and equipment are capital leases of $28.2 million and $33.0 million at June 30, 2016, and December 31, 2015, respectively.

As a result of continued downturns in the Company's markets and operating loss, the Company determined in the second quarter of 2016 that events and circumstances indicated that the carrying value of fixed assets at the Bryan, Ohio, location may not be recoverable. Certain fixed assets were reviewed for recoverability. No impairment was identified.


8



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

5. INTANGIBLE ASSETS

The components of intangible assets consisted of the following (amounts in thousands):
 
Weighted Average Useful Lives (in Years)
 
June 30,
2016
 
December 31,
2015
Amortizable intangible assets:
 
 
 
 
 
     Customer relationships
11.2
 
$
13,671

 
$
13,413

     Patents, trademarks and other
8.3
 
14,278

 
13,237

          Total at cost
 
 
27,949

 
26,650

     Less accumulated amortization
 
 
(10,377
)
 
(8,852
)
 
 
 
$
17,572

 
$
17,798

   
Amortization related to intangible assets for the six months ended June 30, 2016 and 2015, totaled $1.1 million and $1.8 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, 2016, is as follows (amounts in thousands):
July 1 - December 31, 2016
$
1,228

2017
2,153

2018
2,153

2019
2,153

2020
2,153

Thereafter
7,732

 
$
17,572



6. WARRANTY

Changes in the warranty liability consisted of the following (amounts in thousands):
 
2016
 
2015
Warranty liability, January 1
$
23,120

 
$
28,144

Provision for warranty liabilities
3,373

 
5,558

Warranty payments made
(6,205
)
 
(7,171
)
Warranty liability, June 30
$
20,288

 
$
26,531


The Company provides limited warranties on workmanship of 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)

7. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
 
Long-term debt consisted of the following (amounts in thousands):
 
June 30, 2016
 
Principal Balance
 
Unamortized Discount
 
Net Carrying Amount
6.875% senior secured notes due 2020
$
400,000

 
$
(4,623
)
 
$
395,377

5.625% convertible senior subordinated notes due 2017
60,161

 
(167
)
 
59,994

Titan Europe credit facilities
38,818

 

 
38,818

Other debt
8,017

 

 
8,017

Capital leases
1,402

 

 
1,402

     Total debt
508,398

 
(4,790
)
 
503,608

Less amounts due within one year
89,205

 
(167
)
 
89,038

     Total long-term debt
$
419,193

 
$
(4,623
)
 
$
414,570

 
 
December 31, 2015
 
Principal Balance
 
Unamortized Discount
 
Net Carrying Amount
6.875% senior secured notes due 2020
$
400,000

 
$
(4,640
)
 
$
395,360

5.625% convertible senior subordinated notes due 2017
60,161

 
(321
)
 
59,840

Titan Europe credit facilities
38,059

 

 
38,059

Other debt
11,531

 

 
11,531

Capital leases
1,875

 

 
1,875

     Total debt
511,626

 
(4,961
)
 
506,665

Less amounts due within one year
31,222

 

 
31,222

     Total long-term debt
$
480,404

 
$
(4,961
)
 
$
475,443



Aggregate maturities of long-term debt at June 30, 2016, were as follows (amounts in thousands):
July 1 - December 31, 2016
$
28,801

2017
71,082

2018
4,952

2019
1,978

2020
401,499

Thereafter
86

 
$
508,398

 
6.875% senior secured notes due 2020
The Company’s 6.875% senior secured notes (senior secured notes) are due October 2020. 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.


10



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.  See the indenture incorporated by reference to the Company's most recent Form 10-K for additional information.

Titan Europe credit facilities
The Titan Europe credit facilities contain borrowings from various institutions totaling $38.8 million at June 30, 2016. Maturity dates on this debt range from less than one year to nine years and interest rates range from 5% to 6.9%. The Titan Europe facilities are secured by the assets of its subsidiaries in Italy, Spain, Germany and Brazil.

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 certain Titan domestic subsidiaries.  Titan's availability under this domestic facility may be less than $150 million as a result of eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At June 30, 2016, the amount available was $47.4 million as a result of the outstanding letters of credit and the Company's decrease in sales, which impacted both accounts receivable and inventory balances. During the first six months of 2016 and at June 30, 2016, there were no borrowings under the credit facility.

Other debt
Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling $6.9 million at June 30, 2016. Maturity dates on this debt range from less than one year to two years and interest rates range from 5.5% to 8%.


8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates. 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 recorded as an offset to currency exchange gain/loss. For the three months ended June 30, 2016, the Company recorded currency exchange gain of $0.5 million related to these derivatives. For the six months ended June 30, 2016, the Company recorded currency exchange gain of $0.7 million related to these derivatives.


9. REDEEMABLE NONCONTROLLING INTEREST

The Company has a shareholders’ agreement with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF) which was used for the acquisition of Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. The agreement contains a settlement put option which is exercisable July through December of 2018 and may require Titan to purchase the shares of OEP and RDIF, with cash or Titan common stock, at a value set by the agreement. The value set by the agreement is the greater of: the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%; or the last twelve months of EBITDA times 5.5 less net debt times the ownership percentage. The value of the redeemable noncontrolling interest has been recorded at the aggregate of the investment of the selling party and an amount representing an internal rate of return of 8%, which is currently greater.
The redemption features of the settlement put option are not solely within the Company’s control and the noncontrolling interest is presented as redeemable noncontrolling interest separately from total equity in the Consolidated Balance Sheet at the redemption value of the settlement put option. If the redemption value is greater than the carrying value of the noncontrolling interest, the increase is adjusted directly to retained earnings of the affected entity, or additional paid-in capital if there are no available retained earnings applicable to the redeemable noncontrolling interest.

11



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

In the first quarter of 2016, the Company acquired $25 million of additional shares in the consortium owning Voltyre-Prom, increasing Titan's ownership to 43% from 30%. The acquisition of shares was transacted through the conversion of an intercompany note previously held by Titan. As a result of the ownership change, the balance of the redeemable noncontrolling interest increased by $12 million which is comprised of a $3.5 million reclassification of currency translation and an $8.5 million reclassification of other equity.
The following is a reconciliation of redeemable noncontrolling interest as of June 30, 2016 and 2015 (amounts in thousands):
 
2016
 
2015
Balance at January 1
$
77,174

 
$
71,192

   Reclassification as a result of ownership change
12,039

 

   Income attributable to redeemable noncontrolling interest
1,532

 
37

   Currency translation
2,924

 
(1,068
)
   Redemption value adjustment
7,108

 
350

Balance at June 30
$
100,777

 
$
70,511


This obligation approximates the cost if all remaining shares were purchased by the Company on June 30, 2016, and is presented in the Consolidated Condensed Balance Sheet in redeemable noncontrolling interest, which is treated as mezzanine equity.


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, 2016, 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, 2016
$
2,909

2017
3,279

2018
2,032

2019
1,588

2020
1,074

Thereafter
449

Total future minimum lease payments
$
11,331


At June 30, 2016, the Company had assets held as capital leases with a net book value of $7.6 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, 2016
$
615

2017
441

2018
196

2019
128

2020
20

Thereafter
2

Total future capital lease obligation payments
1,402

Less amount representing interest
(28
)
Present value of future capital lease obligation payments
$
1,374



12



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 a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately $1.9 million to the pension plans during the six months ended June 30, 2016, and expects to contribute approximately $2.3 million to the pension plans during the remainder of 2016.
 
The components of net periodic pension cost consisted of the following (amounts in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
206

 
$
179

 
$
312

 
$
172

Interest cost
1,233

 
1,306

 
2,470

 
1,224

Expected return on assets
(1,395
)
 
(1,531
)
 
(2,788
)
 
(1,519
)
Amortization of unrecognized prior service cost
34

 
34

 
68

 
34

Amortization of net unrecognized loss
762

 
729

 
1,527

 
729

      Net periodic pension cost
$
840

 
$
717

 
$
1,589

 
$
640



12. VARIABLE INTEREST ENTITIES
 
The Company holds a variable interest in three joint ventures for which the Company is the primary beneficiary. Two of the joint ventures operate distribution facilities which primarily distribute mining products. One of these facilities is located in Canada and the other is located in Australia. The Company’s variable interest in these joint ventures relates to sales of Titan product to these entities, consigned inventory and working capital loans. The third joint venture is the consortium which owns Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia. Titan is acting as operating partner with responsibility for Voltyre-Prom’s daily operations. The Company has also provided working capital loans to Voltyre-Prom.
 
As the primary beneficiary of these variable interest entities (VIEs), the entities’ assets, liabilities and results of operations are included in the Company’s consolidated financial statements. The other equity holders’ interests are reflected in “Net loss attributable to noncontrolling interests” in the Consolidated Condensed Statements of Operations and “Noncontrolling interests” in the Consolidated Condensed Balance Sheets.
 

13



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

The following table summarizes the carrying amount of the entities’ assets and liabilities included in the Company’s Consolidated Condensed Balance Sheets at June 30, 2016 and December 31, 2015 (amounts in thousands):
 
June 30,
2016
 
December 31, 2015
Cash and cash equivalents
$
16,472

 
$
9,245

Inventory
10,866

 
7,993

Other current assets
8,722

 
13,763

Property, plant and equipment, net
27,430

 
25,181

Other noncurrent assets
5,313

 
5,179

   Total assets
$
68,803

 
$
61,361

 
 
 
 
Current liabilities
$
15,178

 
$
12,850

Noncurrent liabilities
4,377

 
2,865

  Total liabilities
$
19,555

 
$
15,715

 
All assets in the above table can only be used to settle obligations of the consolidated VIE to which the respective assets relate. Liabilities are nonrecourse obligations. Amounts presented in the table above are adjusted for intercompany eliminations.


13. ROYALTY EXPENSE

The Company has trademark license agreements with Goodyear to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia and other Commonwealth of Independent States countries. The North American and Latin American farm tire royalties were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America. Royalty expenses recorded were $2.1 million and $2.9 million for the quarters ended June 30, 2016 and 2015, respectively. Royalty expenses were $4.4 million and $6.1 million for the six months ended June 30, 2016 and 2015, respectively.


14. OTHER INCOME

Other income consisted of the following (amounts in thousands):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Gain on sale of assets
$

 
$
58

 
$
2,342

 
$
57

Wheels India Limited equity income
1,152

 
867

 
1,649

 
860

Interest income
842

 
956

 
1,253

 
1,564

Building rental income
609

 
258

 
971

 
498

Discount amortization on prepaid royalty
320

 
472

 
779

 
1,083

Other income (expense)
126

 
648

 
(40
)
 
1,514

 
$
3,049

 
$
3,259

 
$
6,954

 
$
5,576




14



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

15. INCOME TAXES

The Company recorded income tax expense of $3.6 million and $1.5 million for the quarters ended June 30, 2016 and 2015, respectively. For the six months ended June 30, 2016 and 2015, the Company recorded income tax expense of $4.7 million and $2.9 million. The Company's effective income tax rate was 304% and 26% for the quarters ended June 30, 2016 and 2015, and (71%) and 47% for the six months ended June 30, 2016 and 2015, respectively.

The Company’s 2016 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 U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses. In addition, tax expense was recorded on certain profitable foreign jurisdictions that included non-deductible expenses for tax purposes.

The Company's 2015 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 certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses and foreign income taxed in the U.S. offset by net discrete benefits related to a U.S. check the box election and tax law enactments. In addition, the Company’s high effective tax rate is driven by a modest or almost break even consolidated pre-tax accounting income for the period.

The Company continues to monitor the realization of its deferred tax assets and assess the need for a valuation allowance. The Company analyzes available positive and negative evidence to determine if a valuation allowance is needed based on the weight of the evidence. This objectively verifiable evidence includes profit and loss positions and weighs this analysis to determine if a valuation allowance is needed. This process requires management to make estimates, assumptions and judgments that are uncertain in nature. The Company has established valuation allowances on U.S. and certain foreign jurisdictions and continues to monitor and assess potential valuation allowances in all its jurisdictions.

The Company is involved in various tax matters, some of which the outcome is uncertain. These audits may result in the assessment of additional taxes that are subsequently resolved with authorities or potentially through the courts. The IRS issued an audit report on July 15, 2016 for the tax years 2010 through 2014 and a notice of proposed adjustment. Although the Company believes that it will ultimately be successful in defending these matters, a settlement of 10% of the proposed adjustment would result in $0.6 million of additional tax liability.


15



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

16. EARNINGS PER SHARE

Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
 
Three months ended
 
Six months ended
 
June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net income (loss) attributable to Titan
$
(1,899
)
 
$
6,771

 
$
(11,051
)
 
$
7,003

   Redemption value adjustment
(1,900
)
 
2,580

 
(7,108
)
 
(350
)
Net income (loss) applicable to common shareholders
(3,799
)
 
9,351

 
(18,159
)
 
6,653

   Effect of convertible notes

 
609

 

 

Net income (loss) applicable to common shareholders and assumed conversions
$
(3,799
)
 
$
9,960

 
$
(18,159
)
 
$
6,653

Determination of Shares:
 
 
 
 
 
 
 
   Weighted average shares outstanding (basic)
53,884

 
53,686

 
53,869

 
53,674

   Effect of stock options/trusts

 
208

 

 
184

   Effect of convertible notes

 
5,595

 

 

   Weighted average shares outstanding (diluted)
53,884

 
59,489

 
53,869

 
53,858

Earnings per share:
 
 
 
 
 
 
 
   Basic
(0.07
)
 
0.17

 
(0.34
)
 
0.12

   Diluted
(0.07
)
 
0.17

 
(0.34
)
 
0.12


The effect of stock options/trusts has been excluded for the three and six months ended June 30, 2016, as the effect would have been antidilutive. The weighted average share amount excluded was 0.3 million for the three months ended June 30, 2016 and and 0.2 million for the six months ended June 30, 2016.

The effect of convertible notes has been excluded for the three months ended June 30, 2016, and the six months ended June 30, 2016 and 2015, as the effect would have been antidilutive. The weighted average share amount excluded for convertible notes totaled 5.6 million shares for the three months ended June 30, 2016, and the six months ended June 30, 2016 and 2015.


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



16



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

18. SEGMENT INFORMATION

The table below presents information about certain operating results of segments for the three and six months ended June 30, 2016 and 2015 (amounts in thousands):

Three months ended
 
Six months ended

June 30,
 
June 30,
 
2016
 
2015
 
2016
 
2015
Revenues from external customers
 
 
 
 

 

Agricultural
$
146,715

 
$
175,150

 
$
299,540

 
$
368,878

Earthmoving/construction
141,029

 
153,277

 
272,733

 
311,803

Consumer
42,470

 
47,640

 
79,735

 
97,445

 
$
330,214

 
$
376,067

 
$
652,008

 
$
778,126

Gross profit
 

 
 

 
 
 
 
Agricultural
$
24,051

 
$
28,809

 
$
43,328

 
$
51,617

Earthmoving/construction
15,589

 
15,766

 
25,367

 
28,723

Consumer
5,435

 
6,478

 
8,268

 
13,507

 
$
45,075

 
$
51,053

 
$
76,963

 
$
93,847

Income (loss) from operations
 

 
 

 
 
 
 
Agricultural
$
15,706

 
$
19,847

 
$
27,063

 
$
33,014

Earthmoving/construction
4,487

 
3,988

 
3,820

 
4,706

Consumer
1,631

 
2,519

 
886

 
5,966

Corporate
(17,874
)
 
(18,823
)
 
(35,766
)
 
(35,346
)
      Income (loss) from operations
3,950

 
7,531

 
(3,997
)
 
8,340

 
 
 
 
 
 
 
 
Interest expense
(7,982
)
 
(8,642
)
 
(16,494
)
 
(17,398
)
Foreign exchange gain
2,182

 
3,647

 
7,005

 
9,613

Other income, net
3,049

 
3,259

 
6,954

 
5,576

      Income (loss) before income taxes
$
1,199

 
$
5,795

 
$
(6,532
)
 
$
6,131


Assets by segment were as follows (amounts in thousands):
 
June 30,
2016
 
December 31,
2015
Total assets
 

 
 

Agricultural
$
427,236

 
$
426,498

Earthmoving/construction
471,147

 
432,616

Consumer
136,180

 
137,227

Unallocated corporate
273,909

 
273,889

 
$
1,308,472

 
$
1,270,230

 




17



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

19. 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, 2016
 
December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Contractual obligation investments
$
8,969


$
8,969


$


$

 
$
9,480

 
$
9,480

 
$

 
$

Derivative financial instruments asset
709

 

 
709

 

 
66

 

 
66

 

Preferred stock
250

 

 

 
250

 
250

 

 

 
250

Derivative financial instruments liability

 

 

 

 
(8
)
 

 
(8
)
 

Total
$
9,928

 
$
8,969

 
$
709

 
$
250

 
$
9,788

 
$
9,480

 
$
58

 
$
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, 2015
$
250

  Total realized and unrealized gains and losses

Balance as of June 30, 2016
$
250



20. 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, 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 $0.2 million and $0.5 million for the for the three and six months ended June 30, 2016, respectively, as compared to $0.8 million and $1.5 million for the three and six months ended June 30, 2015, respectively. Titan had trade receivables due from these companies of approximately $0.0 million at June 30, 2016, and approximately $0.4 million at December 31, 2015.  Sales commissions paid to above companies were approximately $0.4 million and $1.0 million for each of the three and six months ended June 30, 2016, respectively, as compared to $0.5 million and $1.1 million for the three and six months ended June 30, 2015, respectively.
 
Mr. Fred Taylor is also associated with Green Carbon, Inc. Titan owns 60% and Green Carbon, Inc. owns 10% in Titan Tire Reclamation Corporation, which is located in Alberta Canada. Titan had purchases from Green Carbon, Inc. of $2.1 million for the three and six months ended June 30, 2015. Titan has made no purchases is 2016.
 
In July 2013, the Company entered into a Shareholders’ Agreement between One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF) to acquire Voltyre-Prom, a leading producer of agricultural and industrial tires located in Volgograd, Russia.  Mr. Richard M. Cashin, a director of the Company, is President of OEP which owns 21.4% of the joint venture.  The Shareholder’s agreement contains a settlement put option which may require the Company to purchase shares from OEP and RDIF at a value set by the agreement.  See Note 9 for additional information.

18



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

 
The Company has a 34.2% equity stake in Wheels India Limited, a company incorporated in India and listed on the National Stock Exchange in India. The Company has a 19.5% equity stake in Titan-Yuxiang Wheel (Liuzhou) Co., Ltd, a company incorporated in China. The Company has a 49% equity stake in Central Iowa Training and Enrichment Center, LLC, a commercial building located in Boone, IA.


21. ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss consisted of the following (amounts in thousands):
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at April 1, 2016
$
(148,429
)
 
$
(26,434
)
 
$
(174,863
)
Currency translation adjustments
3,091

 

 
3,091

Defined benefit pension plan entries:
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
service cost, net of tax of $(133)
 
 
448

 
448

Balance at June 30, 2016
$
(145,338
)
 
$
(25,986
)
 
$
(171,324
)
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2016
$
(161,030
)
 
$
(26,721
)
 
$
(187,751
)
 
 
 
 
 
 
Currency translation adjustments
19,183

 

 
19,183

Defined benefit pension plan entries:
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
  service cost, net of tax of $(304)

 
735

 
735

Reclassification as a result of ownership change
(3,491
)
 
 
 
(3,491
)
Balance at June 30, 2016
$
(145,338
)
 
$
(25,986
)
 
$
(171,324
)


22. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company's 6.875% senior secured notes due 2020 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. See the indenture incorporated by reference to the Company's most recent Form 10-K for additional information. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales and 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, 2016
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
126,140

 
$
204,074

 
$

 
$
330,214

Cost of sales
77

 
104,378

 
180,684

 

 
285,139

Gross profit (loss)
(77
)
 
21,762

 
23,390

 

 
45,075

Selling, general and administrative expenses
2,969

 
15,787

 
17,546

 

 
36,302

Research and development expenses

 
677

 
2,037

 

 
2,714

Royalty expense
125

 
1,080

 
904

 

 
2,109

Income (loss) from operations
(3,171
)
 
4,218

 
2,903

 

 
3,950

Interest expense
(7,811
)
 

 
(171
)
 

 
(7,982
)
Intercompany interest income (expense)
363

 

 
(363
)
 

 

Foreign exchange gain

 
204

 
1,978

 

 
2,182

Other income
245

 
74

 
2,730

 

 
3,049

Income (loss) before income taxes
(10,374
)
 
4,496

 
7,077

 

 
1,199

Provision (benefit) for income taxes
(648
)
 
1,674

 
2,622

 

 
3,648

Equity in earnings of subsidiaries
7,277

 

 
(200
)
 
(7,077
)
 

Net income (loss)
(2,449
)
 
2,822

 
4,255

 
(7,077
)
 
(2,449
)
Net loss noncontrolling interests

 

 
(550
)
 

 
(550
)
Net income (loss) attributable to Titan
$
(2,449
)
 
$
2,822

 
$
4,805

 
$
(7,077
)
 
$
(1,899
)


(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended June 30, 2015
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
173,334

 
$
202,733

 
$

 
$
376,067

Cost of sales
207

 
141,328

 
183,479

 

 
325,014

Gross profit (loss)
(207
)
 
32,006

 
19,254

 

 
51,053

Selling, general and administrative expenses
2,617

 
16,757

 
18,474

 

 
37,848

Research and development expenses

 
805

 
1,974

 

 
2,779

Royalty expense

 
1,832

 
1,063

 

 
2,895

Income (loss) from operations
(2,824
)
 
12,612

 
(2,257
)
 

 
7,531

Interest expense
(8,094
)
 
(1
)
 
(547
)
 

 
(8,642
)
Intercompany interest income (expense)
248

 

 
(248
)
 

 

Foreign exchange gain (loss)
(1,425
)
 
(80
)
 
5,152

 


 
3,647

Other income
1,032

 
83

 
2,144

 

 
3,259

Income (loss) before income taxes
(11,063
)
 
12,614

 
4,244

 

 
5,795

Provision (benefit) for income taxes
(5,787
)
 
4,796

 
2,506

 

 
1,515

Equity in earnings of subsidiaries
9,556

 

 
3,535

 
(13,091
)
 

Net income (loss)
4,280

 
7,818

 
5,273

 
(13,091
)
 
4,280

Net loss noncontrolling interests

 

 
(2,491
)
 

 
(2,491
)
Net income (loss) attributable to Titan
$
4,280

 
$
7,818

 
$
7,764

 
$
(13,091
)
 
$
6,771


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, 2016
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
270,174

 
$
381,834

 
$

 
$
652,008

Cost of sales
572

 
229,524

 
344,949

 

 
575,045

Gross profit (loss)
(572
)
 
40,650

 
36,885

 

 
76,963

Selling, general and administrative expenses
5,351

 
32,473

 
33,540

 

 
71,364

Research and development expenses

 
1,445

 
3,748

 

 
5,193

Royalty expense
417

 
2,276

 
1,710

 

 
4,403

Income (loss) from operations
(6,340
)
 
4,456

 
(2,113
)
 

 
(3,997
)
Interest expense
(16,094
)
 

 
(400
)
 

 
(16,494
)
Intercompany interest income (expense)
652

 

 
(652
)
 

 

Foreign exchange gain

 
203

 
6,802

 

 
7,005

Other income
608

 
158

 
6,188

 

 
6,954

Income (loss) before income taxes
(21,174
)
 
4,817

 
9,825

 

 
(6,532
)
Provision (benefit) for income taxes
(270
)
 
1,865

 
3,057

 

 
4,652

Equity in earnings of subsidiaries
9,720

 

 
(2,206
)
 
(7,514
)
 

Net income (loss)
(11,184
)
 
2,952

 
4,562

 
(7,514
)
 
(11,184
)
Net loss noncontrolling interests

 

 
(133
)
 

 
(133
)
Net income (loss) attributable to Titan
$
(11,184
)
 
$
2,952

 
$
4,695

 
$
(7,514
)
 
$
(11,051
)


(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Six Months Ended June 30, 2015
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
367,307

 
$
410,819

 
$

 
$
778,126

Cost of sales
438

 
309,279

 
374,562

 

 
684,279

Gross profit (loss)
(438
)
 
58,028

 
36,257

 

 
93,847

Selling, general and administrative expenses
5,251

 
32,136

 
36,135

 

 
73,522

Research and development expenses

 
1,805

 
4,060

 

 
5,865

Royalty expense

 
3,756

 
2,364

 

 
6,120

Income (loss) from operations
(5,689
)
 
20,331

 
(6,302
)
 

 
8,340

Interest expense
(16,209
)
 
(1
)
 
(1,188
)
 

 
(17,398
)
Intercompany interest income (expense)
390

 

 
(390
)