UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

For Quarterly Period Ended: March 31, 2004

OR

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

Commission File Number: 1-12936

TITAN INTERNATIONAL, INC.

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 x No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)

The accompanying notes are an integral part of the
consolidated condensed financial statements.

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

The accompanying notes are an integral part of the
consolidated condensed financial statements.

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

(a)

Includes $8,997 of cash and cash equivalents that has been reclassified as Assets held for sale — Titan Europe. All other assets and liabilities held for sale continue to be reflected within continuing operations.

The accompanying notes are an integral part of the
consolidated condensed financial statements.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

A.		Accounting Policies
		In the opinion of Titan International, Inc. (“Titan” or the “Company”), the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature, necessary to present fairly its financial position as of March 31, 2004, and the results of operations and cash flows for the three months ended March 31, 2004 and 2003.
		Accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company’s 2003 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 2003 Annual Report on Form 10-K. Details in those notes have not changed significantly, except as a result of normal interim transactions and certain matters discussed hereafter.
		Stock-based compensation
		At March 31, 2004, the Company has two stock-based compensation plans, which are described in Note 21 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2003. The Company applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations in accounting for those plans. The Company granted no stock options during the first quarter of 2004 or 2003 and no stock-based compensation expense was required to be recorded. For the first quarter of 2004 and 2003, the total stock-based compensation expense as determined under the fair value method for all awards, net of related tax effects, was computed to be zero and two thousand dollars, respectively. All prior grants became fully vested in 2002.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

B.		Inventories
		Inventories consisted of the following (in thousands):

		The large inventory decrease resulted from the reclassification of inventories at Titan Europe to assets held for sale. See Note D for additional information. The Titan Europe inventory balance that was reclassified totaled $36.4 million. The LIFO reserve changed primarily as a result of price fluctuations within the composition of LIFO inventory layers. Included in the above inventory balances at March 31, 2004, and December 31, 2003, are reserves for slow-moving and obsolete inventory of $4.0 million and $6.8 million respectively.
C.		Assets Held for Sale
		In December 2003, the Company’s management and Board of Directors approved the sale of certain operating assets with a carrying value of $37.8 million at December 31, 2003. At March 31, 2004, $37.5 million of these assets remain. Land and buildings at the Company’s idle facilities in Walcott, Iowa, and Greenwood, South Carolina, totaling $4.9 million are included in this amount. Management has identified no impairment on the carrying value of these assets as of March 31, 2004. Machinery and equipment located at the Company’s idle facilities in Brownsville, Texas, and Natchez, Mississippi, totaling $32.6 million are also included in assets held for sale. Depreciation is not being recorded on assets held for sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 144. Depreciation on these assets held for sale was $1.3 million for the quarter ended March 31, 2003. Had these assets not been classified as held for sale, depreciation would have been $1.4 million for the quarter ended March 31, 2004. Appraisals from third-party valuation firms support the fair market value of the machinery and equipment at these facilities to be in excess of the carrying value. The Company has had inquiries regarding these assets and is continuing the sales process with the intention of completion by the end of 2004.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

D.		Assets and Liabilities Held for Sale — Titan Europe
		On April 7, 2004, Titan Luxembourg S.a.r.l. (“Titan Luxembourg”), a European subsidiary, sold 70% of the common stock of Titan Europe, Limited (“Titan Europe”) to the public on the Alternative Investment Market (AIM) of the London, England Stock Exchange. Titan Luxembourg owned 100% of Titan Europe as of March 31, 2004. See Note P for additional information. The assets and liabilities of Titan Europe have been reclassified to held for sale. The Titan Europe assets and liabilities held for sale consisted of the following (in thousands):

E.		Property, Plant and Equipment
		Property, plant and equipment, net reflects accumulated depreciation of $165.0 million and $230.2 million at March 31, 2004, and December 31, 2003, respectively. The large decrease resulted from the reclassification of property, plant and equipment at Titan Europe to assets held for sale. See Note D for additional information. The Titan Europe property, plant and equipment balance that was reclassified totaled $51.8 million. The Company has reviewed the fixed assets to assess recoverability from future operations. No impairment has been identified as of March 31, 2004.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

F.		Warranty Costs
		The Company provides limited warranties on workmanship on its products in all market segments. 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. Changes in the warranty liability consisted of the following (in thousands):

G.		Goodwill
		Goodwill, net reflects accumulated amortization of $2.9 million at March 31, 2004, as compared to $5.8 million at December 31, 2003. Goodwill amortization was ceased in January 2002, pursuant to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142.
		The carrying amount of goodwill by segment at March 31, 2004 was (i) agricultural of $6.9 million, (ii) earthmoving/construction of $3.6 million, and (iii) consumer of $1.2 million. The decrease in net goodwill to $11.7 million at March 31, 2004, from $18.8 million at December 31, 2003, is the result of (i) impairment of Titan Europe goodwill of $3.0 million and (ii) reclassification of remaining goodwill at Titan Europe to assets held for sale along with a currency translation adjustment for a total of $4.1 million. See Note D and Note M for additional information.
		The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable, which was the case given the pending disposition of a majority interest in Titan Europe at March 31, 2004. There can be no assurance that future goodwill tests will not result in a charge to earnings.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

H.		Long-term Debt
		Long-term debt consisted of the following (in thousands):

(a)

The large decrease in debt resulted from the reclassification of debt at Titan Europe to liabilities held for sale. See Note D for additional information. The Titan Europe debt that was reclassified totaled $33.2 million at March 31, 2004.

Aggregate maturities of long-term debt at March 31, 2004, were as follows (in thousands):

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

I. Comprehensive Income (Loss)

Comprehensive income, which included net income of $5.3 million and the effect of foreign currency translation adjustments of $(0.2) million, totaled $5.1 million for the first quarter of 2004, compared to a comprehensive loss of $(5.9) million in the first quarter of 2003, which included no net effects of foreign currency translation adjustments.

J. Employee Benefit Plans

The Company has two frozen defined benefit pension plans. The components of net periodic pension cost consisted of the following (in thousands):

During the first quarter of 2004, the Company contributed $0.9 million to its frozen defined benefit pension plans. The Company presently anticipates contributing approximately $7.6 million to its pension plans in the remainder of 2004.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

K. Segment Information

The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three months ended March 31, 2004 and 2003 (in thousands):

(a)

Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level.

(b)

Amount includes the pro rata portion of the goodwill impairment recorded on Titan Europe during the first quarter of 2004.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

(c)

Represents corporate property, plant and equipment and other corporate assets.

L. Income Taxes

The Company recorded income tax expense of $1.4 million and an income tax benefit of $0.3 million for the three months ended March 31, 2004 and 2003, respectively. The Company’s income tax expense differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax loss primarily as a result of income tax expense to be paid in foreign jurisdictions and the application of a valuation allowance on the domestic net deferred tax asset balance. As a result of several periods of recurring losses, the Company began reserving its net deferred tax asset position at December 31, 2002, consistent with the Company’s accounting policies.

The Company will continue to monitor its income tax position and will review the necessity of the valuation allowance at the end of each reporting period. To the extent it is determined deferred tax assets will be realized in excess of deferred tax liabilities, some or all of the valuation allowance will be reversed. At March 31, 2004, the Company’s valuation allowance remained consistent with its year-end position.

M. Goodwill impairment on Titan Europe

On April 7, 2004, Titan Luxembourg, a European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. Titan recognized, in the first quarter of 2004, a $3.0 million goodwill impairment on the pending sale of Titan Europe based on the valuation of Titan Europe inherent in the April 2004 public offering in accordance with accounting standards. The April 2004 consideration for the entire Titan Europe offering was $89.5 million as compared to a book value of $92.5 million resulting in a goodwill impairment of $3.0 million. See Note P for additional information.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

N. Lease Commitments

The Company leases certain buildings and equipment under operating leases, including a lease for the building in Brownsville, Texas. The Brownsville, Texas, lease has been renewed until September 2005, with the continued use of this facility as a distribution and warehouse center for the Company. Titan also maintains a purchase option for the one million square foot building that would be approximately $12.9 million depending on the exercise date and other items. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company.

At March 31, 2004, future minimum commitments under noncancellable operating leases with initial or remaining terms of one year were as follows (in thousands):

The table above does not include future minimum commitments of $2.0 million for Titan Europe. See subsequent event Note P for additional information. The future minimum commitments for Titan Europe were as follows (in thousands) (i) $360 for April 1 through December 31, 2004, (ii) $466 for 2005, (iii) $466 for 2006, (iv) $316 for 2007, (v) $316 for 2008, and (vi) $40 thereafter.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENT
(UNAUDITED)

O. New Accounting Standards

Financial Accounting Standards Board Interpretation Number 46

In December 2003, Financial Accounting Standards Board Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities,” was revised. FIN No. 46 was originally issued in January 2003 and requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the activities of the variable interest entity or is entitled to receive a majority of the entity’s residual returns. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. For entities created prior to this date, adoption of the statement and interpretations is required to be applied in the first interim period beginning after March 15, 2004. Certain disclosure requirements were required for all financial statements issued after January 1, 2003. The adoption of this interpretation had no material effect on the Company’s financial position, cash flows or results of operations.

Statement of Financial Accounting Standards Number 132

In December 2003, Statement of Financial Accounting Standards (SFAS) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” was revised. The new Statement does not change the measurement or recognition of those plans that is required by previously issued standards. The Statement retains the disclosure requirements contained in SFAS No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” which it replaces, and also requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The additional disclosures required by SFAS No. 132 (revised 2003) are effective for fiscal years ending after December 15, 2003. The Company has disclosed the additional information required by this statement. The adoption of SFAS No. 132 (revised 2003) had no material effect on the Company’s financial position, cash flows or results of operations.

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TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)

P.		Subsequent Events
		Titan Europe Sale
		On April 7, 2004, Titan Luxembourg, a European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. Titan Luxembourg will be the largest single stockholder in Titan Europe Plc, retaining a 30% interest, which will be accounted for as an equity investment in future periods. Titan Luxembourg’s proceeds from the sale of Titan Europe shares were approximately $61.8 million before fees and expenses of approximately $2.8 million. The Company will record cash receipts of approximately $49.8 million and a note receivable from the newly created public company, Titan Europe Plc, of approximately $9.2 million. At March 31, 2004, the assets and liabilities of Titan Europe were reclassified as held for sale. See Note D for additional information.
		Titan recognized, in the first quarter of 2004, a $3.0 million goodwill impairment on the pending sale of Titan Europe in accordance with accounting standards. Approximately $26.4 million of the cash receipts from the sale of Titan Europe were used to reduce the Company’s debt balances in April 2004.
		The condensed statement of operations (unaudited) for Titan Europe (as consolidated into Titan International, Inc.) for the three months ended March 31, 2004 and 2003, was as follows (amounts in millions):