TITAN INTERNATIONAL INC - FORM 10-Q

Attached files

file	filename
EX-32 - CERTIFICATION PURSUANT TO SECTION 906 - TITAN INTERNATIONAL INC	ex32.htm
EX-10.2 - SUPPLY AGREEMENT WITH DEERE &AMP; COMPANY - AUGUST 2006 - TITAN INTERNATIONAL INC	ex10_2.htm
EX-10.3 - SUPPLY AGREEMENT WITH DEERE &AMP; COMPANY - APRIL 2008 - TITAN INTERNATIONAL INC	ex10_3.htm
EX-31.2 - CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO SECTION 302 - TITAN INTERNATIONAL INC	ex31_2.htm
EX-31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO SECTION 302 - TITAN INTERNATIONAL INC	ex31_1.htm
EX-10.1 - TRADEMARK LICENSE AGREEMENT WITH THE GOODYEAR TIRE &AMP; RUBBER COMPANY - TITAN INTERNATIONAL INC	ex10_1.htm

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: March 31, 2010

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

Commission File Number: 1-12936

TITAN INTERNATIONAL, INC.

(Exact name of Registrant as specified in its Charter)

Illinois		36-3228472
(State of Incorporation)		(I.R.S. Employer Identification No.)

2701 Spruce Street, Quincy, IL 62301

(Address of principal executive offices, including Zip Code)

(217) 228-6011

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer þ
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

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

		Shares Outstanding at
Class		April 22, 2010

Common stock, no par value per share		35,289,584

TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

		Page
Part I.	Financial Information

Item 1.	Financial Statements (Unaudited)

	Consolidated Condensed Statements of Operations for the Three Months Ended March 31, 2010 and 2009	1

	Consolidated Condensed Balance Sheets as of March 31, 2010, and December 31, 2009	2

	Consolidated Condensed Statement of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2010	3

	Consolidated Condensed Statements of Cash Flows for the Three Months Ended March 31, 2010 and 2009	4

	Notes to Consolidated Condensed Financial Statements	5-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-27

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28

Item 4.	Controls and Procedures	28

Part II.	Other Information

Item 1.	Legal Proceedings	29

Item 1A.	Risk Factors	29

Item 6.	Exhibits	29

	Signatures	29

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except earnings per share data)

	Three months ended
	March 31,
	2010			2009
Net sales	$	196,448		$	232,604
Cost of sales		170,361			202,541
Gross profit		26,087			30,063
Selling, general and administrative expenses		11,809			12,528
Research and development expenses		2,027			999
Royalty expense		2,121			2,459
Income from operations		10,130			14,077
Interest expense		(7,056	)		(3,944	)
Other income		333			1,409
Income before income taxes		3,407			11,542
Provision for income taxes		1,329			4,501
Net income	$	2,078		$	7,041
Earnings per common share:
Basic	$	.06		$	.20
Diluted		.06			.20
Average common shares outstanding:
Basic		34,772			34,624
Diluted		35,329			35,177

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)

	March 31,			December 31,
Assets	2010			2009
Current assets
Cash and cash equivalents	$	215,215		$	229,182
Accounts receivable		102,302			67,513
Inventories		129,598			110,136
Deferred income taxes		9,833			11,108
Prepaid and other current assets		24,178			27,277
Total current assets		481,126			445,216

Property, plant and equipment, net		249,304			254,461
Deferred income taxes		7,396			7,253
Other assets		27,402			29,533

Total assets	$	765,228		$	736,463

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	46,678		$	24,246
Other current liabilities		50,039			45,826
Total current liabilities		96,717			70,072

Long-term debt		366,300			366,300
Other long-term liabilities		38,576			38,138
Total liabilities		501,593			474,510

Stockholders’ equity
Common stock (no par, 120,000,000 shares authorized, 37,475,288 issued)		30			30
Additional paid-in capital		299,512			299,519
Retained earnings		18,279			16,377
Treasury stock (at cost, 2,199,778 and 2,214,347 shares, respectively)		(20,144	)		(20,274	)
Treasury stock reserved for contractual obligations		(5,393	)		(5,393	)
Accumulated other comprehensive loss		(28,649	)		(28,306	)
Total stockholders’ equity		263,635			261,953

Total liabilities and stockholders’ equity	$	765,228		$	736,463

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except share data)

	Number of common shares		Common Stock		Additional paid-in capital			Retained earnings			Treasury stock			Treasury stock reserved for contractual obligations			Accumulated other comprehensive income (loss)			Total

Balance January 1, 2010	#	35,260,941	$	30	$	299,519		$	16,377		$	(20,274	)	$	(5,393	)	$	(28,306	)	$	261,953

Comprehensive income:
Net income									2,078												2,078
Pension liability adjustments, net of tax																		575			575
Unrealized loss on investment, net of tax																		(918	)		(918	)
Comprehensive income																					1,735
Dividends on common stock									(176	)											(176	)
Issuance of treasury stock under 401(k) plan		14,569				(7	)					130									123

Balance March 31, 2010	#	35,275,510	$	30	$	299,512		$	18,279		$	(20,144	)	$	(5,393	)	$	(28,649	)	$	263,635

See accompanying Notes to Consolidated Condensed Financial Statements.

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

	Three months ended
	March 31,
	2010			2009
Cash flows from operating activities:
Net income	$	2,078		$	7,041
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization		9,281			7,966
Deferred income tax provision		1,275			0
Gain on senior note repurchase		0			(1,398	)
Excess tax benefit from stock options exercised		0			(67	)
Issuance of treasury stock under 401(k) plan		123			136
(Increase) decrease in assets:
Accounts receivable		(34,789	)		729
Inventories		(19,462	)		(20,325	)
Prepaid and other current assets		3,099			1,802
Other assets		46			25
Increase (decrease) in liabilities:
Accounts payable		22,432			(11,586	)
Other current liabilities		4,413			(243	)
Other liabilities		1,365			1,916
Net cash used for operating activities		(10,139	)		(14,004	)

Cash flows from investing activities:
Capital expenditures		(3,508	)		(19,933	)
Acquisition of shares of Titan Europe Plc		0			(2,399	)
Other		42			12
Net cash used for investing activities		(3,466	)		(22,320	)

Cash flows from financing activities:
Repurchase of senior notes		0			(4,726	)
Proceeds from exercise of stock options		0			800
Excess tax benefit from stock options exercised		0			67
Payment of financing fees		(186	)		(1,070	)
Dividends paid		(176	)		(175	)
Net cash used for financing activities		(362	)		(5,104	)

Net decrease in cash and cash equivalents		(13,967	)		(41,428	)

Cash and cash equivalents at beginning of period		229,182			61,658

Cash and cash equivalents at end of period	$	215,215		$	20,230

See accompanying Notes to Consolidated Condensed Financial Statements.

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 to present fairly the Company’s financial position as of March 31, 2010, and the results of operations and cash flows for the three months ended March 31, 2010 and 2009.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2009 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 2009 Annual Report on Form 10-K. Certain amounts from prior periods have been reclassified to conform to the current period financial presentation.

Fair value of financial instruments

The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals and notes payable at cost, which approximates fair value. Investments in marketable equity securities are recorded at fair value. The senior unsecured 8% notes due 2012 (senior notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $193.8 million and $172.5 million at March 31, 2010, respectively. The fair value of these notes at March 31, 2010, as obtained through independent pricing sources, was approximately $193.8 million for the senior notes and approximately $182.9 million for the convertible notes.

Cash dividends

The Company declared cash dividends of $.005 per share of common stock for each of the three months ended March 31, 2010 and 2009.

2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (in thousands):

	March 31,			December 31,
	2010			2009
Accounts receivable	$	106,676		$	71,471
Allowance for doubtful accounts		(4,374	)		(3,958	)
Accounts receivable, net	$	102,302		$	67,513

The Company had net accounts receivable balance of $102.3 million at March 31, 2010, and $67.5 million at December 31, 2009. These amounts are net of allowance for doubtful accounts of $4.4 million at March 31, 2010, and $4.0 million at December 31, 2009.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

3. INVENTORIES

Inventories consisted of the following (in thousands):

	March 31,		December 31,
	2010		2009
Raw materials	$	44,376	$	44,336
Work-in-process		24,563		21,378
Finished goods		60,638		46,067
		129,577		111,781
Adjustment to LIFO basis		21		(1,645	)
	$	129,598	$	110,136

Inventories were $129.6 million at March 31, 2010, and $110.1 million at December 31, 2009. At March 31, 2010, cost is determined using the first-in, first-out (FIFO) method for approximately 74% of inventories and the last-in, first-out (LIFO) method for approximately 26% of the inventories. At December 31, 2009, the FIFO method was used for approximately 74% of inventories and LIFO was used for approximately 26% of the inventories. Included in the inventory balances were reserves for slow-moving and obsolete inventory of $2.5 million at March 31, 2010, and $2.3 million at December 31, 2009.

4. PROPERTY, PLANT AND EQUIPMENT, NET

Property, plant and equipment, net consisted of the following (in thousands):

	March 31,			December 31,
	2010			2009
Land and improvements	$	2,993		$	2,993
Buildings and improvements		97,263			97,238
Machinery and equipment		358,937			359,244
Tools, dies and molds		78,267			77,926
Construction-in-process		18,514			16,383
		555,974			553,784
Less accumulated depreciation		(306,670	)		(299,323	)
	$	249,304		$	254,461

The Company had property, plant and equipment of $249.3 million and $254.5 million at March 31, 2010 and December 31, 2009, respectively. Depreciation on fixed assets for the three months ended March 31, 2010 and 2009, totaled $8.6 million and $7.3 million, respectively.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

5. INVESTMENT IN TITAN EUROPE PLC

Investment in Titan Europe Plc consisted of the following (in thousands):

	March 31,		December 31,
	2010		2009
Investment in Titan Europe Plc	$	5,043	$	6,456

Titan Europe Plc is publicly traded on the AIM market in London, England. The Company’s investment in Titan Europe represents a 22.9% ownership percentage. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe Plc should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe Plc. The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Condensed Balance Sheets. Titan’s cost basis in Titan Europe is $5.0 million. The decreased value in the Titan Europe Plc investment at March 31, 2010, was due to a lower publicly quoted Titan Europe Plc market price and a lower exchange rate.

6. WARRANTY

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

	2010			2009
Warranty liability, January 1	$	9,169		$	7,488
Provision for warranty liabilities		3,629			3,025
Warranty payments made		(3,377	)		(2,971	)
Warranty liability, March 31	$	9,421		$	7,542

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.

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 (in thousands):

	March 31,		December 31,
	2010		2009
Senior unsecured 8% notes due 2012	$	193,800	$	193,800
Convertible senior subordinated 5.625% notes due 2017		172,500		172,500
Revolving credit facility		0		0
		366,300		366,300
Less: Amounts due within one year		0		0
	$	366,300	$	366,300

Aggregate maturities of long-term debt at March 31, 2010, were as follows (in thousands):

April 1 – December 31, 2010	$	0
2011		0
2012		193,800
2013		0
2014		0
Thereafter		172,500
	$	366,300

Senior unsecured 8% notes due 2012

The Company’s senior unsecured 8% notes (senior notes) are due January 2012. In the first quarter of 2009, the Company repurchased $6.2 million of principal value of senior notes for approximately $4.8 million resulting in a $1.4 million gain on the senior note repurchases. The Company’s senior notes outstanding balance was $193.8 million at March 31, 2010.

Convertible senior subordinated 5.625% notes due 2017

The Company’s convertible senior subordinated 5.625% 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 $172.5 million at March 31, 2010.

Revolving credit facility

The Company’s $150 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2012 termination date and is collateralized by a first priority security interest in certain assets of Titan and its domestic subsidiaries. During the first quarter of 2010 and at March 31, 2010, there were no borrowings under the credit facility.

The credit facility has an accordion feature that sets the initial loan availability at $150 million with the ability to request increases up to a maximum availability of $250 million. The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. Titan is in compliance with these covenants and restrictions as of March 31, 2010.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

8. LEASE COMMITMENTS

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

At March 31, 2010, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):

April 1 – December 31, 2010	$	1,135
2011		735
2012		64
2013		14
Thereafter		1
Total future minimum lease payments	$	1,949

9. EMPLOYEE BENEFIT PLANS

The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. The Company also sponsors four 401(k) retirement savings plans. The Company expects to contribute approximately $2 million to the pension plans during the remainder of 2010.

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

	Three months ended March 31,
	2010			2009
Interest cost	$	1,300		$	1,364
Expected return on assets		(1,227	)		(1,234	)
Amortization of unrecognized prior service cost		34			34
Amortization of unrecognized deferred taxes		(14	)		(14	)
Amortization of net unrecognized loss		907			1,076
Net periodic pension cost	$	1,000		$	1,226

10. ROYALTY EXPENSE

Royalty expense consisted of the following (in thousands):

	Three months ended March 31,
	2010		2009
Royalty expense	$	2,121	$	2,459

The Company has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name. Royalty expenses recorded were $2.1 million and $2.5 million for the first quarter of 2010 and 2009, respectively.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

11. OTHER INCOME

Other income consisted of the following (in thousands):

	Three months ended March 31,
	2010		2009
Gain on senior note repurchases	$	0	$	1,398
Investment gain (loss) on contractual obligations		196		(103	)
Interest income		94		64
Other income		43		50
	$	333	$	1,409

The gain on senior note repurchases of $1.4 million resulted from the Company’s repurchase of $6.2 million of principal value of senior notes for approximately $4.8 million in the first quarter of 2009.

12. INCOME TAXES

Income tax expense consisted of the following (in thousands):

	Three months ended March 31,
	2010		2009
Income tax expense	$	1,329	$	4,501

The Company recorded income tax expense of $1.3 million and $4.5 million for the quarters ended March 31, 2010 and 2009, respectively. The Company’s effective income tax rate was 39% for both of the three months ended March 31, 2010 and 2009.

13. COMPREHENSIVE INCOME

The Company’s comprehensive income consisted of the following: (i) for the quarter ended March 31, 2010, net income of $2.1 million, amortization of pension adjustments of $0.5 million and unrealized loss on the Titan Europe Plc investment of $(0.9) million for a total comprehensive income of $1.7 million; (ii) for the quarter ended March 31, 2009, net income of $7.0 million, amortization of pension adjustments of $0.7 million and unrealized loss on the Titan Europe Plc investment of $(1.7) million for a total comprehensive income of $6.0 million.

14. EARNINGS PER SHARE

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

	Three months ended
	March 31, 2010						March 31, 2009
	Net Income		Weighted average shares		Per share amount		Net Income		Weighted average shares		Per share amount
Basic EPS	$	2,078		34,772	$	.06	$	7,041		34,624	$	.20
Effect of stock options/trusts		0		557				0		553
Diluted EPS	$	2,078		35,329	$	.06	$	7,041		35,177	$	.20

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

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

15. 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, 2010 and 2009 (in thousands):

	Three months ended March 31,
	2010			2009
Revenues from external customers
Agricultural	$	151,112		$	187,328
Earthmoving/construction		41,815			39,927
Consumer		3,521			5,349
	$	196,448		$	232,604

Gross profit
Agricultural	$	23,890		$	24,920
Earthmoving/construction		3,150			4,884
Consumer		668			788
Unallocated corporate		(1,621	)		(529	)
	$	26,087		$	30,063

Income from operations
Agricultural	$	19,955		$	20,085
Earthmoving/construction		690			3,840
Consumer		581			637
Unallocated corporate		(11,096	)		(10,485	)
Consolidated income from operations		10,130			14,077
Interest expense		(7,056	)		(3,944	)
Other income, net		333			1,409
Income before income taxes	$	3,407		$	11,542

Assets by segment were as follows (in thousands):

	March 31,		December 31,
Total Assets	2010		2009
Agricultural	$	314,692	$	257,523
Earthmoving/construction		195,753		188,169
Consumer		8,669		8,305
Unallocated corporate		246,114		282,466
Consolidated totals	$	765,228	$	736,463

16. 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.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

17. FAIR VALUE MEASUREMENTS

ASC 820 Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:

Level 1 – Quoted prices in active markets for identical instruments;

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

Assets and liabilities measured at fair value on a recurring basis consisted of the following (in thousands):

	March 31, 2010						December 31, 2009
	Total		Level 1		Levels 2&3		Total		Level 1		Levels 2&3
Investments for contractual obligations	$	6,064	$	6,064	$	0	$	5,869	$	5,869	$	0
Investment in Titan Europe Plc		5,043		5,043		0		6,456		6,456		0
Total	$	11,107	$	11,107	$	0	$	12,325	$	12,325	$	0

18. RECENTLY ISSUED ACCOUNTING STANDARDS

Fair Value Measurements and Disclosures

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.” This guidance requires new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements. This guidance requires separate presentation about purchases, sales, issuances, and settlements for activity in Level 3 fair value measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The guidance for new disclosures and clarifications of existing disclosures was effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of this part of the guidance had no material effect on the Company’s financial position, results of operations or cash flows. The guidance related to presentation of Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010. The adoption of this part of the guidance is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Subsequent Events

In February 2010, the FASB issued ASU 2010-9, “Subsequent Events (Topic 855) – Amendments to Certain Recognition and Disclosure Requirements.” This guidance removes the requirement for an entity that files financial statements with the Securities and Exchange Commission to disclose a date through which subsequent events have been evaluated. This guidance was effective immediately. The adoption of this guidance had no material effect on the Company’s financial position, results of operations or cash flows.

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

19. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 8% senior unsecured notes and 5.625% convertible senior subordinated notes are guaranteed by each of Titan’s current and future wholly owned domestic subsidiaries other than its immaterial subsidiaries (subsidiaries with total assets less than $250,000 and total revenues less than $250,000.) The note guarantees are full and unconditional, joint and several obligations of the guarantors. Non-guarantors consist primarily of foreign subsidiaries of the Company, which are organized outside the United States of America. The following condensed consolidating financial statements are presented using the equity method of accounting.

	Consolidating Condensed Statements of Operations
(Amounts in thousands)
	For the Three Months Ended March 31, 2010
	Titan					Non-
	Intl., Inc.			Guarantor		Guarantor
	(Parent)			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	0		$	196,448	$	0		$	0		$	196,448
Cost of sales		1,324			169,037		0			0			170,361
Gross profit (loss)		(1,324	)		27,411		0			0			26,087
Selling, general and administrative expenses		4,864			6,906		39			0			11,809
Research and development expenses		0			2,027		0			0			2,027
Royalty expense		0			2,121		0			0			2,121
Income (loss) from operations		(6,188	)		16,357		(39	)		0			10,130
Interest expense		(7,056	)		0		0			0			(7,056	)
Other income (expense)		290			44		(1	)		0			333
Income (loss) before income taxes		(12,954	)		16,401		(40	)		0			3,407
Provision (benefit) for income taxes		(5,052	)		6,396		(15	)		0			1,329
Equity in earnings of subsidiaries		9,980			0		0			(9,980	)		0
Net income (loss)	$	2,078		$	10,005	$	(25	)	$	(9,980	)	$	2,078

	Consolidating Condensed Statements of Operations
(Amounts in thousands)
	For the Three Months Ended March 31, 2009
	Titan					Non-
	Intl., Inc.			Guarantor		Guarantor
	(Parent)			Subsidiaries		Subsidiaries			Eliminations			Consolidated
Net sales	$	0		$	232,604	$	0		$	0		$	232,604
Cost of sales		221			202,320		0			0			202,541
Gross profit (loss)		(221	)		30,284		0			0			30,063
Selling, general and administrative expenses		4,688			7,838		2			0			12,528
Research and development expenses		3			996		0			0			999
Royalty expense		0			2,459		0			0			2,459
Income (loss) from operations		(4,912	)		18,991		(2	)		0			14,077
Interest expense		(3,944	)		0		0			0			(3,944	)
Other income		1,296			113		0			0			1,409
Income (loss) before income taxes		(7,560	)		19,104		(2	)		0			11,542
Provision (benefit) for income taxes		(2,948	)		7,450		(1	)		0			4,501
Equity in earnings of subsidiaries		11,653			0		0			(11,653	)		0
Net income (loss)	$	7,041		$	11,654	$	(1	)	$	(11,653	)	$	7,041

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

	Consolidating Condensed Balance Sheets
(Amounts in thousands)
	March 31, 2010
	Titan						Non-
	Intl., Inc.			Guarantor			Guarantor
	(Parent)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	215,046		$	25		$	144		$	0		$	215,215
Accounts receivable		0			102,302			0			0			102,302
Inventories		0			129,598			0			0			129,598
Prepaid and other current assets		15,876			18,135			0			0			34,011
Total current assets		230,922			250,060			144			0			481,126
Property, plant and equipment, net		2,487			246,817			0			0			249,304
Investment in subsidiaries		17,745			0			0			(17,745	)		0
Other assets		23,577			6,178			5,043			0			34,798
Total assets	$	274,731		$	503,055		$	5,187		$	(17,745	)	$	765,228

Liabilities and Stockholders’ Equity
Accounts payable	$	1,491		$	45,187		$	0		$	0		$	46,678
Other current liabilities		2,708			47,331			0			0			50,039
Total current liabilities		4,199			92,518			0			0			96,717
Long-term debt		366,300			0			0			0			366,300
Other long-term liabilities		5,978			32,598			0			0			38,576
Intercompany accounts		(365,381	)		391,737			(26,356	)		0			0
Stockholders’ equity		263,635			(13,798	)		31,543			(17,745	)		263,635
Total liabilities and stockholders’ equity	$	274,731		$	503,055		$	5,187		$	(17,745	)	$	765,228

	Consolidating Condensed Balance Sheets
(Amounts in thousands)
	December 31, 2009
	Titan						Non-
	Intl., Inc.			Guarantor			Guarantor
	(Parent)			Subsidiaries			Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	229,004		$	11		$	167		$	0		$	229,182
Accounts receivable		(201	)		67,714			0			0			67,513
Inventories		0			110,136			0			0			110,136
Prepaid and other current assets		19,857			18,528			0			0			38,385
Total current assets		248,660			196,389			167			0			445,216
Property, plant and equipment, net		7,602			246,859			0			0			254,461
Investment in subsidiaries		10,748			0			0			(10,748	)		0
Other assets		23,870			6,460			6,456			0			36,786
Total assets	$	290,880		$	449,708		$	6,623		$	(10,748	)	$	736,463

Liabilities and Stockholders’ Equity
Accounts payable	$	1,086		$	23,160		$	0		$	0		$	24,246
Other current liabilities		8,288			37,538			0			0			45,826
Total current liabilities		9,374			60,698			0			0			70,072
Long-term debt		366,300			0			0			0			366,300
Other long-term liabilities		5,574			32,564			0			0			38,138
Intercompany accounts		(352,321	)		377,281			(24,960	)		0			0
Stockholders’ equity		261,953			(20,835	)		31,583			(10,748	)		261,953
Total liabilities and stockholders’ equity	$	290,880		$	449,708		$	6,623		$	(10,748	)	$	736,463

TITAN INTERNATIONAL, INC.

Notes to Consolidated Condensed Financial Statements

(Unaudited)

	Consolidating Condensed Statements of Cash Flows
(Amounts in thousands)
	For the Three Months Ended March 31, 2010
	Titan						Non-
	Intl., Inc.			Guarantor			Guarantor
	(Parent)			Subsidiaries			Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$	(13,596	)	$	3,480		$	(23	)	$	(10,139	)

Cash flows from investing activities:
Capital expenditures		0			(3,508	)		0			(3,508	)
Other, net		0			42			0			42
Net cash used for investing activities		0			(3,466	)		0			(3,466	)

Cash flows from financing activities:
Payment of financing fees		(186	)		0			0			(186	)
Other, net		(176	)		0			0			(176	)
Net cash used for financing activities		(362	)		0			0			(362	)

Net increase (decrease) in cash and cash equivalents		(13,958	)		14			(23	)		(13,967	)
Cash and cash equivalents, beginning of period		229,004			11			167			229,182
Cash and cash equivalents, end of period	$	215,046		$	25		$	144		$	215,215

	Consolidating Condensed Statements of Cash Flows
(Amounts in thousands)
	For the Three Months Ended March 31, 2009
	Titan						Non-
	Intl., Inc.			Guarantor			Guarantor
	(Parent)			Subsidiaries			Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$	(32,630	)	$	18,613		$	13		$	(14,004	)

Cash flows from investing activities:
Capital expenditures		(1,266	)		(18,667	)		0			(19,933	)
Acquisition of shares of Titan Europe Plc		0			0			(2,399	)		(2,399	)
Other, net		0			12			0			12
Net cash used for investing activities		(1,266	)		(18,655	)		(2,399	)		(22,320	)

Cash flows from financing activities:
Payment on senior note		(4,726	)		0			0			(4,726	)
Proceeds from exercise of stock options		800			0			0			800
Payment of financing fees		(1,070	)		0			0			(1,070	)
Other, net		(108	)		0			0			(108	)
Net cash used for financing activities		(5,104	)		0			0			(5,104	)

Net decrease in cash and cash equivalents		(39,000	)		(42	)		(2,386	)		(41,428	)
Cash and cash equivalents, beginning of period		59,011			60			2,587			61,658
Cash and cash equivalents, end of period	$	20,011		$	18		$	201		$	20,230

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan’s financial condition, results of operations, liquidity and other factors which may affect the Company’s future results. The MD&A in this quarterly report should be read in conjunction with the MD&A in Titan’s 2009 annual report on Form 10-K filed with the Securities and Exchange Commission on February 25, 2010.

FORWARD-LOOKING STATEMENTS

This Form 10-Q contains forward-looking statements, including statements regarding, among other items:

·	Anticipated trends in the Company’s business

·	Future expenditures for capital projects

·	The Company’s ability to continue to control costs and maintain quality

·	Ability to meet financial covenants and conditions of loan agreements

·	The Company’s business strategies, including its intention to introduce new products

·	Expectations concerning the performance and success of the Company’s existing and new products

·	The Company’s intention to consider and pursue acquisition and divestiture opportunities

Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company’s control.

Actual results could differ materially from these forward-looking statements as a result of certain factors, including:

·	The effect of the economic crisis and recession on the Company and its customers and suppliers

·	Changes in the Company’s end-user markets as a result of world economic or regulatory influences

·	Changes in the marketplace, including new products and pricing changes by the Company’s competitors

·	Ability to maintain satisfactory labor relations

·	Unfavorable outcomes of legal proceedings

·	Availability and price of raw materials

·	Levels of operating efficiencies

·	Unfavorable product liability and warranty claims

·	Actions of domestic and foreign governments

·	Results of investments

·	Fluctuations in currency translations

·	Ability to secure financing at reasonable terms

·	Laws and regulations related to climate change

·	Risks associated with environmental laws and regulations

Any changes in such factors could lead to significantly different results. The Company cannot provide any assurance that the assumptions referred to in the forward-looking statements or otherwise are accurate or will prove to transpire. Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on the Company’s ability to achieve the results as indicated in forward-looking statements. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks and uncertainties, there can be no assurance that the forward-looking information contained in this document will in fact transpire.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

OVERVIEW

Titan International, Inc. and its subsidiaries are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets. Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.

Agricultural Market: Titan’s agricultural rims, wheels and tires are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers and Titan’s own distribution centers.

Earthmoving/Construction Market: The Company manufactures rims, wheels and tires for various types of off-the-road (OTR) earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders. The earthmoving/construction market is often referred to as OTR, an acronym for off-the-road.

Consumer Market: Titan builds select products for all-terrain vehicles (ATV), turf, golf and trailer applications. The Company provides wheels/tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets.

The Company’s major OEM customers include large manufacturers of off-highway equipment such as AGCO Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company and Kubota Corporation, in addition to many other off-highway equipment manufacturers. The Company distributes products to OEMs, independent and OEM-affiliated dealers, and through a network of distribution facilities.

The following table provides highlights for the quarter ended March, 2010, compared to 2009 (amounts in thousands):

	Three months ended March 31,
	2010		2009		% Decrease
Net sales	$	196,448	$	232,604		(16	)%
Gross profit		26,087		30,063		(13	)%
Income from operations		10,130		14,077		(28	)%
Net income		2,078		7,041		(70	)%

The Company recorded sales of $196.4 million for the first quarter of 2010, which were 16% lower than the first quarter 2009 sales of $232.6 million. The lower sales were primarily the result of reduced demand in the Company’s agricultural market which was down by approximately 19% when compared to last year’s first quarter.

The following operating results were primarily related to the reduced sales levels and the associated negative impact on the Company’s operating profit. The Company’s gross profit was $26.1 million for the first quarter of 2010, compared to $30.1 million in 2009. Net income was $2.1 million for the quarter, compared to $7.0 million in 2009. Basic earnings per share were $.06 in the first quarter of 2010, compared to $.20 in 2009.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

CRITICAL ACCOUNTING ESTIMATES

Preparation of the financial statements and related disclosures in compliance with accounting principles generally accepted in the United States of America requires the application of appropriate technical accounting rules and guidance, as well as the use of estimates. The Company’s application of these policies involves assumptions that require difficult subjective judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the estimates, assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial statements and disclosures.

Inventories

Inventories are valued at lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method for approximately 74% of inventories and the last-in, first-out (LIFO) method for approximately 26% of inventories. The major rubber material inventory and related work-in-process and their finished goods are accounted for under the FIFO method. The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method. Market value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory, as well as inventory carried above market price based on historical experience. Should there be an adverse change in experience, increases to estimated provisions would be necessary.

Income Taxes

Deferred income tax provisions are determined using the liability method whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax basis of assets and liabilities. The Company assesses the realizability of its deferred tax asset positions and recognizes and measures uncertain tax positions in accordance with ASC 740 Income Taxes.

As a result of the 2009 net loss, the Company has a net operating loss carryforward for income tax purposes. If Titan would continue to incur net losses, the Company may not be able to realize the tax benefit of these net operating losses.

Asset and Business Acquisitions

The allocation of purchase price for asset and business acquisitions requires management estimates and judgment as to expectations for future cash flows of the acquired assets and business and the allocation of those cash flows to identifiable intangible assets in determining the estimated fair value for purchase price allocations. If the actual results differ from the estimates and judgments used in determining the purchase price allocations, impairment losses could occur relating to any intangibles recorded in the acquisition. To aid in establishing the value of any intangible assets at the time of acquisition, the Company typically engages a professional appraisal firm.

Retirement Benefit Obligations

Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations. The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. During the first three months of 2010, the Company contributed cash funds of $0.1 million to its frozen pension plans. Titan expects to contribute approximately $2 million to these frozen defined pension plans during the remainder of 2010. For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 20 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2009.

TITAN INTERNATIONAL, INC.

Management’s Discussion and Analysis of

Financial Condition and Results of Operations

RESULTS OF OPERATIONS

Highlights for the three months ended March 31, 2010, compared to 2009 (amounts in thousands):

	Three months ended March 31,
	2010			2009
Net sales	$	196,448		$	232,604
Cost of sales		170,361			202,541
Gross profit	$	26,087		$	30,063
Gross profit margin		13.3	%		12.9	%

Net Sales

Net sales for the quarter ended March 31, 2010, were $196.4 million, compared to $232.6 million in 2009. The sales decreased by approximately 16%, primarily the result of reduced demand in the Company’s agricultural market, which was down by approximately 19% when compared to last year’s first quarter. The Company believes the agricultural industry, along with the earthmoving/construction and consumer markets, are continuing to be affected by the on-going uncertainty in domestic and global economic conditions.

Cost of Sales and Gross Profit

Cost of sales was $170.4 million for the first quarter of 2010, compared to $202.5 million in 2009. The lower cost of sales resulted primarily from the reduction in the quarterly sales levels. The cost of sales decreased by approximately 16%, the same percentage as the net sales.

Gross profit for the first quarter of 2010 was $26.1 million, or 13.3% of net sales, compared to $30.1 million, or 12.9% of net sales, for the first quarter of 2009. The gross profit margin showed a slight improvement despite the reduction in sales, primarily due to improved manufacturing efficiencies, including reduced headcount, in the Company’s agricultural segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were as follows (amounts in thousands):

Three months ended March 31,

TITAN INTERNATIONAL INC - FORM 10-Q - April 23, 2010

Attached files