TITAN INTERNATIONAL INC - FORM 10-Q - October 28, 2014

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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: September 30, 2014
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12936

TITAN INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Illinois
 
36-3228472
(State of Incorporation)
 
(I.R.S. Employer Identification No.)
2701 Spruce Street, Quincy, IL 62301
(Address of principal executive offices, including Zip Code)

(217) 228-6011
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes þ  No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ
Accelerated filer ¨
Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No þ

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
Shares Outstanding at
Class
 
October 20, 2014
 
 
 
Common stock, no par value per share
 
53,609,778



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
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Net sales
$
449,579

 
$
497,510

 
$
1,512,250

 
$
1,669,188

Cost of sales
404,280

 
435,004

 
1,355,044

 
1,423,276

Mining asset impairment and inventory writedown
—

 
—

 
34,797

 
—

Gross profit
45,299

 
62,506

 
122,409

 
245,912

Selling, general and administrative expenses
41,276

 
38,731

 
133,119

 
124,827

Research and development expenses
2,862

 
2,778

 
9,761

 
8,281

Royalty expense
3,675

 
3,942

 
11,246

 
10,960

Income (loss) from operations
(2,514
)
 
17,055

 
(31,717
)
 
101,844

Interest expense
(8,951
)
 
(12,414
)
 
(27,136
)
 
(35,924
)
Convertible debt conversion charge
—

 
—

 
—

 
(7,273
)
Gain on earthquake insurance recovery
—

 
—

 
—

 
22,451

Other income (expense)
(10,679
)
 
8,722

 
(3,828
)
 
7,712

Income (loss) before income taxes
(22,144
)
 
13,363

 
(62,681
)
 
88,810

Provision (benefit) for income taxes
(5,127
)
 
5,711

 
(15,645
)
 
38,913

Net income (loss)
(17,017
)
 
7,652

 
(47,036
)
 
49,897

Net loss attributable to noncontrolling interests
(7,950
)
 
(441
)
 
(19,621
)
 
(888
)
Net income (loss) attributable to Titan
$
(9,067
)
 
$
8,093

 
$
(27,415
)
 
$
50,785

 
 
 
 
 
 
 
 
Earnings (loss) per common share:
 

 
 

 
 

 
 

Basic
$
(.17
)
 
$
.15

 
$
(.51
)
 
$
.96

Diluted
$
(.17
)
 
$
.15

 
$
(.51
)
 
$
.89

Average common shares and equivalents outstanding:
 
 
 

 
 
 
 

Basic
53,497

 
53,440

 
53,484

 
52,900

Diluted
53,497

 
59,391

 
53,484

 
59,444

 
 
 
 
 
 
 
 
Dividends declared per common share:
$
.005

 
$
.005

 
$
.015

 
$
.015

 

 







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
 
September 30,
 
2014
 
2013
Net income (loss)
$
(17,017
)
 
$
7,652

Currency translation adjustment, net
(40,174
)
 
854

Pension liability adjustments, net of tax of $126 and $557, respectively
42

 
969

Comprehensive income (loss)
(57,149
)
 
9,475

Net comprehensive loss attributable to noncontrolling interests
(17,002
)
 
(85
)
Comprehensive income (loss) attributable to Titan
$
(40,147
)
 
$
9,560



 
 
 
 
 
Nine months ended
 
September 30,
 
2014
 
2013
Net income (loss)
$
(47,036
)
 
$
49,897

Unrealized loss on investments, net of tax of $0 and $0, respectively
—

 
(3
)
Currency translation adjustment, net
(31,960
)
 
(24,513
)
Pension liability adjustments, net of tax of $632 and $1,670, respectively
787

 
2,990

Comprehensive income (loss)
(78,209
)
 
28,371

Net comprehensive loss attributable to noncontrolling interests
(30,247
)
 
(3,243
)
Comprehensive income (loss) attributable to Titan
$
(47,962
)
 
$
31,614























See accompanying Notes to Consolidated Financial Statements.

2


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

 
September 30,
 
December 31,
Assets
2014
 
2013
Current assets
 
 
 
Cash and cash equivalents
$
180,271

 
$
189,360

  Restricted cash
—

 
14,268

  Accounts receivable, net
248,331

 
263,053

Inventories
375,267

 
384,920

Deferred income taxes
41,813

 
41,931

Prepaid and other current assets
91,447

 
114,346

Total current assets
937,129

 
1,007,878

Property, plant and equipment, net
566,643

 
638,807

Goodwill
38,082

 
42,075

Deferred income taxes
4,747

 
2,772

Other assets
126,351

 
129,699

Total assets
$
1,672,952

 
$
1,821,231

Liabilities and Equity
 

 
 

Current liabilities
 

 
 

Short-term debt
$
24,768

 
$
75,061

Accounts payable
169,439

 
176,719

Deferred income taxes
3,758

 
3,525

Other current liabilities
137,849

 
131,266

Total current liabilities
335,814

 
386,571

Long-term debt
501,276

 
497,694

Deferred income taxes
44,712

 
60,985

Other long-term liabilities
81,763

 
77,945

Total liabilities
963,565

 
1,023,195

Equity
 

 
 

Titan stockholders' equity


 


  Common stock (no par, 120,000,000 shares authorized, 55,253,092 issued)
—

 
—

Additional paid-in capital
562,014

 
558,637

Retained earnings
179,322

 
207,541

Treasury stock (at cost, 1,655,097 and 1,692,220 shares, respectively)
(15,253
)
 
(15,586
)
Treasury stock reserved for deferred compensation
(1,075
)
 
(1,075
)
Accumulated other comprehensive loss
(83,494
)
 
(61,794
)
Total Titan stockholders’ equity
641,514

 
687,723

Noncontrolling interests
67,873

 
110,313

Total equity
709,387

 
798,036

Total liabilities and equity
$
1,672,952

 
$
1,821,231

 





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, 2014
53,560,872

 
$
558,637

 
$
207,541

 
$
(15,586
)
 
$
(1,075
)
 
$
(61,794
)
 
$
687,723

 
$
110,313

 
$
798,036

Net loss


 


 
(27,415
)
 


 


 


 
(27,415
)
 
(19,621
)
 
(47,036
)
Currency translation adjustment
 
 
 
 
 
 
 
 
 
 
(21,334
)
 
(21,334
)
 
(10,626
)
 
(31,960
)
Pension liability adjustments, net of tax


 


 


 


 


 
787

 
787

 
 
 
787

Dividends on common stock


 


 
(804
)
 


 


 


 
(804
)
 
 
 
(804
)
Exercise of stock options
8,971

 
60

 


 
81

 


 


 
141

 
 
 
141

Acquisition of additional interest


 
(49
)
 


 


 


 
(1,153
)
 
(1,202
)
 
(12,193
)
 
(13,395
)
Stock-based compensation


 
3,165

 


 


 


 


 
3,165

 
 
 
3,165

Tax benefit related to stock-based compensation


 
(51
)
 


 


 


 


 
(51
)
 
 
 
(51
)
Issuance of treasury stock under 401(k) plan
28,152

 
252

 


 
252

 


 


 
504

 
 
 
504

Balance September 30, 2014
53,597,995

 
$
562,014

 
$
179,322

 
$
(15,253
)
 
$
(1,075
)
 
$
(83,494
)
 
$
641,514

 
$
67,873

 
$
709,387

 
















See accompanying Notes to Consolidated Financial Statements.

4


TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
 
Nine months ended
September 30,
Cash flows from operating activities:
2014
 
2013
Net income (loss)
$
(47,036
)
 
$
49,897

Adjustments to reconcile net income (loss) to net cash
 

 
 

provided by operating activities:
 

 
 

Depreciation and amortization
67,789

 
56,333

Amortization of debt premium
—

 
(2,185
)
Mining asset impairment
23,242

 
—

Mining inventory writedown
11,555

 
—

Deferred income tax provision
(15,218
)
 
(6,860
)
Convertible debt conversion charge
—

 
7,273

Gain on earthquake insurance recovery
—

 
(22,451
)
Stock-based compensation
3,165

 
3,727

Excess tax benefit from stock options exercised
51

 
46

Insurance proceeds
—

 
35,808

Issuance of treasury stock under 401(k) plan
504

 
497

(Increase) decrease in assets:
 

 
 

Accounts receivable
13,636

 
(1,022
)
Inventories
(6,057
)
 
(18,599
)
Prepaid and other current assets
21,923

 
(24,687
)
Other assets
(3,549
)
 
5,924

Increase (decrease) in liabilities:
 

 
 

Accounts payable
(5,457
)
 
23,302

Other current liabilities
7,376

 
23,218

Other liabilities
5,423

 
1,968

Net cash provided by operating activities
77,347

 
132,189

Cash flows from investing activities:
 

 
 

Capital expenditures
(46,329
)
 
(54,956
)
Acquisition of additional interest
(13,395
)
 
(1,670
)
Additional equity investment in Wheels India
—

 
(8,017
)
Decrease in restricted cash deposits
14,268

 
—

Insurance proceeds
—

 
2,879

Other
4,610

 
1,342

Net cash used for investing activities
(40,846
)
 
(60,422
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
—

 
345,313

Payment on debt
(60,359
)
 
(162,040
)
Term loan borrowing
14,914

 
25,880

Convertible note conversion
—

 
(14,090
)
Proceeds from exercise of stock options
141

 
863

Excess tax benefit from stock options exercised
(51
)
 
(46
)
Payment of financing fees
(33
)
 
(5,520
)
Dividends paid
(804
)
 
(778
)
Net cash provided by (used for) financing activities
(46,192
)
 
189,582

Effect of exchange rate changes on cash
602

 
(3,007
)
Net increase (decrease) in cash and cash equivalents
(9,089
)
 
258,342

Cash and cash equivalents, beginning of period
189,360

 
189,114

Cash and cash equivalents, end of period
$
180,271

 
$
447,456

 
 
 
 
Supplemental information:
 
 
 
Interest paid
$
19,280

 
$
18,484

Income taxes paid
$
7,992

 
$
56,523

Noncash investing and financing information:
 
 
 
Issuance of common stock for convertible debt payment
$
—

 
$
45,903

See accompanying Notes to Consolidated Financial Statements.

5


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


1.
ACCOUNTING POLICIES

In the opinion of Titan International, Inc. (Titan or the Company), the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature and necessary for a fair statement of the Company's financial position as of September 30, 2014, and the results of operations and cash flows for the three and nine months ended September 30, 2014 and 2013.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company's 2013 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 2013 Annual Report on Form 10-K.

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

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals and notes payable at cost, which approximates fair value due to their short term or stated rates.  Investments in marketable equity securities are recorded at fair value.  The 6.875% senior secured notes due 2020 (senior secured notes due 2020) and 5.625% convertible senior subordinated notes due 2017 (convertible notes) are carried at cost of $400.0 million and $60.2 million at September 30, 2014, respectively. The fair value of the senior secured notes due 2020 at September 30, 2014, as obtained through an independent pricing source, was approximately $390.0 million.

Cash dividends
The Company declared cash dividends of $.005 and $0.015 per share of common stock for each of the three and nine months ended September 30, 2014, and 2013. The third quarter 2014 cash dividend of $.005 per share of common stock was paid October 15, 2014, to stockholders of record on September 30, 2014.

Use of estimates
The policies utilized by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America and require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts could differ from these estimates and assumptions.

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

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

6


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


2. MINING ASSET IMPAIRMENT AND INVENTORY WRITEDOWN

In the second quarter of 2014, the Company recorded an asset impairment and inventory writedown of $23.2 million and $11.6 million, respectively. The impairment was recorded on machinery, equipment and molds used to produce giant mining tires. Mining products are included in the Company's earthmoving/construction segment. In the second quarter of 2014, several large mining equipment manufacturers significantly decreased their sales forecast for mining equipment. The Company's sales of mining product were deteriorating at an accelerated pace. Therefore, the company tested mining related assets for impairment in the second quarter of 2014. The fair value of the mining equipment was determined using a cost and market approach. The inventory writedown was to adjust the value of mining product inventory to estimated market value.


3. ACQUISITIONS

Acquisition of Voltyre-Prom
On October 4, 2013, Titan, in partnership with One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF), closed the acquisition of an 85% interest in Voltyre-Prom, a leading producer of agricultural and industrial tires in Volgograd, Russia, for approximately $94.1 million, which includes the assumption of debt. Titan is acting as operating partner with responsibility for Voltyre-Prom's daily operations on behalf of the consortium of which Titan holds a 30% interest. This acquisition expanded Titan's footprint into the Commonwealth of Independent States (CIS) region. The fair value of the consideration transferred and noncontrolling interests exceeded the fair value of the identified assets acquired less liabilities assumed. Therefore, goodwill of $21.0 million was recorded on the transaction, which is not expected to be deductible for tax purposes. An initial noncontrolling interest of $14.5 million, representing the 15% not owned by the partnership, was recorded at the acquisition date. In the first half of 2014, the partnership of Titan, OEP, and RDIF purchased an additional 15% to bring the total Voltyre-Prom ownership to 100%. The Company continues to evaluate the preliminary purchase price allocation, primarily the value of certain deferred taxes and goodwill, and may revise the purchase price allocation in future periods as these estimates are finalized.

The purchase price allocation of the Voltyre-Prom acquisition consisted of the following (amounts in thousands):
 
Acquisition
 
Additional
 
 
 
Date
 
Purchases
 
Total
Cash
$
80

 
$
—

 
$
80

Accounts receivable
5,596

 
—

 
5,596

Inventories
3,807

 
—

 
3,807

Deferred income taxes - current asset
253

 
—

 
253

Prepaid & other current assets
1,881

 
—

 
1,881

Goodwill
21,002

 
—

 
21,002

Property, plant & equipment
79,255

 
—

 
79,255

Other assets
17,615

 
—

 
17,615

Accounts payable
(715
)
 
—

 
(715
)
Other current liabilities
(4,152
)
 
—

 
(4,152
)
Deferred income taxes - noncurrent liability
(15,989
)
 
—

 
(15,989
)
Noncontrolling interests
(14,542
)
 
13,395

 
(1,147
)
Net assets acquired
$
94,091

 
$
13,395

 
$
107,486




7


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

4. RESTRICTED CASH

Restricted cash consisted of the following (amounts in thousands):
 
September 30,
2014
 
December 31, 2013
Restricted cash
$
—

 
$
14,268


At December 31, 2013, the Company had restricted cash of $14.3 million. This restricted cash was on deposit for the purchase of the remaining 15% of Voltyre-Prom. In the first half of 2014, the partnership of Titan, OEP, and RDIF purchased an additional 15% to bring the total Voltyre-Prom ownership to 100%. See note 3 for additional information.


5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (amounts in thousands):
 
September 30,
2014
 
December 31,
2013
Accounts receivable
$
254,622

 
$
268,340

Allowance for doubtful accounts
(6,291
)
 
(5,287
)
Accounts receivable, net
$
248,331

 
$
263,053

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


6. INVENTORIES

Inventories consisted of the following (amounts in thousands):
 
September 30,
2014
 
December 31,
2013
Raw material
$
122,256

 
$
130,403

Work-in-process
55,225

 
54,190

Finished goods
208,327

 
208,821

 
385,808

 
393,414

Adjustment to LIFO basis
(10,541
)
 
(8,494
)
 
$
375,267

 
$
384,920

 
At September 30, 2014, approximately 11% of the Company's inventories were valued under the last-in, first-out (LIFO) method. At December 31, 2013, approximately 12% of the Company's inventories were valued under the LIFO method. The remaining inventories were valued under the first-in, first-out (FIFO) method or average cost method. All inventories are valued at lower of cost or market. See note 2 for additional information on the mining inventory writedown of $11.6 million recorded in the second quarter of 2014.



8


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

7. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (amounts in thousands):
 
September 30,
2014
 
December 31, 2013
Land and improvements
$
64,642

 
$
67,243

Buildings and improvements
232,290

 
242,261

Machinery and equipment
578,312

 
617,709

Tools, dies and molds
104,600

 
112,997

Construction-in-process
48,664

 
42,539

 
1,028,508

 
1,082,749

Less accumulated depreciation
(461,865
)
 
(443,942
)
 
$
566,643

 
$
638,807

 
Depreciation on fixed assets for the nine months ended September 30, 2014 and 2013, totaled $63.3 million and $53.0 million, respectively.

Included in the total building and improvements are capital leases of $5.5 million and $4.6 million at September 30, 2014, and December 31, 2013, respectively. Included in the total of machinery and equipment are capital leases of $48.5 million and $40.6 million at September 30, 2014, and December 31, 2013, respectively. See note 2 for additional information on the mining asset impairment of $23.2 million recorded in the second quarter of 2014.


8. GOODWILL AND INTANGIBLE ASSETS

Changes in goodwill consisted of the following (amounts in thousands):
 
2014
 
2013
 
 
 
Earthmoving/
 
 
 
 
 
 
 
Earthmoving/
 
 
 
 
 
Agricultural
 
Construction
 
Consumer
 
 
 
Agricultural
 
Construction
 
Consumer
 
 
 
Segment
 
Segment
 
Segment
 
Total
 
Segment
 
Segment
 
Segment
 
Total
Goodwill, January 1
$
24,540

 
$
14,898

 
$
2,637

 
$
42,075

 
$
11,522

 
$
13,419

 
$
—

 
$
24,941

Foreign currency translation
(2,777
)
 
(770
)
 
(446
)
 
(3,993
)
 
(993
)
 
(1,605
)
 
—

 
(2,598
)
Goodwill, September 30
$
21,763

 
$
14,128

 
$
2,191

 
$
38,082

 
$
10,529

 
$
11,814

 
$
—

 
$
22,343

 
The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. In the second quarter of 2014, several large mining equipment manufacturers significantly decreased their sales forecast for mining equipment. The Company's sales of mining product were deteriorating at an accelerated pace. Therefore, related to the earthmoving/construction segment, the Company reviewed $12.2 million of Australia goodwill for impairment in the second quarter of 2014. The recoverability of the goodwill was evaluated by estimating future discounted cash flows. In determining the estimated future cash flows, the Company considered current and projected future levels of income as well as business trends and economic conditions. Impairment was not identified. However, the calculated excess value was less than 10% and there may be potential risk of future impairment if cash flows or other estimates change. No additional indicators of impairment were identified in the third quarter of 2014.


9


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

The components of intangible assets consisted of the following (amounts in thousands):
 
Weighted- Average Useful Lives (in Years)
 
September 30,
2014
 
December 31, 2013
Amortizable intangible assets:
 
 
 
 
 
     Customer relationships
12.8
 
15,983

 
16,659

     Patents, trademarks and other
6.1
 
17,559

 
20,561

          Total at cost
 
 
33,542

 
37,220

     Less accumulated amortization
 
 
(6,991
)
 
(4,607
)
 
 
 
26,551

 
32,613

 
Amortization related to intangible assets for the nine months ended September 30, 2014 and 2013, totaled $3.3 million and $1.7 million, respectively. Intangible assets are included as a component of other assets in the consolidated condensed balance sheet.

The estimated aggregate amortization expense at September 30, 2014, is as follows (amounts in thousands):
October 1 - December 31, 2014
$
1,105

2015
3,761

2016
2,968

2017
2,813

2018
2,813

Thereafter
13,091

 
$
26,551



9. WARRANTY

Changes in the warranty liability consisted of the following (amounts in thousands):
 
2014
 
2013
Warranty liability, January 1
$
33,134

 
$
27,482

Provision for warranty liabilities
13,398

 
35,134

Warranty payments made
(15,499
)
 
(28,049
)
Warranty liability, September 30
$
31,033

 
$
34,567


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.



10


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

10. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
 
Long-term debt consisted of the following (amounts in thousands):
 
September 30,
2014
 
December 31,
2013
6.875% senior secured notes due 2020
$
400,000

 
$
400,000

5.625% convertible senior subordinated notes due 2017
60,161

 
60,161

Titan Europe credit facilities
36,093

 
41,687

Other debt
26,777

 
67,541

Capital leases
3,013

 
3,366

 
526,044

 
572,755

Less amounts due within one year
24,768

 
75,061

 
$
501,276

 
$
497,694

 
Aggregate maturities of long-term debt at September 30, 2014, were as follows (amounts in thousands):
October 1 - December 31, 2014
$
24,304

2015
14,188

2016
23,754

2017
61,048

2018
639

Thereafter
402,111

 
$
526,044

 
6.875% senior secured notes due 2020
The Company’s 6.875% senior secured notes (senior secured notes due 2020) 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. The Company's senior secured notes due 2020 outstanding balance was $400.0 million at September 30, 2014.

5.625% convertible senior subordinated notes due 2017
The Company’s 5.625% convertible senior subordinated notes (convertible notes) are due January 2017.   The initial base conversion rate for the convertible notes is 93.0016 shares of Titan common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan common stock.  If the price of Titan common stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan common stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture.  The base conversion rate will be subject to adjustment in certain events.  The Company’s convertible notes balance was $60.2 million at September 30, 2014.

Titan Europe credit facilities
The Titan Europe credit facilities contain borrowings from various institutions totaling $36.1 million at September 30, 2014. Maturity dates on this debt range from less than one year to ten years and interest rates range from 5% to 6.9%. The European facilities are secured by the assets of select European subsidiaries.

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.  During the first nine months of 2014 and at September 30, 2014, there were no borrowings under the credit facility.


11


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

Other debt
Brazil Other Debt
Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling $18.8 million at September 30, 2014.

Titan Europe Other Debt
Titan Europe has overdraft facilities totaling $8.0 million at September 30, 2014.

Titan Europe Capital Leases
Titan Europe has capital lease obligations totaling $1.6 million at September 30, 2014.

Australia Capital Leases
Titan National Australia Holdings has capital leases totaling $1.4 million at September 30, 2014.


11. LEASE COMMITMENTS

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

At September 30, 2014, future minimum rental commitments under noncancellable operating leases with initial terms of at least one year were as follows (amounts in thousands):
October 1 - December 31, 2014
$
2,627

2015
5,709

2016
5,572

2017
3,557

2018
1,978

Thereafter
2,608

Total future minimum lease payments
$
22,051


At September 30, 2014, the Company had assets held as capital leases with a net book value of $9.8 million included in property, plant and equipment. Total future capital lease obligations relating to these leases are as follows (amounts in thousands):
October 1 - December 31, 2014
$
877

2015
1,074

2016
643

2017
275

2018
78

Thereafter
66

Total future capital lease obligation payments
3,013

Less amount representing interest
(89
)
Present value of future capital lease obligation payments
$
2,924




12


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

12. EMPLOYEE BENEFIT PLANS

The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors four 401(k) retirement savings plans in the U.S. and a number of defined contribution plans at foreign subsidiaries. The Company contributed approximately $3.5 million to the pension plans during the nine months ended September 30, 2014 and expects to contribute approximately $1.8 million to the pension plans during the remainder of 2014.

The components of net periodic pension cost consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Service cost
$
199

 
$
275

 
$
601

 
$
665

Interest cost
1,392

 
1,352

 
4,239

 
4,031

Expected return on assets
(1,502
)
 
(1,381
)
 
(4,505
)
 
(4,143
)
Amortization of unrecognized prior service cost
34

 
34

 
102

 
103

Amortization of net unrecognized loss
759

 
1,314

 
2,275

 
3,942

      Net periodic pension cost
$
882

 
$
1,594

 
$
2,712

 
$
4,598



13. 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 September 30, 2014 and December 31, 2013 (amounts in thousands):
 
September 30,
2014
 
December 31, 2013
Cash and cash equivalents
$
11,009

 
$
17,106

Inventory
20,608

 
33,406

Other current assets
13,167

 
17,000

Goodwill
17,120

 
20,601

Property, plant and equipment, net
53,937

 
76,060

Other noncurrent assets
12,377

 
16,673

   Total assets
128,218

 
180,846

 
 
 
 
Current liabilities
13,199

 
23,816

Noncurrent liabilities
11,058

 
15,818

  Total liabilities
24,257

 
39,634


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


14. ROYALTY EXPENSE

The Company has a trademark license agreement with Goodyear to manufacture and sell certain tires in North America and Latin America under the Goodyear name.  The North American and Latin American farm tire royalties were prepaid for seven years as part of the 2011 Goodyear Latin American farm tire acquisition. In May 2012, the Company and Goodyear entered into an agreement under which Titan will sell certain non-farm tire products directly to third party customers and pay a royalty to Goodyear. Royalty expenses recorded were $3.7 million and $3.9 million for the quarters ended September 30, 2014 and 2013, respectively. Royalty expenses were $11.2 million and $11.0 million for the nine months ended September 30, 2014 and 2013, respectively.


15. OTHER INCOME (EXPENSE)

Other income (expense) consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Wheels India Limited equity income
$
1,163

 
$
826

 
$
2,113

 
$
1,101

Discount amortization on prepaid royalty
699

 
780

 
2,229

 
2,483

Other income
404

 
677

 
1,654

 
2,008

Building rental income
229

 
167

 
660

 
571

Interest income
96

 
594

 
736

 
2,525

Currency exchange gain (loss)
(13,270
)
 
5,678

 
(11,220
)
 
(976
)
 
$
(10,679
)
 
$
8,722

 
$
(3,828
)
 
$
7,712



14


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


16. EARTHQUAKE INSURANCE RECOVERY AND GOVERNMENT GRANT

Gain on earthquake insurance recovery consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Gain on earthquake insurance recovery
$
—

 
$
—

 
$
—

 
$
22,451


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

In August of 2014, the Company received an $11.3 million capital grant from the Italian government for asset damages related to the earthquake. The grant was recorded as a deferred income in noncurrent liabilities which will be amortized over the life of the reconstructed building.


17. INCOME TAXES

The Company recorded income tax benefit of $(5.1) million and $(15.6) million for the three and nine months ended September 30, 2014, respectively, as compared to income tax expense of $5.7 million and $38.9 million for the three and nine months ended September 30, 2013. The Company's effective income tax rate was 25% and 44% for the nine months ended September 30, 2014 and 2013, respectively.

The Company's 2014 income tax benefit 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 state income tax expense, unrecognized tax benefits, foreign earnings, and the tax benefit related to the incremental deduction for a prior year bond repurchase premium.

The Company's 2013 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of a change in Italian law making the insurance proceeds from the earthquake non-taxable. In addition, as a result of the reassessment of the realizability of the deferred tax assets due to the Italian law change, a valuation allowance was established on the Italy net deferred tax assets. Other items contributing to the rate difference are state income tax expense, expense for unrecognized tax benefits, foreign earnings, domestic production activities deduction, and tax deductible expenses related to the convertible bond repurchase.



15


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

18. EARNINGS PER SHARE

Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
 
Three months ended
 
September 30, 2014
 
September 30, 2013
 
Titan Net loss
 
Weighted-
average shares
 
Per share
 amount
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
Basic earnings per share
$
(9,067
)
 
53,497

 
$
(0.17
)
 
$
8,093

 
53,440

 
$
0.15

   Effect of stock options/trusts
—

 
—

 
 

 
—

 
207

 
 

   Effect of convertible notes
—

 
—

 
 
 
610

 
5,744

 
 
Diluted earnings per share
$
(9,067
)
 
53,497

 
$
(0.17
)
 
$
8,703

 
59,391

 
$
0.15


 
 
 
 
 
 
 
 
 
 
 
 
 
Nine months ended
 
September 30, 2014
 
September 30, 2013
 
Titan Net loss
 
Weighted-
average shares
 
Per share
 amount
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
Basic earnings per share
$
(27,415
)
 
53,484

 
$
(0.51
)
 
$
50,785

 
52,900

 
$
0.96

   Effect of stock options/trusts
—

 
—

 
 

 
—

 
265

 
 

   Effect of convertible notes
—

 
—

 
 
 
1,991

 
6,279

 
 
Diluted earnings per share
$
(27,415
)
 
53,484

 
$
(0.51
)
 
$
52,776

 
59,444

 
$
0.89


The effect of stock options/trusts has been excluded for the three and nine months ended September 30, 2014, as the effect would have been antidilutive. The weighted average share amount excluded was 0.2 million and 0.3 million shares for the three and nine months ended September 30, 2014, respectively.

The effect of convertible notes has been excluded for the three months and nine months ended September 30, 2014, as the effect would have been antidilutive. The weighted average share amount excluded was 5.6 million shares.


19. 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)

20. SEGMENT INFORMATION

The table below presents information about certain operating results of segments as reviewed by the chief executive officer of the Company for the three and nine months ended September 30, 2014 and 2013 (amounts in thousands):

Three months ended
 
Nine months ended

September 30,
 
September 30,
 
2014
 
2013
 
2014
 
2013
Revenues from external customers
 
 
 
 

 

Agricultural
$
227,650

 
$
273,301

 
$
830,090

 
$
907,797

Earthmoving/construction
154,057

 
168,964

 
470,958

 
586,806

Consumer
67,872

 
55,245

 
211,202

 
174,585

 
$
449,579

 
$
497,510

 
$
1,512,250

 
$
1,669,188

Gross profit
 

 
 

 
 
 
 
Agricultural
$
30,242

 
$
48,346

 
$
120,024

 
$
158,566

Earthmoving/construction
11,169

 
11,283

 
(8,288
)
 
75,598

Consumer
4,686

 
3,363

 
12,882

 
13,841

Unallocated corporate
(798
)
 
(486
)
 
(2,209
)
 
(2,093
)
 
$
45,299

 
$
62,506

 
$
122,409

 
$
245,912

Income (loss) from operations
 

 
 

 
 
 
 
Agricultural
$
18,144

 
$
37,762

 
$
76,763

 
$
125,063

Earthmoving/construction
(2,984
)
 
(1,833
)
 
(52,313
)
 
27,365

Consumer
(950
)
 
55

 
(4,324
)
 
4,224

Unallocated corporate
(16,724
)
 
(18,929
)
 
(51,843
)
 
(54,808
)
      Income (loss) from operations
(2,514
)
 
17,055

 
(31,717
)
 
101,844

 
 
 
 
 
 
 
 
Interest expense
(8,951
)
 
(12,414
)
 
(27,136
)
 
(35,924
)
Convertible debt conversion charge
—

 
—

 
—

 
(7,273
)
Gain on earthquake insurance recovery
—

 
—

 
—

 
22,451

Other income (expense), net
(10,679
)
 
8,722

 
(3,828
)
 
7,712

      Income (loss) before income taxes
$
(22,144
)
 
$
13,363

 
$
(62,681
)
 
$
88,810


Assets by segment were as follows (amounts in thousands):
 
September 30,
2014
 
December 31,
2013
Total assets
 

 
 

Agricultural
$
599,000

 
$
725,032

Earthmoving/construction
668,611

 
749,564

Consumer
225,533

 
172,320

Unallocated corporate
179,808

 
174,315

 
$
1,672,952

 
$
1,821,231

 

17


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


21. 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):
 
September 30, 2014
 
December 31, 2013
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Contractual obligation investments
$
9,567


$
9,567


$
—


$
—

 
$
8,723

 
$
8,723

 
$
—

 
$
—

Preferred stock
250

 
—

 
—

 
250

 
250

 
—

 
—

 
250

Derivative financial instruments liability
(60
)
 
—

 
(60
)
 
—

 
(126
)
 
—

 
(126
)
 
—

Total
$
9,757

 
$
9,567

 
$
(60
)
 
$
250

 
$
8,847

 
$
8,723

 
$
(126
)
 
$
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, 2013
$
250

  Total realized and unrealized gains and losses
—

Balance as of September 30, 2014
$
250



Fair value, nonrecurring, Level 2 measurements from impairments consisted of the following (amounts in thousands):
 
Fair Value
 
Impairment Charges
 
September 30,
 
December 31,
 
Nine months ended
 
2014
 
2013
 
2014
 
2013
Property, plant and equipment
$
—

 
$
—

 
$
23,242

 
$
—


The fair value measurements and impairment charges shown above pertain to assets used to produce giant mining tires for the mining industry. See note 2 for additional information.



18


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

22. 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; Green Carbon, INC; and OTR Wheel Engineering.  Sales of Titan products to these companies were approximately $0.7 million and $2.1 million for the three and nine months ended September 30, 2014, respectively, as compared to $0.9 million and $2.2 million for the three and nine months ended September 30, 2013. Titan had trade receivables due from these companies of approximately $0.3 million at September 30, 2014, and approximately $0.2 million at December 31, 2013.  On other sales referred to Titan from the above manufacturing representative companies, commissions were approximately $0.6 million and $1.9 million for the three and nine months ended September 30, 2014, respectively, as compared to $0.6 million and $1.9 million for the three and nine months ended September 30, 2013. Titan had purchases from these companies of approximately $2.8 million and $7.6 million for the three and nine months ended September 30, 2014, respectively, as compared to $0.8 million for both of the three and nine months ended September 30, 2013, respectively.

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 had trade payables due to Wheels India of approximately $0.0 million and $0.3 million at September 30, 2014, and December 31, 2013, respectively.


23. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at July 1, 2014
$
(32,229
)
 
$
(20,185
)
 
$
(52,414
)
Other comprehensive income (loss) before
 
 
 
 
 
reclassifications
(31,122
)
 
—

 
(31,122
)
Reclassification adjustments:
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
  service cost, net of tax of $(123)
—

 
42

 
42

Balance at September 30, 2014
$
(63,351
)
 
$
(20,143
)
 
$
(83,494
)
 
 
 
 
 
 
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2014
$
(40,864
)
 
$
(20,930
)
 
$
(61,794
)
Other comprehensive income (loss) before
 
 
 
 
 
reclassifications
(22,487
)
 
—

 
(22,487
)
Reclassification adjustments:
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
  service cost, net of tax of $(506)
—

 
787

 
787

Balance at September 30, 2014
$
(63,351
)
 
$
(20,143
)
 
$
(83,494
)


19


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


24. SUBSEQUENT EVENTS

In October of 2014, Titan Italia Spa, a subsidiary of Titan, announced plans to close a facility in Crespellano, Italy. The production at this facility will be consolidated into another Titan Italia Spa location in Finale Emilia, Italy. The consolidation of production is expected to begin in 2015 and be completed within three and a half years.


25. 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. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended September 30, 2014
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
204,222

 
$
245,357

 
$
—

 
$
449,579

Cost of sales
206

 
180,643

 
223,431

 
—

 
404,280

Gross profit (loss)
(206
)
 
23,579

 
21,926

 
—

 
45,299

Selling, general and administrative expenses
2,032

 
15,364

 
23,880

 
—

 
41,276

Research and development expenses
—

 
1,024

 
1,838

 
—

 
2,862

Royalty expense
—

 
1,924

 
1,751

 
—

 
3,675

Income (loss) from operations
(2,238
)
 
5,267

 
(5,543
)
 
—

 
(2,514
)
Interest expense
(8,128
)
 
—

 
(823
)
 
—

 
(8,951
)
Intercompany interest income (expense)
1,661

 
—

 
(1,661
)
 
—

 
—

Other income (expense)
810

 
1

 
(11,490
)
 
—

 
(10,679
)
Income (loss) before income taxes
(7,895
)
 
5,268

 
(19,517
)
 
—

 
(22,144
)
Provision (benefit) for income taxes
(5,050
)
 
2,115

 
(2,192
)
 
—

 
(5,127
)
Equity in earnings of subsidiaries
(14,172
)
 
—

 
(1,659
)
 
15,831

 
—

Net income (loss)
(17,017
)
 
3,153

 
(18,984
)
 
15,831

 
(17,017
)
Net loss noncontrolling interests
—

 
—

 
(7,950
)
 
—

 
(7,950
)
Net income (loss) attributable to Titan
$
(17,017
)
 
$
3,153

 
$
(11,034
)
 
$
15,831

 
$
(9,067
)
 


20


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

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

 
$
256,252

 
$
241,258

 
$
—

 
$
497,510

Cost of sales
241

 
216,445

 
218,318

 
—

 
435,004

Gross profit (loss)
(241
)
 
39,807

 
22,940

 
—

 
62,506

Selling, general and administrative expenses
3,561

 
16,513

 
18,657

 
—

 
38,731

Research and development expenses
(17
)
 
1,423

 
1,372

 
—

 
2,778

Royalty expense
—

 
1,850

 
2,092

 
—

 
3,942

Income (loss) from operations
(3,785
)
 
20,021

 
819

 
—

 
17,055

Interest expense
(10,945
)
 
—

 
(1,469
)
 
—

 
(12,414
)
Intercompany interest income (expense)
2,469

 
—

 
(2,469
)
 
—

 
—

Other income (expense)
1,182

 
(117
)
 
7,657

 
—

 
8,722

Income (loss) before income taxes
(11,079
)
 
19,904

 
4,538

 
—

 
13,363

Provision (benefit) for income taxes
(4,717
)
 
7,435

 
2,993

 
—

 
5,711

Equity in earnings of subsidiaries
14,014

 
—

 
4,827

 
(18,841
)
 
—

Net income (loss)