TITAN INTERNATIONAL INC - FORM 10-Q - November 2, 2016

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EX-32 - EXHIBIT 32 - TITAN INTERNATIONAL INCtwi09302016ex32.htm
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
logoa07a01a01a01a01a04.jpg
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, 2016
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12936

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

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

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

Indicate the number of shares of Titan International, Inc. outstanding: 54,056,380 shares common stock, $0.0001 par value, as of October 19, 2016.



TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
 
 
Three months ended

Nine months ended
 
September 30,

September 30,
 
2016

2015

2016

2015
 
 
 
 
 
 
 
 
Net sales
$
306,195

 
$
308,836

 
$
958,203

 
$
1,086,962

Cost of sales
273,219

 
282,683

 
848,264

 
966,962

Gross profit
32,976

 
26,153

 
109,939

 
120,000

Selling, general and administrative expenses
36,348

 
35,512

 
107,712

 
109,034

Research and development expenses
2,597

 
2,982

 
7,790

 
8,847

Royalty expense
2,285

 
2,121

 
6,688

 
8,241

Loss from operations
(8,254
)
 
(14,462
)
 
(12,251
)
 
(6,122
)
Interest expense
(8,714
)
 
(8,289
)
 
(25,208
)
 
(25,687
)
Foreign exchange gain (loss)
398

 
(15,333
)
 
7,403

 
(5,720
)
Other income
3,578

 
755

 
10,532

 
6,331

Loss before income taxes
(12,992
)
 
(37,329
)
 
(19,524
)
 
(31,198
)
Provision (benefit) for income taxes
(2,074
)
 
283

 
2,578

 
3,194

Net loss
(10,918
)
 
(37,612
)
 
(22,102
)
 
(34,392
)
Net loss attributable to noncontrolling interests
(966
)
 
(6,136
)
 
(1,099
)
 
(9,919
)
Net loss attributable to Titan
(9,952
)
 
(31,476
)
 
(21,003
)
 
(24,473
)
   Redemption value adjustment
(1,367
)
 
(11,051
)
 
(8,475
)
 
(11,401
)
Net loss applicable to common shareholders
$
(11,319
)
 
$
(42,527
)
 
$
(29,478
)
 
$
(35,874
)
 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic
$
(0.21
)
 
$
(0.79
)
 
$
(0.55
)
 
$
(0.67
)
Diluted
$
(0.21
)
 
$
(0.79
)
 
$
(0.55
)
 
$
(0.67
)
Average common shares and equivalents outstanding:
 
 
 

 
 
 
 

Basic
53,946

 
53,707

 
53,895

 
53,685

Diluted
53,946

 
53,707

 
53,895

 
53,685

 
 
 
 
 
 
 
 
Dividends declared per common share:
$
0.005

 
$
0.005

 
$
0.015

 
$
0.015

 
 








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,
 
2016
 
2015
Net loss
$
(10,918
)
 
$
(37,612
)
Currency translation adjustment
(386
)
 
(28,444
)
Pension liability adjustments, net of tax of $(126) and $(291), respectively
465

 
472

Comprehensive loss
(10,839
)
 
(65,584
)
Net comprehensive loss attributable to redeemable and noncontrolling interests
(679
)
 
(8,233
)
Comprehensive loss attributable to Titan
$
(10,160
)
 
$
(57,351
)


 
Nine months ended
 
September 30,
 
2016
 
2015
Net loss
$
(22,102
)
 
$
(34,392
)
Currency translation adjustment
21,545

 
(69,394
)
Pension liability adjustments, net of tax of $(430) and $(645), respectively
1,200

 
1,969

Comprehensive income (loss)
643

 
(101,817
)
Net comprehensive income (loss) attributable to redeemable and noncontrolling interests
5,427

 
(13,150
)
Comprehensive loss attributable to Titan
$
(4,784
)
 
$
(88,667
)


























See accompanying Notes to Consolidated Financial Statements.

2


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

 
September 30,
 
December 31,
 
2016
 
2015
 
(unaudited)
 
 
Assets
 
 
 
Current assets
 
 
 
Cash and cash equivalents
$
215,509

 
$
200,188

  Accounts receivable, net
184,352

 
177,389

Inventories
278,083

 
269,791

Prepaid and other current assets
76,972

 
62,633

Total current assets
754,916

 
710,001

Property, plant and equipment, net
447,082

 
450,020

Deferred income taxes
7,424

 
5,967

Other assets
98,634

 
104,242

Total assets
$
1,308,056

 
$
1,270,230

 
 
 
 
Liabilities
 

 
 

Current liabilities
 

 
 

Short-term debt
$
91,030

 
$
31,222

Accounts payable
152,387

 
123,154

Other current liabilities
130,238

 
115,721

Total current liabilities
373,655

 
270,097

Long-term debt
410,089

 
475,443

Deferred income taxes
16,627

 
14,509

Other long-term liabilities
84,409

 
88,324

Total liabilities
884,780

 
848,373

 
 
 
 
Redeemable noncontrolling interest
102,793

 
77,174

 
 
 
 
Equity
 

 
 

Titan shareholders' equity


 


  Common stock ($0.0001 par value, 120,000,000 shares authorized, 55,253,092 issued, 54,046,512 outstanding)
—

 
—

Additional paid-in capital
480,377

 
497,008

Retained earnings
27,524

 
49,297

Treasury stock (at cost, 1,206,580 and 1,339,583 shares, respectively)
(11,226
)
 
(12,420
)
Treasury stock reserved for deferred compensation
(1,075
)
 
(1,075
)
Accumulated other comprehensive loss
(171,532
)
 
(187,751
)
Total Titan shareholders’ equity
324,068

 
345,059

Noncontrolling interests
(3,585
)
 
(376
)
Total equity
320,483

 
344,683

Total liabilities and equity
$
1,308,056

 
$
1,270,230

 


See accompanying Notes to Consolidated Financial Statements.

3


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


 
 Number of
common shares
 
Additional
paid-in
capital
 
Retained earnings
 
Treasury stock
 
Treasury stock
 reserved for
deferred compensation
 
Accumulated other comprehensive income (loss)
 
Total Titan Equity
 
 Noncontrolling interest
 
Total Equity
Balance January 1, 2016
53,913,509

 
$
497,008

 
$
49,297

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

 
$
(376
)
 
$
344,683

Net loss *


 


 
(21,003
)
 


 


 


 
(21,003
)
 
(2,874
)
 
(23,877
)
Currency translation adjustment, net *
 
 
 
 
 
 
 
 
 
 
18,510

 
18,510

 
(295
)
 
18,215

Pension liability adjustments, net of tax


 


 


 


 


 
1,200

 
1,200

 
 
 
1,200

Dividends declared


 


 
(810
)
 


 


 


 
(810
)
 
 
 
(810
)
Restricted stock awards
49,380

 
(444
)
 
 
 
444

 
 
 
 
 
—

 
 
 
—

Acquisition of additional interest


 
(8,548
)
 
40

 


 


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


 
(8,475
)
 
 
 


 
 
 
 
 
(8,475
)
 
 
 
(8,475
)
Stock-based compensation


 
1,164

 


 


 


 


 
1,164

 
 
 
1,164

Issuance of treasury stock under 401(k) plan
83,623

 
(328
)
 


 
750

 


 


 
422

 
 
 
422

Balance September 30, 2016
54,046,512

 
$
480,377

 
$
27,524

 
$
(11,226
)
 
$
(1,075
)
 
$
(171,532
)
 
$
324,068

 
$
(3,585
)
 
$
320,483

 
* Net loss excludes $1,775 of net gain attributable to redeemable noncontrolling interest. Currency translation adjustment excludes $3,330 of currency translation related to redeemable noncontrolling interest.

















See accompanying Notes to Consolidated Financial Statements.

4


TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
 
Nine months ended
September 30,
Cash flows from operating activities:
2016
 
2015
Net loss
$
(22,102
)
 
$
(34,392
)
Adjustments to reconcile net loss to net cash
provided by operating activities:
 

 
 

Depreciation and amortization
44,889

 
52,981

Deferred income tax provision
172

 
(8,578
)
Stock-based compensation
1,164

 
1,754

Excess tax benefit from stock-based compensation
—

 
758

Issuance of treasury stock under 401(k) plan
422

 
455

Foreign currency translation loss
9,822

 
18,742

(Increase) decrease in assets:
 

 
 

Accounts receivable
2,788

 
(8,531
)
Inventories
1,801

 
13,486

Prepaid and other current assets
(12,314
)
 
4,397

Other assets
25

 
1,340

Increase (decrease) in liabilities:
 

 
 

Accounts payable
21,344

 
4,646

Other current liabilities
11,315

 
(750
)
Other liabilities
(5,342
)
 
(15,772
)
Net cash provided by operating activities
53,984

 
30,536

Cash flows from investing activities:
 

 
 

Capital expenditures
(30,846
)
 
(35,213
)
Other
1,687

 
4,317

Net cash used for investing activities
(29,159
)
 
(30,896
)
Cash flows from financing activities:
 

 
 

Proceeds from borrowings
2,390

 
14,566

Payment on debt
(14,042
)
 
(11,382
)
Proceeds from exercise of stock options
—

 
144

Excess tax benefit from stock-based compensation
—

 
(758
)
Dividends paid
(810
)
 
(807
)
Net cash provided by (used for) financing activities
(12,462
)
 
1,763

Effect of exchange rate changes on cash
2,958

 
(9,042
)
Net increase (decrease) in cash and cash equivalents
15,321

 
(7,639
)
Cash and cash equivalents, beginning of period
200,188

 
201,451

Cash and cash equivalents, end of period
$
215,509

 
$
193,812

 
 
 
 
Supplemental information:
 
 
 
Interest paid
$
19,827

 
$
19,521

Income taxes paid, net of refunds received
$
4,316

 
$
395















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

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company's 2015 Annual Report on Form 10-K. These interim financial statements have been prepared pursuant to the Securities and Exchange Commission's rules for Form 10-Q's and, therefore, certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2015 Annual Report on Form 10-K.

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

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, and other accruals at cost, which approximates fair value due to their short term or stated rates.  Investments in marketable equity securities are recorded at fair value.  The 6.875% senior secured notes due 2020 (senior secured notes) and 5.625% convertible senior subordinated notes due 2017 (convertible notes) are carried at cost of $395.6 million and $60.1 million at September 30, 2016, respectively. The fair value of the senior secured notes at September 30, 2016, as obtained through an independent pricing source, was approximately $380.0 million.

Cash dividends
The Company declared cash dividends of $0.005 and $0.015 per share of common stock for each of the three and nine months ended September 30, 2016 and 2015. The third quarter 2016 cash dividend of $0.005 per share of common stock was paid October 14, 2016, to shareholders of record on September 30, 2016.

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

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






6


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

In April 2015, the FASB issued ASU No. 2015-03, "Simplifying the Presentation of Debt Issuance Costs." This update amends existing guidance to require that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The amendments in this update were effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. As a result of adopting this update, $5 million of debt issuance cost was reclassified from other long-term assets to long-term debt as of December 31, 2015.

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

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

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

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

In August 2016, the FASB issued ASU No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments." This update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this update are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted in any interim or annual period. The adoption of this guidance is not expected to have a material effect on the Company's consolidated financial statements.

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



7


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

2. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (amounts in thousands):
 
September 30,
2016
 
December 31,
2015
Accounts receivable
$
188,369

 
$
181,916

Allowance for doubtful accounts
(4,017
)
 
(4,527
)
Accounts receivable, net
$
184,352

 
$
177,389

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


3. INVENTORIES
 
Inventories consisted of the following (amounts in thousands):
 
September 30,
2016
 
December 31,
2015
Raw material
$
78,046

 
$
85,490

Work-in-process
33,174

 
31,866

Finished goods
170,422

 
158,997

 
281,642

 
276,353

Adjustment to LIFO
(3,559
)
 
(6,562
)
 
$
278,083

 
$
269,791

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


4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (amounts in thousands):
 
September 30,
2016
 
December 31,
2015
Land and improvements
$
46,103

 
$
46,776

Buildings and improvements
238,236

 
241,666

Machinery and equipment
572,959

 
540,549

Tools, dies and molds
107,328

 
102,723

Construction-in-process
42,306

 
36,500

 
1,006,932

 
968,214

Less accumulated depreciation
(559,850
)
 
(518,194
)
 
$
447,082

 
$
450,020

 
Depreciation on fixed assets for the nine months ended September 30, 2016 and 2015, totaled $42.1 million and $49.3 million, respectively.
 
Included in the total building and improvements are capital leases of $3.8 million and $3.7 million at September 30, 2016, and December 31, 2015, respectively. Included in the total of machinery and equipment are capital leases of $33.6 million and $33.0 million at September 30, 2016, and December 31, 2015, respectively.

8


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

5. INTANGIBLE ASSETS

The components of intangible assets consisted of the following (amounts in thousands):
 
Weighted Average Useful Lives (in Years)
 
September 30,
2016
 
December 31,
2015
Amortizable intangible assets:
 
 
 
 
 
     Customer relationships
10.9
 
$
14,019

 
$
13,413

     Patents, trademarks and other
8.5
 
14,531

 
13,237

          Total at cost
 
 
28,550

 
26,650

     Less accumulated amortization
 
 
(11,199
)
 
(8,852
)
 
 
 
$
17,351

 
$
17,798

   
Amortization related to intangible assets for the nine months ended September 30, 2016 and 2015, totaled $2.1 million and $2.5 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, 2016, is as follows (amounts in thousands):
October 1 - December 31, 2016
$
974

2017
2,170

2018
2,170

2019
2,170

2020
2,170

Thereafter
7,697

 
$
17,351



6. WARRANTY

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

 
$
28,144

Provision for warranty liabilities
4,950

 
7,230

Warranty payments made
(8,882
)
 
(9,797
)
Warranty liability, September 30
$
19,188

 
$
25,577


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 Sheet.




9


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

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

 
$
(4,390
)
 
$
395,610

5.625% convertible senior subordinated notes due 2017
60,161

 
(90
)
 
60,071

Titan Europe credit facilities
36,604

 
—

 
36,604

Other debt
7,644

 
—

 
7,644

Capital leases
1,190

 
—

 
1,190

     Total debt
505,599

 
(4,480
)
 
501,119

Less amounts due within one year
91,120

 
(90
)
 
91,030

     Total long-term debt
$
414,479

 
$
(4,390
)
 
$
410,089

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

 
$
(4,640
)
 
$
395,360

5.625% convertible senior subordinated notes due 2017
60,161

 
(321
)
 
59,840

Titan Europe credit facilities
38,059

 
—

 
38,059

Other debt
11,531

 
—

 
11,531

Capital leases
1,875

 
—

 
1,875

     Total debt
511,626

 
(4,961
)
 
506,665

Less amounts due within one year
31,222

 
—

 
31,222

     Total long-term debt
$
480,404

 
$
(4,961
)
 
$
475,443



Aggregate maturities of long-term debt at September 30, 2016, were as follows (amounts in thousands):
October 1 - December 31, 2016
$
30,359

2017
66,278

2018
5,148

2019
1,632

2020
402,105

Thereafter
77

 
$
505,599

 
6.875% senior secured notes due 2020
The Company’s 6.875% senior secured notes (senior secured notes) are due October 2020. These notes are secured by the land and buildings of the following subsidiaries of the Company:  Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois.


10


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

5.625% convertible senior subordinated notes due 2017
The Company’s 5.625% convertible senior subordinated notes (convertible notes) are due January 2017.  The initial base conversion rate for the convertible notes is 93.0016 shares of Titan common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan common stock.  If the price of Titan common stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan common stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture.  The base conversion rate will be subject to adjustment in certain events.  See the indenture incorporated by reference to the Company's most recent Form 10-K for additional information.

Titan Europe credit facilities
The Titan Europe credit facilities contain borrowings from various institutions totaling $36.6 million at September 30, 2016. Maturity dates on this debt range from less than one year to nine years and interest rates range from 5% to 6.9%. The Titan Europe facilities are secured by the assets of its subsidiaries in Italy, Spain, Germany and Brazil.

Revolving credit facility
The Company’s $150 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a December 2017 termination date and is collateralized by the accounts receivable and inventory of certain Titan domestic subsidiaries.  Titan's availability under this domestic facility may be less than $150 million as a result of eligible accounts receivable and inventory balances at certain of its domestic subsidiaries. At September 30, 2016, an outstanding letter of credit totaled $11.6 million and the amount available under the facility totaled $43.4 million based upon eligible accounts receivable and inventory balances. During the first nine months of 2016 and at September 30, 2016, there were no borrowings under the credit facility.

Other debt
Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling $7.6 million at September 30, 2016. Maturity dates on this debt range from less than one year to two years and interest rates range from 5.5% to 8%.


8. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses financial derivatives to mitigate its exposure to volatility in foreign currency exchange rates. These derivative financial instruments are recognized at fair value. The Company has not designated these financial instruments as hedging instruments. Any gain or loss on the re-measurement of the fair value is recorded as an offset to currency exchange gain/loss. For the three months ended September 30, 2016, the Company recorded currency exchange gain of $0.1 million related to these derivatives. For the nine months ended September 30, 2016, the Company recorded currency exchange gain of $0.7 million related to these derivatives.


9. REDEEMABLE NONCONTROLLING INTEREST

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

11


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

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

 
$
71,192

   Reclassification as a result of ownership change
12,039

 
—

   Income attributable to redeemable noncontrolling interest
1,775

 
(3,690
)
   Currency translation
3,330

 
(3,288
)
   Redemption value adjustment
8,475

 
11,401

Balance at September 30
$
102,793

 
$
75,615


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


10. LEASE COMMITMENTS

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

At September 30, 2016, 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, 2016
$
1,656

2017
3,536

2018
2,042

2019
1,349

2020
954

Thereafter
955

Total future minimum lease payments
$
10,492



12


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

At September 30, 2016, the Company had assets held as capital leases with a net book value of $7.5 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, 2016
$
722

2017
260

2018
159

2019
43

2020
6

Thereafter
—

Total future capital lease obligation payments
1,190

Less amount representing interest
(24
)
Present value of future capital lease obligation payments
$
1,166



11. EMPLOYEE BENEFIT PLANS
 
The Company has three frozen defined benefit pension plans covering certain employees or former employees of three U.S. subsidiaries. The Company also has pension plans covering certain employees of several foreign subsidiaries. The Company also sponsors a number of defined contribution plans in the U.S. and at foreign subsidiaries. The Company contributed approximately $2.9 million to the pension plans during the nine months ended September 30, 2016, and expects to contribute approximately $0.8 million to the pension plans during the remainder of 2016.
 
The components of net periodic pension cost consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Service cost
$
74

 
$
83

 
$
386

 
$
326

Interest cost
1,230

 
1,167

 
3,700

 
3,601

Expected return on assets
(1,396
)
 
(1,512
)
 
(4,184
)
 
(4,549
)
Amortization of unrecognized prior service cost
35

 
34

 
103

 
103

Amortization of net unrecognized loss
762

 
729

 
2,289

 
2,187

      Net periodic pension cost
$
705

 
$
501

 
$
2,294

 
$
1,668



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

13


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

The following table summarizes the carrying amount of the entities’ assets and liabilities included in the Company’s Consolidated Condensed Balance Sheets at September 30, 2016 and December 31, 2015 (amounts in thousands):
 
September 30,
2016
 
December 31, 2015
Cash and cash equivalents
$
12,805

 
$
9,245

Inventory
9,300

 
7,993

Other current assets
12,093

 
13,763

Property, plant and equipment, net
29,813

 
25,181

Other noncurrent assets
5,113

 
5,179

   Total assets
$
69,124

 
$
61,361

 
 
 
 
Current liabilities
$
14,411

 
$
12,850

Noncurrent liabilities
4,738

 
2,865

  Total liabilities
$
19,149

 
$
15,715

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


13. ROYALTY EXPENSE

The Company has trademark license agreements with Goodyear to manufacture and sell certain farm tires under the Goodyear name. These agreements cover sales in North America, Latin America, Europe, the Middle East, Africa, Russia and other Commonwealth of Independent States countries. The North American and Latin American farm tire royalties were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition. The Company also has a trademark license agreement with Goodyear to manufacture and sell certain non-farm tire products in Latin America. Royalty expenses recorded were $2.3 million and $2.1 million for the quarters ended September 30, 2016 and 2015, respectively. Royalty expenses were $6.7 million and $8.2 million for the nine months ended September 30, 2016 and 2015, respectively.


14. OTHER INCOME

Other income consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Wheels India Limited equity income
$
800

 
$
515

 
$
2,449

 
$
1,375

Gain on sale of assets
—

 
255

 
2,342

 
312

Interest income
929

 
452

 
2,182

 
2,016

Building rental income
557

 
253

 
1,528

 
751

Discount amortization on prepaid royalty
389

 
458

 
1,168

 
1,541

Investment gain (loss) related to contractual obligation investments
560

 
(973
)
 
52

 
(639
)
Other income (expense)
343

 
(205
)
 
811

 
975

 
$
3,578

 
$
755

 
$
10,532

 
$
6,331




14


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

15. INCOME TAXES

The Company recorded income tax benefit of $(2.1) million and expense of $0.3 million for the quarters ended September 30, 2016 and 2015, respectively. For the nine months ended September 30, 2016 and 2015, the Company recorded income tax expense of $2.6 million and $3.2 million. The Company's effective income tax rate was 16% and (1)% for the quarters ended September 30, 2016 and 2015, and (13%) and (10)% for the nine months ended September 30, 2016 and 2015, respectively.

The Company’s 2016 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of U.S. and certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses. In addition, the Company adjusted its net uncertain tax positions which resulted in a tax benefit of $2.5 million.

The Company's 2015 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of certain foreign jurisdictions that incurred a full valuation allowance on deferred tax assets created by current year projected losses and foreign income taxed in the U.S. offset by net discrete benefits related to a U.S. check the box election and tax law enactments.

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

The Company is involved in various tax matters, some of which the outcome is uncertain. The IRS issued a final audit report in August 2016 for the tax years 2010 through 2014 and issued a notice of proposed adjustment for $6.5 million. The Company does not agree with certain proposed adjustments and responded by filing a formal protest letter with the IRS Office of Appeals. As a result of this process, the Company adjusted its uncertain tax positions to properly reflect the effectively settled positions and certain IRS proposed items which are being sent to Appeals. The Company believes that it has adequate tax reserves to address these tax matters acknowledging that the outcome and timing of these events are uncertain.



15


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

16. EARNINGS PER SHARE

Earnings per share (EPS) were as follows (amounts in thousands, except per share data):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
 
 
 
 
 
 
 
Net loss attributable to Titan
$
(9,952
)
 
$
(31,476
)
 
$
(21,003
)
 
$
(24,473
)
   Redemption value adjustment
(1,367
)
 
(11,051
)
 
(8,475
)
 
(11,401
)
Net loss applicable to common shareholders
$
(11,319
)
 
$
(42,527
)
 
$
(29,478
)
 
$
(35,874
)
Determination of shares:
 
 
 
 
 
 
 
   Weighted average shares outstanding (basic and diluted)
53,946

 
53,707

 
53,895

 
53,685

Earnings per share:
 
 
 
 
 
 
 
   Basic and diluted
(0.21
)
 
(0.79
)
 
(0.55
)
 
(0.67
)

The effect of stock options/trusts has been excluded for the three and nine months ended September 30, 2016 and 2015, as the effect would have been antidilutive. The weighted average share amount excluded was 0.3 million for the three months ended September 30, 2016 and 0.2 million for the nine months ended September 30, 2016. For the three and nine months ended September 30, 2015 the weighted average share amount excluded was 0.2 million.

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


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



16


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

18. SEGMENT INFORMATION

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

Three months ended
 
Nine months ended

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

 

Agricultural
$
138,568

 
$
140,318

 
$
438,108

 
$
509,197

Earthmoving/construction
128,917

 
125,754

 
401,649

 
437,557

Consumer
38,710

 
42,764

 
118,446

 
140,208

 
$
306,195

 
$
308,836

 
$
958,203

 
$
1,086,962

Gross profit
 

 
 

 
 
 
 
Agricultural
$
16,968

 
$
13,905

 
$
60,296

 
$
65,522

Earthmoving/construction
11,276

 
8,004

 
36,644

 
36,726

Consumer
4,732

 
4,244

 
12,999

 
17,752

 
$
32,976

 
$
26,153

 
$
109,939

 
$
120,000

Income (loss) from operations
 

 
 

 
 
 
 
Agricultural
$
8,267

 
$
5,421

 
$
35,330

 
$
38,435

Earthmoving/construction
530

 
(2,928
)
 
4,350

 
1,778

Consumer
1,289

 
698

 
2,174

 
6,663

Corporate & Unallocated
(18,340
)
 
(17,653
)
 
(54,105
)
 
(52,998
)
      Loss from operations
(8,254
)
 
(14,462
)
 
(12,251
)
 
(6,122
)
 
 
 
 
 
 
 
 
Interest expense
(8,714
)
 
(8,289
)
 
(25,208
)
 
(25,687
)
Foreign exchange gain (loss)
398

 
(15,333
)
 
7,403

 
(5,720
)
Other income, net
3,578

 
755

 
10,532

 
6,331

      Loss before income taxes
$
(12,992
)
 
$
(37,329
)
 
$
(19,524
)
 
$
(31,198
)

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

 
 

Agricultural
$
417,498

 
$
426,498

Earthmoving/construction
464,930

 
432,616

Consumer
144,132

 
137,227

Corporate & Unallocated
281,496

 
273,889

 
$
1,308,056

 
$
1,270,230

 




17


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

19. FAIR VALUE MEASUREMENTS
 
Accounting standards for fair value measurements establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as:
 
Level 1 – Quoted prices in active markets for identical instruments.
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
 
Assets and liabilities measured at fair value on a recurring basis consisted of the following (amounts in thousands):
 
September 30, 2016
 
December 31, 2015
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Contractual obligation investments
$
9,530


$
9,530


$
—


$
—

 
$
9,480

 
$
9,480

 
$
—

 
$
—

Derivative financial instruments asset
767

 
—

 
767

 
—

 
66

 
—

 
66

 
—

Preferred stock
250

 
—

 
—

 
250

 
250

 
—

 
—

 
250

Derivative financial instruments liability
—

 
—

 
—

 
—

 
(8
)
 
—

 
(8
)
 
—

Total
$
10,547

 
$
9,530

 
$
767

 
$
250

 
$
9,788

 
$
9,480

 
$
58

 
$
250

 
The following table presents the changes during the periods presented in Titan's Level 3 investments that are measured at fair value on a recurring basis (amounts in thousands):
 
Preferred stock
Balance at December 31, 2015
$
250

  Total realized and unrealized gains and losses
—

Balance as of September 30, 2016
$
250



20. RELATED PARTY TRANSACTIONS
 
The Company sells products and pays commissions to companies controlled by persons related to the chief executive officer of the Company.  The related party is Mr. Fred Taylor, Mr. Maurice Taylor’s brother.  The companies which Mr. Fred Taylor is associated with that do business with Titan include the following:  Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering.  Sales of Titan products to these companies were approximately $0.2 million and $0.6 million for the three and nine months ended September 30, 2016, respectively, as compared to $0.7 million and $2.6 million for the three and nine months ended September 30, 2015, respectively. Titan had trade receivables due from these companies of approximately $0.1 million at September 30, 2016, and approximately $0.4 million at December 31, 2015.  Titan had purchases from these companies of approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2016, respectively, as compared to $0.0 million and $0.2 million for the three and nine months ended September 30, 2015, respectively. Sales commissions paid to the above companies were approximately $0.4 million and $1.4 million for the three and nine months ended September 30, 2016, respectively, as compared to $0.4 million and $1.5 million for the three and nine months ended September 30, 2015, respectively.
 
Mr. Fred Taylor is also associated with Green Carbon, Inc. Titan owns 60.0% and Green Carbon, Inc. owns 10.0% in Titan Tire Reclamation Corporation, which is located in Alberta Canada. Titan had purchases from Green Carbon, Inc. of $2.5 million for the three and nine months ended September 30, 2015. Titan has made no purchases in 2016.
 

18


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

In July 2013, the Company entered into a Shareholders’ Agreement between One Equity Partners (OEP) and the Russian Direct Investment Fund (RDIF) to acquire Voltyre-Prom, a leading producer of agricultural and industrial tires located in Volgograd, Russia.  Mr. Richard M. Cashin, a director of the Company, is President of OEP, which owns 21.4% of the joint venture.  The Shareholder’s agreement contains a settlement put option which may require the Company to purchase shares from OEP and RDIF at a value set by the agreement.  See Note 9 for additional information.
 
The Company has a 34.2% equity stake in Wheels India Limited, a company incorporated in India and listed on the National Stock Exchange in India. The Company has a 19.5% equity stake in Titan-Yuxiang Wheel (Liuzhou) Co., Ltd, a company incorporated in China. The Company has a 49.0% equity stake in Central Iowa Training and Enrichment Center, LLC, a commercial building located in Boone, IA.


21. ACCUMULATED OTHER COMPREHENSIVE LOSS

Accumulated other comprehensive loss consisted of the following (amounts in thousands):
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at July 1, 2016
$
(145,338
)
 
$
(25,986
)
 
$
(171,324
)
Currency translation adjustments
(673
)
 
—

 
(673
)
Defined benefit pension plan entries:
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
service cost, net of tax of $(126)
—

 
465

 
465

Balance at September 30, 2016
$
(146,011
)
 
$
(25,521
)
 
$
(171,532
)
 
Currency
Translation
Adjustments
 
Unrecognized
Losses and
Prior Service
Cost
 
 
 
Total
Balance at January 1, 2016
$
(161,030
)
 
$
(26,721
)
 
$
(187,751
)
Currency translation adjustments
18,510

 
—

 
18,510

Defined benefit pension plan entries:
 

 
 

 
 

Amortization of unrecognized losses and prior
 
 
 
 
 
  service cost, net of tax of $(430)
—

 
1,200

 
1,200

Reclassification as a result of ownership change
(3,491
)
 
—

 
(3,491
)
Balance at September 30, 2016
$
(146,011
)
 
$
(25,521
)
 
$
(171,532
)


22. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company's 6.875% senior secured notes due 2020 and 5.625% convertible senior subordinated notes are guaranteed by the following 100% owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. See the indenture incorporated by reference to the Company's most recent Form 10-K for additional information. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales and marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.


19


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

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended September 30, 2016
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
114,743

 
$
191,452

 
$
—

 
$
306,195

Cost of sales
87

 
101,517

 
171,615

 
—

 
273,219

Gross profit (loss)
(87
)
 
13,226

 
19,837

 
—

 
32,976

Selling, general and administrative expenses
2,556

 
15,407

 
18,385

 
—

 
36,348

Research and development expenses
—

 
776

 
1,821

 
—

 
2,597

Royalty expense
125

 
1,296

 
864

 
—

 
2,285

Loss from operations
(2,768
)
 
(4,253
)
 
(1,233
)
 
—

 
(8,254
)
Interest expense
(8,288
)
 
—

 
(426
)
 
—

 
(8,714
)
Intercompany interest income (expense)
470

 
—

 
(470
)
 
—

 
—

Foreign exchange gain
—

 
—

 
398

 
—

 
398

Other income
1,256

 
62

 
2,260

 
—

 
3,578

Income (loss) before income taxes
(9,330
)
 
(4,191
)
 
529

 
—

 
(12,992
)
Provision (benefit) for income taxes
(1,935
)
 
(1,448
)
 
1,309

 
—

 
(2,074
)
Equity in earnings of subsidiaries
(3,523
)
 
—

 
(4,037
)
 
7,560

 
—

Net income (loss)
(10,918
)
 
(2,743
)
 
(4,817
)
 
7,560

 
(10,918
)
Net loss noncontrolling interests
—

 
—

 
(966
)
 
—

 
(966
)
Net income (loss) attributable to Titan
$
(10,918
)
 
$
(2,743
)
 
$
(3,851
)
 
$
7,560

 
$
(9,952
)


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

 
$
138,638

 
$
170,198

 
$
—

 
$
308,836

Cost of sales
196

 
123,052

 
159,435

 
—

 
282,683

Gross profit (loss)
(196
)
 
15,586

 
10,763

 
—

 
26,153

Selling, general and administrative expenses
2,118

 
17,490

 
15,904

 
—

 
35,512

Research and development expenses
—

 
854

 
2,128

 
—

 
2,982

Royalty expense
—

 
1,354

 
767

 
—

 
2,121

Loss from operations
(2,314
)
 
(4,112
)
 
(8,036
)
 
—

 
(14,462
)
Interest expense
(8,041
)
 
—

 
(248
)
 
—

 
(8,289
)
Intercompany interest income (expense)
214

 
—

 
(214
)
 
—

 
—

Foreign exchange gain (loss)
182

 
(1
)
 
(15,514
)
 


 
(15,333
)
Other income (expense)
(410
)
 
42

 
1,123

 
—

 
755

Loss before income taxes
(10,369
)
 
(4,071
)
 
(22,889
)
 
—

 
(37,329
)
Provision (benefit) for income taxes
3,429

 
(1,571
)
 
(1,575
)
 
—

 
283

Equity in earnings of subsidiaries
(23,814
)
 
—

 
(4,353
)
 
28,167

 
—

Net income (loss)
(37,612
)
 
(2,500
)
 
(25,667
)
 
28,167

 
(37,612
)
Net loss noncontrolling interests
—

 
—

 
(6,136
)
 
—

 
(6,136
)
Net income (loss) attributable to Titan
$
(37,612
)
 
$
(2,500
)
 
$
(19,531
)
 
$
28,167

 
$
(31,476
)

20


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

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Nine Months Ended September 30, 2016
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
384,917

 
$
573,286

 
$
—

 
$
958,203

Cost of sales
659

 
331,040

 
516,565

 
—

 
848,264

Gross profit (loss)
(659
)
 
53,877

 
56,721

 
—

 
109,939

Selling, general and administrative expenses
7,907

 
47,879

 
51,926

 
—

 
107,712

Research and development expenses
—

 
2,221

 
5,569

 
—

 
7,790

Royalty expense
542

 
3,573

 
2,573

 
—

 
6,688

Income (loss) from operations
(9,108
)
 
204

 
(3,347
)
 
—

 
(12,251
)
Interest expense
(24,382
)
 
—

 
(826
)
 
—

 
(25,208
)
Intercompany interest income (expense)
1,122

 
—

 
(1,122
)
 
—

 
—

Foreign exchange gain
—

 
202

 
7,201

 
—

 
7,403

Other income
1,864

 
220

 
8,448

 
—

 
10,532

Income (loss) before income taxes
(30,504
)
 
626

 
10,354

 
—

 
(19,524
)
Provision (benefit) for income taxes
(2,205
)
 
417

 
4,366

 
—

 
2,578

Equity in earnings of subsidiaries
6,197

 
—

 
(6,243
)
 
46

 
—

Net income (loss)
(22,102
)
 
209

 
(255
)
 
46

 
(22,102
)
Net loss noncontrolling interests
—

 
—

 
(1,099
)
 
—

 
(1,099
)
Net income (loss) attributable to Titan
$
(22,102
)
 
$
209

 
$
844

 
$
46

 
$
(21,003
)


(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Nine Months Ended September 30, 2015
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations