form10q.htm  



 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

TITAN INTERNATIONAL, INC. LOGO

 
FORM 10-Q
 

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

For Quarterly Period Ended: March 31, 2011

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 o  No o
 
  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
    Large accelerated filer o
Accelerated filer þ
    Non-accelerated filer o (Do not check if a smaller reporting company)
Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No þ

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

   
Shares Outstanding at
Class
 
April 21, 2011
     
Common stock, no par value per share
 
42,072,631

 
 

 



TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS



   
Page
Part I.
Financial Information
 
     
Item 1.
Financial Statements (Unaudited)
 
     
 
Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 2011 and 2010
1
     
 
Consolidated Condensed Balance Sheets as of
March 31, 2011, and December 31, 2010
2
     
 
Consolidated Condensed Statement of Changes in Stockholders’
Equity for the Three Months Ended March 31, 2011
3
     
 
Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 2011 and 2010
4
     
 
Notes to Consolidated Condensed Financial Statements
5-19
     
Item 2.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
20-31
     
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
32
     
Item 4.
Controls and Procedures
32
     
Part II.
Other Information
 
     
Item 1.
Legal Proceedings
33
     
Item 1A.
Risk Factors
33
     
Item 6.
Exhibits
33
     
 
Signatures
33


 
 
 

 

PART I.  FINANCIAL INFORMATION
 
Item 1.             Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(Amounts in thousands, except earnings per share data)


   
Three months ended
 
   
March 31,
 
   
2011
   
2010
 
Net sales
  $ 280,829     $ 196,448  
Cost of sales
    224,557       170,361  
Gross profit
    56,272       26,087  
Selling, general and administrative expenses
    25,293       11,809  
Research and development expenses
    1,183       2,027  
Royalty expense
    2,917       2,121  
Income from operations
    26,879       10,130  
Interest expense
    (6,280 )     (7,056 )
Noncash convertible debt conversion charge
    (16,135 )     0  
Other income
    193       333  
Income before income taxes
    4,657       3,407  
Provision for income taxes
    7,693       1,329  
Net income (loss)
  $ (3,036 )   $ 2,078  
Earnings (loss) per common share:
               
Basic
  $ (.07 )   $ .06  
Diluted
    (.07 )     .06  
Average common shares outstanding:
               
Basic
    40,511       34,772  
Diluted
    40,511       35,329  
                 
Dividends declared per common share:
  $ .005     $ .005  

 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
1

 

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


   
March 31,
   
December 31,
 
Assets
 
2011
   
2010
 
Current assets
 
 
   
 
 
Cash and cash equivalents
  $ 230,048     $ 239,500  
Accounts receivable
    139,025       89,004  
Inventories
    133,679       127,982  
Deferred income taxes
    12,791       12,791  
Prepaid and other current assets
    18,031       18,663  
Total current assets
    533,574       487,940  
                 
Property, plant and equipment, net
    242,064       248,054  
Other assets
    49,332       51,476  
                 
Total assets
  $ 824,970     $ 787,470  
                 
Liabilities and Stockholders’ Equity
               
Current liabilities
               
Accounts payable
  $ 45,186     $ 35,281  
Other current liabilities
    65,547       57,072  
Total current liabilities
    110,733       92,353  
                 
Long-term debt
    312,881       373,564  
Deferred income taxes
    9,385       1,970  
Other long-term liabilities
    41,114       41,268  
Total liabilities
    474,113       509,155  
                 
Stockholders’ equity
               
Common stock(no par, 120,000,000 shares authorized,
44,092,997 and 37,475,288 issued, respectively)
    37       30  
Additional paid-in capital
    375,746       300,540  
Retained earnings
    12,782       16,028  
Treasury stock (at cost, 2,076,040 and 2,108,561 shares, respectively)
    (19,033 )     (19,324 )
Treasury stock reserved for deferred compensation
    (1,233 )     (1,917 )
Accumulated other comprehensive loss
    (17,442 )     (17,042 )
Total stockholders’ equity
    350,857       278,315  
                 
Total liabilities and stockholders’ equity
  $ 824,970     $ 787,470  


 

See accompanying Notes to Consolidated Condensed Financial Statements.

 
2

 

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


 
   
 
Number of common shares
   
 
 
Common Stock
   
 
Additional
paid-in
capital
   
 
 
Retained earnings
   
 
 
Treasury stock
   
Treasury stock reserved for deferred compensation
   
Accumulated other comprehensive income (loss)
   
 
 
 
Total
 
   
 
   
 
                     
 
   
 
       
Balance January 1, 2011
     #35,366,727     $  30     $ 300,540     $ 16,028     $ (19,324 )   $ (1,917 )   $ (17,042 )   $ 278,315  
                                                                 
Comprehensive income (loss):
                                                               
Net loss
                            (3,036 )                             (3,036 )
Pension liability adjustments, net of tax
                                                    593       593  
Unrealized loss on investment, net of tax
                                                    (993 )     (993 )
Comprehensive loss
                                                            (3,436 )
Dividends on common stock
                            (210 )                             (210 )
Note conversion
     6,617,709        7       73,902                                       73,909  
Exercise of stock options
     26,125               (4 )             234                       230  
Stock-based compensation
                    393                                       393  
Deferred compensation transactions
                    846                       684               1,530  
Issuance of treasury stock under 401(k) plan
     6,396               69               57                       126  
                                                                 
Balance March 31, 2011
     #42,016,957     $  37     $ 375,746     $ 12,782     $ (19,033 )   $ (1,233 )   $ (17,442 )   $ 350,857  


 
See accompanying Notes to Consolidated Condensed Financial Statements.

 
3

 

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


   
Three months ended
 
   
March 31,
 
   
2011
   
2010
 
Cash flows from operating activities:
           
Net income (loss)
  $ (3,036 )   $ 2,078  
Adjustments to reconcile net income to net cash
               
provided by operating activities:
               
Depreciation and amortization
    9,299       9,281  
Deferred income tax provision
    7,415       1,275  
Noncash convertible debt conversion charge
    16,135       0  
Stock-based compensation
    393       0  
Issuance of treasury stock under 401(k) plan
    126       123  
(Increase) decrease in assets:
               
Accounts receivable
    (50,021 )     (34,789 )
Inventories
    (5,697 )     (19,462 )
Prepaid and other current assets
    632       3,099  
Other assets
    10       46  
Increase in liabilities:
               
Accounts payable
    9,905       22,432  
Other current liabilities
    8,442       4,413  
Other liabilities
    802       1,365  
Net cash used for operating activities
    (5,595 )     (10,139 )
                 
Cash flows from investing activities:
               
Capital expenditures
    (3,469 )     (3,508 )
Other
    623       42  
Net cash used for investing activities
    (2,846 )     (3,466 )
                 
Cash flows from financing activities:
               
Repurchase of senior unsecured notes
    (1,064 )     0  
Proceeds from exercise of stock options
    230       0  
Payment of financing fees
    0       (186 )
Dividends paid
    (177 )     (176 )
Net cash used for financing activities
    (1,011 )     (362 )
                 
Net decrease in cash and cash equivalents
    (9,452 )     (13,967 )
                 
Cash and cash equivalents at beginning of period
    239,500       229,182  
                 
Cash and cash equivalents at end of period
  $ 230,048     $ 215,215  

 
See accompanying Notes to Consolidated Condensed Financial Statements.

 
4

 
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 March 31, 2011, and the results of operations and cash flows for the three months ended March 31, 2011 and 2010.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company’s 2010 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 2010 Annual Report on Form 10-K.

Fair value of financial instruments
The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals and notes payable at cost, which approximates fair value.  Investments in marketable equity securities are recorded at fair value.  The senior secured 7.875% notes due 2017 (senior secured notes) and convertible senior subordinated 5.625% notes due 2017 (convertible notes) are carried at cost of $200.0 million and $112.9 million at March 31, 2011, respectively.  The fair value of these notes at March 31, 2011, as obtained through independent pricing sources, was approximately $214.0 million for the senior secured notes and approximately $317.8 million for the convertible notes.  The increase in the fair value of the convertible notes is due primarily to the increased value of the underlying common stock.

 
Cash dividends
The Company declared cash dividends of $.005 per share of common stock for each of the three months ended March 31, 2011 and 2010.


2.  ACCOUNTS RECEIVABLE
 
Accounts receivable consisted of the following (in thousands):
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Accounts receivable
  $ 143,258     $ 92,893  
Allowance for doubtful accounts
    (4,233 )     (3,889 )
Accounts receivable, net
  $ 139,025     $ 89,004  


 
5

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


3.  INVENTORIES
 
Inventories consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Raw materials
  $ 54,169     $ 56,414  
Work-in-process
    18,103       16,860  
Finished goods
    64,010       59,680  
      136,282       132,954  
Adjustment to LIFO basis
    (2,603 )     (4,972 )
    $ 133,679     $ 127,982  

At March 31, 2011, cost is determined using the first-in, first-out (FIFO) method for approximately 66% of inventories and the last-in, first-out (LIFO) method for approximately 34% of the inventories.  At December 31, 2010, the FIFO method was used for approximately 64% of inventories and LIFO was used for approximately 36% of the inventories.  Included in the inventory balances were provisions for slow-moving and obsolete inventory of $7.6 million at March 31, 2011, and $7.4 million at December 31, 2010.


4.  PROPERTY, PLANT AND EQUIPMENT, NET
 
Property, plant and equipment, net consisted of the following (in thousands):
 
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Land and improvements
  $ 3,061     $ 3,061  
Buildings and improvements
    98,234       98,233  
Machinery and equipment
    385,153       383,231  
Tools, dies and molds
    84,901       84,134  
Construction-in-process
    8,040       8,741  
      579,389       577,400  
Less accumulated depreciation
    (337,325 )     (329,346 )
    $ 242,064     $ 248,054  

Depreciation on fixed assets for the three months ended March 31, 2011 and 2010, totaled $8.8 million and $8.6 million, respectively.

 
6

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


5.  INVESTMENT IN TITAN EUROPE PLC
 
Investment in Titan Europe Plc consisted of the following (in thousands):

   
March 31,
   
December 31,
 
   
2011
   
2010
 
Investment in Titan Europe Plc
  $ 21,165     $ 22,693  

Titan Europe Plc is publicly traded on the AIM market in London, England.  The Company’s investment in Titan Europe represents a 22.9% ownership percentage.  The Company has considered the applicable guidance in Accounting Standards Codification (ASC) 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe Plc should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe Plc.  The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Condensed Balance Sheets.  Titan’s cost basis in Titan Europe is $5.0 million.  Titan’s accumulated other comprehensive income includes a gain on the Titan Europe Plc investment of $10.5 million, which is net of tax of $5.6 million.  The decreased value in the Titan Europe Plc investment at March 31, 2011, was due primarily to a lower publicly quoted Titan Europe Plc market price.


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

 
 
2011
   
2010
 
Warranty liability, January 1
  $ 12,471     $ 9,169  
Provision for warranty liabilities
    5,256       3,629  
Warranty payments made
    (3,743 )     (3,377 )
Warranty liability, March 31
  $ 13,984     $ 9,421  

The Company provides limited warranties on workmanship on its products in all market segments.  The majority of the Company’s products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year.  The Company calculates a provision for warranty expense based on past warranty experience. Warranty accruals are included as a component of other current liabilities on the Consolidated Condensed Balance Sheets.



7.  REVOLVING CREDIT FACILITY AND LONG-TERM DEBT
 
Long-term debt consisted of the following (in thousands):
   
March 31,
   
December 31,
 
   
2011
   
2010
 
7.875% senior notes due 2017
  $ 200,000     $ 200,000  
5.625% convertible senior notes due 2017
    112,881       172,500  
8% senior unsecured notes due January 2012
    0       1,064  
      312,881       373,564  
Less:  Amounts due within one year
    0       0  
    $ 312,881     $ 373,564  


 
7

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



Aggregate maturities of long-term debt at March 31, 2011, were as follows (in thousands):

April 1 – December 31, 2011
  $ 0  
2012
    0  
2013
    0  
2014
    0  
2015
    0  
Thereafter
    312,881  
 
 
  $ 312,881  
 
7.875% senior secured notes due 2017
The Company’s 7.875% senior secured notes (senior secured notes) are due October 2017.  These notes are secured by the land and buildings of the following subsidiaries of the Company:  Titan Tire Corporation, Titan Wheel Corporation of Illinois, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan.  The Company’s senior secured notes outstanding balance was $200.0 million at March 31, 2011.

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 $112.9 million at March 31, 2011.

In the first quarter of 2011, the Company closed an Exchange Agreement with a note holder of the convertible notes, pursuant to which such holder converted approximately $59.6 million in aggregate principal amount of the Convertible Notes into approximately 6.6 million shares of the Company’s common stock, plus a payment for the accrued and unpaid interest.  In connection with the exchange, the Company recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.

8% senior unsecured notes due 2012
In the first quarter of 2011, Titan satisfied and discharged the indenture relating to the 8% senior unsecured notes due January 2012 by depositing with the trustee $1.1 million cash representing the outstanding principal of such notes and interest payments due on July 15, 2011, and at maturity on January 15, 2012.  Titan irrevocably instructed the trustee to apply the deposited money toward the interest and principal of the notes.

Revolving credit facility
 
The Company’s $100 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2014 termination date and is collateralized by the accounts receivable and inventory of Titan and certain of its domestic subsidiaries.  During the first quarter of 2011 and at March 31, 2011, there were no borrowings under the credit facility.  The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants.  Titan is in compliance with these covenants and restrictions as of March 31, 2011.
 
 

 
8

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


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

At March 31, 2011, future minimum commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (in thousands):

April 1 – December 31, 2011
  $ 370  
2012
    79  
2013
    18  
2014
    1  
Thereafter
    0  
Total future minimum lease payments
  $ 468  


9.  EMPLOYEE BENEFIT PLANS

The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement.  The Company also sponsors four 401(k) retirement savings plans.  The Company expects to contribute approximately $2 million to the pension plans during the remainder of 2011.

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

   
Three months ended March 31,
 
   
2011
   
2010
 
Interest cost
  $ 1,272     $ 1,300  
Expected return on assets
    (1,315 )     (1,227 )
Amortization of unrecognized prior service cost
    34       34  
Amortization of unrecognized deferred taxes
    (14 )     (14 )
Amortization of net unrecognized loss
    936       907  
Net periodic pension cost
  $ 913     $ 1,000  


10.  ROYALTY EXPENSE

The Company has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name.  Royalty expenses recorded were $2.9 million and $2.1 million for the first quarter of 2011 and 2010, respectively.

 
9

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


11.  OTHER INCOME

Other income consisted of the following (in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Investment gain on marketable securities
  $ 93     $ 196  
Interest income
    145       94  
Other income (expense)
    (45 )     43  
    $ 193     $ 333  


12.  INCOME TAXES

The Company recorded income tax expense of $7.7 million and $1.3 million for the quarters ended March 31, 2011 and 2010, respectively.  The Company’s effective income tax rate was 165% and 39% for the three months ended March 31, 2011 and 2010, respectively.  The Company’s 2011 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 the $16.1 million noncash charge taken in connection with the Company’s convertible debt.  This noncash charge is not deductible for income tax purposes.


13.  COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consisted of the following (in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net income (loss)
  $ (3,036 )   $ 2,078  
Unrealized loss on investment, net of tax
    (993 )     (918 )
Pension liability adjustments, net of tax
    593       575  
    $ (3,436 )   $ 1,735  
                 


 
10

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


14.  SEGMENT INFORMATION

The table below presents information about certain revenues and income from operations used by the chief operating decision maker of the Company for the three months ended March 31, 2011 and 2010 (in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Revenues from external customers
           
Agricultural
  $ 209,997     $ 151,112  
Earthmoving/construction
    66,511       41,815  
Consumer
    4,321       3,521  
    $ 280,829     $ 196,448  
                 
Gross profit
               
Agricultural
  $ 47,700     $ 23,890  
Earthmoving/construction
    8,195       3,150  
Consumer
    1,002       668  
Unallocated corporate
    (625 )     (1,621 )
    $ 56,272     $ 26,087  
                 
Income from operations
               
Agricultural
  $ 42,868     $ 19,955  
Earthmoving/construction
    6,288       690  
Consumer
    916       581  
Unallocated corporate
    (23,193 )     (11,096 )
Consolidated income from operations
    26,879       10,130  
Interest expense
    (6,280 )     (7,056 )
Noncash convertible debt conversion charge
    (16,135 )     0  
Other income, net
    193       333  
Income before income taxes
  $ 4,657     $ 3,407  

Assets by segment were as follows (in thousands):

   
March 31,
   
December 31,
 
Total Assets
 
2011
   
2010
 
Agricultural
  $ 347,432     $ 304,048  
Earthmoving/construction
    193,276       181,249  
Consumer
    9,239       5,863  
Unallocated corporate
    275,023       296,310  
Consolidated totals
  $ 824,970     $ 787,470  
                 


 
11

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


15.  EARNINGS PER SHARE

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

 
 
Three months ended
 
 
 
March 31, 2011
   
March 31, 2010
 
 
 
Net
 Loss
   
Weighted average shares
   
 
 Per share amount
   
Net
 Income
   
Weighted average shares
   
Per share amount
 
Basic EPS
  $ (3,036 )     40,511     $ (.07 )   $ 2,078       34,772     $ .06  
  Effect of stock options/trusts
    0       0               0       557          
Diluted EPS
  $ (3,036 )     40,511     $ (.07 )   $ 2,078       35,329     $ .06  
 

The effect of convertible notes has been excluded for both of the three months ended March 31, 2011 and 2010, as the effect would have been antidilutive.  The weighted average share amount excluded for convertible notes totaled 12.3 million shares and 16.0 million shares for the three months ended March 31, 2011 and 2010, respectively.

The effect of stock options/trusts has been excluded for the three months ended March 31, 2011, as the effect would have been antidilutive.  The weighted average share amount excluded was 0.3 million shares.


16.  FAIR VALUE MEASUREMENTS

ASC 820 Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.  These tiers are defined as:
 
 
Level 1 – Quoted prices in active markets for identical instruments;
 
 
Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.
 
 
Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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

 
 
March 31, 2011
   
December 31, 2010
 
 
 
Total
   
Level 1
   
Levels 2&3
   
Total
   
Level 1
   
Levels 2&3
 
Investment in Titan Europe Plc
  $ 21,165     $ 21,165     $ 0     $ 22,693     $ 22,693     $ 0  
Investment in marketable securities
    12,791       12,791       0       11,168       11,168       0  
    Total
  $ 33,956     $ 33,956     $ 0     $ 33,861     $ 33,861     $ 0  


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.

 
12

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



18.  RECENTLY ISSUED ACCOUNTING STANDARDS
 
There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2010 Annual Report on Form 10-K.
 

 

19.  SUBSEQUENT EVENTS

Purchase of Goodyear’s Latin American Farm Tire Business
 
On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company’s Latin American farm tire business for approximately $98.6 million U.S. dollars, subject to post-closing conditions and adjustments.  The transaction includes Goodyear’s Sao Paulo, Brazil manufacturing plant, property, equipment and inventories and a licensing agreement that allows Titan to sell Goodyear-brand farm tires in Latin America for seven years and extends the North American licensing agreement for seven years.


 
13

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


20.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 5.625% convertible senior subordinated notes are guaranteed by the following subsidiaries of the Company:  Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, Titan Tire Corporation of Texas, Titan Wheel Corporation of Illinois, and Titan Wheel Corporation of Virginia.  The note guarantees are full and unconditional, joint and several obligations of the guarantors.  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.



 
 
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
 
 
For the Three Months Ended March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 280,829     $ 0     $ 0     $ 280,829  
Cost of sales
    361       223,754       442       0       224,557  
Gross profit (loss)
    (361 )     57,075       (442 )     0       56,272  
Selling, general and administrative expenses
    15,405       2,725       7,163       0       25,293  
Research and development expenses
    0       1,183       0       0       1,183  
Royalty expense
    0       2,917       0       0       2,917  
Income (loss) from operations
    (15,766 )     50,250       (7,605 )     0       26,879  
Interest expense
    (6,280 )     0       0       0       (6,280 )
Noncash convertible debt conversion charge
    (16,135 )     0       0       0       (16,135 )
Other income (expense)
    317       (202 )     78       0       193  
Income (loss) before income taxes
    (37,864 )     50,048       (7,527 )     0       4,657  
Provision (benefit) for income taxes
    (8,039 )     18,518       (2,786 )     0       7,693  
Equity in earnings of subsidiaries
    26,789       (60 )     60       (26,789 )     0  
Net income (loss)
  $ (3,036 )   $ 31,470     $ (4,681 )   $ (26,789 )   $ (3,036 )

 
 
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
 
 
For the Three Months Ended March 31, 2010
 
   
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 196,448     $ 0     $ 0     $ 196,448  
Cost of sales
    1,324       168,550       487       0       170,361  
Gross profit (loss)
    (1,324 )     27,898       (487 )     0       26,087  
Selling, general and administrative expenses
    4,864       2,334       4,611       0       11,809  
Research and development expenses
    0       2,027       0       0       2,027  
Royalty expense
    0       2,121       0       0       2,121  
Income (loss) from operations
    (6,188 )     21,416       (5,098 )     0       10,130  
Interest expense
    (7,056 )     0       0       0       (7,056 )
Other income (expense)
    290       (2 )     45       0       333  
Income (loss) before income taxes
    (12,954 )     21,414       (5,053 )     0       3,407  
Provision (benefit) for income taxes
    (5,052 )     8,352       (1,971 )     0       1,329  
Equity in earnings of subsidiaries
    9,980       (88 )     88       (9,980 )     0  
Net income (loss)
  $ 2,078     $ 12,974     $ (2,994 )   $ (9,980 )   $ 2,078  
 
 
14

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



 
 
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
 
 
March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 229,924     $ 7     $ 117     $ 0     $ 230,048  
Accounts receivable
    0       139,025       0       0       139,025  
Inventories
    0       133,679       0       0       133,679  
Prepaid and other current assets
    14,063       16,389       370       0       30,822  
  Total current assets
    243,987       289,100       487       0       533,574  
Property, plant and equipment, net
    7,667       229,385       5,012       0       242,064  
Investment in subsidiaries
    61,855       9,057       20       (70,932 )     0  
Other assets
    21,573       1,060       26,699       0       49,332  
  Total assets
  $ 335,082     $ 528,602     $ 32,218     $ (70,932 )   $ 824,970  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 790     $ 44,006     $ 390     $ 0     $ 45,186  
Other current liabilities
    20,332       42,860       2,355       0       65,547  
  Total current liabilities
    21,122       86,866       2,745       0       110,733  
Long-term debt
    312,881       0       0       0       312,881  
Other long-term liabilities
    16,980       27,671       5,848       0       50,499  
Intercompany accounts
    (366,758 )     189,850       176,908       0       0  
Stockholders’ equity
    350,857       224,215       (153,283 )     (70,932 )     350,857  
  Total liabilities and stockholders’ equity
  $ 335,082     $ 528,602     $ 32,218     $ (70,932 )   $ 824,970  

 
 
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
 
 
December 31, 2010
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 239,362     $ 6     $ 132     $ 0     $ 239,500  
Accounts receivable
    0       89,004       0       0       89,004  
Inventories
    0       127,982       0       0       127,982  
Prepaid and other current assets
    14,732       16,240       482       0       31,454  
Total current assets
    254,094       233,232       614       0       487,940  
Property, plant and equipment, net
    7,678       235,143       5,233       0       248,054  
Investment in subsidiaries
    39,465       9,057       20       (48,542 )     0  
Other assets
    22,183       869       28,424       0       51,476  
  Total assets
  $ 323,420     $ 478,301     $ 34,291     $ (48,542 )   $ 787,470  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,406     $ 33,473     $ 402     $ 0     $ 35,281  
Other current liabilities
    16,066       39,186       1,820       0       57,072  
Total current liabilities
    17,472       72,659       2,222       0       92,353  
Long-term debt
    373,564       0       0       0       373,564  
Other long-term liabilities
    9,161       28,083       5,994       0       43,238  
Intercompany accounts
    (355,092 )     178,164       176,928       0       0  
Stockholders’ equity
    278,315       199,395       (150,853 )     (48,542 )     278,315  
  Total liabilities and stockholders’ equity
  $ 323,420     $ 478,301     $ 34,291     $ (48,542 )   $ 787,470  

 
 
15

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



   
Consolidating Condensed Statements of Cash Flows
 
(Amounts in thousands)
                       
   
For the Three Months Ended March 31, 2011
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ (8,115 )   $ 2,487     $ 33     $ (5,595 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    (312 )     (3,100 )     (57 )     (3,469 )
  Other, net
    0       614       9       623  
    Net cash used for investing activities
    (312 )     (2,486 )     (48 )     (2,846 )
                                 
Cash flows from financing activities:
                               
  Repurchase of senior unsecured notes
    (1,064 )     0       0       (1,064 )
  Proceeds from exercise of stock options
    230       0       0       230  
  Dividends paid
    (177 )     0       0       (177 )
    Net cash used for financing activities
    (1,011 )     0       0       (1,011 )
                                 
Net increase (decrease) in cash and cash equivalents
    (9,438 )     1       (15 )     (9,452 )
Cash and cash equivalents, beginning of period
    239,362       6       132       239,500  
Cash and cash equivalents, end of period
  $ 229,924     $ 7     $ 117     $ 230,048  


   
Consolidating Condensed Statements of Cash Flows
 
(Amounts in thousands)
                       
   
For the Three Months Ended March 31, 2010
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ (13,596 )   $ 3,427     $ 30     $ (10,139 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    0       (3,460 )     (48 )     (3,508 )
  Other, net
    0       37       5       42  
    Net cash used for investing activities
    0       (3,423 )     (43 )     (3,466 )
                                 
Cash flows from financing activities:
                               
  Payment of financing fees
    (186 )     0       0       (186 )
  Dividends paid
    (176 )     0       0       (176 )
    Net cash used for financing activities
    (362 )     0       0       (362 )
                                 
Net increase (decrease) in cash and cash equivalents
    (13,958 )     4       (13 )     (13,967 )
Cash and cash equivalents, beginning of period
    229,004       11       167       229,182  
Cash and cash equivalents, end of period
  $ 215,046     $ 15     $ 154     $ 215,215  
                                 
                                 
                                 
 
 
16

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


21.  SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 7.875% senior secured notes are guaranteed by 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 note guarantees are full and unconditional, joint and several obligations of the guarantors.  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.


 
 
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
 
 
For the Three Months Ended March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 274,961     $ 5,868     $ 0     $ 280,829  
Cost of sales
    361       217,995       6,201       0       224,557  
Gross profit (loss)
    (361 )     56,966       (333 )     0       56,272  
Selling, general and administrative expenses
    15,405       2,649       7,239       0       25,293  
Research and development expenses
    0       1,183       0       0       1,183  
Royalty expense
    0       2,917       0       0       2,917  
Income (loss) from operations
    (15,766 )     50,217       (7,572 )     0       26,879  
Interest expense
    (6,280 )     0       0       0       (6,280 )
Noncash convertible debt conversion charge
    (16,135 )     0       0       0       (16,135 )
Other income (expense)
    317       (235 )     111       0       193  
Income (loss) before income taxes
    (37,864 )     49,982       (7,461 )     0       4,657  
Provision (benefit) for income taxes
    (8,039 )     18,493       (2,761 )     0       7,693  
Equity in earnings of subsidiaries
    26,789       (60 )     60       (26,789 )     0  
Net income (loss)
  $ (3,036 )   $ 31,429     $ (4,640 )   $ (26,789 )   $ (3,036 )

 
 
Consolidating Condensed Statements of Operations
 
(Amounts in thousands)
     
 
 
For the Three Months Ended March 31, 2010
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Net sales
  $ 0     $ 192,458     $ 3,990     $ 0     $ 196,448  
Cost of sales
    1,324       163,000       6,037       0       170,361  
Gross profit (loss)
    (1,324 )     29,458       (2,047 )     0       26,087  
Selling, general and administrative expenses
    4,864       2,255       4,690       0       11,809  
Research and development expenses
    0       1,955       72       0       2,027  
Royalty expense
    0       2,121       0       0       2,121  
Income (loss) from operations
    (6,188 )     23,127       (6,809 )     0       10,130  
Interest expense
    (7,056 )     0       0       0       (7,056 )
Other income (expense)
    290       27       16       0       333  
Income (loss) before income taxes
    (12,954 )     23,154       (6,793 )     0       3,407  
Provision (benefit) for income taxes
    (5,052 )     9,030       (2,649 )     0       1,329  
Equity in earnings of subsidiaries
    9,980       (88 )     88       (9,980 )     0  
Net income (loss)
  $ 2,078     $ 14,036     $ (4,056 )   $ (9,980 )   $ 2,078  

 
17

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



 
 
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
 
 
March 31, 2011
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 229,924     $ 4     $ 120     $ 0     $ 230,048  
Accounts receivable
    0       134,786       4,239       0       139,025  
Inventories
    0       119,300       14,379       0       133,679  
Prepaid and other current assets
    14,063       16,018       741       0       30,822  
  Total current assets
    243,987       270,108       19,479       0       533,574  
Property, plant and equipment, net
    7,667       213,858       20,539       0       242,064  
Investment in subsidiaries
    61,855       9,057       10       (70,922 )     0  
Other assets
    21,573       1,060       26,699       0       49,332  
  Total assets
  $ 335,082     $ 494,083     $ 66,727     $ (70,922 )   $ 824,970  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 790     $ 42,779     $ 1,617     $ 0     $ 45,186  
Other current liabilities
    20,332       42,331       2,884       0       65,547  
  Total current liabilities
    21,122       85,110       4,501       0       110,733  
Long-term debt
    312,881       0       0       0       312,881  
Other long-term liabilities
    16,980       27,609       5,910       0       50,499  
Intercompany accounts
    (366,758 )     122,179       244,579       0       0  
Stockholders’ equity
    350,857       259,185       (188,263 )     (70,922 )     350,857  
  Total liabilities and stockholders’ equity
  $ 335,082     $ 494,083     $ 66,727     $ (70,922 )   $ 824,970  

 
 
Consolidating Condensed Balance Sheets
 
(Amounts in thousands)
                             
 
 
December 31, 2010
 
 
 
Titan
         
Non-
             
 
 
Intl., Inc.
   
Guarantor
   
Guarantor
             
 
 
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Eliminations
   
Consolidated
 
Assets
                             
Cash and cash equivalents
  $ 239,362     $ 3     $ 135     $ 0     $ 239,500  
Accounts receivable
    0       85,335       3,669       0       89,004  
Inventories
    0       113,104       14,878       0       127,982  
Prepaid and other current assets
    14,732       15,937       785       0       31,454  
Total current assets
    254,094       214,379       19,467       0       487,940  
Property, plant and equipment, net
    7,678       218,999       21,377       0       248,054  
Investment in subsidiaries
    39,465       9,057       10       (48,532 )     0  
Other assets
    22,183       869       28,424       0       51,476  
  Total assets
  $ 323,420     $ 443,304     $ 69,278     $ (48,532 )   $ 787,470  
                                         
Liabilities and Stockholders’ Equity
                                       
Accounts payable
  $ 1,406     $ 32,305     $ 1,570     $ 0     $ 35,281  
Other current liabilities
    16,066       38,689       2,317       0       57,072  
Total current liabilities
    17,472       70,994       3,887       0       92,353  
Long-term debt
    373,564       0       0       0       373,564  
Other long-term liabilities
    9,161       28,083       5,994       0       43,238  
Intercompany accounts
    (355,092 )     110,361       244,731       0       0  
Stockholders’ equity
    278,315       233,866       (185,334 )     (48,532 )     278,315  
  Total liabilities and stockholders’ equity
  $ 323,420     $ 443,304     $ 69,278     $ (48,532 )   $ 787,470  
 
 
18

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



   
Consolidating Condensed Statements of Cash Flows
 
(Amounts in thousands)
                       
   
For the Three Months Ended March 31, 2011
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ (8,115 )   $ 2,487     $ 33     $ (5,595 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    (312 )     (3,100 )     (57 )     (3,469 )
  Other, net
    0       614       9       623  
    Net cash used for investing activities
    (312 )     (2,486 )     (48 )     (2,846 )
                                 
Cash flows from financing activities:
                               
  Repurchase of senior unsecured notes
    (1,064 )     0       0       (1,064 )
  Proceeds from exercise of stock option
    230       0       0       230  
  Dividends paid
    (177 )     0       0       (177 )
    Net cash used for financing activities
    (1,011 )     0       0       (1,011 )
                                 
Net increase (decrease) in cash and cash equivalents
    (9,438 )     1       (15 )     (9,452 )
Cash and cash equivalents, beginning of period
    239,362       3       135       239,500  
Cash and cash equivalents, end of period
  $ 229,924     $ 4     $ 120     $ 230,048  


   
Consolidating Condensed Statements of Cash Flows
 
(Amounts in thousands)
                       
   
For the Three Months Ended March 31, 2010
 
   
Titan
         
Non-
       
   
Intl., Inc.
   
Guarantor
   
Guarantor
       
   
(Parent)
   
Subsidiaries
   
Subsidiaries
   
Consolidated
 
Net cash provided by (used for) operating activities
  $ (13,596 )   $ 3,382     $ 75     $ (10,139 )
                                 
Cash flows from investing activities:
                               
  Capital expenditures
    0       (3,384 )     (124 )     (3,508 )
  Other, net
    0       8       34       42  
    Net cash used for investing activities
    0       (3,376 )     (90 )     (3,466 )
                                 
Cash flows from financing activities:
                               
  Payment of financing fees
    (186 )     0       0       (186 )
  Dividends paid
    (176 )     0       0       (176 )
    Net cash used for financing activities
    (362 )     0       0       (362 )
                                 
Net increase (decrease) in cash and cash equivalents
    (13,958 )     6       (15 )     (13,967 )
Cash and cash equivalents, beginning of period
    229,004       8       170       229,182  
Cash and cash equivalents, end of period
  $ 215,046     $ 14     $ 155     $ 215,215  
 
 
19

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS

Management’s discussion and analysis of financial condition and results of operations (MD&A) is designed to provide a reader of these financial statements with a narrative from the perspective of the management of Titan International, Inc. (Titan or the Company) on Titan’s financial condition, results of operations, liquidity and other factors which may affect the Company’s future results.  The MD&A in this quarterly report should be read in conjunction with the MD&A in Titan’s 2010 annual report on Form 10-K filed with the Securities and Exchange Commission on February 24, 2011.

FORWARD-LOOKING STATEMENTS
 
This Form 10-Q contains forward-looking statements, including statements regarding, among other items:
 
·  
Anticipated trends in the Company’s business
 
·  
Future expenditures for capital projects
 
·  
The Company’s ability to continue to control costs and maintain quality
 
·  
Ability to meet financial covenants and conditions of loan agreements
 
·  
The Company’s business strategies, including its intention to introduce new products
 
·  
Expectations concerning the performance and success of the Company’s existing and new products
 
·  
The Company’s intention to consider and pursue acquisition and divestiture opportunities

Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company’s expectations and are subject to a number of risks and uncertainties (including, but not limited to, the factors discussed in Item 1A. Risk Factors of the Company’s most recent annual report on Form 10-K), certain of which are beyond the Company’s control.

Actual results could differ materially from these forward-looking statements as a result of certain factors, including:
 
·  
The effect of a recession on the Company and its customers and suppliers
 
·  
Changes in the Company’s end-user markets as a result of world economic or regulatory influences
 
·  
Changes in the marketplace, including new products and pricing changes by the Company’s competitors
 
·  
Ability to maintain satisfactory labor relations
 
·  
Unfavorable outcomes of legal proceedings
 
·  
Availability and price of raw materials
 
·  
Levels of operating efficiencies
 
·  
Unfavorable product liability and warranty claims
 
·  
Actions of domestic and foreign governments
 
·  
Results of investments
 
·  
Laws and regulations related to climate change
 
·  
Risks associated with environmental laws and regulations

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

 
20

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


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

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

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

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

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

 
The table provides highlights for the quarter ended March 31, 2011, compared to 2010 (amounts in thousands):

   
Three months ended March 31,
       
   
2011
   
2010
   
% Increase
 
Net sales
  $ 280,829     $ 196,448       43 %
Gross profit
    56,272       26,087       116 %
Income from operations
    26,879       10,130       165 %
Net income (loss)
    (3,036 )     2,078       n/a  

The Company recorded sales of $280.8 million for the first quarter of 2011, which were 43% higher than the first quarter 2010 sales of $196.4 million.  The Company’s gross profit was $56.3 million, or 20.0% of net sales, for the first quarter of 2011, compared to $26.1 million, or 13.3% of net sales, in 2010.  Income from operations was $26.9 million for the first quarter of 2011, compared to $10.1 million in 2010.  Net loss was $(3.0) million for the quarter, compared to net income of $2.1 million in 2010.  Basic loss per share was $(.07) in the first quarter of 2011, compared to earnings per share of $.06 in 2010.  Net income (loss) and earnings per share were negatively affected by the noncash convertible debt conversion charge of $16.1 million.


COLLECTIVE BARGAINING AGREEMENTS
 
The labor agreements for the Company’s Bryan, Ohio and Freeport, Illinois, facilities expired on November 19, 2010, for the employees covered by their respective collective bargaining agreements, which account for approximately 30% of Titan employees in the United States.  As of March 31, 2011, the employees of these two facilities were working without a contract under the terms of the Company’s latest offer.  The respective unions have retained their rights to challenge the Company’s actions.

 
21

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations



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

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

Inventories
Inventories are valued at lower of cost or market.  Cost is determined using the first-in, first-out (FIFO) method for approximately 66% of inventories and the last-in, first-out (LIFO) method for approximately 34% of inventories.  The major rubber material inventory and related work-in-process and their finished goods are accounted for under the FIFO method.  The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method.  Market value is estimated based on current selling prices.  Estimated provisions are established for excess and obsolete inventory.  Should experience change, adjustments to the estimated provisions would be necessary.

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

Retirement Benefit Obligations
Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts.  These assumptions include discount rates, expected return on plan assets, mortality rates and other factors.  Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations.  The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement.  During the first three months of 2011, the Company contributed cash funds of $0.4 million to its frozen pension plans.  Titan expects to contribute approximately $2 million to these frozen defined benefit pension plans during the remainder of 2011.  For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 20 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2010.

 
22

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


CONVERTIBLE SENIOR SUBORDINATED NOTES CONVERSION
In the first quarter of 2011, the Company closed an Exchange Agreement with a note holder of the convertible notes, pursuant to which such holder exchanged approximately $59.6 million in aggregate principal amount of the Convertible Notes for approximately 6.6 million shares of the Company’s common stock, plus a payment for the accrued and unpaid interest.  In connection with the exchange, the Company recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.
 


DISCHARGE OF SENIOR UNSECURED NOTES
In the first quarter of 2011, Titan satisfied and discharged the indenture relating to the 8% senior unsecured notes due January 2012 by depositing with the trustee $1.1 million cash representing the outstanding principal of such notes and interest payments due on July 15, 2011, and at maturity on January 15, 2012.  Titan irrevocably instructed the trustee to apply the deposited money toward the interest and principal of the notes.


SUBSEQUENT EVENTS

Purchase of Goodyear’s Latin American Farm Tire Business

On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company’s Latin American farm tire business for approximately $98.6 million U.S. dollars, subject to post-closing conditions and adjustments.  The transaction includes Goodyear’s Sao Paulo, Brazil manufacturing plant, property, equipment and inventories and a licensing agreement that allows Titan to sell Goodyear-brand farm tires in Latin America for seven years and extends the North American licensing agreement for seven years.


RESULTS OF OPERATIONS
 
Highlights for the three months ended March 31, 2011, compared to 2010 (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net sales
  $ 280,829     $ 196,448  
Cost of sales
    224,557       170,361  
Gross profit
  $ 56,272     $ 26,087  
Gross profit margin
    20.0 %     13.3 %

Net Sales
Net sales for the quarter ended March 31, 2011, were $280.8 million, compared to $196.4 million in 2010.  The increase in net sales was the result of continued strong demand in the agricultural segment, increasing demand in the earthmoving/construction segment, and pricing/mix improvements which were primarily the result of increased raw material prices that were passed to customers.

Cost of Sales and Gross Profit
Cost of sales was $224.6 million for the first quarter of 2011, compared to $170.4 million in 2010.  The higher cost of sales resulted from the significant increase in the quarterly sales levels and increased raw material prices.

Gross profit for the first quarter of 2011 was $56.3 million, or 20.0% of net sales, compared to $26.1 million, or 13.3% of net sales, for the first quarter of 2010.  The Company’s gross profit benefitted from improved plant utilization resulting from the higher sales levels.

 
23

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


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

   
Three months ended March 31,
 
   
2011
   
2010
 
Selling, general and administrative
  $ 25,293     $ 11,809  
Percentage of net sales
    9.0 %     6.0 %

Selling, general and administrative (SG&A) expenses for the first quarter of 2011 were $25.3 million, or 9.0% of net sales, compared to $11.8 million, or 6.0% of net sales, for 2010.  The higher SG&A expenses were primarily the result of higher selling and marketing expenses primarily related to the increased sales levels and an increase in the accrual for the CEO special performance award due to a rise in the Company’s stock price.  Selling and marketing expenses were approximately $2 million higher in the first quarter of 2011, when compared to 2010, primarily due to increased sales levels.  Expenses recorded for CEO special performance award were approximately $9 million higher in the first quarter of 2011, when compared to 2010.

Research and Development Expenses
Research and development expenses were as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Research and development
  $ 1,183     $ 2,027  
Percentage of net sales
    0.4 %     1.0 %

Research and development (R&D) expenses were $1.2 million, or 0.4% of net sales, for the first quarter of 2011 as compared to $2.0 million, or 1.0% of net sales, for the first quarter of 2010.  The lower R&D costs recorded during the first quarter of approximately $0.8 million primarily resulted from less R&D related to the giant off-the-road (OTR) products.

 
Royalty Expense
Royalty expense was as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Royalty expense
  $ 2,917     $ 2,121  

The Company has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name.  Royalty expenses were $2.9 million and $2.1 million for the first quarter of 2011 and 2010, respectively.  As sales subject to the license agreement increased in the first quarter of 2011, the Company’s royalty expense increased accordingly.

Income from Operations
Income from operations was as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Income from operations
  $ 26,879     $ 10,130  
Percentage of net sales
    9.6 %     5.2 %

Income from operations for the first quarter of 2011 was $26.8 million, or 9.6% of net sales, compared to $10.1 million, or 5.2% of net sales, in 2010.

 
24

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


Interest Expense
Interest expense was as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Interest expense
  $ 6,280     $ 7,056  

Interest expense was $6.3 million for the first quarter of 2011, compared to $7.1 million in 2010.  The Company’s interest expense for the first quarter of 2011 decreased from the previous year primarily as a result of the repurchase of 8% senior unsecured notes in 2010 and the exchange agreement for 5.625% convertible senior subordinated notes in the first quarter of 2011, offset by interest recorded for the 7.875% senior secured notes issued in the fourth quarter of 2010.

Noncash Convertible Debt Conversion Charge
Noncash convertible debt conversion charge was as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Noncash convertible debt
   conversion charge
  $ 16,135     $ 0  

In the first quarter of 2011, the Company closed an exchange agreement converting approximately $59.6 million of the 5.625% convertible notes into approximately 6.6 million shares of the Company’s common stock.  In connection with the exchange, the Company recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.
 
Other Income
Other income was as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Other income
  $ 193     $ 333  

Other income for the first quarter of 2011 was $0.2 million, compared to $0.3 million in 2010.
 
 
Income Taxes
Income taxes were as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Income tax expense
  $ 7,693     $ 1,329  

The Company recorded income tax expense of $7.7 million and $1.3 million for the quarters ended March 31, 2011 and 2010, respectively.  The Company’s effective income tax rate was 165% and 39% for the three months ended March 31, 2011 and 2010, respectively.  The Company’s 2011 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 the $16.1 million noncash charge taken in connection with the Company’s convertible debt.  This noncash charge is not deductible for income tax purposes.

 
25

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


Net Income (Loss)
Net income (loss) was as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net income (loss)
  $ (3,036 )   $ 2,078  

Net loss for the first quarter of 2011 was $(3.0) million, compared to net income of $2.1 million in 2010.  Basic and diluted loss per share were each $(.07) for the first quarter of 2011, compared to earnings per share of $.06 in the first quarter of 2010.

Agricultural Segment Results
Agricultural segment results were as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net sales
  $ 209,997     $ 151,112  
Gross profit
    47,700       23,890  
Income from operations
    42,868       19,955  

Net sales in the agricultural market were $210.0 million for the first quarter of 2011, as compared to $151.1 million in 2010.  Sales of agricultural product increased approximately 39% when compared to the first quarter of 2010.   The increase in net sales was the result of continued strong demand and pricing/mix improvements which were primarily the result of increased raw material prices that were passed to customers.

Gross profit in the agricultural market was $47.7 million, or 22.7% of net sales, for the first quarter of 2011, compared to $23.9 million, or 15.8% of net sales, in 2010.  The Company’s gross profit benefitted from improved plant utilization resulting from the higher sales levels.  Income from operations in the agricultural market was $42.9 million for the first quarter of 2011, compared to $20.0 million for the first quarter of 2010.
 
Earthmoving/Construction Segment Results
Earthmoving/Construction segment results were as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net sales
  $ 66,511     $ 41,815  
Gross profit
    8,195       3,150  
Income from operations
    6,288       690  

The Company’s earthmoving/construction market net sales were $66.5 million for the first quarter of 2011, as compared to $41.8 million in 2010.  Sales of earthmoving/construction product increased approximately 59% when compared to the first quarter of 2010.  The increase in net sales was the result of increasing demand and pricing/mix improvements which were primarily the result of increased raw material prices that were passed to customers.  The Company continues to see an increase in demand in the earthmoving/construction segment.

Gross profit in the earthmoving/construction market was $8.2 million, or 12.3% of net sales, for the first quarter of 2011, as compared to $3.2 million, or 7.5% of nets sales, in 2010.  The Company’s gross profit benefitted from improved plant utilization resulting from the higher sales levels.  Income from operations in the earthmoving/construction market was $6.3 million for the first quarter of 2011 versus $0.7 million in 2010.

 
26

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


Consumer Segment Results
Consumer segment results were as follows (amounts in thousands):

   
Three months ended March 31,
 
   
2011
   
2010
 
Net sales
  $ 4,321     $ 3,521  
Gross profit
    1,002       668  
Income from operations
    916       581  

Consumer market net sales were $4.3 million for the first quarter of 2011, as compared to $3.5 million in 2010.  The sales of the consumer market segment have shown an improvement over 2010 sales which were affected by a sustained contraction in consumer discretionary spending.

Gross profit from the consumer market was $1.0 million for the first quarter of 2011, as compared to $0.7 million in 2010.  Consumer market income from operations was $0.9 million for the first quarter of 2011 versus $0.6 million in 2010.  

Segment Summary (amounts in thousands)

Three months ended
March 31, 2011
 
Agricultural
   
Earthmoving/
Construction
   
Consumer
   
   Corporate
 Expenses
   
Consolidated
 Totals
 
Net sales
  $ 209,997     $ 66,511     $ 4,321     $ 0     $ 280,829  
Gross profit (loss)
    47,700       8,195       1,002       (625 )     56,272  
Income (loss) from operations
    42,868       6,288       916       (23,193 )     26,879  
                                         
Three months ended
March 31, 2010
                                       
Net sales
  $ 151,112     $ 41,815     $ 3,521     $ 0     $ 196,448  
Gross profit (loss)
    23,890       3,150       668       (1,621 )     26,087  
Income (loss) from operations
    19,955       690       581       (11,096 )     10,130  

Corporate Expenses
Income from operations on a segment basis does not include corporate expenses or depreciation and amortization expense related to property, plant and equipment carried at the corporate level totaling $23.2 million for the first quarter of 2011, as compared to $11.1 million for the first quarter of 2010.

Corporate expenses for the first quarter of 2011 were composed of selling and marketing expenses of approximately $6 million and administrative expenses of approximately $17 million.

Corporate expenses for the first quarter of 2010 were composed of selling and marketing expenses of approximately $4 million and administrative expenses of approximately $7 million.

Corporate selling and marketing expenses were approximately $2 million higher in the first quarter as the result of the higher sales levels.  Corporate administrative expenses were approximately $10 million higher in the first quarter of 2011 primarily as the result of an increase in the CEO special performance award due to a rise in the Company’s stock price.

 
27

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


MARKET RISK SENSITIVE INSTRUMENTS
 
The Company’s risks related to foreign currencies, commodity prices and interest rates are consistent with those for 2010.  For more information, see the “Market Risk Sensitive Instruments” discussion in the Company’s Form 10-K for the fiscal year ended December 31, 2010.


PENSIONS
 
The Company has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement.  These plans are described in Note 20 of the Company’s Notes to Consolidated Financial Statements in the 2010 Annual Report on Form 10-K.

The Company’s recorded liability for pensions is based on a number of assumptions, including discount rates, rates of return on investments, mortality rates and other factors.  Certain of these assumptions are determined by the Company with the assistance of outside actuaries.  Assumptions are based on past experience and anticipated future trends.  These assumptions are reviewed on a regular basis and revised when appropriate.  Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and the carrying value of the related obligations.  Titan expects to contribute approximately $2 million to these frozen defined pension plans during the remainder of 2011.


LIQUIDITY AND CAPITAL RESOURCES

Cash Flows
As of March 31, 2011, the Company had $230.0 million of cash balances within various bank accounts.  This cash balance decreased by $9.5 million from December 31, 2010, due to the following cash flow items.

(amounts in thousands)
     
   
March 31,
   
December 31,
 
   
2011
   
2010
 
Cash
  $ 230,048     $ 239,500  

Operating cash flows
Summary of cash flows from operating activities:

(amounts in thousands)
 
Three months ended March 31,
       
   
2011
   
2010
   
Change
 
Net income (loss)
  $ (3,036 )   $ 2,078     $ (5,114 )
Noncash convertible debt
   conversion charge
    16,135       0       16,135  
Depreciation and amortization
    9,299       9,281       18  
Deferred income tax provision
    7,415       1,275       6,140  
Accounts receivable
    (50,021 )     (34,789 )     (15,232 )
Inventories
    (5,697 )     (19,462 )     13,765  
Accounts payable
    9,905       22,432       (12,527 )
Other operating activities
    10,405       9,046       1,359  
Cash used for operating activities
  $ (5,595 )   $ (10,139 )   $ 4,544  


 
28

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


For the first quarter of 2011, operating activities used cash of $5.6 million.  This cash was primarily used by increases in accounts receivable and inventory of $50.0 million and $5.7 million, respectively, offset by higher accounts payable of $9.9 million.  Included in net loss of $(3.0) million was a noncash convertible debt conversion charge of $16.1 million, as well as noncash charges of $9.3 million for depreciation and amortization and a $7.4 million deferred income tax provision.

In the first quarter of 2010, operating activities used cash of $10.1 million.  This cash was primarily used by increases in accounts receivable and inventory of $34.8 million and $19.5 million, respectively, offset by higher accounts payable of $22.4 million.  Net income of $2.1 million included $9.3 million of noncash charges for depreciation and amortization.  Deferred tax assets were reduced by $1.3 million as the Company used first quarter 2010 income to reduce the deferred tax asset for previously recorded net operating losses.

Operating cash flows increased $4.5 million when comparing the first quarter of 2011 to the first quarter of 2010.  This increase was largely the result of the noncash convertible debt conversion charge of $16.1 million and inventories increasing $13.8 million.  These increases in cash flows were offset by decreases in cash flow from accounts receivable of $15.2 million and accounts payable of $12.5 million.  The significant increase in accounts receivable is the result of increased sales of approximately 21% when comparing first quarter 2011 to the previous quarter (fourth quarter 2010).
 
 
Investing cash flows
Summary of cash flows from investing activities:

(amounts in thousands)
 
Three months ended March 31,
       
   
2011
   
2010
   
Change
 
Capital expenditures
  $ (3,469 )   $ (3,508 )   $ 39  
Other investing activities
    623       42       581  
Cash used for investing activities
  $ (2,846 )   $ (3,466 )   $ 620  
 

Net cash used for investing activities was $2.8 million in the first quarter of 2011, as compared to $3.5 million in the first quarter of 2010.  The Company invested a total of $3.5 million in capital expenditures for both of the three months ended March 31, 2011 and 2010.  The 2011 and the 2010 expenditures represent various equipment purchases and improvements to enhance production capabilities.  The other investing activities are primarily the result of asset disposals.

Financing cash flows
Summary of cash flows from financing activities:

(amounts in thousands)
 
Three months ended March 31,
       
   
2011
   
2010
   
Change
 
Repurchase of senior notes
  $ (1,064 )   $ 0     $ (1,064 )
Proceeds from exercise of stock options
    230       0       230  
Payment of financing fees
    0       (186 )     186  
Other financing activities
    (177 )     (176 )     (1 )
Cash used for financing activities
  $ (1,011 )   $ (362 )   $ (649 )
 

For the first quarter of 2011, $1.0 million of cash was used for financing activities.  This cash was primarily used to repurchase $1.1 million of senior notes.

In the first quarter of 2010, $0.4 million of cash was used for financing activities.

Financing cash flows decreased $0.6 million when comparing the first quarter of 2011 to the first quarter of 2010.  This change was primarily the result of the repurchase of senior notes in the first quarter of 2011.


 
29

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


Other Issues
The Company’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances.  Historically, Titan tends to experience higher sales demand in the first and second quarters.

Debt Covenants
The Company’s revolving credit facility (credit facility) contains various covenants and restrictions.  The financial covenants in this agreement require that:
 
·  
Collateral coverage be equal to or greater than 1.2 times the outstanding revolver balance.
 
·  
If the 30-day average of the outstanding revolver balance exceeds $70 million, the fixed charge coverage ratio be equal to or greater than a 1.1 to 1.0 ratio.

Restrictions include:
 
·  
Limits on payments of dividends and repurchases of the Company’s stock.
 
·  
Restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company.
 
·  
Limitations on investments, dispositions of assets and guarantees of indebtedness.
 
·  
Other customary affirmative and negative covenants.
 

These covenants and restrictions could limit the Company’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends or to take advantage of business opportunities, including future acquisitions.  The failure by Titan to meet these covenants could result in the Company ultimately being in default on these loan agreements.

The Company was in compliance with these covenants and restrictions as of March 31, 2011.  The collateral coverage ratio was not applicable as there were no outstanding borrowings under the revolving credit facility at March 31, 2011.  The fixed charge coverage ratio did not apply for the quarter ended March 31, 2011.
 
 
Liquidity Outlook
 
At March 31, 2011, the Company had $230.0 million of cash and cash equivalents and no outstanding borrowings on the Company’s $100 million credit facility.

Capital expenditures for the remainder of 2011 are forecasted to be approximately $13 million to $15 million.  Cash payments for interest are currently forecasted to be approximately $11 million for the remainder of 2011 based on March 31, 2011, debt balances.

On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company’s Latin American farm tire business for approximately $98.6 million U.S. dollars, subject to post-closing conditions and adjustments.  The Company funded the acquisition with cash on hand.

In the future, Titan may seek to grow by making acquisitions which will depend on the ability to identify suitable acquisition candidates, to negotiate acceptable terms for their acquisition and to finance those acquisitions.

Subject to the terms of indebtedness, the Company may finance future acquisitions with cash on hand, cash from operations, additional indebtedness and/or by issuing additional equity securities.
 
Cash on hand, anticipated internal cash flows from operations and utilization of remaining available borrowings are expected to provide sufficient liquidity for working capital needs, capital expenditures and potential acquisitions.  If the Company were to exhaust all currently available working capital sources or not meet the financial covenants and conditions of its loan agreements, the Company’s ability to secure additional funding would be negatively impacted.

 
30

 
TITAN INTERNATIONAL, INC.
Management’s Discussion and Analysis of
Financial Condition and Results of Operations


NEW ACCOUNTING STANDARDS

There have been no developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s consolidated financial statements, from those disclosed in the Company’s 2010 Annual Report on Form 10-K.


MARKET CONDITIONS AND OUTLOOK
 
In the first quarter of 2011, Titan experienced a significantly higher sales level when compared to the sales levels in the first quarter of 2010.  The Company expects sales for the rest of 2011 to continue at strong levels.

Beginning April 1, 2011, the Company will see additional sales resulting from the acquisition of Goodyear’s Latin American farm tire business.  Total revenue for this business is running at approximately $250 million annually which includes approximately $125 million of farm product sales and approximately $125 million of non-agriculture product that Titan will build for Goodyear under supply agreements.

Energy, raw material and petroleum-based product costs have been exceptionally volatile and may negatively impact the Company’s margins.  Many of Titan’s overhead expenses are fixed; therefore, lower seasonal trends may cause negative fluctuations in quarterly profit margins and affect the financial condition of the Company.

The labor agreements for the Company’s Bryan, Ohio and Freeport, Illinois, facilities expired on November 19, 2010, for the employees covered by their respective collective bargaining agreements, which account for approximately 30% of Titan employees in the United States.  As of March 31, 2011, the employees of these two facilities were working without a contract under the terms of the Company’s latest offer.  The respective unions have retained their rights to challenge the Company’s actions.


AGRICULTURAL MARKET OUTLOOK
 
Agricultural market sales were significantly higher in the first quarter 2011 when compared to the first quarter of 2010.  Strong demand in the agricultural segment continued from the second half of 2010.  Titan expects this strong demand to continue through 2011.  For the rest of 2011, the addition of Goodyear’s Latin American farm tire business will add significantly to agricultural sales.  The increase in the global population and the rising middle class in emerging countries may help grow future demand.  The gradual increase in the use of biofuels may help sustain future production. Many variables, including weather, grain prices, export markets and future government policies and payments can greatly influence the overall health of the agricultural economy.


EARTHMOVING/CONSTRUCTION MARKET OUTLOOK
 
Earthmoving and mining sales are improving from the low levels of the second half of 2009.  Metals, oil and gas prices have increased from 2009’s lows.  Although they may fluctuate in the short-term, in the long-term, these prices are expected to remain at levels that are attractive for continued investment, which should help support future earthmoving and mining sales.  The decline in the United States housing market continues to cause a lower demand for equipment used for construction.  The earthmoving/construction segment is affected by many variables, including commodity prices, road construction, infrastructure, government appropriations, housing starts and the on-going banking and credit issues.  For the remainder of 2011, the Company expects an improvement in sales to continue.


CONSUMER MARKET OUTLOOK
 
Consumer discretionary spending has experienced a major contraction as a result of on-going economic issues, housing market decline, and high unemployment rates.  Many of the Company’s consumer market sales are ultimately used in items which fall into the discretionary spending category.  Many factors continue to affect the consumer market including weather, competitive pricing, energy prices and consumer attitude.  For the remainder of 2011, the Company expects small improvements in consumer spending related to Titan’s consumer market.

 
31

 
TITAN INTERNATIONAL, INC.

PART I. FINANCIAL INFORMATION


Item 3.  Quantitative and Qualitative Disclosures About Market Risk

See the Company’s 2010 Annual Report filed on Form 10-K (Item 7A).  There has been no material change in this information.

Item 4.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures
The Company’s principal executive officer and principal financial officer have concluded the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the Exchange Act)) are effective as of the end of the period covered by this Form 10-Q based on an evaluation of the effectiveness of disclosure controls and procedures.

Changes in Internal Controls
There were no material changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the first quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluations of the effectiveness to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


 
32

 
TITAN INTERNATIONAL, INC.

PART II. OTHER INFORMATION



Item 1.                      Legal Proceedings

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.

Item 1A.  Risk Factors

See the Company’s 2010 Annual Report filed on Form 10-K (Item 1A).  There has been no material change in this information.

Item 6.                      Exhibits

31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32
Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
TITAN INTERNATIONAL, INC.
 
(Registrant)

Date:  
April 27, 2011
By:  
/s/ MAURICE M. TAYLOR JR.
   
Maurice M. Taylor Jr.
   
Chairman and Chief Executive Officer
(Principal Executive Officer)
 
 
By:  
/s/ PAUL G. REITZ
   
Paul G. Reitz
   
Chief Financial Officer
   
(Principal Financial Officer)


 


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