XNYS:TWI Titan International Inc Quarterly Report 10-Q Filing - 9/30/2012

Effective Date 9/30/2012

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TWI 09.30.2012 10-Q


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
FORM 10-Q
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended: September 30, 2012
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-12936

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
 
 
Shares Outstanding at
Class
 
October 22, 2012
 
 
 
Common stock, no par value per share
 
47,741,083




TITAN INTERNATIONAL, INC.

TABLE OF CONTENTS

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




PART I. FINANCIAL INFORMATION

Item 1. Financial Statements
TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(All amounts in thousands, except per share data)
 
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Net sales
$
404,719

 
$
398,805

 
$
1,327,040

 
$
1,084,081

Cost of sales
337,558

 
345,811

 
1,084,430

 
910,481

Gross profit
67,161

 
52,994

 
242,610

 
173,600

Selling, general and administrative expenses
25,497

 
8,548

 
79,742

 
50,414

Research and development expenses
1,759

 
796

 
4,456

 
2,993

Royalty expense
3,739

 
2,263

 
8,740

 
7,530

Supply agreement termination income

 

 
(26,134
)
 

Income from operations
36,166

 
41,387

 
175,806

 
112,663

Interest expense
(6,187
)
 
(6,616
)
 
(18,699
)
 
(19,045
)
Noncash convertible debt conversion charge

 

 

 
(16,135
)
Other income (expense)
2,439

 
(556
)
 
6,163

 
1,907

Income before income taxes
32,418

 
34,215

 
163,270

 
79,390

Provision for income taxes
13,589

 
12,690

 
64,722

 
35,345

Net income
18,829

 
21,525

 
98,548

 
44,045

Net income (loss) attributable to noncontrolling interests
(750
)
 
362

 
(506
)
 
354

Net income attributable to Titan
$
19,579

 
$
21,163

 
$
99,054

 
$
43,691

 
 
 
 
 
 
 
 
Earnings per common share:
 

 
 

 
 

 
 

Basic
$
.46

 
$
.50

 
$
2.35

 
$
1.05

Diluted
$
.39

 
$
.42

 
$
1.92

 
$
.89

Average common shares and equivalents outstanding:
 
 
 

 
 
 
 

Basic
42,180

 
42,028

 
42,148

 
41,512

Diluted
53,326

 
53,061

 
53,315

 
52,970

 
 
 
 
 
 
 
 
Dividends declared per common share:
$
.005

 
$
.005

 
$
.015

 
$
.015

 










See accompanying Notes to Consolidated Financial Statements.

1



TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(All amounts in thousands)

 
Three months ended
 
September 30,
 
2012
 
2011
Net income
$
18,829

 
$
21,525

Unrealized loss on investments, net of tax of $208 and $6,166, respectively
(353
)
 
(11,433
)
Currency translation adjustment, net
(1,247
)
 
(12,861
)
Pension liability adjustments, net of tax of $491 and $363, respectively
836

 
594

Comprehensive income (loss)
18,065

 
(2,175
)
Net comprehensive income (loss) attributable to noncontrolling interests
(750
)
 
362

Comprehensive income (loss) attributable to Titan
$
18,815

 
$
(2,537
)

 
Nine months ended
 
September 30,
 
2012
 
2011
Net income
$
98,548

 
$
44,045

Unrealized gain (loss) on investments, net of tax of $9 and $1,195, respectively
(16
)
 
2,219

Currency translation adjustment, net
(5,816
)
 
(9,929
)
Pension liability adjustments, net of tax of $1,473 and $1,090, respectively
2,508

 
1,779

Comprehensive income
95,224

 
38,114

Net comprehensive income (loss) attributable to noncontrolling interests
(506
)
 
354

Comprehensive income attributable to Titan
$
95,730

 
$
37,760























See accompanying Notes to Consolidated Financial Statements.

2



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

 
September 30,
 
December 31,
Assets
2012
 
2011
Current assets
 
 
 
Cash and cash equivalents
$
134,890

 
$
129,170

  Accounts receivable, net
228,375

 
189,527

Inventories
247,778

 
190,872

Deferred income taxes
32,706

 
26,775

Prepaid and other current assets
45,256

 
28,249

Total current assets
689,005

 
564,593

Property, plant and equipment, net
336,769

 
334,742

Other assets
132,356

 
110,951

Total assets
$
1,158,130

 
$
1,010,286

Liabilities and Equity
 

 
 

Current liabilities
 

 
 

Short-term debt
$
7,517

 
$
11,723

Accounts payable
106,670

 
76,574

Other current liabilities
81,298

 
87,469

Total current liabilities
195,485

 
175,766

Long-term debt
313,897


317,881

Deferred income taxes
53,001

 
38,691

Other long-term liabilities
73,499

 
81,069

Total liabilities
635,882

 
613,407

Equity:
 

 
 

Titan stockholder's equity
 
 
 
  Common stock (no par, 120,000,000 shares authorized, 44,092,997 issued)
37

 
37

Additional paid-in capital
383,998

 
380,295

Retained earnings
165,473

 
67,053

  Treasury stock (at cost, 1,796,015 and 1,887,316 shares, respectively)
(16,519
)
 
(17,338
)
Treasury stock reserved for deferred compensation
(1,233
)
 
(1,233
)
Accumulated other comprehensive loss
(36,899
)
 
(33,575
)
Total Titan stockholders’ equity
494,857

 
395,239

Noncontrolling interests
27,391

 
1,640

Total equity
522,248

 
396,879

Total liabilities and equity
$
1,158,130

 
$
1,010,286

 








See accompanying Notes to Consolidated Financial Statements.

3



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


 
 Number of
common shares
 
Common Stock
 
Additional
paid-in
capital
 
Retained earnings
 
Treasury stock
 
Treasury stock
 reserved for
contractual obligations
 
Accumulated other comprehensive income (loss)
 
Total Titan Equity
 
Noncontrolling interest
 
Total Equity
Balance January 1, 2012
42,205,681

 
$
37

 
$
380,295

 
$
67,053

 
$
(17,338
)
 
$
(1,233
)
 
$
(33,575
)
 
$
395,239

 
$
1,640

 
$
396,879

Net income


 


 


 
99,054

 


 


 


 
99,054

 
(506
)
 
98,548

Currency translation adjustment
 
 
 
 
 
 
 
 
 
 
 
 
(5,816
)
 
(5,816
)
 
 
 
(5,816
)
Pension liability adjustments, net of tax


 

 


 


 


 


 
2,508

 
2,508

 
 
 
2,508

Unrealized loss on investment, net of tax


 

 


 


 


 


 
(16
)
 
(16
)
 
 
 
(16
)
Dividends on common stock


 


 


 
(634
)
 


 


 


 
(634
)
 
 
 
(634
)
Exercise of stock options
71,310

 

 
285

 


 
640

 


 


 
925

 
 
 
925

Acquisitions


 

 


 


 


 


 


 

 
26,341

 
26,341

Consolidated joint venture


 
 
 


 
 
 


 
 
 
 
 

 
(84
)
 
(84
)
Stock-based compensation


 

 
2,959

 


 


 


 


 
2,959

 
 
 
2,959

Tax benefit related to stock-based compensation


 

 
185

 


 


 


 


 
185

 
 
 
185

Issuance of treasury stock under 401(k) plan
19,991

 

 
274

 


 
179

 


 


 
453

 
 
 
453

Balance September 30, 2012
42,296,982

 
$
37

 
$
383,998

 
$
165,473

 
$
(16,519
)
 
$
(1,233
)
 
$
(36,899
)
 
$
494,857

 
$
27,391

 
$
522,248

 













See accompanying Notes to Consolidated Financial Statements.

4



TITAN INTERNATIONAL, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(All amounts in thousands)
 
Nine months ended September 30,
Cash flows from operating activities:
2012
 
2011
Net income
$
98,548

 
$
44,045

Adjustments to reconcile net income to net cash
 

 
 

provided by (used for) operating activities:
 

 
 

Depreciation and amortization
35,865

 
32,753

Deferred income tax provision
6,906

 
8,038

Noncash convertible debt conversion charge

 
16,135

Supply agreement termination income
(26,134
)
 

Stock-based compensation
2,959

 
1,748

Excess tax benefit from stock options exercised
(185
)
 

Issuance of treasury stock under 401(k) plan
453

 
411

Gain on acquisition

 
(919
)
(Increase) decrease in assets:
 

 
 

Accounts receivable
(24,099
)
 
(132,294
)
Inventories
(36,921
)
 
(47,366
)
Prepaid and other current assets
(17,619
)
 
(9,456
)
Other assets
3,699

 
2,870

Increase (decrease) in liabilities:
 

 
 

Accounts payable
25,893

 
69,540

Other current liabilities
4,786

 
10,224

Other liabilities
10,937

 
(7,412
)
Net cash provided by (used for) operating activities
85,088

 
(11,683
)
Cash flows from investing activities:
 

 
 

Capital expenditures
(36,319
)
 
(17,901
)
Acquisitions, net of cash acquired
(32,760
)
 
(99,118
)
Purchases of marketable securities

 
(30,000
)
Other
636

 
1,941

Net cash used for investing activities
(68,443
)
 
(145,078
)
Cash flows from financing activities:
 

 
 

Repurchase of senior unsecured notes

 
(1,064
)
Payment on debt
(14,434
)
 
(629
)
Term loan borrowing
4,378

 
14,148

Proceeds from exercise of stock options
925

 
477

Excess tax benefit from stock options exercised
185

 

Dividends paid
(634
)
 
(598
)
Net cash provided by (used for) financing activities
(9,580
)
 
12,334

Effect of exchange rate changes on cash
(1,345
)
 
(799
)
Net increase (decrease) in cash and cash equivalents
5,720

 
(145,226
)
Cash and cash equivalents, beginning of period
129,170

 
239,500

Cash and cash equivalents, end of period
$
134,890

 
$
94,274

 
 
 
 
Supplemental information:
 
 
 
Interest paid
$
15,306

 
$
25,735

Income taxes paid
$
63,669

 
$
17,093


 See accompanying Notes to Consolidated Financial Statements.

5



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


1.
ACCOUNTING POLICIES

In the opinion of Titan International, Inc. ("Titan" or the "Company"), the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature and necessary for a fair statement of the Company's financial position as of September 30, 2012, and the results of operations and cash flows for the three and nine months ended September 30, 2012 and 2011.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies contained in the Company's 2011 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 2011 Annual Report on Form 10-K.

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

Fair value of financial instruments
The Company records 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 7.875% senior secured notes due 2017 ("senior secured notes") and 5.625% convertible senior subordinated notes due 2017 ("convertible notes") are carried at cost of $200.0 million and $112.9 million at September 30, 2012, respectively. The fair value of these notes at September 30, 2012, as obtained through independent pricing sources, was approximately $212.5 million for the senior secured notes and approximately $217.8 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 and $.015 per share of common stock for each of the three and nine months ended September 30, 2012, and 2011, respectively. The third quarter 2012 cash dividend of $.005 per share of common stock was paid October 15, 2012, to stockholders of record on September 28, 2012.

Interest paid
Titan paid $3.5 million and $12.3 million for interest for the quarters ended September 30, 2012 and 2011, respectively, and $15.3 million and $25.7 million for interest for the nine months ended September 30, 2012 and 2011, respectively.
 
Income taxes paid
Titan paid $16.7 million and $6.5 million for income taxes for the quarters ended September 30, 2012 and 2011, respectively, and $63.7 million and $17.1 million for income taxes for the nine months ended September 30, 2012 and 2011, respectively.
 
Use of estimates
The policies utilized by the Company in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America and require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual amounts could differ from these estimates and assumptions.

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

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


6



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

2. ACQUISITIONS

Acquisition of Planet Corporation Group
On August 2, 2012, Titan purchased a 56% controlling interest in Planet Corporation Group based in Perth, Australia (Planet) for $22.9 million and payment of $10.5 million for Planet's debt. The fair value of the consideration transferred and noncontrolling interests exceeded the fair value of the identified assets acquired less liabilities assumed. Therefore, goodwill of $14.0 million was recorded on the transaction. An initial noncontrolling interest of $26.3 million was recorded at the acquisition date. The Company continues to evaluate the preliminary purchase price allocation, primarily the value of certain deferred taxes and goodwill, and may revise the purchase price allocation in future periods as these estimates are finalized.

Acquisition of Goodyear's Latin American Farm Tire Business
On April 1, 2011, Titan closed on the acquisition of The Goodyear Tire & Rubber Company's ("Goodyear") Latin American farm tire business for approximately $98.6 million U.S. dollars. The transaction includes Goodyear's Sao Paulo, Brazil manufacturing plant, property, equipment; inventories; 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.
 
The purchase price was allocated to the assets acquired and the liabilities assumed based on their fair values. Inventory was valued using the comparative sales method. Real and personal property was valued at fair value. The excess of the purchase price of the identifiable assets acquired and liabilities assumed was reflected as goodwill. The goodwill was allocated to the agricultural segment.
 
The purchase price allocation of the Latin American farm tire business consisted of the following (in thousands):
Cash
$
1,018

Inventories
14,562

Deferred income taxes - current asset
2,948

Prepaid & other current assets
4,929

Property, plant & equipment
108,905

Goodwill
14,484

Other assets
39,263

Other current liabilities
(21,127
)
Deferred income taxes - noncurrent liability
(25,521
)
Other noncurrent liabilities
(40,823
)
Net assets acquired
$
98,638


The purchase price allocation has changed from that reported in the Form 10-K for the year ended December 31, 2011. In the first quarter of 2012, after filing the Form 10-K for the year ended December 31, 2011, Titan became aware of information related to the classification of the Latin American business for US tax purposes. In the second quarter of 2012, Titan became aware of additional information related to this acquisition. As a result of this information, which was available at the time of acquisition, Titan concluded that there were errors in the original accounting for the acquisition. Titan has concluded that the impact of these errors is immaterial to the consolidated financial statements for the year ended December 31, 2011 and for the nine months ended September 30, 2012, and therefore the correction of these errors were recorded as of January 1, 2012. The correction of these errors impacted the following areas: an increase in current deferred income tax asset of $2.9 million, a decrease in goodwill of $8.4 million, and a decrease in noncurrent deferred income tax liability of $5.5 million. As a result of currency exchange rate differences, the January 1, 2012 recorded decrease in goodwill was $7.3 million, with a $1.1 million offset in currency translation adjustment.
 
Pro forma financial information
The following unaudited pro forma financial information gives effect to the acquisition of Goodyear's Latin American farm tire business as if the acquisition had taken place on January 1, 2011. The pro forma financial information for the Sao Paulo, Brazil manufacturing facility was derived from The Goodyear Tire & Rubber Company's historical accounting records. These amounts have been calculated by adjusting the historical results of the Sao Paulo, Brazil facility to reflect the additional depreciation and the amortization of the prepaid royalty discount and supply agreement liability assuming the fair value adjustments had taken place.

7



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

Pro forma financial information is as follows (in thousands, except per share data):
 
Nine months ended September 30,
 
2012 (Actual)
2011 (Pro forma)
Net sales
$
1,327,040

$
1,112,481

Net income
98,548

48,175

Net income attributable to Titan
99,054

47,821

Basic earnings per share
$
2.35

$
1.15

Diluted earnings per share
1.92

.95


The pro forma information is presented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisition actually occurred on January 1, 2011, nor is it necessarily indicative of Titan's future consolidated results of operations or financial position.


3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following (amounts in thousands):
 
September 30,
2012
 
December 31,
2011
Accounts receivable
$
233,035

 
$
193,731

Allowance for doubtful accounts
(4,660
)
 
(4,204
)
Accounts receivable, net
$
228,375

 
$
189,527

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


4. INVENTORIES

Inventories consisted of the following (amounts in thousands):
 
September 30,
2012
 
December 31,
2011
Raw material
$
104,068

 
$
97,257

Work-in-process
43,907

 
31,141

Finished goods
110,243

 
75,137

 
258,218

 
203,535

Adjustment to LIFO basis
(10,440
)
 
(12,663
)
 
$
247,778

 
$
190,872

 
At September 30, 2012, approximately 23% of the Company's inventories were valued under the last-in, first-out (LIFO) method. At December 31, 2011, approximately 30% of the Company's inventories were valued under the LIFO method. The remaining inventories were valued under the first-in, first-out (FIFO) method or average cost method. All inventories are valued at lower of cost or market. The LIFO reserve decreased primarily as a result of the composition of inventory. An overall increase in raw material relative to total inventory resulted in a greater decrease in the FIFO cost versus the LIFO cost.


8




5. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (amounts in thousands):
 
September 30,
2012
 
December 31, 2011
Land and improvements
$
19,256

 
$
20,330

Buildings and improvements
123,080

 
121,847

Machinery and equipment
464,461

 
456,236

Tools, dies and molds
93,041

 
88,676

Construction-in-process
27,901

 
14,606

 
727,739

 
701,695

Less accumulated depreciation
(390,970
)
 
(366,953
)
 
$
336,769

 
$
334,742

 
Depreciation on fixed assets for the nine months ended September 30, 2012 and 2011, totaled $34.1 million and $31.4 million, respectively.


6. INVESTMENT IN TITAN EUROPE

Investment in Titan Europe Plc consisted of the following (amounts in thousands):
 
September 30,
2012
 
December 31, 2011
Investment in Titan Europe Plc
$
28,972

 
$
28,998


Titan Europe Plc is publicly traded on the AIM market in London, England.  The Company’s investment in Titan Europe represents a 21.8% 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 $15.5 million, which is net of tax of $8.5 million.

Titan Europe Plc Share Offer and Acceptance
On August 10, 2012, Titan announced a formal offer to Titan Europe Plc shareholders of one share of new Titan International common stock for every 11 Titan Europe Plc shares held. On October 5, 2012, Titan had received 87.2% acceptance of the offer including the 21.8% of Titan Europe Plc shares already owned. The value of Titan's previous 21.8% ownership on October 5 was $29.8 million. The offer was declared wholly unconditional on the October 5 date and the offer remained open until October 19, 2012. On October 19, 2012, Titan had received valid acceptances of the offer which together with the Titan Europe Plc shares already owned represented a 97.1% ownership percentage.

On October 19, 2012, Titan issued 5,574,160 shares of Titan International common stock to Titan Europe Plc shareholders with a value of $107.6 million, representing acceptances received as of October 5, 2012. Due to the timing of this transaction, the acquisition date fair value calculations have not been completed. The Company recorded $2.8 million of expense related to the acquisition costs through September 30, 2012. These costs were expensed as general & administrative expenses.


9



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


7. GOODWILL

Changes in goodwill consisted of the following (amounts in thousands):

 
2012
 
2011
 
 
 
Earthmoving/
 
 
 
 
 
Earthmoving/
 
 
 
Agricultural
 
Construction
 
 
 
Agricultural
 
Construction
 
 
 
Segment
 
Segment
 
Total
 
Segment
 
Segment
 
Total
Goodwill balance, January 1
$
19,841

 
$

 
$
19,841

 
$

 
$

 
$

   Acquisitions

 
13,982

 
13,982

 
21,388

 

 
21,388

   Acquisition adjustment
(7,289
)
 

 
(7,289
)
 

 

 

   Foreign currency translation
(957
)
 
(193
)
 
(1,150
)
 
(2,640
)
 

 
(2,640
)
Goodwill balance, September 30
$
11,595

 
$
13,789

 
$
25,384

 
$
18,748

 
$

 
$
18,748

 
The Company's agricultural segment goodwill balance is related to the acquisition of Goodyear's Latin American farm tire business which included the Sao Paulo, Brazil manufacturing facility. The Company's earthmoving/construction goodwill balance is related to the acquisition of Planet Group in August 2012. Goodwill is included as a component of other assets in the Consolidated Condensed Balance Sheets. The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. The Company's consumer segment does not have any recorded goodwill.


8. WARRANTY

Changes in the warranty liability consisted of the following (amounts in thousands):
 
2012
 
2011
Warranty liability, January 1
$
17,659

 
$
12,471

Provision for warranty liabilities
23,036

 
18,052

Warranty payments made
(18,282
)
 
(14,979
)
Warranty liability, September 30
$
22,413

 
$
15,544


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.

10



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


9. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt consisted of the following (amounts in thousands):
 
September 30,
2012
 
December 31, 2011
7.875% senior secured notes due 2017
$
200,000

 
$
200,000

5.625% convertible senior subordinated notes due 2017
112,881

 
112,881

Other debt
8,533

 
16,723

 
321,414

 
329,604

Less amounts due within one year
7,517

 
11,723

 
$
313,897

 
$
317,881

 
Aggregate maturities of long-term debt at September 30, 2012, were as follows (amounts in thousands):
September 1 - December 31, 2012
$
2,587

2013
5,386

2014
319

2015
178

2016
58

Thereafter
312,886

 
$
321,414


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 Tire Corporation of Bryan, Titan Tire Corporation of Freeport and Titan Wheel Corporation of Illinois.  The Company’s senior secured notes outstanding balance was $200.0 million at September 30, 2012.

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 September 30, 2012.

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 nine months ended September 30, 2012 and at September 30, 2012, 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 September 30, 2012.


11



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

Other debt
Brazil Term Loan
In May 2011, the Company entered into a two-year, unsecured $10.0 million Term Loan with Bank of America, N.A. (BoA Term Loan) to provide working capital for the Sao Paulo, Brazil manufacturing facility. Borrowings under the BoA Term Loan bear interest at a rate equal to London Interbank Offered Rate (LIBOR) plus 200 basis points. The BoA Term Loan shall be a minimum of $5.0 million with the option for an additional $5.0 million loan for a maximum of $10.0 million. The BoA Term Loan is due May 2013. The Company entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based Certificate of Deposit Interbank (CDI) loan. See Note 10 for additional information. As of September 30, 2012, the Company had $5.0 million outstanding on this loan and the interest rate including the effect of the swap agreement was approximately 10%.

Brazil Revolving Line of Credit
The Company's wholly-owned Brazilian subsidiary, Titan Pneus Do Brasil Ltda ("Titan Brazil"), has a revolving line of credit (Brazil line of credit) established with Bank of America Merrill Lynch Banco Multiplo S.A. in May 2011. Titan Brazil could borrow up to 16.0 million Brazilian Reais, which equates to approximately $7.9 million dollars as of September 30, 2012, for working capital purposes. Under the terms of the Brazil line of credit, borrowings, if any, bear interest at a rate of LIBOR plus 247 basis points. At September 30, 2012 there were no borrowings outstanding on this line of credit.

Brazil Other Debt
Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling $2.4 million at September 30, 2012.

Australia Other Debt
Titan National Australia Holdings has capital leases totaling $1.1 million at September 30, 2012.


10. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses financial derivatives to mitigate its exposure to volatility in the interest rate and foreign currency exchange rate in Brazil. The Company uses these derivative instruments to hedge exposure in the ordinary course of business and does not invest in derivative instruments for speculative purposes. In order to reduce interest rate and foreign currency risk on the BoA Term Loan, the Company entered into an interest rate swap agreement and cross currency swap transactions with Bank of America Merrill Lynch Banco Multiplo S.A. that are designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan and convert $2.4 million of US Dollar based LIBOR working capital loans to Brazilian Real based CDI loans. The Company has not designated these agreements as hedging instruments. Changes in the fair value of the cross currency swap are recorded in other income (expense) and changes in the fair value of the interest rate swap agreement are recorded as interest expense (or gain as an offset to interest expense). For the three months ended September 30, 2012, the Company recorded $(0.1) million of other expense and $0.1 million of interest expense related to these derivatives. For the nine months ended September 30, 2012, the Company recorded $0.0 million of other expense and $0.3 million of interest expense related to these derivatives.

12



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



11. LEASE COMMITMENTS

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

At September 30, 2012, future minimum rental commitments under noncancellable operating leases with initial terms of at least one year were as follows (amounts in thousands):
October 1 - December 31, 2012
$
204

2013
521

2014
419

2015
96

2016
15

Total future minimum lease payments
$
1,255



12. 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 contributed approximately $3.7 million and $5.4 million to the frozen defined pension plans during the three and nine months ended September 30, 2012, respectively, and expects to contribute approximately $0.7 million to the frozen pension plans during the remainder of 2012.

The components of net periodic pension cost consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Interest cost
$
1,133

 
$
1,272

 
$
3,399

 
$
3,816

Expected return on assets
(1,252
)
 
(1,314
)
 
(3,756
)
 
(3,944
)
Amortization of unrecognized prior service cost
34

 
34

 
102

 
102

Amortization of unrecognized deferred taxes

 
(14
)
 

 
(42
)
Amortization of net unrecognized loss
1,293

 
937

 
3,879

 
2,809

      Net periodic pension cost
$
1,208

 
$
915

 
$
3,624

 
$
2,741



13. ROYALTY EXPENSE

The Company has a trademark license agreement with Goodyear to manufacture and sell certain tires in North America and Latin America under the Goodyear name.  The North American and Latin American farm tire royalties were prepaid for seven years as a part of the 2011 Goodyear Latin American farm tire acquisition. In May 2012, the Company and Goodyear entered into an agreement under which Titan will sell certain non-farm tire products directly to third party customers and pay a royalty to Goodyear. Royalty expenses recorded were $3.7 million and $2.3 million for the quarters ended September 30, 2012 and 2011, respectively. Royalty expenses were $8.7 million and $7.5 million for the nine months ended September 30, 2012 and 2011, respectively.

13



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



14. SUPPLY AGREEMENT TERMINATION INCOME

Supply agreement termination income consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Supply agreement termination income
$

 
$

 
$
26,134

 
$


The Company's April 2011 acquisition of Goodyear's farm tire business included a three year supply agreement with Goodyear for certain non-farm tire products. A liability was recorded as the supply agreement was for sales at below market prices. In May 2012, the Company and Goodyear terminated this supply agreement and entered into an agreement under which Titan will sell these products directly to third party customers and pay a royalty to Goodyear. The remaining balance of the supply agreement liability was recorded as income as the Company is no longer obligated to sell the products at below market prices.


15. OTHER INCOME (EXPENSE)

Other income (expense) consisted of the following (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Discount amortization on prepaid royalty
$
910

 
$
1,041

 
$
2,882

 
$
2,120

Other income (expense)
474

 
(461
)
 
683

 
(378
)
Gain (loss) related to contractual obligation investments
492

 
(1,255
)
 
1,287

 
(1,111
)
Interest income
372

 
119

 
757

 
357

Building rental income
191

 

 
554

 

Gain on purchase transaction

 

 

 
919

 
$
2,439

 
$
(556
)
 
$
6,163

 
$
1,907



16. INCOME TAXES

The Company recorded income tax expense of $13.6 million and $64.7 million for the three and nine months ended September 30, 2012, respectively, as compared to $12.7 million and $35.3 million for the three and nine months ended September 30, 2011. The Company's effective income tax rate was 40% and 45% for the nine months ended September 30, 2012 and 2011, respectively.

The Company's 2012 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 supply agreement termination income and related income tax effects and the liability for unrecognized tax benefits recorded.

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 fully deductible for income tax purposes.


14



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

ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination. The Company's unrecognized tax benefits were $6.4 million and $0.0 million as of September 30, 2012 and December 31, 2011, respectively. As of September 30, 2012, $4.3 million would affect income tax expense if recognized. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties included in the unrecognized tax benefits at September 30, 2012 and December 31, 2011 was $0.8 million and $0.0 million, respectively. The increase in unrecognized tax benefits relates to potential nexus exposure in various jurisdictions where the Company has activities and relates to 2012 and several previous tax years. The three and nine months ended September 30, 2012, included $1.8 million and $2.3 million, respectively, in income tax expense related to recording unrecognized tax benefits from previous tax years. Titan concluded that these amounts are immaterial to the consolidated financial statements for the three and nine months ended September 30, 2012.


17. EARNINGS PER SHARE

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

 
Three months ended
 
September 30, 2012
 
September 30, 2011
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
Basic earnings per share
$
19,579

 
42,180

 
$
0.46

 
$
21,163

 
42,028

 
$
0.50

   Effect of stock options/trusts

 
237

 
 

 

 
238

 
 

   Effect of convertible notes
1,143

 
10,909

 
 
 
1,091

 
10,795

 
 
Diluted earnings per share
$
20,722

 
53,326

 
$
0.39

 
$
22,254

 
53,061

 
$
0.42


 
Nine months ended
 
September 30, 2012
 
September 30, 2011
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
 
Titan Net income
 
Weighted-
average shares
 
Per share
 amount
Basic earnings per share
$
99,054

 
42,148

 
$
2.35

 
$
43,691

 
41,512

 
$
1.05

   Effect of stock options/trusts

 
258

 
 

 

 
287

 
 

   Effect of convertible notes
3,429

 
10,909

 
 
 
3,385

 
11,171

 
 
Diluted earnings per share
$
102,483

 
53,315

 
$
1.92

 
$
47,076

 
52,970

 
$
0.89


The weighted-average diluted shares outstanding for the three and nine months ended September 30, 2012, exclude stock options to purchase approximately 0.5 million shares for both periods, because such options have an exercise price in excess of the average market price of the Company's common stock during the period.

15



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



18. 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 and nine months ended September 30, 2012 and 2011 (amounts in thousands):
 
Three months ended
 
Nine months ended
 
September 30,
 
September 30,
 
2012
 
2011
 
2012
 
2011
Revenues from external customers
 
 
 
 
 
 
 
Agricultural
$
246,578

 
$
246,456

 
$
831,376

 
$
713,721

Earthmoving/construction
103,135

 
81,078

 
318,244

 
224,484

Consumer
55,006

 
71,271

 
177,420

 
145,876

 
$
404,719

 
$
398,805

 
$
1,327,040

 
$
1,084,081

Gross profit
 

 
 

 
 
 
 
Agricultural
$
48,091

 
$
39,008

 
$
173,684

 
$
133,874

Earthmoving/construction
18,689

 
8,814

 
60,598

 
28,227

Consumer
1,016

 
5,812

 
10,488

 
13,567

Unallocated corporate
(635
)
 
(640
)
 
(2,160
)
 
(2,068
)
 
$
67,161

 
$
52,994

 
$
242,610

 
$
173,600

Income from operations
 

 
 

 
 
 
 
Agricultural
$
41,740

 
$
34,580

 
$
156,965

 
$
120,248

Earthmoving/construction
13,468

 
7,418

 
51,385

 
23,408

Consumer
(234
)
 
3,615

 
30,284

 
9,352

Unallocated corporate
(18,808
)
 
(4,226
)
 
(62,828
)
 
(40,345
)
      Income from operations
36,166

 
41,387

 
175,806

 
112,663

 
 
 
 
 
 
 
 
Interest expense
(6,187
)
 
(6,616
)
 
(18,699
)
 
(19,045
)
Noncash convertible debt conversion charge

 

 

 
(16,135
)
Other income (expense), net
2,439

 
(556
)
 
6,163

 
1,907

      Income before income taxes
$
32,418

 
$
34,215

 
$
163,270

 
$
79,390


Assets by segment were as follows (amounts in thousands):
 
September 30,
2012
 
December 31, 2011
Total assets
 

 
 

Agricultural
$
459,307

 
$
444,611

Earthmoving/construction
347,988

 
193,566

Consumer
146,018

 
139,161

Unallocated corporate
204,817

 
232,948

 
$
1,158,130

 
$
1,010,286

 

16



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


19. 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 (amounts in thousands):

 
September 30, 2012
 
December 31, 2011
 
Total
 
Level 1
 
Level 2
 
Level 3
 
Total
 
Level 1
 
Level 2
 
Level 3
Investment in Titan Europe Plc (a)
$
28,972

 
$
28,972

 
$

 
$

 
$
28,998

 
$
28,998

 
$

 
$

Contractual obligation investments
13,681

 
13,681

 


 


 
12,395

 
12,395

 


 


Interest rate swap
1,011

 

 
1,011

 

 
634

 

 
634

 

Preferred stock
250

 

 

 
250

 
1,000

 

 

 
1,000

Total
$
43,914

 
$
42,653

 
$
1,011

 
$
250

 
$
43,027

 
$
41,393

 
$
634

 
$
1,000


(a) The fair value for all periods presented has been decreased by cumulative translation adjustment of $1.2 million, which relates to the Company's Titan Europe Plc ownership in 2005 and before.

The following table presents the changes during the periods presented in Titan's Level 3 investments that are measured at fair value on a recurring basis (amounts in thousands):
 
Preferred stock
Balance at December 31, 2011
$
1,000

  Change in preferred stock investment
(750
)
  Total realized and unrealized gains and losses

Balance as of September 30, 2012
$
250



20. 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.


17



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


21. RECENTLY ISSUED ACCOUNTING STANDARDS

Comprehensive Income
In June 2011, the FASB issued ASU No. 2011-05, “Comprehensive Income (Topic 220) - Presentation of Comprehensive Income.” The objective of this update is to improve the comparability, consistency, and transparency of financial reporting to increase the prominence of items reported in other comprehensive income. This update requires that all nonowner changes in stockholders' equity be presented in either a single continuous statement of comprehensive income or in two separate but consecutive statements. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. In December of 2011, the FASB issued ASU No. 2011-12, "Comprehensive Income (Topic 220) - Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05." Titan adopted the required comprehensive income presentation updates in the first quarter of 2012. The Company has elected to present items of income and other comprehensive income in two separate, but consecutive, statements of net income and other comprehensive income. This change in presentation did not have a material effect on the Company's financial position, results of operations or cash flows.

Intangibles Impairment Testing
In July 2012, the FASB issued ASU No. 2012-02, "Intangibles-Goodwill and Other (Topic 350) - Testing Indefinite-Lived Intangible Assets for Impairment." The objective of this update is to reduce the cost and complexity of performing an impairment test for indefinite-lived intangible assets. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform a quantitative impairment test. The amendments in this update are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and early adoption is permitted. The adoption of this update is not expected to have a material effect on the Company's financial position, results of operations or cash flows.


22. RELATED PARTY TRANSACTIONS

The Company sells products and pays commissions to companies controlled by persons related to the chief executive officer of the Company.  The related party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother.  The companies which Mr. Fred Taylor is associated with that do business with Titan include the following:  Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering.  Sales of Titan products to these companies were approximately $0.6 million and $1.7 million for the three and nine months ended September 30, 2012, respectively, as compared to $0.5 million and $2.4 million for the three and nine months ended September 30, 2011.  Titan had trade receivables due from these companies of approximately $0.2 million at September 30, 2012, and approximately $0.0 million at December 31, 2011.  On other sales referred to Titan from the above manufacturing representative companies, commissions were approximately $0.6 million and $2.1 million for the three and nine months ended September 30, 2012, respectively, as compared to $0.5 million and $1.7 million for the three and nine months ended September 30, 2011.


23. SUBSEQUENT EVENTS

Titan Europe Plc Acquisition
On October 19, 2012, Titan issued 5,574,160 shares of Titan International common stock to Titan Europe Plc shareholders with a value of $107.6 million. See Note 6 for additional information.


18



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


24. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION - 5.625% CONVERTIBLE NOTES

The Company's 5.625% convertible senior subordinated notes ("convertible notes") are guaranteed by the following 100% owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, 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 guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.
(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended September 30, 2012
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
311,422

 
$
93,297

 
$

 
$
404,719

Cost of sales
253

 
246,275

 
91,030

 

 
337,558

Gross profit (loss)
(253
)
 
65,147

 
2,267

 

 
67,161

Selling, general and administrative expenses
(9,013
)
 
40,635

 
(6,125
)
 

 
25,497

Research and development expenses
155

 
1,604

 

 

 
1,759

Royalty expense

 
1,778

 
1,961

 

 
3,739

Income from operations
8,605

 
21,130

 
6,431

 

 
36,166

Interest expense
(6,012
)
 

 
(175
)
 

 
(6,187
)
Other income
1,163

 
364

 
912

 

 
2,439

Income before income taxes
3,756

 
21,494

 
7,168

 

 
32,418

Provision (benefit) for income taxes
6,329

 
7,398

 
(138
)
 

 
13,589

Equity in earnings of subsidiaries
21,402

 

 
5,420

 
(26,822
)
 

Net income (loss)
18,829

 
14,096

 
12,726

 
(26,822
)
 
18,829

Net loss noncontrolling interests

 

 

 
(750
)
 
(750
)
Net income (loss) attributable to Titan
$
18,829

 
$
14,096

 
$
12,726

 
$
(26,072
)
 
$
19,579



19



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

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Three Months Ended September 30, 2011
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
299,695

 
$
99,110

 
$

 
$
398,805

Cost of sales
380

 
255,509

 
89,922

 

 
345,811

Gross profit (loss)
(380
)
 
44,186

 
9,188

 

 
52,994

Selling, general and administrative expenses
(4,443
)
 
2,467

 
10,524

 

 
8,548

Research and development expenses

 
796

 

 

 
796

Royalty expense

 
1,620

 
643

 

 
2,263

Income (loss) from operations
4,063

 
39,303

 
(1,979
)
 

 
41,387

Interest expense
(6,114
)
 

 
(502
)
 

 
(6,616
)
Other income (expense)
(552
)
 
5

 
(9
)
 

 
(556
)
Income (loss) before income taxes
(2,603
)
 
39,308

 
(2,490
)
 

 
34,215

Provision (benefit) for income taxes
(988
)
 
14,605

 
(927
)
 

 
12,690

Equity in earnings of subsidiaries
23,140

 

 

 
(23,140
)
 

Net income (loss)
21,525

 
24,703

 
(1,563
)
 
(23,140
)
 
21,525

Net income noncontrolling interests

 

 

 
362

 
362

Net income (loss) attributable to Titan
$
21,525

 
$
24,703

 
$
(1,563
)
 
$
(23,502
)
 
$
21,163


(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Nine Months Ended September 30, 2012
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
1,055,586

 
$
271,454

 
$

 
$
1,327,040

Cost of sales
812

 
828,935

 
254,683

 

 
1,084,430

Gross profit (loss)
(812
)
 
226,651

 
16,771

 

 
242,610

Selling, general and administrative expenses
4,970

 
71,372

 
3,400

 

 
79,742

Research and development expenses
327

 
3,983

 
146

 

 
4,456

Royalty expense

 
5,250

 
3,490

 

 
8,740

Supply agreement termination income

 

 
(26,134
)
 

 
(26,134
)
Income (loss) from operations
(6,109
)
 
146,046

 
35,869

 

 
175,806

Interest expense
(18,119
)
 

 
(580
)
 

 
(18,699
)
Other income
3,620

 
1,174

 
1,369

 

 
6,163

Income (loss) before income taxes
(20,608
)
 
147,220

 
36,658

 

 
163,270

Provision for income taxes
1,261

 
51,311

 
12,150

 

 
64,722

Equity in earnings of subsidiaries
120,417

 

 
24,242

 
(144,659
)
 

Net income (loss)
98,548

 
95,909

 
48,750

 
(144,659
)
 
98,548

Net loss noncontrolling interests

 

 

 
(506
)
 
(506
)
Net income (loss) attributable to Titan
$
98,548

 
$
95,909

 
$
48,750

 
$
(144,153
)
 
$
99,054



20



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

(Amounts in thousands)
Consolidating Condensed Statements of Operations
For the Nine Months Ended September 30, 2011
 
Titan
 Intl., Inc. (Parent)
 
Guarantor Subsidiaries
 
Non-Guarantor Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$

 
$
890,916

 
$
193,165

 
$

 
$
1,084,081

Cost of sales
1,282

 
733,379

 
175,820

 

 
910,481

Gross profit (loss)
(1,282
)
 
157,537

 
17,345

 

 
173,600

Selling, general and administrative expenses
15,513

 
7,654

 
27,247

 

 
50,414

Research and development expenses
4

 
2,989

 

 

 
2,993

Royalty expense

 
6,304

 
1,226

 

 
7,530

Income (loss) from operations
(16,799
)
 
140,590

 
(11,128
)
 

 
112,663

Interest expense
(18,426
)
 

 
(619
)
 

 
(19,045
)
Noncash convertible debt conversion charge
(16,135
)
 

 

 

 
(16,135
)
Other income (expense)
1,644

 
(236