-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DqYFC+OMOZfQngIzzevgYID7mT/NV6ZYCqC0xUi7uBBlbfy+ZLKmVzFQ3B+8fmWZ 8+ShXpH+FL+ZbGzzQjGqCg== 0000950124-03-002490.txt : 20030731 0000950124-03-002490.hdr.sgml : 20030731 20030730175252 ACCESSION NUMBER: 0000950124-03-002490 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030731 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TITAN INTERNATIONAL INC CENTRAL INDEX KEY: 0000899751 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 363228472 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12936 FILM NUMBER: 03812572 BUSINESS ADDRESS: STREET 1: 2701 SPRUCE ST CITY: QUINCY STATE: IL ZIP: 62301 BUSINESS PHONE: 2172286011 MAIL ADDRESS: STREET 1: 2701 SPRUCE ST CITY: QUINCY STATE: IL ZIP: 62301 FORMER COMPANY: FORMER CONFORMED NAME: TITAN WHEEL INTERNATIONAL INC DATE OF NAME CHANGE: 19930403 10-Q 1 k78583e10vq.txt QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR QUARTERLY PERIOD ENDED: JUNE 30, 2003 OR 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 [X] No [ ] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X] 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 JULY 30, 2003 ----- --------------------- COMMON STOCK, NO PAR VALUE PER SHARE 21,059,815
TITAN INTERNATIONAL, INC. TABLE OF CONTENTS
Page Number Part I. Financial Information Item 1. Financial Statements (Unaudited) Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002 1 Consolidated Condensed Balance Sheets as of June 30, 2003, and December 31, 2002 2 Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002 3 Notes to Consolidated Condensed Financial Statements 4-12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 13-25 Item 3. Quantitative and Qualitative Disclosures About Market Risk 26 Item 4. Controls and Procedures 26 Part II. Other Information 27 Signatures 28
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 SIX MONTHS ENDED JUNE 30, JUNE 30, 2003 2002 2003 2002 ---- ---- ---- ---- Net sales $ 131,001 $ 125,837 $ 259,985 $ 249,553 Cost of sales 124,930 110,953 243,519 222,530 --------- --------- --------- --------- Gross profit 6,071 14,884 16,466 27,023 Selling, general and administrative expenses 10,940 10,013 22,357 20,311 Research and development expenses 716 864 1,384 1,650 --------- --------- --------- --------- (Loss) income from operations (5,585) 4,007 (7,275) 5,062 Interest expense (5,038) (5,177) (10,013) (10,380) Other income 2,005 1,680 2,483 2,008 --------- --------- --------- --------- (Loss) income before income taxes (8,618) 510 (14,805) (3,310) (Benefit) provision for income taxes (431) 127 (740) (828) --------- --------- --------- --------- Net (loss) income $ (8,187) $ 383 $ (14,065) $ (2,482) ========= ========= ========= ========= (Loss) earnings per common share: Basic $ (.39) $ .02 $ (.67) $ (.12) Diluted $ (.39) $ .02 $ (.67) $ (.12) Average shares outstanding: Basic 20,913 20,769 20,852 20,748 Diluted 20,913 20,774 20,852 20,748
The accompanying notes are an integral part of the consolidated condensed financial statements. 1 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (Amounts in thousands, except share data)
JUNE 30, DECEMBER 31, 2003 2002 --------- ----------- ASSETS Current assets Cash and cash equivalents $ 24,382 $ 22,049 Accounts receivable (net allowance of $3,876 and $3,172, respectively) 97,499 82,588 Inventories 106,648 109,142 Deferred income taxes 12,009 12,009 Prepaid and other current assets 21,701 28,781 --------- --------- Total current assets 262,239 254,569 Property, plant and equipment, net 177,537 186,540 Restricted cash deposits 26,803 26,803 Other assets 46,710 46,248 Goodwill, net 18,120 17,839 --------- --------- Total assets $ 531,409 $ 531,999 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Short-term debt (including current portion of long-term debt) $ 16,319 $ 10,615 Accounts payable 47,760 49,007 Other current liabilities 28,434 24,684 --------- --------- Total current liabilities 92,513 84,306 Deferred income taxes 12,009 12,009 Other long-term liabilities 43,415 42,538 Long-term debt 250,314 249,119 --------- --------- Total liabilities 398,251 387,972 --------- --------- Stockholders' equity Common stock (no par, 60,000,000 shares authorized; 27,555,081 issued) 27 27 Additional paid-in capital 206,217 210,231 Retained earnings 33,432 47,705 Treasury stock (at cost: 6,641,639 and 6,764,199 shares, respectively) (84,820) (88,963) Accumulated other comprehensive loss (21,698) (24,973) --------- --------- Total stockholders' equity 133,158 144,027 --------- --------- Total liabilities and stockholders' equity $ 531,409 $ 531,999 ========= =========
The accompanying notes are an integral part of the consolidated condensed financial statements. 2 TITAN INTERNATIONAL, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in thousands)
SIX MONTHS ENDED JUNE 30, 2003 2002 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(14,065) $ (2,482) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 15,780 17,795 (Increase) decrease in current assets: Accounts receivable (12,639) (10,604) Inventories 3,735 15,076 Income tax refund 7,687 0 Prepaid and other current assets (56) 4,885 Increase (decrease) in current liabilities: Accounts payable (2,964) (13,745) Other current liabilities 2,941 2,630 Other, net (236) (8,531) -------- -------- Net cash provided by operating activities 183 5,024 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net (3,636) (4,696) Other 63 79 -------- -------- Net cash used for investing activities (3,573) (4,617) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings 20,427 0 Payment of debt (14,956) (1,131) Decrease in restricted cash deposits 0 6,986 Repurchase of common stock (244) 0 Dividends paid (208) (207) Other, net 373 399 -------- -------- Net cash provided by financing activities 5,392 6,047 -------- -------- Effect of exchange rate changes on cash 331 260 Net (decrease) increase in cash and cash equivalents 2,333 6,714 Cash and cash equivalents at beginning of period 22,049 9,214 -------- -------- Cash and cash equivalents at end of period $ 24,382 $ 15,928 ======== ========
The accompanying notes are an integral part of the consolidated condensed financial statements. 3 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) A. 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, necessary to present fairly its financial position as of June 30, 2003, the results of operations for the three and six months ended June 30, 2003 and 2002, and cash flows for the six months ended June 30, 2003 and 2002. Accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company's 2002 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 2002 Annual Report on Form 10-K. Details in those notes have not changed significantly, except as a result of normal interim transactions and certain matters discussed hereafter. Stock-based compensation At June 30, 2003, the Company has two stock-based compensation plans, which are described in Note 22 to the Company's financial statements on Form 10-K for the fiscal year ended December 31, 2002. The Company applies the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations in accounting for those plans. The Company granted no stock options during the first half of 2003 and no stock-based compensation expense was required to be recorded. The total stock-based compensation expense determined under the fair value method for all existing awards, net of related tax effects, for the first half of 2003 is computed to be an immaterial amount. 4 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) B. INVENTORIES Inventories consisted of the following (in thousands):
June 30, December 31, 2003 2002 ----------- ----------- Raw materials $ 33,110 $ 32,927 Work-in-process 17,788 18,209 Finished goods 52,728 56,218 ----------- ----------- 103,626 107,354 LIFO reserve 3,022 1,788 ----------- ----------- $ 106,648 $ 109,142 =========== ===========
The LIFO reserve changed primarily as a result of price fluctuations within the composition of LIFO inventory layers. C. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment, net reflects accumulated depreciation of $235.5 million and $220.7 million at June 30, 2003, and December 31, 2002, respectively. D. GOODWILL Goodwill, net reflects accumulated amortization of $5.7 million at June 30, 2003, and $5.6 million at December 31, 2002. Goodwill amortization was ceased in January 2002, pursuant to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142. The $0.1 million increase in accumulated amortization is the result of currency exchange fluctuations. The carrying amount of goodwill by segment at June 30, 2003 was (i) agricultural of $9.9 million, (ii) earthmoving/construction of $6.4 million, and (iii) consumer of $1.8 million. The increase in net goodwill to $18.1 million at June 30, 2003, from $17.8 million at December 31, 2002, is the result of currency exchange fluctuations. The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. 5 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) E. WARRANTY COSTS The Company provides limited warranties on workmanship on its products in all market segments. 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. Changes in the warranty liability consisted of the following (in thousands): Warranty liability, January 1, 2003 $ 1,617 Provision for warranty liabilities for 2003 sales 928 Warranty payments made in 2003 (922) ---------- Warranty liability, June 30, 2003 $ 1,623 ==========
F. INCOME TAXES The Company's effective income tax benefit on the net loss for the first half of 2003 was 5%, compared to 25% for the first half of 2002. The Company's income tax benefit differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pretax loss primarily as a result of income tax expense to be paid in foreign jurisdictions and the application of a valuation allowance on the domestic net deferred tax asset balance. As a result of several periods of recurring losses, the Company began reserving its net deferred tax asset position at December 31, 2002, consistent with the Company's accounting policies. The Company continues to monitor its income tax position and will review the necessity of the valuation allowance at the end of each reporting period. To the extent it is determined deferred tax assets will be realized in excess of deferred tax liabilities, some or all of the valuation allowance will be recorded as income. 6 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) G. LONG-TERM DEBT Long-term debt consisted of the following (in thousands):
June 30, December 31, 2003 2002 ----------- ----------- Senior subordinated notes $ 136,750 $ 136,750 Term loan 94,050 96,525 Revolving loan agreement 0 0 Industrial revenue bonds and other (a) 35,833 26,459 ----------- ----------- 266,633 259,734 Less: Amounts due within one year 16,319 10,615 ----------- ----------- $ 250,314 $ 249,119 =========== ===========
(a) The increase in other debt resulted primarily from an increase in debt of $7.1 million at the Company's Italian subsidiary for working capital requirements. Aggregate maturities of long-term debt at June 30, 2003, were as follows (in thousands): July 1 - December 31, 2003 $ 11,895 2004 11,379 2005 14,645 2006 71,569 2007 138,915 Thereafter 18,230 ----------- $ 266,633 ===========
H. COMPREHENSIVE INCOME (LOSS) Comprehensive loss, which included net loss of $(8.2) million and the effect of foreign currency translation adjustments of $3.3 million, totaled $(4.9) million for the second quarter of 2003, compared to comprehensive income of $5.2 million in the second quarter of 2002. Comprehensive loss for the six months ended June 30, 2003 was $(10.8) million, including net loss of $(14.1) million and the effect of foreign currency translations of $3.3 million, compared to comprehensive income of $1.3 million in 2002. 7 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) I. SEGMENT INFORMATION The table below presents information about certain revenues and income from operations for the three and six months ended June 30, 2003 and 2002 used by the chief operating decision maker of the Company (in thousands):
Revenues Income (loss) Three months ended from external Intersegment from June 30, 2003 customers revenues (a) operations ------------- ------------- ------------- ------------ Agricultural $ 75,847 $ 15,473 $ 191 Earthmoving/construction 45,138 8,620 1,103 Consumer 10,016 1,527 (279) Reconciling items (b) 0 0 (6,600) ---------- ---------- ---------- Consolidated totals $ 131,001 $ 25,620 $ (5,585) ========== ========== ========== Three months ended June 30, 2002 ------------- Agricultural $ 75,257 $ 39,109 $ 7,049 Earthmoving/construction 39,482 15,415 2,866 Consumer 11,098 7,166 590 Reconciling items (b) 0 0 (6,498) ---------- ---------- ---------- Consolidated totals $ 125,837 $ 61,690 $ 4,007 ========== ========== ==========
(a) Intersegment revenues have declined due to the closure of certain Company distribution facilities in 2002. (b) Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level. 8 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) I. SEGMENT INFORMATION (CONTINUED)
Revenues Income (loss) Six months ended from external Intersegment from June 30, 2003 customers revenues (a) operations ------------- ------------- ------------- ------------ Agricultural $ 153,949 $ 40,419 $ 3,578 Earthmoving/construction 86,182 19,815 2,650 Consumer 19,854 4,281 (71) Reconciling items (b) 0 0 (13,432) ---------- ---------- ---------- Consolidated totals $ 259,985 $ 64,515 $ (7,275) ========== ========== ========== Six months ended June 30, 2002 ------------- Agricultural $ 150,502 $ 82,134 $ 12,154 Earthmoving/construction 76,416 29,974 4,752 Consumer 22,635 13,553 1,071 Reconciling items (b) 0 0 (12,915) ---------- ---------- ---------- Consolidated totals $ 249,553 $ 125,661 $ 5,062 ========== ========== ==========
(a) Intersegment revenues have declined due to the closure of certain Company distribution facilities in 2002. (b) Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level. 9 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) I. SEGMENT INFORMATION (CONTINUED)
June 30, December 31, Total assets 2003 2002 ------------ ---------- ----------- Agricultural $ 253,420 $ 258,704 Earthmoving/construction 154,957 138,811 Consumer 29,704 37,199 Reconciling items (c) 93,328 97,285 ---------- ---------- Consolidated totals $ 531,409 $ 531,999 ========== ==========
(c) Represents property, plant and equipment and goodwill related to certain acquisitions and other corporate assets. J. LEASE COMMITMENTS The Company leases certain buildings and equipment under operating leases, including a lease for the building in Brownsville, Texas. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company. At June 30, 2003, future minimum commitments under noncancellable operating leases with initial or remaining terms of one year were as follows (in thousands): July 1 - December 31, 2003 $ 2,039 2004 2,863 2005 1,039 2006 791 2007 647 Thereafter 147 ----------- $ 7,526 ===========
10 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) K. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards Number 146 In June 2002, Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Exit or Disposal Costs," was issued. This statement requires companies to recognize certain liabilities and costs associated with exit or disposal activities when incurred rather than when management commits to an exit plan. Adoption of this standard was required for any exit or disposal activities initiated subsequent to December 31, 2002. SFAS No. 146 was adopted in the first quarter of 2003 with no material effect on the Company's financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 45 In November 2002, Financial Accounting Standards Board Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued. FIN No. 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN No. 45 is effective for guarantees issued or modified starting January 1, 2003. The additional disclosures required by FIN No. 45 are required for periods ending December 31, 2002, and after. The Company has provided additional disclosure with respect to warranties in accordance with FIN No. 45. The adoption of this interpretation did not have a material effect on the Company's financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 46 In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities," was issued. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the activities of the variable interest entity or is entitled to receive a majority of the entity's residual returns. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. For older entities, the requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 1, 2003. The Company is evaluating the effect the adoption of this interpretation will have on its financial position, cash flows, and results of operations. 11 TITAN INTERNATIONAL, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) K. NEW ACCOUNTING STANDARDS (CONTINUED) Statement of Financial Accounting Standards Number 149 In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," was issued. This statement amends and clarifies accounting and reporting for derivative instruments and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is intended to result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not expect the adoption of this statement to have a material effect on its financial position, cash flows or results of operations. Statement of Financial Accounting Standards Number 150 In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," was issued. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires financial instruments that are within its scope to be classified as a liability. Many of these instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company did not enter into or modify any of these financial instruments in June of 2003 and does not expect the adoption of this statement to have a material effect on its financial position, cash flows or results of operations. 12 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES Preparation of the financial statements and related disclosures in compliance with generally accepted accounting principles 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 judgments regarding many factors, which, in and of themselves, could materially impact the financial statements and disclosures. A future change in the assumptions or judgments applied in determining the following matters, among others, could have a material impact on future financial results. Revenue Recognition The Company records sales revenue and cost of sales when products are shipped to customers and both title and the risks and rewards of ownership are transferred. Provisions are established for sales returns and uncollectible accounts based on historical experience. Should these experience trends change, adjustments to the estimated provisions would be necessary. Product Costing Inventories are valued at the lower of cost or market. For operations in the United States, cost is determined using the last-in, first-out (LIFO) method for approximately 36% of inventories and the first-in, first-out (FIFO) method for the remainder of inventories. Inventory of foreign subsidiaries is valued using the FIFO method. Market is estimated based on current selling prices. Estimated provisions are established for excess and obsolete inventory, as well as inventory carried above market price, based on historical experience. Should this experience change, adjustments to the estimated provisions would be necessary. Impairment of Fixed Assets The Company reviews fixed assets to assess recoverability from future operations whenever events and circumstances indicate that the carrying values may not be recoverable. Impairment losses are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. Impairment losses are measured as the excess of the carrying value of the asset over the discounted expected future cash flows, or the fair value of the asset. Significant assumptions relating to future operations must be made when estimating future cash flows. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur. Regarding the Brownsville location's fixed assets, management at this time believes the fair value exceeds carrying value and no impairment exists. 13 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES (CONTINUED) Valuation of Investments Accounted for Under the Equity Method The Company assesses the carrying value of its equity investments whenever events and circumstances indicate that the carrying value may not be recoverable. Investment write-downs, if necessary, are recognized in operating results when expected undiscounted future cash flows are less than the carrying value of the asset. Any such write-downs are measured as the excess of the carrying value of the asset over the discounted expected future cash flows or the fair value of the asset. Significant assumptions relating to future investment results must be made when estimating the future cash flows associated with these investments. Should unforeseen events occur or should investment trends change significantly, impairment losses could occur. Impairment of Goodwill The Company reviews goodwill to assess recoverability from future operations during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Should unforeseen events occur or should operating trends change significantly, impairment losses could occur. Retirement Benefit Obligations Pension benefit obligations are based on various assumptions used by the Company's 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. For more information concerning these costs and obligations, see the additional discussion of the "Pensions" and Note 21 to the Company's financial statements on Form 10-K for the fiscal year ended December 31, 2002. 14 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net Sales Net sales for the quarter ended June 30, 2003, were $131.0 million, compared to 2002 second quarter net sales of $125.8 million. Net sales for the six months ended June 30, 2003 were $260.0 million, compared to 2002 net sales of $249.6 million. The increase in net sales was attributed to the Company's foreign subsidiaries, which recorded an increase in net sales of $5.7 million and $13.5 million for the quarter and six months ended June 30, 2003, respectively. The majority of the increase in sales at the foreign subsidiaries was due to a favorable currency translation rate. Cost of Sales and Gross Profit Cost of sales were $124.9 and $243.5 million for the second quarter and for the six months ended June 30, 2003, as compared to $111.0 and $222.5 million in 2002. Gross profit for the second quarter of 2003 was $6.1 million or 4.6% of net sales, compared to $14.9 million or 11.8% of net sales for the second quarter of 2002. Gross profit for the six months ended June 30, 2003, was $16.5 million or 6.3% of net sales, compared to $27.0 million or 10.8% of net sales for 2002. Gross profit, as a percentage of net sales, was negatively impacted by increases in raw material prices, increased employee benefits, and insurance costs. These increases totaled approximately $4.8 and $9.1 million for the second quarter and six months ended June 30, 2003. The Company's profit margins were also negatively affected by the idling of manufacturing at the Brownsville, Texas facility that occurred during the second quarter of 2003. Second quarter costs associated with the idling of the Brownsville manufacturing totaled approximately $3.4 million. The Brownsville location will continue as a distribution and warehouse center for the Company, however production will be suspended until market demand necessitates. Depreciation on the fixed assets at this facility, along with minimal operating costs, will continue to be incurred. The manufacturing of tires for all of the Company's segments will be consolidated at the Des Moines, Iowa facility. The Company is maintaining adequate capacity to meet current and future demands. Additionally, the Company's profit margins continue to be affected by the excess capacity at the idle Natchez, Mississippi facility. Depreciation on the fixed assets at this facility and minimal operating costs continue to be incurred. A recent third party appraisal indicates the fair value of the fixed assets of this facility is in excess of the carrying value of $18.5 million. 15 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Administrative Expenses Selling, general and administrative (SG&A) and research and development (R&D) expenses for the second quarter of 2003 were $11.7 million or 8.9% of net sales, compared to $10.9 million or 8.6% of net sales for 2002. SG&A and R&D expenses for the six months ended June 30, 2003 were $23.7 million or 9.1% of net sales, compared to $22.0 million or 8.8% of net sales in 2002. The Company continues to incur increased costs for employee benefits, insurances and other professional fees. The increases in these areas totaled approximately $0.4 and $1.5 million for the quarter and six months ended June 30, 2003. Operating Results and Other Loss from operations for the second quarter of 2003 was $(5.6) million or (4.3)% of net sales, compared to income from operations of $4.0 million or 3.2% in 2002. Loss from operations for the six months ended June 30, 2003 was $(7.3) million or (2.8)% of net sales, compared to income of $5.1 million or 2.0% for 2002. Operating results were primarily impacted by increased costs as previously discussed in the "Cost of Sales and Gross Profit" and "Administrative Expenses" sections. Net interest expense was $5.0 million and $10.0 million for the second quarter and for the six months ended June 30, 2003, respectively, compared to $5.2 million and $10.4 million in 2002. The decreased interest expense in 2003 was primarily due to an average interest rate that was approximately one-half percent lower as compared to the first half of 2002. The Company's effective income tax benefit on the net loss for the first six months of 2003 was 5%, compared to 25% for the first six months of 2002. The Company's income tax benefit differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pretax loss primarily as a result of income tax expense to be paid in foreign jurisdictions and the application of a valuation allowance on the domestic net deferred tax asset balance. As a result of several periods of recurring losses, the Company began reserving its net deferred tax asset position at December 31, 2002, consistent with the Company's accounting policies. The Company continues to monitor its income tax position and will review the necessity of the valuation allowance at the end of each reporting period. To the extent it is determined deferred tax assets will be realized in excess of deferred tax liabilities, some or all of the valuation allowance will be recorded as income. 16 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Net Income (Loss) Net loss for the second quarter and for the six months ended June 30, 2003, was $(8.2) and $(14.1) million, respectively, compared to income (loss) of $0.4 and $(2.5) million in 2002. Basic and diluted loss per share were $(.39) and $(.67) for the second quarter and for the six months ended June 30, 2003, compared to earnings (loss) per share of $.02 and $(.12) in 2002. Net loss and loss per share increased primarily due to increased raw material prices, employee benefits, professional fees, and insurance costs as previously discussed. Agricultural Segment Results Net sales in the agricultural market were $75.8 and $153.9 million for the second quarter and the six months ended June 30, 2003, as compared to $75.3 and $150.5 million in 2002. Income from operations in the agricultural market was $0.2 and $3.6 million for the second quarter and the six months ended June 30, 2003, as compared to $7.0 and $12.2 million in 2002. The decrease in income from operations in the agricultural market was primarily attributed to increased raw material prices, employee benefits, professional fees, and insurance costs as previously discussed, as well as the costs associated with the idling of manufacturing at the Brownsville facility. Earthmoving/Construction Segment Results The Company's earthmoving/construction market net sales were $45.1 and $86.2 million for the second quarter and the six months ended June 30, 2003, as compared to $39.5 and $76.4 million for 2002. Currency exchange translations accounted for a large part of this sales increase, while sales to new customers also contributed to a lesser extent. Income from operations in the earthmoving/ construction market was $1.1 and $2.7 million for the second quarter and the six months ended June 30, 2003, versus $2.9 and $4.8 million in 2002. The decrease in income from operations in the earthmoving/construction market was primarily due to previously discussed increased raw material prices, employee benefits, professional fees, insurance costs, and costs associated with the idling of manufacturing at the Brownsville facility. 17 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS (CONTINUED) Consumer Segment Results Consumer market net sales were $10.0 and $19.9 million for the second quarter of 2003 and the six months ended June 30, 2003, as compared to $11.1 and $22.6 million for 2002. Consumer market sales decreased primarily as a result of lower sales to boat trailer manufacturers. Consumer market loss from operations was $(0.3) and $(0.1) million for the second quarter of 2003 and the six months ended June 30, 2003, as compared to income from operations of $0.6 and $1.1 million for 2002. The decrease in income from operations in the consumer market was primarily attributed to the lower sales levels, the idling of manufacturing at the Brownsville facility, and increased raw material prices and costs for employee benefits, professional fees, and insurance as previously discussed. 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 $6.6 and $13.4 million for the second quarter and the six months ended June 30, 2003, respectively, as compared to $6.5 and $12.9 million for comparable periods in 2002. Foreign Subsidiaries Sales Net sales at foreign subsidiaries were $37.0 and $72.7 million for the second quarter and six months ended June 30, 2003 as compared to $31.2 and $59.2 million in 2002. The sales increase at foreign subsidiaries was primarily due to a favorable currency translation of approximately $6.3 million in the second quarter and $12.1 million for the six months ended June 30, 2003. To a lesser extent, the foreign subsidiaries have been successful in obtaining sales to new customers. 18 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES Cash Flows As of June 30, 2003, the Company had $24.4 million of unrestricted cash deposited within various bank accounts. The unrestricted cash balance increased by $2.3 million from December 31, 2002, due to the cash flow items discussed in the following paragraphs. In the first half of 2003, positive cash flows from operating activities of $0.2 million resulted primarily from depreciation and amortization of $15.8 million, an income tax refund of $7.7 million and an inventory decrease of $3.7 million. These items were offset by the net loss of $14.1 million and an increase in accounts receivable of $12.6 million. The increase in receivables is primarily due to a seasonal increase in sales volume in the first half of 2003 when compared to the fourth quarter of 2002. In comparison, in the first half of 2002, positive cash flows from operating activities of $5.0 million resulted primarily from inventory decreases of $15.1 million and depreciation and amortization of $17.8 million, offset partially by accounts receivable increases of $10.6 million and accounts payable decreases of $13.7 million. The decrease in inventory occurred primarily in the first quarter and was the result of concerted efforts to reduce inventory levels. The Company invested $3.6 million in capital expenditures in the first half of 2003, as compared to $4.7 million in the first half of 2002. The expenditures represent various equipment purchases and building improvements to enhance production capabilities. The Company estimates that its total capital expenditures for 2003 could range between $8 million and $15 million. Debt Funding The Company's term loan and revolving loan agreements contain various covenants and restrictions. The financial covenants in these loan agreements require that the (i) Company's adjusted minimum tangible net worth be equal to or greater than $150 million, (ii) value of equipment, accounts receivable, and inventory be equal to or greater than three times the outstanding principal balance of the term loan, and (iii) value of accounts receivable and inventory be equal to or greater than $100 million. Restrictions include (i) limits on payments of dividends and repurchases of the Company's stock, (ii) restrictions on the ability of the Company to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of the Company, and (iii) limitations on investments, dispositions of assets and guarantees of indebtedness. 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. If the Company were unable to meet these covenants, the Company would be in default on these loan agreements. 19 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) The Company is in compliance with these covenants and restrictions as of June 30, 2003. The Company's adjusted minimum tangible net worth is required to be equal to or greater than $150 million and the Company computed it to be $162.4 million at June 30, 2003. The value of the equipment, accounts receivable and inventory are required to be equal to or greater than 3.00 times the outstanding principal balance of the term loan and was calculated to be 4.27 times this balance at June 30, 2003. The value of the accounts receivable and inventory must be equal to or greater than $100 million and was computed to be $204.1 million at June 30, 2003. Other Issues The Company's business is subject to seasonal sales variations that affect inventory levels and accounts receivable balances. There have been no significant changes in interest rates, debt borrowings, or related covenants during the first six months of 2003. The Company had restricted cash of $26.8 million at June 30, 2003. Restricted cash of $15.0 million was collateral on the revolving loan agreement, under which the Company had no borrowings outstanding at June 30, 2003. The remaining $11.8 million was collateral on outstanding letters of credit for an industrial revenue bond of $9.6 million and another letter of credit for $2.2 million. Liquidity Outlook At June 30, 2003, the Company had unrestricted cash and cash equivalents of $24.4 million and no amount was drawn on the $20 million revolving loan agreement. Increased raw material prices, employee benefits, professional fees, and insurance costs are negatively impacting the profitability and the financial ratios of the Company. Economic uncertainty makes it difficult to determine precisely when the Company will realize significant sales increases, aside from those attributed to favorable currency translation, to enhance Titan's gross profit margin. Because of changes in the equity markets, interest rates and actuarial fluctuations, the Company may be required to additionally fund the Company's pension plans in amounts estimated to be approximately $5 million during the remainder of year 2003. The Company has scheduled debt principal payments due amounting to $11.9 million for the remainder of year 2003 and $16.3 million in the next twelve months. 20 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) 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 payments required on short-term debt for the near term. However, if the Company were to exhaust all currently available working capital sources or were not to meet the financial covenants and conditions of its loan agreements, the Company might find it extremely difficult to secure additional funding in order to meet working capital requirements. Litigation In the matter of Vehicular Technologies v Titan Wheel, a case arising from issues in 1992, prior to Titan's 1993 purchase of Dyneer Corporation, regarding alleged patent infringement and other claims, Titan prevailed twice in Federal Appellate Court regarding this case and was awarded a patent. The case was refiled in State Court in California. Although Titan was successful in Federal Appellate Court and a patent was awarded, these facts were disallowed by the State Court. A judgment against Titan Wheel of approximately $16 million was awarded. Post-trial briefs have been filed for a new trial based on judicial error in the State Court. If a new trial is not granted, Titan will appeal this award. Given the uncertainties of litigation, the Company is unable to predict the outcome of this case. However, the Company has prevailed in prior litigation in Federal Appellate Court concerning this case and management believes the Company will ultimately prevail. RECENT DEVELOPMENTS On July 25, 2003, the Company amended its term loan with General Electric Capital Corporation and its revolving loan agreement with LaSalle Bank National Association. Major revisions contained in the amendments include changes for increased flexibility regarding certain financial covenants, changes regarding prepayments, and the release of liens on certain assets. As part of these two amendments, the termination date was changed to January 14, 2005 from December 21, 2006. For further information, see the Company's Form 8-K filed on July 29, 2003. On July 25, 2003, the Company sold its interest in Polymer Enterprises, Inc. for $4.6 million, with cash proceeds being applied to the term loan agreement. This sale resulted in a loss on investment of approximately $2.7 million that will be reflected in Titan's financial statements for the third quarter of 2003. Polymer is a privately held company in Greensburg, Pennsylvania, which manufactures specialty tires and various rubber-related products for industrial applications. MARKET RISK SENSITIVE INSTRUMENTS The Company's risks related to exchange rates, commodity prices and interest rates are consistent with those for 2002. For more information, see the "Market Risk Sensitive Instruments" discussion in the Company's Form 10-K for the fiscal year ended December 31, 2002. 21 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK Determining precisely when the Company will realize significant sales increases, aside from those attributed to favorable currency translation, is difficult due to economic uncertainty. To address this issue, the Company is consolidating all the manufacturing of tires into its principal tire facility located in Des Moines, Iowa. The Brownsville, Texas location will continue as a distribution and warehouse center for Titan. However, tire production at this facility will be suspended until market demand necessitates. If current global market conditions and higher operating costs persist, these issues will continue to have a negative impact on the Company's margins. To combat these obstacles, the Company continues to seek opportunities to lower costs and to pursue new channels for increasing sales. The Company is working with equipment dealers to offer Titan wheels and tires directly through their dealerships. Also, Titan is cultivating relationships with many smaller companies that can benefit from the Company's engineering expertise and commitment to the off-highway sector. Titan is attempting to institute price increases to help offset higher operating costs for raw materials, employee benefits, professional fees, and insurance. These planned price increases and further efficiencies should result in improved margins for our products. These measures, along with consolidating the Company's tire manufacturing will help Titan withstand the economic pressure expected to persist throughout 2003 in the Company's three market segments: agricultural, earthmoving/construction, and consumer. Agricultural Segment Agricultural market sales are expected to remain stable for the rest of 2003. Several positive factors should support the agricultural segment for the last half of 2003, including improving cash flow for farmers, firm commodity prices, and better soil moisture conditions. Many variables, including weather, export markets, and future government policies and payments can greatly influence the overall health of the agricultural economy. Earthmoving/Construction Segment The factors affecting the earthmoving/construction segment have been mixed. Housing construction has remained resilient through the economic downturn. However, capital investment at private companies is still depressed. Governmental entities continue to curtail construction spending as they work to balance their budgets. Sales of earthmoving/construction machinery have increased modestly in the first half of 2003. However, the sales increase has recently slowed. Therefore, the Company believes that sales in the earthmoving/construction segment may remain stable or be up only slightly for the rest of 2003. 22 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OUTLOOK (CONTINUED) Consumer Segment Sales in the consumer market are expected to be stable to lower for the remainder of 2003. The all-terrain vehicle (ATV) tire aftermarket is expected to continue to offer future growth opportunities. Many items affect the consumer market including weather, competitive pricing, energy prices, and consumer attitude, which has experienced a slight improvement. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards Number 146 In June 2002, Statement of Financial Accounting Standards (SFAS) No. 146, "Accounting for Exit or Disposal Costs," was issued. This statement requires companies to recognize certain liabilities and costs associated with exit or disposal activities when incurred rather than when management commits to an exit plan. Adoption of this standard was required for any exit or disposal activities initiated subsequent to December 31, 2002. SFAS No. 146 was adopted in the first quarter of 2003 with no material effect on the Company's financial position, cash flows or results of operations. Financial Accounting Standards Board Interpretation Number 45 In November 2002, Financial Accounting Standards Board Interpretation (FIN) No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others," was issued. FIN No. 45 requires a guarantor to recognize a liability, at the inception of the guarantee, for the fair value of obligations undertaken in issuing the guarantee and also include more detailed disclosures with respect to guarantees. FIN No. 45 is effective for guarantees issued or modified starting January 1, 2003. The additional disclosures required by FIN No. 45 are required for periods ending December 31, 2002, and after. The Company has provided additional disclosure with respect to warranties in accordance with FIN No. 45. The adoption of this interpretation did not have a material effect on the Company's financial position, cash flows or results of operations. 23 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NEW ACCOUNTING STANDARDS (CONTINUED) Financial Accounting Standards Board Interpretation Number 46 In January 2003, FIN No. 46, "Consolidation of Variable Interest Entities," was issued. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the activities of the variable interest entity or is entitled to receive a majority of the entity's residual returns. The consolidation requirements of FIN No. 46 apply immediately to variable interest entities created after January 31, 2003. For older entities, the requirements apply in the first fiscal year or interim period beginning after June 15, 2003. Certain disclosure requirements apply in all financial statements issued after January 1, 2003. The Company is evaluating the effect the adoption of this interpretation will have on its financial position, cash flows, and results of operations. Statement of Financial Accounting Standards Number 149 In April 2003, SFAS No. 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities," was issued. This statement amends and clarifies accounting and reporting for derivative instruments and hedging activities under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 149 is intended to result in more consistent reporting of contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective for contracts entered into or modified after June 30, 2003. The Company does not expect the adoption of this statement to have a material effect on its financial position, cash flows or results of operations. Statement of Financial Accounting Standards Number 150 In May 2003, SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity," was issued. This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires financial instruments that are within its scope to be classified as a liability. Many of these instruments were previously classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The Company did not enter into or modify any of these financial instruments in June of 2003 and does not expect the adoption of this statement to have a material effect on its financial position, cash flows or results of operations. 24 TITAN INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PENSIONS The Company has three defined benefit pension plans. These plans are described in Note 21 of the Company's Notes to Consolidated Financial Statements in the 2002 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 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. Because of changes in the equity markets, interest rates and actuarial fluctuations, the Company may be required to additionally fund these pension plans in amounts estimated to be approximately $5 million during the remainder of year 2003. As interest rates have further declined during the first half of 2003, the present value of the benefit obligation may increase and may result in additional minimum pension liability at year-end. SAFE HARBOR UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Form 10-Q contains forward-looking statements, including statements regarding, among other items, (i) anticipated trends in the Company's business, (ii) future expenditures for capital projects, (iii) the Company's ability to continue to control costs and maintain quality, (iv) meeting financial covenants and conditions of loan agreements, (v) the Company's business strategies, including its intention to introduce new products, (vi) expectations concerning the performance and commercial success of the Company's existing and new products and (vii) the Company's intention to consider and pursue acquisitions. Readers of this Form 10-Q should understand that these forward-looking statements are based on the Company's expectations and are subject to a number of risks and uncertainties, certain of which are beyond the Company's control. Actual results could differ materially from these forward-looking statements as a result of certain factors, including, (i) changes in the Company's end-user markets as a result of world economic or regulatory influences, (ii) changes in the competitive marketplace, including new products and pricing changes by the Company's competitors, (iii) availability and price of raw materials, (iv) levels of operating efficiencies, (v) actions of domestic and foreign governments, (vi) results of investments, and (vii) ability to secure financing at reasonable terms. Any changes in such factors could lead to significantly different results. 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. 25 TITAN INTERNATIONAL, INC. PART I. FINANCIAL INFORMATION ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK See the Company's 2002 Annual Report filed on Form 10-K (Item 7A). There has been no material change in this information. ITEM 4. CONTROLS AND PROCEDURES The Company's principal executive officer and principal financial officer believe the Company's disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective as of the end of the period covered by this Form 10-Q. There were no changes in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the second quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting. 26 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION ITEMS 1 THROUGH 3 ARE NOT APPLICABLE. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on May 15, 2003, for the purposes of electing two directors to serve for three-year terms and approving the appointment of independent auditors. All the nominees for directors as listed in the proxy statement were elected with the following vote:
Shares Shares Voted For Withheld --------- -------- Erwin H. Billig 19,395,764 760,987 Anthony L. Soave 19,845,535 311,216
The appointment of PricewaterhouseCoopers LLP as independent auditors was approved by the following vote:
Shares Shares Shares Voted For Against Abstaining --------- ------- ---------- 19,669,774 476,885 10,092
ITEM 5 IS NOT APPLICABLE. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 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 (b) Reports on Form 8-K In a Current Report filed on Form 8-K dated June 2, 2003, the Company reported the dismissal of a shareholder derivative lawsuit. 27 TITAN INTERNATIONAL, INC. PART II. OTHER INFORMATION 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: July 30, 2003 BY: /s/ Maurice M. Taylor Jr. ------------------ -------------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer BY: /s/ Kent W. Hackamack -------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) 28 EXHIBIT INDEX Exhibit Description - ------- ----------- 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 EX-31.1 3 k78583exv31w1.txt 302 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER EXHIBIT 31.1 CERTIFICATION I, Maurice M. Taylor Jr., certify that: 1. I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: July 30, 2003 BY: /s/ Maurice M. Taylor Jr. -------------------- -------------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer EX-31.2 4 k78583exv31w2.txt 302 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER EXHIBIT 31.2 CERTIFICATION I, Kent W. Hackamack, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Titan International, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report. 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: July 30, 2003 BY: /s/ Kent W. Hackamack ------------------- ----------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) EX-32 5 k78583exv32.txt 906 CERTIFICATION EXHIBIT 32 CERTIFICATION Each of the undersigned hereby certifies that, to the best of their knowledge, this report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. TITAN INTERNATIONAL, INC. (REGISTRANT) DATE: July 30, 2003 BY: /s/ Maurice M. Taylor Jr. ---------------- -------------------------------------- Maurice M. Taylor Jr. President and Chief Executive Officer BY: /s/ Kent W. Hackamack -------------------------------------- Kent W. Hackamack Vice President of Finance and Treasurer (Principal Financial Officer and Principal Accounting Officer) -----END PRIVACY-ENHANCED MESSAGE-----