TITAN INTERNATIONAL INC - Quarter Report: 2004 September (Form 10-Q)

TITAN INTERNATIONAL, INC FORM 10-Q 9-30-2004

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: September 30, 2004

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

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 28, 2004

Common stock, no par value per share		16,326,426

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 Nine Months Ended September 30, 2004 and 2003	1

	Consolidated Condensed Balance Sheets as of September 30, 2004, and December 31, 2003	2

	Consolidated Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2004 and 2003	3

	Notes to Consolidated Condensed Financial Statements	4-15

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16-30

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4.	Controls and Procedures	31

Part II.	Other Information

Item 6.	Exhibits and Reports on Form 8-K	32-33

	Signatures	33

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

TITAN INTERNATIONAL, INC.

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Amounts in thousands, except earnings per share data)

	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003

Net sales	$	116,487		$	111,218		$	404,651		$	371,203
Cost of sales		98,686			105,921			338,241			349,440
Gross profit		17,801			5,297			66,410			21,763
Selling, general & administrative expenses		7,613			9,751			27,585			32,108
Research and development expenses		323			638			1,530			2,022
Goodwill impairment on Titan Europe		0			0			2,988			0
Income (loss) from operations		9,865			(5,092	)		34,307			(12,367	)
Interest expense		(3,833	)		(5,088	)		(13,598	)		(15,101	)
Debt termination expense		(3,654	)		0			(3,654	)		0
Equity investment (loss) income		(367	)		0			421			0
Loss on investment		0			(2,707	)		0			(2,707	)
Other income		105			245			239			2,728
Income (loss) before income taxes		2,116			(12,642	)		17,715			(27,447	)
Provision for income taxes		635			740			5,315			0
Net income (loss)	$	1,481		$	(13,382	)	$	12,400		$	(27,447	)
Income (loss) per common share:
Basic	$	.09		$	(.64	)	$	.68		$	(1.31	)
Diluted		.09			(.64	)		.65			(1.31	)
Average common shares outstanding:
Basic		16,324			21,060			18,293			20,922
Diluted		16,426			21,060			20,429			20,922

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)

	September 30,			December 31,
	2004			2003
Assets
Current assets
Cash and cash equivalents	$	3,291		$	6,556
Accounts receivable (net allowance of $5,596 and $5,331, respectively)		68,417			83,975
Inventories		74,484			112,496
Assets held for sale		37,003			37,775
Deferred income taxes		20,343			20,343
Prepaid and other current assets		17,592			25,801
Total current assets		221,130			286,946

Property, plant and equipment, net		77,075			138,482
Restricted cash deposits		26,430			51,039
Investment in affiliate		27,418			0
Other assets		20,928			27,794
Goodwill, net		11,702			18,823
Total assets	$	384,683		$	523,084

Liabilities and Stockholders’ Equity
Current liabilities
Short-term debt (including current portion of long-term debt)	$	233		$	21,161
Accounts payable		33,458			51,931
Other current liabilities		23,214			29,883
Total current liabilities		56,905			102,975

Deferred income taxes		22,796			22,796
Other long-term liabilities		28,726			36,960
Long-term debt		174,329			248,397
Total liabilities		282,756			411,128

Stockholders’ equity
Common stock (no par, 60,000,000 shares authorized; 27,555,081 issued)		27			27
Additional paid-in capital		203,239			203,050
Retained earnings		22,760			10,629
Treasury stock (at cost: 11,252,225 and 6,357,761 shares, respectively)		(101,204	)		(81,204	)
Accumulated other comprehensive loss		(22,895	)		(20,546	)
Total stockholders’ equity		101,927			111,956
Total liabilities and stockholders’ equity	$	384,683		$	523,084

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)

	Nine months ended September 30,
	2004			2003
Cash flows from operating activities:
Net income (loss)	$	12,400		$	(27,447	)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization		15,263			23,604
Goodwill impairment		2,988			0
Unamortized deferred financing fees		1,486			0
Loss on investment		0			2,707
(Increase) decrease in current assets:
Accounts receivable		(26,458	)		1,566
Inventories		1,370			7,569
Income tax refund		0			7,687
Prepaid and other current assets		(1,345	)		207
Increase (decrease) in current liabilities:
Accounts payable		11,414			(3,195	)
Other current liabilities		5,475			4,293
Other, net		(6,316	)		(3,619	)
Net cash provided by operating activities		16,277			13,372
Cash flows from investing activities:
Capital expenditures, net		(4,052	)		(9,130	)
Proceeds from Titan Europe sale		49,984			0
Loan to Titan Europe Plc		(9,227	)		0
Proceeds from sale of investments		0			4,636
Other		373			147
Net cash provided by (used for) investing activities		37,078			(4,347	)
Cash flows from financing activities:
Proceeds from borrowings		115,348			27,901
Payment of debt		(225,468	)		(23,126	)
Proceeds on revolving credit facility, net		49,000			0
Decrease (increase) in restricted cash deposits		24,609			(24,500	)
Repurchase of common stock		(15,000	)		(244	)
Payment of financing fees		(4,788	)		(200	)
Dividends paid		(294	)		(313	)
Other, net		189			554
Net cash used for financing activities		(56,404	)		(19,928	)

Effect of exchange rate changes on cash		(216	)		411

Net decrease in cash and cash equivalents		(3,265	)		(10,492	)

Cash and cash equivalents at beginning of period		6,556			22,049
Cash and cash equivalents at end of period	$	3,291		$	11,557

The accompanying notes are an integral part of the

consolidated condensed financial statements.


	3

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 and necessary to present fairly the Company’s financial position as of September 30, 2004, the results of operations for the three and nine months ended September 30, 2004 and 2003, and cash flows for the nine months ended September 30, 2004 and 2003.

Accounting policies have continued without change and are described in the Summary of Significant Accounting Policies contained in the Company’s 2003 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 2003 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 September 30, 2004, the Company has two stock-based compensation plans, which are described in Note 21 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2003. 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 nine months of 2004 and 2003 and no stock-based compensation expense was required to be recorded. For the first nine months of 2004 and 2003, the total stock-based compensation expense as determined under the fair value method for all awards, net of related tax effects, was computed to be zero and seven thousand dollars, respectively. All prior grants became fully vested in 2002.


	4

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

B.	Inventories

Inventories consisted of the following (in thousands):

	September 30,			December 31,
	2004			2003
Raw materials	$	26,896		$	38,054
Work-in-process		9,239			17,457
Finished goods		42,001			53,177
		78,136			108,688
LIFO reserve		(3,652	)		3,808
	$	74,484		$	112,496

The large inventory decrease resulted from the April 2004 sale of a majority interest in Titan Europe. See Note O for additional information. The Titan Europe inventory balance at December 31, 2003 was $37.2 million. Included in the above inventory balances at September 30, 2004, and December 31, 2003, are reserves for slow-moving and obsolete inventory of $3.9 million and $6.8 million respectively. The LIFO reserve changed by $7.5 million due to major raw material price increases and a change in inventory levels.

C.	Assets Held for Sale

In December 2003, the Company’s management and Board of Directors approved the sale of certain operating assets with a carrying value of $37.8 million at December 31, 2003. At September 30, 2004, $37.0 million of these assets remain. Land and buildings at the Company’s idle facilities in Walcott, Iowa, and Greenwood, South Carolina, totaling $4.9 million are included in this amount. Machinery and equipment located at the Company’s facilities in Brownsville, Texas, and Natchez, Mississippi, with an aggregate carrying value of $32.1 million are also included in assets held for sale. Management has identified no impairment on the carrying value of these assets as of September 30, 2004. Depreciation is not being recorded on assets held for sale in accordance with Statement of Financial Accounting Standards (SFAS) No. 144. Depreciation on these assets held for sale was $1.3 million and $2.9 million for the quarter and nine months ended September 30, 2003. Had these assets not been classified as held for sale, depreciation would have been $1.4 million and $4.2 million for the quarter and nine months ended September 30, 2004. Appraisals from third-party valuation firms indicate that the fair market values of the machinery and equipment at these facilities exceed their respective carrying values. The Company has had inquiries regarding these assets and is continuing the sales process with the intention of completion by the end of 2004. If the Company is unable to sell or obtain a firm commitment to sell these assets by the end of 2004, the assets will be reclassified to held and used. If the assets are reclassified back to held and used, they would be valued at the lower of fair value or carrying amount adjusted for all untaken depreciation for 2004.


	5

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

D.	Property, Plant and Equipment

Property, plant and equipment, net reflects accumulated depreciation of $171.5 million and $230.2 million at September 30, 2004, and December 31, 2003, respectively. The large decrease in net property, plant and equipment resulted from the April 2004 sale of a majority interest in Titan Europe. See Note O for additional information. The Titan Europe net property, plant and equipment balance at December 31, 2003, was $53.3 million. The Company has reviewed the fixed assets to assess recoverability from future operations. No impairment has been identified as of September 30, 2004.

E.	Restricted Cash Deposits

The Company had restricted cash of $26.4 million and $51.0 million at September 30, 2004, and December 31, 2003, respectively. Restricted cash of $24.5 million is on deposit for a court appeal of the Vehicular Technologies v Titan Wheel case as described in the Company’s Form 8-K filed on October 1, 2003. The remaining $1.9 million is on deposit for an insurance letter of credit. Restricted cash of $15.0 million on a revolving loan agreement was released on July 23, 2004, when the revolving loan agreement was terminated. Additionally, $9.6 million of restricted cash on an outstanding letter of credit for an industrial revenue bond was released in September 2004.

F.	Goodwill

Goodwill, net reflects accumulated amortization of $2.9 million at September 30, 2004, as compared to $5.8 million at December 31, 2003. Goodwill amortization was ceased in January 2002, pursuant to the adoption of Statement of Financial Accounting Standards (SFAS) No. 142.

The carrying amount of goodwill by segment at September 30, 2004, was (i) agricultural of $6.9 million, (ii) earthmoving/construction of $3.6 million, and (iii) consumer of $1.2 million. The decrease in net goodwill to $11.7 million at September 30, 2004, from $18.8 million at December 31, 2003, is the result of (i) impairment of Titan Europe goodwill of $3.0 million in the first quarter of 2004 and (ii) the sale of a majority interest in Titan Europe along with a currency translation adjustment of $4.1 million. See Note O for additional information.

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, as was the case given the pending disposition of a majority interest in Titan Europe at March 31, 2004. There can be no assurance that future goodwill tests will not result in a charge to earnings for additional impairment.


	6

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

G.	Long-term Debt

Long-term debt consisted of the following (in thousands):

	September 30,		December 31,
	2004		2003
Senior unsecured convertible notes	$	115,000	$	0
Senior subordinated notes		0		136,750
Term loan		0		86,425
Revolving credit facility		49,000		0
Foreign subsidiary debt		0		35,653
Industrial revenue bonds and other		10,562		10,730
		174,562		269,558

Less: Amounts due within one year		233		21,161
	$	174,329	$	248,397

Aggregate maturities of long-term debt at September 30, 2004, were as follows (in thousands):


October 1 - December 31, 2004	$	58
2005		216
2006		124
2007		49,098
2008		566
Thereafter		124,500
	$	174,562

New $100 Million Revolving Credit Facility

On July 23, 2004, the Company completed a new $100 million revolving credit facility with agents LaSalle Bank National Association and General Electric Capital Corporation. This new facility replaces the Company’s former revolving loan agreement and term loan. Both of these former facilities were terminated on July 23, 2004. Restricted cash of $15.0 million relating to the old revolving loan agreement was released on the date of the transaction. The new revolving credit facility has a three-year term and is secured by a first priority security interest in certain assets of Titan and its domestic subsidiaries. The borrowings under the facility bear interest at a floating rate of either prime rate plus 1.5% or at LIBOR plus 3.0%. The facility contains certain financial covenants and other customary affirmative and negative covenants.


	7

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

New 5.25% Senior Unsecured Convertible Notes

On July 26, 2004, the Company sold $115 million of 5.25% senior unsecured convertible notes due 2009. These notes are convertible into shares of the Company’s stock at any time on or before maturity at a conversion rate of 74.0741 shares per $1,000 principal amount of notes ($13.50 per common share), subject to adjustment. This conversion rate would convert all of the notes into approximately 8.5 million shares of the Company’s stock. Net proceeds of $111.3 million from the sale of the notes were applied to the outstanding principal of the Company’s 8.75% senior subordinated notes.

Redemption of 8.75% Senior Subordinated Notes

On July 26, 2004, the Company notified the trustee to redeem all of Titan’s outstanding 8.75% senior subordinated notes. On August 26, 2004, the Company redeemed all of the outstanding principal amount ($136.8 million) of these notes at a redemption price of 101.458% per note (expressed as a percentage of the principal amount).

Debt Termination Expenses

In connection with the termination of the Company’s prior revolving loan agreement and term loan and the redemption of the 8.75% senior subordinated notes, Titan recorded expenses of $3.7 million in the third quarter of 2004. These expenses were related to the (i) redemption premium on the subordinated notes of $2.0 million, (ii) unamortized deferred financing fees of $1.5 million, and (iii) prepayment penalty of $0.2 million.

H.	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):

	2004			2003
Warranty liability, January 1	$	1,508		$	1,617
Provision for warranty liabilities		1,806			1,599
Warranty payments made		(1,551	)		(1,701	)
Warranty liability, September 30	$	1,763		$	1,515


	8

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

I.	Income Taxes

The Company recorded income tax expense of $5.3 million and $0.0 income tax for the nine months ended September 30, 2004 and 2003, respectively. The Company's income tax expense differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (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 years of previous losses, the Company had reserved its net deferred tax asset position, consistent with the Company’s accounting policies. As a result of the sale of Titan Europe, the Company will reverse a $15.0 million valuation allowance and use the deferred tax asset to offset the taxable proceeds received from the sale. At September 30, 2004, the Company had no remaining valuation allowance.

J.	Employee Benefit Plans

The Company has two frozen defined benefit pension plans. The components of net periodic pension cost consisted of the following (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2004			2003			2004			2003

Interest cost	$	1,116		$	1,154		$	3,348		$	3,462
Expected return on assets		(1,098	)		(870	)		(3,294	)		(2,610	)
Amortization of unrecognized prior service cost		34			36			102			108
Amortization of unrecognized deferred taxes		(14	)		(15	)		(42	)		(45	)
Amortization of net unrecognized loss		402			398			1,206			1,194
Net periodic pension cost	$	440		$	703		$	1,320		$	2,109

During the nine months ended September 30, 2004, the Company contributed $7.4 million to the frozen defined benefit pension plans. The Company expects to contribute approximately $0.8 million to the pension plans during the fourth quarter of 2004.


	9

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

K.	Goodwill Impairment on Titan Europe

On April 7, 2004, Titan Luxembourg Sarl, a wholly-owned European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. In the first quarter of 2004, Titan recognized a $3.0 million goodwill impairment on the pending sale of Titan Europe based on the valuation of Titan Europe inherent in the April 2004 public offering in accordance with the Company’s goodwill impairment policy. The April 2004 consideration for the entire Titan Europe offering was $89.5 million as compared to a book value of $92.5 million resulting in a goodwill impairment of $3.0 million. See Note O for additional information.

L.	Comprehensive Income (Loss)

Comprehensive income, which included net income of $1.5 million and the effect of foreign currency translation adjustments of $0.1 million, totaled $1.6 million for the third quarter of 2004, compared to comprehensive loss of $(12.6) million in the third quarter of 2003. Comprehensive income for the nine months ended September 30, 2004, was $10.1 million, including net income of $12.4 million and the effect of foreign currency translations of $(2.3) million, compared to comprehensive loss of $(23.4) million in 2003.


	10

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

M.	Segment Information

The table below presents information about certain revenues and income from operations for the three and nine months ended September 30, 2004 and 2003, used by the chief operating decision maker of the Company (in thousands):

	Revenues				Income (loss)
Three months ended	from external		Intersegment		from
September 30, 2004	customers		revenues		operations
Agricultural	$	70,451	$	8,876	$	9,175
Earthmoving/construction		37,495		5,347		5,345
Consumer		8,541		428		468
Reconciling items ^(a)		0		0		(5,123	)
Consolidated totals	$	116,487	$	14,651	$	9,865

Three months ended
September 30, 2003
Agricultural	$	62,921	$	12,683	$	126
Earthmoving/construction		40,776		7,258		656
Consumer		7,521		986		(181	)
Reconciling items ^(a)		0		0		(5,693	)
Consolidated totals	$	111,218	$	20,927	$	(5,092	)

	Revenues				Income (loss)
Nine months ended	from external		Intersegment		From
September 30, 2004	customers		revenues		operations
Agricultural	$	253,583	$	38,155	$	34,838
Earthmoving/construction		124,546		19,200		14,170
Consumer		26,522		2,183		1,990
Reconciling items ^(a)		0		0		(16,691	)
Consolidated totals	$	404,651	$	59,538	$	34,307

Nine months ended
September 30, 2003
Agricultural	$	216,870	$	53,102	$	3,704
Earthmoving/construction		126,958		27,073		3,306
Consumer		27,375		5,267		(252	)
Reconciling items ^(a)		0		0		(19,125	)
Consolidated totals	$	371,203	$	85,442	$	(12,367	)

(a)Represents corporate expenses and depreciation and amortization expense related to property, plant and equipment carried at the corporate level.


	11

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

Assets by segment were as follows (in thousands):

	September 30,		December 31,
Total assets	2004		2003

Agricultural	$	176,796	$	246,138
Earthmoving/construction		96,430		144,580
Consumer		20,604		27,130
Reconciling items ^(a)		90,853		105,236
Consolidated totals	$	384,683	$	523,084

(a)

Represents property, plant and equipment and goodwill related to certain acquisitions and other corporate assets.

N.	Earnings per Share

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

	Three months ended,
	September 30, 2004						September 30, 2003
	Net Income		Weighted-average shares		Per share amount		Net Loss			Weighted-average shares		Per share amount
Basic EPS	$	1,481		16,324	$	.09	$	(13,382	)		21,060	$	(.64	)
Effect of stock options		0		102				0			0
Effect of convertible notes		0		0				0			0
Diluted EPS	$	1,481		16,426	$	.09	$	(13,382	)		21,060	$	(.64	)

	Nine months ended,
	September 30, 2004						September 30, 2003
	Net Income		Weighted-average shares		Per share amount		Net Loss			Weighted-average shares		Per share amount
Basic EPS	$	12,400		18,293	$	.68	$	(27,447	)		20,922	$	(1.31	)
Effect of stock options		0		53				0			0
Effect of convertible notes		851		2,083				0			0
Diluted EPS	$	13,251		20,429	$	.65	$	(27,447	)		20,922	$	(1.31	)

The effect of stock options with exercise prices that were greater than the average market price of the Company’s common shares have been excluded, as the effect would have been antidilutive. The effect of convertible notes for the quarter ended September 30, 2004, has been excluded, as the effect would have been antidilutive. The effect of convertible notes excluded amounted to 6,204 shares.


	12

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

O.	Titan Europe Sale

On April 7, 2004, Titan Luxembourg Sarl, a wholly-owned European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. Titan Luxembourg is the largest single stockholder in Titan Europe Plc, retaining a 30% interest on the date of the transaction. Titan Luxembourg’s proceeds from the sale of Titan Europe shares were approximately $62.0 million before fees and expenses of approximately $2.8 million. The Company recorded cash receipts of $50.0 million and a five-year note receivable from the newly created public company, Titan Europe Plc, of $9.2 million.

In the first quarter of 2004, Titan recognized a $3.0 million goodwill impairment on the pending sale of Titan Europe in accordance with the Company’s goodwill impairment policy. Approximately $26.4 million of the cash receipts from the sale of Titan Europe were used to reduce the Company’s debt balances in April 2004. An additional $15.0 million of the cash receipts were used to purchase the shares of Titan International stock (approximately 4.9 million shares) held by Citicorp Venture Capital, Ltd.

The Company is accounting for its interest in Titan Europe as an equity investment subsequent to sale in April 2004. Titan recognized equity income on its investment in Titan Europe of $0.8 million in the second quarter of 2004 and equity loss of $(0.4) million in the third quarter of 2004. The carrying value of the Company’s equity investment in Titan Europe was $27.4 million at September 30, 2004, and its ownership interest declined to 29.3% due to Titan Europe issuing shares in September 2004 for an Australian acquisition. The equity investment in Titan Europe is classified as investment in affiliate on the consolidated condensed balance sheet. Prior to the sale in April 2004, Titan Europe was consolidated in the Company’s financial statements.

Had the transaction occurred on January 1, 2003, the Company’s net sales for the three and nine months ended September 30, 2004, would have been $116.5 and $355.2 million respectively, compared to $79.2 and $266.5 million in 2003. Income from operations for the three and nine months ended September 30, 2004, would have been $9.9 and $33.9 million respectively, compared to a loss from operations of $(5.8) and $(16.1) million in 2003. Net income for the three and nine months ended September 30, 2004, would have been $1.5 and $14.3 million respectively compared to a loss of $(13.1) and $(27.8) million in 2003. Diluted earnings per share for the three and nine months ended September 30, 2004, would have been $0.09 and $0.74 respectively, compared to loss per share of $(0.62) and $(1.33) in 2003.


	13

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

P.	Stock Repurchase

On April 20, 2004, the Company purchased the shares of Titan International stock held by Citicorp Venture Capital, Ltd. (CVC) (approximately 4.9 million shares) for a cash payment of $15.0 million. In connection with this purchase of Titan’s common stock, the Company recorded an accrued contingent liability of $5.0 million for contingent obligations under the stock purchase agreement. Accordingly, these treasury shares were valued at $20.0 million. CVC was formerly the largest single stockholder of Titan. For further information, see the Company’s Form 8-K filed on April 22, 2004.

Q.	Lease Commitments

The Company leases certain buildings and equipment under operating leases, including a lease for the building in Brownsville, Texas. The Brownsville, Texas, lease has been renewed until September 2005, with this facility continuing to be used as a tire distribution and warehouse operation for the Company. Titan also maintains a purchase option for the one million square foot building at a price of approximately $12.9 million, depending on the exercise date and other items. 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, 2004, future minimum commitments under noncancellable operating leases with initial or remaining terms of one year or more were as follows (in thousands):

October 1 - December 31, 2004	$	678
2005		1,831
2006		808
2007		804
2008		241
Thereafter		12
	$	4,374


	14

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(UNAUDITED)

R.	New Accounting Standards

Financial Accounting Standards Board Interpretation Number 46

In December 2003, Financial Accounting Standards Board Interpretation (FIN) No. 46, “Consolidation of Variable Interest Entities,” was revised. FIN No. 46 was originally issued in January 2003 and 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 entities created prior to this date, adoption of the statement and interpretations is required to be applied in the first interim period ending after March 15, 2004. Certain disclosure requirements were required for all financial statements issued after January 1, 2003. The adoption of this interpretation had no material effect on the Company’s financial position, cash flows or results of operations.

Statement of Financial Accounting Standards Number 132

In December 2003, Statement of Financial Accounting Standards (SFAS) No. 132, “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” was revised. The new Statement does not change the measurement or recognition of those plans that is required by previously issued standards. The Statement retains the disclosure requirements contained in SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits," which it replaces, and also requires additional disclosures about the assets, obligations, cash flows and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The additional disclosures required by SFAS No. 132 (revised 2003) are effective for fiscal years ending after December 15, 2003. The Company has disclosed the additional information required by this statement. The adoption of SFAS No. 132 (revised 2003) had no material effect on the Company’s financial position, cash flows or results of operations.


	15

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

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

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

The Company recorded sales of $116.5 million for the third quarter of 2004. Pro forma third quarter 2003 sales were $79.2 million, after removing the sales of Titan Europe. (See Recent Developments.) The sales increase is largely the result of agricultural segment, which increased 52% when compared to the previous year’s quarter. The effect of increased raw material costs being passed on to customers represented approximately 35% of the total sales increase.

Titan’s net income was $1.5 million for the third quarter, compared to the third quarter 2003 net loss of $(13.4) million. Earnings per share was $.09 for the quarter versus a loss per share of $(.64) for the same quarter of the previous year.

Recent Developments

Sale of Titan Europe

On April 7, 2004, Titan Luxembourg Sarl, a wholly-owned European subsidiary, sold 70% of the common stock of Titan Europe, to the public on the AIM market in London. Titan Luxembourg is the largest single stockholder in Titan Europe Plc, retaining a 30% interest on the date of the transaction. Titan Luxembourg’s proceeds from the sale of Titan Europe shares were approximately $62.0 million, before fees and expenses of approximately $2.8 million. The Company recorded cash receipts of $50.0 million and a five-year note receivable from the newly created public company, Titan Europe Plc, of $9.2 million.


	16

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company is accounting for its interest in Titan Europe as an equity investment subsequent to sale in April 2004. Titan recognized equity income on its investment in Titan Europe of $0.8 million in the second quarter of 2004 and equity loss of $(0.4) million in the third quarter of 2004. The carrying value of the Company’s equity investment in Titan Europe was $27.4 million at September 30, 2004, and its ownership interest declined to 29.3% due to Titan Europe issuing shares in September 2004 for an Australian acquisition. Prior to the sale in April 2004, Titan Europe was consolidated in the Company’s financial statements.

Stock Repurchase


	17

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Debt Refinancing

New $100 Million Revolving Credit Facility - On July 23, 2004, the Company completed a new $100 million revolving credit facility with agents LaSalle Bank National Association and General Electric Capital Corporation. This new facility replaces the Company’s former revolving loan agreement and term loan. Both of these former facilities were terminated on July 23, 2004. Restricted cash of $15.0 million relating to the old revolving loan agreement was released on the date of the transaction. The new revolving credit facility has a three-year term and is secured by a first priority security interest in certain assets of Titan and its domestic subsidiaries. The borrowings under the facility bear interest at a floating rate of either prime rate plus 1.5% or at LIBOR plus 3.0%. The facility contains certain financial covenants and other customary affirmative and negative covenants.

New 5.25% Senior Unsecured Convertible Notes - On July 26, 2004, the Company sold $115 million of 5.25% senior unsecured convertible notes due 2009. These notes are convertible into shares of the Company’s stock at any time on or before maturity at a conversion rate of 74.0741 shares per $1,000 principal amount of notes ($13.50 per common share), subject to adjustment. This conversion rate would convert all of the notes into approximately 8.5 million shares of the Company’s stock. Net proceeds of $111.3 million from the sale of the notes were applied to the outstanding principal of the Company’s 8.75% senior subordinated notes.

Redemption of 8.75% Senior Subordinated Notes - On July 26, 2004, the Company notified the trustee to redeem all of Titan’s outstanding 8.75% senior subordinated notes. On August 26, 2004, the Company redeemed all of the outstanding principal amount ($136.8 million) of these notes at a redemption price of 101.458% per note (expressed as a percentage of the principal amount).

Debt Termination Expenses - In connection with the termination of the Company’s prior revolving loan agreement and term loan and the redemption of the 8.75% senior subordinated notes, Titan recorded expenses of $3.7 million in the third quarter of 2004. These expenses were related to the (i) redemption premium on the subordinated notes of $2.0 million, (ii) unamortized deferred financing fees of $1.5 million, and (iii) prepayment penalty of $0.2 million.

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.


	18

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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. Cost is determined using the last-in, first-out (LIFO) method for approximately 53% of inventories and the first-in, first-out (FIFO) method for the remainder of inventories at September 30, 2004. 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. The Company had assets held for sale of $37.0 million at September 30, 2004. Depreciation is not recorded on assets held for sale in accordance with SFAS No. 144. Appraisals from third-party valuation firms indicate that the fair market values of the machinery and equipment at these facilities exceed their respective carrying values. 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.

Impairment of Goodwill

The Company’s goodwill was $11.7 million at September 30, 2004, as compared to $18.8 million at December 31, 2003. This $7.1 million reduction was due to the sale of Titan Europe. 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.


	19

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Valuation of Investments Accounted for Under the Equity Method

The Company had an equity investment in Titan Europe Plc of $27.4 million at September 30, 2004. The Company assesses the carrying value of its equity investments whenever events and circumstances indicate that the carrying value may not be recoverable. Should unforeseen events occur or should investment trends change significantly, impairment losses could occur.

Retirement Benefit Obligations

Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations. During the nine months ended September 30, 2004, the Company contributed $7.4 million to its pension plans. The Company expects to contribute approximately $0.8 million to its pension plans during the fourth quarter of 2004. For more information concerning these costs and obligations, see the discussion of the “Pensions” and Note 20 to the Company’s financial statements on Form 10-K for the fiscal year ended December 31, 2003.

Results of Operations

Net Sales

Net sales for the quarter ended September 30, 2004, were $116.5 million, compared to 2003 third quarter net sales of $111.2 million. Net sales for the nine months ended September 30, 2004, were $404.7 million, compared to 2003 net sales of $371.2 million. The third quarter net sales increased despite the sale of Titan Europe on April 7, 2004. Had the Titan Europe transaction occurred on January 1, 2003, net sales for the quarter ended September 30, 2003, would have been $79.2 million. The increase in net sales on a comparable basis was $37.3 million. Of this amount, approximately 35% was due to price increases related to higher raw material costs being passed on to customers. The remaining amount was attributed to higher demand, primarily from the Company’s agricultural segment, which increased 52% when compared to the previous year’s quarter.

Cost of Sales and Gross Profit

Cost of sales were $98.7 and $338.2 million for the third quarter and for the nine months ended September 30, 2004, as compared to $105.9 and $349.4 million in 2003. Gross profit for the third quarter of 2004 was $17.8 million or 15.3% of net sales, compared to $5.3 million or 4.8% of net sales for the third quarter of 2003. Gross profit for the nine months ended September 30, 2004, was $66.4 million or 16.4% of net sales, compared to $21.8 million or 5.9% of net sales for 2003. Gross profit was positively impacted by higher sales levels, which allowed the Company to operate more efficiently. Also, the Company has been able to institute certain price increases required due to higher raw material costs.


	20

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s profit margins continue to be affected by the excess capacity at the Brownsville, Texas, and Natchez, Mississippi, facilities. The Brownsville location continues as a tire distribution and warehouse operation for the Company. In December 2003, certain machinery and equipment at the Brownsville and Natchez facilities, with a net book value of $15.6 million and $17.3 million, respectively, were reclassified to assets held for sale. Depreciation is not being recorded on assets held for sale in 2004 in accordance with SFAS No. 144. Certain operating costs continue to be incurred at the Brownsville and Natchez facilities. For the quarter and nine months ended September 30, 2004, these costs totaled approximately $1.4 and $3.7 million. In the third quarter of 2003, these facilities incurred costs associated with excess capacity of approximately $2.7 million. The $1.3 million reduction in costs at the Brownsville and Natchez facilities in third quarter 2004 as compared to third quarter 2003 positively impacted gross profit.

Administrative Expenses

Selling, general and administrative (SG&A) and research and development (R&D) expenses for the third quarter of 2004 were $7.9 million or 6.8% of net sales, compared to $10.4 million or 9.3% of net sales for 2003. Expenses for SG&A and R&D, combined with goodwill impairment charges, for the nine months ended September 30, 2004, were $32.1 million or 7.9% of net sales, compared to $34.1 million or 9.2% of net sales in 2003. Despite the significant increase in sales, the Company was able to maintain administrative expenses slightly below the previous year’s level. Also, administrative expenses as a percentage of net sales were positively impacted by the sale of Titan Europe, which had administrative expenses that averaged 10% to 11% on a historical basis.

Operating Results and Other

Income from operations for the third quarter of 2004 was $9.9 million or 8.5% of net sales, compared to a loss from operations of $(5.1) million or (4.6)% in 2003. Income from operations for the nine months ended September 30, 2004, was $34.3 million or 8.5% of net sales, compared to a loss of $(12.4) million or (3.3)% for 2003. Operating results were primarily impacted by efficiency related to higher sales as discussed in the “Cost of Sales” section. This efficiency was partially offset by the $3.0 million goodwill impairment on Titan Europe.

Interest expense was $3.8 million and $13.6 million for the third quarter and for the nine months ended September 30, 2004, respectively, compared to $5.1 million and $15.1 million in 2003. The decreased interest expense in 2004 was primarily due to lower average debt balances.


	21

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Income tax expense recorded was $0.6 and $5.3 million for the third quarter and for the nine months ended September 30, 2004, as compared to $0.7 and $0.0 million in 2003. The Company's income tax expense differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (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 years of previous losses, the Company had reserved its net deferred tax asset position, consistent with the Company’s accounting policies. As a result of the sale of Titan Europe, the Company will reverse a $15.0 million valuation allowance and use the deferred tax asset to offset the taxable proceeds received from the sale. At September 30, 2004, the Company had no remaining valuation allowance.

Net Income (Loss)

Net income for the third quarter and for the nine months ended September 30, 2004, was $1.5 and $12.4 million, respectively, compared to net loss of $(13.4) and $(27.4) million in 2003. Basic earnings per share was $.09 and $.68 for the third quarter and for the nine months ended September 30, 2004, compared to loss per share of $(.64) and $(1.31) in 2003. Diluted earnings per share was $.09 and $.65 for the third quarter and for the nine months ended September 30, 2004, compared to loss per share of $(.64) and $(1.31) in 2003. Net income and earnings per share increased primarily due to higher sales levels and certain price increases required due to raw material costs.

Agricultural Segment Results

Net sales in the agricultural market were $70.5 and $253.6 million for the third quarter and the nine months ended September 30, 2004, as compared to $62.9 and $216.9 million in 2003. Had the Titan Europe sale occurred on January 1, 2003, net sales in the agricultural market for the quarter ended September 30, 2003, would have been $46.4 million. Agricultural market net sales increased as a result of increased demand from the Company’s customers. Income from operations in the agricultural market was $9.2 and $34.8 million for the third quarter and the nine months ended September 30, 2004, as compared to $0.1 and $3.7 million in 2003. Income from operations in the agricultural market was positively affected by efficiencies gained from higher production levels and certain price increases.

Earthmoving/Construction Segment Results

The Company’s earthmoving/construction market net sales were $37.5 and $124.5 million for the third quarter and the nine months ended September 30, 2004, as compared to $40.8 and $127.0 million for 2003. Had the Titan Europe sale occurred on January 1, 2003, net sales in the earthmoving/construction market for the quarter ended September 30, 2003, would have been $26.2 million. Income from operations in the earthmoving/construction market was $5.3 and $14.2 million for the third quarter and the nine months ended September 30, 2004, versus $0.7 and $3.3 million in 2003. Income from operations in the earthmoving/construction market was positively affected by efficiencies gained from higher production levels and certain price increases.


	22

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Consumer Segment Results

Consumer market net sales were $8.5 and $26.5 million for the third quarter of 2004 and the nine months ended September 30, 2004, as compared to $7.5 and $27.4 million for 2003. Had the Titan Europe sale occurred on January 1, 2003, net sales in the consumer market for the quarter ended September 30, 2003, would have been $6.6 million. Consumer market income from operations was $0.5 and $2.0 million for the third quarter of 2004 and the nine months ended September 30, 2004, as compared to a loss from operations of $(0.2) and $(0.3) million for 2003. The increase in income from operations in the consumer market was primarily attributed to a change in sales mix to higher margin products.

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 $5.1 and $16.7 million for the third quarter and the nine months ended September 30, 2004, respectively, as compared to $5.7 and $19.1 million for comparable periods in 2003.

Foreign Subsidiaries Sales

The Company recorded no net sales from foreign subsidiaries in the third quarter ended September 30, 2004, as compared to $32.0 million in 2003. For the nine months ended September 30, 2004, foreign sales of $49.5 were recorded, as compared to $104.7 million in 2003. The sales decrease at foreign subsidiaries was due to the sale of Titan Europe. Titan retains a 29.3% ownership in Titan Europe at September 30, 2004. This interest in Titan Europe is accounted for as an equity investment, and, therefore, their sales are no longer consolidated with Titan beginning in the second quarter of 2004.

Segment Results without Titan Europe

The following results are computed as if the Titan Europe sale transaction occurred on January 1, 2003. Overall, net sales for the three and nine months ended September 30, 2004, would have been $116.5 and $355.2 million respectively, compared to $79.2 and $266.5 million in 2003. Income from operations for the three and nine months ended September 30, 2004, would have been $9.9 and $33.9 million respectively, compared to a loss from operations of $(5.8) and $(16.1) million in 2003. Net income for the three and nine months ended September 30, 2004, would have been $1.5 and $14.3 million respectively compared to a loss of $(13.1) and $(27.8) million in 2003. Diluted earnings per share for the three and nine months ended September 30, 2004, would have been $.09 and $.74 respectively, compared to loss per share of $(.62) and $(1.33) in 2003.


	23

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Agricultural Segment without Titan Europe - If the Titan Europe sale transaction occurred on January 1, 2003, the net sales and income (loss) from operations would have been as follows for the agricultural segment. Net sales would have been $70.5 and $229.3 million for the three and nine months ended September 30, 2004, as compared to $46.4 and $159.9 million for 2003. Income (loss) from operations would have been $9.2 and $34.0 million for the three and nine months ended September 30, 2004, as compared to $(0.6) and $0.2 million in 2003.

Earthmoving/Construction Segment without Titan Europe - If the Titan Europe sale transaction occurred on January 1, 2003, the net sales and income from operations would have been as follows for the earthmoving/construction segment. Net sales would have been $37.5 and $101.1 million for the three and nine months ended September 30, 2004, as compared to $26.2 and $82.4 million for 2003. Income from operations would have been $5.3 and $13.7 million for the three and nine months ended September 30, 2004, as compared to $0.0 and $1.1 million in 2003.

Consumer Segment without Titan Europe - If the Titan Europe sale transaction occurred on January 1, 2003, the net sales and income (loss) from operations would have been as follows for the consumer segment. Net sales would have been $8.5 and $24.8 million for the three and nine months ended September 30, 2004, as compared to $6.6 and $24.2 million for 2003. Income (loss) from operations would have been $0.5 and $2.1 million for the three and nine months ended September 30, 2004, as compared to $(0.2) and $(0.4) million in 2003.

Liquidity and Capital Resources

Cash Flows

As of September 30, 2004, the Company had $3.3 million of unrestricted cash deposited within various bank accounts. The unrestricted cash balance decreased by $3.3 million from December 31, 2003, due to the cash flow items discussed in the following paragraphs.

In the first nine months of 2004, positive cash flows from operating activities of $16.3 million resulted primarily from net income of $12.4 million, depreciation and amortization of $15.3 million, and increase in accounts payable of $11.4 million offset by an increase in accounts receivable of $26.5 million. The accounts receivable and accounts payable increased as a result of the large increase in sales. In comparison, in the first nine months of 2003, positive cash flows from operating activities of $13.4 million resulted primarily from depreciation and amortization of $23.6 million, an income tax refund of $7.7 million and an inventory decrease of $7.6 million. These items were offset by the net loss of $(27.4) million.


	24

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company invested $4.1 million in capital expenditures in the first nine months of 2004, as compared to $9.1 million in the first nine months of 2003. The reduction in capital expenditures is primarily attributed to the sale of Titan Europe. These expenditures represent various equipment purchases and building improvements to enhance production capabilities. The Company estimates that its total capital expenditures for 2004 could range between $6 million and $10 million. The Company received net proceeds of $50.0 million on the sale of Titan Europe. The Company recorded a $9.2 million note receivable from the newly created public company, Titan Europe Plc.

In the first nine months of 2004, $56.4 million was used for financing activities. This use of cash is primarily the result of net debt payments of $61.1 million and repurchase of common stock of $15.0 million offset by a $24.6 million decrease in restricted cash. In the first nine months of 2003, net cash received from debt borrowing was $4.8 million and restricted cash deposits increased by $24.5 million.

Debt Refinancing


	25

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Debt Termination Expenses - In connection with the termination of the Company’s prior revolving loan agreement and term loan and the redemption of the 8.75% senior subordinated notes, Titan recorded expenses of $3.7 million in the third quarter of 2004. These expenses were related to the (i) redemption premium on the subordinated notes of $2.0 million, (ii) unamortized deferred financing fees of $1.5 million, and (iii) prepayment penalty of $0.2 million.

Debt Covenants

The Company’s revolving credit facility contains various covenants and restrictions. The financial covenants in this agreement require that the (i) Company’s minimum book value of accounts receivable and inventory be equal to or greater than $75 million, (ii) collateral coverage be equal to or greater than 1.50 times the outstanding revolver balance, and, (iii) if the outstanding revolver balance exceed $75 million, the fixed charge coverage ratio be equal to or greater than a 1.0 to 1.0 ratio. 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, (iii) limitations on investments, dispositions of assets and guarantees of indebtedness, and (iv) other customary affirmative and negative covenants. These covenants and restrictions could limit the Company’s ability to respond to market conditions, to provide for unanticipated capital investments, to raise additional debt or equity capital, to pay dividends or to take advantage of business opportunities, including future acquisitions. If the Company were unable to meet these covenants, the Company would be in default on these loan agreements.

The Company is in compliance with these covenants and restrictions as of September 30, 2004. The Company’s minimum book value of accounts receivable and inventory is required to be equal to or greater than $75 million and the Company computed it to be $136 million at September 30, 2004. The collateral coverage is required to be equal to or greater than 1.50 times the outstanding revolver balance and was calculated to be 3.69 times this balance at September 30, 2004. The fixed charge coverage ratio must be equal to or greater than a 1.0 to 1.0 ratio if the outstanding revolver balance exceeds $75 million. The outstanding revolver balance was $58.6 million at September 30, 2004, including borrowings of $49.0 million and a letter of credit of $9.6 million. Therefore, this covenant did not apply at September 30, 2004.

Other Items

The Company’s business is subject to seasonal sales variations that affect inventory levels and accounts receivable balances.


	26

TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company had restricted cash of $26.4 million at September 30, 2004, as compared to $51.0 million at December 31, 2003. Restricted cash of $24.5 million is on deposit for a court appeal. Additionally, restricted cash of $1.9 million is collateral on an insurance letter of credit. Restricted cash of $15.0 million on a revolving loan agreement was released on July 23, 2004, when the revolving loan agreement was terminated. Additionally, $9.6 million of restricted cash on an outstanding letter of credit for an industrial revenue bond was released in September 2004.

Liquidity Outlook

At September 30, 2004, the Company had unrestricted cash and cash equivalents of $3.3 million and $41.4 million of unused availability under the terms of its $100 million revolving credit facility. The availability under the revolving credit facility is reduced by a $9.6 million outstanding letter of credit for an industrial revenue bond. At September 30, 2004, the Company had $37.0 million of assets held for sale. The Company had scheduled debt principal payments due amounting to $0.1 million during the fourth quarter of 2004 and $0.2 million in the next twelve months ending September 30, 2005. The Company expects to contribute $0.8 million to its pension plans during the fourth quarter of 2004.

On October 22, 2004, the President of the United States of America signed Bill H.R. 4250, which includes tax benefits for multinational companies with foreign profits. This bill will allow the Company to repatriate their foreign proceeds at a rate of 5.25% rather than 35%. The new regulation results in a favorable impact to the Company due to the reduced tax rate and such effect will be recorded during the fourth quarter 2004.

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. 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 difficult to secure additional funding in order to meet working capital requirements.

Market Risk Sensitive Instruments

The Company’s risks related to commodity prices and interest rates are consistent with those for 2003. For more information, see the “Market Risk Sensitive Instruments” discussion in the Company’s Form 10-K for the fiscal year ended December 31, 2003.


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TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Exchange Rate Sensitivity

The Company is exposed to fluctuations in the Euro, British pound and other world currencies. Titan does not hedge foreign currency transaction or translation exposures. The Company’s net investment in foreign entities translated into U.S. dollars at September 30, 2004, was $39.1 million. This amount changed significantly from the December 31, 2003, amount of $67.5 million as a result of the sale of 70% of Titan Europe. The hypothetical potential loss in value of the Company’s net investment in foreign entities resulting from a 10% adverse change in foreign currency exchange rates at September 30, 2004, would amount to $3.9 million.

Pensions

The Company has two frozen defined benefit pension plans. These plans are described in Note 20 of the Company’s Notes to Consolidated Financial Statements in the 2003 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. During the nine months ended September 30, 2004, the Company contributed $7.4 million to the pension plans. The Company expects to contribute approximately $0.8 million to the pension plans during the fourth quarter of 2004.

Outlook

In the first nine months of 2004, the Company benefited from increased demand for its products. This demand was driven by the increase in sales of new agricultural and earthmoving/construction vehicles that use the Company’s products. Many of the Company’s customers continue to have positive outlooks for the remainder of 2004 and 2005. During the first nine months of 2004, the Company was able to offset higher raw material costs with certain price increases. The higher sales levels have allowed Titan to manufacture its products in a more efficient operating environment. Given these facts, the Company is optimistic that it will continue to show improved results as compared to the last several years. However, if the increased demand seen in the first nine months of 2004 subsides, the Company’s operating results may deteriorate. The Company’s customers generally operate in businesses that have cyclical demand. Historically, the Company sees higher sales levels in the first half of the year because of seasonal demand. As a result, sales in the fourth quarter may decline as compared to the first three quarters of 2004. Because much of our overhead expenses are fixed, seasonal trends can cause reductions in our quarterly profit margins and financial conditions. However, the Company believes fourth quarter sales may be stronger than customary.


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TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Agricultural Segment

Agricultural market sales are expected to remain at an elevated level for the remainder of 2004 and into the first half of 2005. Crop and livestock prices have remained high, lifting farm income. The healthy farm economy combined with favorable tax depreciation provisions in the United States is supporting an upturn in the sale of agricultural equipment. 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

Sales for the earthmoving/construction market are expected to remain strong for the rest of 2004 and into the first half of 2005. Rental firms and contractors are replenishing stocks of construction equipment. Military sales, which are included in this segment, are also expected to remain strong. The earthmoving/construction segment is sensitive to interest rate changes, and, therefore, sales in the earthmoving/construction segment may decrease as interest rates increase.

Consumer Segment

Sales in the consumer market are expected to be stable for the duration of 2004 and the Company is optimistic this will continue into the first part of 2005. The all terrain vehicle (ATV) wheel and tire market is expected to continue to offer future growth opportunities for Titan. Many items affect the consumer market including weather, competitive pricing, energy prices, and consumer attitude, which has improved but remains cautious.

New Accounting Standards

Financial Accounting Standards Board Interpretation Number 46


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TITAN INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement of Financial Accounting Standards Number 132

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 its 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 and divestitures. 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) fluctuations in currency translations, (iii) changes in the competitive marketplace, including new products and pricing changes by the Company’s competitors, (iv) availability and price of raw materials, (v) levels of operating efficiencies, (vi) actions of domestic and foreign governments, (vii) 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.


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TITAN INTERNATIONAL, INC.

PART I. FINANCIAL INFORMATION

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Reference is made to Item 2, Part I of this report.

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 based on their most recent evaluation, which was completed as of September 30, 2004. During the quarter ended September 30, 2004, there were no significant changes in internal controls or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.


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TITAN INTERNATIONAL, INC.

PART II. OTHER INFORMATION

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

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 July 14, 2004, the Company furnished a copy of the press release announcing $100 million convertible notes offering.

In a Current Report filed on Form 8-K dated July 20, 2004, the Company furnished a copy of the press release regarding the sale of 5.25% convertible senior unsecured notes.

In a Current Report filed on Form 8-K dated July 26, 2004, the Company furnished a copy of the press release regarding securing of $100 million revolving credit facility.

In a Current Report filed on Form 8-K dated July 26, 2004, the Company furnished a copy of the press release regarding completion of $115 million sale of convertible senior unsecured notes.

In a Current Report filed on Form 8-K dated July 26, 2004, the Company furnished a copy of the press release regarding notification to trustee to redeem the company’s 8.75% senior subordinated notes.

In a Current Report filed on Form 8-K dated July 30, 2004, the Company furnished a copy of the press release reporting its second quarter 2004 financial results.

In a Current Report filed on Form 8-K dated August 18, 2004, the Company furnished a copy of the press release regarding Titan International, Inc. CEO filing Form 4.


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TITAN INTERNATIONAL, INC.

PART II. OTHER INFORMATION

In a Current Report filed on Form 8-K dated August 25, 2004, the Company furnished a copy of the press release regarding Titan Tire Corporation being awarded two multi-year military contracts.

In a Current Report filed on Form 8-K dated August 26, 2004, the Company furnished a copy of the press release regarding redemption of 8.75% senior subordinated notes.

In a Current Report filed on Form 8-K dated September 30, 2004, the Company furnished a copy of the press release regarding resale registration statement being declared effective.

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:	October 28, 2004	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)


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