TWI 09.14.12 EX 99.1

EX-99.1 2 twi091412ex991.htm PROPOSED ISSUE TWI 09.14.12 EX 99.1

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION.

If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice as soon as possible from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser who, if you are taking advice in the United Kingdom, is appropriately authorised to provide such advice under FSMA or from another appropriately authorised independent financial adviser in the relevant jurisdiction.

If you have sold or otherwise transferred all of your Titan Europe Shares, please send this document at once to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for delivery to the purchaser or transferee. However, such document should not be forwarded or transmitted in or into any jurisdiction in which such act would constitute a violation of the relevant laws in such jurisdiction. If you have sold or otherwise transferred part of your holding of Titan Europe Shares, please retain these documents and consult the stockbroker, bank or other agent through whom the sale or transfer was effected.

The release, publication or distribution of this document in or into jurisdictions other than the United Kingdom or the United States may be restricted by the laws of those jurisdiction and any other Offer-related documentation. Therefore persons into whose possession this document comes should inform themselves about, and observe, any such restrictions or applicable requirements. Failure to comply with any such restrictions or applicable requirements may constitute a violation of the securities laws of any such jurisdiction.

A copy of this document, which comprises a document regarded by the FSA as being equivalent to that of a prospectus relating to the New Titan International Common Shares proposed to be issued pursuant to the terms of the Offer and has been prepared in accordance with paragraph 1.2.2R(2) of the Prospectus Rules made under Section 84 of FSMA, has been filed with the FSA and has been made available to the public as required by section 3.2 of the Prospectus Rules.

You should read this document in its entirety. In particular, your attention is drawn to the risk factors set out in the section of this document headed Risk Factors.

Titan International and the Titan International Directors, whose names appear in the section headed Titan International Directors, Company Secretary, Registered Office and Advisers, accept responsibility for the information contained in this document. To the best of the knowledge of Titan International and the Titan International Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and contains no omission likely to affect its import.

TITAN INTERNATIONAL, INC.

(Incorporated in Illinois, United States, with registered number 53035388)

Proposed issue of up to 6,240,833 New Titan International Common Shares
to Titan Europe Shareholders in connection with Titan International’s Offer
for Titan Europe Plc

Investors should rely only on the information contained in this document. No person has been authorised to give any information or make any representations other than those contained in this document and, if given or made, such information or representation must not be relied upon as having been so authorised.

No securities regulatory authority in the US has expressed an opinion about the securities that are subject to this Offer and it is an offence to claim otherwise. The Offer has not been approved by any securities regulatory authority in the US nor has any securities regulatory authority in the US passed upon the fairness or merits of the Offer or upon the adequacy of the information contained in this document. Any representation to the contrary is an offence.

The Offer relates to all the Titan Europe Shares held by all Titan Europe Shareholders in the UK and the US as well as any other jurisdiction where the Offer is capable of being lawfully made and accepted in compliance with local securities laws.

The New Titan International Common Shares have not been, and are not currently intended to be, registered under the applicable securities laws of any Restricted Jurisdiction. This document is not being made available to Titan Europe Shareholders with registered addresses in a Restricted Jurisdiction and may not be treated as an offer or invitation to subscribe for any New Titan International Common Shares by any person resident or located in such jurisdictions. The New Titan International Common Shares may not be offered in or into any Restricted Jurisdiction or to or for the account or benefit of any national, resident or citizen of a Restricted Jurisdiction. Any persons (including, without limitation, custodians, nominees and trustees) who have a contractual or other legal obligation to forward this document or any accompanying document to a Restricted Jurisdiction should seek appropriate advice before taking any action.

Application will be made to the New York Stock Exchange for the New Titan International Common Shares to be admitted to trading on the New York Stock Exchange. It is expected that Admission will become effective and dealings on the New York Stock Exchange in the New Titan International Common Shares will commence as soon as possible, but in any event by no later than 10 days after the date on which the Offer becomes or is declared wholly unconditional. Titan International does not intend to apply: (i) for the New Titan International Common Shares to be admitted to the Official List maintained by the FSA; nor (ii) to the London Stock Exchange for the New Titan International Common Shares to be admitted to trading on the London Stock Exchange’s Main Market for listed securities or on AIM.

Seymour Pierce Limited is authorised and regulated by the FSA. Seymour Pierce Limited is acting as financial adviser to Titan International and no one else in connection with the contents of this document and the Offer and will not be responsible to any person other than Titan International for providing the protections afforded to clients of Seymour Pierce Limited nor for providing advice in relation to the Offer or any matters referred to herein.

THE CONTENTS OF THIS DOCUMENT ARE NOT TO BE CONSTRUED AS LEGAL, FINANCIAL, BUSINESS OR TAX ADVICE. EACH POTENTIAL INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN LEGAL ADVISER, FINANCIAL ADVISER OR TAX ADVISER FOR LEGAL, FINANCIAL OR TAX ADVICE.

CONTENTS

SUMMARY INFORMATION 3

IMPORTANT DATES AND TIMES 17

OFFER STATISTICS 18

RISK FACTORS 19

IMPORTANT INFORMATION 27

TITAN INTERNATIONAL DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE

AND ADVISERS 31

PART 1: INFORMATION ON THE OFFER 32

PART 2: INFORMATION ON TITAN INTERNATIONAL 43

PART 3: INFORMATION ON TITAN EUROPE 50

PART 4: TITAN INTERNATIONAL DIRECTORS, SENIOR MANAGERS, EMPLOYEES

AND CORPORATE GOVERNANCE 56

PART 5: TITAN INTERNATIONAL SELECTED FINANCIAL INFORMATION 61

PART 6: TITAN INTERNATIONAL OPERATING AND FINANCIAL REVIEW 63

PART 7: TITAN INTERNATIONAL FINANCIAL INFORMATION 98

PART 8: TITAN EUROPE FINANCIAL INFORMATION 212

PART 9: UNAUDITED PRO FORMA FINANCIAL INFORMATION OF

THE TITAN INTERNATIONAL GROUP 277

PART 10: TAXATION 285

PART 11: SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN IFRS AND US GAAP 293

PART 12: PROFIT FORECAST 296

PART 13: ADDITIONAL INFORMATION 300

PART 14: DEFINITIONS 325

SUMMARY INFORMATION

Summaries are made up of disclosure requirements known as ‘Elements’. These elements are numbered in Sections A – E (A.1 – E.7).

This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements.

Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of ‘not applicable’.



Section A – Introduction and warnings
A.1	Introduction	This summary should be read as an introduction to this document. Any decision to invest in the New Titan International Common Shares should be based on consideration of this document as a whole. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of Member States, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in such securities.



Section B – Issuer
B.1	Legal and Commercial Name	The Company’s name is Titan International, Inc.
B.2	Domicile/Legal Form/Legislation/ Country of Incorporation	The Company is a corporation which was incorporated on 21 May 1983 in the State of Illinois, USA. The Company is domiciled in Illinois, USA with registered number 5303-538-8. The Company is governed by its Articles and the principal legislation under which the Company operates is the Illinois Business Corporation Act of 1983, as amended.
B.3	Current operations and activities	Titan International and its subsidiaries are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets. Titan International has facilities in the United States and in Brazil manufacturing both wheels and tires for the majority of these market applications, allowing Titan International to provide the value added service of delivering complete wheel and tire assemblies. Titan International offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.



		Agricultural Market: Titan International's agricultural rims, wheels and tires are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers and Titan International’s own distribution centers.
		Earthmoving/Construction Market: Titan International manufactures rims, wheels and tires for various types of off-the-road (OTR) earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders.
		Consumer Market: Titan International manufactures bias truck tires in
		Brazil, provides wheels and tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets.
		Titan International also offers select products for ATVs, turf, and golf cart applications. Likewise, Titan International produces a variety of tires for the consumer market.
B.4a	Significant recent	Recently Titan International has increased its business significantly. For the
	trends of the	year ended 31 December 2011 Titan International reported net sales of
	Company and its	$1,487.0 million (2010: $881.6 million) with income before income taxes of
	industry	$95.9 million (2010: loss $9.2 million). This growth has been achieved both organically through higher sales across its Agricultural, Earthmoving/Construction and Consumer divisions as well as through acquisitions including the acquisition of The Goodyear Tire & Rubber
		Company’s Latin American tire business based in Sao Paulo, Brazil.
		Titan International’s Agricultural division generated sales for the year ended
		31 December 2011 of $960.7 million (2010: $675.2 million) representing approximately 64 per cent. of Titan International’s net sales. Its
		Earthmoving/Construction sales in 2011 were $306.8 million (2010: $191.0 million) representing approximately 21 per cent. of Titan International’s net sales. The Consumer market sales in 2011 were $219.5 million (2010:
		$15.4 million) which represented approximately 15 per cent. of Titan
		International’s net sales. Basic earnings per share for the year ended 31
		December were $1.40 (2010: loss $0.17) and diluted earnings per share of
		$1.18 (2010: loss $0.17). In 2011 dividend declared per common share of
		$0.02 (2010: $0.02).
		Growing global population and the rise in middle classes has provided opportunities in the Agricultural sector as farmers seek to increase acreage, improve yields and productivity which has driven demand for bigger and more efficient farm machinery.
		Whilst drought conditions have affected many parts of the United States this summer, over the last few years farmers in the United States have generally benefited from more favourable weather conditions which, combined with attractive agricultural commodity prices and improved yields, has driven demand from agricultural machinery.
		During recent months, the high temperatures experienced in many parts of the United States has had a detrimental impact on production levels at certain Titan International facilities.



		In the United States and elsewhere there has been a continued growth in alternative energy exploration which has increased demand for mining machinery and equipment, both from OEMs and from the aftermarket as equipment wears out.
		The well documented difficulties in the US housing market and the construction markets has resulted in reduced demand for construction equipment.
		Titan International has benefited from increased demand for its products and services during 2011 and the first six months of 2012, driven principally by the following:
		● Strength in manufacturing of wheel and giant tire products focused on the mining industry;
		● Investment in production facilities combined with innovation in new products;
		● Acquisition of companies or facilities offering complementary products and services, geographical reach and or production capacity.
B.5	Group structure	Titan International is the holding company of the Titan International Group.
		The table below sets out each of the significant subsidiaries of the Titan
		International Group together with its country of incorporation or residence and percentage interest held by the Titan International Group:
		Name Country %
		Shareholding
		Titan Tire Corporation Illinois, USA 100
		Titan Wheel Corporation of Illinois Illinois, USA 100
		Titan Mining Services, Inc. Illinois, USA 100



B.6	Notifiable interests	As at 13 September 2012 (being the latest practicable date before publication of this document) so far as the Company is aware the following persons hold directly or indirectly 5 per cent. or more of Titan International’s voting rights (calculated exclusive of voting rights attaching to treasury shares) or will do so immediately following completion of the Offer:
		13 September 2012 (the latest practicable date Immediately following prior to publication completion of the of this document) Acquisition¹
		% of % of
		Number of voting rights Number of voting rights
		Titan in respect Titan in respect
		International of issued International of issued
		Beneficial Owner Shares share capital Shares share capital
		Blackrock, Inc. 3,564,752 8.4 3,564,752 7.1
		Fisher Asset
		Management, LLC 3,358,777 8.0 3,358,777 6.7
		Lord, Abbett & Co. LLC 2,506,550 5.9 2,506,550 5.0
		Next Century Growth
		Investors, LLC 2,365,384 5.6 2,365,384 4.7
		Allianz Global Investors
		Capital LLC 2,339,400 5.5 2,339,400 4.6
		American Century
		Investment
		Management Inc. 2,257,461 5.3 2,257,461 4.5
		Westfield Capital
		Management
		Company, LP 2,167,582 5.1 2,167,582 4.3
		¹ Assuming that Titan International acquires all the issued and to be issued share capital of Titan Europe pursuant to the Offer.
	Different voting	Not applicable; none of the Company’s major shareholders have different
	rights/Controlling interests	voting rights.
		Not applicable; to the extent known to the Company, the Company is not directly or indirectly owned or controlled by any person.
B.7	Historical key	The following is a summary of the Titan International financial information
	financial	for the periods indicated. The data has been extracted without material
	information of the	adjustment from Titan International’s consolidated audited financial
	Issuer	statements and consolidated interim financial statements.
		Titan International’s consolidated financial statements are prepared in accordance with US GAAP.

Summary consolidated statements of operations/income statements



	Six months ended 30 June 30 June	Year ended 31 December
US $’000 except per share data	2012	2011	2011	2010	2009
Net sales	$922,321	$685,276	$1,486,998	$881,591	$727,599
Gross profit	175,449	120,606	232,108	104,090	55,965
Noncash goodwill impairment charge	–	–	–	–	11,702
Income (loss) from operations	139,640	71,276	132,173	30,945	(18,894)
Income (loss) before income taxes	130,852	45,175	95,895	(9,190)	(32,002)
Net income (loss)	79,719	22,520	58,136	(5,926)	(24,645)
Net income (loss) per share – basic	$1.89	$0.55	$1.4	$(0.17)	$(0.71)
Net income (loss) per share – diluted	1.53	0.47	1.18	(0.17)	$(0.71)
Dividends declared per common share	0.01	0.01	0.02	0.02	0.02

Summary consolidated statements of financial position balance sheets



	As of 30 June		Year ended 31 December
US $’000	2012	2011	2011	2010	2009
Current assets	670,136	584,176	564,593	481,350	445,216
Non-current assets	423,863	487,516	445,693	299,530	291,247
Total assets	1,093,999	1,071,692	1,010,286	780,880	736,463
Current liabilities	187,615	227,519	175,766	92,353	70,072
Non-current liabilities	429,308	445,472	437,641	416,496	404,438
	616,923	672,991	613,407	508,849	474,510
Stockholders’ equity	475,276	396,780	395,239	272,031	261,953
Non-controlling investors	1,800	1,921	1,640	–	–
	1,093,999	1,071,692	1,010,286	780,880	736,463

Summary statements of cash flows/cash flow statements (All amounts in US$’000)



	Six months ended 30 June		Year ended 31 December
	2012	2011	2011	2010	2009
Cash provided by (used for) operating activities	48,683	(30,632)	4,426	50,711	72,313
Cash used for investing activities	(18,553)	(107,919)	(130,803)	(28,748)	(40,894)
Cash provided by (used for) financing activities	(9,194)	13,174	16,380	(11,645)	136,105
Effect of exchange rate changes on cash	(656)	39	(333)	–	–
Net increase (decrease) in cash and cash equivalents	20,280	(125,338)	(110,330)	10,318	167,524
Cash and cash equivalents, beginning of period	129,170	239,500	239,500	229,182	61,658
Cash and cash equivalents, end of period	149,450	114,162	129,170	239,500	229,182

Since the commencement of the 2009 financial year, Titan International’s results of operation and its financial condition have improved markedly with new sales rising over the three years from $0.7 billion for the year ended 31 December 2009 to $1.5 billion for the year ended 31 December 2011 with a corresponding improvement in profitability with plant efficiencies as volumes increase.



	This trend of improving sales and profitability has continued into the first six months of 2012 with sales, gross profit and gross margins all at higher levels than in the corresponding period in 2011. These gains have been principally driven by strong demand for Titan International’s products, in particular in the Agricultural and mining industries which have both seen strong growth since the 2008 recession. This customer demand and focus on working capital and cost control has resulted in a strengthened balance sheet over the period under review with net assets of $1.1 billion as at 30 June 2012. This financial strength, and the opportunities which Titan International see to develop the Titan International Group, has enabled Titan International to grow by acquisition including the $98.6 million cash purchase of The Goodyear Tire & Rubber Company’s business in Latin America in 2011, which contributed an additional $276.5 million of sales in 2011.
	Historical key The summary financial information set out below sets out Titan Europe’s financial results of operations for the six months ended 30 June 2012 and the year information of ended 31 December 2011 prepared in accordance with IFRS. Titan Europe
	Summary income statement for the six months ended 30 June 2012 and the year ended 31 December 2011 Six months ended Year ended 31 December (Unaudited) (Audited) 30 June 2012 30 June 2011 2011 2010 £’000 £’000 £’000 £’000 Revenue 252,586 253,161 492,521 355,202 Trading profit 14,750 18,005 33,047 14,064 Restructuring and rationalisation costs (376) (151) (3,165) (1,497) Net impact of earthquake (1,194) – – – Significant legal costs (314) – (153) (220)
	Profit from operations 12,866 17,854 29,729 12,347
	Net financing costs (5,561) (5,241) (11,748) (10,370) Share of profit of associate and joint venture 1,272 1,399 1,800 1,456 Gain on previously held interest in joint venture – 1,826 1,863 –
	Profit before income tax 8,577 15,838 21,644 3,433 Income tax charge (3,594) (4,267) (4,012) (807)
	Profit for the year attributable to equity shareholders 4,983 11,571 17,632 2,626
	Earnings per 40p ordinary share Basic 5.71p 13.73p 20.56p 3.16p Diluted 5.50p 13.30p 19.89p 3.14p
	Basic excluding exceptional items* 7.26p 11.65p 21.01p 4.58p Diluted excluding exceptional items* 7.00p 11.29p 20.33p 4.54p
	*This excludes net of tax, restructuring and rationalisation costs, significant legal costs, net impact of earthquake and gain on previously held interest in joint venture.

Summary consolidated balance sheets



	As at 30 June 2012 (Unaudited)	As at 30 June 2011 (Unaudited)	As at 31 December (Audited) 20112010
	£'000	£'000	£'000	£'000
ASSETS
Non-current assets	232,462	259,579	244,183	250,881
Current assets	246,946	256,883	238,837	211,893
Total assets	479,408	516,462	483,020	462,774
LIABILITIES
Non-current liabilities	128,800	143,669	139,730	141,159
Current liabilities	186,583	205,110	178,535	170,451
Total liabilities	315,383	348,779	318,265	311,610
Net assets	164,025	167,683	164,755	151,164
Total attributable to equity shareholders	164,025	167,683	164,755	151,164

Summary Consolidated cash flow statements for the six months ended 30 June and year ended 31 December

Six Months Ended Year ended 31 December



30 June 2012 30 June 2011 UnauditedUnaudited £'000£'000					2011 Audited £'000		2010 Audited £'000
Cash generated from operating activities	6,149		10,585		28,123		21,667
Cash used in investing activities	(7,258	)	(12,113	)	(22,050	)	(10,531	)
Cash generated from financing activities	(5,943	)	3,529		7,235		2,958
Net increase in cash and cash equivalents	(7,052	)	2,001		13,308		14,094
Cash and cash equivalents at the beginning of the year	21,993		9,608		9,608		(5,422	)
Effect of exchange rate fluctuations on cash held	(372	)	177		(923	)	936
Cash and cash equivalents at the end of the year	14,569		11,786		21,993		9,608



B.8	Key pro forma financial information	The summary unaudited pro forma financial information for Titan International set out below has been prepared to show the effect on the net assets of Titan International at 30 June 2012 as if the acquisition of the entire issued and to be issued share capital of Titan Europe had occurred at that date. This summary information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and, therefore, does not represent Titan International's actual financial position or results. The consolidated balance sheet of Titan International as at 30 June 2012, has been extracted, without material adjustment, from the Titan International unaudited condensed consolidated financial information for the six months period ended 30 June 2012 which are prepared under US GAAP and in accordance with the accounting policies adopted in Titan International’s consolidated financial statements for the year ending 31 December 2012. The consolidated balance sheet of Titan Europe as at 30 June 2012 has been extracted from the unaudited financial statements for the six months ended 30 June 2012 which are prepared under IFRS. Because Titan International reports under US GAAP and Titan Europe reports under IFRS, adjustments have been made to present the balance sheet of Titan Europe in accordance with the US GAAP accounting policies of Titan International including the reclassification of certain assets and liabilities to different categories to align with the treatment adopted by Titan International. Titan Europe’s US GAAP financial information has been converted from Pounds Sterling to US Dollars at the rate of £1/$1.562 which represents the exchange rate at 30 June 2012.



		No account has been taken of any purchase price adjustments to Titan Europe’s balance sheet at 30 June 2012. The Adjustments reflect: ● Elimination of the historical balances of Titan Europe as the Titan International Group accounts for its 21.67 per cent. interest in Titan Europe as an available for sale security; ● Issuance of Titan International Common Stock in exchange for Titan Europe Shares under the Offer; ● Fees and expenses related to the acquisition of Titan Europe which are charged to the income statement; ● Negative goodwill on the acquisition of Titan Europe which is credited to reserves under US GAAP; and ● Intercompany debtor and creditor balances with Titan Europe. No adjustments have been made to the unaudited pro forma balance sheet to reflect the trading results or other transactions of Titan International or Titan Europe since 30 June 2012.
	Summary pro forma financial (expressed in US$000) Current assets Non-current assets Total assets Current liabilities Non-current liabilities Total liabilities Stockholders equity Noncontrolling interests Total equity Total liabilities and equity	information as at 30 June 2012 Titan Titan Unaudited International Europe Adjustment Pro forma 670,136 397,203 (11,077) 1,056,262 423,863 344,751 (29,534) 739,080
		$1,093,999 $741,954 $(40,611) $1,795,342
		187,615 290,850 (6,277) 472,188 429,308 201,628 – 630,936
		616,923 492,478 (6,277) 1,103,124 475,276 249,476 (34,334) 690,418 1,800 – – 1,800
		477,076 249,476 (34,334) 692,218
		$1,093,999 $741,954 $(40,611) $1,795,342

B.9	Profit forecast	Titan International announced on 9 December 2011 that its earnings before interest, taxation, depreciation and amortisation (“EBITDA”) for the year ended 31 December 2012 would be between $225 million and $300 million.
B.10	Description of the nature of any qualifications in the audit report on the historical financial information	Not applicable; the audit reports on the historical financial information contained in this document do not contain any qualifications. Titan International restated its audited consolidated financial information for the year ended 31 December 2010 to correct an error relating to its valuation of certain tire inventory that did not accurately calculate the decline in value as of 31 December 2010.
B.11	Working capital explanation	Not applicable; the Company is of the opinion that, taking into account available banking facilities and its existing cash resources,Titan International has sufficient working capital for its present requirements, that is for at least the next 12 months from the date of this document.



Section C – Securities
C.1	Type and class of the securities	The securities being offered are Titan International Common Stock whose ISIN is US88830M1027. The Company is offering the option of Titan Europe Shareholders being offered Titan International CDI’s which will reflect an equivalent economic interest in the Common Stock of the Company.
C.2	Currency of the securities issue	The Titan International Common Stock has no nominal or par value.
C.3	Shares issued/ Value per share	The Company has in issue 44,092,997 shares of fully paid Common Stock which have no nominal or par value. The Company has no partly paid Titan International Common Stock in issue.
C.4	Rights attached to the securities	The Titan International Common Stock ranks equally in all respects including in relation to voting rights and the right to receive dividends or other distributions declared, paid or made, but ranks behind any Preferred Stock in relation to the dividends and distributions. The Company has no outstanding Preferred Stock. Each holder of Preferred Stock is entitled to preference over the holders of the Titan International Common Stock with respect to priority in receiving dividends and participating in any distribution of the remaining property and assets of the Company upon the dissolution, liquidation or winding up of the Company. However, the holders of Preferred Stock shall not be entitled to vote except as required by law. Each holder of Titan International Common Shares is entitled to: ● receive notice of and to vote in person or by proxy at every meeting of the shareholders of the Company except at separate meetings of the holders of another class or series of shares; ● receive dividends, subject to any preferential rights attaching to any other class or series of shares, if, as and when declared on the Common Shares by the Company; and ● participate, subject to any preferential rights attaching to any other class or series of shares, in any distribution of the remaining property and assets of the Company upon the dissolution, liquidation or winding up of the Company. The board of the Company is authorised to issue shares of Preferred Stock in one or more series, each series to bear a distinctive designation and to have such rights, preferences and restrictions as the board shall decide.



C.5	Restrictions on	The Articles do not contain any restriction on the transfer of Titan
	free transferability	International Common Stock or Preferred Stock. However, transfers must
	of the securities	be made in compliance with applicable securities laws including (without limitation) the US Securities Act of 1993. The New Titan International
		Common Shares will not be registered under that Act. Certain New Titan
		International Common Shares will be deemed “restricted securities” under
		Rule 144 of the said Act, in which case they may be resold in the US only in accordance with the said Rule 144 or another applicable exemption from registration, or outside the US in accordance with Regulation S under that
		Act.
C.6	Admission/	Titan International is traded on the New York Stock Exchange under the
	Regulated markets where the	ticker: TWI.
	securities are	The New Titan International Common Stock will be admitted to trading on
	traded	the New York Stock Exchange, but not on any other exchange.
C.7	Dividend policy	Subject to preferential rights with respect to future outstanding Preferred
		Stock, the Titan International Board, in its sole discretion, will determine the amount and timing of any dividends. All dividend payments will depend on general business conditions, the Company’s financial condition, results of operations and capital requirements and such other factors as the Titan
		International Board determines to be relevant.



Section D – Risks
D.1	Key risks specific	An investment in the Titan International Common Stock involves substantial
	to the Company	risks and uncertainties. The key risks which are specific to Titan
	or its industry	International or its industry are listed below:
		Risks relating to the business of Titan International (and, following completion of the Offer, the business of the Combined Group)
		● Titan International does not generally enter into long term commodity contracts. In the event therefore if there are increases in the price of raw materials there could be an adverse effect on Titan International if it is not able to pass on such costs increases to its customers.
		● Titan International relies on a limited number of suppliers and the loss of a key supplier or their inability to meet Titan International’s requirements could have a significant adverse impact on Titan
		International’s results or operations if Titan International is not able to replan it.
		● Titan International operates in three principal industries: agricultural equipment, earthmoving construction equipment and consumer products. Each of these industries are cyclical in terms of demand. In particular, agricultural equipment is affected by crop prices, farm income and the weather (at the moment there are serious drought conditions in the U.S. which have reduced farm yields and could therefore reduce demand), earthmoving equipment by the level of governmental and private spending and the consumer market by consumer disposable income, energy prices and the weather. Any downturn in these industries could have an adverse material impact on Titan International’s business.
		● Titan International’s top ten customers equate to 55 per cent. of Titan
		International’s net sales and the top two customers total 27 per cent. of net sales. Titan International could be adversely affected if it did not maintain good relationships with its principal customers or if any of its principal customers reduced, for whatever reason, its amount of purchases from Titan International.
		● Titan International faces substantial competition from domestic and international companies some of which have greater resources than
		Titan International. In particular Titan International’s ability to compete with international competitors may be adversely affected by currency fluctuations which may put it at a competitive disadvantage.
		● Titan International is dependent upon maintaining good labour relations with its employees. Traditionally a majority of Titan
		International’s employees work under collective bargaining agreements and one of these has recently expired and has not been renewed. Other collective bargaining agreements will lapse in 2012 and 2013 and if there are not collective bargaining agreements in place with its employees there is a greater risk of industrial disputes which could have an adverse effect on Titan International.
D.3	Key risk specific	● Stock markets have experienced a high level of volatility which may
	to the securities	adversely affect the trading price of Titan International Common Stock and which may fluctuate.



Section E – Offer
E.1	Net proceeds/	Not applicable: the Company is not receiving any proceeds save for the
	Estimate of expenses	Titan Europe Shares it will acquire as a result of the Offer.
		The total costs, charges and expenses (including fees and commissions)
		(exclusive of recoverable VAT) payable by the Company in connection with the Offer are estimated to amount to approximately US$2,500,000.
E.2	Reasons for the	Titan International believes that there is compelling logic in the acquisition
(a)	offer/Use of	of Titan Europe as it will establish a truly global wheel, tire and track
	proceeds/Net amount of proceeds	industrial group servicing customers across the agricultural, construction, and mining industries. Titan Europe is well known to Titan International, having been spun-off by Titan International onto AIM in April 2004. The
		Titan International Board now believe that Titan Europe would once more benefit from being part of a larger group with a strong balance sheet which could achieve greater revenue growth and increased profitability than on a standalone basis.
		Titan International considers Titan Europe to have a strong presence in its chosen markets with a complementary product offering, customer base and strong manufacturing capabilities that fit well with Titan International’s stated aim of increasing its global presence to service its customers better. In particular, the Titan International Board believes the acquisition of Titan
		Europe presents opportunities for Titan International’s tire business in South
		America and Europe, and will cement the existing co-operation between
		Titan International Mining Services, established in 2011 to offer complete tire, wheel and track services near large mines worldwide, and Titan
		Europe’s own Mining Service Centres expertise.
		The Titan International Board is also mindful that a number of the markets and industries in Europe in which Titan Europe operates are experiencing economic uncertainty which is likely to continue and which has the potential to impact those markets and industries. Furthermore, the Titan
		International Board believes that further consolidation will occur in the industries in which Titan International and Titan Europe both operate which will bring both challenges, as well as opportunities and, therefore, believes that Titan Europe, as part of an enlarged Titan International Group, will be better placed to respond to these market changes.
		Titan International expects that the acquisition of Titan Europe will be accretive to earnings per share and provide opportunities to drive further revenue growth and margin improvement. That does not mean, however, that the earnings from Titan International Common Shares will be greater than those for the preceeding financial period.
		Furthermore, by providing Titan Europe Shareholders with the ability to retain an ongoing interest in Titan Europe through a shareholding in the enlarged Titan International Group, Titan International believes that Titan
		Europe Shareholders can both participate in the future success of the
		Combined Group, as well as benefit from the enhanced liquidity offered by
		Titan International’s publicly traded stock on the NYSE.
		Not applicable: the Company is not receiving any proceeds save for the
		Titan Europe Shares it will acquire as a result of the Offer.



E.3	Terms and conditions of the Offer	Under the terms of the Offer, which will be subject to the Conditions and further terms summarised below and set out in full in the Offer Document, Titan Europe Shareholders will be entitled to receive from Titan International:
		for every 11 Titan Europe Shares 1 New Titan International Common Share

		In respect of which valid acceptances are received.
		Based on the closing exchange rate of £1:$1.5638 (source: Bloomberg) and the Closing Price of a share of Titan International Common Stock of $22.03 on 9 August 2012, being the Business Day before the 2.7 Announcement, the Offer values each Titan Europe Share at 128.1 pence and values the entire issued and to be issued ordinary share capital of Titan Europe at approximately £118.4 million. The Offer represents a premium of approximately:
		13.3 per cent. to the Closing Price of 113 pence per Titan Europe Share on 16 July 2012 (being the last Business Day before the commencement of the Offer Period);
		2.1 per cent. to the Closing Price of 125.5 pence per Titan Europe Share on 9 August 2012 (being the last Business Day before the 2.7 Announcement).
		At the date of the first meeting to discuss the Offer on 2 May 2012, the Titan International Common Stock price was $28.83 per share and based on that day's closing exchange rate ($1.615:£1) and the Offer Terms, the effective value placed on each Titan Europe Share was 162.2 pence per share. This represented a premium of 18.7 per cent. to the closing Titan Europe share price on that day of 136.6 pence.
		The Titan Europe Shares will be acquired pursuant to the Offer fully paid and free from all liens, charges, equitable interests, encumbrances and rights of pre-emption and any other interests of any nature whatsoever and together with all rights attaching thereto.
		Titan International has received irrevocable undertakings to accept the Offer from each of the Titan Europe Directors who have an interest in Titan Europe Shares who, collectively, represent approximately 1.75 per cent. of Titan Europe's issued share capital.
		The New Titan International Common Shares will be admitted to trading on the New York Stock Exchange. The New Titan International Common Shares will have no par value, will have the same rights as all outstanding Titan International Common Shares and, when allotted, will rank pari passu with existing Titan International Common Shares, including in respect of all dividends made, paid or declared from the time of their allotment.



E.4	Interests material to the issue/ Conflicting interests	Not applicable: there are no interests, known to the Company, material to issue of New Titan International Common Shares or which are conflicting interests.
E.5	Name of the offeror/Lock-up agreements	Not applicable: there are no entities or persons offering to sell the New Titan International Common Shares. Not applicable: there are no lock-up agreements.
E.6	Dilution	The table below sets out what the enlarged share capital of Titan International will be and the percentage of shares in the enlarged share capital of Titan International that Titan Europe Shareholders will have, depending on the level of acceptances received (and, where appropriate, such number of Titan Europe Shares that Titan International and any of its wholly owned subsidiaries has acquired or agreed to acquire whether pursuant to the Offer or otherwise): Percentage of Titan International Common Shares held by Enlarged Titan Europe Number of number of Shareholders New Titan shares of Titan in the enlarged International International share capital Common Common of Titan Level of acceptances Shares* Stock International* 100%⁺ 6,240,833 50,333,468 12.4% 75%^# 3,328,124 47,420,759 6.6% 51%^# 1,830,324 45,922,959 3.6% *Assumes that no options under the Titan Europe Share Option Scheme are exercised, that said options are cancelled # including such number of Titan Europe Shares that Titan International and any of its wholy owned subsidiaries has acquired or agreed to acquire whether pursuant to the Offer or otherwise. + this would arise if acceptances of 90 per cent. or more were obtained.
E.7	Estimated expenses charged to the investor	Not applicable: no expenses will be directly charged to investors.

IMPORTANT DATES AND TIMES

The dates and times given in the table below in connection with the Offer are indicative only, are based on Titan International’s current expectations and may change in accordance with the terms and Conditions of the Offer as described in this document and the Offer Document.

Event Time and/or date

Publication of this document and the Offer 14 September 2012

Document

First Closing Date of the Offer 5 October 2012

Latest time and date for Titan Europe Shareholders 1.00 p.m. on 5 October 2012 to accept the Offer (unless extended)

New Titan International Common Shares to be Not later than 10 Business Days after the date on

issued in connection with the Offer begin trading which the Offer becomes or is declared wholly

on the New York Stock Exchange (i.e. the unconditional

Settlement Date)

Titan International CDIs expected to be issued Not later than 12 Business Days after the date on

and deposited into accounts in CREST which the Offer becomes or is declared wholly

unconditional

If extended, the latest date on which the Offer 13 November 2012

may become or be declared wholly unconditional

All times shown in this document are London times (unless otherwise stated).

OFFER STATISTICS

Number of Titan International Common Stock at 13 September 2012 44,092,997

New Titan International Common Shares to be issued pursuant to the Offer⁽¹⁾ Up to 6,240,833

Titan International Common Stock in issue:


●	if Titan International receives 51 per cent. acceptances pursuant to the Offer⁽³⁾ Up to 45,922,959


●	if Titan International receives 75 per cent. acceptances pursuant to the Offer⁽³⁾ Up to 47,420,759


●	assuming full acceptance of the Offer⁽²⁾ Up to 50,333,468

Total voting rights attributable to the New Titan International Common Shares as a percentage of the total voting rights attributable to the Titan International Common Stock:


●	if Titan International receives 51 per cent. acceptances pursuant to the Offer⁽³⁾ 3.6%


●	if Titan International receives 75 per cent. acceptances pursuant to the Offer⁽³⁾ 6.6%


●	assuming full acceptance of the Offer⁽²⁾ 12.4%


(1)	Assuming full acceptance of the Offer and no exercise of share options or vesting of share awards held under the Titan Europe Share Option Scheme.


(2)	This would arise if acceptances of 90 per cent. or more were obtained as detailed in paragraph entitled “cancellation of trading on AIM, compulsory acquisition and re-registration of Titan Europe Shares” in Part 1 of this document.


(3)	Including such number of Titan Europe Shares that Titan International and any of its wholly owned subsidiaries has acquired or agreed to acquire whether pursuant to the Offer or otherwise.

RISK FACTORS

An investment in Titan International Common Stock is subject to a number of risks. This section on risk factors includes all the material risk factors relating to Titan International and the Offer which should be carefully considered by Titan Europe Shareholders and potential investors together with al the other information set out in this document prior to making any decision as to whether or not to accept the Offer or otherwise acquire Titan International Common Stock. The risks described below are based on information known at the date of this document, but may not be the only risks to which Titan International, Titan Europe and/or the Combined Group is or might be exposed. Additional risks and uncertainties, which are currently unknown to us or that we do not currently consider to be material, may materially affect the business of Titan International, Titan Europe and/ or the Combined Group and could have a material adverse effect on the business, financial condition and results of operations of Titan International, Titan Europe and/or the Combined Group. If any of the following risks were to occur, the business, financial condition and results of operations of Titan International, Titan Europe and/or the Combined Group could be materially adversely affected, and the value of Titan International Common Stock could decline and investors could lose all or part of the value of their investment in Titan International Shares. Titan Europe Shareholders and potential investors should read this document as a whole and not rely solely on the information set out in this section.

Risks relating to Titan International’s business (and, following completion of the Offer, the business of the Combined Group)

Titan International is subject to various risks and uncertainties relating to or arising out of the nature of its business and general business, economic, financing, legal and other factors or conditions that may affect Titan International. Realisation of any of the following risks could have a material adverse effect on Titan International’s business, financial condition, cash flows and results of operations.


●	Titan International is exposed to price fluctuations of key commodities

Titan International does not generally enter into long-term commodity contracts and does not use derivative commodity instruments to hedge exposures to commodity market prices fluctuations. Therefore, Titan International is exposed to price fluctuations of key commodities, which consists primarily of steel and rubber. Although Titan International attempts to pass on certain material prices increases to its customers, there is no assurance that Titan International will be able to do so in the future. Any increase in the price of steel and rubber that is not passed on to customers could have an adverse material effect on Titan International’s results of operations.


●	Titan International relies on a limited number of suppliers

Titan International currently relies on a limited number of suppliers for certain key commodities, which consist primarily of steel and rubber, in the manufacturing of Titan International’s products. The loss of key suppliers or their inability to meet price, quality, quantity and delivery requirements could have a significant adverse impact on Titan International’s results of operations.


●	Titan International operates in cyclical industries and markets and is subject to numerous changes in the economy

Titan International’s sales are substantially dependent on three major industries: agricultural equipment, earthmoving construction equipment and consumer products. The business activity levels in these industries are subject to specific industry and general economic cycles. Any downturn in these industries or the general economy could have an adverse material effect on Titan International’s business.

The agricultural equipment industry is affected by crop prices, farm income and farmland values, weather, export markets and government policies. The earthmoving/construction industry is affected by the levels of government and private construction spending and replacement demand. The consumer products industry is affected by consumer disposable income, weather, competitive pricing, energy prices and consumer attitudes. In addition, the performance of these industries is sensitive to interest rate and foreign exchange rate changes and varies with the overall level of economic activity. Current drought conditions exist in many parts of the US and the expectations of

lower faming yields may result in softer growth or possible decline in Titan International’s agricultural market sales.


●	Titan International’s customer base is relatively concentrated

Titan International’s ten largest customers, which are primarily original equipment manufacturing (OEMs) accounted for approximately 55 per cent. of Titan International’s net sales for 2011. Net sales to Deere & Company and CNH Global N.V. represented 18 per cent. and 11 per cent., respectively, of total 2011 net sales. No other customer accounted for more than 10 per cent. of net sales in 2011. As a result, Titan International’s business could be adversely affected if one of its larger customers reduces its purchases from Titan International due to work stoppages or slow-downs, financial difficulties, as a result of termination provisions, competitive pricing or other reasons. There is also continuing pressure from the OEMs to reduce costs, including the cost of products and services purchased from outside suppliers such as Titan International. Titan International has had long-term relationships with major customers and expects to continue these relationships. There can be no assurance that Titan International will be able to maintain such ongoing relationships. Any failure to maintain Titan International’s relationship with a leading customer could have an adverse effect on results of operations.


●	Titan International’s revenues are seasonal in nature due to Titan International’s dependence on seasonal industries

The agricultural, earthmoving/construction and recreational industries are seasonal, with typically lower sales during the second half of the year. This seasonality in demand has resulted in fluctuations in the Titan International’s revenues and operating results. Because much of Titan International’s overhead expenses are fixed, seasonal trends can cause reductions in quarterly profit margins and financial condition, especially during slower periods.


●	Titan International may be adversely affected by changes in government regulations and policies

Domestic and foreign political developments and government regulations and policies directly affect the agricultural, earthmoving/construction and consumer products industries in the United States and abroad. Regulations and policies in the agricultural industry include those encouraging farm acreage reduction in the United States and granted ethanol subsidies. Regulations and policies relating to the earthmoving/construction industry include the construction of roads, bridges and other items of infrastructure. The modification of existing laws, regulations or policies or the adoption of new laws, regulations or policies could have an adverse effect on any one or more of these industries and therefore on Titan International’s business.


●	Titan International is subject to corporate governance requirements, and costs related to compliance with, or failure to comply with, existing and future requirements could adversely affect Titan International’s business

Titan International is subject to corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the Securities and Exchange Commission (SEC), the Public Company Accounting Oversight Board (PCAOB) and the New York Stock Exchange (NYSE). These laws, rules and regulations continue to evolve and may become increasingly restrictive in the future. Failure to comply with these laws, rules and regulations may have an adverse material effect on Titan International’s reputation, financial condition and the value of Titan International’s securities.


●	Titan International faces substantial competition from domestic and international companies

Titan International competes with several domestic and international competitors, some of which are larger and have greater financial and marketing resources than Titan International. Titan International competes primarily on the basis of price, quality, customer service, design capability and delivery time. Titan International’s ability to compete with international competitors may be adversely affected by currency fluctuations. In addition, certain OEM customers could, under certain circumstances, elect to manufacture certain products to meet their own requirements or otherwise compete with Titan International.

There can be no assurance that Titan International’s business will not be adversely affected by increased competition in Titan International’s markets or that competitors will not develop products that are more effective or less expensive than its products or which could render certain products less competitive. From time to time certain competitors have reduced prices in particular product categories, which has caused Titan International to reduce prices. There can be no assurance that in the future Titan International’s competitors will not further reduce prices or that any such reductions would not have a material adverse effect on Titan International’s business.


●	Titan International could be negatively impacted if it fails to maintain satisfactory labour relations

At 31 December 2011, approximately 34 per cent. of Titan International employees were covered by a collective bargaining agreement. This 34 per cent. is comprised of employees at the Des Moines, Iowa facility, with collective bargaining agreement that expires in November 2012, and the Brazil facility, with a union agreement that expires, in relation to economic matters such as salary and profit sharing, on 31 May 2013, and in respect of social matters, on 31 May 2014. Upon the expiration of any of the collective bargaining agreements, Titan International may be unable to negotiate new collective bargaining agreements on terms that are cost effective to Titan International. If, following completion of the Offer, the Combined Group’s employees represented by foreign trade unions were to engage in a strike, work stoppage or other slowdown in the future, we could experience a significant disruption of our, or following completion of the Offer, the Combined Group’s business operations and would lead to decreased productivity, increased labour costs and lost revenue.

The labour agreements for Titan International’s Bryan, Ohio and Freeport, Illinois, facilities expired in November 2010, which account for approximately 26 per cent. of Titan International employees. As of 31 December 2011, the employees of these facilities were working without a contract under the terms of Titan International’s latest offer. The respective unions have retained their rights to challenge Titan International’s actions.

Failure to negotiate a new collective bargaining agreement might increase the Company’s labour costs and increase the likelihood of the Company suffering industrial disputes.


●	Acquisitions may require significant resources and/or result in significant losses, costs or liabilities

Any future acquisitions will depend on the ability to identify suitable acquisition candidates, to negotiate terms for their acquisition and to finance those acquisitions. Titan International will also face competition for suitable acquisition candidates that may increase costs. In addition, acquisitions require significant managerial attention, which may be diverted from current operations. Furthermore, acquisitions of businesses or facilities entail a number of additional risks, including:

– problems with effective integration of operations

– the inability to maintain key pre-acquisition customer, supplier and employee relationships

– the potential that expected benefits and synergies are not realised and operating costs increase

– exposure to unanticipated liabilities

Subject to the terms of indebtedness, Titan International may finance future acquisitions with cash from operations, additional indebtedness and/or by issuing additional equity securities. These commitments may impair the operation of Titan International’s businesses. In addition, Titan International could face financial risks associated with incurring additional indebtedness such as reducing liquidity and access to financing markets and increasing the amount of cash flow required to service such indebtedness.


●	Titan International has export sales and purchases raw material from foreign suppliers

Titan International had total aggregate export sales of approximately $164.4 million, $80.2 million and $82.7 million, for the years ended 31 December 2011, 2010 and 2009, respectively.

Export Sales – Exports to foreign markets are subject to a number of special risks, including but not limited to risks with respect to currency exchange rates, economic and political destabilization, other disruption of markets and restrictive actions by foreign governments (such as restrictions on transfer

of funds, export duties and quotas and foreign customs). Other risks include changes in foreign laws regarding trade and investment; difficulties in obtaining distribution and support; nationalization; reforms of United States laws and policies affecting trade, foreign investment and loans; and foreign tax laws. There can be no assurance that one, or a combination of these factors will not have a material adverse effect on Titan International’s ability to increase or maintain its export sales.

Foreign Suppliers – Titan International purchases raw material from foreign suppliers. The production costs, profit margin and competitive position of Titan International are affected by the strength of the currencies in countries where Titan International purchases goods, relative to the strength of the currencies in countries where the products are sold. Titan International’s results of operations, cash flows and financial position may be affected by fluctuations in foreign currencies.


●	Titan International may be subject to product liability and warranty claims

Titan International warrants its products to be free of certain defects and accordingly may be subject in the ordinary course of business to product liability or product warranty claims. Losses may result or be alleged to result from defects in Titan International products, which could subject Titan International to claims for damages, including consequential damages. There can be no assurance that Titan International’s insurance will be adequate or, in certain circumstances cover any such claims. Further, claims of defects could result in negative publicity against Titan International, which could adversely affect the Titan International’s business.


●	Titan International may be adversely affected by a disruption in, or failure of, information technology systems

Titan International relies upon information technology systems, some of which are managed by third parties, to process, transmit and store electronic information. Technology systems are used in a variety of business processes and activities, including purchasing, manufacturing, distribution, invoicing and financial reporting. Titan International utilises security measures and business continuity plans to prevent, detect and remediate damage from computer viruses, natural disasters, unauthorised access, utility failures and other similar disruptions. Despite these measures, a security breach or information technology system failure may disrupt and adversely affect Titan International’s operations.


●	Titan International is subject to risks associated with climate change and climate change regulations

Governmental regulatory bodies in the United States and other countries have, or are, contemplating introducing regulatory changes in response to the potential impacts of climate change. Laws and regulations regarding climate change and energy usage may impact Titan International directly through higher costs for energy and raw materials. Titan International’s customers may also be affected by climate change regulations that may impact future purchases. Physical climate change may potentially have a large impact on Titan International’s two largest industry segments, agriculture and earthmoving/construction. The potential impacts of climate change and climate change regulations are highly uncertain at this time, and Titan International cannot anticipate or predict the material adverse effect on its consolidated financial condition, results of operations or cash flows as a result of climate change and climate change regulations.


●	Titan International is subject to risks associated with environmental laws and regulations

Titan International’s operations are subject to federal, state, local or foreign laws and regulations governing, among other things, emissions to air, discharge to waters and the generation, handling, storage, transportation, treatment and disposal of waste and other materials. Titan International’s operations entail risks in these areas, and there can be no assurance that it will not incur material costs or liabilities. In addition, potentially significant expenditures could be required in order to comply with evolving environmental and health and safety laws, regulations or requirements that may be adopted or imposed in the future.

Additional risks and other considerations relating to Titan Europe (and, following completion of the Offer, the Combined Group)


●	Titan Europe’s products may be subject to certain liability claims

In common with similar manufacturers, the Titan Europe Group periodically receives claims alleging that its products and/or processes have caused damage to employees or third parties. While the Titan Europe Group carries liability insurance for various risks, it could be exposed to liability claims in excess of, or beyond the scope of, this cover or, in certain circumstances, the cover may not apply. Following completion of the Offer, this could have a material adverse effect on the Combined Group’s businesses, financial condition and/or operating results.


●	Titan Europe may be subject to risks arising from changes in technology

The supply chains in which the Titan Europe Group operates are subject to technological change and changes in customer requirements. Titan Europe cannot provide any assurance that it will successfully develop new or modified types of products or technologies that may be required by its customers in the future. Following completion of the Offer, should Titan Europe not be able to maintain or enhance the competitive values of its products or develop and introduce new products or technologies successfully, or if new products or technologies fail to generate sufficient revenues to offset research and development costs, the Combined Group’s businesses, financial condition and operating results could be materially and adversely affected.

Risks and other considerations relating to the Offer


●	Risks of cancellation of trading on AIM, compulsory acquisition and re-registration of Titan Europe Shares

Cancellation of trading on AIM will significantly reduce the liquidity and marketability of any Titan Europe Shares that have not been acquired by Titan International under the Offer and their value may be affected as a consequence. Any remaining Titan Europe Shareholders would become minority shareholders in a majority controlled company and they may be unable to sell their Titan Europe Shares. There can be no certainty that any dividends or other distributions would be made by Titan Europe or that Titan Europe Shareholders would again be offered an opportunity to sell their Titan Europe Shares on terms which are equivalent to or on no worse terms than those comprised in the Offer.


●	Titan International may fail to realise the anticipated benefits and operating synergies expected from the Offer, which could adversely affect Titan International’s business, financial condition and results of operations

The success of the Offer will depend, in significant part, on Titan International’s ability to successfully integrate the acquired business, grow the Combined Group’s revenue and realise the anticipated strategic benefits and operating synergies from the combination. Titan International believes that the addition of Titan Europe Group will complement Titan International’s stated strategy by adding complementary growth platforms and providing scale and revenue diversity, accelerate Titan International’s growth strategy and enable Titan International to become a multi-platform business with a strong global footprint. This growth and the anticipated benefits of the transaction may not be realised fully or at all, or may take longer to realise than Titan International expects. Actual operating, technological, strategic and sales synergies, if achieved at all, may be less significant than Titan International expects or may take longer to achieve than anticipated. If Titan International is not able to achieve these objectives and realise the anticipated benefits and synergies expected from the Offer within a reasonable time, Titan International’s business, financial condition and results of operations may be adversely affected.


●	The Offer will result in significant integration costs and any material delays or unanticipated additional expense may harm Titan International’s business, financial condition and results of operations

The integration efforts associated with the Offer are significant and require that Titan International fund significant capital and operating expense to support the integration of the combined operations. Any material delays, difficulties or unanticipated additional expense associated with integration activities may harm Titan International’s business, financial conditions and results of operations.


●	Titan International may not be able to integrate Titan Europe into the Combined Group successfully

The Offer involves the integration of two businesses that previously operated independently. The integration of the departments, systems, business units, operating procedures and information technologies of the two businesses will present a significant challenge to management. There can be no assurance that Titan International will be able to integrate and manage these operations effectively. The failure to successfully integrate the two businesses in a timely manner, or at all, could have an adverse effect on Titan International’s business, financial condition and results of operations. The difficulties of combining Titan International with Titan Europe include:


●	the necessity of coordinating geographically separated organizations;


●	implementing common systems and controls;


●	integrating personnel with diverse business backgrounds;


●	the challenges in developing new products and services that optimizes the assets and resources of the two businesses;


●	integrating the businesses’ technology and products;


●	combining different corporate cultures;


●	unanticipated expenses related to integration, including technical and operational integration;


●	increased fixed costs and unanticipated liabilities that may affect operating results;


●	retaining key employees; and


●	retaining and maintaining relationships with existing customers, distributors and other partners.

Also, the process of integrating operations could cause an interruption of, or loss of momentum in, the activities of one or both of Titan International and Titan Europe. The diversion of management’s attention and any delays or difficulties encountered in connection with the transactions contemplated by the integration of the operations could have an adverse effect on Titan International’s business, financial condition and results of operations.


●	The complexity of the integration and transition associated with the Offer, together with Titan Europe’s increased scale and global presence, may affect Titan International’s internal control over financial reporting and Titan International’s ability to effectively and timely report Titan International’s financial results

The additional scale of Titan Europe’s operations, together with the complexity of the integration effort, including changes to or implementation of critical information technology systems, may adversely affect Titan International’s ability to report its financial results on a timely basis which could result in Titan International’s common shares being suspended from trading on the NYSE. Failure of internal controls may also violate the rules of the Securities and Exchange Commission and could result in enforcement actions and/or financial penalties. In addition, Titan International will have to train new employees and third party providers, and assume operations in jurisdictions where Titan International has not previously had operations. Titan International expects that the Offer may necessitate significant modifications to its internal control systems, processes and information systems, both on a transition basis and over the longer-term as it fully integrates the Combined Group. Due to the complexity of the integration and transition associated with the Offer, Titan International cannot be certain that changes to its internal control over financial reporting during the 2012 fiscal year will be effective for any period, or on an ongoing basis. If Titan International is unable to accurately report its financial results in a timely manner, or is unable to assert that Titan International’s internal controls over financial reporting are effective, its business, results of operations and financial condition and the market perception thereof may be materially adversely affected.

Notwithstanding the risk set out above, Titan International believe it has proper controls and procedures in place for it to fully comply with its obligations to the Securities and Exchange Commission and the NYSE.


●	Titan International may not be able to acquire the entire issued share capital of Titan Europe, which would mean that there would be minority in Titan Europe

Titan International will be able to determine under the Offer (within certain parameters) the level at which the acceptance condition for the offer will be set. Titan International has set the acceptance level at 51 per cent. by value of the Titan Europe Shares that Titan International has acquired or agreed to acquire whether pursuant to the Offer or otherwise and of voting rights carried by those shares. It is possible that the acceptance condition will be satisfied (so that Titan International cannot invoke the condition and withdraw Titan International’s Offer) but that an insufficient number of Titan Europe shareholders will accept the offer to allow it to compulsorily acquire the shares of those shareholders who have not accepted the Offer. Titan International would need 90 per cent. of the Titan Europe Shareholders to whom the Offer applies accepting in order to do this. In such circumstances, minority shareholders would retain a stake in Titan Europe and they would benefit from certain legal protections afforded to them under English law. Titan International may be unable to realise all of the benefits that Titan International might otherwise obtain from a successful completion of the Offer if there are minority shareholders in Titan Europe after completion of the Offer.


●	Even if a material adverse change to Titan Europe’s business was to occur, it is highly unlikely that Titan International would be able to invoke the Conditions and terminate the Offer, which could reduce the value of the Titan International Common Stock

The Offer is subject to the Conditions, including the condition that there have not been certain material adverse changes in the business, assets, liabilities, financial or trading position, profits or operational performance of any member of the Wider Titan Europe Group. Titan International may invoke this “material adverse change” condition to the Offer to cause it not to proceed only if the Panel is satisfied that the circumstances giving rise to that condition not being satisfied are of material significance to Titan International in the context of the Offer. In making this determination, the Panel will require there to be an adverse change of very considerable significance striking at the heart of the purpose of the transaction. In practice, it is highly unlikely that Titan International would be able to invoke the material adverse change condition. As a result, the Conditions may provide Titan International less protection than the customary conditions in an offer for a US domestic company. If a material adverse change affecting Titan Europe was to occur and the Panel did not allow Titan International to invoke a condition that would cause the Offer not to proceed, the market price of the Titan International Common Stock could decline or Titan International’s business, financial condition or results of operations could be materially adversely affected.

Risks and other considerations relating to the Titan International Common Stock


●	The Offer could have a substantial dilutive effect on Titan International Common Stock, which may adversely affect the market price of Titan International Common Stock

When the Offer is completed, there will be up to 6,240,833 of additional shares of Titan International Common Stock outstanding. The New Titan International Common Shares will be issued pursuant to an exemption under Rule 802 of the Securities Act, and such shares of Titan International Common Stock that are not deemed “restricted securities” under Rule 144 of the Securities Act will be freely transferable by former Titan Europe Shareholders who are not its affiliates. As a result of the issuance of the securities pursuant to the Offer Document, the voting interests of the current Titan International Shareholders will be diluted.


●	The market price of Titan International Common Stock may experience a high level of volatility

Stock markets in general have experienced extreme volatility that has often been unrelated to the operating performance of a particular company. These broad fluctuations may adversely affect the trading price of Titan International Common Stock, regardless of its operating performance.


●	UK tax resident Titan Europe Shareholders that receive Titan International CDIs pursuant to the Offer could potentially trigger a taxable gain on accepting the Offer

For the purposes of UK tax on chargeable gains, the exchange of Titan Europe Shares for New Titan International Common Shares upon acceptance of the Offer should be regarded as a share reorganisation. Titan International and Titan Europe are treated as the same company and for chargeable gains purposes there is no disposal of the Titan Europe Shares or acquisition of the New

Titan International Common Shares, but rather the New Titan International Common Shares are treated as the same asset as the Titan Europe Shares. The New Titan International Common Shares are deemed to have been acquired at the same time and for the same cost as the Titan Europe Shares.

For Titan Europe Shareholders who are issued Titan International CDIs rather than New Titan International Common Shares, it is anticipated that the share reorganisation treatment described in the paragraph above will also be applicable. For share reorganisation treatment to be available, the Titan International CDIs must entitle the holder to beneficial ownership of the underlying New Titan International Common Shares to which the CDIs relate. Historically, it has been the position of HM Revenue & Customs that depositary receipt arrangements such as the Titan International CDIs gave the holder such beneficial ownership, but the recent case of HSBC Holdings and Bank of New York Mellon v HMRC TC/2009/16584 has raised concerns in this area. The case decided that the depositary receipt arrangements in question did not give the holders beneficial ownership of the underlying shares to which the depositary receipts related. The uncertainty that this case created caused HM Revenue & Customs to Issue Its Brief 14/12. This provided that where beneficial ownership of underlying shares cannot be conclusively determined by reference to the law governing the arrangements relating to the issue of depositary receipts, for UK tax purposes HM Revenue & Customs will regard the holder of a depositary receipt as beneficial owner of the underlying shares. For the Titan International CDIs, it is considered that the beneficial ownership of the New Titan International Common Shares which underlie the arrangements cannot be conclusively determined by reference to the law governing the Titan International CDIs. Consequently, in stating above that the UK capital gains tax share reorganisation treatment should be available to Titan Europe Shareholders who exchange their shares for Titan International CDIs, reliance is being placed on HM Revenue & Customs’ statement in Brief 14/12 that in these circumstances it will treat the Titan Europe Shareholders as the beneficial owners of the New Titan International Common Shares represented by the Titan International CDIs. This HM Revenue & Customs guidance is non-statutory and it is possible, although unlikely, that HM Revenue & Customs could change its guidance or take a position contrary to this guidance in individual circumstances.

IMPORTANT INFORMATION

Notice to all Titan Europe Shareholders and potential investors United States

The Offer or business combination is made for the securities of a foreign company. The Offer is subject to disclosure requirements of a foreign country that are different from those of the United States. Financial statements included in this document, if any, have been/will be prepared in accordance with foreign accounting standards that may not be comparable to the financial statements of United States companies.

It may be difficult for you to enforce your rights and any claim you may have arising under the federal securities laws, since the issuer is located in a foreign country, and some or all of its officers and directors may be residents of a foreign country. You may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the US securities laws. It may be difficult to compel a foreign company and its affiliates to subject themselves to a US court’s judgment.

You should be aware that the issuer may purchase securities otherwise than under the exchange offer, such as in open market or privately negotiated purchases.

This document is not subject to the requirements of Section 14(a) of the Exchange Act. The New Titan International Common Shares to be offered in connection with the Offer will not be registered under the Securities Act and will be issued to US Shareholders in reliance on the exemption from registration set forth in Rule 802 thereunder. Such New Titan International Common Shares will be freely tradable in the US under applicable US federal securities laws except for (i) any New Titan International Common Shares acquired by affiliates of Titan Europe and (ii) New Titan International Common Shares that are issued with respect to Titan Europe Shares that are deemed “restricted securities” under Rule 144 of the Securities Act, which in each case may be resold in the US only in accordance with Rule 144 of the Securities Act or another applicable exemption from registration, or outside the US in accordance with Regulation S under that Act.

Restricted securities are securities received in non-public offerings. In general, Rule 144 defines restricted securities to mean securities acquired pursuant to one of the following transactions:


(i)	Securities acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering, or pursuant to certain exemptions from registration.


(i)	Securities acquired from the issuer that are subject to the resale limitations under Regulation D (a limited offering exemption) under the Securities Act.


(ii)	Securities acquired in a transaction or chain of transactions exempt under Rule 144A under the Securities Act, where exempts specified resales of restricted securities to qualified institutional buyers.

Titan Europe Shareholders who are citizens or residents of the United States should consult their own legal and tax advisers with respect to the legal and tax consequences of the Offer, including the status of their Titan Europe Shares as restricted securities, or, if Titan International decides to implement the Offer by way of a scheme of arrangement pursuant to the provisions of sections 895-901 of the Companies Act 2006, that scheme, in their particular circumstances.

Other jurisdictions

This document and any accompanying documents are not being made available to Overseas Shareholders with registered addresses in any Restricted Jurisdiction and may not be treated as an invitation to subscribe for any New Titan International Common Shares by any person resident or located in such jurisdictions or any other Restricted Jurisdiction.

The New Titan International Common Shares have not been, and will not be, registered under the applicable securities laws of any Restricted Jurisdiction. Accordingly, the New Titan International Common Shares may not be offered, sold, delivered or transferred, directly or indirectly, in or into any Restricted Jurisdiction to or for the account or benefit of any national, resident or citizen of any Restricted Jurisdiction.

The implications of the Offer for Overseas Shareholders may be affected by the laws of relevant jurisdictions. Such Overseas Shareholders should inform themselves about and observe any applicable legal requirements. It is the responsibility of each overseas person who is to receive New Titan International Common Shares pursuant to the Offer to satisfy himself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required or the compliance with other necessary formalities which are required to be observed and the payment of any issue, transfer or other taxes due in such jurisdiction.

This document has been prepared to comply with English law and the Prospectus Rules and the information disclosed may not be the same as that which would have been disclosed if this document had been prepared in accordance with the laws of jurisdictions outside of the United Kingdom. This statement does not mean that this document is deficient in any way.

Overseas Shareholders should consult their own legal and tax advisers with respect to the legal and tax consequences of the Offer in their particular circumstances.

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY. NONE OF THE SECURITIES REFERRED TO IN THIS DOCUMENT SHALL BE SOLD, ISSUED OR TRANSFERRED IN ANY JURISDICTION IN CONTRAVENTION OF ANY APPLICABLE LAW.

No incorporation of website information

Neither the content of Titan International’s website nor Titan Europe’s website, nor the content of any website accessible from hyperlinks on Titan International’s website or Titan Europe’s website, is incorporated into, or forms part of, this document.

Forward-looking statements

This document contains certain statements about Titan International and Titan Europe that are or may be “forward-looking statements” — that is, statements related to future, not past, events, including forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on the current expectations of the management of Titan International and Titan Europe (as the case may be) and are subject to uncertainty and changes in circumstances and involve risks and uncertainties that could cause actual results to differ materially from those expressed or implied in such forward-looking statements.

The forward-looking statements contained in this press release may include statements about the expected effects on Titan Europe and Titan International of the Offer, the expected timing and scope of the Offer, strategic options and all other statements in this document other than historical facts. Without limitation, any statements preceded or followed by or that include the words “targets”, “plans”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “estimates”, “projects”, “seeks”, “sees”, “should,” “would,” “expect,” “positioned,” “strategy,” or words or terms of similar substance or the negative thereof, are forward-looking statements. Forward-looking statements include statements relating to anticipated trends in the relevant business, future expenditures for capital projects, the ability to continue to control costs and maintain quality, Titan International’s and Titan Europe’s business strategies, including their intention to introduce new products, expectations concerning the performance and success of Titan International’s and Titan Europe’s existing and new products and Titan International’s and Titan Europe’s intention to consider and pursue acquisition and divestiture opportunities.

These forward-looking statements are based on Titan International’s and Titan Europe’s expectations (as appropriate) and are subject to a number of risks and uncertainties, certain of which are beyond Titan International’s and Titan Europe’s control.

Actual results could differ materially from these forward-looking statements as a result of certain factors, including the effect of a recession on Titan International and Titan Europe and their customers and suppliers, changes in Titan International’s and Titan Europe’s end-user markets as a result of world economic or regulatory influences, changes in the marketplace, including new products and pricing changes by Titan International’s and Titan Europe’s competitors, ability to maintain satisfactory labour relations, unfavourable outcomes of legal proceedings, availability and price of raw materials, levels of

operating efficiencies, unfavourable product liability and warranty claims, actions of domestic and foreign governments, political change in any of the countries or regions in which either Titan International or Titan Europe operates, results of investments, fluctuations in currency translations, natural disasters, climate change and related laws and regulations and risks associated with environmental laws and regulations. Any changes in such factors could lead to significantly different results. No assurance can be provided that the assumptions referred to in the forward-looking statements or otherwise are accurate or will prove to transpire. Any assumptions that are inaccurate or do not prove to be correct could have a material adverse effect on Titan International’s and Titan Europe’s ability to achieve the results as indicated in forward-looking statements.

Due to such uncertainties and risks, readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. The comments concerning forward looking statements referred to above do not qualify in any way the statement made in paragraph 11 of Part 13 of this document. Neither Titan International or Titan Europe undertakes any obligation to update publicly or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

Presentation of Titan International and Titan Europe financial information

The financial information in relation to the Titan International Group in this document has been extracted without material adjustment from the financial information referred to in Part 7: Titan International Financial Information. Financial information extracted from the financial information referred to in Part 7: Titan International Financial Information is to be found in the sections headed “Summary Information”, Part 2: Information on Titan International, Part 5: Titan International Selected Financial Information and Part 6: Titan International Operating and Financial Review.

The financial information in relation to the Titan Europe Group in this document has been extracted without material adjustment from the financial information referred to in Part 8: Titan Europe Financial Information. Financial information extracted from the financial information referred to in Part 8: Titan Europe Financial Information is to be found in the sections headed “Summary Information” and Part 3: Information on Titan Europe.

Titan Europe Shareholders and potential investors should ensure that they read the whole of this document and not just rely on key information or information summarised within it.

IFRS and US GAAP

Titan International’s consolidated financial statements are prepared in accordance with US GAAP whereas Titan Europe’s consolidated financial statements are prepared in accordance with IFRS. US GAAP differs from IFRS in a number of significant respects. For a general discussion of the significant differences between IFRS and US GAAP, see Part 11: Summary of Significant Differences between IFRS and US GAAP. In making an investment decision, Titan Europe Shareholders and potential investors must rely on their own examination of Titan International, the terms of the Offer and the financial information in this document.

Rounding

Certain figures contained in this document, including financial, statistical and operating information, have been subject to rounding adjustments. Accordingly, in certain instances, the sum of the numbers in a column or a row in tables contained in this document may not conform exactly to the total figure given for that column or row.

Currency presentation

Unless otherwise indicated, all references in this document to “US dollars”, “dollars”, “$” or “cents” are to the lawful currency of the US, all references to “pounds sterling”, “sterling”, “£”, “pence” or “p” are to the lawful currency of the UK, all references to “€”, “EUR” or “Euro” are to the currency introduced at the start of the third stage of European economic and monetary union pursuant to the Treaty establishing the European Community, as amended.

Exchange rate information

In this document, unless otherwise stated, pounds sterling have been translated into US dollars at the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York on the dates indicated.

On 13 September 2012 (being the latest practicable day prior to the publication of this document), the noon buying rate in New York City for cable transfers in pounds sterling as certified for customs purposes by the Federal Reserve Bank of New York was $1.6016 per £1.00. Each Monday (unless Monday is a Federal Holiday in the US), the exchange rates that the Federal Reserve Bank of New York certifies for customs purposes are released by The Federal Reserve Board, in respect of the previous business week. Accordingly, the most recent US dollar exchange rate information available prior to the printing and publication of this document is as of 7 September 2012.

These translations should not be construed as a representation that the US dollar amounts actually represent, or could be converted into, pounds sterling at the rates indicated.

Interpretation and defined terms

Certain terms used in this document, including capitalised terms and certain technical and other items, are defined and explained in Part 14: Definitions.

TITAN INTERNATIONAL DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS

Directors Function

Maurice Manning Taylor Jr. Chairman of the Board and CEO

Erwin Henryk Billig Vice Chairman of the Board

John Michael Anthony Akers Director

Richard Marshall Cashin Jr. Director

Albert Joseph Febbo Director

Mitchell I Quain Director

Anthony Louis Soave Director

General Counsel and Company Secretary Cheri T Holley

Headquarters and principal place of business Registered Office

2701 Spruce Street 2701 Spruce Street

Quincy Quincy

Illinois 62301, USA Illinois 62301, USA

Financial Adviser Auditor

Seymour Pierce Limited Grant Thornton LLP

20 Old Bailey 175 W Jackson Boulevard

London EC4M 7EN 20th Floor

Chicago

Illinois 60604, USA

Legal Adviser to Titan International Reporting Accountant

as to English Law Grant Thornton UK LLP

Goodman Derrick LLP 30 Finsbury Square

10 St Bride Street London EC2P 2YU

London EC4A 4AD

Legal Adviser to Titan International as to US Law

Bodman PLC

1901 St. Antoine Street 6th Floor at Ford Field Detroit

Michigan 48226, USA

PART 1

INFORMATION ON THE OFFER

Introduction

The Board of Titan Europe announced on 17 July 2012 that it was in talks with Titan International, which may or may not lead to an offer being made for the whole of the issued and to be issued share capital of Titan Europe. On 26 July 2012 Titan International released an announcement confirming it was in discussions with the Independent Directors of Titan Europe which might lead to an offer being made for Titan Europe and setting out the terms of a proposed indicative offer.

On 10 August 2012, the Titan International Board (other than Michael Akers who, because of his position as Chief Executive Director of Titan Europe, has taken no part in any of the deliberations leading to the Offer) and the Independent Directors of Titan Europe announced that they had agreed the terms of a recommended share offer to be made by Titan International to acquire the entire issued and to be issued share capital of Titan Europe (other than those shares already owned by Titan Luxembourg).

The Independent Directors of Titan Europe are unanimously recommending that Titan Europe Shareholders accept or procure acceptance of the Offer.

Summary of the terms of the Offer

Under the terms of the Offer, which will be subject to the Conditions and further terms summarised below and set out in full in the Offer Document and, in respect of Titan Europe Shares in certificated form, in the Form of Acceptance, Titan Europe Shareholders will receive from Titan International:

for every 11 Titan Europe Shares: 1 New Titan International Common Share

in respect of which valid acceptances are received.

The table below sets out what the enlarged share capital of Titan International will be and the percentage of shares in the enlarged share capital of Titan International that Titan Europe Shareholders will have, depending on the level of acceptances received (and, where appropriate, such number of Titan Europe Shares that Titan International and any of its wholly owned subsidiaries has acquired or agreed to acquire whether pursuant to the Offer or otherwise):

Percentage of Titan International Common Stock held by Titan Europe

Number of New Enlarged number of Shareholders in the

Level of acceptances Titan International Titan International enlarged share capital

Common Shares+ Common Stock of Titan International+



100%*	6,240,833	50,333,468	12.4	%
75%^#	3,328,124	47,420,759	6.6	%
51%^#	1,830,324	45,922,959	3.6	%

⁺Assumes that no options under the Titan Europe Share Option Scheme are exercised, that said options are cancelled as detailed in paragraph entitled “Titan Europe Share Option Scheme” in Part I of this document and that there are no exercises of options under any Titan International option scheme or conversion under any of Titan International’s convertible bonds or notes.

^#Including such number of Titan Europe Shares that Titan International and any of its wholly owned subsidiaries has acquired or agreed to acquire whether pursuant to the Offer or otherwise.

*This would arise if acceptances of 90 per cent. or more to which the Offer relates were obtained as detailed in paragraph entitled “cancellation of trading on AIM, compulsory acquisition and re-registration of Titan Europe Shares” in Part 1 of this document.

Based on the closing exchange rate of £1:$1.5638 (Source: Bloomberg) and the Closing Price of a Titan International Common Stock of $22.03 on 9 August 2012, being the latest practicable date prior to the publication of the 2.7 Announcement, the Offer values each Titan Europe Share at 128.1 pence and values the entire issued and to be issued ordinary share capital of Titan Europe at approximately £118.4 million. The Offer represents a premium of approximately:


●	13.3 per cent. to the Closing Price of 113 pence per Titan Europe Share on 16 July 2012 (being the last business day before the commencement of the Offer Period);


●	2.1 per cent. to the Closing Price of 125.5 pence per Titan Europe Share on 9 August 2012 (being the last business day before the 2.7 Announcement).


●	add for immediately before Offer Document.


●	15.1 per cent. to the Closing Price of 111.25 pence per Titan Europe Share on 13 September 2012 (being the last business day before publication of the Offer Document).

At the date of the first meeting to discuss the Offer on 2 May 2012, the Titan International Common Stock price was $28.83 per share and based on that day’s closing exchange rate (Source: Bloomberg $1.615:£1) and the Offer terms, the effective value placed on each Titan Europe Share was 162.2 pence per share. This represented a premium of 18.7 per cent. to the closing Titan Europe share price on that day of 136.6 pence.

The Titan Europe Shares will be acquired pursuant to the Offer fully paid and free from all liens, charges, equitable interests, encumbrances and rights of pre-emption and any other interests of any nature whatsoever and together with all rights attaching thereto.

The New Titan International Common Shares will be admitted to trading on the New York Stock Exchange. The shares will have no par value, will have the same rights as all outstanding Titan International Common Stock and, when allotted, will rank pani passu with existing Titan International Common Stock, including in respect of all dividends made, paid or declared from the time of their allotment.

Background to and reasons for the Offer

Titan International believes that there is compelling logic in the acquisition of Titan Europe as it will establish a truly global wheel, tyre and track industrial group servicing customers across the agricultural, construction, earthmoving and mining industries. Titan Europe is well known to Titan International, having been spun-off by Titan International onto AIM in April 2004. Titan International retained a substantial holding in Titan Europe’s share capital and, as at the date of this document, Titan Luxembourg holds 18,993,821 Titan Europe Shares, representing approximately 21.67 per cent. of Titan Europe’s issued share capital. The Titan International Board now believes that Titan Europe would once more benefit from being part of a larger group with a strong balance sheet which could achieve greater revenue growth and increased profitability than on a standalone basis.

Titan International considers Titan Europe to have a strong presence in its chosen markets with a complementary product offering, customer base and strong manufacturing capabilities that fit well with Titan International’s stated aim of increasing its global presence to service its customers better. In particular, the Titan International Board believes the acquisition of Titan Europe presents opportunities for Titan International’s tyre business in South America and Europe, and will cement the existing co-operation between Titan International Mining Services, established in 2011 to offer complete tyre, wheel and track services near large mines worldwide, and Titan Europe’s own Mining Service Centres expertise.

The Titan International Board is also mindful that a number of the markets and industries in Europe in which Titan Europe operates are experiencing economic uncertainty which is likely to continue and which has the potential to impact these markets and industries. Furthermore, the Titan International Board believes that further consolidation will occur in the industries in which Titan International and Titan Europe both operate which will bring both challenges, as well as opportunities, and therefore believes that Titan Europe, as part of the enlarged Titan International Group, will be better placed to respond to these market changes.

Titan International expects that the acquisition of Titan Europe will be accretive to earnings per share and provide opportunities to drive further revenue growth and margin improvement. That does not mean, however, that the earnings from Titan Europe Shares will be greater than those for the preceding financial period.

Furthermore, by providing Titan Europe Shareholders with the ability to retain an ongoing interest in Titan Europe through a shareholding in the enlarged Titan International Group, Titan International believes that Titan Europe Shareholders can both participate in the future success of the Combined Group, as well as benefit from the enhanced liquidity offered by Titan International’s publicly traded stock on the NYSE.

Management, employees and Titan International’s intentions regarding the Titan Europe Group

Titan International has given assurances to the Independent Directors of Titan Europe that, upon and following completion of the Offer, the Titan Europe Group employers will continue to comply with the contractual and other entitlements in relation to pension and employment rights of existing employees. There are currently no plans to make any alterations to the Titan Europe Board. To date Titan International has not formed any plans regarding incentivisation arrangements for Titan Europe Directors and management and as such there have been no discussions between Titan International and Titan Europe regarding the same.

Irrevocable undertakings

Those members of the Board of Titan Europe who hold beneficial interests in Titan Europe Shares have irrevocably undertaken to accept the Offer in respect of their own beneficial holdings which total 1,530,000 Titan Europe Shares representing, in aggregate, approximately 1.75 per cent. of Titan Europe’s issued share capital at the date of this document. These irrevocable undertakings will continue to be binding even if a competing offer is made for Titan Europe which exceeds the value of the Offer and even if such higher offer is recommended for acceptance by the Independent Directors of Titan Europe.

These irrevocable undertakings cease to be binding only in the event that: (a) the Offer Document is not posted within 28 days of the date of the 2.7 Announcement (or such other time agreed with the Panel); or (b) the Offer lapses or does not become wholly unconditional.

Information on Titan Europe

Titan Europe is an international engineering group designing, developing, manufacturing and distributing products and services for the global construction, agricultural and mining machinery markets. Titan Europe has achieved strong market positions as a result of its technical innovation and provision of integrated solutions to global OEMs and their associated aftermarkets.

Titan Europe currently has two distinct product ranges organised into two divisions, being Wheels and Undercarriages.

Titan Europe is headquartered in Kidderminster, Worcestershire. It was originally incorporated on 31 January 1995 and changed its name to Titan Wheel Europe Limited on 8 August 1995. On 17 March 2004 it was re-registered as a public company under the name Titan Europe plc and quoted on AIM in April 2004. Prior to that, Titan Europe was part of the Titan International Group.

In its most recent financial year ended 31 December 2011, Titan Europe achieved revenue of £492.5 million (2010: £355.2 million), profit before tax of £21.6 million (2010: £3.4 million), basic earnings per share of 20.56 pence (2010: 3.16 pence) and diluted earnings per share of 19.89 pence (2010: 3.14 pence).

As at 30 June 2012 Titan Europe had total assets of £479.4 million (2011: £516.5 million). The figures above in relation to Titan Europe have been prepared using International Financial Reporting Standards as adopted by the European Union and which may not be consistent with the accounting standards used by Titan International.

Further information on Titan Europe is set out in Part 3: Information on Titan Europe of this document.

Expected effect of the acquisition on the earnings, assets and liabilities of the Titan International Group

If the Offer had been completed and the acquisition had taken place as at 31 December 2011, being the date to which the latest audited annual accounts for Titan International and Titan Europe were prepared, the acquisition would have resulted in increases in Titan International’s total revenues (or earnings), an increase in net profits, an increase in its total assets, an increase in its total liabilities and an increase in its net assets.

Please refer to Part 1 of this document for further information of the financial effects of the Offer and the pro forma balance sheet for the Titan International Group set out in Part 9 of this document.

Conditions of the Offer

The Offer is subject to the fulfilment of certain Conditions and further terms that are customary for transactions of this nature, the full text of which is set out in the Offer Document. The Offer will lapse unless the Conditions have been and remain satisfied, fulfilled or, if capable of waiver, waived prior to the expiry of the Offer. The principal Conditions, which Titan International is not able to waive, in whole or in part, are (i) the “minimum acceptance condition” which provides that Titan International has to obtain sufficient acceptances over Titan Europe Shares which, when added together with the Titan Europe Shares that the Titan International Group already owns, equal more than 50 per cent. of the voting rights attaching to the Titan Europe Shares and (ii) the filing under the “Hart-Scott-Rodino” and the waiting period thereunder having expired, lapsed or terminated. Titan International reserves the right to waive, in whole or in part, any or all of the other Conditions the full text of which is set out in the Offer Document.

Further terms and details of the Offer

The Offer will lapse if, prior to the later of 1.00 p.m. on the First Closing Date and the date on which the Offer becomes or is declared unconditional as to acceptances, the Offer, or any matter arising from the Offer, is referred or a serious doubts investigation under Article 6(1)(C) of Council Regulation (EC) 139/2004 or if the Offer, or any matter arising from the Offer, is referred to the Competition Commission in the United Kingdom or any other regulatory authority that has the authority to consider the Offer.

The Offer will be governed by English law and be subject to the jurisdiction of the English courts, to the Conditions set out in the formal Offer Document and related Form of Acceptance. The Offer will comply with the applicable requirements of the City Code, the Panel, the London Stock Exchange and the UK Listing Authority.

Timetable

The first Closing Date is 5 October 2012 and, if extended, the latest date the Offer may become or be declared wholly unconditional is 13 November 2012. Under the provisions of the City Code, announcements following these dates will be made through the Regulatory Information Service.

Titan International’s right to implement the Offer by means of a scheme of arrangement

Titan International reserves the right to effect the Offer by way of a scheme of arrangement under Part 26 of the Companies Act 2006 (the “Scheme”), for the entire issued and to be issued share capital of Titan Europe not already held by Titan Luxembourg as an alternative to the Offer. In such an event, the Scheme will be implemented on the same terms (subject to appropriate amendments) so that Condition (a) will not apply and far as applicable as those which would apply to the Offer but with a condition that the Scheme will be conditional upon its approval by a majority in number representing not less than 75 per cent. of the voting rights of the holders of Titan Europe Shares (or the relevant class or classes thereof, if applicable) present and voting, either in person or by proxy, at the Court meeting and at any separate class meeting which may be required by the Court or at any adjournment of any such meeting; and all resolutions necessary to have implemented the Scheme being duly passed by the requisite majority or majorities at a general meeting of the Titan Europe Shareholders or at any adjournment of that meeting and the sanction of the Scheme and approvals by the Court and any necessary filings with the Registrar of Companies.

Rights of withdrawal

A Titan Europe Shareholder will have the right to withdraw his acceptance of the Offer if:


●	at any time after 26 October 2012 if the Offer has not become or been declared unconditional as to acceptances until the earlier of the Offer becoming or being declared unconditional as to acceptances and the final time that acceptances may be taken into account pursuant to the City Code and;


●	if the Titan Europe Shares have not been paid for by Titan International within three Business Days after:

– in respect of Titan Europe Shares assented to the Offer before that time, the Offer has become

or been declared wholly unconditional; or

– the date on which further Titan Europe Shares are assented to the Offer; or

– (unless it is a change in a material fact relating to the Titan International Common Stock), in the

event that such change occurs at or before the expiry time of the Offer or after the expiry time of the Offer but before the expiry of all rights of withdrawal in respect of the Offer; or

– a notice of variation in the terms of the Offer (other than a variation consisting solely of an increase

in the consideration offered for the Titan Europe Shares where the expiry time of the Offer is not extended for more than 10 days), is mailed, delivered, or otherwise properly communicated, but subject to abridgement of that period pursuant to such order or orders or other forms of relief as may be granted by applicable courts or securities regulatory authorities and only if such Titan Europe Shares deposited to the Offer have not been taken up by Titan International at the date of the notice.

Settlement

Subject to the Offer becoming or being declared wholly unconditional, Titan International will be obliged to take up and pay for Titan Europe Shares validly deposited under (or otherwise validly assented to) the Offer, as soon as possible, but in any event not later than 10 Business Days after the Offer becomes or is declared wholly unconditional and Titan International becomes obliged by the terms of the Offer to take up the Titan Europe Shares. In satisfaction of its obligation to make payment to accepting Titan Europe Shareholders, Titan International will issue the relevant number of New Titan International Common Shares to each Titan Europe Shareholder from whom a valid acceptance has been received. Titan International will be obliged to pay for the Titan Europe Shares so taken up as soon as possible, but in any event not later than the earlier of (a) the tenth Business Day after Titan International becomes obligated by the terms of the Offer to take up the Titan Europe Shares and (b) three Business Days after taking up such Titan Europe Shares. Any Titan Europe Shares deposited under (or otherwise validly assented to) the Offer after the earlier of the Offer becoming or being declared wholly unconditional and the first date on which Titan Europe Shares have been taken up by Titan International, will be taken up and paid for not later than 10 days after such deposit or acceptance.

Fractions

Fractions of New Titan International Common Shares will not be allotted or issued to Titan Europe Shareholders who accept the Offer (including such holders who are deemed to accept the Offer). Instead, to the extent that a Titan Europe Shareholder would have been entitled to a fractional interest in a New Titan International Common Share, he will receive a cash payment equivalent to the value of the fractional interest in a New Titan International Common Share which he would have otherwise received, save that amounts of less than £5.00 will not be paid.

Titan Europe Share Option Scheme

The Offer extends to all of the issued Titan Europe Shares (other than those already owned by Titan Luxembourg) and to all Titan Europe Shares unconditionally allotted on the date the Offer is made and to such further Titan Europe Shares which are unconditionally allotted while the Offer remains open for acceptance.

To the extent that any such options under the Titan Europe Share Option Scheme are not exercised and in the event that the Offer becomes or is declared wholly unconditional, Titan Europe and Titan International will write to participants in the Titan Europe Share Option Scheme to inform them of the Offer and their rights under the Titan Europe Share Option Scheme. Appropriate proposals are set out in the Offer Document and will be set out in the separate letters to the participants in the Titan Europe Share Option Scheme. The proposals will entail the options under the Titan Europe Share Option Scheme being

cancelled for a sum of money (being the see-through price of an option calculated at the last practicable date prior to the publication of the proposals to the participants in the Titan Europe Option Scheme, unless otherwise agreed with the Panel) from which the exercise price will be deducted.

Titan International CDIs

Issue of Titan International CDIs

Unlike Titan Europe Shares, New Titan International Common Shares are not capable of being held, transferred or settled through the usual UK settlement systems (such as CREST).

In addition, Titan Europe Shareholders who currently hold their Titan Europe Shares in certificated form (that is, they hold a share certificate) may find holding and trading the New Titan International Common Shares directly involves a number of formalities that will be unfamiliar for UK and certain other investors. Dealing with a transfer agent (the equivalent of a registrar in the UK) in a different jurisdiction and time zone may also prove inconvenient in certain circumstances.

For these reasons, Titan Europe Shareholders resident in a CSN Permitted Jurisdiction will, as an alternative to being issued with New Titan International Shares directly, be able to be issued with Titan International CDIs (as explained in more detail below and subject to the position of Restricted Holders).

For Titan Europe Shareholders who receive Titan International CDIs, the Titan International CDI arrangements broadly reflect the economic rights attached to the New Titan International Shares. However, while the holders of Titan International CDIs will have an entitlement to the underlying New Titan International Shares, they will not be the registered holders of the New Titan International Shares.

New Titan International Common Shares to which Titan Europe Shareholders (other than Restricted Holders) will be entitled under the Offer will be delivered, held and settled in CREST by means of the CREST International Settlement Links Service and, in particular, CREST’s established link with DTC, the US settlement and clearance system. This link operates via the services of CREST International Nominees Limited, which is a participant in DTC.

Under the CREST International Settlement Links Services, CREST Depository Limited, a subsidiary of Euroclear, issues dematerialised depositary interests representing entitlements to non-UK securities (such as New Titan International Common Shares) called CDIs. CDIs may be held, transferred and settled exclusively through CREST.

The terms on which CDIs are issued and held in CREST are set out in the CREST Manual (and, in particular, the deed poll set out in the CREST International Manual) and the CREST Terms and Conditions issued by Euroclear.

On settlement, Titan International will instruct its transfer agent to cause the credit of the New Titan International Common Shares through DTC to the securities deposit account of CREST International Nominees Limited, as nominee for CREST Depository Limited. CREST Depository Limited will then issue the Titan International CDIs through CREST to the Registrar for delivery, in the case of Uncertificated Holders, to the securities deposit account in CREST in which each such Uncertificated Holder previously held Titan Europe Shares or, in the case of Certificated Holders (other than Restricted Holders), to the CSN, in its capacity as nominee for the Certificated Holders. For further information see – CSN for Certificated Holders below.

A custody fee, as determined by CREST from time to time, is charged at the user level for the use of Titan International CDIs. Titan International will procure that this fee will not be charged to Certificated Holders where Titan International CDIs are held on their behalf through the CSN Facility (as described below).

CSN for Certificated Holders

As the Titan International CDIs can only be held through CREST, Titan International will arrange for the CSN to act as a corporate sponsored nominee for Certificated Holders (other than Restricted Holders) pursuant to which the CSN will hold Titan International CDIs on behalf of all Certificated Holders (other than Restricted Holders) who elect to receive CDI’s through the CSN. The detailed provisions of these nominee

arrangements are set out in an agreement between Titan International and the CSN and include the terms and conditions on which the CSN Facility will be provided by the CSN to Certificated Holders.

The CSN Facility will not be made available to any Titan Europe Shareholder who holds Titan Europe Shares in certificated form and who has a registered address in the US or in any other CSN Restricted Jurisdiction (any such persons are referred to the section headed “Accepting Titan Europe Shareholders who will not receive Titan International CDIs” below).

Certificated Holders who are resident in a CSN Permitted Jurisdiction and elect to receive CDI’s through the CSN will be sent a Statement of Ownership (setting out their Titan International CDI entitlements) on settlement and at least annually thereafter. They will also be sent a booklet with the Statement of Ownership describing the terms and conditions on which the CSN provides them with the CSN Facility.

Accepting Titan Europe Shareholders who will not receive Titan International CDIs

The ability to participate in the CSN Facility may be restricted or made onerous by law in certain jurisdictions. Accordingly, any Titan Europe Shareholder who holds his Titan Europe Shares in certificated form and who has a registered address in the US or in any other CSN Restricted Jurisdiction will not be entitled to participate in the CSN Facility.

Restricted Holders who are entitled to receive New Titan International Common Shares pursuant to the Offer will be sent a statement of entitlement to the New Titan International Common Shares to which they are entitled on settlement, unless to do so would or might infringe the laws of the relevant CSN Restricted Jurisdiction or would or might require Titan Europe and/or Titan International to obtain any governmental or other consent or to effect any registration, filing or other formality in the relevant CSN Restricted Jurisdiction with which, in the opinion of Titan Europe and Titan International, it would be unable to comply or which it regards as unduly onerous. In this event, Restricted Holders in that CSN Restricted Jurisdiction will instead receive the cash proceeds from the sale of the New Titan International Shares to which they were entitled in sterling (net of transaction costs). The Restricted Holders do not need to elect for the New Titan International Shares to be sold on their behalf. The New Titan International Common Shares will be issued to a nominee for such Restricted Holders who shall sell the New Titan International Common Shares so issued as soon as possible after the date the Offer becomes unconditional in all respects at the market price at that time. The proceeds of the sale will be converted into sterling at the exchange rate prevailing at the time. No discretion will be exercised as to the timing of the sale of the New Titan International Common Shares. Transaction costs will be met out of the proceeds of the sale of the New Titan International Common Shares and the Restricted Holders will receive the sale consideration net of transaction costs.

Rights attaching to Titan International CDIs

The registered holder of the New Titan International Common Shares represented by Titan International CDIs will be Cede & Co, a nominee of DTC. The custodian of those New Titan International Common Shares will be CREST International Nominees Limited, who will hold them through the DTC system as nominee for CREST Depositary Limited. CREST Depositary Limited will hold those New Titan International Common Shares on trust (as bare trustee under English law) for the Uncertificated Holders and for the CSN (as the CREST member acting as corporate sponsored nominee for the Certificated Holders) to whom it will issue Titan International CDIs.

Accordingly, the holders of Titan International CDIs will only be able to exercise rights relating to the underlying New Titan International Common Shares in accordance with the arrangements described below.

In order to allow the holders of Titan International CDIs to exercise rights relating to the underlying New Titan International Common Shares, Titan International will enter into arrangements pursuant to which holders of Titan International CDIs (including Certificated Holders who hold their Titan International CDIs through the CSN Facility) will be able to:

(a)receive notices of general shareholder meetings of Titan International;

(b)give directions as to voting at general shareholder meetings of Titan International; and

(c) have made available to them and be sent, at their request, copies of the annual report and accounts of Titan International and all other documents issued by Titan International to shareholders of Titan International generally.

Holders of Titan International CDIs will otherwise be treated in the same manner as if they were registered holders of the New Titan International Common Shares underlying their Titan International CDIs, in each case in accordance with applicable law and, so far as is possible, in accordance with CREST arrangements.

Under an agreement for the provision of the CDI register, Euroclear will make a copy of the register of the names and addresses of Titan International CDI holders available to Titan International (and/or its voting agent) to enable Titan International (or its voting agent) to: (a) send out notices of shareholder meetings and proxy forms to its CDI holders; and (b) produce a definitive list of CDI holders as at the record date for the meeting.

In addition, Cede & Co and Euroclear have omnibus proxy arrangements pursuant to which CREST International Nominees Limited (the custodian of the New Titan International Common Shares underlying the Titan International CDIs) will be able to grant each Titan International CDI holder the right to vote in respect of such holder’s underlying New Titan International Common Shares. As a result, the custodian and the depository step out of the voting arrangements and simply pass on any voting rights they have, by virtue of holding the underlying New Titan International Common Share, to the Titan International CDI holders.

Under the terms of the CSN Facility, the CSN will provide Certificated Holders whose Titan International CDIs are held through the CSN Facility the option to give the CSN voting instructions and the CSN will reflect those instructions in the proxy granted to it by Euroclear.

Holders of Titan International CDIs (including Certificated Holders whose Titan International CDIs are held through the CSN Facility) will not be entitled to attend Titan International shareholder meetings in person as a result of their beneficial interest in the New Titan International Common Shares. Instead, they will be required to give instructions either to Euroclear or Computershare Investor Services PLC (in the case of Certificated Holders whose Titan International CDIs are held through the CSN Facility) as to how to exercise their votes at any such meeting on their behalf by means of the facilities afforded to them for this purpose.

Any dividends paid on the New Titan International Common Shares will be paid by Euroclear to holders of Titan International CDIs in the currency in which they are distributed. In respect of Titan International CDIs held through the CSN, in the event that such currency is not sterling, CSN will convert the currency into sterling and, accordingly, any dividends paid to Certificated Holders in respect of Titan International CDIs held through the CSN Facility will be paid in sterling. CSN will distribute any such dividends to the Certificated Holders in accordance with the terms of the CSN Facility.

Transfer and cancellation of Titan International CDIs

Uncertificated Holders who hold their Titan International CDIs through CREST will be able to cancel their Titan International CDIs by settling a cross border delivery transaction in respect of the underlying New Titan International Common Shares through CREST to a DTC participant, in accordance with the rules and practices of CREST and DTC.

Certificated Holders who wish to hold the New Titan International Common Shares to which they are entitled by the Offer through an intermediary of their own choosing (who must be a DTC participant) will be able to instruct the CSN to transfer that holder’s New Titan International Common Shares. Details of the manner in which such instructions may be given will be included in the information booklet to be sent to Certificated Holders by the CSN together with the first Statement of Ownership.

Transaction fees will be payable by a holder of Titan International CDIs who executes a transaction through CREST (including a cancellation of Titan International CDIs). In addition, Certificated Holders whose Titan International CDIs are held through the CSN Facility will be required to pay a fee to the CSN in order to effect such transfer. Uncertificated Holders of Titan International CDIs will be charged a custody fee by CREST in relation to the Titan International CDIs which they hold.

A copy of the terms and conditions of the CSN Facility is being made available as provided in paragraph 20 – Documents for inspection of Part 13: Additional Information.

Regulatory Approvals

Antitrust in the United States

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the related rules and regulations that have been issued by the Federal Trade Commission, certain offer transactions may not be consummated until premerger notification and report forms have been furnished to the Federal Trade Commission and the Antitrust Division of the Department of Justice and certain waiting period requirements have been satisfied. These requirements of the Hart-Scott- Rodino Antitrust Improvements Act of 1976 apply to the Offer.

Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, the Offer may not be completed until the expiration of a 30-day waiting period following filing of a premerger notification and report form concerning the proposed Offer with the Federal Trade Commission and the Antitrust Division of the Department of Justice, unless the waiting period is earlier terminated by the Federal Trade Commission and the Antitrust Division of the Department of Justice.

Titan International filed a premerger notification and report form on 22 August 2012 with the Federal Trade Commission and the Antitrust Division of the Department of Justice in connection with the Offer and the required waiting period has expired on 11 September 2012.

At any time before or after the completion of the Offer the Antitrust Division of the Department of Justice or the Federal Trade Commission could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the Offer or seeking the divestiture of Titan Europe or the divestiture of substantial assets of Titan International or its subsidiaries or of Titan Europe or its subsidiaries.

In addition, the Offer may be reviewed by the attorneys general in the various states in which Titan International operates. These authorities may claim that there is authority, under the applicable state and federal antitrust laws and regulations, to investigate and/or disapprove of the Offer under the circumstances and based upon the review set forth in applicable state laws and regulations. Titan International cannot assure you that one or more state attorneys general will not attempt to file an antitrust action to challenge the Offer. Private parties also may seek to take legal action under the antitrust laws in some circumstances.

Other Foreign Competition Law Filings

Under the provisions of the laws of Italy Titan Europe has sufficient turnover in Italy so that it is necessary to file a notification of the Offer before it is completed.

Cancellation of trading on AIM, compulsory acquisition and re-registration of Titan Europe Shares

If the Offer is or is declared unconditional in all respects and acceptances of more than 90 per cent. of the nominal value of the Titan Europe Shares to which the Offer relates and more than 90 per cent. of the voting rights attaching to Titan Europe Shares to which the Offer relates (that is, the Titan Europe Shares which are not owned by Titan International or any member of the Titan International Group prior to the date the Offer is made) are received, Titan International intends to exercise its rights, to the extent applicable, to apply the provisions of clauses 974 to 991 (inclusive) of the Companies Act 2006 to acquire compulsorily the remaining Titan Europe Shares in respect of which the Offer has not been accepted on the same (or as nearly as possible the same) terms as the Offer.

Following the Offer becoming or being declared wholly unconditional and acceptances of not less than 75 per cent. and, subject to the AIM Rules, Titan International intends to procure that an application is made to the London Stock Exchange for the cancellation of trading in the Titan Europe Shares on AIM. It is anticipated that such cancellation would take effect no earlier than 20 business days after the Offer becomes or is declared wholly unconditional and subject to any applicable requirements of the AIM Rules. Titan International will notify Titan Europe Shareholders of the anticipated date of cancellation.

Such cancellation could also occur at a later date conditional upon the consent of not less than 75 per cent. of votes cast by shareholders at a general meeting.

Overseas Titan Europe Shareholders

The distribution of this document, any other Offer-related documentation and the availability of the Offer to persons who are not resident in the United Kingdom or the United States may be affected by the laws of their relevant jurisdiction. Such persons should inform themselves of and observe any applicable legal or regulatory requirements of their jurisdiction. Further details in relation to overseas Titan Europe Shareholders is contained in the Offer Document.

The New Titan International Common Shares being offered in connection with the Offer will not be registered under the Securities Act and will be issued to US shareholders in reliance on the exemption from registration set forth in Rule 802 thereunder.

Notice to all Overseas Shareholders and potential investors United States

You should be aware that the issuer may purchase securities otherwise than under the exchange offer, such as in open market or privately negotiated purchases.

Restricted securities are securities received in non-public offerings. In general, Rule 144 defines restricted securities to mean securities acquired pursuant to one of the following transactions:


(i)	Securities acquired directly or indirectly from the issuer, or from an affiliate of the issuer, in a transaction or chain of transactions not involving any public offering, or pursuant to certain exemptions from registration.


(i)	Securities acquired from the issuer that are subject to the resale limitations under Regulation D (a limited offering exemption) under the Securities Act.

(iii) Securities acquired in a transaction or chain of transactions exempt under Rule 144A under the Securities Act, where exempts specified resales of restricted securities to qualified institutional buyers.

Titan Europe Shareholders who are citizens or residents of the United States should consult their own legal and tax advisers with respect to the legal and tax consequences of the Offer including the status of their Titan Europe Shares as “restricted securities” or, if Titan International decides to implement the Offer by way of a scheme of arrangement pursuant to the provisions of sections 895-901 of the Companies Act 2006, that scheme, in their particular circumstances.

Other jurisdictions

The New Titan International Common Shares have not been, and will not be, registered under the applicable securities laws of any Restricted Jurisdiction. Accordingly, the New Titan International Common Shares and the Loan Notes may not be offered, sold, delivered or transferred, directly or indirectly, in or into any Restricted Jurisdiction to or for the account or benefit of any national, resident or citizen of any Restricted Jurisdiction.

The implications of the Offer for Overseas Shareholders may be affected by the laws of relevant jurisdictions. Such Overseas Shareholders should inform themselves about, and observe, any applicable legal requirements. It is the responsibility of each overseas person who is to receive New Titan International Common Shares pursuant to the Offer to satisfy himself as to the full observance of the laws of the relevant jurisdiction in connection therewith, including the obtaining of any governmental, exchange control or other consents which may be required or the compliance with other necessary formalities which are required to be observed and the payment of any issue, transfer or other taxes due in such jurisdiction.

This document has been prepared for the purposes of complying with English law, and the Prospectus Rules, and the information disclosed may not be the same as that which would have been disclosed if this document had been prepared in accordance with the laws of jurisdictions outside of England and Wales. This statement does not mean that this document is deficient in any way.

Overseas Shareholders should consult their own legal and tax advisers with respect to the legal and tax consequences of the Offer or, if Titan International decides to implement the Offer by way of a scheme of arrangement pursuant to the provisions of sections 895-901 of the Companies Act 2006, that scheme, in their particular circumstances.

PART 2

INFORMATION ON TITAN INTERNATIONAL

The following information should be read in conjunction with the information appearing elsewhere in this document, including the financial and other information in Part 6: Titan International Operating and Financial Review and Part 7: Titan International Financial Information. The financial information included in this Part 2: Information on Titan International has been extracted without material adjustment from Part 6: Titan International Operating and Financial Review or the financial information included in Part 7: Titan International Financial Information, or from the accounting records of the Titan International Group, which formed the underlying basis of the financial information included in Part 7: Titan International Financial Information.

Introduction

Titan International, which is based in Quincy, Illinois, traces its roots to the Electric Wheel Company which was founded in 1890. As a leading manufacturer in the off-highway industry, Titan International produces a broad range of specialty products to meet the specifications of original equipment manufacturers (“OEMs”) and aftermarket customers in the agricultural, earthmoving/construction and consumer markets. Titan International holds the unique position in North America of manufacturing both wheels and tires for its target markets. Titan International’s earthmoving/construction market includes wheels and tires supplied to the mining industry, while the consumer market includes products for all-terrain vehicles and recreational/utility trailers.

Titan International’s engineering and manufacturing resources are focused on designing quality products that address the needs of its end-users.

Titan International became a publicly traded company in May 1993 and now trades on the New York Stock Exchange under the symbol TWI. Titan International’s market capitalisation, as at close of business on 13 September 2012 (based on the Closing Price of US$20.03 per Titan International Share on 13 September 2012, being the last Business Day before the publication of this document) was $847.15 million.

Recently Titan International has increased its business significantly. For the year ended 31 December 2011 Titan International reported net sales of $1,487.0 million (2010: $881.6 million) with income before income taxes of $95.9 million (2010: loss $9.2 million). This growth has been achieved both organically through higher sales across its Agricultural, Earthmoving/Construction and Consumer divisions as well as through acquisitions including the acquisition of The Goodyear Tire & Rubber Company’s Latin American tire business based in San Paulo, Brazil and the acquisition of a 56 per cent. interest in Planet Corporation Group based in Perth, Australia, completed in August 2012.

Titan International’s Agricultural division generated sales for the year ended 31 December 2011 of $960.7 million (2010: $675.2 million) representing approximately 64 per cent. of Titan International’s net sales. Its Earthmoving/Construction sales in 2011 were $306.8 million (2010: $191.0 million) representing approximately 21 per cent. of Titan International’s net sales. The Consumer market sales in 2011 were $219.5 million (2010: $15.4 million) which represented approximately 15 per cent. of Titan International’s net sales. Basic earnings per share for the year ended 31 December were $1.40 (2010: loss $0.17) and diluted earnings per share of $1.18 (2010: loss $0.17). In 2011 dividend declared per common share of $0.02 (2010: $0.02).

As at 30 June 2012 Titan International had total assets of $1,094.0 million (2011: $1,071.7 million). Competitive strengths

Titan International’s strong market position in the off-highway wheel and tire market and its long-term core customer relationships contribute to Titan International’s competitive strengths. These strengths, along with Titan International’s dedication to the off-highway wheel and tire market, continue to drive Titan International forward.

Strong market position

Titan International’s ability to offer a broad range of specialized wheels, tires and assemblies has resulted in Titan International’s strong position in the North American off-highway market. Through a diverse dealer network, Titan International is able to reach an increasing number of customers in the aftermarket and build Titan International’s image and brand recognition. Titan International’s acquisition of the Goodyear Farm Tire brand in North America and Latin America contributes to overall visibility and customer confidence. Years of product design and engineering experience have enabled Titan International to improve existing products and develop new ones that have been well received in the marketplace. In addition, Titan International believes it has benefited from significant barriers to entry, such as the substantial investment necessary to replicate Titan International’s manufacturing equipment and numerous tools, dies and molds, many of which are used in custom processes.

Long-term core customer relationships

Titan International’s top customers, including global leaders in agricultural and construction equipment manufacturing, have been purchasing products from Titan International or its predecessors for numerous years. Customers including AGCO Corporation, CNH Global N.V., Deere & Company and Kubota Corporation have helped sustain Titan International’s leadership in wheel, tire and assembly innovation.

Business strategy

Titan International’s business strategy is to continue its growth into the giant off-the-road (“OTR”) market, increase its presence in the tire aftermarket, continue to improve operating efficiencies, maintain emphasis on new product development and explore additional strategic acquisitions.

Giant mining tire product

Titan International’s 2006 acquisition of the OTR tire assets of Continental Tire North America, Inc. in Bryan, Ohio, expanded Titan International’s product offering into larger earthmoving, construction and mining tires. Titan International subsequently expanded the Bryan facility production capacity to include giant mining tires. The mining tire market currently offers attractive opportunities and Titan International is expanding capacity to help meet the growing demand for these giant tires. The “Big Daddy” giant tire is approximately 13 feet tall and weighs in at approximately 12,500 pounds.

Increase aftermarket tire business

Titan International has concentrated on increasing its presence in the tire aftermarket, which historically has tended to be somewhat less cyclical than the OEM market. The aftermarket also offers the potential for higher profit margins and is larger in most cases.

Improve operating efficiencies

Titan International continually works to improve the operating efficiency of its assets and manufacturing facilities. Titan International integrates each facility’s strengths, which may include transferring equipment and business to the facilities that are best equipped to handle the work. This provides capacity to increase utilization and spread operating costs over a greater volume of products. Titan International is also continuing a comprehensive program to refurbish, modernize and enhance the computer technology of its manufacturing equipment.

Enhance design capacity and new product development

Equipment manufacturers constantly face changing industry dynamics. Titan International directs its business and marketing strategy to understand and address the needs of its customers and demonstrate the advantages of its products. In particular, Titan International often collaborates with customers in the design of new and enhanced products. Titan International recommends modified products to its customers based on its own market information. These value-added services enhance Titan International’s relationships with its customers. Titan International tests new designs and technologies and develops methods of manufacturing to improve product quality and performance. Titan International’s engineers have introduced designs for giant mining wheels and tires, which employ an innovative steel radial construction technology, new to the OTR tire industry, to enhance performance and durability.

Explore additional strategic acquisitions

Titan International’s expertise in the manufacture of off-highway wheels and tires has permitted it to take advantage of opportunities to acquire businesses that complement this product line, including companies engaged in the tire market and companies that have wheel and tire assembly capabilities. In the future, Titan International may make additional strategic acquisitions of businesses that have an off-highway focus. Titan International is currently exploring worldwide opportunities to expand manufacturing and distribution into new geographies.

Strategic markets and products Agricultural market

Titan International’s agricultural rims, wheels and tires are manufactured for use on various agricultural and forestry equipment, including tractors, combines, skidders, plows, planters and irrigation equipment, and are sold directly to OEMs and to the aftermarket through independent distributors, equipment dealers and Titan International’s own distribution centers. The wheels and rims range in diameter from 9 to 54 inches, with the 54-inch diameter being the largest agricultural wheel manufactured in North America. Basic configurations are combined with distinct variations (such as different centers and a wide range of material thickness) allowing Titan International to offer a broad line of products to meet customer specifications. Titan International’s agricultural tires range from approximately 1 foot to approximately 7 feet in outside diameter and from 5 to 44 inches in width. Titan International offers the added value of delivering a complete wheel and tire assembly to customers.

Earthmoving/construction market

Titan International manufactures rims, wheels and tires for various types of OTR earthmoving, mining, military and construction equipment, including skid steers, aerial lifts, cranes, graders and levelers, scrapers, self-propelled shovel loaders, articulated dump trucks, load transporters, haul trucks and backhoe loaders. The earthmoving/construction market is often referred to as OTR, an acronym for offthe-road. Titan International provides OEM and aftermarket customers with a broad range of earthmoving/construction wheels ranging in diameter from 20 to 63 inches and in weight from 125 pounds to 7,000 pounds. The 63-inch diameter wheel is the largest manufactured in North America for the earthmoving/construction market. Titan International’s earthmoving/construction tires range from approximately 3 feet to approximately 13 feet in outside diameter and in weight from 50 pounds to 12,500 pounds. Titan International offers the added value of wheel and tire assembly for certain applications in the earthmoving/construction market.

Consumer market

Titan International manufactures bias truck tires in Latin America, provides wheels and tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets. Titan International also offers select products for all-terrain vehicles (ATVs), turf, and golf car applications. Likewise, Titan International produces a variety of tires for the consumer market.

Sales

Set out below are the net sales for the three years and six months ended 30 June 2012 by category of activity and net sales for the three years ended 31 December 2011 by geographic market.



	6 months ended 30 June		Year ended 31 December
($’000)	2012	2011	2011	2010	2009
Agricultural	584,798	467,265	960,693	675,178	563,528
Earthmoving/Construction	215,109	143,406	306,821	191,042	144,589
Consumer	122,414	74,605	219,484	15,371	19,482
Total	922,321	685,276	1,486,998	881,591	727,599
North America			1,138,118	851,914	702,753
South America			292,512	7,265	3,460
RoW			56,368	22,412	21,386
Total			1,486,998	881,591	727,599

Customers

Titan International’s 10 largest customers accounted for approximately 55 per cent. of net sales for the year ended 31 December 2011, compared to approximately 58 per cent. for the year ended 31 December 2010. Net sales to Deere & Company in Titan International’s agricultural, earthmoving/construction and consumer markets combined represented approximately 18 per cent. and 26 per cent. of Titan International’s consolidated revenues for the years ended 31 December 2011 and 2010, respectively. Net sales to CNH Global N.V. in Titan International’s three markets represented approximately 11 per cent. and 15 per cent. of Titan International’s consolidated revenues for the years ended 31 December 2011 and 2010, respectively. No other customer accounted for more than 10 per cent. of Titan International’s net sales in 2011 or 2010. Management believes Titan International is not totally dependent on any single customer; however, certain products are dependent on a few customers. While the loss of any substantial customer could impact Titan International’s business, Titan International believes that its diverse product mix and customer base may minimize a longer-term impact caused by any such loss.

Seasonality

Agricultural equipment sales are seasonal by nature. Farmers generally order equipment to be delivered before the growing season. Shipments to OEMs in the U.S. usually peak during Titan International’s first and second quarters for the spring planting period. Earthmoving/construction and consumer markets also historically tend to experience higher demand in the first and second quarters. These markets are affected by mining, building and economic conditions.

Current trends

Growing global population and the rise in middle classes has provided opportunities in the Agricultural sector as farmers seek to increase acreage, improve yields and productivity which has driven demand for bigger and more efficient farm machinery.

Whilst drought conditions have effected many parts of the United States this summer, over the last few years farmers in the United States have generally benefited from more favourable weather conditions which, combined with attractive agricultural commodity prices and improved yields, has driven demand for agricultural machinery.

During recent months, the high temperatures experienced in many parts of the United States has had a detrimental impact on production levels at certain of Titan International’s facilities.

In the United States and elsewhere there has been a continued growth in alternative energy exploration which has increased demand for mining machinery and equipment, both from OEMs and from the aftermarket as equipment wears out.

The well documented difficulties in the US housing market and the construction markets has resulted in reduced demand for construction demand.

Titan International has benefited from increased demand for its products and services during 2011 and the first six months of 2012, driven principally by the following:


●	Strength in manufacturing of wheel and giant tire products focused on the mining industry;


●	Investment in production facilities combined with innovation in new products; and


●	Acquisitions of companies or facilities offering complementary products and services, geographical reach and/or production capacity.

Competition

Titan International competes with several domestic and international companies, some of which are larger and have greater financial and marketing resources than Titan International. Titan International believes it is a primary source of steel wheels and rims to the majority of its North American customers. Major competitors in the off-highway wheel market include Carlisle Companies Incorporated, GKN Wheels, Ltd., Topy Industries, Ltd. and certain other foreign competitors. Significant competitors in the off-highway tire

market include Bridgestone/Firestone, Carlisle Companies Incorporated, Michelin, Pirelli and certain other foreign competitors.

Titan International competes primarily on the basis of price, quality, customer service, design capability and delivery time. Titan International’s ability to compete with international competitors may be adversely affected by currency fluctuations. Titan International owns the molds and dies used to produce its wheels and tires. However, certain of Titan International’s OEM customers could, under individual circumstances, elect to manufacture Titan International’s products to meet their requirements or to otherwise compete with Titan International. There can be no assurance that Titan International will not be adversely affected by increased competition in the markets in which it operates, or that competitors will not develop products that are more effective, less expensive or otherwise render certain of Titan International’s products less competitive. From time to time, certain of Titan International’s competitors have reduced their prices in particular product categories, which has prompted Titan International to reduce prices as well. There can be no assurance that competitors of Titan International will not further reduce prices in the future or that any such reductions would not have a material adverse effect on Titan International.

Operations

Titan International’s operations include manufacturing wheels, manufacturing tires, and combining these wheels and tires into assemblies for use in the agricultural, earthmoving/construction and consumer markets. These operations entail many manufacturing processes in order to complete the finished products.

Wheel manufacturing process

Most agricultural wheels are produced using a rim and a center disc. A rim is produced by first cutting large steel sheets to required width and length specifications. These steel sections are rolled and welded to form a circular rim, which is flared and formed in the rollform operation. The majority of discs are manufactured using presses that both blank and form the center to specifications in multiple stage operations. Titan International e-coats wheels using a multi-step process prior to the final paint top coating. Large earthmoving/construction steel wheels are manufactured from hot and cold-rolled steel sections. Hot-rolled sections are generally used to increase cross section thickness in high stress areas of large diameter wheels. A special cold forming process for certain wheels is used to increase cross section thickness while reducing the number of wheel components. Rims are built from a series of hoops that are welded together to form a rim base. The complete rim base is made from either three or five separate parts that lock together after the rubber tire has been fitted to the wheel and inflated.

For most consumer market wheels, Titan International manufactures rims and center discs from steel sheets. Rims are rolled and welded, and discs are stamped and formed from the sheets. The manufacturing process then entails welding the rims to the centers and painting the assembled product.

Tire manufacturing process

The first stage in tire production is the mixing of rubber, carbon black and chemicals to form various rubber compounds. These rubber compounds are then extruded and processed with textile or steel materials to make specific components. These components – beads (wire bundles that anchor the tire with the wheel), plies (layers of fabric that give the tire strength), belts (fabric or steel fabric wrapped under the tread in some tires), tread and sidewall – are then assembled into an uncured tire carcass. The uncured carcass is placed into a press that molds and vulcanizes the carcass under set time, temperature and pressure into a finished tire.

Wheel and tire assemblies

Titan International’s position as a manufacturer of both wheels and tires allows Titan International to mount and deliver one of the largest selections of off-highway assemblies in North America. Titan International offers this value-added service of one-stop shopping for wheel and tire assemblies for the agricultural, earthmoving/construction and consumer markets. Customer orders are entered into Titan International’s system either through electronic data interchange or manually. The appropriate wheel-tire assembly delivery schedule is established based on each customer’s requirements and products are received by the customer on a just-in-time basis.

Raw materials

Steel and rubber are the primary raw materials used by Titan International in all segments. To ensure a consistent steel supply, Titan International purchases raw steel from key steel mills and maintains relationships with steel processors for steel preparation. Titan International is not dependent on any single producer for its steel supply. Rubber and other raw materials for tire manufacture represent some of Titan International’s largest commodity expenses. Titan International buys rubber in markets where there are usually several sources of supply. In addition to the development of key domestic suppliers, Titan International’s strategic procurement plan includes international steel and rubber suppliers to assure competitive price and quality in the global marketplace. As is customary in the industry, Titan International does not have long-term contracts for the purchase of steel or rubber and, therefore, purchases are subject to price fluctuations.

Patents, trademarks and royalties

Titan International owns various patents and trademarks and continues to apply for patent protection for new products. While patents are considered significant to the operations of the business, at this time Titan International does not consider any one of them to be of such importance that the patent’s expiration or invalidity could materially affect Titan International’s business. However, due to the difficult nature of predicting the interpretation of patent laws, Titan International cannot anticipate or predict the material adverse effect on its operations, cash flows or financial condition as a result of associated liabilities created under such patent interpretations.

Titan International has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America and Latin America under the Goodyear name. The North American and Latin American royalties were prepaid for seven years as a part of the Goodyear Latin American farm tire acquisition.

Marketing and distribution

Titan International employs an internal sales force and utilizes several manufacturing representative firms for sales in North America and Latin America. Sales representatives are primarily organized within geographic regions. Titan International distributes wheels and tires directly to OEMs. The distribution of aftermarket tires occurs primarily through a network of independent and OEM-affiliated dealers. Titan International distributes wheel and tire assemblies directly to OEMs and aftermarket customers through its distribution network consisting of facilities in the United States and Latin America.

Research, development and engineering

Titan International’s research, development and engineering staff tests original designs and technologies and develops new manufacturing methods to improve product performance. These services enhance Titan International’s relationships with its customers. Titan International’s engineers have introduced designs for giant OTR tires. These giant tires employ an innovative steel radial construction technology, new to the OTR tire industry, to enhance performance and durability. Research and development (R&D) expenses are expensed as incurred.

International operations

In April 2011, Titan International completed the acquisition of The Goodyear Tire & Rubber Company’s Latin American farm tire business (“Goodyear Latin America business”). This provided Titan International with a manufacturing facility in Sao Paulo, Brazil. The Goodyear Latin American business represented approximately 19 per cent. of Titan International’s 2011 sales.

In August 2012, Titan International completed the acquisition of a 56 per cent. interest in Planet Corporation Group based in Perth, Australia for a consideration of US$22.9 million. Planet is an OTR tire and wheel specialist. This transaction demonstrates Titan International’s initiative to grow the OTR tire and wheel business around the globe.

Titan International also maintains an investment in Titan Europe, which is recorded as an available-for-sale security and reported at fair value, with unrealised gains and losses excluded from earnings and reported as a separate component of comprehensive income in stockholders’ equity. Titan International’s stock ownership interest in Titan Europe was approximately 21.8 per cent. at 31 December 2011. The fair value of Titan International’s investment in Titan Europe was approximately $[31.0] million at 31 December 2011. Titan Europe is publicly traded on AIM.

The Company has announced its intention to acquire Goodyear’s European farm tire business based in France. Discussions are ongoing.

Employees

At 31 December 2011, Titan International employed approximately 3,600 people in the United States and Latin America. Of these, approximately 2,900 were employed in its US facilities and approximately 700 were employed in its Brazilian facility. Approximately 34 per cent. of Titan International’s employees were covered by a collective bargaining agreement. This 34 per cent. is comprised of employees at the Des Moines, Iowa facility, with a union agreement that expires in November 2012, and the Brazil facility, with a collective bargaining agreement that expires, in relation to economic matters such as salary and profit sharing, on 31 May 2013, and in respect of social matters, on 31 May 2014. The labour agreements for Titan International’s Bryan, Ohio and Freeport, Illinois, facilities expired in November 2010 which account for approximately 26 per cent. of Titan International’s employees. As of 31 December 2011, the employees of these facilities were working without a contract under the terms of Titan International’s latest offer. Titan International does not employ a significant number of temporary employees.

Environmental laws and regulations

In the ordinary course of business, like other industrial companies, Titan International is subject to extensive and evolving federal, state and local environmental laws and regulations, and has made provisions for the estimated financial impact of environmental cleanup. Titan International’s policy is to accrue environmental cleanup-related costs of a non-capital nature when those costs are believed to be probable and can be reasonably estimated. Expenditures that extend the life of the related property, or mitigate or prevent future environmental contamination, are capitalized. Titan International does not currently anticipate any material capital expenditures for environmental control facilities. The quantification of environmental exposures requires an assessment of many factors, including changing laws and regulations, advances in environmental technologies, the quality of information available related to specific sites, the assessment stage of the site investigation, preliminary findings and the length of time involved in remediation or settlement. Due to the difficult nature of predicting future environmental costs, Titan International cannot anticipate or predict the material adverse effect on its operations, cash flows or financial condition as a result of efforts to comply with, or its liabilities under, environmental laws.

PART 3

INFORMATION ON TITAN EUROPE

This Part 3 contains information on the Titan Europe Group. Financial information about the Titan Europe Group for the six months ended 30 June 2012 is set out in Part A of Part of this document and for the year ended 31 December 2011 is set out in Part B of Part 8 of this document.

Introduction

Titan Europe was incorporated in England on 31 January 1995 under the Companies Act 1985 by Titan International. It was incorporated under the name Titan Wheel Europe Limited with registered number 03018340 as a private company limited by shares. On 8 August 1995 it changed its name to Titan Europe Limited and on 17 March 2004 it was re-registered as a public limited company under the name Titan Europe plc under the Companies Act 1985. Its registered address is at Bridge Road, Cookley, Kidderminster, Worcestershire DY10 3SD, United Kingdom and its telephone number is +44 (0) 1562 850 561.

In its recent unaudited interim results for the six month period ended 30 June 2012, Titan Europe achieved revenue of £252.6 million (2011: £253.2 million), profit before tax of £8.6 million (2011: £15.8 million), basic earnings per share of 5.71 pence (2011: 13.73 pence) and diluted earnings per share of 5.50 pence (2011: 13.30 pence).

As at 30 June 2012 Titan Europe had total assets of £479.4 million (2011: £516.5 million). The figures above in relation to Titan Europe have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union which may not be consistent with the accounting standards used by Titan International.

Key events since incorporation

1995 – Titan International established Titan Europe. Since then Titan Europe has expanded through a number of organic acquisitions in the agricultural, construction and mining sectors.

1995 – Titan Europe acquired two companies, Titan Steel Wheels Limited in the UK and Titan Germany GmbH in Germany.

1996 – Titan Europe acquired Titan France SAS, transferring the company to Titan Italia SpA in 2001. 1998 – Titan International transferred Titan Italia SpA to Titan Europe.

1999 – Titan Europe acquired a 35.9 per cent. investment in Wheels India Limited and is represented on its board.

2000 – Titan Europe provided support to Titan Wheels Australia Pty Limited before acquiring it in 2003.

2004 – In April Titan Europe was demerged from Titan International and established as a separate entity on the London Stock Exchange’s AIM market, raising approximately £33 million. Titan International’s shareholding in Titan Europe was 29.3 per cent. immediately following admission.

2004 – In September Titan Europe acquired Titan Andys Australia Pty Limited.

2005 – In September Titan Italia SpA, a wholly owned subsidiary of Titan Europe, signed a joint venture agreement with Jantsa Jant Sanayi ve Ticaret A.S., one of Turkey’s largest off-road wheel manufacturers.

2005 – In November Titan Europe acquired Wheel and Rims Engineering Pty Limited, which is based in Brisbane, Australia.

2005 – In December Titan Europe acquired Italtractor ITM SpA and raised a further £70 million of equity, diluting the share of Titan International to approximately 15.4 per cent. This constituted a reverse takeover under the AIM Rules and Titan Europe’s shares were readmitted to AIM.

2007 – In March Titan Europe acquired Aros del Pacifico S.A. in Chile and its subsidiary company, Aros del Pacifico S.A.C., in Peru.

2009 – Italtractor ITM SpA set up a new subsidiary in China, Titan ITM (Tianjin) Co, to manufacture undercarriage components.

2011 – Italtractor ITM SpA set up a new subsidiary in Japan, Titan ITM Japan Ltd, and Titan Wheels Australia Pty Ltd set up a new subsidiary in South Africa, Titan Wheels South Africa (Pty) Limited.

2011 – In April 2011 Titan Italia SpA acquired the remaining 50 per cent. of Jantsa Jant Sanayi ve Ticaret A.S. that it did not already own.

Business Overview

Titan Europe is an international manufacturer of tracked undercarriages and wheels with world-wide operations developed from a European base. Undercarriage products include fully assembled tracks ready for final assembly by Original Equipment Manufacturers (“OEMs”), and all of the components to create such an assembly. These include track chains, shoes, rollers, sprockets and idler wheels. Wheel products include agricultural wheels, large earthmover/mining and large construction wheels, mobile crane and dockside handling wheels. Additionally, the “wheel” division produces wet-ramp brakes for agricultural vehicles and provides logistic services for tyre and wheel assembly and Just in Time (“JIT”) delivery to certain major agricultural OEMs. A further Titan Europe’s trading business distributes Titan International tyres into Europe.

The Titan Europe Group’s markets include OEMs for the agricultural, construction, industrial and mining industries, specialised bespoke applications and their associated aftermarkets.

Wheels

Titan Europe supplies OEMs with wheels for construction, dockside handling, agricultural and mining machines. It manufactures principally in Europe but its business extends worldwide, particularly considering how strongly the company’s mining business has been developing in Australia. It holds patents on large mining wheels which have been developed in the Australian market but are now being marketed worldwide.

Titan Europe also owns a 35.9 per cent. share in Wheels India Limited.

With a total of approximately 1,220 employees and 17 wheels facilities around the world covering manufacturing, service, assembly and distribution, the division also manufactures wet brake systems for the agricultural industry and distributes Titan International, General off-the-road (formerly Continental) and Carlisle branded tyres and wheel and tyre assemblies. The provision of a logistical service to key agricultural and construction OEMs for tyre and wheel assembly and JIT delivery is in addition to this.

Titan Europe’s wheel division customers include major OEMs in the construction, mining and agricultural sectors, such as AGCO, Caterpillar, CNH, John Deere, SAME and Volvo Construction.

Undercarriage

Titan Europe’s supplies a full range of undercarriage components and complete undercarriage systems. These integrated systems are fully engineered and include proprietary third party components such as gearboxes. This full service approach supports the growth and development of new business with the global OEM manufacturers in construction, agricultural and mining industries.

Titan Europe’s undercarriage division employs approximately 1,450 employees throughout its eight manufacturing plants and two assembly plants. The ITM and Itrac brand names are produced in Europe, South America and Asia and distributed across Europe, North and South America, Africa and Asia Pacific. The Pyrsa and Shark brand names are produced in Europe and distributed across the same regions as ITM and Itrac brands.

Undercarriage products are supplied to many of the world’s major OEMs in the field of crawler machines, such as Atlas Copco, Bucyrus, CNH, Dynapac, JCB, John Deere, Hitachi, Kobelco, Komatsu, Liebherr, Sandvik, Sany, Sennebogen, Terex, Thyssen Group, Volvo and Wirtgen Group.

Principal investments

In April 2011, Titan Italia SpA acquired the remaining 50 per cent. of Jantsa Jant Sanayi ve Ticaret A.S. that it did not already own. Titan Jantsa Jant Sanayi Ticaret ve Sanayi, a wholly-owned subsidiary of Titan Italia SpA operates in the agricultural market producing wheels for the local Turkish market and for Titan Italia SpA.

Over the course of 2011, the Titan Europe Group undertook significant manufacturing expansion projects in the undercarriages division in China, Brazil and Spain.

On 23 March 2012 Titan Europe announced an investment in a new purpose built facility in Turkey at Aydin Ortaklar OSB, a newly established industrial zone where, on 20 March 2012, the Company purchased 60,000m² of land for £0.8 million. Titan Europe has plans to create a new manufacturing facility, but currently no firm commitment has been made.

Principal markets and breakdown of total revenues by category of activity and geographic market

Titan Europe’s key markets are construction, agriculture and mining to both OEMs and their aftermarket customers globally, as shown below:

Year ended

Destination 31 December 2011

UK 4.4

Europe 49.1

North America 12.0

South America 8.7

Asia 18.5

Africa 1.0

Oceania 6.3

Total revenue 100.0

Year ended

Market 31 December 2011

Agricultural 23.6

Construction 48.6

Mining 24.5

Other 3.3

Total revenue 100.0

Year ended

Channel 31 December 2011

OEM 77.2

Aftermarket 22.8

Total revenue 100.0

Titan Europe principal subsidiaries

Titan Europe is the parent company in the Titan Europe Group and its principal subsidiaries at the date of this document are:

Company’s equity

Registered shareholding at

Company country 30 June 2012

Titan Steel Wheels Limited England 100%

Titan Distribution (UK) Limited England 100%

Titan ITM Holding SpA Italy 100%

Titan Italia SpA Italy See below +

Italtractor ITM SpA Italy See below +

Italtractor Operations SpA Italy See below +

Titan Intertractor GmbH Germany See below +

Piezas Rodajes SA Spain See below +

Italtractor ITM Track Ltd China See below +

Titan ITM (Tianjin) Co China See below +

Titan ITM Japan Ltd Japan See below +

Italtractor Landroni Ltda Brazil See below +

Intertractor America Corp USA See below +

Titan France SAS France See below +

Titan Wheels Australia Pty Ltd Australia 100%

Titan Wheels Indonesia PT Indonesia See below #

Titan Wheels South Africa (Pty) Limited South Africa See below #

Aros Del Pacifico S.A. Chile 100%

Aros Del Pacifico S.A.C. Peru 100%

Titan Jantsa Jant Sanayi Ticaret ve Sanayi Turkey See below +

+ 100% held via the Company’s holding in Titan ITM Holding SpA # 100% held via the Company’s holding in Titan Wheels Australia

Legal or arbitration proceedings

There have been no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which Titan International is aware) during the 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on the financial position or profitability of the Titan Europe Group.

Current trading and prospects

During the first half of 2012, the Titan Europe Group’s order book generally remained firm. However, since the half-year period end, the Titan Europe Group began to see clear signs of a decline or postponement in customer order schedules for the second half of the year.

This view is consistent with the overall commentary being made by a number of Titan Europe’s major customers across both areas of the Titan Europe business and consistent with more uncertainty in end markets and the general macro-economic factors being faced across businesses and territories.

This being said, the pattern is by no means uniform; as a business Titan Europe continues to expect some growth in Brazil and North America, with the mining sector remaining reasonably firm.

Although Titan Europe does not anticipate a collapse in markets similar to that experienced in 2008/2009 and no matter how effective the Titan Europe Group’s strategy, Titan Europe will not be isolated from the general economic malaise now apparent in Europe and the wider world.

Material contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by a member of the Titan Europe Group within the two years immediately preceding the date of this document and are, or may be, material or have been entered into at any time by any member of the Titan Europe Group and contain provisions under which any member of the Titan Europe Group has an

obligation or entitlement which is, or may be, material to the Titan Europe Group at the date of this document:

Intesa Sanpaolo and Unicredit finance facilities

Banking facilities are provided by Intesa Sanpaolo S.p.A. (“Intesa”) and Unicredit Corporate Banking S.p.A. (“Unicredit”) (together being, the “Banks”) to Italtractor I.T.M. S.p.A. (“ITM”) and Italtractor Operations S.p.A. (“ITO”) under two broadly identical facility agreements dated 2 February 2006, as amended and restated on 19 May 2009 and 2 September 2011, with amendments on 28 May 2010, 18 October 2010 and 2 August 2012 (together being, the “facility agreements”). Under the terms of these facilities, Intesa and Unicredit provide term loan facilities to ITO and ITM. As at 31 July 2012, the amounts outstanding under the term loans payable by ITM and ITO were as follows:


●	from ITM: term loan A of €54 million and term loan B of €12 million; and


●	from ITO: term loan A of €18.75 million and term loan B of €6 million.

Each term loan A is repayable by quarterly instalments on the last day of July, October, January and April in each year, with the final instalment payable on 31 October 2015. Each term loan B payable is repayable in a single instalment on 31 October 2015, but this is subject to a 12 month extension option.

Interest is payable on the loans at 3.5 per cent. above 3 month LIBOR plus the mandatory costs (as defined in the facility agreements). At any time, if an event of default is continuing or the financial covenants are not satisfied, the margin for each loan increases to 4 per cent.

The loans are secured by guarantees given by ITM, ITO and Titan Europe and are secured by pledges over shares held by Titan Europe and certain of its subsidiaries over shares in companies forming the Titan Europe Group’s undercarriage division.

The amendment agreements dated 2 August 2012 make certain changes to the facility agreements in order to adapt them for the circumstances following the completion of the Offer. The primary change was to amend clauses that would otherwise make the relevant facilities repayable on demand immediately following a change in control of Titan Europe. The following fees are payable to Intesa in connection with these amendment agreements:


●	from ITM: €51,000 paid on 2 August 2012 and €676,000 to be paid when Titan International acquires over 50 per cent. of Titan Europe’s issued share capital; and


●	from ITO: €19,000 paid on 2 August 2012 and €254,000 to be paid when Titan International acquires over 50 per cent. of Titan Europe’s issued share capital.

If Titan International does not acquire over 50 per cent. of Titan Europe’s issued share capital within 150 days from the date of these amendment agreements, the amendments become void, the second element of the respective payments does not become payable and the margin payable for the non-default Interest rate reverts from 3.5 per cent. to 3.25 per cent.

The facility agreements contain six-monthly financial covenants, repeating representations, covenants and restrictions which are not unusual for a facility of this nature. The banks may demand immediate repayment of the loan upon the occurrence of events of default which are typical for a loan facility of this size and nature. The events of default include any person acquiring control of Titan Europe or Titan Europe’s shares ceasing to be traded on AIM. The Banks have agreed to waive these events of default insofar as they may otherwise occur as a result of Titan International acquiring control of Titan Europe pursuant to the Offer.

Accordo Quadro agreement

Pursuant to an agreement executed under Italian law dated 21 December 2005 certain liabilities previously owed by NewCo S.p.A. and ITM to a syndicate of banks which were previously lenders to NewCo S.p.A. and ITM (the “AQ Banks”) were settled (the “Accordo Quadro Agreement”). Under the terms of the Accordo Quadro Agreement:


●	NewCo S.p.A., ITM and/or Titan Europe are required to pay €2,919,912 on 21 December 2012, representing interest accrued as at 21 December 2005 (save as stated below, this sum does not attract interest); and


●	Titan Europe is required to pay deferred consideration in the sum of €24,597,114 on 21 December 2013, together with annual compound interest of 2 per cent. per annum or the equivalent simple interest rate of 2.146 per cent. per annum for the period from the date of the Accordo Quadro Agreement to the date of payment.

If any monies are not paid when due, a default interest of 3 per cent. above EURIBOR is payable from the due date to the actual date of payment.

Each of the AQ Banks may convert its entitlement to payment under the Accordo Quadro Agreement, in whole or part, into Titan Europe Shares at any time prior to the date of payment, at a subscription price of £4.00 per Titan Europe Share.

Until such repayment or conversion of the deferred consideration into Titan Europe Shares, or in the event the AQ Banks hold 1 per cent. or more of the Titan Europe Shares, the AQ Banks may nominate one independent person to serve as a non-executive director on the Board of Titan Europe.

The AQ Banks may terminate the Accordo Quadro Agreement and demand immediate repayment if any payment of interest due on 21 December 2012 is not made on the due date for payment or if there is a breach of representations given by Titan Europe.

Buyout of Jantsa joint venture

Titan Italia S.p.A. (a wholly owned subsidiary of Titan Europe) was party to a joint venture agreement with Jantsa Jant Sanayi ve Ticaret A.S_¸. (“Jantsa”), a Turkish registered company which produces wheels for the agricultural sector, dated 12 September 2005 in respect of Titan Jantsa Jant Sanayi ve Ticaret ve Sanayi A.S_¸. (the “JVCo”) which manufactures, markets and distributes agricultural wheels.

Pursuant to a share purchase agreement dated 18 April 2011 (the “SPA”), Titan Italia S.p.A. has acquired the 50 per cent. of Jantsa’s share capital from S_¸ efik Çerçio ˘glu, Erkan Çerçio ˘glu and Ercan Çerçio˘glu (the “Sellers”) for a total consideration of €8,500,000. According to the terms of the SPA, the Sellers and their affiliates are prohibited from competing with Jantsa, save in relation to certain customers named in the SPA, for a period of five years from the date of the SPA. Further, the Sellers are not entitled to hire any person who was employed by Jantsa at any point during the period of two years preceding the date of the SPA, unless they have been dismissed without justified cause or Titan Italia S.p.A. has given its prior written consent. Pursuant to the terms of the SPA, the joint venture agreement dated 12 September 2005 was terminated.

PART 4

TITAN INTERNATIONAL DIRECTORS, SENIOR MANAGERS, EMPLOYEES

AND CORPORATE GOVERNANCE



Board of Directors Directors
			Date appointed to
			Titan International	Date of expiry of
Name	Age	Position	Board	current office
Maurice Manning Taylor Jr.	67	Chairman of the	1990	Annual Meeting 2013
		Board and CEO
Erwin Henryk Billig	85	Vice Chairman of the Board	1992	Annual Meeting 2015
John Michael Anthony Akers	68	Director	2007	Annual Meeting 2013
Richard Marshall Cashin Jr.	58	Director	1994	Annual Meeting 2014
Albert Joseph Febbo	72	Director	1993	Annual Meeting 2014
Michael I Quain	60	Director	1999	Annual Meeting 2014
Anthony Louis Soave	72	Director	1994	Annual Meeting 2015

Directors’ profiles

The names, business experience and principal business activities outside the Titan International Group of the current Titan International Board are set out below.

Maurice M. Taylor Jr., Chairman of the Board and CEO

Mr Taylor has transformed Titan International from a small wheel manufacturing business to a global producer of off-highway wheel and tire systems. Titan International has successfully acquired and recreated previously failed businesses in the off-highway wheel and tire markets. In 1993, Mr Taylor led the company through its initial public offering on the NASDAQ. After enjoying successful trading on NASDAQ, Titan International moved to the NYSE. Mr Taylor has been in the wheel manufacturing business for over 30 years, and has worked with Titan International in various sales, engineering and management positions. Mr Taylor served as president and CEO of Titan International from 1990 to 2005 when he became Chairman and CEO.

Mr. Taylor’s work experiences provide in-depth knowledge and experience in sales, manufacturing, engineering and innovation that enhances the Board of Director’s overall qualifications. Mr Taylor’s extensive background with the Company has given him a breadth of insight into Titan International’s markets and the requirements of end users. With Mr Taylor’s knowledge and a management style that constantly re-evaluates short-term goals, Titan International is able to adapt quickly to changing conditions.

In 1996, Mr Taylor ran as a Republican candidate for President of the United States, campaigning to bring sound fiscal management and business know-how to Washington.

Erwin H. Billig, Vice Chairman of the Board

Mr Billig is a director and chairman of MSX International. From 1992 to 1999 he served as vice chairman of Masco Tech, Inc., and from 1986 to 1992 Mr Billig was president and chief operating officer of Masco Tech, Inc. Mr Billig is Vice Chairman of the board of Titan International. Mr Billig is also a non-executive director of Titan Europe. Mr. Billig serves on the following Titan International committees: Audit, Compensation and Nominating/Corporate Governance. Mr. Billig’s work experiences provide in-depth knowledge and experience in sales, marketing, international operations and regulatory affairs that enhances the Board of Director’s overall qualifications. Mr Billig’s vast leadership skills and understanding

of Titan International’s core business and its relationship with international businesses contributes to the overall success and direction of Titan International.

J. Michael A. Akers

Mr Akers is chief executive officer of Titan Europe. He began organizing Titan’s European operations in 1990 and became a member of Titan Europe’s management team in 1995. He then served as vice president and later led the IPO of Titan Europe on AIM in 2004. He is a member of the Advisory Board of Warwick Business School.

Mr Akers’ work experiences provide detailed knowledge and experience in international operations, engineering and design that enhances the Board of Director’s overall qualifications. Mr Akers’ international manufacturing knowledge will have a contributory role in future global expansion of Titan International.

Richard M. Cashin Jr.

Mr Cashin is managing partner of One Equity Partners LLC (“OEP”). Prior to founding OEP in 2001, he was president of Citicorp Venture Capital, Ltd. Mr Cashin is a member of the JPMorgan Chase Executive Committee and is a trustee for the Boys Club of New York, American University in Cairo, Central Park Conservancy, Jazz at Lincoln Center, Brooklyn Museum, the National Rowing Foundation (Chairman), TOUCH Foundation and is co-chairman of the New York City Investment Fund.

Mr Cashin serves on following committees: Compensation Committee (Chairman) and Nominating/Corporate Governance. Mr Cashin possesses particular knowledge and experience in finance, strategic planning, acquisitions and leadership of organizations that enhances the Board of Director’s overall qualifications. Mr Cashin’s experience with large mergers and acquisitions especially contributes to Titan International’s overall long-range plan.

Albert J. Febbo

Mr Febbo retired from GE after 30 years – 18 years with the plastics business in sales and marketing leadership roles in the U.S. and Europe and 12 years as a corporate officer leading the automotive and corporate marketing teams. He launched and is a partner in BOOMVOTE.COM, a social networking internet business.

Mr Febbo serves on the following committees: Audit (Chairman), Compensation and Nominating/Corporate Governance. Mr Febbo possesses particular knowledge and experience in sales, distribution, marketing and leadership in global organizations that enhances the Board of Director’s overall qualifications. Mr Febbo’s tenure at such a large and complex organization as General Electric affords him valuable perspective as Titan International expands and changes. Mr Febbo’s marketing experience in the plastics and automotive industries is a major contribution to Titan International’s long-range planning.

Mitchell I. Quain

Mr Quain is a managing director of ACI Capital Corp, a private equity firm, and chairman of Magnetek Inc. Previously, Mr Quain spent four years with ABN AMRO Incorporated, most recently as Vice Chairman, and 22 years at Schroder & Co., Inc. Mr Quain is also a director of Hardinge, Inc., as well as a number of private companies.

Mr Quain meets the qualifications of a “financial expert” as defined by the SEC and has accounting or related management expertise as required by the NYSE listing standards. Mr Quain serves on the following committees: Nominating/Corporate Governance (Chairman), Audit and Compensation. Mr Quain possesses particular knowledge and experience in accounting, finance, capital structure and acquisitions that enhances the Board of Director’s overall qualifications. Mr Quain’s banking background, combined with his academic knowledge, allows him to help guide Titan International in significant financial and accounting matters.

Anthony L. Soave

Mr Soave is president, chief executive officer and founder of Soave Enterprises L.L.C., a Detroit-based company with ownership in a diverse portfolio of companies consisting of automobile dealerships, real estate, metals recycling and other diversified holdings. From 1974 to 1998, he served as President and Chief Executive Officer of Detroit-based City Management Corporation, which he founded.

Mr Soave serves on the following committees: Audit, Compensation and Nominating/Corporate Governance. Mr Soave possesses particular knowledge and experience in sales, distribution and leadership in diversified businesses that enhances the Board of Director’s overall qualifications. Mr Soave’s experiences in building businesses from the ground up contribute to the dynamic of Titan International’s entrepreneurial spirit. Mr. Soave’s operational and distribution background further assist with Titan International’s direction.

Chief Executive Officer and Senior Managers’ Profiles

Name Age Position

Maurice M Taylor Jr. 67 Chairman of the Board and CEO

Paul G Reitz 40 Chief Financial Officer

Kent W Hackamack 53 Executive Vice President of Corporate Development

Cheri T Holley 64 Vice President, Secretary and General Counsel

The business address of the Titan International Directors and Senior Managers is 2701 Spruce Street, Quincy, Illinois, 62301 United States.

Compensation

For the year ended 31 December 2011, the aggregate total remuneration paid (including contingent or deferred compensation) and benefits in kind granted (under any description whatsoever) including, without limitation, any pension entitlements to each of the Titan International Directors and Senior Managers by members of the Titan International Group was $5,875,183; a break-down of which is provided below.

See page 154 (Note 23) of Part 7 of this document for further details of the Company’s Employee Benefits Plans.

Chief Executive Officer and Senior Managers

The following table sets forth historic information regarding compensation paid to the Chief Executive Officer and the Senior Managers in the year ended 31 December 2011:



						Annual Incentive
Name and			Stock	Option		Plan		All Other
Principal Position	Salary		Awards	Awards Compensation Compensation						Total
Maurice M Taylor Jr.	$	800,000	Nil	Nil		$	2,000,000	$	49,829	$	2,849,829
Paul G Reitz	$	250,000	Nil	$	260,319	$	200,000	$	12,227	$	722,546
Kent W Hackamack	$	290,000	Nil	$	97,620	$	100,000	$	16,731	$	504,351
Cheri T Holley	$	290,000	Nil	$	130,159	$	100,000	$	20,406	$	540,565
Non-Executive Directors

The following table sets forth information regarding compensation paid to the Titan International



Non-Executive Directors in the year ended 31 December 2011:
	Fees earned or Paid		Stock
Name	in Cash		Awards		Total
Erwin H Billig^(a)	$	156,000	–		$	156,000
J. Michael A Akers	$	1,500	$	165,263	$	166,763
Richard M Cashin Jr.	$	11,500	$	165,263	$	176,763
Albert J Febbo	$	70,500	–		$	70,500
Michael I Quain	$	21,000	$	165,263	$	186,263
Anthony L Soave	$	6,000	$	165,263	$	171,263

(a) The Company pays Mr. Billig, the Vice Chairman of the Board, an annual fee of $100,000 to carry out his responsibilities, which

include operational matters, as well as corporate development initiatives.

As of 31 December 2011, the aggregate number of unvested stock awards outstanding held by our Non-Executive Directors was as follows:

Number of

Name unvested stock awards Vesting period

Erwin H Billig Nil N/A

J. Michael A Akers 10,000 12.05.11-12.05.21

Richard M Cashin Jr. 37,500 12,500 at $11.56

19.05.05-19.05.15 10,000 at $27.915 12.05.11-12.05.21 15,000 at $23.385 17.05.12-17.05.22

Albert J Febbo 12,500 19.05.05-19.05.15

Michael I Quain 37,500 12,500 at $11.56

19.05.05-19.05.15 10,000 at $27.915 12.05.11-12.05.21 15,000 at $23.385 17.05.12-17.05.22


Anthony L Soave	37,500 12,500 at $11.56

19.05.05-19.05.15 10,000 at $27.915 12.05.11-12.05.21 15,000 at $23.385 17.05.12-17.05.22

Corporate Governance

The Titan International Board and its committees meet regularly throughout the year, and may also hold special meetings and act by written consent from time to time. The Titan International Board held a total of five meetings during the year ended 31 December 2011. During this time the Titan International Directors attended 75 per cent. of the aggregate number of meetings held by the Titan International Board and all committees of the Titan International Board on which such Titan International Director served during the period which such Titan International Director was a member of the Titan International Board with the exception of Mr Cashin, who attended six of the ten applicable meetings. Titan International does not require its directors to attend its annual meeting of stockholders. However, the directors attempt to attend this meeting.

Titan International is subject to corporate governance requirements of the NYSE and the SEC and has established the policies, practices and committees described below in accordance with these requirements. Titan International complies with applicable US and NYSE corporate governance requirements.

The Titan International Board has a standing Audit Committee, Nominating/Corporate Governance Committee, and Compensation Committee.

Independence

The Titan International Board has determined that five of Titan International’s seven directors were independent under the rules of the NYSE during 2011. The independent directors are Mr Billig, Mr Cashin, Mr Febbo, Mr Quain and Mr Soave. The two directors who are not independent are Mr Akers, the Chief Executive director of Titan Europe, and Mr Taylor, the Chief Executive Officer of Titan International and Chairman of the Titan International Board. Each of the directors serving on the Audit Committee, the Compensation Committee and the Nominating/Corporate Governance Committee are independent under the standards of the NYSE.

Audit Committee

The Titan International Board has established a separately designated standing audit committee. The Audit Committee, among its other duties and responsibilities, retains the independent registered public accounting firm to perform audit and non-audit services, reviews the scope and results of such services, consults with the internal audit staff, reviews with management and the independent registered public accounting firm any recommendations of the auditors regarding changes and improvements in Titan International’s accounting procedures and controls and management’s response thereto, and reports to the Board. The Audit Committee meets with the independent registered public accounting firm with and without management present. The members of Titan International’s Audit Committee are Mr Billig, Mr Febbo, Mr Quain and Mr Soave. Mr Febbo is Chairman. The Titan International Board has determined that Mr Quain qualifies as an “audit committee financial expert”, as that term is defined under the SEC rules and has accounting on related management expertise as required by the NYSE listing standards.

Nominating/Corporate Governance Committee

Titan International’s Nominating/Corporate Governance Committee met twice during the year ended 31 December 2011. The Nominating/Corporate Governance Committee provides guidance and assistance to the Titan International Board in discharging the duties and responsibilities related to corporate governance principles and practices of the Titan International Board and Titan International. The Nominating/Corporate Governance Committee is responsible for identifying, screening and nominating candidates to serve as directors of Titan International. The members of Titan International’s Nominating/Corporate Governance Committee are Mr Billig, Mr Cashin, Mr Febbo, Mr Quain and Mr Soave. Mr Quain is Chairman.

Compensation Committee

Titan International’s Compensation Committee met three times during the year ended 31 December 2011. The Compensation Committee provides oversight of all executive compensation and benefit programs. The Compensation Committee reviews and approves corporate goals and makes recommendations accordingly to the Titan International Board regarding the salaries and all other forms of compensation of Titan International’s executive officers. The members of Titan International’s Compensation Committee are Mr Billig, Mr Cashin, Mr Febbo, Mr Quain and Mr Soave, all of whom are non-employee directors. Mr Cashin is Chairman.

PART 5

TITAN INTERNATIONAL SELECTED FINANCIAL INFORMATION

The following is a summary of the Titan International financial information for the periods indicated. The data has been extracted without material adjustment from Titan International’s consolidated audited financial statements and consolidated interim financial statements as set out in Part 7: Titan International Financial Information. The summary should be read in conjunction with that information and with Part 6: Titan International Operating and Financial Review. Titan Europe Shareholders and potential investors are advised to read the whole of this document and not rely on the information summarised in this Part 5: Titan International Selected Financial Information.

Historical results are not indicative of the results to be expected in the future and results of interim periods are not necessarily indicative of results for the entire year.

Titan International’s consolidated financial statements are prepared in accordance with US GAAP whereas Titan Europe’s consolidated financial statements are prepared in accordance with IFRS. IFRS differs from US GAAP in a number of significant respects. For a summary of the material differences between IFRS and US GAAP relevant to Titan International’s consolidated financial statements, see Part 11: Summary of Significant Differences between IFRS and US GAAP.



	Six months ended 30 June 30 June				Year ended 31 December
US $’000 except per share data	2012		2011		2011		2010			2009
Net sales	$	922,321	$	685,276	$	1,486,998	$	881,591		$	727,599
Gross profit	175,449		120,606		232,108		104,090			55,965
Noncash goodwill impairment charge	–									^{11 702}
Income (loss) from operations	139,640		71,276		132,173		30,945			(18,894		)
Income (loss) before income taxes	130,852		45,175		95,895		(9,190		)	(32,002		)
Net income (loss)	79,719		22,520		58,136		(5,926		)	(24,645		)
Net income (loss) per share – basic	$	1.89	$	0.55	$	1.4	$	(0.17	)	$	(0.71	)
Net income (loss) per share – diluted	1.53		0.47		1.18		(0.17		)	$	(0.71	)
Dividends declared per common share	0.01		0.01		0.02		0.02			0.02



	As of 30 June			As of 31 December
US $’000	2012	2011	2011	2010	2009
Current assets	670,136	584,176	564,593	481,350	445,216
Non-current assets	423,863	487,516	445,693	299,530	291,247
Total assets	1,093,999	1,071,692	1,010,286	780,880	736,463
Current liabilities	187,615	227,519	175,766	92,353	70,072
Non-current liabilities	429,308	445,472	437,641	416,496	404,438
	616,923	672,991	613,407	508,849	474,510
Stockholders’ equity	475,276	396,780	395,239	272,031	261,953
Non-controlling investors	1,800	1,921	1,640	–	–
	1,093,999	1,071,692	1,010,286	780,880	736,463

Summary statements of cash flows/cash flow statements (All amounts in US$’000)



	Six months ended 30 June						Year ended 31 December
US $’000	2012		2011		2011		2010		2009
Cash provided by (used for) operating activities	48,683		(30,632	)	4,426		50,711		72,313
Cash used for investing activities	(18,553	)	(107,919	)	(130,803	)	(28,748	)	(40,894	)
Cash provided by (used for) financing activities	(9,194	)	13,174		16,380		(11,645	)	136,105
Effect of exchange rate changes on cash	(656	)	39		(333	)	–		–
Net increase (decrease) in cash and cash equivalents	20,280		(125,338	)	(110,330	)	10,318		167,524
Cash and cash equivalents, beginning of period	129,170		239,500		239,500		229,182		61,658
Cash and cash equivalents, end of period	149,450		114,162		129,170		239,500		229,182

PART 6

TITAN INTERNATIONAL OPERATING AND FINANCIAL REVIEW

The following information should be read in conjunction with the financial information on Titan International set out in Part 5: Titan International Selected Financial Information and the financial information on Titan International set out in Part 7: Titan International Financial Information. The financial information included in this Part 6: Titan International Operating and Financial Review has been extracted without material adjustment from the financial information included in Part 7: Titan International Financial Information or has been extracted without material adjustment from Titan International’s accounting records, which formed the underlying basis of the financial information included in Part 7: Titan International Financial Information.

Some of the information contained in this Part 6: Titan International Operating and Financial Review, including information in respect of Titan International’s plans and strategies for its business and expected sources of financing, contains forward-looking statements that involve risk and uncertainties. Titan Europe Shareholders and potential investors should read Important Information – Forward-looking statements for a discussion of the risks and uncertainties related to those statements and should also read Risk Factors for a discussion of certain factors that may affect the business, results of operations or financial condition of the Titan International Group or the Combined Group.

Titan International’s consolidated financial statements are prepared in accordance with US GAAP whereas Titan Europe’s consolidated financial statements are prepared in accordance with IFRS. IFRS differs from US GAAP in a number of significant respects. For a summary of the material differences between US GAAP and IFRS relevant to Titan International’s consolidated financial statements, see Part 11: Summary of Significant Differences between IFRS and US GAAP.

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

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

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

Consumer Market: Titan International manufactures bias truck tires in Latin America, provides wheels and tires and assembles brakes, actuators and components for the domestic boat, recreational and utility trailer markets. Titan International also offers select products for ATVs, turf, and golf cart applications. Likewise, Titan International produces a variety of tires for the consumer market.

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

Results of operations – six months ended 30 June 2012 compared to six months ended 30 June 2011.

6 months 6 months

ended ended

30 June 30 June

2012 2011 % Increase



Net sales	$	922,321	$	685,276	35	%
Gross profit	175,449		120,606		45	%
Income from operations	139,640		71,276		96	%
Net income	79,719		22,520		254	%

Titan International recorded sales of $922.3 million for the six months ended 30 June 2012, as compared to $685.3 million in 2011. The higher year-to-date sales levels were the result of increased demand in Titan International’s agricultural and earthmoving/construction segments combined with price/mix improvements, as well as the April 2011 acquisition of the Goodyear Latin American farm tire business which recorded sales of $90.3 million for the three months ended 31 March 2012.

Titan International’s gross profit was $175.4 million, or 19.0 per cent. of net sales, for the six months ended 30 June 2012, compared to $120.6 million, or 17.6 per cent., of net sales, in 2011. Income from operations was $139.6 million for the six months ended 30 June 2012, compared to $71.3 million in 2011. The increase in Titan International’s gross profit and income from operations were related to cost leveraging and productivity gains on the higher sales volumes and select price increases on certain products that exceeded the increase in raw materials. Net income was $79.7 million for the six months ended 30 June 2012, compared to $22.5 million in 2011. Basic income per share was $1.89 for the six months ended 30 June 2012, compared to $.55 in 2011. In addition to the items previously discussed, income from operations, net income and earnings per share were positively affected by the supply agreement termination income of $26.1 million.

Highlights for the three and six months ended 30 June 2012, compared to 2011 (amounts in thousands):



	Three months ended 30 June						Six months ended 30 June
	2012			2011			2012			2011
Net sales	$	459,233		$	404,447		$	922,321		$	685,276
Cost of sales	377,147			340,113			746,872			564,670
Gross profit	82,086			64,334			175,449			120,606
Gross profit percentage	17.9		%	15.9		%	19		%	17.6		%

Net Sales

Net sales for the quarter ended 30 June 2012, were $459.2 million compared to $404.4 million in 2011, an increase of 14 per cent. Sales increased as the result of increased demand in Titan International’s agricultural and earthmoving/construction segments combined with price/mix improvements. Sales volume was approximately 9 per cent. higher as the result of strong market conditions in Titan International’s agricultural and earthmoving/construction segments. Sales increased approximately 10 per cent. from price/mix improvements which resulted largely from increased raw material prices that were passed on to customers. The increase in net sales was partially offset by unfavorable foreign currency translation which decreased sales by approximately 5 per cent.

Net sales for the six months ended 30 June 2012, were $922.3 million, compared to $685.3 million in 2011, an increase of 35 per cent. Sales increased as the result of the April 2011 acquisition of the Goodyear Latin American farm tire business including the Sao Paulo, Brazil manufacturing facility which recorded sales of $90.3 million for the three months ended March 31, 2012. Net sales for the six months ended 30 June 2012, excluding this acquisition were $832.0 million, an increase of 21 per cent. from the same period in 2011. Sales volume was approximately 10 per cent. higher as the result of strong market conditions in Titan International’s agricultural and earthmoving/construction segments. Sales increased approximately 15 per cent. from price/mix improvements which resulted largely from increased raw material prices that were passed on to customers. The increase in net sales was partially offset by unfavorable foreign currency translation which decreased sales by approximately 3 per cent.

Cost of Sales and Gross Profit

Cost of sales was $377.1 million for the quarter ended 30 June 2012, compared to $340.1 million in 2011. The higher cost of sales resulted primarily from the increase in quarterly sales levels. The cost of sales increased by approximately 11 per cent., which is comparable to an approximate 14 per cent. increase in net sales.

Gross profit for the second quarter of 2012 was $82.1 million, or 17.9 per cent. of net sales, compared to $64.3 million, or 15.9 per cent. of net sales for the second quarter of 2011. The increase in gross profit margin was primarily due to cost leveraging and productivity gains on the higher sales volumes and select price increases on certain products that exceeded the increase in raw material costs.

Cost of sales was $746.9 million for the six months ended 30 June 2012, compared to $564.7 million in 2011. The higher cost of sales resulted primarily from the increase in year-to-date sales levels. The cost of sales increased by approximately 32 per cent., which is comparable to an approximate 35 per cent. increase in net sales.

Gross profit for the six months ended 30 June 2012, was $175.4 million or 19.0 per cent. of net sales, compared to $120.6 million or 17.6 per cent. of net sales in 2011. The Sao Paulo, Brazil manufacturing facility was acquired on April 1, 2011. This facility provided gross profit of $8.5 million, or 9.4 per cent. of net sales, for the three months ended March 31, 2012. Excluding the first quarter results of the Sao Paulo, Brazil manufacturing facility, the gross profit margin (gross profit as a percent of sales) was 20.1 per cent. of net sales for the six months ended 30 June 2012. The increase in gross profit margin was primarily due to cost leveraging and productivity gains on the higher sales volumes and select price increases on certain products that exceeded the increase in raw material costs.

Selling, General and Administrative Expenses

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



	Three months ended 30 June						Six months ended 30 June
	2012			2011			2012			2011
Selling, general and administrative	$	23,410		$	16,573		$	54,245		$	41,866
Percentage of net sales	5.1		%	4.1		%	5.9		%	6.1		%

Selling, general and administrative (SG&A) expenses for the second quarter of 2012 were $23.4 million, or 5.1 per cent. of net sales, compared to $16.6 million, or 4.1 per cent. of net sales, for 2011. The higher SG&A expenses were primarily the result of an increase of selling and marketing expenses of approximately $2 million, due to increased sales levels and increased information technology expenses, and approximately $4 million due to an increase in incentive compensation.

Expenses for SG&A for the six months ended 30 June 2012, were $54.2 million or 5.9 per cent. of net sales, compared to $41.9 million or 6.1 per cent. of net sales in 2011. The higher SG&A expenses were primarily the result of an increase of selling and marketing expenses of approximately $5 million, due to increased sales levels and increased information technology expenses, and approximately $5 million due to an increase in incentive compensation. Also contributing to higher expenses was approximately $2 million of expenses at Titan International’s Latin American facilities during the first quarter of 2012.

Research and Development Expenses

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



	Three months ended 30 June						Six months ended 30 June
	2012			2011			2012			2011
Research and development	$	1,189		$	1,014		$	2,697		$	2,197
Percentage of net sales	0.3		%	0.3		%	0.3		%	0.3		%

Research and development (R&D) expenses for the second quarter of 2012 were $1.2 million, or 0.3 per cent. of net sales, compared to $1.0 million, or 0.3 per cent. of net sales, for 2011.

Expenses for R&D were $2.7 million or 0.3 per cent. of net sales for the six months ended 30 June 2012, compared to $2.2 million or 0.3 per cent. of net sales for 2011.

Royalty Expense

Royalty expense was as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Royalty expense $2,652 $2,350 $5,001 $5,267

Titan International has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain tires in North America and Latin America under the Goodyear name. The North American and Latin American farm tire royalties were prepaid through March 2018 as a part of the 2011 Goodyear Latin American farm tire acquisition.

Royalty expenses recorded were $2.7 million and $2.4 million for the quarters ended 30 June 2012 and 2011, respectively.

Year-to-date royalty expenses recorded were $5.0 million and $5.3 million for the six months ended 30 June 2012 and 2011, respectively.

Supply agreement termination income

Supply agreement termination income was as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Supply agreement termination income $26,134 $— $26,134 $—

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

Income from Operations

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



	Three months ended 30 June						Six months ended 30 June
	2012			2011			2012			2011
Income from operations	$	80,969		$	44,397		$	139,640		$	71,276
Percentage of net sales	17.6		%	11		%	15.1		%	10.4		%

Income from operations for the second quarter of 2012, was $81.0 million, or 17.6 per cent. of net sales, compared to $44.4 million, or 11.0 per cent. of net sales, in 2011. This increase was the net result of the items previously discussed above.

Income from operations for the six months ended 30 June 2012, was $139.6 million or 15.1 per cent. of net sales, compared to $71.3 million or 10.4 per cent. of net sales in 2011. This increase was the net result of the items previously discussed above.

Interest Expense

Interest expense was as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Interest expense $6,217 $6,149 $12,512 $12,429

Interest expense was $6.2 million and $6.1 million for the quarter ended 30 June 2012, and 2011, respectively.

Interest expense was $12.5 million and $12.4 million for the six months ended 30 June 2012 and 2011, respectively.

Noncash Convertible Debt Conversion Charge

Noncash convertible debt conversion charge was as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Noncash convertible debt conversion charge $— $— — $16,135

In the first quarter of 2011, Titan International closed an exchange agreement converting approximately $59.6 million of the 5.625 per cent. convertible senior subordinated notes into approximately 6.6 million shares of Titan International’s Common Stock. In connection with the exchange, Titan International recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.

Other Income

Other income was as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Other income $613 $2,270 $3,724 $2,463

Other income was $0.6 million for the quarter ended 30 June 2012, as compared to $2.3 million in 2011. Titan International recorded $0.9 million in discount amortization on prepaid royalty, offset by a $(0.5) million loss on contractual obligation investments for the quarter ended 30 June 2012. Titan International recorded $1.1 million in discount amortization on prepaid royalty and a $0.9 million gain on acquisition in the quarter ended 30 June 2011.

Other income was $3.7 million and $2.5 million for the six months ended 30 June 2012 and 2011, respectively. Titan International recorded $2.0 million in discount amortization on prepaid royalty and a $0.8 million gain on contractual obligation investments in the first half of 2012. Titan International recorded $1.1 million in discount amortization on prepaid royalty and a $0.9 million gain on acquisition in the first half of 2011.

Income Taxes

Income taxes were as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Income tax expense $31,040 $14,962 $51,133 $22,655

Titan International recorded income tax expense of $31.0 million for the quarter ended 30 June 2012, as compared to $15.0 million in 2011. Titan International’s effective income tax rate was 41 per cent. and 37 per cent. for the three months ended 30 June 2012 and 2011, respectively.

Income tax expense for the six months ended 30 June 2012 and 2011, was $51.1 million and $22.7 million, respectively. Titan International’s effective income tax rate was 39 per cent. and 50 per cent. for the six months ended 30 June 2012 and 2011, respectively. Titan International’s 2011 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pretax income primarily as a result of the $16.1 million noncash charge taken in connection with the exchange agreement on Titan International’s convertible debt. This noncash charge is not fully deductible for income tax purposes.

Titan International’s 2012 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the supply agreement termination income and related income tax effects and the liability for unrecognized tax benefits recorded during the three months ended 30 June 2012.

Net Income

Net income was as follows (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Net income $44,325 $25,556 $79,719 $22,520

Net income for the quarter ended 30 June 2012, was $44.3 million, compared to $25.6 million in 2011. For the quarter ended 30 June 2012 and 2011, basic earnings per share were $1.05 and $.61, respectively, and diluted earnings per share were $.84 and $.50, respectively. Titan International’s net income and earnings per share were higher due to the items previously discussed.

Net income for the six months ended 30 June 2012 and 2011, was $79.7 million and $22.5 million, respectively. For the six months ended 30 June 2012 and 2011, basic earnings per share were $1.89 and $.55, respectively, and diluted earnings per share were $1.53 and $.47, respectively. Titan International’s net income and earnings per share were higher due to the items previously discussed.

Segment Summary (Amounts in thousands)



Quarter Three months ended 30 June 2012	Earthmoving/ Agricultural Construction				Consumer		Corporate Consolidated Expenses Totals
Net sales	$	288,993	$	110,541	$	59,699	$—		$	459,233
Gross profit (loss)	59,501		19,562		3,773		(750	)	82,086
Income (loss) from operations	54,562		17,516		27,416		(18,525	)	80,969
Three months ended 30 June 2011
Net sales	$	257,268	76,895		$	70,284	$—		$	404,447
Gross profit (loss)	47,166		11,218		6,753		(803	)	64,334
Income (loss) from operations	42,800		9,702		4,821		(12,926	)	44,397
Year-to-Date
	Earthmoving/						Corporate Consolidated
Six months ended 30 June 2012	Agricultural Construction				Consumer		Expenses		Totals
Net sales	$	584,798	$	215,109	$	122,414	$—		$	922,321
Gross profit (loss)	125,593		41,909		9,472		(1,525	)	175,449
Income (loss) from operations	115,225		37,917		30,518		(44,020	)	139,640
Six months ended 30 June 2011
Net sales	$	467,265	143,406		$	74,605	$—		$	685,276
Gross profit (loss)	94,866		19,413		7,755		(1,428	)	120,606
Income (loss) from operations	85,668		15,990		5,737		(36,119	)	71,276

Agricultural Segment Results

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



	Three months ended 30 June				Six months ended 30 June
	2012		2011		2012		2011
Net sales	$	288,993	$	257,268	$	584,798	$	467,265
Gross profit	59,501		47,166		125,593		94,866
Income from operations	54,562		42,800		115,225		85,668

Net sales in the agricultural market were $289.0 million for the quarter ended 30 June 2012, as compared to $257.3 million in 2011, an increase of 12 per cent. Sales volume was approximately 8 per cent. higher as the result of strong agricultural market demand. Sales increased approximately 4 per cent. from price/mix improvements which resulted primarily from increased raw material prices that were passed on to customers.

Gross profit in the agricultural market was $59.5 million for the quarter ended 30 June 2012 , as compared to $47.2 million in 2011. Income from operations in the agricultural market was $54.6 million for the quarter ended 30 June 2012, as compared to $42.8 million in 2011. Titan International’s gross profit and income from operations benefited from improved plant utilization resulting from the higher sales levels.

Net sales in the agricultural market were $584.8 million for the six months ended 30 June 2012, as compared to $467.3 million in 2011, an increase of 25 per cent. Sales increased as a result of the April 2011 acquisition of the Goodyear Latin American farm tire business including the Sao Paulo, Brazil manufacturing facility which recorded agricultural market sales of $32.8 million for the quarter ended March 31, 2012. Net sales excluding this acquisition for the first quarter of 2012 were $552 million, an increase of 18 per cent. from 2011. Sales volume was approximately 10 per cent. higher as the result of increased demand in Titan International’s agricultural segment. Sales increased approximately 8 per cent. from price/mix improvements which resulted primarily from increased raw material prices that were passed on to customers.

Gross profit in the agricultural market was $125.6 million for the six months ended 30 June 2012, as compared to $94.9 million in 2011. Income from operations in the agricultural market was $115.2 million for the six months ended 30 June 2012, as compared to $85.7 million in 2011. Titan International’s gross profit and income from operations benefited from improved plant utilization resulting from the higher sales levels.

Earthmoving/Construction Segment Results

Earthmoving/construction segment results were as follows (amounts in thousands):



	Three months ended 30 June				Six months ended 30 June
	2012		2011		2012		2011
Net sales	$	110,541	$	76,895	$	215,109	$	143,406
Gross profit	19,562		11,218		41,909		19,413
Income from operations	17,516		9,702		37,917		15,990

Titan International’s earthmoving/construction market net sales were $110.5 million for the quarter ended 30 June 2012, as compared to $76.9 million in 2011, an increase of 44 per cent. Sales increased approximately 43 per cent. as the result of price/mix improvements which were driven by stronger demand for larger products used in the mining industry while sales volume remained relatively flat.

Gross profit in the earthmoving/construction market was $19.6 million for the quarter ended 30 June 2012, as compared to $11.2 million in 2011. Titan International’s earthmoving/construction market income from operations was $17.5 million for the quarter ended 30 June 2012, as compared to $9.7 million in 2011. Titan International’s gross profit and income from operations benefited from the mix changes to larger products that generally carry higher margins.

Titan International’s earthmoving/construction market net sales were $215.1 million for the six months ended 30 June 2012, as compared to $143.4 million in 2011, an increase of 50 per cent. Sales increased by approximately 41 per cent. as the result of price/mix improvements from stronger demand for larger products used in the mining industry. Sales volumes increased approximately 9 per cent. as a result of increased market demand.

Gross profit in the earthmoving/construction market was $41.9 million for the six months ended 30 June 2012, as compared to $19.4 million in 2011. Income from operations in the earthmoving/construction market was $37.9 million, for the six months ended 30 June 2012, as compared to $16.0 million in 2011. Titan International’s gross profit and income from operations benefited from the mix changes to larger

products that generally carry higher margins and improved plant utilization resulting from the higher sales levels.

Consumer Segment Results

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



	Three months ended 30 June				Six months ended 30 June
	2012		2011		2012		2011
Net sales	$	59,699	$	70,284	$	122,414	$	74,605
Gross profit	3,773		6,753		9,472		7,755
Income from operations	27,416		4,821		30,518		5,737

Consumer market net sales were $59.7 million for quarter ended 30 June 2012, as compared to $70.3 million in 2011. The decrease in net sales was primarily the result of decreased sales from the supply agreement included as part of the April 2011 acquisition of the Goodyear Latin American farm tire business. In May of 2012, the supply agreement was terminated. Sales under the agreement were $39.4 million for the quarter ended 30 June 2012, as compared to $63.3 million in 2011.

Gross profit from the consumer market was $3.8 million for the quarter ended 30 June 2012, as compared to $6.8 million in 2011. The Company’s decrease in gross profit primarily resulted from the reduced supply agreement sales. Consumer market income from operations was $27.4 million for the quarter ended 30 June 2012, as compared to $4.8 million in 2011. The Company’s increase in income from operations primarily resulted from the supply agreement termination income of $26.1 million, partially offset by the reduced supply agreement sales.

Consumer market net sales were $122.4 million for the six months ended 30 June 2012, as compared to $74.6 million in 2011. The increase in net sales was primarily the result of the Goodyear Latin American farm tire acquisition agreement, which included a supply agreement for certain product sales, which are included in the consumer segment. Sales under the agreement were $96.9 million for six months ended 30 June 2012, as compared to $63.3 million in 2011.

Gross profit in the consumer market was $9.5 million for the six months ended 30 June 2012, as compared to $7.8 million in 2011. Consumer market income from operations was $30.5 million for the six months ended 30 June 2012, as compared to $5.7 million in 2011. Titan International’s increase in income from operations primarily resulted from the supply agreement termination income of $26.1 million.

Corporate Expenses Quarter

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 $18.5 million for the quarter ended June 30, 2012 , as compared to $12.9 million for 2011.

Corporate expenses for the quarter ended June 30, 2012, were composed of selling and marketing expenses of approximately $9 million and administrative expenses of approximately $10 million.

Corporate expenses for the quarter ended 30 June 2011, were composed of selling and marketing expenses of approximately $7 million and administrative expenses of approximately $6 million.

Corporate selling & marketing expenses were approximately $2 million higher in the second quarter due to increased information technology expenses. Corporate administrative expenses were approximately $4 million higher due to an increase in incentive compensation.

Half year

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 $44.0 million for the six months ended 30 June 2012, as compared to $36.1 million for 2011.

Corporate expenses for the six months ended 30 June 2012, were composed of selling and marketing expenses of approximately $16 million and administrative expenses of approximately $28 million.

Corporate expenses for the six months ended 30 June 2011, were composed of selling and marketing expenses of approximately $13 million and administrative expenses of approximately $23 million.

Corporate selling & marketing expenses were approximately $3 million higher for the six months ended 30 June 2012 due to increased information technology expenses. Corporate administrative expenses were approximately $5 million higher due to an increase in incentive compensation.

RESULTS OF OPERATIONS – YEAR ENDED 31 DECEMBER 2011 COMPARED TO YEAR ENDED 31 DECEMBER 2010

The following table sets forth Titan International’s statement of operations expressed as a percentage of net sales for the periods indicated. This table and subsequent discussions should be read in conjunction with Titan International’s audited consolidated financial statements and notes thereto.

Highlights for the year ended 31 December 2011, compared to 2010 (amounts in thousands):



	2011			2010			% Increase
Net sales	$	1,486,998		$	881,591		69	%
Cost of sales	1,254,890			777,501			61	%
Gross profit	232,108			104,090
Gross profit percentage	15.6		%	11.8		%	123	%

Net Sales

Net sales for the year ended 31 December 2011, were $1,487.0 million compared to $881.6 million for the year ended 31 December 2010. The higher sales levels were primarily the result of increased demand and pricing/mix improvements which resulted largely from increased raw material prices that were passed on to customers. In addition, sales increased as the result of the April 2011 acquisition of the Goodyear Latin American business which recorded sales of $276.5 million for the year ended 31 December 2011.

Cost of Sales and Gross Profit

Cost of sales was $1,254.9 million for the year ended 31 December 2011, as compared to $777.5 million in 2010. The higher cost of sales resulted from the significant increase in the sales levels and increased raw material prices. The cost of sales increased 61 per cent., compared to a 69 per cent. increase in net sales. Gross profit for the year 2011 was $232.1 million, or 15.6 per cent. of net sales, compared to $104.1 million, or 11.8 per cent. of net sales for 2010. The Sao Paulo, Brazil manufacturing facility provided gross profit of $21.7 million for the year ended 31 December 2011. The remaining increase in Titan International’s gross profit was primarily related to increased sales levels as well as gains from improved plant utilization resulting from the higher sales levels.

Selling, General and Administrative Expenses

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

2011 2010 % Increase

Selling, general and administrative $85,917 $57,565

Percentage of net sales 5.8% 6.5% 49%

Selling, general and administrative (SG&A) expenses were $85.9 million, or 5.8 per cent. of net sales, for the year ended 31 December 2011, as compared to $57.6 million, or 6.5 per cent. of net sales, for 2010. The higher SG&A expenses were primarily the result of higher selling and marketing expenses related to the increased sales levels, higher legal fees, an increase in incentive compensation, travel, and a write off of a receivable related to an equipment sale. Selling and marketing expenses were approximately $7 million higher, primarily due to increased sales levels. Legal related cost and fees were approximately $3 million higher. Incentive compensation, travel, and a write-off of receivables from equipment sales each increased approximately $2 million. Approximately $11 million of SG&A expenses of recently acquired facilities also contributed to the increase.

Research and development expenses

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

2011 2010 % Decrease

Research and development $4,228 $6,317

Percentage of net sales 0.3% 0.7% (33)%

Research and development (“R&D”) expenses were $4.2 million, or 0.3 per cent. of net sales, for the year ended 31 December 2011, as compared to $6.3 million, or 0.7 per cent. of net sales, for 2010. R&D costs related to the Giant OTR products were less in 2011 than 2010.

Royalty Expense

Royalty expense was as follows (amounts in thousands):

2011 2010 % Increase

Royalty expense $9,790 $9,263 6%

Titan International has a trademark license agreement with The Goodyear Tire & Rubber Company (“Goodyear”) to manufacture and sell certain off-highway tires in North America and Latin America under the Goodyear name. Royalty expenses were $9.8 million for the year ended 31 December 2011, as compared to $9.3 million in 2010. The North American and Latin American royalties were prepaid through March 2018 as a part of the Goodyear Latin American acquisition.

Income from Operations

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

2011 2010 % Increase

Income from operations $132,173 $30,945

Percentage of net sales 8.8% 3.5% 327%

Income from operations for the year ended 31 December 2011, was $132.2 million, or 8.8 per cent. of net sales, compared to $30.9 million, or 3.5 per cent. of net sales, in 2010. This increase was the net result of the items previously discussed above.

Interest Expense

Interest expense was as follows (amounts in thousands):

2011 2010 % Decrease

Interest expense $25,259 $26,667 (5)%

Interest expense for the year 2011 was $25.3 million compared to $26.7 million in 2010. Titan International’s interest expense for 2011 decreased from the previous year primarily as a result of the repurchase of 8 per cent. senior unsecured notes in 2010 and the exchange agreement for 5.625 per cent. convertible senior subordinated notes in the first quarter of 2011, offset by the interest recorded for the 7.875 per cent. senior secured notes issued in the fourth quarter of 2010. Interest expense from Titan Brazil also offset the decreased interest expense for 2011.

Noncash Convertible Debt Conversion Charge

Noncash convertible debt conversion charge was as follows (amounts in thousands):

2011 2010 % Increase

Noncash convertible debt conversion charge $16,135 $— n/a

Loss on Senior Note Repurchase

Loss on senior note repurchase was as follows (amounts in thousands):

2011 2010 % Decrease

Loss on senior note repurchase $— $14,573 (100)%

In June 2010, Titan International completed a tender transaction to purchase $47.4 million of its 8 per cent. outstanding senior unsecured notes due January 2012 (senior unsecured notes). In October 2010, Titan International completed another tender transaction to purchase $138.9 million of its outstanding senior unsecured notes. In connection with these tender offers and an additional note repurchase of $6.5 million in July 2010, Titan International recorded expenses of $14.6 million. These expenses were related to: (i) early tender premium of $13.0 million, (ii) unamortized deferred financing fees of $1.2 million and (iii) other fees of $0.4 million.

Other Income

Other income was as follows (amounts in thousands):

2011 2010 % Increase

Other income $5,116 $1,105 363%

Other income was $5.1 million for the year ended 31 December 2011, as compared to $1.1 million in 2010. The major items included in 2011 were: (i) discount amortization on prepaid royalty of $3.1 million; (ii) investment gain on marketable securities of $1.6 million; and (iii) gain on purchase transaction of $0.3 million. The major items included in 2010 were: (i) investment gain on contractual obligations of $0.8 million; (ii) interest income of $0.4 million; and (iii) other expense of $(0.1) million.

Provision (benefit) for Income Taxes

Provision (benefit) for income taxes was as follows (amounts in thousands):

2011 2010 % Increase

Provision (benefit) for income taxes $37,759 $(3,264) n/a

Titan International recorded provision for income taxes of $37.8 million in 2011 and benefit from income taxes of $(3.3) million in 2010. Titan International’s effective tax rate was 39 per cent. in 2011 and 36 per cent. in 2010. Titan International’s 2011 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $16.1 million noncash charge taken in connection with the exchange agreement on Titan International’s convertible debt. This noncash charge is not fully deductible for income tax purposes. Titan International’s 2010 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to the pre-tax income primarily as the result of state taxes.

Net Income (Loss)

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

2011 2010 % Increase

Net income (loss) $58,136 $(5,926) n/a

Net income for the year ended 31 December 2011, was $58.1 million, compared to net loss of $(5.9) million in 2010. Basic earnings per share was $1.40 for the year ended 31 December 2011 as compared to loss per share of $(0.17) in 2010. Diluted earnings per share was $1.18 for the year ended 31 December 2011 as compared to loss per share of $(0.17) in 2010. Titan International’s net income and earnings per share were higher due to the items previously discussed.

Segment Summary



			Earthmoving/					Corporate			Consolidated
2011	Agricultural		Construction			Consumer		Expenses			Totals
Net sales	$	960,693	$	306,821		$	219,484	$—			$	1,486,998
Gross profit (loss)	177,055		39,328			18,900		(3,175		)	232,108
Income (loss) from operations	158,295		32,781			11,104		(70,007		)	132,173
2010
Net sales	$	675,178	191,042			$	15,371	$—			$	881,591
Gross profit (loss)	108,102		(3,400		)	2,867		(3,479		)	104,090
Income (loss) from operations	91,953		(11,296		)	2,542		(52,254		)	30,945
Agricultural Segment Results
Agricultural segment results were as follows (amounts in thousands):
						2011		2010			% Increase
Net sales						$	960,693	$	675,178		42		%
Gross profit						177,055		108,102			64		%
Income from operations						158,295		91,953			72		%

Net sales in the agricultural market were $960.7 million for the year ended 31 December 2011, as compared to $675.2 million in 2010. The increase in net sales was the result of increasing demand and pricing/mix improvements which were primarily the result of increased raw material prices that were passed to customers, and manufacturing capacity resulting from the acquisition of the Goodyear Latin American business. Agricultural market sales from this facility were $89.7 million for the year ended 31 December 2011. Gross profit in the agricultural market was $177.1 million for the year 2011, as compared to $108.1 million in 2010. Income from operations in the agricultural market was $158.3 million for the year 2011, as compared to $92.0 million in 2010. Titan International’s gross profit and income from operations benefited from improved plant utilization resulting from the higher sales levels.

Earthmoving/Construction Segment Results

Earthmoving/construction segment results were as follows (amounts in thousands):



	2011		2010			% Increase
Net sales	$	306,821	$	191,042		61	%
Gross profit (loss)	39,328		(3,400		)	n/a
Income (loss) from operations	32,781		(11,296		)	n/a

Titan International’s earthmoving/construction market net sales were $306.8 million for the year ended 31 December 2011, as compared to $191.0 million in 2010. The increase in net sales was the result of increasing demand and pricing/mix improvements which were primarily the result of increased raw material prices that were passed to customers and price increases resulting from additional demand. Titan International continues to see increasing demand in the earthmoving/construction segment.

Gross profit in the earthmoving/construction market was $39.3 million for the year 2011, as compared to gross loss of $(3.4) million in 2010. Titan International’s earthmoving/construction market income from operations was $32.8 million for the year 2011, as compared to a loss of $(11.3) million in 2010. Titan

International’s gross profit and income from operations benefited from improved plant utilization resulting from the higher sales levels.

Consumer Segment Results

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



	2011		2010		% Increase
Net sales	$	219,484	$	15,371	1328	%
Gross profit	18,900		2,867		559	%
Income from operations	11,104		2,542		337	%

Consumer market net sales were $219.5 million for the year ended 31 December 2011, as compared to $15.4 million in 2010. The increase in net sales was primarily the result of the Goodyear Latin American acquisition agreement, which included supply agreements for certain product sales, which are included in the consumer segment. Sales under these agreements were $186.8 million for the year ended 31 December 2011. Gross profit from the consumer market was $18.9 million in 2011 as compared to $2.9 million in 2010. Consumer market income from operations was $11.1 million for the year 2011, as compared to $2.5 million in 2010. Titan International’s increase in gross profit and income from operations primarily resulted from the supply agreements.

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 totalling $70.0 million for the year ended 31 December 2011, as compared to $52.3 million in 2010.

Corporate expenses for the year ended 31 December 2011, were composed of selling and marketing expenses of approximately $28 million and administrative expenses of approximately $42 million. Corporate expenses for the year ended 31 December 2010, were composed of selling and marketing expenses of approximately $20 million and administrative expenses of approximately $32 million.

Selling & marketing expenses were approximately $8 million higher in 2011 primarily as the result of higher sales levels. Corporate administrative expenses were approximately $10 million higher in 2011, when compared to 2010. Corporate administrative expenses were higher primarily as the result of (i) legal related cost and fees which were approximately $3 million higher, (ii) incentive compensation which was approximately $2 million higher, (iii) travel which was approximately $2 million higher, and (iv) write-off of a receivable from an equipment sale of approximately $2 million in 2011.

Results of operations – year ended 31 December 2010 compared to year ended 31 December 2009 Highlights for the year ended 31 December 2010, compared to 2009 (amounts in thousands):



	2010			2009			% Increase
Net sales	$	881,591		$	727,599		21	%
Cost of sales	777,501			671,634			16	%
Gross profit	104,090			55,965			86	%
Gross profit percentage	11.8		%	7.7		%

Net sales

Net sales for the year ended 31 December 2010, were $881.6 million compared to $727.6 million for the year ended 31 December 2009. The higher sales were primarily the result of a substantial increase in demand in Titan International’s agricultural segment, up approximately 20 per cent.; and earthmoving/construction segment, up approximately 32 per cent.. Second half sales in 2009 were affected by reduced demand for Titan International’s products, as many of Titan International’s major customers implemented extended shutdowns during the period as a consequence of the recession. Titan International in turn implemented extended shutdowns at its production facilities to manage lower demand during this time period. Extended shutdowns were not required during the second half of 2010 as Titan International’s customers were aided by the stabilization of the overall economy and an increase in demand for their products.

Cost of sales and gross profit

Cost of sales was $777.5 million for the year ended 31 December 2010, as compared to $671.6 million in 2009. The cost of sales increased 16 per cent. as a result of higher sales levels of 21 per cent.. Gross profit for the year 2010 was $104.1 million, or 11.8 per cent. of net sales, compared to $56.0 million, or 7.7 per cent. of net sales for 2009. The gross profit margin for 2010 was higher than 2009 primarily due to the negative margins in the second half of 2009 resulting from extended production facility shutdowns and improved plant utilization resulting from the higher sales levels.

Selling, general and administrative expenses

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

2010 2009 % Increase

Selling, general and administrative $57,565 $46,734 23%

Percentage of net sales 6.5% 6.4%

SG&A expenses were $57.6 million, or 6.5 per cent. of net sales, for the year ended 31 December 2010, as compared to $46.7 million, or 6.4 per cent. of net sales, for 2009. The higher SG&A expenses for 2010 were primarily the result of an increase in Board and management incentive compensation, higher selling and marketing expenses related to sales levels, and higher legal and professional fees. Expenses recorded for Board and management incentive compensation were approximately $6 million higher in 2010, when compared to 2009. Selling and marketing expenses for 2010 were approximately $2 million higher than 2009 primarily due to the higher sales levels. Legal and professional fees for 2010 were approximately $2 million higher than 2009 due primarily to fees associated with potential acquisitions.

Research and development expenses

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

2010 2009 % Decrease

Research and development $6,317 $8,850 (29)%

Percentage of net sales 0.7% 1.2%

R&D expenses were $6.3 million, or 0.7 per cent. of net sales, for the year ended 31 December 2010, as compared to $8.9 million, or 1.2 per cent. of net sales, for 2009. R&D costs related to the Giant OTR products were less in 2010 than 2009.

Royalty expense

Royalty expense was as follows (amounts in thousands):

2010 2009 % Increase

Royalty expense $9,263 $7,573 22%

Titan International has a trademark license agreement with Goodyear to manufacture and sell certain off-highway tires in North America under the “Goodyear” name. Royalty expenses were $9.3 million for the year ended 31 December 2010, as compared to $7.6 million in 2009. As sales subject to the license agreement increased in 2010, Titan International’s royalty expense increased accordingly.

Noncash goodwill impairment charge

Noncash goodwill impairment charge was as follows (amounts in thousands):

2010 2009 % Decrease

Noncash goodwill charge $— $11,702 (100)%

In the fourth quarter of 2009, Titan International recorded a noncash charge for the impairment of goodwill of $11.7 million on both a pre-tax and after-tax basis. The charge was associated with the reporting units of Titan International’s agricultural ($6.9 million), earthmoving/construction ($3.6 million), and consumer ($1.2 million) segments. Titan International performed a fourth quarter 2009 goodwill assessment using a discounted cash flow model that employed a 12.25 per cent. discount rate and 2.5 per cent. terminal growth rate assumption and an EBITDA multiple approach.

Income (loss) from operations

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

2010 2009 % Increase

Income (loss) from operations $30,945 $(18,894) n/a

Percentage of net sales 3.5% (2.6)%

Income from operations for the year ended 31 December 2010, was $30.9 million, or 3.5 per cent. of net sales, compared to loss from operations of $(18.9) million, or (2.6) per cent. of net sales, in 2009. This increase was the net result of the items previously discussed above.

Interest expense

Interest expense was as follows (amounts in thousands):

2010 2009 % Increase

Interest expense $26,667 $16,246 64%

Interest expense for the year 2010 was $26.7 million compared to $16.2 million in 2009. Titan International’s interest expense for 2010 increased from the previous year primarily as a result of additional interest expense of approximately $10 million related to the 5.625 per cent. convertible senior subordinated notes that were issued in December 2009.

Gain (loss) on note repurchase

Gain (loss) on note repurchase was as follows (amounts in thousands):

2010 2009 % Decrease

Gain (loss) on note repurchase $(14,573) $1,398 n/a

In June 2010, Titan International closed on a tender transaction to purchase $47.4 million of its 8 per cent. outstanding senior unsecured notes due January 2012 (senior unsecured notes). In October 2010, Titan International closed on another tender transaction to purchase $138.9 million of its outstanding senior unsecured notes. In connection with these tender offers and an additional note repurchase of $6.5 million in July 2010, Titan International recorded expenses of $14.6 million. These expenses were related to: (i) early tender premium of $13.0 million, (ii) unamortized deferred financing fees of $1.2 million and (iii) other fees of $0.4 million. For 2009, Titan International recorded a gain on a note repurchase of $1.4 million resulting from Titan International’s repurchase of $6.2 million of principal value of senior unsecured notes for approximately $4.8 million in the first quarter of 2009.

Other income

2010 2009 % Decrease

Other income $1,105 $1,740 (36)%

Other income was $1.1 million for the year ended 31 December 2010, as compared to $1.7 million in 2009. The major items included in 2010 were: (i) investment gain on contractual obligations of $0.8 million; (ii) interest income of $0.4 million; and (iii) other expense of $(0.1) million. The major items included in 2009 were: (i) investment gain on contractual obligations of $1.3 million; (ii) interest income of $0.2 million; and (iii) other income of $0.2 million.

Provision (benefit) for income taxes

Provision (benefit) for income taxes was as follows (amounts in thousands):

2010 2009 % Decrease

Provision (benefit) for income taxes $(3,264) $(7,357) (56)%

Titan International recorded benefit for income taxes of $(3.3) million in 2010 and $(7.4) million in 2009. Titan International’s effective tax rate was 36 per cent. in 2010 and 23 per cent. in 2009. Titan International’s 2010 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to the pre-tax income primarily as the result of state taxes. Titan International’s 2009 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $11.7 million noncash goodwill impairment charge. This noncash goodwill charge is not deductible for income tax purposes.

Net loss

Net loss was as follows (amounts in thousands):

2010 2009 % Decrease

Net income (loss) $(5,926) $(24,645) (76)%

Net loss for the year ended 31 December 2010, was $(5.9) million, compared to $(24.6) million in 2009. Basic and diluted loss per share was $(.17) for the year ended 31 December 2010, as compared to $(.71) in 2009. Titan International’s net loss and loss per share were lower due to the items previously discussed.

Segment summary



			Earthmoving/						Corporate			Consolidated
2010	Agricultural		Construction			Consumer			Expenses			Totals
Net sales	$	675,178	$	191,042		$	15,371		$—			$	881,591
Gross profit (loss)	108,102		(3,400		)	2,867			(3,479		)	104,090
Income (loss) from operations	91,953		(11,296		)	2,542			(52,254		)	30,945
2009
Net sales	$	563,528	$	144,589		$	19,482		$—			$	727,599
Gross profit (loss)	51,955		3,595			1,604			(1,189		)	55,965
Income (loss) from operations	26,980		(7,999		)	(206		)	(37,669		)	(18,894		)
Agricultural segment results
Agricultural segment results were as follows (amounts in thousands):
						2010			2009			% Increase
Net sales						$	675,178		$	563,528		20		%
Gross profit						108,102			51,955			108		%
Income from operations						91,953			26,980			241		%

Net sales in the agricultural market were $675.2 million for the year ended 31 December 2010, as compared to $563.5 million in 2009. Agricultural segment sales for the first quarter of 2010 sales were lower by $36.2 million when compared to the first quarter of 2009. However, sales for the remainder of the year increased; more than offsetting the first quarter reduction.

Gross profit in the agricultural market was $108.1 million for the year 2010, as compared to $52.0 million in 2009. Income from operations in the agricultural market was $92.0 million for the year 2010, as compared to $27.0 million in 2009. The gross profit margin for 2010 was higher than 2009 primarily due to the negative margins in the second half of 2009 resulting from extended production facility shutdowns and improved plant utilization resulting from higher sales levels.

Earthmoving/construction segment results

Earthmoving/construction segment results were as follows (amounts in thousands):



	2010			2009			% Increase
Net sales	$	191,042		$	144,589		32	%
Gross profit (loss)	(3,400		)	3,595			n/a
Loss from operations	(11,296		)	(7,999		)	41	%

Titan International’s earthmoving/construction market net sales were $191.0 million for the year ended 31 December 2010, as compared to $144.6 million in 2009. The sales in the earthmoving/construction segment have improved, yet remain at low levels, down over 30 per cent. when compared to 2008 or 2007. A primary reason for the low sales levels in this segment was the continued weakness in the construction areas related to the commercial, residential and infrastructure industries.

Gross loss in the earthmoving/construction market was $(3.4) million for the year 2010, as compared to gross profit of $3.6 million in 2009. Titan International’s earthmoving/construction market loss from operations was $(11.3) million for the year 2010, as compared to $(8.0) million in 2009. The lower gross profit in 2010 when compared to 2009 was primarily the result of a write-down in inventory value of approximately $15 million for certain large earthmoving/construction tires partially offset by substantially higher plant utilization rates.

Consumer segment results

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



						% Increase/
	2010		2009			(Decrease)
Net sales	$	15,371	$	19,482		-21	%
Gross profit	2,867		1,604			79	%
Income (loss) from operations	2,542		(206		)	n/a

Consumer market net sales were $15.4 million for the year ended 31 December 2010, as compared to $19.5 million in 2009. The continued reduction in consumer market sales was primarily attributed to the sustained contraction in consumer discretionary spending.

Gross profit from the consumer market was $2.9 million in 2010 as compared to $1.6 million in 2009. Consumer market income from operations was $2.5 million for the year 2010, as compared to loss from operations of $(0.2) million in 2009. The gross profit and income from operations in 2009 were negatively affected by the second half extended production facility shutdowns.

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 $52.3 million for the year ended 31 December 2010, as compared to $37.7 million in 2009.

Corporate expenses for the year ended 31 December 2010, were composed of selling and marketing expenses of approximately $20 million and administrative expenses of approximately $32 million. Corporate expenses for the year ended 31 December 2009, were composed of selling and marketing expenses of approximately $18 million and administrative expenses of approximately $20 million.

Selling and marketing expenses were approximately $2 million higher in 2010 as the result of higher sales levels. Corporate administrative expenses were approximately $12 million higher in 2010, when compared to 2009. Corporate administrative expenses were higher primarily as the result of (i) CEO and management incentive compensation which was approximately $6 million higher, (ii) legal and professional fees which were approximately $2 million higher due primarily to fees associated with potential acquisitions, and (iii) approximately $2 million additional group insurance expense.

Results of operations – year ended 31 December 2009 compared to year ended 31 December 2008 Net sales

Net sales for the year ended 31 December 2009, were $727.6 million compared to $1,036.7 million for the year ended 31 December 2008. The significantly lower sales levels were primarily the result of reduced demand for Titan International’s products in all segments, a consequence of the worldwide recession and global economic crisis. Many of Titan International’s major customers implemented extended shutdowns during the second half of 2009, Titan International in turn extended shutdowns at its production facilities to manage the lower demand. These items had a negative impact on Titan International’s annual 2009 sales for the agricultural market, down approximately 23 per cent., earthmoving/construction market, down approximately 49 per cent., and consumer market, down approximately 24 per cent., when compared to the previous year.

Cost of sales and gross profit

Cost of sales was $671.6 million for the year ended 31 December 2009, as compared to $897.0 million in 2008. The lower cost of sales resulted primarily from the significant reduction in the sales levels recorded in 2009.

Gross profit for the year 2009 was $56.0 million, or 7.7 per cent. of net sales, compared to $139.7 million, or 13.5 per cent. of net sales for 2008. In response to significantly lower demand from customers, Titan International scheduled extended shutdowns at all Titan International production facilities during the second half of 2009. These extended shutdowns, in conjunction with lower production levels when operating, drastically reduced Titan International’s manufacturing efficiencies. These lower efficiencies resulted in the gross profit and percentage reductions. The major reduction in the operating results was primarily related to the significantly lower sales levels and the associated negative impact on Titan International’s operating margins.

Selling, general and administrative expenses

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

2009 2008 % Decrease

Selling, general and administrative $46,734 $53,661 (13)%

Percentage of net sales 6.4% 5.2%

SG&A expenses were $46.7 million, or 6.4 per cent. of net sales, for the year ended 31 December 2009, as compared to $53.7 million, or 5.2 per cent. of net sales, for 2008. Titan International continues to strive to achieve low administrative expenses. Titan International was able to reduce SG&A expense by approximately $7 million as a result of the 2009 business contraction. Selling expenses were reduced by approximately $3 million and administrative expenses were reduced by approximately $4 million.

Research and development expenses

R&D expenses were as follows (amounts in thousands):

2009 2008 % Increase

Research and development $8,850 $3,490 154%

Percentage of net sales 1.2% 0.3%

R&D expenses were $8.9 million, or 1.2 per cent. of net sales, for the year ended 31 December 2009, as compared to $3.5 million, or 0.3 per cent. of net sales, for 2008. The additional R&D costs recorded during the year of approximately $5 million primarily related to the Giant OTR products.

Royalty expense

Royalty expense was as follows (amounts in thousands):

2009 2008 % Decrease

Royalty expense $7,573 $9,242 (18)%

Titan International has a license agreement with Goodyear to manufacture and sell certain off-highway tires in North America under the Goodyear name. Royalty expenses were $7.6 million for the year ended 31 December 2009, as compared to $9.2 million in 2008. As sales subject to the license agreement were lower, Titan International’s royalty expense for 2009 was reduced accordingly.

Noncash goodwill impairment charge

Noncash goodwill impairment charge was as follows (amounts in thousands):

2009 2008 % Increase

Noncash goodwill charge $11,702 $0 n/a

In the fourth quarter of 2009, Titan International recorded a noncash charge for the impairment of goodwill of $11.7 million on both a pre-tax and after-tax basis. The charge was associated with the reporting units of the Titan International’s agricultural ($6.9 million), earthmoving/construction ($3.6 million), and consumer ($1.2 million) segments. Titan International performed a fourth quarter 2009 goodwill assessment using a discounted cash flow model that employed a 12.25 per cent. discount rate and 2.5 per cent. terminal growth rate assumption and an EBITDA multiple approach.

The key factors contributing to the goodwill impairment were: (i) depressed sales levels, which began to accelerate during the third quarter of 2009, continued in the fourth quarter resulting from reduced demand for Titan International’s products across the board, a consequence of the worldwide recession and global economic crisis, (ii) many of Titan International’s major customers implemented additional shutdowns during the fourth quarter of 2009, Titan International in turn extended shutdowns at its production facilities to manage the lower demand, (iii) operating losses which began in the third quarter, continued into the fourth quarter associated with lower product demand, (iv) decline in the reporting units’ forecasted financial performance as a result of ongoing weak economic conditions, and (v) in December 2009, in association with Titan International’s convertible note issuance, the rating agencies of Moody’s Investor Service and Standard and Poor’s Rating Services issued a revised outlook on Titan International’s future performance to negative from stable.

Income (loss) from operations

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

2009 2008 % Decrease

Income (loss) from operations $(18,894) $73,321 n/a

Percentage of net sales (2.6)% 7.1%

Loss from operations for the year ended 31 December 2009, was $(18.9) million, or (2.6) per cent. of net sales, compared to income from operations of $73.3 million, or 7.1 per cent. of net sales, in 2008. The reduction in income from operations was the net result of the items previously discussed in the sales, cost of sales, administrative, royalty and noncash goodwill impairment charge line items.

Interest expense

Interest expense was as follows (amounts in thousands):

2009 2008 % Increase

Interest expense $16,246 $15,122 7%

Interest expense for the year 2009 was $16.2 million compared to $15.1 million in 2008. Titan International’s interest expense for 2009 increased as a result of the higher year-end debt balances. Titan

International capitalized interest costs related to the giant OTR project of $2.0 million in 2009 and $3.2 million in 2008.

Noncash Titan Europe charge

Noncash Titan Europe charge was as follows (amounts in thousands):

2009 2008 % Decrease

Noncash Titan Europe charge $0 $(37,698) (100)%

The unrealised loss on the Titan Europe investment in 2008 was $(37.7) million. The unrealised loss was due to a substantial decline in Titan Europe’s publicly quoted price on AIM, at year end 2008. A noncash charge of $37.7 million was recorded at year end 31 December 2008.

Other income

Other income was as follows (amounts in thousands):

2009 2008 % Increase

Other income $3,138 $2,509 25%

Other income was $3.1 million for the year ended 31 December 2009, as compared to $2.5 million in 2008. The major items included in 2009 were: (i) gain on senior note repurchases of $1.4 million; (ii) investment gain on contractual obligations of $1.3 million; (iii) interest income of $0.2 million; and (iv) other income of $0.2 million.

The major items included in 2008 were: (i) dividend income from the Titan Europe investment of $1.7 million; (ii) interest income of $1.4 million; (iii) investment loss on contractual obligations of $(1.9) million; and (iv) other income of $1.3 million.

Income tax provision (benefit)

Income tax provision (benefit) was as follows (amounts in thousands):

2009 2008 % Decrease

Income tax provision (benefit) $(7,357) $9,673 n/a

Titan International recorded an income tax benefit of $(7.4) million in 2009 and income tax expense of $9.7 million in 2008. Titan International’s effective tax rate was 23 per cent. in 2009 and 42 per cent. in 2008. Titan International’s income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $11.7 million noncash goodwill impairment charge. This noncash goodwill charge is not deductible for income tax purposes.

Net income (loss)

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

2009 2008 % Increase

Net income (loss) $(24,645) $13,337 n/a

Net loss for the year ended 31 December 2009, was $(24.6) million, compared to net income of $13.3 million in 2008. Basic loss per share was $(0.71) for the year ended 31 December 2009, as compared to earnings per share of $0.39 in 2008. Diluted loss per share was $(0.71) for the year ended 31 December 2009, as compared to earnings per share of $.38 in 2008. Titan International’s net income and earnings per share were lower due to the items previously discussed.



Segment summary (Amounts in thousands) 2009	Agricultural		Earthmoving/Construction			Consumer			Corporate Expenses			Consolidated Totals
Net sales	$	563,528	$	144,589		$	19,482		$	—		$	727,599
Gross profit (loss)	51,955		3,595			1,604			(1,189		)	55,965
Income (loss) from operations	26,980		(7,999		)	(206		)	(37,669		)	(18,894		)
2008
Net sales	$	729,895	$	281,008		$	25,797		$	—		$	1,036,700
Gross profit (loss)	89,782		46,047			3,938			(53		)	139,714
Income (loss) from operations	74,241		38,422			3,303			(42,645		)	73,321
Agricultural segment results
Agricultural segment results were as follows (amounts in thousands):
						2009			2008			% Decrease
Net sales						$	563,528		$	729,895		-23		%
Gross profit						51,955			89,782			-42		%
Income from operations						26,980			74,241			-64		%

Net sales in the agricultural market were $563.5 million for the year ended 31 December 2009, as compared to $729.9 million in 2008. The significantly lower sales levels resulted from reduced demand for Titan International’s products, as many of it’s major customers implemented extended shutdowns during the second half of 2009 as a consequence of the worldwide recession and economic crisis. Titan International in turn scheduled extended shutdowns at its production facilities to manage lower demand.

Gross profit in the agricultural market was $52.0 million for the year 2009, as compared to $89.8 million in 2008. Income from operations in the agricultural market was $27.0 million for the year 2009, as compared to $74.2 million in 2008. The reduction in gross profit and income from operations in the agricultural market was primarily attributed to lower farm equipment sales and the corresponding reduction in manufacturing efficiencies associated with the agricultural segment. The income from operations was also decreased by a noncash goodwill impairment charge of $6.9 million.

Earthmoving/Construction segment results

Earthmoving/construction segment results were as follows (amounts in thousands):



	2009			2008		% Decrease
Net sales	$	144,589		$	281,008	-49	%
Gross profit	3,595			46,047		-92	%
Income (loss) from operations	(7,999		)	38,422		n/a

Titan International’s earthmoving/construction market net sales were $144.6 million for the year ended 31 December 2009, as compared to $281.0 million in 2008. The significantly lower sales levels resulted from reduced demand for Titan International’s products, as many of it’s major customers implemented extended shutdowns during the second half of 2009 as a consequence of the worldwide recession and economic crisis. Titan International in turn scheduled extended shutdowns at its production facilities to manage lower demand. Also negatively impacting this segment was the major reduction in the construction market related to commercial, residential and infrastructure.

Gross profit in the earthmoving/construction market was $3.6 million for the year 2009, as compared to $46.0 million in 2008. Titan International’s earthmoving/construction market loss from operations was $(8.0) million for the year 2009, as compared to income from operations of $38.4 million in 2008. Gross profit and income from operations declined as a result of the major sales contraction and the substantial negative manufacturing efficiencies associated with the earthmoving/construction segment. The income from operations was also decreased by a noncash goodwill impairment charge of $3.6 million.

Consumer segment results

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



	2009			2008		% Decrease
Net sales	$	19,482		$	25,797	-24	%
Gross profit	1,604			3,938		-59	%
Income (loss) from operations	(206		)	3,303		n/a

Consumer market net sales were $19.5 million for the year ended 31 December 2009, as compared to $25.8 million in 2008. The reduction in consumer market sales is attributed to the large contraction in consumer discretionary spending resulting from the recession and economic crisis.

Gross profit from the consumer market was $1.6 million in 2009 as compared to $3.9 million in 2008. Consumer market loss from operations was $(0.2) million for the year 2009, as compared to income from operations of $3.3 million in 2008. Gross profit and income from operations declined primarily as a result of reduced sales levels and the negative manufacturing efficiencies related to the 2009 extended shutdowns. The income from operations was also reduced by a noncash goodwill impairment charge of $1.2 million.

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 $37.7 million for the year ended 31 December 2009, as compared to $42.6 million in 2008.

Corporate expenses for the year ended 31 December 2009, were composed of selling and marketing expenses of approximately $18 million and administrative expenses of approximately $20 million.

Corporate expenses for the year ended 31 December 2008, were composed of selling and marketing expenses of approximately $20 million and administrative expenses of approximately $23 million.

The lower corporate expenses for 2009 as compared to the previous year resulted from cost reductions and reduced spending due to the lower sales levels.

LIQUIDITY AND CAPITAL RESOURCES

Cash flows

As of 30 June 2012, Titan International had $149.5 million of cash within various bank accounts.



	30 31 June December
(amounts in thousands)	2012 2011	Change
Cash	$149,450 $129,170	$	20,280
Operating Cash Flows
Summary of cash flows from operating activities:
	Six months ended
	30 June
(Amounts in thousands)	2012 2011	Change
Net income	$79,719 $22,520	$	57,199
Depreciation and amortization	23,553 21,146	2,407
Noncash convertible debt conversion charge	16,135	(16,135		)
Deferred income tax provision	572 8,446	(7,874		)
Supply agreement termination income	(26,134) —	(26,134		)
Accounts receivable	(51,659) (152,495)	100,836
Inventories	(26,335) (34,968)	8,633
Accounts payable	37,346 77,736	(40,390		)
Other current liabilities	(259) 19,269	(19,528		)
Other liabilities	18,565 (2,844)	21,409
Other operating activities	(6,685) (5,577)	(1,108		)
Cash provided by (used for) operating activities	$48,683 $(30,632)	$	79,315

In the first six months of 2012, operating activities provided cash of $48.7 million, which included net income of $79.7 million and an increase in accounts payable and other liabilities of $37.3 million and $18.6 million, respectively, Net income included $23.6 million of noncash charges for depreciation and amortization. Positive cash inflows were offset by increases in accounts receivable and inventory of $51.7 million and $26.3 million, respectively, and noncash supply agreement income of $26.1 million.

In the first six months of 2011, operating activities used cash of $30.6 million. This cash was primarily used by increases in accounts receivable and inventory of $152.5 million and $35.0 million, respectively, offset by higher accounts payable of $77.7 million. Net income of $22.5 million included $21.1 million of noncash charges for depreciation and amortization, as well as a noncash convertible debt conversion charge of $16.1 million. Deferred tax assets were reduced by $8.4 million as Titan International used current income to reduce the deferred tax asset for previously recorded net operating losses.

Operating cash flows increased $79.3 million when comparing the six months ended June 30, 2012, to the six months ended June 30, 2011. Net income in the first six months of 2012 was $57.2 million higher than the net income in the first six months of 2011. When comparing the first six months of 2012 to the first six months of 2011, cash flows from accounts receivable increased $100.8 million, resulting primarily from the April 2011 Goodyear Latin America business acquisition not including accounts receivable. The accounts receivable decrease was partly offset by decreases in accounts payable of $40.4 million and the noncash supply agreement termination income of $26.1 million.

Titan International’s inventory and accounts receivable balances were higher at June 30, 2012, as compared to December 31, 2011. Days sales in inventory remained stable at 54 days at June 30, 2012, compared to 55 days at December 31, 2011, as inventory grew proportionately with sales. Days sales outstanding increased to 47 days at June 30, 2012, from 42 days at December 31, 2011. Titan International’s days sales outstanding at the end of July and December is generally lower than other months of the year as a result of decreased sales in those months as the result of plant shutdowns.



Investing Cash Flows Summary of cash flows from investing activities:
	Six months ended
	30 June
(Amounts in thousands)	2012 2011	Change
Acquisitions	$— $(99,118)	$	99,118
Capital expenditures	$(19,006) $(10,196)	$	(8,810	)
Other investing activities	453 1,395	(942		)
Cash used for investing activities	$(18,553) $(107,919)	$	89,366

Net cash used for investing activities was $18.6 million in the first six months of 2012, as compared to $107.9 million in the first six months of 2011. Titan International invested a total of $19.0 million in capital expenditures in the first six months of 2012, compared to $10.2 million in 2011. The 2012 and 2011 expenditures represent various equipment purchases and improvements to enhance production capabilities of Titan International’s existing business and maintaining existing equipment. Titan International invested a total of $99.1 million in acquisitions in the first six months of 2011. The other investing activities are primarily the result of asset disposals.



Financing Cash Flows Summary of cash flows from financing activities:
	Six months ended
	30 June
(Amounts in thousands)	2012			2011			Change
Repurchase of senior notes	$—			$	(1,064	)	$	1,064
Term loan borrowing	4,378			14,148			(9,770		)
Proceeds from exercise of stock options	887			477			410
Payment on debt	(14,226		)	—			(14,226		)
Excess tax benefit from stock options exercised	190			—			190
Dividends paid	(423		)	(387		)	(36		)
Cash provided by (used for) financing activities	$	(9,194	)	$	13,174		$	(22,368	)

In the first six months of 2012, $9.2 million of cash was used for financing activities. This cash was primarily used for the payment on term loan borrowings of $14.2 million that was originally borrowed to provide working capital for Titan International’s Latin American operations. This was partially offset by $4.4 million of additional term loan borrowings for Titan International’s Latin American operations.

In the first six months of 2011, $13.2 million of cash was provided by financing activities. This cash was primarily provided by term loan borrowings of $14.1 million used to provide working capital for Titan International’s Latin American operations.

Financing cash flows decreased by $22.4 million when comparing first six months of 2012 to 2011. This change was primarily the result of the repayment of term loan borrowings in the first six months of 2012.

Other Issues

Debt Covenants

Titan International’s revolving credit facility (“credit facility”) contains various covenants and restrictions. The financial covenants in this agreement require that:


●	Collateral coverage be equal to or greater than 1.2 times the outstanding revolver balance.


●	If the 30-day average of the outstanding revolver balance exceeds $70 million, the fixed charge coverage ratio be equal to or greater than a 1.1 to 1.0 ratio.

Restrictions include:


●	Limits on payments of dividends and repurchases of Titan International’s stock.


●	Restrictions on the ability of Titan International to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of Titan International.


●	Limitations on investments, dispositions of assets and guarantees of indebtedness.


●	Other customary affirmative and negative covenants.

Titan International was in compliance with these covenants and restrictions as of 30 June 2012. The collateral coverage ratio was not applicable as there were no outstanding borrowings under the revolving credit facility at 30 June 2012. The fixed charge coverage ratio did not apply for the quarter ended 30 June 2012.

As of 31 December 2011, Titan International had $129.2 million of cash within various bank accounts. The cash balance decreased by $(110.3) million from 31 December 2010, due to the following items.



(Amounts in thousands)
	Year ended 31 December
	2011			2010			Change
Cash	$	129,170		$	239,500		$	(110,330	)
Operating cash flows
Summary of cash flows from operating activities:
(Amounts in thousands)
	Year ended 31 December
	2011			2010			Change
Net income (loss)	$	58,136		$	(5,926	)	$	64,062
Depreciation and amortization	44,908			37,567			7,341
Noncash convertible debt conversion charge	16,135			—			16,135
Deferred income tax provision	(449		)	(2,080		)	1,631
Loss on note repurchase				14,573			(14,573		)
Accounts receivable	(105,619		)	(21,491		)	(84,128		)
Inventories	(55,607		)	(8,007		)	(47,600		)
Accounts payable	44,991			11,035			33,956
Other current liabilities	9,192			11,426			(2,234		)
Other operating activities	(7,261		)	13,614			(20,875		)
Cash provided by operating activities	$	4,426		$	50,711		$	(46,285	)

For the year ended 31 December 2011, operating activities provided cash of $4.4 million, that was $46.3 million less than the prior year, primarily due to changes in operational working capital. The major source of funds was net income of $58.1 million, adjusted for noncash provision of depreciation and amortization of $44.9 million, and the noncash convertible debt conversion charge of $16.1 million, all of which increased from the prior year. The changes in operational working capital decreased cash flows by $109.3 million in 2011 compared to an increase of $1.6 million in 2010, primarily due to the acquisition of the Goodyear Latin American business that did not include accounts receivable, and an increase in inventory due to sales growth in the business and increased raw material costs.

In comparison, for the year ended 31 December 2010, operating activities provided cash of $50.7 million which included a net loss of $(5.9) million, an increase in accounts payable of $11.0 million, an increase in other current liabilities of $11.4 million and cash flows from other operating activities of $13.6 million. Net loss included noncash charges of $37.6 million for depreciation and amortization and a $14.6 million loss

on note repurchase. Positive cash flows were offset by increases in accounts receivable and inventory of $21.5 million and $8.0 million, respectively.

For the year ended 31 December 2009, operating activities provided cash of $72.3 million. This cash was primarily provided by decreases in accounts receivable of $59.0 million and inventories of $37.2 million. Positive cash flows were offset by net loss of $(24.6) million and decreases in accounts payable of $41.3 million. Included as a reduction to net income were noncash charges of $34.3 million for depreciation and amortization and $11.7 million for the noncash goodwill impairment charge.

Operating cash flows decreased $21.6 million from the year ended 31 December 2009, to 31 December 2010. The net loss for 2010 decreased $18.7 million from the loss in 2009. When comparing 2010 to 2009, cash flows from accounts receivable and inventories decreased $80.5 million and $45.2 million, respectively. These decreases were offset by increases in cash flow from accounts payable of $52.3 million. The increases in accounts receivable and accounts payable is the result of significantly higher fourth quarter sales, which increased approximately 59 per cent. when comparing the fourth quarter of 2010 to the fourth quarter of 2009. The inventory increase in 2010 was due to rebuilding inventory balances from the substantially reduced year end 2009 inventory levels.



Investing cash flows Summary of cash flows from investing activities: (Amounts in thousands)
	Year ended 31 December
	2011			2010			Change
Acquisitions	$	(99,118	)	$—			$	(99,118	)
Purchases of marketable securities	(30,000		)	—			(30,000		)
Sales of marketable securities	31,586			—			31,586
Capital expenditures	(35,744		)	(28,854		)	(6,890		)
Other investing activities	2,473			106			2,367
Cash used for investing activities	$	(130,803	)	$	(28,748	)	$	(102,055	)

Net cash used for investing activities was $130.8 million in 2011, as compared to $28.7 million in 2010 and $40.9 million in 2009. Titan International invested a total of $99.1 million in acquisitions, and $30.0 million in marketable securities in 2011. This was partially offset by sales of marketable securities of $31.6 million. Titan International invested a total of $35.7 million in capital expenditures in 2011, compared to $28.9 million in 2010 and $39.5 million in 2009. In 2011, approximately $9 million of the capital expenditures related to the purchase of land, buildings, and certain equipment at Goodyear’s Union City, TN closed tire plant. In 2010, approximately $7 million of the capital expenditures related to the purchase of Denman Tire molds and equipment. Capital expenditures include Giant OTR Project expenditures of approximately $23 million in 2009. The remaining capital expenditures of approximately $27 million in 2011, approximately $22 million in 2010, and approximately $16 million in 2009, represent various equipment purchases and improvements to enhance production capabilities of Titan International’s existing business and maintaining existing equipment.

Cash used for investing increased $102.1 million from the year ended 31 December 2010, to 31 December 2011. This increase in cash use was primarily the result of acquisitions, which included Goodyear’s Latin American business for approximately $98.6 million.



Financing cash flows Summary of cash flows from financing activities: (Amounts in thousands)
	Year ended 31 December
	2011			2010			Change
Proceeds from borrowings	$—			$	200,000		$	(200,000	)
Repurchase of senior notes	(1,064		)	(206,166		)	205,102
Term loan borrowing	25,879			—			25,879
Proceeds from exercise of stock options	524			285			239
Payment of financing fees	—			(5,057		)	5,057
Payment on debt	(8,856		)	—			(8,856		)
Excess tax benefit from stock options exercised	706			—			706
Dividends paid	(809		)	(707		)	(102		)
Cash provided by (used for) financing activities	$	16,380		$	(11,645	)	$	28,025

Net cash provided by financing activities was $16.4 million in 2011. The cash was primarily provided by term loan borrowings of $25.9 million used to provide working capital to Titan International’s Latin American operations. This was partially offset by payment on debt of $8.9 million.

Net cash used for financing activities was $11.6 million in 2010. $206.2 million was used to repurchase senior notes and $5.1 million was used for payment of financing fees. This was offset by proceeds from the issuance of $200.0 million of 7.875 per cent. senior secured notes due 2017.

Net cash provided by financing activities was $136.1 million in 2009. This cash was provided primarily by 5.625 per cent. convertible senior subordinated notes proceeds of $172.5 million. This was offset by payments on Titan International’s credit facility of $25 million, payment of financing fees of $7.1 million and repurchase of senior notes of $4.7 million.

Financing cash flows increased by $28.0 million when comparing 2011 to 2010. Also, financing cash flows decreased $147.8 million when comparing 2010 to 2009. The changes from year to year are primarily the result of activity related to debt borrowings and payments.

Debt covenants

Titan International’s revolving credit facility (credit facility) contains various covenants and restrictions. The financial covenants in this agreement require that:


●	Collateral coverage be equal to or greater than 1.2 times the outstanding revolver balance.


●	If the 30-day average of the outstanding revolver balance exceeds $70 million, the fixed charge coverage ratio be equal to or greater than a 1.1 to 1.0 ratio.

Restrictions include:


●	Limits on payments of dividends and repurchases of Titan International’s stock.


●	Restrictions on the ability of Titan International to make additional borrowings, or to consolidate, merge or otherwise fundamentally change the ownership of Titan International.


●	Limitations on investments, dispositions of assets and guarantees of indebtedness.


●	Other customary affirmative and negative covenants.

Titan International was in compliance with these covenants and restrictions as of 31 December 2011. The collateral coverage ratio was not applicable as there were no outstanding borrowings under the revolving credit facility at 31 December 2011. The fixed charge coverage ratio did not apply for the quarter ended 31 December 2011.

Seasonality

Titan International’s business is subject to seasonal variations in sales that affect inventory levels and accounts receivable balances. Historically, Titan International tends to experience higher sales demand in the first and second quarters. However, in 2011, Titan International’s third and fourth quarter sales continued at a high level due to increased demand in all of Titan International’s segments.

Liquidity outlook

At 30 June 2012, Titan International had $149.5 million of cash and cash equivalents which includes $8.7 million held in foreign countries. Titan International’s current plans do not demonstrate a need to repatriate the foreign amounts to fund U.S. operations. For the six months to 30 June 2012 Titan International increased its cash and cash equivalents by approximately $20.3 million.

Since the 30 June 2012, the Titan International Group has completed the acquisition of a 56 per cent. interest in the Planet Corporation Group for a cash consideration of approximately $33.4 million, settled in August 2012, and made payment in July 2012 of the semi-annual interest charge of $3.2 million under its 5.625 per cent. convertible senior subordinated notes. The underlying trading of the Titan International Group has continued to be cash and cash equivalent accretive since the 30 June 2012 and therefore as at 31 August 2012 (being the latest period to which unaudited management accounts have been prepared to prior to the publication of this document), Titan International had approximately $149.6 million of cash and cash equivalents.

As at 13 September 2012 (being the last Business Day prior to publication of this document), the Titan International Group has outstanding bank debt due within one year of approximately $7.6 million pursuant to:


●	a two year unsecured $10.0 million term loan with Bank of America, N.A. (“Brazil Term Loan”) entered into in May 2011 to provide working capital for the Sao Paulo, Brazil manufacturing facility, of which approximately $5 million has been drawn down; and


●	working capital loans for the Sao Paulo, Brazil manufacturing facility totaling approximately $2.6 million (“Brazil Other Debt”).

In addition, Titan International’s wholly-owned Brazilian subsidiary has a revolving line of credit (“Brazil Revolving Line of Credit”) established with Bank of America Merrill Lynch Banco Multiplo S.A. in May 2011. As at the date of this document, there were no borrowings outstanding on the Revolving Line of Credit.

As at 13 September 2012 (being the last Business Day prior to publication of this document), the Titan International Group also has the following debts due after more than one year under long term bonds issued:


●	$200.0 million under its 7.875 per cent. senior secured notes due October 2017; and


●	$112.9 million under its 5.625 per cent. convertible senior subordinated notes which are convertible and repayable by January 2017.

In addition, Titan International has a $100 million revolving credit facility (“Credit Facility”) with Bank of America, N.A., which has a termination date of January 2014. As at 13 September 2012 (being the last business day prior to publication of this document), there were no outstanding borrowings under the Credit Facility.

For further details are set out in Note 9 to the Titan International unaudited condensed consolidated financial information as set out in Part A of Part 7 of this document and paragraph 13 of Part 13 of this document.

There is no significant seasonality in the borrowing requirements of the Titan International Group.

The funds available as a result of the facilities mentioned above and the existing cash resources will be utilised to satisfy the Titan International Group's planned capital investment and other commitments.

Capital expenditures for the remainder of 2012 are forecasted to be approximately $30 million. In addition, in August 2012 Titan International completed the acquisition of a 56 per cent. investment in Planet Corporation Group for approximately $33.4 million which has been settled in cash from existing cash

resources. Cash payments for interest are currently forecasted to be approximately $12 million for the remainder of 2012 based on 30 June 2012 debt balances. The forecasted interest payments are comprised primarily of a semi-annual payment of $3.2 million for the 5.625 per cent. convertible senior subordinated notes paid in July and a semi-annual payment of $7.9 million for the 7.875 per cent. senior secured notes due on 1 October. These cash payments and capital co-investments will be satisified from existing cash resources.

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

Subject to the terms of indebtedness, Titan International may finance future acquisitions with cash on hand, cash from operations, drawing down part or all of the Credit Facility additional indebtedness and/or by issuing additional equity securities.

Inflation

Titan International is subject to the effect of price fluctuations. During 2011, 2010 and 2009, Titan International realised price increases for certain purchases of steel and rubber used in the manufacture of its products. While the cost outlook for commodities used in Titan International’s production is not certain, management believes it can manage these inflationary pressures by introducing appropriate sales price adjustments and through contract provisions with OEMs. However, these price adjustments may lag the inflationary pressures.

Contractual obligations

We are party to numerous contracts and arrangements that obligate us to make cash payments in future years. These contracts include financing arrangements such as debt agreements and leases, as well as contracts for the purchase of goods and services.

The following table is a summary of our contractual obligations as of 31 December 2011:



$'000	Total		Payments due by period Less than 1 Year 1-3 Years 3-5 Years						More than 5 Years
Contractual Obligations	$	200,000	$—		$—		$—		$	200,000
7.875% senior secured notes due 2017	112,881						—		112,881
5.625% senior subordinated convertible notes due 2017 Other debt	16,723		11,723		5,000		—		—
Interest expense (a) Operating leases	123,918		23,210		44,432		44,199		12,077
Purchase obligations	1,427		567		805		55		—
Other long-term liabilities (b)	42,613		15,464		26,271		878		—
Total	38,100		7,000		10,400		7,700		13,000
	$	535,662	$	57,964	$	86,908	$	52,832	$	337,958


(a)	Interest expense is estimated based on Titan International’s year-end 2011 debt balances, maturities and interest rates. The estimates assume no credit facility borrowings. Titan International’s actual debt balances and interest rates may fluctuate in the future. Therefore, actual interest payments may vary from those payments detailed in the above table.

(b)

Other long-term liabilities represent Titan International’s estimated funding requirements for the frozen defined benefit pension plans. Titan International’s 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 and are subject to a number of risks and uncertainties and may lead to significantly different pension liability funding requirements.

Off-balance sheet arrangements

Titan International has no material off-balance sheet arrangements.

CAPITALISATION AND INDEBTEDNESS

The following table shows the capitalisation and indebtedness of Titan International at 30 June 2012. The financial information has been extracted from Titan International’s unaudited consolidated financial statements for the six months ended 30 June 2012.

Capitalization and Indebtedness

$’000

Total current debt

Guaranteed $–

Secured –

Unsecured 7,596

Total current debt $7,596

Total non-current debt

Guaranteed – 5.625% convertible senior notes due 2017 $112,881

Secured – 7.875% senior secured notes due 2017 200,000⁽²⁾

Unguaranteed/secured –

Total non-current debt $312,881

Shareholder’s equity:

Share capital $(17,796)⁽¹²⁾

Legal reserve 383,102⁽¹⁾

Other reserves –

Total Shareholder’s equity $365,306

(1)Accumulated profit and loss amounts not included within.

(2)Details of security set out in material contracts, paragraph 13 of Part 13 of this document.

(3)Includes Treasury stock.

The following table shows the consolidated net indebtedness of Titan International at 30 June 2012:

$’000

Net indebtedness

Cash ($149,450)

Cash equivalent –

Trading securities –

Liquidity (149,450)

Current financial receivable –

Current bank debt 7,596

Current portion of non-current debt –

Other current financial debt –

Current financial debt 7,596

Net current financial indebtedness (141,854)

Non-current bank loans –

Bonds issued 312,881

Other non-current loans –

Non-current financial indebtedness 312,881

Net financial indebtedness $171,027

There has been no material change in the capitalisation and indebtedness of Titan International since 30 June 2012. Therefore, as at 13 September 2012 (being the last Business Day prior to publication of this document), Titan International’s current borrowings, being the aggregation of its total current debt and total non-current debt, is approximately $312.9 million.

For further details see Note 9 to the Titan International unaudited condensed consolidated financial information as set out in Part A of Part 7 of this document.

CRITICAL ACCOUNTING ESTIMATES

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

Asset and business acquisitions

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

Impairment of goodwill

Titan International 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. The carrying value of Titan International’s goodwill was $19.8 million at 31 December 2011 and zero at 31 December 2010. Titan International has elected to early adopt Accounting Standards Update (ASU) 2011-08 and first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. Based on a qualitative assessment at 31 December 2011, Titan International determined the two-step goodwill impairment test was not required. Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment.

When the two-step goodwill impairment test is performed, Titan International evaluates the recoverability of goodwill by estimating the future discounted cash flows of the reporting unit to which the goodwill relates and using an earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple approach. In determining the estimated future cash flows, Titan International considers current and projected future levels of income as well as business trends and economic conditions. When Titan International’s estimated fair value of the reporting unit is less than the carrying value, a second step of the impairment analysis is performed. In this second step, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

Inventories

Inventories are valued at the lower of cost or market. At 31 December 2011, approximately 30 per cent. of Titan International’s inventories were valued under the last-in, first out (“LIFO”) method. The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method. The remaining inventories were valued under the first-in, first out (“FIFO”) method or average cost method. Market value is estimated based on current selling prices.

Estimated provisions are established for slow-moving and obsolete inventory.

Income taxes

Retirement benefit obligations

Pension benefit obligations are based on various assumptions used by third-party actuaries in calculating these amounts. These assumptions include discount rates, expected return on plan assets, mortality rates and other factors. Revisions in assumptions and actual results that differ from the assumptions affect future expenses, cash funding requirements and obligations. Titan International has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. Titan International expects to contribute approximately $7 million to these frozen defined pension plans in 2012.

The effect of hypothetical changes to selected assumptions on Titan International’s frozen pension benefit obligations would be as follows (amounts in thousands):

Product warranties

Titan International provides limited warranties on workmanship on its products in all market segments. The majority of Titan International’s products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year. Titan International calculates a provision for warranty expense based on past warranty experience. Actual warranty experience may differ from historical experience. Titan International’s warranty accrual was $17.7 million at 31 December 2011, and $12.5 million at 31 December 2010.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in short-term interest rates, foreign currency exchange rates and commodity prices that could impact our results of operations and financial condition. Titan International address our exposure to these risks through our normal operating and financing activities.

Exchange Rate Sensitivity

Titan International is exposed to fluctuations in the Brazilian Real, British pound, Euro and other world currencies. Titan International does not hedge foreign currency transaction or translation exposures. Titan International’s net investment in foreign entities translated into U.S. dollars was $111.4 million at 31 December 2011, and $22.7 million at 31 December 2010. The hypothetical potential loss in value of Titan International’s net investment in foreign entities resulting from a 10 per cent. adverse change in foreign currency exchange rates at 31 December 2011, would amount to approximately $11.1 million.

Commodity Price Sensitivity

Titan International does not generally enter into long-term commodity contracts and does not use derivative commodity instruments to hedge its exposures to commodity market price fluctuations. Therefore, Titan International is exposed to price fluctuations of its key commodities, which consist primarily of steel, natural rubber, synthetic rubber and carbon black. Titan International attempts to pass on certain material price increases and decreases to its customers, depending on market conditions.

Interest Rate Sensitivity

Titan International has a $100 million credit facility that has a variable interest rate. If the credit facility were fully drawn, a change in the interest rate of 100 basis points, or 1 per cent., would change Titan International’s interest expense by approximately $1.0 million. At 31 December 2011, there were no borrowings under the credit facility.

PART 7

TITAN INTERNATIONAL FINANCIAL INFORMATION

Basis of financial information

The following pages reproduce (a) the unaudited condensed consolidated financial information of Titan International as of and for the six months ended 30 June 2012; and (b) the audited consolidated financial information of Titan International as of and for the years ended 31 December 2011 and 31 December 2010; and (c) the audited consolidated financial information of Titan International as of and for the years ended 31 December 2009 all prepared in accordance with US GAAP.

Titan International’s Quarterly Report on Form 10-Q filed with the SEC on 26 July 2012 contains Titan International’s unaudited condensed consolidated financial statements for the six months ended 30 June 2012 (prepared in accordance with US GAAP) which has been reviewed in accordance with the rules of the Securities and Exchange Commission by Grant Thornton LLP, Chicago but no audit report was provided or required to be provided.

Titan International’s Annual Report on Form 10-K filed with the SEC on 23 February, 2012 contains Titan International’s audited consolidated financial statements for the years ended 31 December 2011, 31 December 2010 and 31 December 2009 and at 31 December 2011 and 31 December 2010 (prepared in accordance with US GAAP), together with the audit report in respect of such financial statements.

Titan International’s Annual Report on Form 10-K filed with the SEC on 9 November 2011 contains Titan International’s audited consolidated financial statements for the years ended 31 December 2010, 31 December 2009 and 31 December 2008 and at 31 December 2010 and 31 December 2009 (prepared in accordance with US GAAP), together with the audit report in respect of such financial statements.

In this Part 7 references to “Company” are to Titan International and its subsidiaries.

PART A: Titan International unaudited condensed consolidated financial information
for the 6 months ended 30 June 2012 (under US GAAP)

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) (All amounts in thousands, except per share data)



	Three months ended 30 June						Six months ended 30 June
	2012			2011			2012			2011
Net sales	$	459,233		$	404,447		$	922,321		$	685,276
Cost of sales	377,147			340,113			746,872			564,670
Gross profit	82,086			64,334			175,449			120,606
Selling, general and administrative expenses	23,410			16,573			54,245			41,866
Research and development expenses	1,189			1,014			2,697			2,197
Royalty expense	2,652			2,350			5,001			5,267
Supply agreement termination income	(26,134		)	—			(26,134		)	—
Income from operations	80,969			44,397			139,640			71,276
Interest expense	(6,217		)	(6,149		)	(12,512		)	(12,429		)
Noncash convertible debt conversion charge	—			—			—			(16,135		)
Other income	613			2,270			3,724			2,463
Income before income taxes	75,365			40,518			130,852			45,175
Provision for income taxes	31,040			14,962			51,133			22,655
Net income	44,325			25,556			79,719			22,520
Net income (loss) attributable to noncontrolling interests	269			(8		)	244			(8		)
Net income attributable to Titan International	$	44,056		$	25,564		$	79,475		$	22,528
Earnings per common share:
Basic	$	1.05		$	0.61		$	1.89		$	0.55
Diluted	$	0.84		$	0.50		$	1.53		$	0.47
Average common shares and equivalents outstanding:
Basic	42,158			41,981			42,132			41,250
Diluted	53,516			53,394			53,492			53,229
Dividends declared per common share:	$	0.005		$	0.005		$	0.010		$	0.010

See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (All amounts in thousands)



	Three months ended 30 June 2012 2011
Net income	$	44,325		$	25,556
Unrealized gain (loss) on investments, net of tax of $3,276 and
$7,886, respectively	(5,580		)	14,645
Currency translation adjustment	(8,136		)	2,932
Pension liability adjustments, net of tax of $491 and $364, respectively	836			592
Comprehensive income	31,445			43,725
Net comprehensive income (loss) attributable to noncontrolling interests	269			(8		)
Comprehensive income attributable to Titan International	$	31,176		$	43,733



	Six months ended 30 June 2012 2011
Net income	$	79,719		$	22,520
Unrealized gain on investments, net of tax of $199 and $7,351, respectively	337			13,652
Currency translation adjustment	(4,569		)	2,932
Pension liability adjustments, net of tax of $982 and $727, respectively	1,672			1,185
Comprehensive income	77,159			40,289
Net comprehensive income (loss) attributable to noncontrolling interests	244			(8		)
Comprehensive income attributable to Titan International	$	76,915		$	40,297
See accompanying Notes to Consolidated Financial Statements.

100



CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED) (All amounts in thousands, except share data)	June 30, 2031
	2012			2011
Assets
Current assets
Cash and cash equivalents	$	149,450		$	129,170
Accounts receivable, net	237,418			189,527
Inventories	214,858			190,872
Deferred income taxes	29,773			26,775
Prepaid and other current assets	38,637			28,249
Total current assets	670,136			564,593
Property, plant and equipment, net	324,676			334,742
Other assets	99,187			110,951
Total assets	$	1,093,999		$	1,010,286
Liabilities and Equity
Current liabilities
Short-term debt	$	7,596		$	11,723
Accounts payable	109,555			76,574
Other current liabilities	70,464			87,469
Total current liabilities	187,615			175,766
Long-term debt	312,881			317,881
Deferred income taxes	43,243			38,691
Other long-term liabilities	73,184			81,069
Total liabilities	616,923			613,407
Equity:
Titan International stockholder’s equity
Common stock (no par, 120,000,000 shares authorized, 44,092,997 issued)	37			37
Additional paid-in capital	383,102			380,295
Retained earnings	146,105			67,053
Treasury stock (at cost, 1,805,065 and 1,887,316 shares, respectively)	(16,600		)	(17,338		)
Treasury stock reserved for deferred compensation	(1,233		)	(1,233		)
Accumulated other comprehensive loss	(36,135		)	(33,575		)
Total Titan International stockholders’ equity	475,276			395,239
Noncontrolling interests	1,800			1,640
Total equity	477,076			396,879
Total liabilities and equity	$	1,093,999		$	1,010,286
See accompanying Notes to Consolidated Financial Statements.

101

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



Number of common shares	Number of common shares	Common stock		Additional paid-in-capital		Retained earnings			Treasury stock			Treasury stock reserved for contractual obligations	Accumulated other comprehensive income (loss)			Total Titan Equity			Noncontrolling interest			Total Equity
Balance January 1, 2012	42,205,681	$	37	$	380,295	$	67,053		$	(17,338	)	$(1,233)	$	(33,575	)	$	395,239		$	1,640		$	396,879
Net income						79,475										79,475			244			79,719
Currency translation adjustment													(4,569		)	(4,569		)				(4,569		)
Pension liability adjustments, net of tax													1,672			1,672						1,672
Unrealized gain on investment, net of tax													337			337						337
Dividends on common stock						(423		)								(423		)				(423		)
Exercise of stock options	68,898			269					618							887						887
Consolidated joint venture																—			(84		)	(84		)
Stock-based compensation				2,175												2,175						2,175
Tax benefit related to stock-based compensation				190												190						190
Issuance of treasury stock under 401(k) plan	13,353			173					120							293						293
Balance 30 June 2012	42,287,932	$	37	$	383,102	$	146,105		$	(16,600	)	$(1,233)	$	(36,135	)	$	475,276		$	1,800		$	477,076

See accompanying Notes to Consolidated Financial Statements.

102

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) (All amounts in thousands)



	Six months ended 30 June
	2012			2011
Cash flows from operating activities:
Net income	$	79,719		$	22,520
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization	23,553			21,146
Deferred income tax provision	572			8,446
Noncash convertible debt conversion charge	—			16,135
Supply agreement termination income	(26,134		)	—
Stock-based compensation	2,175			1,384
Excess tax benefit from stock options exercised	(190		)	—
Issuance of treasury stock under 401(k) plan	293			268
Gain on acquisition	—			(919		)
Increase in assets:
Accounts receivable	(51,659		)	(152,495		)
Inventories	(26,335		)	(34,968		)
Prepaid and other current assets	(11,305		)	(6,088		)
Other assets	2,342			(222		)
Increase (decrease) in liabilities:
Accounts payable	37,346			77,736
Other current liabilities	(259		)	19,269
Other liabilities	18,565			(2,844		)
Net cash provided by (used for) operating activities	48,683			(30,632		)
Cash flows from investing activities:
Capital expenditures	(19,006		)	(10,196		)
Acquisitions, net of cash acquired	—			(99,118		)
Other	453			1,395
Net cash used for investing activities	(18,553		)	(107,919		)
Cash flows from financing activities:
Repurchase of senior unsecured notes	—			(1,064		)
Payment on debt	(14,226		)	—
Term loan borrowing	4,378			14,148
Proceeds from exercise of stock options	887			477
Excess tax benefit from stock options exercised	190			—
Dividends paid	(423		)	(387		)
Net cash provided by (used for) financing activities	(9,194		)	13,174
Effect of exchange rate changes on cash	(656		)	39
Net increase (decrease) in cash and cash equivalents	20,280			(125,338		)
Cash and cash equivalents, beginning of period	129,170			239,500
Cash and cash equivalents, end of period	$	149,450		$	114,162
See accompanying Notes to Consolidated Financial Statements.

103

TITAN INTERNATIONAL

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

1. ACCOUNTING POLICIES

In the opinion of Titan International, the accompanying unaudited consolidated condensed financial statements contain all adjustments, which are normal and recurring in nature and necessary for a fair statement of Titan International’s financial position as of 30 June 2012, and the results of operations and cash flows for the three and six months ended 30 June 2012 and 2011.

Accounting policies have continued without significant change and are described in the Description of Business and Significant Accounting Policies set out in Part B of Part 7 “Titan International Financial Information” of this document. These interim financial statements have been prepared in accordance with US GAAP and pursuant to the Securities and Exchange Commission’s rules for Form 10-Q’s.

Sales

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

Fair value of financial instruments

The Titan International records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals and notes payable at cost, which approximates fair value. Investments in marketable equity securities are recorded at fair value. The 7.875 per cent. senior secured notes due 2017 (“senior secured notes”) and 5.625 per cent. convertible senior subordinated notes due 2017 (“convertible notes”) are carried at cost of $200.0 million and $112.9 million at 30 June 2012, respectively. The fair value of these notes at 30 June 2012, as obtained through independent pricing sources, was approximately $208.0 million for the senior secured notes and approximately $295.4 million for the convertible notes. The increase in the fair value of the convertible notes is due primarily to the increased value of the underlying common stock.

Cash dividends

Titan International declared cash dividends of $.005 and $.010 per share of common stock for each of the three and six months ended 30 June 2012, and 2011. The second quarter 2012 cash dividend of $.005 per share of common stock was paid July 16, 2012, to stockholders of record on June 29, 2012.

Interest paid

Titan International paid $0.3 million and $0.4 million for interest for the quarters ended 30 June 2012 and 2011, respectively, and $11.9 million and $13.4 million for interest for the six months ended 30 June 2012 and 2011, respectively.

Income taxes paid

Titan International paid $37.0 million and $10.5 million for income taxes for the quarters ended 30 June 2012 and 2011, respectively, and $46.9 million and $10.6 million for income taxes for the six months ended 30 June 2012 and 2011, respectively.

Use of estimates

The policies utilized by Titan International in the preparation of the financial statements conform to accounting principles generally accepted in the United States of America and require management to make estimates, assumptions and judgments that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the financial statements and the reported

104

amounts of revenues and expenses during the reporting period. Actual amounts could differ from these estimates and assumptions.

Reclassification

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

Subsequent Events

Titan International has evaluated subsequent events and transactions for potential recognition or disclosure in the financial statements through the date of issuance of the financial statements.

2. ACQUISITIONS

Acquisition of Goodyear’s Latin American Farm Tire Business

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

The purchase price was allocated to the assets acquired and the liabilities assumed based on their fair values. Inventory was valued using the comparative sales method. Real and personal property was valued at fair value. The excess of the purchase price of the identifiable assets acquired and liabilities assumed was reflected as goodwill. The goodwill was allocated to the agricultural segment.

The purchase price allocation of the Latin American farm tire business consisted of the following (in thousands):

Cash $1,018

Inventories 14,562

Deferred income taxes – current asset 2,948

Prepaid & other current assets 4,929

Property, plant & equipment 108,905

Goodwill 14,484

Other assets 39,263

Other current liabilities (21,127)

Deferred income taxes – noncurrent liability (25,521)

Other noncurrent liabilities (40,823)

Net assets acquired $98,638

The purchase price allocation has changed from that reported in the Form 10-K for the year ended 31 December 2011. In the first quarter of 2012, after filing the Form 10-K for the year ended 31 December 2011, Titan International became aware of information related to the classification of the Latin American business for US tax purposes. In the second quarter of 2012, Titan International became aware of additional information related to this acquisition. As a result of this information, which was available at the time of acquisition, Titan International concluded that there were errors in the original accounting for the acquisition. Titan International has concluded that the impact of these errors is immaterial to the consolidated financial statements for the year ended 31 December 2011 and for the three and six months ended 30 June 2012, and therefore the correction of these errors were recorded as of January 1, 2012. The correction of these errors impacted the following areas: an increase in current deferred income tax asset of $2.9 million, a decrease in goodwill of $8.4 million, and a decrease in noncurrent deferred income tax liability of $5.5 million. As a result of currency exchange rate differences, the January 1, 2012 recorded decrease in goodwill was $7.3 million, with a $1.1 million offset in currency translation adjustment.

105

Pro forma financial information

The following unaudited pro forma financial information gives effect to the acquisition of Goodyear’s Latin American farm tire business as if the acquisition had taken place on January 1, 2011. The pro forma financial information for the Sao Paulo, Brazil manufacturing facility was derived from The Goodyear Tire & Rubber Company’s historical accounting records. These amounts have been calculated by adjusting the historical results of the Sao Paulo, Brazil facility to reflect the additional depreciation and the amortization of the prepaid royalty discount and supply agreement liability assuming the fair value adjustments had taken place.

Pro forma financial information is as follows (in thousands, except per share data):

Six months ended 30 June



	2012 (Actual)		2011 (Pro forma)
Net sales	$	922,321	$	713,676
Net income	79,719		26,650
Net income attributable to Titan International	79,475		26,658
Basic earnings per share	$	1.89	$	0.65
Diluted earnings per share	1.53		0.54

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



3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (amounts in thousands):
	June 30, 2031
	2012			2011
Accounts receivable	$	242,158		$	193,731
Allowance for doubtful accounts	(4,740		)	(4,204		)
Accounts receivable, net	$	237,418		$	189,527

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



4. INVENTORIES Inventories consisted of the following (amounts in thousands):	June 30, 2031
	2012			2011
Raw material	$	101,532		$	97,257
Work-in-process	35,165			31,141
Finished goods	87,715			75,137
	224,412			203,535
Adjustment to LIFO basis	(9,554		)	(12,663		)
	$	214,858		$	190,872

At 30 June 2012, approximately 27 per cent. of Titan International’s inventories were valued under the last-in, first-out (LIFO) method. At 31 December 2011, approximately 30 per cent. of Titan International’s inventories were valued under the LIFO method. The remaining inventories were valued under the first-in,

106

first-out (FIFO) method or average cost method. All inventories are valued at lower of cost or market. The LIFO reserve decreased primarily as a result of the composition of inventory. An overall increase in raw material relative to total inventory resulted in a greater decrease in the FIFO cost versus the LIFO cost.

5.PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment, net consisted of the following (amounts in thousands):



	30 June 31 December 2012 2011
Land and improvements	$	19,217		$	20,330
Buildings and improvements	122,052			121,847
Machinery and equipment	455,151			456,236
Tools, dies and molds	91,299			88,676
Construction-in-process	18,533			14,606
	706,252			701,695
Less accumulated depreciation	(381,576		)	(366,953		)
	$	324,676		$	334,742

Depreciation on fixed assets for the six months ended 30 June 2012 and 2011, totaled $22.6 million and $20.2 million, respectively.

6.INVESTMENT IN TITAN EUROPE

Investment in Titan Europe consisted of the following (amounts in thousands):

30 June 31 December

2012 2011

Investment in Titan Europe $29,534 $28,998

Titan Europe is publicly traded on AIM. Titan International’s investment in Titan Europe represents a 21.8 per cent. ownership percentage. Titan International has considered the applicable guidance in Accounting Standards Codification (ASC) 323 Investments – Equity Method and Joint Ventures and has concluded that Titan International’s investment in Titan Europe should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as Titan International does not have significant influence over Titan Europe. The investment in Titan Europe is included as a component of other assets on the Consolidated Condensed Balance Sheets. Titan International’s cost basis in Titan Europe is $5.0 million. Titan International’s accumulated other comprehensive income includes a gain on the Titan Europe investment of $15.8 million, which is net of tax of $8.7 million.



5. GOODWILL
Changes in goodwill consisted of the following (amounts in thousands):
	2012			2011
Agricultural segment
Goodwill balance, 1 January	$	19,841		$—
Acquisitions				21,388
Acquisition adjustment	(7,289		)	—
Foreign currency translation	(904		)	884
Goodwill balance, 30 June	$	11,648		$	22,272

107

Titan International’s goodwill balance is related to the acquisition of Goodyear’s Latin American farm tire business which included the Sao Paulo, Brazil manufacturing facility. Goodwill is included as a component of other assets in the Consolidated Condensed Balance Sheets. Titan International reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. See Note 2 for additional information.



8. WARRANTY
Changes in the warranty liability consisted of the following (amounts in thousands):
	2012			2011
Warranty liability, 1 January	$	17,659		$	12,471
Provision for warranty liabilities	15,568			11,394
Warranty payments made	(12,040		)	(9,638		)
Warranty liability, 30 June	$	21,187		$	14,227

Titan International provides limited warranties on workmanship on its products in all market segments. The majority of Titan International’s products have a limited warranty that ranges from zero to ten years, with certain products being prorated after the first year. Titan International 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.

8. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT Long-term debt consisted of the following (amounts in thousands):



		30 June 31 December 2012 2011
7.875% senior secured notes due 2017		$	200,000	$	200,000
5.625% convertible senior subordinated notes due	2017	112,881		112,881
Other debt		7,596		16,723
		320,477		329,604
Less amounts due within one year		7,596		11,723
		$	312,881	$	317,881

Aggregate maturities of long-term debt at June 30, 2012, were as follows (amounts in thousands):



July 1 - December 31, 2012	$	2,596
2013	5,000
2014	—
2015	—
2016	—
Thereafter	312,881
	$	320,477

Aggregate maturities of long-term debt at 30 June 2012, were as follows (amounts in thousands):

7.875 per cent. senior secured notes due 2017

Titan International’s 7.875 per cent. senior secured notes (“senior secured notes”) are due October 2017. These notes are secured by the land and buildings of the following subsidiaries of Titan International: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport and Titan Wheel Corporation of Illinois. Titan International’s senior secured notes outstanding balance was $200.0 million at 30 June 2012.

108

5.625 per cent. convertible senior subordinated notes due 2017

Titan International’s 5.625 per cent. convertible senior subordinated notes (“convertible notes”) are due January 2017. The initial base conversion rate for the convertible notes is 93.0016 shares of Titan International common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan International Common Stock. If the price of Titan International Common Stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan International Common Stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture. The base conversion rate will be subject to adjustment in certain events. Titan International’s convertible notes balance was $112.9 million at 30 June 2012.

Revolving credit facility

Titan International’s $100 million revolving credit facility (“credit facility”) with agent Bank of America, N.A. has a January 2014 termination date and is collateralized by the accounts receivable and inventory of Titan International and certain of its domestic subsidiaries. During the first six months of 2012 and at 30 June 2012, there were no borrowings under the credit facility. The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. Titan International is in compliance with these covenants and restrictions as of 30 June 2012.

Other debt

Brazil Term Loan

In May 2011, Titan International entered into a two-year, unsecured $10.0 million Term Loan with Bank of America, N.A. (BoA Term Loan) to provide working capital for the Sao Paulo, Brazil manufacturing facility. Borrowings under the BoA Term Loan bear interest at a rate equal to LIBOR plus 200 basis points. The BoA Term Loan shall be a minimum of $5.0 million with the option for an additional $5.0 million loan for a maximum of $10.0 million. The BoA Term Loan is due May 2013. Titan International entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan. See Note 10 for additional information. As of 30 June 2012, Titan International had $5.0 million outstanding on this loan and the interest rate including the effect of the swap agreement was approximately 11 per cent.

Brazil Revolving Line of Credit

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

Brazil Other Debt

Titan Brazil has working capital loans for the Sao Paulo, Brazil manufacturing facility totaling $2.6 million at 30 June 2012.

10. DERIVATIVE FINANCIAL INSTRUMENTS

Titan International uses financial derivatives to mitigate its exposure to volatility in the interest rate and foreign currency exchange rate in Brazil. Titan International uses these derivate instruments to hedge exposure in the ordinary course of business and does not invest in derivative instruments for speculative purposes. In order to reduce interest rate and foreign currency risk on the BoA Term Loan, Titan International entered into an interest rate swap agreement and cross currency swap transactions with Bank of America Merrill Lynch Banco Multiplo S.A. that are designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan and convert $2.5 million of US Dollar based LIBOR working capital loans to Brazilian Real based CDI loans. Titan International has not designated these agreements as hedging instruments. Changes in the fair value of the cross currency swap are recorded in other income (expense) and changes in the fair value of the interest rate swap agreement are recorded as interest expense (or gain as an offset to interest expense). For the three months ended 30 June 2012, Titan International recorded $0.0 million of other income and $0.2 million of interest expense

109

related to these derivatives. For the six months ended 30 June 2012, Titan International recorded $0.1 million of other income and $0.2 million of interest expense related to these derivatives.

11.LEASE COMMITMENTS

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

At 30 June 2012, future minimum rental commitments under noncancellable operating leases with initial or remaining terms of at least one year were as follows (amounts in thousands):

1 July –31 December 2012 $363

2013 521

2014 419

Thereafter 111

Total future minimum lease payments $1,414

12.EMPLOYEE BENEFIT PLANS

Titan International has three frozen defined benefit pension plans and one defined benefit plan that previously purchased a final annuity settlement. Titan International also sponsors four 401(k) retirement savings plans. Titan International contributed approximately $1.1 million and $1.7 million to the frozen defined pension plans during the three and six months ended 30 June 2012, respectively, and expects to contribute approximately $4.9 million to the frozen pension plans during the remainder of 2012.

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



	Three months ended 30 June 2012 2011						Six months ended 30 June 2012 2011
Interest cost	$	1,133		$	1,272		$	2,266		$	2,544
Expected return on assets	(1,252		)	(1,315		)	(2,504		)	(2,630		)
Amortization of unrecognized prior service cost	34			34			68			68
Amortization of unrecognized deferred taxes	—			(14		)	—			(28		)
Amortization of net unrecognized loss	1,293			936			2,586			1,872
Net periodic pension cost	$	1,208		$	913		$	2,416		$	1,826
11. ROYALTY EXPENSE

Titan International has a trademark license agreement with Goodyear to manufacture and sell certain tires in North America and Latin America under the Goodyear name. The North American and Latin American farm tire royalties were prepaid for seven years as a part of the 2011 Goodyear Latin American farm tire acquisition. Royalty expenses recorded were $2.7 million and $2.4 million for the quarters ended 30 June, 2012 and 2011, respectively. Royalty expenses were $5.0 million and $5.3 million for the six months ended 30 June, 2012 and 2011, respectively.

12. SUPPLY AGREEMENT TERMINATION INCOME

Supply agreement termination income consisted of the following (amounts in thousands):

Three months ended Six months ended

30 June 30 June

2012 2011 2012 2011

Supply agreement termination income $26,134 $— $26,134 $—

110

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

111

15.OTHER INCOME, NET

Other income consisted of the following (amounts in thousands):



	Three months ended 30 June					Six months ended June 30,
	2012			2011		2012		2011
Discount amortization on prepaid royalty	$	933		$	1,079	$	1,972	$	1,079
Building rental income	188			—		363		—
Interest income	180			93		385		238
Gain on purchase transaction	—			919		—		919
Other income (expense)	(215		)	128		209		83
Gain (loss) related to contractual obligation investments	(473		)	51		795		144
	$	613		$	2,270	$	3,724	$	2,463

16.INCOME TAXES

Titan International recorded income tax expense of $31.0 million and $51.1 million for the three and six months ended 30 June, 2012, respectively, as compared to $15.0 million and $22.7 million for the three and six months ended June 30, 2011. Titan International’s effective income tax rate was 39 per cent. and 50 per cent. for the six months ended 30 June, 2012 and 2011, respectively. Titan International’s 2011 income tax expense and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of the $16.1 million noncash charge taken in connection with Titan International’s convertible debt. This noncash charge is not fully deductible for income tax purposes.

ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more likely than not that the position will be sustained upon examination. Titan International’s unrecognized tax benefits were $3.1 million and $0.0 million as of 30 June, 2012 and December 31, 2011, respectively. As of 30 June, 2012, $2.0 million would affect income tax expense if recognized. Titan International recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. The amount of accrued interest and penalties included in the unrecognized tax benefits at 30 June, 2012 and December 31, 2011 were $0.3 million and $0.0 million, respectively. During the three months ended 30 June, 2012, the increase in unrecognized tax benefits relates to potential nexus exposure in various jurisdictions where Titan International has activities.

111

17.EARNINGS PER SHARE

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

Three months ended

30 June 2012 30 June 2011

Titan Weighted- Titan Weighted‑

International average Per share International average Per share

Net income shares amount Net income shares amount

Basic earnings per share $44,056 42,158 $1.05 $25,564 41,981 $0.61

Effect of stock options/trusts — 270 — 330

Effect of convertible notes 1,143 11,088 1,091 11,083

Diluted earnings per share $45,199 53,516 $0.84 $26,655 53,394 $0.50

Six months ended

30 June 2012 June 30, 2011

Titan Weighted- Titan Weighted‑

International average Per share International average Per share

Net income shares amount Net income shares amount

Basic earnings per share $79,475 42,132 $1.89 $22,528 41,250 $0.55

Effect of stock options/trusts — 272 — 314

Effect of convertible notes 2,286 11,088 2,294 11,665

Diluted earnings per share $81,761 53,492 $1.53 $24,822 53,229 $0.47

There were no stock options/trusts or convertible notes that were antidilutive for the periods presented.

18. SEGMENT INFORMATION

The table below presents information about certain revenues and income from operations used by the chief [I 6.2] operating decision maker of Titan International for the three and six months ended 30 June, 2012 and 2011 (amounts in thousands):



	Three months ended 30 June 2012 2011						Six months ended 30 June 2012 2011
Revenues from external customers
Agricultural	$	288,993		$	257,268		$	584,798		$	467,265
Earthmoving/construction	110,541			76,895			215,109			143,406
Consumer	59,699			70,284			122,414			74,605
	$	459,233		$	404,447		$	922,321		$	685,276
Gross profit
Agricultural	$	59,501		$	47,166		$	125,593		$	94,866
Earthmoving/construction	19,562			11,218			41,909			19,413
Consumer	3,773			6,753			9,472			7,755
Unallocated corporate	(750		)	(803		)	(1,525		)	(1,428		)
	$	82,086		$	64,334		$	175,449		$	120,606

112



18. SEGMENT INFORMATION (continued)	Three months ended 30 June						Six months ended 30 June
	2012			2011			2012			2011
Income from operations
Agricultural	$	54,562		$	42,800		$	115,225		$	85,668
Earthmoving/construction	17,516			9,702			37,917			15,990
Consumer	27,416			4,821			30,518			5,737
Unallocated corporate	(18,525		)	(12,926		)	(44,020		)	(36,119		)
Income from operations	80,969			44,397			139,640			71,276
Interest expense	(6,217		)	(6,149		)	(12,512		)	(12,429		)
Noncash convertible debt conversion charge	—			—			—			(16,135		)
Other income, net	613			2,270			3,724			2,463
Income before income taxes	$	75,365		$	40,518		$	130,852		$	45,175



Assets by segment were as follows (amounts in thousands):	June 30, 2031
	2012		2011
Total assets
Agricultural	$	498,391	$	444,611
Earthmoving/construction	219,325		193,566
Consumer	147,242		139,161
Unallocated corporate	229,041		232,948
	$	1,093,999	$	1,010,286

18. FAIR VALUE MEASUREMENTS

ASC 820 Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:

Level 1 – Quoted prices in active markets for identical instruments.

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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

30 June 2012 31 December 2011

Total Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3

Investment in Titan Europe (a) $29,534 $29,534 $— $— $28,998 $28,998 $— $—

Contractual obligation investments 13,190 13,190 12,395 12,395

Preferred stock 1,000 — — 1,000 1,000 — — 1,000

Interest rate swap 1,228 — 1,228 — 634 — 634 —

Total $44,952 $42,724 $1,228 $1,000 $43,027 $41,393 $634 $1,000

(a) The fair value for all periods presented has been decreased by cumulative translation adjustment of $1.2 million, which relates

to Titan International’s Titan Europe ownership in 2005 and before.

113

The following table presents the changes during the periods presented in Titan International’s Level 3 investments that are measured at fair value on a recurring basis (amounts in thousands):

Preferred stock

Balance at 31 December 2011 $1,000

Total realized and unrealized gains and losses —

Balance as of 30 June 2012 $1,000

20.LITIGATION

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

21.RECENTLY ISSUED ACCOUNTING STANDARDS Comprehensive Income

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

22.RELATED PARTY TRANSACTIONS

Titan International sells products and pays commissions to companies controlled by persons related to the chief executive officer of Titan International. The related party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother. The companies which Mr. Fred Taylor is associated with that do business with Titan International include the following: Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering. Sales of Titan International products to these companies were approximately $0.7 million and $1.1 million for the three and six months ended 30 June, 2012, respectively, as compared to $1.1 million and $1.9 million for the three and six months ended June 30, 2011. Titan International had trade receivables due from these companies of approximately $0.4 million at 30 June, 2012, and approximately $0.0 million at December 31, 2011. On other sales referred to Titan International from these manufacturing representative companies, commissions were approximately $0.7 million and $1.4 million for the three and six month ended 30 June, 2012, respectively, as compared to $0.6 million and $1.2 million for the three and six months ended June 30, 2011.

114


23.	SUBSEQUENT EVENTS

Acquisition of Australian OTR Tire & Wheel Manufacturer: Planet Group

In July, 2012, Titan International announced that it has signed an agreement to purchase a majority ownership interest in Planet Corporation Group of Companies (“Planet”) in an all-cash transaction. Planet includes National Tires, Acme Wheel, Resource Tyre and Choice Tyres Wholesalers and is based in Perth, Australia. Planet is an OTR tire and wheel specialist that manufactures, distributes and services products to customers in the mining, agriculture, construction and earthmoving industries. Titan International expects this acquisition to close in the third quarter of 2012.


24.	SUBSIDIARY GUARANTOR FINANCIAL INFORMATION – 5.625 per cent. CONVERTIBLE NOTES

Titan International’s 5.625 per cent. convertible senior subordinated notes (“convertible notes”) are guaranteed by the following 100 per cent. owned subsidiaries of Titan International: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, Titan Tire Corporation of Texas, Titan Wheel Corporation of Illinois, and Titan Wheel Corporation of Virginia. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.

(Amounts in thousands) Consolidating Condensed Statements of Operations

For the Three Months Ended 30 June 2012

Non‑

Titan International Guarantor Guarantor

(Parent) Subsidiaries Subsidiaries Eliminations Consolidated



Net sales	$—			$	373,035	$	86,198		$—			$	459,233
Cost of sales	257			297,636		79,254			—			377,147
Gross profit (loss)	(257		)	75,399		6,944			—			82,086
Selling, general and administrative expenses	3,396			15,062		4,952			—			23,410
Research and development expenses	48			1,081		60			—			1,189
Royalty expense	—			1,779		873			—			2,652
Supply agreement termination income	—			—		(26,134		)	—			(26,134		)
Income (loss) from operations	(3,701		)	57,477		27,193			—			80,969
Interest expense	(6,045		)			(172		)	—			(6,217		)
Other income	283			313		17			—			613
Income (loss) before income taxes	(9,463		)	57,790		27,038			—			75,365
Provision for income taxes	1,884			18,872		10,284			—			31,040
Equity in earnings of subsidiaries	55,672					18,822			(74,494		)	—
Net income (loss)	44,325			38,918		35,576			(74,494		)	44,325
Net income noncontrolling interests	—			—		—			269			269
Net income (loss) attributable to
Titan International	$	44,325		$	38,918	$	35,576		$	(74,763	)	$	44,056

115



(Amounts in thousands)	Consolidating Condensed Statements of Operations For the Three Months Ended June 30, 2011
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	310,392		$	94,055		$	—		$	404,447
Cost of sales	541			254,116			85,456			—			340,113
Gross profit (loss)	(541		)	56,276			8,599			—			64,334
Selling, general and administrative expenses	4,551			2,462			9,560			—			16,573
Research and development expenses	4			1,010			—			—			1,014
Royalty expense	—			1,767			583			—			2,350
Income (loss) from operations	(5,096		)	51,037			(1,544		)	—			44,397
Interest expense	(6,032		)	—			(117		)	—			(6,149		)
Other income (expense)	1,879			(39		)	430			—			2,270
Income (loss) before income taxes	(9,249		)	50,998			(1,231		)	—			40,518
Provision (benefit) for income taxes	(3,397		)	18,808			(449		)	—			14,962
Equity in earnings of subsidiaries	31,408			—			—			(31,408		)	—
Net income (loss)	25,556			32,190			(782		)	(31,408		)	25,556
Net loss noncontrolling interests	—			—			—			(8		)	(8		)
Net income (loss) attributable to Titan	$	25,556		$	32,190		$	(782	)	$	(31,400	)	$	25,564



(Amounts in thousands)	Consolidating Condensed Statements of Operations For the Six Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	744,164	$	178,157		$	—		$	922,321
Cost of sales	559			582,660		163,653			—			746,872
Gross profit (loss)	(559		)	161,504		14,504			—			175,449
Selling, general and administrative expenses	13,983			30,737		9,525			—			54,245
Research and development expenses	172			2,379		146			—			2,697
Royalty expense	—			3,472		1,529			—			5,001
Supply agreement termination income	—			—		(26,134		)	—			(26,134		)
Income (loss) from operations	(14,714		)	124,916		29,438			—			139,640
Interest expense	(12,107		)	—		(405		)	—			(12,512		)
Other income	2,457			810		457			—			3,724
Income (loss) before income taxes	(24,364		)	125,726		29,490			—			130,852
Provision (benefit) for income taxes	(5,068		)	43,913		12,288			—			51,133
Equity in earnings of subsidiaries	99,015			—		18,822			(117,837		)	—
Net income (loss)	79,719			81,813		36,024			(117,837		)	79,719
Net income noncontrolling interests	—			—		—			244			244
Net income (loss) attributable to Titan	$	79,719		$	81,813	$	36,024		$	(118,081	)	$	79,475

116



(Amounts in thousands)	Consolidating Condensed Statements of Operations For the Six Months Ended June 30, 2011
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	591,221		$	94,055		$	—		$	685,276
Cost of sales	902			477,870			85,898			—			564,670
Gross profit (loss)	(902		)	113,351			8,157			—			120,606
Selling, general and administrative expenses	19,956			5,187			16,723			—			41,866
Research and development expenses	4			2,193			—			—			2,197
Royalty expense	—			4,684			583			—			5,267
Income (loss) from operations	(20,862		)	101,287			(9,149		)	—			71,276
Interest expense	(12,312		)	—			(117		)	—			(12,429		)
Noncash convertible debt conversion charge	(16,135		)	—			—			—			(16,135		)
Other income (expense)	2,196			(241		)	508			—			2,463
Income (loss) before income taxes	(47,113		)	101,046			(8,758		)	—			45,175
Provision (benefit) for income taxes	(11,436		)	37,326			(3,235		)	—			22,655
Equity in earnings of subsidiaries	58,197			—			—			(58,197		)	—
Net income (loss)	22,520			63,720			(5,523		)	(58,197		)	22,520
Net loss noncontrolling interests	—			—			—			(8		)	(8		)
Net income (loss) attributable to Titan	$	22,520		$	63,720		$	(5,523	)	$	(58,189	)	$	22,528



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Three Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	44,325		$	38,918	$	35,576		$	(74,494	)	$	44,325
Unrealized gain (loss) on investments, net of tax	(5,580		)	—		(5,580		)	5,580			(5,580		)
Currency translation adjustment	(8,136		)	—		(8,136		)	8,136			(8,136		)
Pension liability adjustments, net of tax	836			790		46			(836		)	836
Comprehensive income (loss)	31,445			39,708		21,906			(61,614		)	31,445
Net comprehensive income attributable to noncontrolling interests	—			—		—			269			269
Comprehensive income (loss) attributable to Titan	$	31,445		$	39,708	$	21,906		$	(61,883	)	$	31,176

117



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Three Months Ended June 30, 2011
	Titan Intl., Inc. (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	25,556	$	32,190	$	(782	)	$	(31,408	)	$	25,556
Unrealized gain (loss) on investments, net of tax	14,645		—		14,645			(14,645		)	14,645
Currency translation adjustment	2,932		—		2,932			(2,932		)	2,932
Pension liability adjustments, net of tax	592		553		39			(592		)	592
Comprehensive income (loss)	43,725		32,743		16,834			(49,577		)	43,725
Net comprehensive loss attributable to noncontrolling interests	—		—		—			(8		)	(8		)
Comprehensive income (loss) attributable to Titan	$	43,725	$	32,743	$	16,834		$	(49,569	)	$	43,733



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Six Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	79,719		$	81,813	$	36,024		$	(117,837	)	$	79,719
Unrealized gain (loss) on investments, net of tax	337			—		337			(337		)	337
Currency translation adjustment	(4,569		)	—		(4,569		)	4,569			(4,569		)
Pension liability adjustments, net of tax	1,672			1,580		92			(1,672		)	1,672
Comprehensive income (loss)	77,159			83,393		31,884			(115,277		)	77,159
Net comprehensive income attributable to noncontrolling interests	—			—		—			244			244
Comprehensive income (loss) attributable to Titan	$	77,159		$	83,393	$	31,884		$	(115,521	)	$	76,915



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Six Months Ended June 30, 2011
	Titan Intl., Inc. (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	22,520	$	63,720	$	(5,523	)	$	(58,197	)	$	22,520
Unrealized gain (loss) on investments, net of tax	13,652		—		13,652			(13,652		)	13,652
Currency translation adjustment	2,932		—		2,932			(2,932		)	2,932
Pension liability adjustments, net of tax	1,185		1,106		79			(1,185		)	1,185
Comprehensive income (loss)	40,289		64,826		11,140			(75,966		)	40,289
Net comprehensive loss attributable to noncontrolling interests	—		—		—			(8		)	(8		)
Comprehensive income (loss) attributable to Titan	$	40,289	$	64,826	$	11,140		$	(75,958	)	$	40,297

118



(Amounts in thousands)	Consolidating Condensed Balance Sheets June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	140,441		$	6	$	9,003		$	—		$	149,450
Accounts receivable	—			185,758		51,660			—			237,418
Inventories	—			169,271		45,587			—			214,858
Prepaid and other current assets	35,691			18,288		14,431			—			68,410
Total current assets	176,132			373,323		120,681			—			670,136
Property, plant and equipment, net	8,159			215,056		101,461			—			324,676
Investment in subsidiaries	271,414			—		18,822			(290,236		)	—
Other assets	43,035			1,351		54,801			—			99,187
Total assets	$	498,740		$	589,730	$	295,765		$	(290,236	)	$	1,093,999
Liabilities and Stockholders’ Equity
Short-term debt	$	—		$	—	$	7,596		$	—		$	7,596
Accounts payable	939			41,601		67,015			—			109,555
Other current liabilities	(3,870		)	61,729		12,605			—			70,464
Total current liabilities	(2,931		)	103,330		87,216			—			187,615
Long-term debt	312,881			—		—			—			312,881
Other long-term liabilities	42,996			36,339		37,092			—			116,427
Intercompany accounts	(329,482		)	99,097		230,385			—			—
Titan stockholders' equity	475,276			350,964		(58,928		)	(292,036		)	475,276
Noncontrolling interests	—			—		—			1,800			1,800
Total liabilities and stockholders’ equity	$	498,740		$	589,730	$	295,765		$	(290,236	)	$	1,093,999

119



(Amounts in thousands)	Consolidating Condensed Balance Sheets December 31, 2011
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	125,266		$	6	$	3,898		$	—		$	129,170
Accounts receivable	—			137,226		52,301			—			189,527
Inventories	—			162,134		28,738			—			190,872
Prepaid and other current assets	27,251			15,490		12,283			—			55,024
Total current assets	152,517			314,856		97,220			—			564,593
Property, plant and equipment, net	9,562			219,734		105,446			—			334,742
Investment in subsidiaries	184,317			—		—			(184,317		)	—
Other assets	44,918			1,454		64,579			—			110,951
Total assets	$	391,314		$	536,044	$	267,245		$	(184,317	)	$	1,010,286
Liabilities and Stockholders’ Equity
Short-term debt	$	—		$	—	$	11,723		$	—		$	11,723
Accounts payable	930			33,563		42,081			—			76,574
Other current liabilities	22,687			39,457		25,325			—			87,469
Total current liabilities	23,617			73,020		79,129			—			175,766
Long-term debt	312,881			—		5,000			—			317,881
Other long-term liabilities	29,267			38,187		52,306			—			119,760
Intercompany accounts	(369,690		)	157,264		212,426			—			—
Titan stockholders' equity	395,239			267,573		(81,616		)	(185,957		)	395,239
Noncontrolling interests	—			—		—			1,640			1,640
Total liabilities and stockholders’ equity	$	391,314		$	536,044	$	267,245		$	(184,317	)	$	1,010,286



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows For the Six Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Net cash provided by operating activities	$	15,859		$	12,406		$	20,418		$	48,683
Cash flows from investing activities:
Capital expenditures	(1,338		)	(12,595		)	(5,073		)	(19,006		)
Other, net	—			189			264			453
Net cash used for investing activities	(1,338		)	(12,406		)	(4,809		)	(18,553		)
Cash flows from financing activities:
Payment on debt	—			—			(14,226		)	(14,226		)
Term loan borrowing	—			—			4,378			4,378
Proceeds from exercise of stock options	887			—			—			887
Excess tax benefit from stock options exercised	190			—			—			190
Dividends paid	(423		)	—			—			(423		)
Net cash provided by (used for) financing activities	654			—			(9,848		)	(9,194		)
Effect of exchange rate change on cash	—			—			(656		)	(656		)
Net increase in cash and cash equivalents	15,175			—			5,105			20,280
Cash and cash equivalents, beginning of period	125,266			6			3,898			129,170
Cash and cash equivalents, end of period	$	140,441		$	6		$	9,003		$	149,450

120



(Amounts in thousands) Consolidating Condensed Statements of Cash Flows For the Six Months Ended 30 June 2011 Titan International, Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Consolidated Net cash provided by (used for)
operating activities	$	(27,035	)	$	7,157		$	(10,754	)	$	(30,632	)
Cash flows from investing activities:
Capital expenditures	(1,089		)	(8,070		)	(1,037		)	(10,196		)
Acquisitions, net of cash acquired	(99,118		)	—			—			(99,118		)
Other, net				914			481			1,395
Net cash used for investing activities	(100,207		)	(7,156		)	(556		)	(107,919		)
Cash flows from financing activities:
Repurchase of senior unsecured notes	(1,064		)	—			—			(1,064		)
Term loan borrowing	—			—			14,148			14,148
Proceeds from exercise of stock options	477			—			—			477
Dividends paid	(387		)	—			—			(387		)
Net cash provided by (used for) financing activities	(974		)	—			14,148			13,174
Effect of exchange rate change on cash	—			—			39			39
Net increase (decrease) in cash and cash equivalents	(128,216		)	1			2,877			(125,338		)
Cash and cash equivalents, beginning of period	239,362			6			132			239,500
Cash and cash equivalents, end of period	$	111,146		$	7		$	3,009		$	114,162

25. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION – 7.875 PER CENT. SENIOR SECURED NOTES

Titan International’s 7.875 per cent. senior secured notes are guaranteed by the following 100 per cent. owned subsidiaries of Titan International: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.

121



(Amounts in thousands) Consolidating Condensed Statements of Operations For the Three Months Ended 30 June 2012 Titan International, Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
Net sales			$—			$	367,300	$91,933 $—								$	459,233
Cost of sales			257			292,357		84,533 —								377,147
Gross profit (loss)			(257		)	74,943		7,400 —								82,086
Selling, general and administrative expenses			3,396			14,521		5,493 —								23,410
Research and development expenses			48			1,074		67 —								1,189
Royalty expense			—			1,779		873 —								2,652
Supply agreement termination income			—			—		(26,134) —								(26,134		)
Income (loss) from operations			(3,701		)	57,569		27,101 —								80,969
Interest expense			(6,045		)			(172) —								(6,217		)
Other income			283			134		196 —								613
Income (loss) before income taxes			(9,463		)	57,703		27,125 —								75,365
Provision (benefit) for income taxes			1,884			18,740		10,416 —								31,040
Equity in earnings of subsidiaries			55,672					27,074 (82,746)								—
Net income (loss)			44,325			38,963		43,783 (82,746)								44,325
Net income noncontrolling interests			—			—		— 269								269
Net income (loss) attributable to Titan International			$	44,325		$	38,963	$43,783 $(83,015)								$	44,056
(Amounts in thousands)			Consolidating Condensed Statements of Operations
			For the Three Months Ended 30 June 2011
Titan International, Inc. (Parent)						Guarantor Subsidiaries				Non‑ Guarantor Subsidiaries			Eliminations Consolidated
Net sales	$—					$	304,400			$	100,047		$—			$	404,447
Cost of sales	541					248,556				91,016			—			340,113
Gross profit (loss)	(541				)	55,844				9,031			—			64,334
Selling, general and administrative expenses	4,551					2,357				9,665			—			16,573
Research and development expenses	4					1,003				7						1,014
Royalty expense	—					1,767				583			—			2,350
Income (loss) from operations	(5,096				)	50,717				(1,224		)	—			44,397
Interest expense	(6,032				)	—				(117		)	—			(6,149		)
Other income (expense)	1,879					(46			)	437			—			2,270
Income (loss) before income taxes	(9,249				)	50,671				(904		)	—			40,518
Provision (benefit) for income taxes	(3,397				)	18,688				(329		)	—			14,962
Equity in earnings of subsidiaries	31,408					—				—			(31,408		)
Net income (loss)	25,556					31,983				(575		)	(31,408		)	25,556
Net loss noncontrolling interests	—					—				—			(8		)	(8		)
Net income (loss) attributable to Titan International	$	25,556				$	31,983			$	(575	)	$	(31,400	)	$	25,564

122



(Amounts in thousands) Consolidating Condensed Statements of Operations For the Six Months Ended 30 June 2012 Titan International, Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Eliminations Consolidated
Net sales			$—			$	733,481	$188,840 $—								$	922,321
Cost of sales			559			572,388		173,925 —								746,872
Gross profit (loss)			(559		)	161,093		14,915 —								175,449
Selling, general and administrative expenses			13,983			29,678		10,584 —								54,245
Research and development expenses			172			2,306		219								2,697
Royalty expense			—			3,472		1,529								5,001
Supply agreement termination income			—			—		(26,134) —								(26,134		)
Income (loss) from operations			(14,714		)	125,637		28,717 —								139,640
Interest expense			(12,107		)			(405) —								(12,512		)
Other income			2,457			448		819 —								3,724
Income (loss) before income taxes			(24,364		)	126,085		29,131 —								130,852
Provision (benefit) for income taxes			(5,068		)	43,854		12,347 —								51,133
Equity in earnings of subsidiaries			99,015					59,626 (158,641)								—
Net income (loss)			79,719			82,231		76,410 (158,641)								79,719
Net income noncontrolling interests			—			—		— 244								244
Net income (loss) attributable to Titan International			$	79,719		$	82,231	$76,410 $(158,885)								$	79,475
(Amounts in thousands)			Consolidating Condensed Statements of Operations
			For the Six Months Ended 30 June 2011
Titan International, Inc. (Parent)						Guarantor Subsidiaries				Non‑ Guarantor Subsidiaries			Eliminations Consolidated
Net sales	$—					$	579,361			$	105,915		$—			$	685,276
Cost of sales	902					466,551				97,217			—			564,670
Gross profit (loss)	(902				)	112,810				8,698			—			120,606
Selling, general and administrative expenses	19,956					5,006				16,904			—			41,866
Research and development expenses	4					2,186				7			—			2,197
Royalty expense	—					4,684				583			—			5,267
Income (loss) from operations	(20,862				)	100,934				(8,796		)	—			71,276
Interest expense	(12,312				)	—				(117		)	—			(12,429		)
Noncash convertible debt conversion charge	(16,135				)	—				—			—			(16,135		)
Other income (expense)	2,196					(281			)	548			—			2,463
Income (loss) before income taxes	(47,113				)	100,653				(8,365		)	—			45,175
Provision (benefit) for income taxes	(11,436				)	37,181				(3,090		)				22,655
Equity in earnings of subsidiaries	58,197									—			(58,197		)
Net income (loss)	22,520					63,472				(5,275		)	(58,197		)	22,520
Net loss noncontrolling interests	—					—				—			(8		)	(8		)
Net income (loss) attributable to Titan International	$	22,520				$	63,472			$	(5,275	)	$	(58,189	)	$	22,528

123



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Three Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	44,325		$	38,963	$	43,783		$	(82,746	)	$	44,325
Unrealized gain (loss) on investments, net of tax	(5,580		)	—		(5,580		)	5,580			(5,580		)
Currency translation adjustment	(8,136		)	—		(8,136		)	8,136			(8,136		)
Pension liability adjustments, net of tax	836			790		46			(836		)	836
Comprehensive income (loss)	31,445			39,753		30,113			(69,866		)	31,445
Net comprehensive income attributable to noncontrolling interests	—			—		—			269			269
Comprehensive income (loss) attributable to Titan	$	31,445		$	39,753	$	30,113		$	(70,135	)	$	31,176



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Three Months Ended June 30, 2011
	Titan Intl., Inc. (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	25,556	$	31,983	$	(575	)	$	(31,408	)	$	25,556
Unrealized gain (loss) on investments, net of tax	14,645		—		14,645			(14,645		)	14,645
Currency translation adjustment	2,932		—		2,932			(2,932		)	2,932
Pension liability adjustments, net of tax	592		553		39			(592		)	592
Comprehensive income (loss)	43,725		32,536		17,041			(49,577		)	43,725
Net comprehensive loss attributable to noncontrolling interests	—		—		—			(8		)	(8		)
Comprehensive income (loss) attributable to Titan	$	43,725	$	32,536	$	17,041		$	(49,569	)	$	43,733



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Six Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	79,719		$	82,231	$	76,410		$	(158,641	)	$	79,719
Unrealized gain (loss) on investments, net of tax	337			—		337			(337		)	337
Currency translation adjustment	(4,569		)	—		(4,569		)	4,569			(4,569		)
Pension liability adjustments, net of tax	1,672			1,580		92			(1,672		)	1,672
Comprehensive income (loss)	77,159			83,811		72,270			(156,081		)	77,159
Net comprehensive income attributable to noncontrolling interests	—			—		—			244			244
Comprehensive income (loss) attributable to Titan	$	77,159		$	83,811	$	72,270		$	(156,325	)	$	76,915

124



(Amounts in thousands)	Consolidating Condensed Statements of Comprehensive Income For the Six Months Ended June 30, 2011
	Titan Intl., Inc. (Parent)		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net income (loss)	$	22,520	$	63,472	$	(5,275	)	$	(58,197	)	$	22,520
Unrealized gain (loss) on investments, net of tax	13,652		—		(13,652		)	13,652			13,652
Currency translation adjustment	2,932		—		2,932			(2,932		)	2,932
Pension liability adjustments, net of tax	1,185		1,106		79			(1,185		)	1,185
Comprehensive income (loss)	40,289		64,578		(15,916		)	(48,662		)	40,289
Net comprehensive loss attributable to noncontrolling interests	—		—		—			(8		)	(8		)
Comprehensive income (loss) attributable to Titan	$	40,289	$	64,578	$	(15,916	)	$	(48,654	)	$	40,297

(Amounts in thousands) Consolidating Condensed Balance Sheets



Titan International, Inc. (Parent) Assets				Guarantor Subsidiaries		30 June 2012 Non‑ Guarantor Subsidiaries			Eliminations Consolidated
Cash and cash equivalents	$	140,441		$	4	$	9,005		$—			$	149,450
Accounts receivable	—			181,575		55,843			—			237,418
Inventories	—			151,897		62,961			—			214,858
Prepaid and other current assets	35,691			18,121		14,598			—			68,410
Total current assets	176,132			351,597		142,407			—			670,136
Property, plant and equipment, net	8,159			200,687		115,830			—			324,676
Investment in subsidiaries	271,414					69,379			(340,793		)	—
Other assets	43,035			1,351		54,801			—			99,187
Total assets	$	498,740		$	553,635	$	382,417		$	(340,793	)	$	1,093,999
Liabilities and Stockholders’ Equity
Short-term debt	$—			$—		$	7,596		$—			$	7,596
Accounts payable	939			41,157		67,459			—			109,555
Other current liabilities	(3,870		)	60,991		13,343			—			70,464
Total current liabilities	(2,931		)	102,148		88,398			—			187,615
Long-term debt	312,881			—		—			—			312,881
Other long-term liabilities	42,996			36,277		37,154			—			116,427
Intercompany accounts	(329,482		)	27,559		301,923			—			—
Titan International stockholders’ equity	475,276			387,651		(45,058		)	(342,593		)	475,276
Noncontrolling interests	—			—		—			1,800			1,800
Total liabilities and stockholders’ equity	$	498,740		$	553,635	$	382,417		$	(340,793	)	$	1,093,999

125



(Amounts in thousands)	Consolidating Condensed Balance Sheets December 31, 2011
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	125,266		$	4	$	3,900		$	—		$	129,170
Accounts receivable	—			133,320		56,207			—			189,527
Inventories	—			144,511		46,361			—			190,872
Prepaid and other current assets	27,251			15,385		12,388			—			55,024
Total current assets	152,517			293,220		118,856			—			564,593
Property, plant and equipment, net	9,562			205,027		120,153			—			334,742
Investment in subsidiaries	184,307			—		—			(184,307		)	—
Other assets	44,918			1,454		64,579			—			110,951
Total assets	$	391,304		$	499,701	$	303,588		$	(184,307	)	$	1,010,286
Liabilities and Stockholders’ Equity
Short-term debt	$	—		$	—	$	11,723		$	—		$	11,723
Accounts payable	930			33,070		42,574			—			76,574
Other current liabilities	22,687			39,104		25,678			—			87,469
Total current liabilities	23,617			72,174		79,975			—			175,766
Long-term debt	312,881			—		5,000			—			317,881
Other long-term liabilities	29,267			38,125		52,368			—			119,760
Intercompany accounts	(369,700		)	85,560		284,140			—			—
Titan stockholders' equity	395,239			303,842		(117,895		)	(185,947		)	395,239
Noncontrolling interests	—			—		—			1,640			1,640
Total liabilities and stockholders’ equity	$	391,304		$	499,701	$	303,588		$	(184,307	)	$	1,010,286



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows For the Six Months Ended June 30, 2012
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Net cash provided by operating activities	$	15,859		$	11,987		$	20,837		$	48,683
Cash flows from investing activities:
Capital expenditures	(1,338		)	(12,176		)	(5,492		)	(19,006		)
Other, net	—			189			264			453
Net cash used for investing activities	(1,338		)	(11,987		)	(5,228		)	(18,553		)
Cash flows from financing activities:
Payment on debt	—			—			(14,226		)	(14,226		)
Term loan borrowing	—			—			4,378			4,378
Proceeds from exercise of stock options	887			—			—			887
Excess tax benefit from stock options exercised	190			—			—			190
Dividends paid	(423		)	—			—			(423		)
Net cash provided by (used for) financing activities	654			—			(9,848		)	(9,194		)
Effect of exchange rate change on cash	—			—			(656		)	(656		)
Net increase in cash and cash equivalents	15,175			—			5,105			20,280
Cash and cash equivalents, beginning of period	125,266			4			3,900			129,170
Cash and cash equivalents, end of period	$	140,441		$	4		$	9,005		$	149,450

126



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows For the Six Months Ended 30 June 2011 Titan, Non‑ International Guarantor Guarantor Inc. (Parent) Subsidiaries Subsidiaries Consolidated
Net cash provided by operating activities	$	(27,035	)	$	7,052		$	(10,649	)	$	(30,632	)
Cash flows from investing activities:
Capital expenditures	(1,089		)	(7,965		)	(1,142		)	(10,196		)
Acquisitions, net of cash acquired	(99,118		)	—			—			(99,118		)
Other, net				914			481			1,395
Net cash used for investing activities	(100,207		)	(7,051		)	(661		)	(107,919		)
Cash flows from financing activities:
Repurchase of senior unsecured notes	(1,064		)	—			—			(1,064		)
Term loan borrowing	—			—			14,148			14,148
Proceeds from exercise of stock options	477			—			—			477
Dividends paid	(387		)	—			—			(387		)
Net cash provided by (used for) financing activities	(974		)	—			14,148			13,174
Effect of exchange rate change on cash	—			—			39			39
Net increase (decrease) in cash and cash equivalents	(128,216		)	1			2,877			(125,338		)
Cash and cash equivalents, beginning of period	239,362			3			135			239,500
Cash and cash equivalents, end of period	$	111,146		$	4		$	3,012		$	114,162

127

PART B: Titan International audited consolidated financial information
for the year ended 31 December 2011 (under US GAAP)

The Report of Independent Registered Public Accounting firm has been extracted in this Part 3 of Part 7 of this document from Titan International’s Annual Report filed with the SEC on 23 February 2012.

Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Titan International, Inc.:

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

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

/s/ PricewaterhouseCoopers LLP

PricewaterhouseCoopers LLP

St. Louis, Missouri 22 February 2012

128

The audited consolidated financial position of Titan International as of and for the years ended 31 December 2011 and 31 December 2010 and the results of their operations and their cash flows for each of the three years ended 31 December 2011 in this Part B of Part 7 of this document have been extracted without material adjustment from the consolidated financial statements which are set out in their entirety in the index appearing under Item 15(a)(1) of Titan International’s Annual Report on 10K filed with the SEC on 23 February 2012.



TITAN INTERNATIONAL CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts in thousands, except per share data)
	Year ended 31 December
	2011			2010			2009
Net sales	$	1,486,998		$	881,591		$	727,599
Cost of sales	1,254,890			777,501			671,634
Gross profit	232,108			104,090			55,965
Selling, general and administrative expenses	85,917			57,565			46,734
Research and development expenses	4,228			6,317			8,850
Royalty expense	9,790			9,263			7,573
Noncash goodwill impairment charge	—			—			11,702
Income (loss) from operations	132,173			30,945			(18,894		)
Interest expense	(25,259		)	(26,667		)	(16,246		)
Noncash convertible debt conversion charge	(16,135		)	—			—
Gain (loss) on senior note repurchase	—			(14,573		)	1,398
Other income	5,116			1,105			1,740
Income (loss) before income taxes	95,895			(9,190		)	(32,002		)
Provision (benefit) for income taxes	37,759			(3,264		)	(7,357		)
Net income (loss)	58,136			(5,926		)	(24,645		)
Net loss attributable to noncontrolling interests	(16		)	—			—
Net income (loss) attributable to Titan International	$	58,152		$	(5,926	)	$	(24,645	)
Earnings (loss) per common share:
Basic	$	1.4		$	(0.17	)	$	(0.71	)
Diluted	$	1.18		$	(0.17	)	$	(0.71	)
Average common shares and equivalents outstanding:
Basic	41,657			34,896			34,708
Diluted	53,144			34,896			34,708
Dividends declared per common share:	$	0.02		$	0.02		$	0.02
See accompanying Notes to Consolidated Financial Statements.

129



TITAN INTERNATIONAL
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
	31 December
	2011 2010
Assets
Current assets
Cash and cash equivalents	$	129,170		$	239,500
Accounts receivable (net of allowance of $4,204 and $3,889, respectively)	189,527			89,004
Inventories	190,872			118,143
Deferred income taxes	26,775			16,040
Prepaid and other current assets	28,249			18,663
Total current assets	564,593			481,350
Property, plant and equipment, net	334,742			248,054
Other assets	110,951			51,476
Total assets	$	1,010,286		$	780,880
Liabilities and Equity
Current liabilities
Short-term debt	$	11,723		$—
Accounts payable	76,574			35,281
Other current liabilities	87,469			57,072
Total current liabilities	175,766			92,353
Long-term debt	317,881			373,564
Deferred income taxes	38,691			1,664
Other long-term liabilities	81,069			41,268
Total liabilities	613,407			508,849
Commitments and contingencies: Notes 13, 25 and 26
Equity
Titan International stockholder’s equity
Common stock (no par, 120,000,000 shares authorized, 44,092,997 and 37,475,288 issued, respectively)	37			30
Additional paid-in capital	380,295			300,540
Retained earnings	67,053			9,744
Treasury stock (at cost, 1,887,316 and 2,108,561 shares, respectively)	(17,338		)	(19,324		)
Treasury stock reserved for deferred compensation	(1,233		)	(1,917		)
Accumulated other comprehensive loss	(33,575		)	(17,042		)
Total Titan International stockholders’ equity	395,239			272,031
Noncontrolling interests	1,640			—
Total equity	396,879			272,031
Total liabilities and equity	$	1,010,286		$	780,880
See accompanying Notes to Consolidated Financial Statements.

130

TITAN INTERNATIONAL

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (All amounts in thousands, except share data)



	Number of common shares	Common Stock		Additional paid-in capital			Retained earnings			Treasury stock			Treasury stock reserved for contractual obligations			Accumulated other comprehensive income (loss)			Total Titan Equity			Non-controlling interest			Total Equity
Balance January 1, 2009	35,031,684	$	30	$	300,024		$	41,726		$	(22,332	)	$	(5,501	)	$	(34,759	)	$	279,188		$	—		$	279,188
Comprehensive loss:
Net loss							(24,645		)										(24,645		)				(24,645		)
Pension liability adjustments, net of tax																5,538			5,538						5,538
Unrealized gain on investment, net of tax																915			915						915
Comprehensive loss																			(18,192		)	—			(18,192		)
Dividends on common stock							(704		)										(704		)				(704		)
Exercise of stock options	170,000			(384		)				1,526									1,142						1,142
Deferred compensation transactions				(7		)							108						101						101
Issuance of treasury stock under 401(k) plan	59,257			(114		)				532									418						418
Balance December 31, 2009	35,260,941	30		299,519			16,377			(20,274		)	(5,393		)	(28,306		)	261,953			—			261,953
Comprehensive income:
Net loss							(5,926		)										(5,926		)				(5,926		)
Pension liability adjustments, net of tax																710			710						710
Unrealized gain on investment, net of tax																10,554			10,554						10,554
Comprehensive income																			5,338			—			5,338
Dividends on common stock							(707		)										(707		)				(707		)
Exercise of stock options	56,250			(220		)				505									285						285
Stock-based compensation				201															201						201
Deferred compensation transactions				999									3,476						4,475						4,475
Issuance of treasury stock under 401(k) plan	49,536			41						445									486						486
Balance December 31, 2010	35,366,727	30		300,540			9,744			(19,324		)	(1,917		)	(17,042		)	272,031			—			272,031
Comprehensive income:
Net income							58,152												58,152			(16		)	58,136
Currency translation adjustment																(12,833		)	(12,833		)				(12,833		)
Pension liability adjustments, net of tax																(7,709		)	(7,709		)				(7,709		)
Unrealized gain on investment, net of tax																4,009			4,009						4,009
Comprehensive income																			41,619			(16		)	41,603
Dividends on common stock							(843		)										(843		)				(843		)
Note conversion	6,617,709	7		73,902															73,909						73,909
Exercise of stock options	69,375			(98		)				622									524						524
Acquisitions	125,524			1,708						1,127									2,835			1,656			4,491
Stock-based compensation				2,392															2,392						2,392
Tax benefit related to stock-based compensation				706															706						706
Deferred compensation transactions				846									684						1,530						1,530
Issuance of treasury stock under 401(k) plan	26,346			299						237									536						536
Balance December 31, 2011	42,205,681	$	37	$	380,295		$	67,053		$	(17,338	)	$	(1,233	)	$	(33,575	)	$	395,239		$	1,640		$	396,879

See accompanying Notes to Consolidated Financial Statements.

131



TITAN INTERNATIONAL CONSOLIDATED STATEMENTS OF CASH FLOWS (All amounts in thousands)	Year ended 31 December
	2011			2010			2009
Cash flows from operating activities:
Net income (loss)	$	58,136		$	(5,926	)	$	(24,645	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44,908			37,567			34,296
Deferred income tax provision	(449		)	(2,080		)	(2,950		)
Realized gain on investments	(1,588		)	—			—
Noncash convertible debt conversion charge	16,135			—			—
(Gain) loss on note repurchase	—			14,573			(1,398		)
Noncash goodwill impairment charge	—			—			11,702
Stock-based compensation	2,392			201			—
Excess tax benefit from stock options exercised	(706		)	—			—
Issuance of treasury stock under 401(k) plan	536			486			418
Gain on acquisition	(285		)	—			—
(Increase) decrease in assets:
Accounts receivable	(105,619		)	(21,491		)	59,018
Inventories	(55,607		)	(8,007		)	37,170
Prepaid and other current assets	(2,214		)	8,614			(5,615		)
Other assets	1,134			91			(2,031		)
Increase (decrease) in liabilities:
Accounts payable	44,991			11,035			(41,301		)
Other current liabilities	9,192			11,426			(462		)
Other liabilities	(6,530		)	4,222			8,111
Net cash provided by operating activities	4,426			50,711			72,313
Cash flows from investing activities:
Capital expenditures	(35,744		)	(28,854		)	(39,537		)
Acquisitions, net of cash acquired	(99,118		)	—			—
Purchases of marketable securities	(30,000		)	—			—
Sales of marketable securities	31,586			—			—
Acquisition of shares of Titan Europe	—			—			(2,399		)
Other	2,473			106			1,042
Net cash used for investing activities	(130,803		)	(28,748		)	(40,894		)
Cash flows from financing activities:
Proceeds from borrowings	—			200,000			172,500
Repurchase of senior unsecured notes	(1,064		)	(206,166		)	(4,726		)
Payment on debt	(8,856		)	—			—
Term loan borrowing	25,879			—			—
Payment on revolving credit facility, net	—			—			(25,000		)
Proceeds from exercise of stock options	524			285			1,142
Excess tax benefit from stock options exercised	706			—			—
Payment of financing fees	—			(5,057		)	(7,107		)
Dividends paid	(809		)	(707		)	(704		)
Net cash provided by (used for) financing activities	16,380			(11,645		)	136,105
Effect of exchange rate changes on cash	(333		)	—			—
Net increase (decrease) in cash and cash equivalents	(110,330		)	10,318			167,524
Cash and cash equivalents, beginning of year	239,500			229,182			61,658
Cash and cash equivalents, end of year	$	129,170		$	239,500		$	229,182
See accompanying Notes to Consolidated Financial Statements.

132

TITAN INTERNATIONAL

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business

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

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly- and majority-owned subsidiaries. Investments in publicly traded entities of less than 20 per cent. and those that Titan International does not exercise significant influence over are carried at fair value in accordance with Accounting Standards Codification (ASC) 320 Investments – Debt and Equity Securities. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s 21.8 per cent. investment in Titan Europe should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities. The Company has determined after considering the facts and circumstances relating to the investment that the equity method of accounting is not appropriate as the Company does not have significant influence over Titan Europe. All significant intercompany accounts and transactions have been eliminated.

Inventories

Inventories are valued at the lower of cost or market. 31 At 31 December 2011, approximately 30 per cent. of the Company’s inventories were valued under the last-in, first out (LIFO) method. The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method. The remaining inventories were valued under the first-in, first-out (FIFO) method or average cost method. Market value is estimated based on current selling prices. Estimated provisions are established for slow-moving and obsolete inventory.

Deferred financing costs

Deferred financing costs are costs incurred in connection with the Company’s revolving credit facility, 7.875 per cent. senior secured notes and 5.625 per cent. convertible senior subordinated notes. The deferred financing costs associated with each of the debt facilities are being amortized over the life of the debt. Amortization of deferred financing costs for the debt facilities approximates the effective interest rate method.

Fixed assets

Property, plant and equipment have been recorded at cost. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets:

Years

Building and improvements 25 – 40

Machinery and equipment 10 – 15

Tools, dies and molds 5 – 9

133

Maintenance and repairs are expensed as incurred. When property, plant and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are eliminated, and any gain or loss on disposition is included in the accompanying consolidated statements of operations.

Interest is capitalized on fixed asset projects which are constructed over a period of time. The amount of interest capitalized is determined by applying a weighted average interest rate to the average amount of accumulated expenditures for the asset during the period. The interest rate used is based on the rates applicable to borrowings outstanding during the period.

Fair value of financial instruments

Available-for-sale securities

The Company has an investment in Titan Europe that was valued at $29.0 million as of 31 December 2011, representing a 21.8 per cent. ownership position, at that time. Titan Europe is publicly traded on the AIM market in London, England. The investment in Titan Europe is included as a component of other assets on the Consolidated Balance Sheets. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe should continue to be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe. In accordance with ASC 320, the Company records the Titan Europe investment as an available-for-sale security and reports this investment at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Should the fair value decline below the cost basis, the Company would be required to determine if this decline is other than temporary. If the decline in fair value were judged to be other than temporary, an impairment charge would be recorded. Declared dividends on this investment are recorded in income as a component of other income. See Note 7 for additional information.

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 estimated fair value of the asset.

Foreign currency translation

The financial statements of the Company’s foreign subsidiaries are translated to United States currency in accordance with ASC 830 Foreign Currency Matters. Assets and liabilities are translated to United States dollars at period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are included in “Accumulated other comprehensive loss” in stockholders’ equity. At 31 December 2011, the Company’s investment in Titan Europe was classified as available-for-sale securities and this investment is included as a component of other assets on the Consolidated Balance Sheets. Gains and losses that result from foreign currency transactions are included in the accompanying consolidated statements of operations.

134

Impairment of goodwill

The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. The Company has elected to early adopt Accounting Standards Update (ASU) 2011-08 and first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. See Note 9 for additional information.

Revenue recognition

The Company records sales revenue 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 trends change, adjustments would be necessary to the estimated provisions.

Cost of sales

Cost of sales is comprised primarily of direct materials and supplies consumed in the manufacturing of the Company’s products, as well as manufacturing labour, depreciation expense and overhead expense necessary to acquire and convert the purchased materials and supplies into a finished product. Cost of sales also includes all purchasing, receiving, inspection, internal transfers, and related distribution costs.

Selling, general and administrative expense

Selling, general and administrative (SG&A) expense is comprised primarily of sales commissions, marketing expense, selling and administrative wages, information system costs, legal fees, bank charges, audit fees, depreciation and amortization expense on non-manufacturing assets, and other administrative items.

Research and development expense

Research and development (R&D) expenses are expensed as incurred. R&D costs were $4.2 million, $6.3 million and $8.9 million for the years of 2011, 2010 and 2009, respectively. The lower R&D costs recorded during the past two years primarily resulted from less R&D related to the Giant OTR products.

Advertising

Advertising expenses are included in SG&A expense and are expensed as incurred. Advertising costs were approximately $2 million for each of the years ended 31 December 2011, 2010 and 2009.

Warranty costs

The Company provides limited warranties on workmanship on its products in all market segments. The provision for estimated warranty costs is made in the period when such costs become probable and is based on past warranty experience. See Note 11 for additional information.

Income taxes

Deferred income tax provisions are determined using the liability method whereby deferred tax assets and liabilities are recognized based upon temporary differences between the financial statement and income tax basis of assets and liabilities. The Company assesses the realizability of its deferred tax asset positions to determine if a valuation allowance is necessary. In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.

135

Earnings per share

Basic earnings per share (EPS) is computed by dividing consolidated net earnings by the weighted average number of common shares outstanding. Diluted EPS is computed by dividing adjusted consolidated net earnings by the sum of the weighted average number of common shares outstanding and the weighted average number of potential common shares outstanding. Potential common shares consist of outstanding options under the Company’s stock option plans and the conversion of the Company’s 5.625 per cent. convertible senior subordinated notes.

Cash equivalents

The Company considers short-term debt securities with an original maturity of three months or less to be cash equivalents.

Interest paid

The Company paid $24.8 million, $23.7 million and $16.7 million for interest in 2011, 2010 and 2009, respectively.

Income taxes paid

Titan International paid $30.8 million, $0.2 million and $0.4 million for income taxes in 2011, 2010 and 2009, respectively.

Environmental liabilities

Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing condition caused by past operations and that do not contribute to current or future revenue are expensed. Liabilities are recorded when environmental assessments and/or remedial efforts are probable and can be reasonably estimated.

Stock-based compensation

At 31 December 2011, the Company has two stock-based compensation plans, which are described in Note 24. Compensation expense for stock-based compensation is recognized over the requisite service period at the estimated fair value of the award at the grant date. The Company granted 492,500 and 494,938 stock options in 2011 and 2010, respectively. The Company granted no stock options in 2009.

Reclassification

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

Use of estimates

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

Recently issued accounting standards Fair Value Measurement

In May 2011, the FASB issued ASU No. 2011-04, “Fair Value Measurement (Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs.” This update establishes common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). The amendments in this update are effective during

136

interim and annual periods beginning after 15 December 2011. The adoption of this update is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Comprehensive Income

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

Goodwill Impairment Testing

In September 2011, the FASB issued ASU No. 2011-08, “Intangibles-Goodwill and Other (Topic 350) – Testing Goodwill for Impairment.” The objective of this update is to simplify how entities test goodwill for impairment. The amendments in the update permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in Topic 350. The amendments in this update are effective for interim and annual goodwill impairment tests performed for fiscal years beginning after 15 December 2011. Early adoption is permitted and the Company elected to adopt this update for the year ended 31 December 2011. The adoption of this update did not have a material effect on the Company’s financial position, results of operations or cash flows.

2. ACQUISITIONS

Acquisition of AII Holding, Inc.

On 1 April 2011, Titan International purchased a 70 per cent. controlling interest in AII Holding, Inc. (AII) for $1.3 million of Titan International stock and payment of $2.3 million for AII’s debt. The fair value of the identified assets acquired less liabilities assumed exceeded the fair value of the consideration transferred and noncontrolling interest. Therefore, a bargain purchase gain of $0.3 million was recorded on the transaction.

Acquisition of Goodyear’s Latin American Farm Tire Business

On 1 April 2011, Titan International closed on the acquisition of The Goodyear Tire & Rubber Company’s (Goodyear) Latin American farm tire business for approximately $98.6 million U.S. dollars. In addition, there were approximately $1.3 million of acquisition related costs recorded as selling, general and administrative costs during the year ended 31 December 2011. The transaction includes Goodyear’s Sao Paulo, Brazil manufacturing plant, property, equipment; inventories; a licensing agreement that allows Titan International to sell Goodyear-brand farm tires in Latin America for seven years; and extends the North American licensing agreement for seven years. Net sales and net income before taxes from the acquisition date included in the statement of operations was $276.5 million and $13.8 million, respectively.

The Company funded the acquisition with cash on hand. The purchase price was allocated to the assets acquired and liabilities assumed based on their fair values. Inventory was valued using the comparative sales method. Real and personal property was valued at fair value. The excess of the purchase price over the identifiable assets acquired and liabilities assumed was reflected as goodwill. The goodwill was allocated to the agricultural segment.

137

The purchase price allocation of the Latin American farm tire business consisted of the following (in thousands):



Cash	$	1,018
Inventories	14,562
Prepaid & other current assets	4,929
Property, plant & equipment	108,905
Goodwill	22,896
Other assets	39,263
Other current liabilities	(21,127		)
Deferred income taxes	(30,985		)
Other noncurrent liabilities	(40,823		)
Net assets acquired	$	98,638

The purchase price allocation includes $42.5 million for prepaid royalty. The prepaid royalty is for a seven year period and was calculated using a 2 per cent. royalty discounted at a 10 per cent. rate. The prepaid royalty and discount will be amortized over the seven year period of the agreement. The current portion of the prepaid royalty was $3.9 million and is included in prepaid & other current assets. The noncurrent portion of the prepaid royalty was $38.6 million and is included in other assets. At 31 December 2011, the current balance of the prepaid royalty was $4.3 million and the noncurrent balance of the prepaid royalty was $33.8 million.

The purchase price allocation includes $53.9 million for supply agreement liability which was valued using the incremental income method. The supply agreement liability was recorded as the supply agreements are for sales at below market prices. The liability will be amortized with an increase to sales over the three year life of the agreement. The current portion of the supply agreement was $18.0 million and is included in other current liabilities. The noncurrent portion of the supply agreement was $35.9 million and is included in other noncurrent liabilities. At 31 December 2011, the current balance of the supply agreement liability was $15.6 million and the noncurrent balance of the supply agreement liability was $19.5 million.

Pro forma financial information

The following unaudited pro forma financial information gives effect to the acquisition of Goodyear’s Latin American farm tire business as if the acquisition had taken place on 1 January 2010. The pro forma financial information for the Sao Paulo, Brazil manufacturing facility was derived from The Goodyear Tire & Rubber Company’s historical accounting records. These amounts have been calculated by adjusting the historical results of the Sao Paulo, Brazil facility to reflect the additional depreciation and the amortization of the prepaid royalty discount and supply agreement liability assuming the fair value adjustments had taken place.

Pro forma financial information is as follows (in thousands, except per share data):



	2011		2010
Net sales	$	1,519,892	$	1,011,568
Net income	62,266		13,760
Net income attributable to Titan International	62,282		13,760
Basic earnings per share	$	1.5	$	0.39
Diluted earnings per share	1.26		0.39

The pro forma information is presented for illustrative purposes only and may not be indicative of the results that would have been obtained had the acquisition actually occurred on 1 January 2010, nor is it necessarily indicative of Titan International’s future consolidated results of operations or financial position.

138



3. ACCOUNTS RECEIVABLE Accounts receivable at 31 December 2011 and 2010, consisted of the following (amounts in thousands): 2011 2010
Accounts receivable	$	193,731		$	92,893
Allowance for doubtful accounts	(4,204		)	(3,889		)
Accounts receivable, net	$	189,527		$	89,004
4. INVENTORIES
Inventories at 31 December 2011 and 2010, consisted of the following (amounts in thousands):
	2011			2010
Raw material	$	97,257		$	56,414
Work-in-process	31,141			16,860
Finished goods	75,137			49,841
	203,535			123,115
Adjustment to LIFO basis	(12,663		)	(4,972		)
	$	190,872		$	118,143

3. PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets at 31 December 2011 and 2010, consisted of the following (amounts in thousands):

2011 2010

Prepaid supplies $17,413 $14,056

Prepaid royalty 4,299 —

Other 6,537 4,607

$28,249 $18,663

4. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at 31 December 2011 and 2010, consisted of the following (amounts in thousands):



	2011			2010
Land and improvements	$	20,330		$	3,061
Buildings and improvements	121,847			98,233
Machinery and equipment	456,236			383,231
Tools, dies and molds	88,676			84,134
Construction-in-process	14,606			8,741
	701,695			577,400
Less accumulated depreciation	(366,953		)	(329,346		)
	$	334,742		$	248,054

Depreciation related to property, plant and equipment for the years 2011, 2010 and 2009 totaled $43.1 million, $35.2 million, and $31.7 million, respectively.

139

7. INVESTMENT IN TITAN EUROPE

Investment in Titan Europe at 31 December 2011 and 2010, consisted of the following (amounts in thousands):

2011 2010

Investment in Titan Europe $28,998 $22,693

Titan Europe is publicly traded on the AIM market in London, England. The Company’s investment in Titan Europe represents a 21.8 per cent. ownership percentage. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe. The investment in Titan Europe is included as a component of other assets on the Consolidated Condensed Balance Sheets. Titan International’s cost basis in Titan Europe is $5.0 million. Titan International’s accumulated other comprehensive income includes a gain on the Titan Europe investment of $15.5 million, which is net of tax of $8.5 million. The increased value in the Titan Europe investment at 31 December 2011, was due primarily to a higher publicly quoted Titan Europe market price.

7. OTHER ASSETS

Other assets at 31 December 2011 and 2010, consisted of the following (amounts in thousands):



	2011		2010
Investment in Titan Europe	$	28,998	$	22,693
Prepaid royalty	33,800		—
Goodwill	19,841		—
Investments for contractual obligations	12,395		11,168
Deferred financing costs	7,074		10,410
Other	8,843		7,205
	$	110,951	$	51,476

CoThe higher balance in other assets primarily related to the acquisition of Goodyear’s Latin American farm tire business, which included goodwill and prepaid royalty. As part of this acquisition, the North American and Latin American royalties were prepaid for seven years.

8. GOODWILL

The changes in the carrying amount of goodwill by reporting units for the three years ended 31 December 2011, were as follows (amounts in thousands):

Earthmoving/

Agricultural Construction Consumer

Segment Segment Segment Total



Balance at 1 January 2010	$—			$—	$—	$—
Balance at 31 December 2010	—			—	—	—
Acquisitions	22,896			—	—	22,896
Foreign currency translation	(3,055		)	—	—	(3,055		)
Balance at 31 December 2011	$	19,841		$—	$—	$	19,841

The Company’s goodwill balance is related to the acquisition of Goodyear’s Latin American farm tire business which included the Sao Paulo, Brazil manufacturing facility. Goodwill is included as a component of other assets in the Consolidated Condensed Balance Sheets.

140

When the two-step goodwill impairment test is performed, the Company evaluates the recoverability of goodwill by estimating the future discounted cash flows of the reporting unit to which the goodwill relates and using an earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple approach. In determining the estimated future cash flows, the Company considers current and projected future levels of income as well as business trends and economic conditions. When the Company’s estimated fair value of the reporting unit is less than the carrying value, a second step of the impairment analysis is performed. In this second step, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

10.OTHER CURRENT LIABILITIES

Other current liabilities at 31 December 2011 and 2010, consisted of the following (amounts in thousands):



	2011			2010
Warranty	$	17,659		$	12,471
Supply agreement liability	15,578			—
Wages and commissions	12,168			10,435
Accrued interest	7,091			8,579
CEO and management incentive compensation	6,638			5,663
Insurance	5,047			6,037
Other	23,288			13,887
	$	87,469		$	57,072
10. WARRANTY COSTS
Changes in the warranty liability consisted of the following (amounts in thousands):
	2011			2010
Warranty liability, 1 January	$	12,471		$	9,169
Provision for warranty liabilities	27,127			19,795
Warranty payments made	(21,939		)	(16,493		)
Warranty liability, 31 December	$	17,659		$	12,471

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

141

12.OTHER LONG-TERM LIABILITIES

Other long-term liabilities at 31 December 2011 and 2010, consisted of the following (amounts in thousands):



	2011		2010
Accrued pension liabilities	$	43,400	$	26,218
Supply agreement liability	19,470		—
Accrued employment liabilities	14,656		11,495
Other	3,543		3,555
	$	81,069	$	41,268
13. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt at 31 December 2011 and 2010, consisted of the following (amounts in thousands):



	2011		2010
7.875% senior secured notes due 2017	$	200,000	$	200,000
5.625% convertible senior subordinated notes due 2017	112,881		172,500
Other debt	16,723		—
8% senior unsecured notes due January 2012	—		1,064
	329,604		373,564
Less amounts due within one year	11,723		—
	$	317,881	$	373,564
Aggregate maturities of long-term debt are as follows (amounts in thousands):
2012			$	11,723
2013			5,000
2014
2015
2016			—
Thereafter			312,881
			$	329,604

7.875 per cent. senior secured notes due 2017

The Company’s 7.875 per cent. senior secured notes (senior secured notes) are due October 2017. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport and Titan Wheel Corporation of Illinois. The Company’s senior secured notes outstanding balance was $200.0 million at 31 December 2011.

5.625 per cent. convertible senior subordinated notes due 2017

The Company’s 5.625 per cent. convertible senior subordinated notes (convertible notes) are due January 2017. The initial base conversion rate for the convertible notes is 93.0016 shares of Titan International common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan International Common stock. If the price of Titan International Common Stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan International Common Stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture. The base conversion rate will be subject to adjustment in certain events. The Company’s convertible notes balance was $112.9 million at 31 December 2011.

142

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

8 per cent. senior unsecured notes due 2012

In the first quarter of 2011, Titan International satisfied and discharged the indenture relating to the 8 per cent. senior unsecured notes due January 2012 by depositing with the trustee $1.1 million cash representing the outstanding principal of such notes and interest payments due on 15 July 2011, and at maturity on 15 January 2012. Titan International irrevocably instructed the trustee to apply the deposited money toward the interest and principal of the notes. In 2010, the Company repurchased $192.7 million of principal value of senior unsecured notes resulting in a loss on note repurchase of $14.6 million.

Revolving credit facility

The Company’s $100 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2014 termination date and is collateralized by the accounts receivable and inventory of Titan International and certain of its domestic subsidiaries. During 2011 and at 31 December 2011, there were no borrowings under the credit facility. Outstanding letters of credit were $12.0 million at 31 December 2011, leaving $88.0 million of unused availability on the credit facility. The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. Titan International is in compliance with these covenants and restrictions as of 31 December 2011.

Other debt

Brazil Term Loan

In May 2011, the Company entered into a two-year, unsecured $10.0 million Term Loan with Bank of America, N.A. (BoA Term Loan) to provide working capital for the Sao Paulo, Brazil manufacturing facility. Borrowings under the BoA Term Loan bear interest at a rate equal to LIBOR plus 200 basis points. The BoA Term Loan shall be a minimum of $5.0 million with the option for an additional $5.0 million loan for a maximum of $10.0 million. The BoA Term Loan is due May 2013. The Company entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan. See Note 14 for additional information. As of 31 December 2011, the Company had $5.0 million outstanding on this loan and the interest rate including the effect of the swap agreement was approximately 14 per cent.

Brazil Revolving Line of Credit

The Company’s wholly-owned Brazilian subsidiary, Titan Pneus Do Brasil Ltda (Titan Brazil), has a revolving line of credit (Brazil line of credit) established with Bank of America Merrill Lynch Banco Multiplo S.A. in May 2011 that is secured by a $12.0 million line of credit between the Company and Bank of America N.A. under the Company’s $100.0 million credit facility. Titan Brazil could borrow up to 16.0 million Brazilian Reais, which equates to approximately $8.5 million dollars as of 31 December 2011, for working capital purposes. Under the terms of the Brazil line of credit, borrowings, if any, bear interest at a rate of LIBOR plus 247 basis points. At 31 December 2011 there was $4.3 million outstanding due May 2012 and the interest rate was approximately 17 per cent.

Brazil Term Loan

In December 2011, the Company entered into a short term loan due in February of 2012. At 31 December 2011 there was $7.4 million outstanding and the interest rate was approximately 17 per cent.

143

14. DERIVATIVE FINANCIAL INSTRUMENTS

The Company uses a financial derivative to mitigate its exposure to volatility in the interest rate and foreign currency exchange rate in Brazil. The Company uses this derivate instrument to hedge exposure in the ordinary course of business and does not invest in derivative instruments for speculative purposes. In order to reduce interest rate and foreign currency risk on the BoA Term Loan, the Company entered into an interest rate swap agreement and cross currency swap transaction with Bank of America Merrill Lynch Banco Multiplo S.A. that is designed to convert the outstanding $5.0 million US Dollar based LIBOR loan to a Brazilian Real based CDI loan. The Company has not designated this agreement as a hedging instrument. Changes in the fair value of the cross currency swap are recorded in other income (expense) and changes in the fair value of the interest rate swap agreement are recorded as interest expense (or gain as an offset to interest expense). For the year ended 31 December 2011, the Company recorded $0.1 million of other income and $0.4 million of interest expense related to this derivative.

15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consisted of the following (amounts in thousands):



Currency Translation Adjustments				Unrealized Gain (Loss) on Investments		Unrecognized Losses and Prior Service Cost			Total
Balance at 1 January 2010	$	(1,183	)	$	915	$	(28,038	)	$	(28,306	)
Unrealized gain on investment, net of tax of $5,683	—			10,554		—			10,554
Defined benefit pension plan entries:
Unrecognized prior service cost, net of tax of $53	—			—		83			83
Unrecognized net gain, net of tax of $350	—			—		661			661
Unrecognized deferred tax liability, net of tax of $22	—			—		(34		)	(34		)
Balance at 31 December 2010	(1,183		)	11,469		(27,328		)	(17,042		)
Currency translation adjustments	(12,833		)	—		—			(12,833		)
Unrealized gain on investments, net of tax of $2,208	—			4,009		—			4,009
Defined benefit pension plan entries:
Unrecognized prior service cost, net of tax of $52	—			—		84			84
Unrecognized net loss, net of tax of $4,614	—			—		(7,758		)	(7,758		)
Unrecognized deferred tax liability, net of tax of $21	—			—		(35		)	(35		)
Balance at 31 December 2011	$	(14,016	)	$	15,478	$	(35,037	)	$	(33,575	)
16. STOCKHOLDERS’ EQUITY

The Company is authorized by the Board of Directors to repurchase up to 2.5 million common shares subject to debt agreement covenants. The Company repurchased no Titan International common shares in 2011, 2010, or 2009. The Company has no plans at this time to repurchase any Titan International Common Stock. Titan International paid cash dividends of $.02 per share of common stock for 2011, 2010, and 2009. Dividends declared totaled $0.8 million, $0.7 million and $0.7 million for 2011, 2010 and 2009, respectively.

17. FAIR VALUE MEASUREMENTS

ASC 820 Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:

Level 1 – Quoted prices in active markets for identical instruments;

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

144

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



Investment in	31 December 2011 Total Level 1 Levels 2&3				31 December 2010 Total Level 1 Levels 2&3
Titan Europe	$	28,998	$	28,998	$—	$	22,693	$	22,693	$—
Investments for contractual obligations	12,395		12,395			11,168		11,168
Total	$	41,393	$	41,393	$—	$	33,861	$	33,861	$—

18.ROYALTY EXPENSE

The Company has a trademark license agreement with Goodyear to manufacture and sell certain off-highway tires in North America and Latin America under the Goodyear name. The North American and Latin American royalties were prepaid for seven years as a part of the Goodyear Latin American farm tire acquisition. Royalty expenses recorded for the years ended 31 December 2011, 2010 and 2009, were $9.8 million, $9.3 million and $7.6 million, respectively.

19.NONCASH CONVERTIBLE DEBT CONVERSION CHARGE

Noncash convertible debt conversion charge consisted of the following (amounts in thousands):

2011 2010 2009

Noncash convertible debt conversion charge $(16,135) $— $—

In the first quarter of 2011, Titan International closed an Exchange Agreement with a note holder of its 5.625 per cent. convertible senior subordinated notes (convertible notes), pursuant to which such holder converted approximately $59.6 million in aggregate principal amount of the Convertible Notes into approximately 6.6 million shares of Titan International’s Common Stock, plus a payment for the accrued and unpaid interest. In connection with the exchange, the Company recognized a noncash charge of $16.1 million in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.

20.GAIN (LOSS) ON NOTE REPURCHASE

Gain (loss) on note repurchase consisted of the following (amounts in thousands):

2011 2010 2009

Gain (loss) on note repurchase $— $(14,573) $1,398

In June 2010, the Company closed on a tender transaction to purchase $47.4 million of its outstanding 8 per cent. senior unsecured notes due January 2012 (senior unsecured notes). In October 2010, the Company closed on another tender transaction to purchase $138.9 million of its outstanding senior unsecured notes. In connection with these tender offers and an additional note repurchase of $6.5 million in July 2010, the Company recorded expenses of $14.6 million. These expenses were related to: (i) early tender premium of $13.0 million, (ii) unamortized deferred financing fees of $1.2 million and (iii) other fees of $0.4 million.

For 2009, the Company recorded a gain on a note repurchase of $1.4 million resulting from the Company’s repurchase of $6.2 million of principal value of senior unsecured notes for approximately $4.8 million in the first quarter of 2009.

145



21. OTHER INCOME, NET Other income consisted of the following (amounts in thousands):
	2011			2010			2009
Discount amortization on prepaid royalty	$	3,149		$—			$—
Investment gain on marketable securities	1,588			—			—
Interest income	556			394			211
Gain on purchase transaction	285			—			—
Investment gain (loss) related to contractual obligations	(302		)	824			1,343
Other income (expense)	(160		)	(113		)	186
	$	5,116		$	1,105		$	1,740
22. INCOME TAXES
Income (loss) before income taxes, consisted of the following (amounts in thousands):
	2011			2010			2009
Domestic	$	82,282		$	(9,148	)	$	(31,863	)
Foreign	13,613			(42		)	(139		)
	$	95,895		$	(9,190	)	$	(32,002	)

The income tax provision (benefit) was as follows (amounts in thousands):



	2011			2010			2009
Current
Federal	$	32,140		$	(853	)	$	(3,526	)
State	3,271			(331		)	160
Foreign	2,797			—			(1,041		)
	38,208			(1,184		)	(4,407		)
Deferred
Federal	(1,904		)	(2,531		)	(2,721		)
State	(357		)	451			(229		)
Foreign	1,812			—			—
	(449		)	(2,080		)	(2,950		)
Income tax provision (benefit)	$	37,759		$	(3,264	)	$	(7,357	)

The income tax provision differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (loss) as a result of the following:



	2011		2010		2009
Statutory U.S. federal tax rate	35	%	35	%	35	%
Nondeductible goodwill impairment	—		—		(12.8	)
Foreign taxes, net	(0.2	)	(0.2	)	1.6
State taxes, net	1.9		(0.7	)	(0.1	)
Other, net	2.7		1.4		(0.7	)
Effective tax rate	39.4	%	35.5	%	23	%

146

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at 31 December 2011 and



2010, are as follows (amounts in thousands):
	2011			2010
Deferred tax assets:
Net operating loss carryforwards	$	815		$	9,755
Pension	15,412			9,022
Unrealized loss on investments	5,118			7,719
Inventory	6,621			5,514
Warranty	6,707			4,365
Employee benefits and related costs	4,259			3,369
Allowance for bad debts	3,147			1,991
EPA reserve	549			703
Other	7,518			5,987
Deferred tax assets	50,146			48,425
Deferred tax liabilities:
Fixed assets	(62,062		)	(34,049		)
Deferred tax liabilities	(62,062		)	(34,049		)
Net deferred tax asset	$	(11,916	)	$	14,376

The Company recorded income tax expense of $37.8 million for the year ended 31 December 2011, and income tax benefit of $(3.3) million for the year ended 31 December 2010, and an income tax benefit of $(7.4) million for the year ended 31 December 2009. The Company’s income tax expense (benefit) and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of state taxes. The Company has various state net operating loss carryforwards which are subject to expiration from 2018 to 2025.

At 31 December 2011, U.S. income taxes have not been provided on approximately $1 million of unremitted earnings of subsidiaries operating outside the U.S. These earnings, which are considered to be invested indefinitely, would become subject to income tax if they were remitted as dividends, were lent to the Company or a U.S. affiliate, or if the Company were to sell its stock in the subsidiaries. The amount of unrecognized deferred U.S. income tax liability on these unremitted earnings is insignificant.

The Company has applied the provisions of ASC 740, “Income Taxes” related to unrecognized tax benefits. No adjustment was made to retained earnings in adopting these provisions in 2007. At 31 December 2011, 2010 and 2009, there were no unrecognized tax benefits. At this time the Company does not expect any significant increases or decreases to its unrecognized tax benefits within 12 months of this reporting date. Titan International has identified its federal tax return and its Illinois state tax return as “major” tax jurisdictions. The Company is subject to (i) federal tax examinations for periods 2010 to 2011 and (ii) Illinois state income tax examinations for years 2008 to 2011.

23. EMPLOYEE BENEFIT PLANS Pension plans

The Company has a frozen defined benefit pension plan covering certain employees of Titan Tire Corporation (Titan Tire) and has a frozen defined benefit pension plan covering certain employees of Titan Tire Corporation of Bryan (Bryan). The Company also has a frozen contributory defined benefit pension plan covering certain former eligible bargaining employees of its Walcott, Iowa, facility (Walcott). Additionally, the Company maintains a contributory defined benefit plan that covered former eligible bargaining employees of Dico, Inc (Dico). This Dico plan purchased a final annuity settlement contract in October 2002. As a part of the Goodyear Latin America farm tire acquisition, the Company has a pension plan in Brazil. As of 31 December 2011, the pension plan assets were not yet transferred to Titan International. However, the Company is accounting for the net liabilities of these plans. The Company’s

147

policy is to fund pension costs as required by law, which is consistent with the funding requirements of federal laws and regulations.

he Company’s defined benefit plans have been aggregated in the following table. Included in the 31 December 2011, presentation are the Titan Tire, Bryan, Walcott and Brazil plans which have a projected benefit obligation of $112.0 million, exceeding the fair value of plan assets of $68.6 million at 31 December 2011. Included in the 31 December 2010, presentation are the Titan Tire, Bryan and Walcott plans which have a projected benefit obligation of $98.8 million, exceeding the fair value of plan assets of $72.6 million at 31 December 2010. The Company absolved itself from the liabilities associated with the Dico plan with the purchase of a final annuity settlement contract in 2002. Therefore, the plan no longer maintains a benefit obligation. The fair value of the Dico plan assets was $0.5 million at 31 December 2011 and 2010.

The table below illustrates that the Company had no pension plan for any of the four named executive officers. However, the four named executive officers have employment agreements that have certain payments due upon retirement, if that event was to arise.

Payments

Number of Present During

Years Value of Last

Plan Credited Accumulated Fiscal

Name Name Service Benefit ($) Year ($)

Mr. M M Taylor n/a – – –

Mr. P G Reitz n/a – – –

Mr. K W Hackamack n/a – – –

Ms. C T Holley n/a – – –

The total payments due on retirement or voluntary/involuntary termination of employment are as follows:



					Mr.
Description	Mr. Taylor		Mr.Reitz		Hackamack		Ms. Holey
Cash compensation (Vacation)	$	115,386	$	11,538	$	22,308	$	22,308
CEO special performance cash award	4,637,500		n/a		n/a		n/a
Employment agreement obligations due in retirement/termination	7,306,570		23,904		3,866,422		3,065,099
Cash compensation	$	12,059,456	$	35,442	$	3,888,730	$	3,087,407

The total amounts set out above in respect of payments due on retirement or voluntary/involuntary termination of employment have been accrued in accordance with US GAAP. No other amounts have been set aside or accrued by the Titan International Group to provide pension, retirement or similar benefits for Directors or Senior management.

The following table provides the change in benefit obligation, change in plan assets, funded status and amounts recognized in the consolidated balance sheet of the defined benefit pension plans as of



31 December 2011 and 2010 (amounts in thousands):
	2011			2010
Change in benefit obligation:
Benefit obligation at beginning of year	$	98,831		$	93,708
Acquisition	4,869			—
Service cost	264			—
Interest cost	5,467			5,200
Actuarial (gain) loss	11,497			6,839
Benefits paid	(8,341		)	(6,916		)
Foreign currency translation	(632		)	—
Benefit obligation at end of year	$	111,955		$	98,831

148



Change in plan assets:
Fair value of plan assets at beginning of year	$	73,156		$	69,160
Actual return on plan assets	637			9,131
Employer contributions	3,645			1,781
Benefits paid	(8,341		)	(6,916		)
Fair value of plan assets at end of year	$	69,097		$	73,156
Unfunded status at end of year	$	(42,858	)	$	(25,675	)
Amounts recognized in consolidated balance sheet:
Noncurrent assets	$	542		$	543
Noncurrent liabilities	(43,400		)	(26,218		)
Net amount recognized in the consolidated balance sheet	$	(42,858	)	$	(25,675	)
	2011			2010
Amounts recognized in accumulated other comprehensive loss:
Unrecognized prior service cost	$	(1,028	)	$	(1,164	)
Unrecognized net loss	(55,396		)	(43,024		)
Deferred tax effect of unrecognized items	21,387			16,860
Net amount recognized in accumulated other comprehensive loss	$	(35,037	)	$	(27,328	)

The weighted-average assumptions used in the actuarial computation that derived the benefit obligations at December 31 were as follows:



	2011		2010
Discount rate	4.6	%	5.3%
Expected long-term return on plan assets	7.5	%	7.5%

The discount rates were determined using the Above Average Median Citigroup Pension Discount Curve with durational yields applied to the expected Titan International cash benefit payments to participants.

The following table provides the components of net periodic pension cost for the plans, settlement cost and the assumptions used in the measurement of the Company’s benefit obligation for the years ended 31 December 2011, 2010 and 2009 (amounts in thousands):

Components of net periodic benefit cost and other amounts recognized in other comprehensive income



	2011			2010			2009
Net periodic benefit cost:
Service cost	$	264		$—			$—
Interest cost	5,467			5,200			5,456
Assumed return on assets	(5,258		)	(4,911		)	(4,939		)
Amortization of unrecognized prior service cost	137			137			137
Amortization of unrecognized deferred taxes	(56		)	(56		)	(56		)
Amortization of net unrecognized loss	3,745			3,628			4,303
Net periodic pension cost	$	4,299		$	3,998		$	4,901

The estimated net loss and prior service cost that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $5.2 million and $0.1 million, respectively.

149

The weighted-average assumptions used in the actuarial computation that derived net periodic pension cost for the years ended 31 December 2011, 2010 and 2009 were as follows:



	2011		2010		2009
Discount rate	5.3	%	5.75	%	6.25	%
Expected long-term return on plan assets	7.5	%	7.5	%	8.5	%
The allocation of the fair value of plan assets was as follows:
Percentage of Plan Assets					Target
at 31 December					Alocation
	2011		2010		2012
Asset Category
U.S. equities (a)	60	%	59	%	40% – 80%
Fixed income	24	%	24	%	20% – 50%
Cash and cash equivalents	7	%	7	%	0% – 20%
International equities (a)	9	%	10	%	0% – 16%
	100	%	100	%
(a) Total equities may not exceed 80 per cent. of total plan assets.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:

Level 1 – Quoted prices in active markets for identical instruments;

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The fair value of the plan assets by asset categories at 31 December 2011 was as follows (amounts in thousands):



	Fair Value Measurements as of 31 December 2011 Total Level 1 Level 2 Level 3
Money market funds	$	4,659	$	4,659	$—		$—
Domestic common stock	28,123		28,123		—		—
Foreign common stock	3,847		3,847		—		—
Corporate bonds	2,439		2,439		—		—
Foreign bonds	510		510		—		—
U.S. government securities	299		299		—		—
Mutual funds	949		949		—		—
Common/collective trusts	28,271		—		28,271		—
Totals	$	69,097	$	40,826	$	28,271	$—

150

The fair value of the plan assets by asset categories at 31 December 2010 was as follows (amounts in thousands):



	Fair Value Measurements as of 31 December 2010 Total Level 1 Level 2 Level 3
Money market funds	$	4,674	$	4,674	$—		$—
Domestic common stock	29,429		29,429		—		—
Foreign common stock	3,976		3,976		—		—
Corporate bonds	4,050		4,050		—		—
Foreign bonds	536		536		—		—
U.S. government securities	577		577		—		—
Mortgage-backed securities	8		—		8		—
Mutual funds	1,239		1,239		—		—
Common/collective trusts	28,667		—		28,667		—
Totals	$	73,156	$	44,481	$	28,675	$—

The Company invests in a diversified portfolio consisting of an array of asset classes in an attempt to maximize returns while minimizing risk. These asset classes include U.S. equities, fixed income, cash and cash equivalents, and international equities. The investment objectives are to provide for the growth and preservation of plan assets on a long-term basis through investments in: (i) investment grade securities that provide investment returns that meet or exceed the Standard & Poor’s 500 Index and (ii) investment grade fixed income securities that provide investment returns that meet or exceed the Barclays Capital Aggregate Bond Index. The U.S. equities asset category included the Company’s common stock in the amount of $3.3 million (approximately five percent of total plan assets) at 31 December 2011, and $3.5 million (approximately five percent of total plan assets) at 31 December 2010.

The fair value of money market funds, stock, bonds, U.S. government securities and mutual funds are determined based on valuation for identical instruments in active markets. The fair value of common and collective trusts is determined based on the fair value of the underlying instruments.

The long-term rate of return for plan assets is determined using a weighted-average of long-term historical approximate returns on cash and cash equivalents, fixed income securities, and equity securities considering the anticipated investment allocation within the plans. The expected return on plan assets is anticipated to be 7.5 per cent. over the long-term. This rate assumes long-term historical returns of approximately 9 per cent. for equities and approximately 6 per cent. for fixed income securities using the plans’ target allocation percentages. Professional investment firms, none of which are Titan International employees, manage the plan assets.

Although the 2012 minimum pension funding calculations are not finalized, the Company estimates those funding requirements will be approximately $7 million.

Projected benefit payments from the plans as of 31 December 2011, are estimated as follows (amounts in thousands):

2012 $6,916

2013 6,997

2014 7,170

2015 7,296

2016 7,533

2017-2021 36,380

401(k)

151

shares of treasury stock in connection with this 401(k) plan during 2011, 2010 and 2009, respectively. Expenses to the Company related to this common stock matching contribution were $0.5 million, $0.5 million and $0.4 million for 2011, 2010 and 2009.

The other three 401(k) plans are for employees covered by collective bargaining arrangements at (i) Titan Tire Corporation; (ii) Titan Tire Corporation of Freeport; and (iii) Titan Tire Corporation of Bryan. These three plans do not include a Company matching contribution. Employees are fully vested with respect to their contributions.

24. STOCK OPTION PLANS

The Company accounts for stock options using ASC 718 Compensation – Stock Compensation. The Company recorded stock-based compensation of $2.4 million in 2011 and $0.2 million in 2010. No stock-based compensation expense was recorded during 2009. The Company granted 492,500 stock options in 2011 and 494,938 stock options in 2010. Options to the Board of Directors vest immediately and options to employees vest over three years. All options expire 10 years from the grant date. The Company granted no stock options during 2009. All stock options granted before 2010 were fully vested before January 1, 2009.

Non-Employee Director Stock Option Plan

The Company adopted the 1994 Non-Employee Director Stock Option Plan (the Director Plan) to provide for grants of stock options as a means of attracting and retaining qualified independent directors for the Company. There will be no additional issuance of stock options under this plan as it has expired. Options previously granted are fully vested and expire 10 years from the grant date of the option.

2005 Equity Incentive Plan

The Company adopted the 2005 Equity Incentive Plan to provide stock options as a means of attracting and retaining qualified independent directors and employees for the Company. A total of 2.3 million shares are available for future issuance under the equity incentive plan. The exercise price of stock options may not be less than the fair market value of the common stock on the date of the grant. The vesting and term of each option is set by the Board of Directors. The Company granted 492,500 stock options under this plan in 2011 and 494,938 stock options under this plan in 2010. In 2009, no stock options were granted under this equity incentive plan.

The following is a summary of activity in the stock option plans for 2011:



		Weighted‑
		Average
	Weighted-	Remaining	Aggregate
Shares	Average	Contractual	Intrinsic
Subject	Exercise	Life	Value (in
to Option	Price	(in Years)	thousands)



Outstanding, 31 December 2010	829,224		$	13.75
Granted	492,500		22.1
Exercised	(69,375	)	7.56
Forfeited/Expired	(18,298	)	15.75
Outstanding, 31 December 2011	1,234,051		17.4		8.11	$	3,842
Exercisable, 31 December 2011	495,805		14.53		6.00	$	2,782

The total intrinsic value of options exercised in 2011 was $1.3 million. Cash received from the exercise of stock options was $0.5 million for 2011. Tax benefit realized for the tax deductions from stock options exercised was $0.7 million for 2011. The weighted-average per share estimated grant date fair value of options issued in 2011 was $13.30. Pre-tax unrecognized compensation expense for stock options was $8.1 million at 31 December 2011, and will be recognized as expense over a weighted-average period of 2.6 years.

152

The total intrinsic value of options exercised in 2010 was $0.4 million. Cash received from the exercise of stock options was $0.3 million for 2010. The weighted-average per share estimated grant date fair value of options issued in 2010 was $8.65. There was no tax benefit realized for the tax deductions from stock options exercised for 2010.

The total intrinsic value of options exercised in 2009 was $0.2 million. Cash received from the exercise of stock options was $1.1 million for 2009. There was no tax benefit realized for the tax deductions from stock options exercised for 2009.

The Company currently uses treasury shares to satisfy any stock option exercises. At 31 December 2011, the Company had 1.9 million shares of treasury stock.

Valuation Assumptions

The Company uses the Black-Scholes option pricing model to determine the fair value of its stock options. The determination of the fair value of stock option awards on the date of grant using option pricing models is affected by the Company’s stock price, as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the expected term of the awards, actual and projected stock option exercise behaviors, risk-free interest rates and expected dividends. The expected term of options represents the period of time over which options are expected to be outstanding and is estimated based on historical experience. Expected volatility is based on the historical volatility of the Company’s common stock calculated over the expected term of the option. The risk-free interest rate is based on U.S. Treasury yields in effect at the date of grant.

Weighted average assumptions used for stock options issued in 2011 and 2010 (no options were issued in 2009):



	2011		2010
Expected life (in years)	6.0		6.1
Expected volatility	65.8	%	55.5	%
Expected dividends	0.1	%	—
Risk-free interest rate	1.21	%	1.82	%
25. LITIGATION

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

26. LEASE COMMITMENTS

The Company leases certain buildings and equipment under operating leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company. Total rental expense was $1.5 million, $2.1 million and $2.5 million for the years ended 31 December 2011, 2010 and 2009, respectively.

At 31 December 2011, future minimum rental commitments under noncancellable operating leases with initial or remaining terms in excess of one year are as follows (amounts in thousands):

2012 $567

2013 452

2014 353

Thereafter 55

Total future minimum lease payments $1,427

153

27.CONCENTRATION OF CREDIT RISK

Net sales to Deere & Company in Titan International’s agricultural, earthmoving/construction and consumer markets represented 18 per cent. of the Company’s consolidated revenues for the year ended 31 December 2011, 26 per cent. of the Company’s consolidated revenues for the year ended 31 December 2010, and 24 per cent. of the Company’s consolidated revenues for the year ended 31 December 2009. Net sales to CNH Global N.V. in Titan International’s three markets represented 11 per cent. of the Company’s consolidated revenues for the year ended 31 December 2011, 15 per cent. of the Company’s consolidated revenues for the year ended 31 December 2010, and 13 per cent. of the Company’s consolidated revenues for the year ended 31 December 2009. No other customer accounted for more than 10 per cent. of Titan International’s net sales in 2011, 2010 or 2009.

28.RELATED PARTY TRANSACTIONS

The Company sells products and pays commissions to companies controlled by persons related to the chief executive officer of the Company. The related party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother. The companies which Mr. Fred Taylor is associated with that do business with Titan International include the following: Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering. During 2011, 2010 and 2009, sales of Titan International product to these companies were approximately $2.6 million, $1.9 million and $1.0 million, respectively. Titan International had trade receivables due from these companies of approximately $0.0 million at 31 December 2011, and approximately $0.4 million at 31 December 2010. On other sales referred to Titan International from these manufacturing representative companies, commissions were approximately $2.3 million, $1.6 million and $1.3 million during 2011, 2010 and 2009, respectively.

29.SEGMENT AND GEOGRAPHICAL INFORMATION

The Company has aggregated its operating units into reportable segments based on its three customer markets: agricultural, earthmoving/construction and consumer. These segments are based on the information used by the chief executive officer to make certain operating decisions, allocate portions of capital expenditures and assess segment performance. The accounting policies of the segments are the same as those described in Note 1, “Description of Business and Significant Accounting Policies.” Segment external revenues, expenses and income from operations are determined on the basis of the results of operations of operating units of manufacturing facilities. Segment assets are generally determined on the basis of the tangible assets located at such operating units’ manufacturing facilities and the intangible assets associated with the acquisitions of such operating units. However, certain operating units’ goodwill and property, plant and equipment balances are carried at the corporate level.

Titan International is organized primarily on the basis of products being included in three marketing segments, with each reportable segment including wheels, tires and wheel/tire assemblies.

154

The table below presents information about certain revenues and expenses, income (loss) from operations and segment assets used by the chief operating decision maker of the Company as of and for the years ended 31 December 2011, 2010 and 2009 (amounts in thousands):



	2011			2010			2009
Revenues from external customers
Agricultural	$	960,693		$	675,178		$	563,528
Earthmoving/construction	306,821			191,042			144,589
Consumer	219,484			15,371			19,482
	$	1,486,998		$	881,591		$	727,599
Gross profit (loss)
Agricultural	$	177,055		$	108,102		$	51,955
Earthmoving/construction	39,328			(3,400		)	3,595
Consumer	18,900			2,867			1,604
Unallocated corporate	(3,175		)	(3,479		)	(1,189		)
	$	232,108		$	104,090		$	55,965
Income (loss) from operations
Agricultural	$	158,295		$	91,953		$	26,980
Earthmoving/construction	32,781			(11,296		)	(7,999		)
Consumer	11,104			2,542			(206		)
Unallocated corporate	(70,007		)	(52,254		)	(37,669		)
Consolidated income (loss) from operations	132,173			30,945			(18,894		)
Interest expense	(25,259		)	(26,667		)	(16,246		)
Noncash convertible debt conversion charge	(16,135		)	—			—
Loss on senior note repurchase	—			(14,573		)	1,398
Other income, net	5,116			1,105			1,740
Income (loss) before income taxes	$	95,895		$	(9,190	)	$	(32,002	)
Capital expenditures
Agricultural	$	12,789		$	16,017		$	8,461
Earthmoving/construction	7,169			5,628			29,593
Consumer	1,465			478			254
Unallocated corporate	15,683			6,731			1,229
	$	37,106		$	28,854		$	39,537
Depreciation & amortization
Agricultural	$	18,296		$	18,899		$	17,531
Earthmoving/construction	17,366			14,375			12,836
Consumer	5,450			458			535
Unallocated corporate	3,796			3,835			3,394
	$	44,908		$	37,567		$	34,296
Total assets
Agricultural	$	444,611		$	304,048		$	257,523
Earthmoving/construction	193,566			171,410			188,169
Consumer	139,161			5,863			8,305
Unallocated corporate (a)	232,948			299,559			282,466
	$	1,010,286		$	780,880		$	736,463

(a) Unallocated assets include cash of approximately $129 million, $240 million, and $229 million at yearend 2011, 2010 and 2009, respectively.

155

The table below presents information by geographic area. Revenues from external customers were determined based on the location of the selling subsidiary. Geographic information as of and for the years ended 31 December 2011, 2010 and 2009 was as follows (amounts in thousands):



2011	United States		Other Consolidated Countries Totals
Revenues from external customers	$	1,210,531	$	276,467	$	1,486,998
Long-lived assets	248,835		105,748		354,583
2010
Revenues from external customers	$	881,591	$—		$	881,591
Long-lived assets	248,054		—		248,054
2009
Revenues from external customers	$	727,599	$—		$	727,599
Long-lived assets	254,461		—		254,461
30. EARNINGS PER SHARE

Earnings per share for 2011, 2010 and 2009, are (amounts in thousands, except per share data):



2,011	Titan International Net income (loss)			Weighted-average shares	Per share amount
Basic earnings per share	$	58,152		41,657	$	1.4
Effect of stock options/trusts	—			233
Effect of convertible notes	4,476			11,254
Diluted earnings per share	$	62,628		53,144	$	1.18
2010
Basic and diluted loss per share (a)	$	(5,926	)	34,896	$	(0.17	)
2009
Basic and diluted loss per share (b)	$	(24,645	)	34,708	$	(0.71	)


(a)	The effect of stock options/trusts has been excluded as they were anti-dilutive. The weighted-average share amount excluded for stock options/trusts totaled 495,789 shares. The effect of convertible notes has not been included as they were anti-dilutive. The weighted-average share amount excluded for convertible notes totaled 16,764,701 shares.


(b)	The effect of stock options/trusts has been excluded as they were anti-dilutive. The weighted-average share amount excluded for stock options/trusts totaled 559,110 shares. The effect of convertible notes has not been included as they were anti-dilutive. The weighted-average share amount excluded for convertible notes totaled 483,481 shares.

156

31. SUPPLEMENTARY DATA – QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (All amounts in thousands, except per share data)



Quarter ended 2011	31 March		Year ended 30 June 30 September 31 December 31 December
Net sales	$	280,829	$	404,447	$	398,805	$	402,917	$	1,486,998
Gross profit	56,272		64,334		52,994		58,508		232,108
Titan International net income (loss)	(3,036) (a)		25,564		21,163		14,461		58,152
Per share amounts:
Basic	(.07) (a)		0.61		0.50		0.34		1.40 (b)
Diluted	(.07) (a)		0.50		0.42		0.29		1.18 (b)
2010
Net sales	$	196,448	$	229,656	$	222,818	$	232,669	$	881,591
Gross profit	26,087		33,903		27,946		16,154 (c)		104,090
Titan International net income (loss)	2,078		4,569		4,015		(16,588) (d)		(5,926		)
Per share amounts:
Basic	0.06		0.13		0.12		(.47) (d)		(.17) (b)
Diluted	0.06		0.12		0.11		(.47) (d)		(.17) (b)


(a)	Noncash convertible debt charge of $16.1 million was included in the quarter ended March 31, 2011.


(b)	As a result of changes in outstanding share balances and dilution factors, year-end per share amounts do not agree to the sum of the quarters.


(c)	Inventory write-downs of $15.0 million for certain large earthmoving/construction tires were included in the quarter ended 31 December 2010.


(d)	Loss on note repurchase of $11.4 million was included in the quarter ended 31 December 2010.

32. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 5.625 per cent. convertible senior subordinated notes (convertible notes) are guaranteed by the following 100 per cent. owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, Titan Tire Corporation of Texas, Titan Wheel Corporation of Illinois, and Titan Wheel Corporation of Virginia. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following condensed consolidating financial statements are presented using the equity method of accounting. The Company has revised the guarantor financial statements for periods prior to 2011 to reflect a change in the guarantors of the Company’s convertible notes. The guarantors for the convertible notes were previously tied to the guarantors of the Company’s 8 per cent. senior unsecured notes which were satisfied and discharged in the first quarter of 2011. After these notes were satisfied and discharged, the indenture for the convertible notes released several of the guarantor subsidiaries. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.

157



(Amounts in thousands)	Consolidating Condensed Statements of Operations Year Ended December 31, 2011
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	1,195,707		$	291,291		$	—		$	1,486,998
Cost of sales	1,276			984,289			269,325			—			1,254,890
Gross profit (loss)	(1,276		)	211,418			21,966			—			232,108
Selling, general and administrative expenses	30,936			10,648			44,333			—			85,917
Research and development expenses	87			4,141			—			—			4,228
Royalty expense	—			7,997			1,793			—			9,790
Income (loss) from operations	(32,299		)	188,632			(24,160		)	—			132,173
Interest expense	(24,489		)	—			(770		)	—			(25,259		)
Noncash convertible debt conversion charge	(16,135		)	—			—			—			(16,135		)
Other income (expense)	5,456			(127		)	(213		)	—			5,116
Income (loss) before income taxes	(67,467		)	188,505			(25,143		)	—			95,895
Provision (benefit) for income taxes	(17,294		)	63,527			(8,474		)	—			37,759
Equity in earnings of subsidiaries	108,309			—			—			(108,309		)	—
Net income (loss)	58,136			124,978			(16,669		)	(108,309		)	58,136
Net loss noncontrolling interests	—			—			—			(16		)	(16		)
Net income (loss) attributable to Titan	$	58,136		$	124,978		$	(16,669	)	$	(108,293	)	$	58,152



(Amounts in thousands)	Consolidating Condensed Statements of Operations Year Ended December 31, 2010
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	881,591	$	—		$	—		$	881,591
Cost of sales	2,340			773,396		1,765			—			777,501
Gross profit (loss)	(2,340		)	108,195		(1,765		)	—			104,090
Selling, general and administrative expenses	27,400			8,790		21,375			—			57,565
Research and development expenses	—			6,317		—			—			6,317
Royalty expense	—			9,263		—			—			9,263
Income (loss) from operations	(29,740		)	83,825		(23,140		)	—			30,945
Interest expense	(26,667		)	—		—			—			(26,667		)
Loss on note repurchase	(14,573		)	—		—			—			(14,573		)
Other income	921			49		135			—			1,105
Income (loss) before income taxes	(70,059		)	83,874		(23,005		)	—			(9,190		)
Provision (benefit) for income taxes	(31,409		)	38,463		(10,318		)	—			(3,264		)
Equity in earnings of subsidiaries	32,724			—		—			(32,724		)	—
Net income (loss)	$	(5,926	)	$	45,411	$	(12,687	)	$	(32,724	)	$	(5,926	)

158



(Amounts in thousands)	Consolidating Condensed Statements of Operations Year Ended December 31, 2009
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net sales	$	—		$	727,599	$	—		$	—	$	727,599
Cost of sales	(6		)	669,561		2,079			—		671,634
Gross profit (loss)	6			58,038		(2,079		)	—		55,965
Selling, general and administrative expenses	16,549			10,321		19,864			—		46,734
Research and development expenses	67			8,783		—			—		8,850
Royalty expense	—			7,573		—			—		7,573
Noncash goodwill impairment charge	—			—		11,702			—		11,702
Income (loss) from operations	(16,610		)	31,361		(33,645		)	—		(18,894		)
Interest expense	(16,246		)	—		—			—		(16,246		)
Gain on note repurchase	1,398			—		—			—		1,398
Other income	1,452			125		163			—		1,740
Income (loss) before income taxes	(30,006		)	31,486		(33,482		)	—		(32,002		)
Provision (benefit) for income taxes	(6,897		)	7,238		(7,698		)	—		(7,357		)
Equity in earnings of subsidiaries	(1,536		)	—		—			1,536		—
Net income (loss)	$	(24,645	)	$	24,248	$	(25,784	)	$	1,536	$	(24,645	)



(Amounts in thousands)	Consolidating Condensed Balance Sheets December 31, 2011
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Assets
Cash and cash equivalents	$	125,266		$	6	$	3,898		$	—		$	129,170
Accounts receivable	—			137,226		52,301			—			189,527
Inventories	—			162,134		28,738			—			190,872
Prepaid and other current assets	27,251			15,490		12,283			—			55,024
Total current assets	152,517			314,856		97,220			—			564,593
Property, plant and equipment, net	9,562			219,734		105,446			—			334,742
Investment in subsidiaries	184,317			—		—			(184,317		)	—
Other assets	44,918			1,454		64,579			—			110,951
Total assets	$	391,314		$	536,044	$	267,245		$	(184,317	)	$	1,010,286
Liabilities and Stockholders’ Equity
Short-term debt	$	—		$	—	$	11,723		$	—		$	11,723
Accounts payable	930			33,563		42,081			—			76,574
Other current liabilities	22,687			39,457		25,325			—			87,469
Total current liabilities	23,617			73,020		79,129			—			175,766
Long-term debt	312,881			—		5,000			—			317,881
Other long-term liabilities	29,267			38,187		52,306			—			119,760
Intercompany accounts	(369,690		)	157,264		212,426			—			—
Titan stockholders' equity	395,239			267,573		(81,616		)	(185,957		)	395,239
Noncontrolling interests	—			—		—			1,640			1,640
Total liabilities and stockholders’ equity	$	391,314		$	536,044	$	267,245		$	(184,317	)	$	1,010,286

159



(Amounts in thousands) Consolidating Condensed Balance Sheets 31 December 2010 Titan International, Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Eliminations Consolidated Assets
Cash and cash equivalents	$	239,362		$	6	$	132		$—			$	239,500
Accounts receivable				89,004		—			—			89,004
Inventories	—			118,143		—			—			118,143
Prepaid and other current assets	17,981			16,240		482			—			34,703
Total current assets	257,343			223,393		614			—			481,350
Property, plant and equipment, net	7,678			235,143		5,233			—			248,054
Investment in subsidiaries	42,541			—		—			(42,541		)	—
Other assets	22,183			869		28,424			—			51,476
Total assets	$	329,745		$	459,405	$	34,271		$	(42,541	)	$	780,880
Liabilities and Stockholders’ Equity
Accounts payable	$	1,406		$	33,473	$	402		$—			$	35,281
Other current liabilities	16,066			39,186		1,820						57,072
Total current liabilities	17,472			72,659		2,222						92,353
Long-term debt	373,564
Other long-term liabilities	8,855			28,083		5,994			—			42,932
Intercompany accounts	(342,177		)	165,269		176,908			—			—
Stockholders’ equity	272,031			193,394		(150,853		)	(42,541		)	272,031
Total liabilities and stockholders’ equity	$	329,745		$	459,405	$	34,271		$	(42,541	)	$	780,880

160



(Amounts in thousands) Net cash provided by (used for) operating	Consolidating Condensed Statements of Cash Flows Year Ended 31 December 2011 Titan International, Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Consolidated
activities	$	(12,391	)	$	17,958		$	(1,141	)	$	4,426
Cash flows from investing activities:
Capital expenditures	(3,530		)	(19,721		)	(12,493		)	(35,744		)
Acquisitions, net of cash acquired	(99,118		)	—			—			(99,118		)
Purchases of marketable securities	(30,000		)	—			—			(30,000		)
Sales of marketable securities	31,586			—			—			31,586
Other, net	—			1,763			710			2,473
Net cash used for investing activities	(101,062		)	(17,958		)	(11,783		)	(130,803		)
Cash flows from financing activities:
Repurchase of senior unsecured notes	(1,064		)	—			—			(1,064		)
Payment on debt	—			—			(8,856		)	(8,856		)
Term loan borrowing	—			—			25,879			25,879
Proceeds from exercise of stock options	524			—			—			524
Excess tax benefit from stock options exercised	706			—			—			706
Dividends paid	(809		)	—			—			(809		)
Net cash provided by (used for) financing activities	(643		)				17,023			16,380
Effect of exchange rate change on cash	—			—			(333		)	(333		)
Net increase (decrease) in cash and cash equivalents	(114,096		)	—			3,766			(110,330		)
Cash and cash equivalents, beginning of period	239,362			6			132			239,500
Cash and cash equivalents, end of period	$	125,266		$	6		$	3,898		$	129,170

161



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2010
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$	28,158		$	22,036		$	517		$	50,711
Cash flows from investing activities:
Capital expenditures	(6,155		)	(22,123		)	(576		)	(28,854		)
Other, net	—			82			24			106
Net cash used for investing activities	(6,155		)	(22,041		)	(552		)	(28,748		)
Cash flows from financing activities:
Proceeds from borrowings	200,000			—			—			200,000
Repurchase of senior notes	(206,166		)	—			—			(206,166		)
Proceeds from exercise of stock options	285			—			—			285
Payment of financing fees	(5,057		)	—			—			(5,057		)
Dividends paid	(707		)	—			—			(707		)
Net cash used for financing activities	(11,645		)	—			—			(11,645		)
Net increase (decrease) in cash and cash equivalents	10,358			(5		)	(35		)	10,318
Cash and cash equivalents, beginning of period	229,004			11			167			229,182
Cash and cash equivalents, end of period	$	239,362		$	6		$	132		$	239,500



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2009
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$	36,592		$	36,248		$	(527	)	$	72,313
Cash flows from investing activities:
Capital expenditures	(2,704		)	(36,322		)	(511		)	(39,537		)
Acquisition of shares of Titan Europe Plc	—			—			(2,399		)	(2,399		)
Other, net	—			25			1,017			1,042
Net cash used for investing activities	(2,704		)	(36,297		)	(1,893		)	(40,894		)
Cash flows from financing activities:
Proceeds from borrowings	172,500			—			—			172,500
Repurchase of senior notes	(4,726		)	—			—			(4,726		)
Payment on revolving credit facility, net	(25,000		)	—			—			(25,000		)
Proceeds from exercise of stock options	1,142			—			—			1,142
Payment of financing fees	(7,107		)	—			—			(7,107		)
Dividends paid	(704		)	—			—			(704		)
Net cash provided by financing activities	136,105			—			—			136,105
Net increase (decrease) in cash and cash equivalents	169,993			(49		)	(2,420		)	167,524
Cash and cash equivalents, beginning of period	59,011			60			2,587			61,658
Cash and cash equivalents, end of period	$	229,004		$	11		$	167		$	229,182

162

33. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 7.875 per cent. senior secured notes are guaranteed by the following 100 per cent. owned subsidiaries of the Company: Titan Tire Corporation, Titan Tire Corporation of Bryan, Titan Tire Corporation of Freeport, and Titan Wheel Corporation of Illinois. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The guarantees of the guarantor subsidiaries are subject to release in limited circumstances only upon the occurrence of certain customary conditions. The following condensed consolidating financial statements are presented using the equity method of accounting. The Company has revised the guarantor financial statements for all periods presented in order to correct the equity method presentation for a subsidiary of a guarantor subsidiary. As a result of this change, the guarantor subsidiaries column shows decreased investment in subsidiaries of $9.1 million at 31 December 2010. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.

(Amounts in thousands) Consolidating Condensed Statements of Operations

31 December 2011



Titan International Inc. Guarantor (Parent) Subsidiaries							Non‑ Guarantor Subsidiaries			Eliminations Consolidated
Net sales	$—			$	1,172,869		$	314,129		$—			$	1,486,998
Cost of sales	1,276			961,659			291,955			—			1,254,890
Gross profit (loss)	(1,276		)	211,210			22,174			—			232,108
Selling, general and administrative expenses	30,936			10,291			44,690			—			85,917
Research and development expenses	87			4,134			7			—			4,228
Royalty expense	—			7,997			1,793			—			9,790
Income (loss) from operations	(32,299		)	188,788			(24,316		)	—			132,173
Interest expense	(24,489		)				(770		)				(25,259		)
Non-cash convertible debt conversion charge	(16,135		)	—			—			—			(16,135		)
Other income (expense)	5,456			(511		)	171			—			5,116
Income (loss) before income taxes	(67,467		)	188,277			(24,915		)	—			95,895
Provision (benefit) for income taxes	(17,294		)	63,450			(8,397		)	—			37,759
Equity in earnings of subsidiaries	108,309			—			—			(108,309		)	—
Net income (loss)	58,136			124,827			(16,518		)	(108,309		)	58,136
Net loss noncontrolling interests	—			—			—			(16		)	(16		)
Net income (loss) attributable to
Titan International	$	58,136		$	124,827		$	(16,518	)	$	(108,293	)	$	58,152

163



(Amounts in thousands)	Consolidating Condensed Statements of Operations Year Ended December 31, 2010
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations			Consolidated
Net sales	$	—		$	863,575	$	18,016		$	—		$	881,591
Cost of sales	2,340			752,219		22,942			—			777,501
Gross profit (loss)	(2,340		)	111,356		(4,926		)	—			104,090
Selling, general and administrative expenses	27,400			8,491		21,674			—			57,565
Research and development expenses	—			6,190		127			—			6,317
Royalty expense	—			9,263		—			—			9,263
Income (loss) from operations	(29,740		)	87,412		(26,727		)	—			30,945
Interest expense	(26,667		)	—		—			—			(26,667		)
Loss on note repurchase	(14,573		)	—		—			—			(14,573		)
Other income	921			59		125			—			1,105
Income (loss) before income taxes	(70,059		)	87,471		(26,602		)	—			(9,190		)
Provision (benefit) for income taxes	(31,409		)	40,076		(11,931		)	—			(3,264		)
Equity in earnings of subsidiaries	32,724			—		—			(32,724		)	—
Net income (loss)	$	(5,926	)	$	47,395	$	(14,671	)	$	(32,724	)	$	(5,926	)



(Amounts in thousands)	Consolidating Condensed Statements of Operations Year Ended December 31, 2009
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminations		Consolidated
Net sales	$	—		$	713,487	$	14,112		$	—	$	727,599
Cost of sales	(6		)	650,820		20,820			—		671,634
Gross profit (loss)	6			62,667		(6,708		)	—		55,965
Selling, general and administrative expenses	16,549			9,719		20,466			—		46,734
Research and development expenses	67			8,616		167			—		8,850
Royalty expense	—			7,573		—			—		7,573
Noncash goodwill impairment charge	—			—		11,702			—		11,702
Income (loss) from operations	(16,610		)	36,759		(39,043		)	—		(18,894		)
Interest expense	(16,246		)	—		—			—		(16,246		)
Gain on note repurchase	1,398			—		—			—		1,398
Other income	1,452			125		163			—		1,740
Income (loss) before income taxes	(30,006		)	36,884		(38,880		)	—		(32,002		)
Provision (benefit) for income taxes	(6,897		)	8,479		(8,939		)	—		(7,357		)
Equity in earnings of subsidiaries	(1,536		)	—		—			1,536		—
Net income (loss)	$	(24,645	)	$	28,405	$	(29,941	)	$	1,536	$	(24,645	)

164



(Amounts in thousands) Consolidating Condensed Balance Sheets 31 December 2011 Titan International Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Eliminations Consolidated Assets
Cash and cash equivalents	$	125,266		$	4	$	3,900		$—			$	129,170
Accounts receivable	—			133,320		56,207			—			189,527
Inventories	—			144,511		46,361			—			190,872
Prepaid and other current assets	27,251			15,385		12,388						55,024
Total current assets	152,517			293,220		118,856			—			564,593
Property, plant and equipment, net	9,562			205,027		120,153			—			334,742
Investment in subsidiaries	184,307			—		—			(184,307		)
Other assets	44,918			1,454		64,579			—			110,951
Total assets	$	391,304		$	499,701	$	303,588		$	(184,307	)	$	1,010,286
Liabilities and Stockholders’ Equity
Short-term debt	$—			$—		$	11,723		$—			$	11,723
Accounts payable	930			33,070		42,574			—			76,574
Other current liabilities	22,687			39,104		25,678			—			87,469
Total current liabilities	23,617			72,174		79,975			—			175,766
Long-term debt	312,881			—		5,000			—			317,881
Other long-term liabilities	29,267			38,125		52,368			—			119,760
Intercompany accounts	(369,700		)	85,560		284,140			—			—
Titan International stockholders’ equity	395,239			303,842		(117,895		)	(185,947		)	395,239
Non-controlling interests									1,640			1,640
Total liabilities and stockholders’ equity	$	391,304		$	499,701	$	303,588		$	(184,307	)	$	1,010,286

165



(Amounts in thousands) Consolidating Condensed Balance Sheets 31 December 2010 Titan International Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Eliminations Consolidated Assets
Cash and cash equivalents	$	239,362		$	3	$	135		$—			$	239,500
Accounts receivable				85,335		3,669			—			89,004
Inventories	—			103,265		14,878			—			118,143
Prepaid and other current assets	17,981			15,937		785			—			34,703
Total current assets	257,343			204,540		19,467			—			481,350
Property, plant and equipment, net	7,678			218,999		21,377			—			248,054
Investment in subsidiaries	42,531			—		—			(42,531		)	—
Other assets	22,183			869		28,424			—			51,476
Total assets	$	329,735		$	424,408	$	69,268		$	(42,531	)	$	780,880
(Liabilities and Stockholders’ Equity
Accounts payable	$	1,406		$	32,305	$	1,570		$—			$	35,281
Other current liabilities	16,066			38,689		2,317			—			57,072
Total current liabilities	17,472			70,994		3,887			—			92,353
Long-term debt	373,564			—		—			—			373,564
Other long-term liabilities	8,855			28,083		5,994			—			42,932
Intercompany accounts	(342,187		)	97,466		244,721			—			—
Stockholders’ equity	272,031			227,865		(185,334		)	(42,531		)	272,031
Total liabilities and stockholders’ equity	$	329,735		$	424,408	$	69,268		$	(42,531	)	$	780,880

166



(Amounts in thousands) Net cash provided by (used for) operating	Consolidating Condensed Statements of Cash Flows Year Ended 31 December 2011 Titan International Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Consolidated
activities	$	(12,391	)	$	17,609		$	(792	)	$	4,426
Cash flows from investing activities:
Capital expenditures	(3,530		)	(19,371		)	(12,843		)	(35,744		)
Acquisitions, net of cash acquired	(99,118		)	—			—			(99,118		)
Purchases of marketable securities	(30,000		)	—			—			(30,000		)
Sales of marketable securities	31,586			—			—			31,586
Other, net	—			1,763			710			2,473
Net cash used for investing activities	(101,062		)	(17,608		)	(12,133		)	(130,803		)
Cash flows from financing activities:
Repurchase of senior unsecured notes	(1,064		)	—			—			(1,064		)
Payment on debt	—			—			(8,856		)	(8,856		)
Term loan borrowing	—			—			25,879			25,879
Proceeds from exercise of stock options	524			—			—			524
Excess tax benefit from stock options exercised	706			—			—			706
Dividends paid	(809		)	—			—			(809		)
Net cash provided by (used for) financing activities	(643		)				17,023			16,380
Effect of exchange rate change on cash	—			—			(333		)	(333		)
Net increase (decrease) in cash and cash equivalents	(114,096		)	1			3,765			(110,330		)
Cash and cash equivalents, beginning of period	239,362			3			135			239,500
Cash and cash equivalents, end of period	$	125,266		$	4		$	3,900		$	129,170

167



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2010
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Net cash provided by operating activities	$	28,158		$	21,809		$	744		$	50,711
Cash flows from investing activities:
Capital expenditures	(6,155		)	(21,865		)	(834		)	(28,854		)
Other, net	—			51			55			106
Net cash used for investing activities	(6,155		)	(21,814		)	(779		)	(28,748		)
Cash flows from financing activities:
Proceeds from borrowings	200,000			—			—			200,000
Repurchase of senior notes	(206,166		)	—			—			(206,166		)
Proceeds from exercise of stock options	285			—			—			285
Payment of financing fees	(5,057		)	—			—			(5,057		)
Dividends paid	(707		)	—			—			(707		)
Net cash used for financing activities	(11,645		)	—			—			(11,645		)
Net increase (decrease) in cash and cash equivalents	10,358			(5		)	(35		)	10,318
Cash and cash equivalents, beginning of period	229,004			8			170			229,182
Cash and cash equivalents, end of period	$	239,362		$	3		$	135		$	239,500



(Amounts in thousands)	Consolidating Condensed Statements of Cash Flows Year Ended December 31, 2009
	Titan Intl., Inc. (Parent)			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$	36,592		$	35,986		$	(265	)	$	72,313
Cash flows from investing activities:
Capital expenditures	(2,704		)	(36,061		)	(772		)	(39,537		)
Acquisition of shares of Titan Europe Plc	—			—			(2,399		)	(2,399		)
Other, net	—			25			1,017			1,042
Net cash used for investing activities	(2,704		)	(36,036		)	(2,154		)	(40,894		)
Cash flows from financing activities:
Proceeds from borrowings	172,500			—			—			172,500
Repurchase of senior notes	(4,726		)	—			—			(4,726		)
Payment on revolving credit facility, net	(25,000		)	—			—			(25,000		)
Proceeds from exercise of stock options	1,142			—			—			1,142
Payment of financing fees	(7,107		)	—			—			(7,107		)
Dividends paid	(704		)	—			—			(704		)
Net cash provided by financing activities	136,105			—			—			136,105
Net increase (decrease) in cash and cash equivalents	169,993			(50		)	(2,419		)	167,524
Cash and cash equivalents, beginning of period	59,011			58			2,589			61,658
Cash and cash equivalents, end of period	$	229,004		$	8		$	170		$	229,182

168

SCHEDULE II – VALUATION RESERVES

The audited financial statement schedule of Titan International in this Part B of Part 7 of this document “Schedule II – Valuation Reserves” has been extracted from the financial statement schedule in the index appearing under Item 15(a)(2) of Titan International’s Annual Report filed with the SEC on 23 February 2012.



	Balance at beginning		Additions to cost and					Balance at
Description	of year		expenses		Deductions			end of year
Year ended December 31, 2011
Reserve deducted in the balance sheet from the assets to which it applies
Allowance for doubtful accounts	$	3,889,000	$	408,000	$	(93,000	)	$	4,204,000
Year ended December 31, 2010
Reserve deducted in the balance sheet from the assets to which it applies
Allowance for doubtful accounts	$	3,958,000	$	255,000	$	(324,000	)	$	3,889,000
Year ended December 31, 2009
Reserve deducted in the balance sheet from the assets to which it applies
Allowance for doubtful accounts	$	6,639,000	$	1,248,000	$	(3,929,000	)	$	3,958,000

169

PART C: Titan International audited consolidated financial information
for the year ended 31 December 2010 (under US GAAP)

The Report of Independent Registered Public Accounting firm has been extracted in this Part C of Part 7 of this document from Titan International’s Annual Report filed with the SEC on 9 November 2011.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of Titan International, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of Titan International, Inc. and its subsidiaries at 31 December 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended 31 December 2010 in conformity with accounting principles generally accepted in the United States of America. Management and we previously concluded that the Company maintained effective internal control over financial reporting as of 31 December 2010. However, management has subsequently determined that a material weakness in internal control over financial reporting related to the Company’s valuation of certain tire inventory that did not accurately calculate the decline in value as of 31 December 2010 existed as of that date. Accordingly, management’s report has been restated and our present opinion on internal control over financial reporting, as presented herein, is different from that expressed in our previous report. Also in our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of 31 December 2010, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) because a material weakness in internal control over financial reporting related to the Company's valuation of certain tire inventory that did not accurately calculate the decline in value as of 31 December 2010, existed as of that date. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness referred to above is described in Management’s Report on Internal Control over Financial Reporting. We considered this material weakness in determining the nature, timing, and extent of audit tests applied in our audit of the 2010 consolidated financial statements, and our opinion regarding the effectiveness of the Company’s internal control over financial reporting does not affect our opinion on those consolidated financial statements. The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in management's report referred to above. Our responsibility is to express opinions on these financial statements and on the Company’s internal control over financial reporting based on our integrated audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in Note 2 to the consolidated financial statements, the Company has restated its 2010 financial statements to correct an error.

170

directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ PricewaterhouseCoopers LLP

St. Louis, MO

23 February 2011, except for the effects of the restatement described in Note 2 to the consolidated financial statements and the matter described in the penultimate paragraph of Management’s Report on Internal Control over Financial Reporting (Restated) as to which the date is 9 November 2011

171

TITAN INTERNATIONAL, INC.

The audited consolidated financial information of Titan International as of and for the year ended 31 December 2010 and 31 December 2009 in this Part C of Part 7 of this document have been extracted from the consolidated financial statements which are set out in their entirety in the index appearing under Item 15(a)(1) of Titan International’s Annual Report filed with the SEC on 9 November 2011.

CONSOLIDATED STATEMENTS OF OPERATIONS (All amounts in thousands, except per share data)



	Year ended 31 December 2010 2009 2008 As Restated
Net sales	$	881,591		$	727,599		$	1,036,700
Cost of sales	777,501			671,634			896,986
Gross profit	104,090			55,965			139,714
Selling, general and administrative expenses	57,565			46,734			53,661
Research and development expenses	6,317			8,850			3,490
Royalty expense	9,263			7,573			9,242
Noncash goodwill impairment charge	0			11,702			0
Income (loss) from operations	30,945			(18,894		)	73,321
Interest expense	(26,667		)	(16,246		)	(15,122		)
Gain (loss) on note repurchase	(14,573		)	1,398			0
Noncash Titan Europe Plc charge	0			0			(37,698		)
Other income	1,105			1,740			2,509
Income (loss) before income taxes	(9,190		)	(32,002		)	23,010
Income tax provision (benefit)	(3,264		)	(7,357		)	9,673
Net income (loss)	$	(5,926	)	$	(24,645	)	$	13,337
Earnings (loss) per common share:
Basic	$	(0.17	)	$	(0.71	)	$	0.39
Diluted	$	(0.17	)	(0.71		)	0.38
Average common shares and equivalents outstanding:
Basic	34,896			34,708			34,410
Diluted	34,896			34,708			34,838
See accompanying Notes to Consolidated Financial Statements.

172

TITAN INTERNATIONAL, INC.

CONSOLIDATED BALANCE SHEETS

(All amounts in thousands, except share data)



	December 31,
	2,010		2,009
Assets	As Restated
Current assets
Cash and cash equivalents	$239,500		$229,182
Accounts receivable (net of allowance of $3,889 and $3,958, respectively)	89,004		67,513
Inventories	118,143		110,136
Deferred income taxes	16,040		11,108
Prepaid and other current assets	18,663		27,277
Total current assets	481,350		445,216

Property, plant and equipment, net	248,054		254,461
Deferred income taxes	—		7,253
Other assets	51,476		29,533

Total assets	$780,880		$736,463

Liabilities and Stockholders' Equity
Current liabilities
Accounts payable	$35,281		$24,246
Other current liabilities	57,072		45,826
Total current liabilities	92,353		70,072

Long-term debt	373,564		366,300
Deferred income taxes	1,664		—
Other long-term liabilities	41,268		38,138
Total liabilities	508,849		474,510

Commitments and contingencies: Notes 13, 23 and 24

Stockholders' equity
Common stock (no par, 120,000,000 shares authorized, 37,475,288 issued)	30		30
Additional paid-in capital	300,540		299,519
Retained earnings	9,744		16,377
Treasury stock (at cost, 2,108,561 and 2,214,347 shares, respectively)	(19,324)		(20,274)
Treasury stock reserved for contractual obligations	(1,917)		(5,393)
Accumulated other comprehensive loss	(17,042	)	(28,306	)
Total stockholders' equity	272,031		261,953

Total liabilities and stockholders' equity	$780,880		$736,463

See accompanying Notes to Consolidated Financial Statements.

173

TITAN INTERNATIONAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (All amounts in thousands, except share data)



	Number of common shares	Common Stock	Additional paid-in capital		Retained earnings	Treasury stock	Treasury stock reserved for contractual obligations	Accumulated other comprehensive income (loss)	Total
Balance January 1, 2008	#34,183,484	$30	$303,908		$29,012	$(29,384)	$—	$(31,044)	$272,522

Comprehensive income (loss):
Net income					13,337				13,337
Noncash Titan Europe Plc charge								14,249	14,249
Pension liability adjustments, net of tax								(17,964)	(17,964	)
Comprehensive income									9,622
Dividends paid on common stock					(623)				(623)
Noncash Titan Europe Plc charge			(10,471)						(10,471)
Cash paid for fractional shares resulting from stock split			(70)						(70)
Exercise of stock options	313,463		5,389			2,278			7,667
Issuance of treasury stock for funding contractual obligations on employee contracts	512,640		898			4,603	(5,501)		—
Issuance of treasury stock under 401(k) plan	22,097		370			171			541
Balance December 31, 2008	35,031,684	30	300,024		41,726	(22,332)	(5,501)	(34,759)	279,188

Comprehensive income (loss):
Net loss					(24,645)				(24,645)
Pension liability adjustments, net of tax								5,538	5,538
Unrealized gain on investment, net of tax								915	915
Comprehensive loss									(18,192	)
Dividends paid on common stock					(704)				(704)
Exercise of stock options	170,000		(384)			1,526			1,142
Contractual obligation transactions			(7)				108		101
Issuance of treasury stock under 401(k) plan	59,257		(114	)		532			418
Balance December 31, 2009	35,260,941	30	299,519		16,377	(20,274)	(5,393)	(28,306)	261,953

Comprehensive income (as restated):
Net loss (as restated)					(5,926)				(5,926)
Pension liability adjustments, net of tax								710	710
Unrealized gain on investment, net of tax								10,554	10,554
Comprehensive income (as restated)									5,338
Dividends paid on common stock					(707)				(707)
Exercise of stock options	56,250		(220)			505			285
Stock-based compensation			201						201
Contractual obligation transactions			999				3,476		4,475
Issuance of treasury stock under 401(k) plan	49,536		41			445			486
Balance December 31, 2010 (As Restated)	#35,366,727	$30	$300,540		$9,744	$(19,324)	$(1,917)	$(17,042)	$272,031

See accompanying Notes to Consolidated Financial Statements.

174



TITAN INTERNATIONAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (All amounts in thousands)	Year ended 31 December
	2010			2009			2008
	As Restated
Cash flows from operating activities:
Net income (loss)	$	(5,926	)	$	(24,645	)	$	13,337
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	37,567			34,296			30,368
Deferred income tax provision (benefit)	(2,079		)	(2,950		)	13,987
(Gain) loss on note repurchase	14,573			(1,398		)	0
Noncash goodwill impairment charge	0			11,702			0
Noncash Titan Europe Plc charge	0			0			24,504
Stock-based compensation	201			0			0
Excess tax benefit from stock options exercised	0			0			(4,131		)
Issuance of treasury stock under 401(k) plan	486			418			541
(Increase) decrease in assets:
Accounts receivable	(21,491		)	59,018			(28,137		)
Inventories	(8,007		)	37,170			(19,258		)
Prepaid and other current assets	8,614			(5,615		)	(3,823		)
Other assets	91			(2,031		)	575
Increase (decrease) in liabilities:
Accounts payable	11,035			(41,301		)	21,555
Other current liabilities	11,426			(462		)	6,393
Other liabilities	4,221			8,111			(4,741		)
Net cash provided by operating activities	50,711			72,313			51,170
Cash flows from investing activities:
Capital expenditures	(28,854		)	(39,537		)	(79,953		)
Acquisition of shares of Titan Europe Plc	0			(2,399		)	0
Other	106			1,042			104
Net cash used for investing activities	(28,748		)	(40,894		)	(79,849		)
Cash flows from financing activities:
Proceeds from borrowings	200,000			172,500			0
Repurchase of senior notes	(206,166		)	(4,726		)	0
Proceeds (payment) on revolving credit facility, net	0			(25,000		)	25,000
Proceeds from exercise of stock options	285			1,142			3,536
Excess tax benefit from stock options exercised	0			0			4,131
Payment of financing fees	(5,057		)	(7,107		)	(70		)
Dividends paid	(707		)	(704		)	(585		)
Net cash provided by (used for) financing activities	(11,645		)	136,105			32,012
Net increase in cash and cash equivalents	10,318			167,524			3,333
Cash and cash equivalents, beginning of year	229,182			61,658			58,325
Cash and cash equivalents, end of year	$	239,500		$	229,182		$	61,658
See accompanying Notes to Consolidated Financial Statements.

175

TITAN INTERNATIONAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES Business

Titan International, Inc. and its subsidiaries (Titan or the Company) are leading manufacturers of wheels, tires and assemblies for off-highway vehicles used in the agricultural, earthmoving/construction and consumer markets. Titan’s earthmoving/construction market also includes products supplied to the U.S. military and other government entities, while the consumer market includes all-terrain vehicles (ATVs) and recreational/utility trailer applications. Titan manufactures both wheels and tires for the majority of these market applications, allowing the Company to provide the value-added service of delivering complete wheel and tire assemblies. The Company offers a broad range of products that are manufactured in relatively short production runs to meet the specifications of original equipment manufacturers (OEMs) and/or the requirements of aftermarket customers.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and its wholly- and majority-owned subsidiaries. Investments of less than 20 per cent. of publicly traded entities are carried at fair value in accordance with Accounting Standards Codification (ASC) 320 Investments – Debt and Equity Securities. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s 22.9 per cent. investment in Titan Europe Plc should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities. The Company has determined after considering the facts and circumstances relating to the investment that the equity method of accounting is not appropriate as the Company does not have significant influence over Titan Europe Plc. All significant intercompany accounts and transactions have been eliminated.

Stock split

In June 2008, Titan’s Board of Directors approved a five-for-four stock split. Titan executed a five-for-four stock split that became effective August 15, 2008, for stockholders of record on July 31, 2008. The Company gave five shares for every four shares held as of the record date. Stockholders received one additional share for every four shares owned as of the record date and received cash in lieu of fractional shares. All share and per share data, except shares authorized, have been adjusted to reflect the effect of the stock split for all periods presented.

Inventories

Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method in 2010 for approximately 61 per cent. of inventories and the last-in, first-out (LIFO) method for approximately 39 per cent. of inventories. The major rubber material inventory and related work-in-process and their finished goods are accounted for under the FIFO method. The major steel material inventory and related work-in-process and their finished goods are accounted for under the LIFO method. Market value is estimated based on current selling prices. Estimated provisions are established for excess and obsolete inventory, as well as inventory carried above market price based on historical experience.

Deferred financing costs

Deferred financing costs are costs incurred in connection with the Company’s revolving credit facility, 7.875 per cent. senior secured notes, 8 per cent. senior unsecured notes and 5.625 per cent. convertible senior subordinated notes. The deferred financing costs associated with each of the debt facilities are being amortized over the life of the debt. Amortization of deferred financing costs for the debt facilities approximates the effective interest rate method.

176

Fixed assets

Property, plant and equipment have been recorded at cost. Depreciation is provided using the straight-line method over the following estimated useful lives of the related assets:

Years

Building and improvements 25

Machinery and equipment 10

Tools, dies and molds 5

Fair value of financial instruments

The Company records all financial instruments, including cash and cash equivalents, accounts receivable, notes receivable, accounts payable, other accruals and notes payable at cost, which approximates fair value. Investments in marketable equity securities are recorded at fair value. The 8 per cent. senior unsecured notes due January 2012, 7.875 per cent. senior secured notes due 2017 and 5.625 per cent. convertible senior subordinated notes due 2017 are the only significant financial instruments of the Company with a fair value different from the recorded value. At 31 December 2010, the fair value of the 8 per cent. senior unsecured notes due January 2012, based on market prices obtained through independent pricing sources, was approximately $1.2 million, compared to a carrying value of $1.1 million. At 31 December 2010, the fair value of the 7.875 per cent. senior secured notes due 2017, based on market prices obtained through independent pricing sources, was approximately $213.0 million, compared to a carrying value of $200.0 million. At 31 December 2010, the fair value of the 5.625 per cent. convertible senior subordinated notes due 2017, based on market prices obtained through independent pricing sources, was approximately $362.9 million, compared to a carrying value of $172.5 million.

Available-for-sale securities

The Company has an investment in Titan Europe Plc that was valued at $22.7 million as of 31 December 2010, representing a 22.9 per cent. ownership position, at that time. Titan Europe Plc is publicly traded on the AIM market in London, England. The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Balance Sheets. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe Plc should continue to be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe Plc. In accordance with ASC 320, the Company records the Titan Europe Plc investment as an available-for-sale security and reports this investment at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income. Should the fair value decline below the cost basis, the Company would be required to determine if this decline is other than temporary. If the decline in fair value were judged to be other than temporary, an impairment charge would be recorded. Declared dividends on this investment are recorded in income as a component of other income. See Note 7 for additional information.

Impairment of fixed assets

177

Foreign currency translation

The financial statements of the Company’s foreign subsidiaries are translated to United States currency in accordance with ASC 830 Foreign Currency Matters. Assets and liabilities are translated to United States dollars at period-end exchange rates. Income and expense items are translated at average rates of exchange prevailing during the period. Translation adjustments are included in “Accumulated other comprehensive loss” in stockholders’ equity. As of December 2010, the Company’s investment in Titan Europe Plc was classified as available-for-sale securities and this investment is included as a component of other assets on the Consolidated Balance Sheets. Gains and losses that result from foreign currency transactions are included in the accompanying consolidated statements of operations.

Impairment of goodwill

The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. In the fourth quarter of 2009, the Company recorded a noncash charge for the impairment of goodwill of $11.7 million on both a pre-tax and after-tax basis. The charge was associated with the reporting units of the Company’s agricultural ($6.9 million), earthmoving/construction ($3.6 million), and consumer ($1.2 million) segments. The Company had no remaining goodwill after the impairment. See Note 9 for additional information.

Revenue recognition

Cost of sales

Cost of sales is comprised primarily of direct materials and supplies consumed in the manufacturing of the Company’s products, as well as manufacturing labor, depreciation expense and overhead expense necessary to acquire and convert the purchased materials and supplies into a finished product. Cost of sales also includes all purchasing, receiving, inspection, internal transfers, and related distribution costs.

Selling, general and administrative expense

Research and development expense

Research and development (R&D) expenses are expensed as incurred. R&D costs were $6.3 million, $8.9 million and $3.5 million for the years of 2010, 2009 and 2008, respectively. The additional R&D costs recorded during the past two years primarily related to the Giant OTR products.

Advertising

Advertising expenses are included in SG&A expense and are expensed as incurred. Advertising costs were approximately $2 million for each of the years ended 31 December 2010, 2009 and 2008.

Warranty costs

178

Income taxes

Earnings per share

Cash equivalents

The Company considers short-term debt securities with an original maturity of three months or less to be cash equivalents.

Interest paid

The Company paid $23.7 million, $16.7 million and $16.6 million for interest in 2010, 2009 and 2008, respectively.

Income taxes paid

Titan paid $0.2 million, $0.4 million and $8.0 million for income taxes in 2010, 2009 and 2008, respectively.

Environmental liabilities

Stock-based compensation

At 31 December 2010, the Company has two stock-based compensation plans, which are described in Note 21. Compensation expense for stock-based compensation is recognized over the requisite service period at the estimated fair value of the award at the grant date. In 2010, the Company granted 494,938 stock options. The Company granted no stock options in 2009 or 2008.

Reclassification

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

Use of estimates

179

Recently issued accounting standards Fair Value Measurements and Disclosures

In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.” This guidance requires new disclosures for transfers in and out of Level 1 and Level 2 fair value measurements. This guidance requires separate presentation about purchases, sales, issuances, and settlements for activity in Level 3 fair value measurements. ASU 2010-06 also clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value. The guidance for new disclosures and clarifications of existing disclosures was effective for reporting periods beginning after December 15, 2009. The adoption of this part of the guidance had no material effect on the Company’s financial position, results of operations or cash flows. The guidance related to presentation of Level 3 fair value measurements is effective for fiscal years beginning after December 15, 2010. The adoption of this part of the guidance is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Receivables

In July 2010, FASB issued ASU No. 2010-20, “Receivables (Topic 310) – Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses.” This guidance amends Topic 310 to improve the disclosures that an entity provides about the credit quality of its financing receivables and the related allowance for credit losses. As a result of these amendments, an entity is required to disaggregate by portfolio segment or class certain existing disclosures and provide certain new disclosures about its financing receivables and related allowance for credit losses. The disclosures as of the end of a reporting period were effective for reporting periods ending on or after December 15, 2010. The adoption of this part of the guidance had no material effect on the Company’s financial position, results of operations or cash flows. The disclosures about activity that occurs during a reporting period are effective for reporting periods beginning on or after December 15, 2010. The adoption of this part of the guidance is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

Business Combinations

In December 2010, FASB issued ASU No. 2010-29, “Business Combinations (Topic 805) – Disclosure of Supplementary Pro Forma Information for Business Combinations.” This update addresses diversity in practice about the interpretation of the pro forma revenue and earnings disclosure requirements for business combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments in this update also expand the supplemental pro forma disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The adoption of this guidance is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.

180

2. RESTATEMENT

In the third quarter of 2008, the Company began manufacturing the first generation (Gen 1) of its super giant tires. In the fourth quarter of 2009, the Company ceased manufacturing Gen 1 tires due to the creation of the second generation (Gen 2) of super giant tires which began production in the first quarter of 2010. During the fourth quarter of 2010, the Company recorded a $5.1 million charge to reduce the remaining Gen 1 tire inventory to an estimated market value of $10.6 million. In October 2011, the Company determined that the analysis performed in the fourth quarter of 2010 that created the $5.1 million adjustment was not reflective of all the facts and circumstances that existed at 31 December 2010. After reconsidering the facts and circumstances that existed at 31 December 2010, the Company determined that the estimated market value of the Gen 1 tires that remained as of 31 December 2010 was $0.7 million. Accordingly, the Company is restating its consolidated financial statements as of and for the year ended 31 December 2010 to reflect an additional charge of $9.8 million for its Gen 1 inventory.

The following table represents the impact of the restatement adjustments on the Company’s Consolidated Statement of Operations for the year ended 31 December 2010:

Consolidated Statement of Operations

(All amounts in thousands, except share and per share data)



	Year ended 31 December 2010 Previously Restatement Reported Adjustment Restated
Net sales	$	881,591		$	—		$	881,591
Cost of sales	776,662			9,839			777,501
Gross profit	113,929			(9,839		)	104,090
Selling, general and administrative expenses	57,565			0			57,565
Research and development expenses	6,317			0			6,317
Royalty expense	9,263			0			9,763
Income (loss) from operations	40,784			(9,839		)	30,945
Interest expense	(26,667		)	0			(26,667		)
Gain (loss) on note repurchase	(14,573		)	0			(14,573		)
Other income	1,105			0			1,105
Income (loss) before income taxes	649			(9,839		)	(9,190		)
Income tax provision (benefit)	291			(3,555		)	(3,264		)
Net income (loss)	$	358		$	(6,284	)	$	(5,926	)
Earnings (loss) per common share:
Basic	$	0.01		$	(0.18	)	$	(0.17	)
Diluted	0.01			(0.18		)	(0.17		)
Average common shares and equivalents outstanding:
Basic	34,896			34,896			34,896
Diluted	35,391			34,896			34,896

181

The following table represents the impact of the restatement adjustments on the Company’s Consolidated Balance Sheet as of 31 December 2010:



Consolidated Balance Sheets (All amounts in thousands)	31 December 2010 Previously Restatement
	Reported			Adjustment			Restated
Assets
Current assets
Cash and cash equivalents	$	239,500		$	—		$	239,500
Accounts receivable	89,004			0			89,004
Inventories	127,982			(9,839		)	118,143
Deferred income taxes	12,791			3,249			16,040
Prepaid and other current assets	18,663			0			18,663
Total current assets	487,940			(6,590		)	481,350
Property, plant and equipment, net	248,054			0			248,054
Other assets	51,476			0			51,476
Total assets	$	787,470		$	(6,590	)	$	780,880
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	35,281		$	—		$	35,281
Other current liabilities	57,072			0			57,072
Total current liabilities	92,353			0			92,353
Long-term debt	373,564			0			373,564
Deferred income taxes	1,970			(306		)	1,664
Other long-term liabilities	41,268			0			41,268
Total liabilities	509,155			(306		)	508,849
Stockholders’ equity
Common stock	30			0			30
Additional paid-in capital	300,540			0			300,540
Retained earnings	16,028			(6,284		)	9,744
Treasury stock	(19,324		)	0			(19,324		)
Treasury stock reserved for contractual obligations	(1,917		)	0			(1,917		)
Accumulated other comprehensive loss	(17,042		)	0			(17,042		)
Total stockholders’ equity	278,315			(6,284		)	272,031
Total liabilities and stockholders’ equity	$	787,470		$	(6,590	)	$	780,830

182

The following table represents the impact of the restatement adjustments on the Company’s cash flows from operating activities for the year ended 31 December 2010:



(All amounts in thousands) Cash flows from operating activities:	31 December 2010 Previously Restatement Reported Adjustment						Restated
Net income (loss)	$	358		$	(6,284	)	$	(5,926	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	37,567			0			37,567
Deferred income tax provision (benefit)	1,476			(3,555		)	(2,079		)
(Gain) loss on note repurchase	14,573			0			14,573
Stock-based compensation	201			0			201
Issuance of treasury stock under 401(k) plan	486			0			486
(Increase) decrease in assets:
Accounts receivable	(21,491		)	0			(21,491		)
Inventories	(17,846		)	9,839			(8,007		)
Prepaid and other current assets	8,614			0			8,614
Other assets	91			0			91
Increase (decrease) in liabilities:
Accounts payable	11,035			0			11,035
Other current liabilities	11,426			0			11,426
Other liabilities	4,221			0			4,221
Net cash provided by operating activities	50,711			0			50,711

The restatement adjustments did not impact the total net cash flows from financing and investing activities in the Consolidated Statement of Cash Flows for the year ended 31 December 2010. Additionally, all amounts in notes to the Consolidated Financial Statements affected by the restatements have been labelled as restated.

3.ACCOUNTS RECEIVABLE

Accounts receivable at 31 December 2010 and 2009, consisted of the following (amounts in thousands):



	2010			2009
Accounts receivable	$	92,893		$	71,471
Allowance for doubtful accounts	(3,889		)	(3,958		)
Accounts receivable, net	$	89,004		$	67,513
3. INVENTORIES
Inventories at 31 December 2010 and 2009, consisted of the following (amounts in thousands):
	2010			2009
	As Restated
Raw material	$	56,414		$	44,336
Work-in-process	16,860			21,378
Finished goods	49,841			46,067
	123,115			111,781
Adjustment to LIFO basis	(4,972		)	(1,645		)
	$	118,143		$	110,136

183

5.PREPAID AND OTHER CURRENT ASSETS

Prepaid and other current assets at 31 December 2010 and 2009, consisted of the following (amounts in thousands):



	2010		2009
Prepaid supplies	$	14,056	$	14,019
Prepaid income taxes	0		3,514
Other	4,607		9,744
	$	18,663	$	27,277

6.PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at 31 December 2010 and 2009, consisted of the following (amounts in thousands):



	2010			2009
Land and improvements	$	3,061		$	2,993
Buildings and improvements	98,233			97,238
Machinery and equipment	383,231			359,244
Tools, dies and molds	84,134			77,926
Construction-in-process	8,741			16,383
	577,400			553,784
Less accumulated depreciation	(329,346		)	(299,323		)
	$	248,054		$	254,461

Depreciation related to property, plant and equipment for the years 2010, 2009 and 2008 totaled $35.2 million, $31.7 million, and $27.5 million, respectively.

7.INVESTMENT IN TITAN EUROPE

Investment in Titan Europe Plc at 31 December 2010 and 2009, consisted of the following (amounts in thousands):

2010 2009

Investment in Titan Europe Plc $22,693 $6,456

Titan Europe Plc is publicly traded on the AIM market in London, England. The Company’s investment in Titan Europe represents a 22.9 per cent. ownership percentage. The Company has considered the applicable guidance in ASC 323 Investments – Equity Method and Joint Ventures and has concluded that the Company’s investment in Titan Europe Plc should be accounted for as an available-for-sale security and recorded at fair value in accordance with ASC 320 Investments – Debt and Equity Securities as the Company does not have significant influence over Titan Europe Plc. The investment in Titan Europe Plc is included as a component of other assets on the Consolidated Condensed Balance Sheets. Titan’s cost basis in Titan Europe is $5.0 million. Titan’s accumulated other comprehensive income includes a gain on the Titan Europe Plc investment of $11.5 million, which is net of tax of $6.2 million. The increased value in the Titan Europe Plc investment at 31 December 2010, was due primarily to a higher publicly quoted Titan Europe Plc market price.

184



8. OTHER ASSETS Other assets at 31 December 2010 and 2009, consisted of the following (amounts in thousands): 2010			2009
Investment in Titan Europe Plc	$	22,693	$	6,456
Investments for management contractual obligations	11,168		5,869
Deferred financing costs	10,410		9,084
Other	7,205		8,124
	$	51,476	$	29,533

The higher balance in other assets primarily related to investment in Titan Europe Plc, which increased to $22.7 million at 31 December 2010, from $6.5 million at 31 December 2009. The increased value in the Titan Europe Plc investment at 31 December 2010, was due primarily to a higher publicly quoted Titan Europe Plc market price.

8. GOODWILL

The changes in the carrying amount of goodwill by reporting units for the two years ended 31 December 2010, were as follows (amounts in thousands):

Earthmoving/

Agricultural Construction Consumer

Segment Segment Segment Total



Balance at 1 January 2009	$	6,912		$	3,552		$	1,238		$	11,702
Noncash goodwill impairment charge	(6,912		)	(3,552		)	(1,238		)	(11,702		)
Balance at 31 December 2009 and 2010	$	—		$	—		$	—		$	—

The Company reviews goodwill for impairment during the fourth quarter of each annual reporting period, and whenever events and circumstances indicate that the carrying values may not be recoverable. The Company evaluates the recoverability of goodwill by estimating the future discounted cash flows of the reporting unit to which the goodwill relates and using an earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple approach. In determining the estimated future cash flows, the Company considers current and projected future levels of income as well as business trends and economic conditions. When the Company’s estimated fair value of the reporting unit is less than the carrying value, a second step of the impairment analysis is performed. In this second step, the implied fair value of goodwill is calculated as the excess of the fair value of a reporting unit over the fair values assigned to its assets and liabilities. If the implied fair value of goodwill is less than the carrying value of the reporting unit’s goodwill, the difference is recognized as an impairment loss.

In the fourth quarter of 2009, the Company recorded a noncash charge for the impairment of goodwill of $11.7 million on both a pre-tax and after-tax basis. The charge was associated with the reporting units of the Company’s agricultural ($6.9 million), earthmoving/construction ($3.6 million), and consumer ($1.2 million) segments. The Company performed a fourth quarter 2009 goodwill assessment using a discounted cash flow model that employed a 12.25 per cent. discount rate and 2.5 per cent. terminal growth rate assumption and an EBITDA multiple approach.

Significant assumptions relating to future operations must be made when estimating future cash flows in analyzing goodwill for impairment. Assumptions utilized in analyzing goodwill are highly judgmental, especially given the worldwide recession and global economic crisis.

185

10.OTHER CURRENT LIABILITIES

Other current liabilities at 31 December 2010 and 2009, consisted of the following (amounts in thousands):



	2010			2009
Warranty	$	12,471		$	9,169
Wages and commissions	10,435			8,384
Accrued interest	8,579			7,656
Insurance	6,037			5,958
CEO and management incentive compensation	5,663			0
Other	13,887			14,659
	$	57,072		$	45,826
10. WARRANTY COSTS
Changes in the warranty liability consisted of the following (amounts in thousands):
	2010			2009
Warranty liability, January 1	$	9,169		$	7,488
Provision for warranty liabilities	19,795			18,629
Warranty payments made	(16,493		)	(16,948		)
Warranty liability, 31 December	$	12,471		$	9,169

11. OTHER LONG-TERM LIABILITIES

Other long-term liabilities at 31 December 2010 and 2009, consisted of the following (amounts in thousands):



	2010		2009
Accrued pension liabilities	$	26,218	$	25,091
Accrued employment liabilities	11,495		9,481
Other	3,555		3,566
	$	41,268	$	38,138

12. REVOLVING CREDIT FACILITY AND LONG-TERM DEBT

Long-term debt at 31 December 2010 and 2009, consisted of the following (amounts in thousands):



	2010		2009
7.875 per cent. senior secured notes due 2017	$	200,000	$	—
5.625 per cent. convertible senior subordinated notes due 2017	172,500		172,500
8 per cent. senior unsecured notes due January 2012	1,064		193,800
	373,564		366,300
Less amounts due within one year	0		0
	$	373,564	$	366,300

186

Aggregate maturities of long-term debt are as follows (amounts in thousands):

2011 $0

2012 1,064

2013 0

2014 0

2015 0

Thereafter 372,500

$373,564

7.875 per cent. senior secured notes due 2017

The Company’s 7.875 per cent. senior secured notes (senior secured notes) are due October 2017. These notes are secured by the land and buildings of the following subsidiaries of the Company: Titan Tire Corporation, Titan Wheel Corporation of Illinois, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan. The Company’s senior secured notes outstanding balance was $200.0 million at 31 December 2010.

5.625 per cent. convertible senior subordinated notes due 2017

The Company’s 5.625 per cent. convertible senior subordinated notes (convertible notes) are due January 2017. The initial base conversion rate for the convertible notes is 93.0016 shares of Titan common stock per $1,000 principal amount of convertible notes, equivalent to an initial base conversion price of approximately $10.75 per share of Titan common stock. If the price of Titan common stock at the time of determination exceeds the base conversion price, the base conversion rate will be increased by an additional number of shares (up to 9.3002 shares of Titan common stock per $1,000 principal amount of convertible notes) as determined pursuant to a formula described in the indenture. The base conversion rate will be subject to adjustment in certain events. The Company’s convertible notes balance was $172.5 million at 31 December 2010.

8 per cent. senior unsecured notes due 2012

The Company’s 8 per cent. senior unsecured notes (senior unsecured notes) are due January 2012. In 2010, the Company repurchased $192.7 million of principal value of senior unsecured notes resulting in a loss on note repurchase of $14.6 million. In 2009, the Company repurchased $6.2 million of principal value of senior unsecured notes for approximately $4.8 million resulting in a $1.4 million gain on note repurchase. The Company’s senior unsecured notes outstanding balance was $1.1 million at 31 December 2010.

Revolving credit facility

The Company’s $100 million revolving credit facility (credit facility) with agent Bank of America, N.A. has a January 2014 termination date and is collateralized by the accounts receivable and inventory of Titan and certain of its domestic subsidiaries. During 2010 and at 31 December 2010, there were no borrowings under the credit facility. The credit facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. Titan is in compliance with these covenants and restrictions as of 31 December 2010.

In September 2010, Titan amended its credit facility with Bank of America, N.A. The amendment extended the credit facility termination date to January 2014 from the previous January 2012 date. The amendment also reduced the revolving commitment to $100 million from $150 million and released the lender’s lien on property, plant and equipment.

187

14.ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consisted of the following (amounts in thousands):



Translation Adjustments				Unrealised Gain (Loss) on Investments		Unrecognised Losses and Prior Service Cost			Total
Balance at 1 January 2009	$	(1,183	)	$	—	$	(33,576	)	$	(34,759	)
Unrealized gain on investment, net of tax of $493	0			915		0			915
Defined benefit pension plan entries:
Unrecognized prior service cost, net of tax of $51	0			0		85			85
Unrecognized net gain, net of tax of $3,364	0			0		5,488			5,488
Unrecognized deferred tax liability, net of tax of $21	0			0		(35		)	(35		)
Balance at 31 December 2009	(1,183		)	915		(28,038		)	(28,306		)
Unrealized gain on investment, net of tax of $5,683	0			10,554		0			10,554
Defined benefit pension plan entries:
Unrecognized prior service cost, net of tax of $53	0			0		83			83
Unrecognized net gain, net of tax of $350	0			0		661			661
Unrecognized deferred tax liability, net of tax of $22	0			0		(34		)	(34		)
Balance at 31 December 2010	$	(1,183	)	$	11,469	$	(27,328	)	$	(17,042	)
14. STOCKHOLDERS’ EQUITY

The Company is authorized by the Board of Directors to repurchase up to 2.5 million common shares subject to debt agreement covenants. The Company repurchased no Titan common shares in 2010, 2009, or 2008. The Company has no plans at this time to repurchase any Titan common stock. Titan paid cash dividends of $.02 per share of common stock for 2010, $.02 per share of common stock for 2009 and $.018 per share for common stock for 2008. Dividends paid totaled $0.7 million, $0.7 million and $0.6 million for 2010, 2009 and 2008, respectively.

15. FAIR VALUE MEASUREMENTS

ASC 820 Fair Value Measurements establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:

Level 1 – Quoted prices in active markets for identical instruments;

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

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



Investment in	31 December 2010 Total Level 1 Levels 2&3						31 December 2009 Total Level 1 Levels 2&3
Titan Europe Plc	$	22,693	$	22,693	$	—	$	6,456	$	6,456	$	—
Investments for contractual obligations	11,168		11,168		0		5,869		5,869		0
Total	$	33,861	$	33,861	$	—	$	12,325	$	12,325	$	—

188



17. ROYALTY EXPENSE
Royalty expense consisted of the following (amounts in thousands):
	2010		2009		2008
Royalty expense	$	9,263	$	7,573	$	9,242

The Company has a trademark license agreement with The Goodyear Tire & Rubber Company to manufacture and sell certain off-highway tires in North America under the Goodyear name. Royalty expenses recorded for the years ended 31 December 2010, 2009 and 2008, were $9.3 million, $7.6 million and $9.2 million, respectively.

17. GAIN (LOSS) ON NOTE REPURCHASE

Gain (loss) on note repurchase consisted of the following (amounts in thousands):

2010 2009 2008

Gain (loss) on note repurchase $(14,573) $1,398 $0



18. OTHER INCOME, NET Other income consisted of the following (amounts in thousands):
	2010			2009		2008
Investment gain (loss) related to contractual obligations	$	824		$	1,343	$	(1,852	)
Interest income	394			211		1,352
Dividend income – Titan Europe Plc	0			0		1,711
Other income (expense)	(113		)	186		1,298
	$	1,105		$	1,740	$	2,509

189



20. INCOME TAXES Income (loss) before income taxes, consisted of the following (amounts in thousands): 2010 2009 As Restated							2008
Domestic	$	(9,148	)	$	(31,863	)	$	21,727
Foreign	(42		)	(139		)	1,283
	$	(9,190	)	$	(32,002	)	$	23,010
The income tax provision (benefit) was as follows	(amounts in thousands):
	2010			2009			2008
	As Restated
Current
Federal	$	(853	)	$	(3,526	)	$	7,814
State	(331		)	160			34
Foreign	0			(1,041		)	1,031
	(1,184		)	(4,407		)	8,879
Deferred
Federal	(2,531		)	(2,721		)	811
State	451			(229		)	(17		)
Foreign	0			0			0
	(2,080		)	(2,950		)	794
Income tax provision (benefit)	$	(3,264	)	$	(7,357	)	$	9,673

The income tax provision differs from the amount of income tax determined by applying the statutory U.S. federal income tax rate to pre-tax income (loss) as a result of the following:



	2010 As Restated		2009		2008
Statutory U.S. federal tax rate	35	%	35	%	35	%
Nondeductible goodwill impairment	0.0		(12.8	)	0.0
Repatriation of foreign earnings	0.0		0.0		1.9
Foreign taxes, net	(0.2	)	1.6		(1.9	)
State taxes, net	(0.7	)	(0.1	)	4.8
Other, net	1.4		(0.7	)	2.2
Effective tax rate	35.5	%	23	%	42	%

190



	2010 As Restated			2009
Deferred tax assets:
Net operating loss carryforwards	$	9,755		$	13,481
Pension	9,022			9,789
Unrealized loss on investments	7,719			13,401
Warranty	4,365			3,533
Employee benefits and related costs	3,369			4,821
Inventory	2,265			968
Allowance for bad debts	1,991			1,963
EPA reserve	703			858
Other	5,987			3,894
Deferred tax assets	48,425			52,708
Deferred tax liabilities:
Fixed assets	(34,049		)	(34,347		)
Deferred tax liabilities	(34,049		)	(34,347		)
Net deferred tax asset	$	14,376		$	18,361

The Company recorded income tax benefit of $(3.3) million for the year ended 31 December 2010, an income tax benefit of $(7.4) million for the year ended 31 December 2009, and income tax expense of $9.7 million for the year ended 31 December 2008. The Company’s income tax expense (benefit) and rate differs from the amount of income tax determined by applying the U.S. Federal income tax rate to pre-tax income primarily as a result of state taxes. The Company’s Federal net operating loss carryforward of approximately $20 million expires in 2029. In addition, the Company has various state net operating loss carryforwards which are subject to expiration from 2019 to 2030.

The Company has applied the provisions of ASC 740, “Income Taxes” related to unrecognized tax benefits. No adjustment was made to retained earnings in adopting these provisions in 2007. At 31 December 2010, 2009 and 2008, there were no unrecognized tax benefits. At this time the Company does not expect any significant increases or decreases to its unrecognized tax benefits within 12 months of this reporting date. Titan has identified its federal tax return and its Illinois state tax return as “major” tax jurisdictions. The Company is subject to (i) federal tax examinations for periods 2007 to 2010 and (ii) Illinois state income tax examinations for years 2007 to 2010.

21. EMPLOYEE BENEFIT PLANS Pension plans

The Company has a frozen defined benefit pension plan covering certain employees of Titan Tire Corporation (Titan Tire) and has a frozen defined benefit pension plan covering certain employees of Titan Tire Corporation of Bryan (Bryan). The Company also has a frozen contributory defined benefit pension plan covering certain former eligible bargaining employees of its Walcott, Iowa, facility (Walcott). Additionally, the Company maintains a contributory defined benefit plan that covered former eligible bargaining employees of Dico, Inc (Dico). This Dico plan purchased a final annuity settlement contract in October 2002. The Company’s policy is to fund pension costs as required by law, which is consistent with the funding requirements of federal laws and regulations.

The Company’s defined benefit plans have been aggregated in the following table. Included in the 31 December 2010, presentation are the Titan Tire, Bryan and Walcott plans which have a projected benefit obligation of $98.8 million, exceeding the fair value of plan assets of $72.6 million at 31 December 2010. Included in the 31 December 2009, presentation are the Titan Tire, Bryan and Walcott plans which have a

191

projected benefit obligation of $93.7 million, exceeding the fair value of plan assets of $68.6 million at 31 December 2009.

The projected benefit obligation and the accumulated benefit obligation are the same amount since the Plans are frozen and there are no future compensation levels to factor into the obligations. The Company absolved itself from the liabilities associated with the Dico plan with the purchase of a final annuity settlement contract in October 2002. Therefore, the plan no longer maintains a projected or accumulated benefit obligation. The fair value of the Dico plan assets was $0.5 million at 31 December 2010, 2009 and 2008.

The following table provides the change in benefit obligation, change in plan assets, funded status and amounts recognized in the consolidated balance sheet of the defined benefit pension plans as of 31 December 2010 and 2009 (amounts in thousands):



	2010			2009
Change in benefit obligation:
Benefit obligation at beginning of year	$	93,708		$	90,545
Interest cost	5,200			5,456
Actuarial (gain) loss	6,839			4,657
Benefits paid	(6,916		)	(6,950		)
Benefit obligation at end of year	$	98,831		$	93,708
Change in plan assets:
Fair value of plan assets at beginning of year	$	69,160		$	61,796
Actual return on plan assets	9,131			14,145
Employer contributions	1,781			169
Benefits paid	(6,916		)	(6,950		)
Fair value of plan assets at end of year	$	73,156		$	69,160
Unfunded status at end of year	$	(25,675	)	$	(24,548	)
Amounts recognized in consolidated balance sheet:
Noncurrent assets	$	543		$	543
Noncurrent liabilities	(26,218		)	(25,091		)
Net amount recognized in the consolidated balance sheet	$	(25,675	)	$	(24,548	)
Amounts recognized in accumulated other comprehensive loss:
	2010			2009
Unrecognized prior service cost	$	(1,164	)	$	(1,301	)
Unrecognized net loss	(43,024		)	(44,034		)
Deferred tax effect of unrecognized items	16,860			17,297
Net amount recognized in accumulated other comprehensive loss	$	(27,328	)	$	(28,038	)

The weighted-average assumptions used in the actuarial computation that derived the benefit obligations at 31 December were as follows:



	2010		2009
Discount rate	5.25% - 5.50%		5.75	%
Expected long-term return on plan assets	7.5	%	7.5	%

192

Components of net periodic benefit cost and other amounts recognized in other comprehensive income



	2010			2009			2008
Net periodic benefit cost:
Interest cost	$	5,200		$	5,456		$	5,295
Assumed return on assets	(4,911		)	(4,939		)	(7,828		)
Amortization of unrecognized prior service cost	137			137			137
Amortization of unrecognized deferred taxes	(56		)	(56		)	(56		)
Amortization of net unrecognized loss	3,628			4,303			1,588
Net periodic pension (income) cost	$	3,998		$	4,901		$	(864	)

The estimated net loss, prior service cost, and deferred taxes that will be amortized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $3.7 million, $0.1 million and $(0.1) million, respectively.

The weighted-average assumptions used in the actuarial computation that derived net periodic pension cost for the years ended 31 December 2010, 2009 and 2008 were as follows:



	2010		2009		2008
Discount rate	5.75	%	6.25	%	5.75	%
Expected long-term return on plan assets	7.5	%	8.5	%	8.5	%
The allocation of the fair value of plan assets was as follows:
	Percentage of Plan Assets				Target
	at 31 December				Allocation
	2010		2009		2011
Asset Category
U.S. equities (a)	59	%	61	%	40% - 80%
Fixed income	24	%	26	%	20% - 50%
Cash and cash equivalents	7	%	4	%	0% - 20%
International equities (a)	10	%	9	%	0% - 16%
	100	%	100	%

(a) Total equities may not exceed 80 per cent. of total plan assets.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as:

Level 1 – Quoted prices in active markets for identical instruments;

Level 2 – Inputs other than quoted prices in active markets that are either directly or indirectly observable.

Level 3 – Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

193

The fair value of the plan assets by asset categories was as follows (amounts in thousands):



	Fair Value Measurements as of 31 December 2010 Total Level 1 Level 2 Level 3
Money market funds	$	4,674	$	4,674	$	—	$	—
Domestic common stock	29,429		29,429		0		0
Foreign common stock	3,976		3,976		0		0
Corporate bonds	4,050		4,050		0		0
Foreign bonds	536		536		0		0
U.S. government securities	577		577		0		0
Mortgaged-backed securities	8		0		8		0
Mutual funds	1,239		1,239		0		0
Common / collective trusts	28,667		0		28,667		0
Totals	$	73,156	$	44,481	$	28,675	$	—

The Company invests in a diversified portfolio consisting of an array of asset classes in an attempt to maximize returns while minimizing risk. These asset classes include U.S. equities, fixed income, cash and cash equivalents, and international equities. The investment objectives are to provide for the growth and preservation of plan assets on a long-term basis through investments in: (i) investment grade securities that provide investment returns that meet or exceed the Standard & Poor’s 500 Index and (ii) investment grade fixed income securities that provide investment returns that meet or exceed the Barclays Capital Aggregate Bond Index. The U.S. equities asset category included the Company’s common stock in the amount of $3.5 million (approximately five percent of total plan assets) at 31 December 2010, and $1.5 million (approximately two percent of total plan assets) at 31 December 2009.

Although the 2011 minimum pension funding calculations are not finalized, the Company estimates those funding requirements will be approximately $3 million.

Projected benefit payments from the plans as of 31 December 2010, are estimated as follows (amounts in thousands):

2011 $6,677

2012 6,779

2013 6,976

2014 7,111

2015 7,248

2016-2020 36,808

401(k)

The Company sponsors four 401(k) retirement savings plans. One plan is for the benefit of substantially all employees who are not covered by a collective bargaining arrangement. Titan provides a 25 per cent. matching contribution in the form of the Company’s common stock on the first 6 per cent. of the employee’s contribution in this plan. The Company issued 49,536 shares, 59,257 shares and 22,097 shares of treasury stock in connection with this 401(k) plan during 2010, 2009 and 2008, respectively. Expenses to the Company related to this common stock matching contribution were $0.5 million, $0.4 million and $0.6 million for 2010, 2009 and 2008.

194

plans do not include a Company matching contribution. Employees are fully vested with respect to their contributions.

22. STOCK OPTION PLANS

The Company accounts for stock options using ASC 718 Compensation – Stock Compensation. The Company recorded stock-based compensation of $0.2 million in 2010. No stock-based compensation expense was recorded during 2009 or 2008. The Company granted 494,938 stock options in 2010. These options vest over a three year period and expire 10 years from the grant date. The Company granted no stock options during 2009 and 2008. All stock options granted before 2010 were fully vested before 1 January 2008.

Non-Employee Director Stock Option Plan

2005 Equity Incentive Plan

The Company adopted the 2005 Equity Incentive Plan to provide stock options as a means of attracting and retaining qualified independent directors and employees for the Company. A total of 0.7 million shares are available for future issuance under the equity incentive plan. The exercise price of stock options may not be less than the fair market value of the common stock on the date of the grant. The vesting and term of each option is set by the Board of Directors. The Company granted 494,938 stock options under this plan in 2010. In 2009 and 2008, no stock options were granted under this equity incentive plan.

The following is a summary of activity in the stock option plans for 2010:



		Weighted‑
		Average
	Weighted-	Remaining	Aggregate
Shares	Average	Contractual	Intrinsic
Subject	Exercise	Life	Value (in
to Option	Price	(in Years)	thousands)



Outstanding, 31 December 2009	390,536		$	9.96
Granted	494,938		15.75
Exercised	(56,250	)	5.07
Canceled/Expired	0		–
Outstanding, 31 December 2010	829,224		13.75		7.52 years	$	4,777
Exercisable, 31 December 2010	334,286		10.79		4.01 years	$	2,916

The total intrinsic value of options exercised in 2008 was $5.1 million. Cash received from the exercise of stock options was $3.5 million for 2008. The tax benefit realized for the tax deductions from stock options exercised was $4.1 million for 2008.

The total intrinsic value of options exercised in 2010 was $0.4 million. Cash received from the exercise of stock options was $0.3 million for 2010. There was no tax benefit realized for the tax deductions from stock options exercised for 2010. The weighted-average per share estimated grant date fair value of options issued in 2010 was $8.65. Pre-tax unrecognized compensation expense for stock options was $4.1 million at 31 December 2010, and will be recognized as expense over a weighted-average period of 2.9 years.

195

The Company currently uses treasury shares to satisfy any stock option exercises. At 31 December 2010, the Company had 2.1 million shares of treasury stock.

Valuation Assumptions

Weighted average assumptions used for stock options issued in 2010 (no options were issued in 2009 or



2008):
	2010
Expected life	6.1 Years
Expected volatility	55.5	%
Expected dividends	–
Risk-free interest rate	1.82	%
23. LITIGATION

24. LEASE COMMITMENTS

The Company leases certain buildings and equipment under operating leases. Certain lease agreements provide for renewal options, fair value purchase options, and payment of property taxes, maintenance and insurance by the Company. Total rental expense was $2.1 million, $2.5 million and $2.9 million for the years ended 31 December 2010, 2009 and 2008, respectively.

At 31 December 2010, future minimum rental commitments under noncancellable operating leases with initial or remaining terms in excess of one year are as follows (amounts in thousands):

2011 $370

2012 64

2013 14

Thereafter 1

Total future minimum lease payments $449

196

25.CONCENTRATION OF CREDIT RISK

Net sales to Deere & Company in Titan’s agricultural, earthmoving/construction and consumer markets represented 26 per cent. of the Company’s consolidated revenues for the year ended 31 December 2010, 24 per cent. of the Company’s consolidated revenues for the year ended 31 December 2009, and 22 per cent. of the Company’s consolidated revenues for the year ended 31 December 2008. Net sales to CNH Global N.V. in Titan’s three markets represented 15 per cent. of the Company’s consolidated revenues for the year ended 31 December 2010, 13 per cent. of the Company’s consolidated revenues for the year ended 31 December 2009, and 12 per cent. of the Company’s consolidated revenues for the year ended 31 December 2008. No other customer accounted for more than 10 per cent. of Titan’s net sales in 2010, 2009 or 2008.

26.RELATED PARTY TRANSACTIONS

The Company sells products and pays commissions to companies controlled by persons related to the chief executive officer of the Company. The related party is Mr. Fred Taylor and is Mr. Maurice Taylor’s brother. The companies which Mr. Fred Taylor is associated with that do business with Titan include the following: Blackstone OTR, LLC; FBT Enterprises; and OTR Wheel Engineering. During 2010, 2009 and 2008, sales of Titan product to these companies were approximately $1.9 million, $1.0 million and $6.2 million, respectively. Titan had trade receivables due from these companies of approximately $0.4 million at 31 December 2010, and approximately $0.1 million at 31 December 2009. On other sales referred to Titan from these manufacturing representative companies, commissions were approximately $1.6 million, $1.3 million and $2.0 million during 2010, 2009 and 2008, respectively.

27.SEGMENT AND GEOGRAPHICAL INFORMATION

Titan is organized primarily on the basis of products being included in three marketing segments, with each reportable segment including wheels, tires and wheel/tire assemblies.

197



	2010 As Restated			2009			2008
Revenues from external customers
Agricultural	$	675,178		$	563,528		$	729,895
Earthmoving/construction	191,042			144,589			281,008
Consumer	15,371			19,482			25,797
	$	881,591		$	727,599		$	1,036,700
Gross profit (loss)
Agricultural	$	108,102		$	51,955		$	89,782
Earthmoving/construction	(3,400		)	3,595			46,047
Consumer	2,867			1,604			3,938
Unallocated corporate	(3,479		)	(1,189		)	(53		)
	$	104,090		$	55,965		$	139,714
Income (loss) from operations
Agricultural	$	91,953		$	26,980		$	74,241
Earthmoving/construction	(11,296		)	(7,999		)	38,422
Consumer	2,542			(206		)	3,303
Unallocated corporate	(52,254		)	(37,669		)	(42,645		)
Consolidated income (loss) from operations	30,945			(18,894		)	73,321
Interest expense	(26,667		)	(16,246		)	(15,122		)
Gain (loss) on note repurchase	(14,573		)	1,398			0
Noncash Titan Europe Plc charge	0			0			(37,698		)
Other income, net	1,105			1,740			2,509
Income (loss) before income taxes	$	(9,190	)	$	(32,002	)	$	23,010
Capital expenditures
Agricultural	$	16,017		$	8,461		$	10,946
Earthmoving/construction	5,628			29,593			67,203
Consumer	478			254			406
Unallocated corporate	6,731			1,229			1,398
	$	28,854		$	39,537		$	79,953
Depreciation & amortization
Agricultural	$	18,899		$	17,531		$	16,004
Earthmoving/construction	14,375			12,836			10,831
Consumer	458			535			594
Unallocated corporate	3,835			3,394			2,939
	$	37,567		$	34,296		$	30,368
Total assets
Agricultural	$	304,048		$	257,523		$	360,030
Earthmoving/construction	171,410			188,169			188,486
Consumer	5,863			8,305			9,401
Unallocated corporate (a)	299,559			282,466			96,865
	$	780,880		$	736,463		$	654,782

(a) Unallocated assets include cash of approximately $240 million, $229 million, and $61 million at year-end 2010, 2009 and 2008, respectively.

198

The table below presents information by geographic area. Revenues from external customers were determined based on the location of the selling subsidiary. Geographic information as of and for the years ended 31 December 2010, 2009 and 2008 was as follows (amounts in thousands):



2010	United States		Other Consolidated Countries Totals
Revenues from external customers	$	881,591	$	—	$	881,591
Long-lived assets	248,054		0		248,054
2009
Revenues from external customers	$	727,599	$	—	$	727,599
Long-lived assets	254,461		0		254,461
2008
Revenues from external customers	$	1,036,700	$	—	$	1,036,700
Long-lived assets	260,144		0		260,144
28. SUBSEQUENT EVENTS

Exchange Agreement for 5.625 per cent. convertible senior subordinated notes due 2017

In January 2011, Titan was approached by a note holder of the Company’s 5.625 per cent. convertible senior subordinated notes due 2017 (convertible notes), with an offer to exchange the note holder’s convertible notes for the Company’s common stock. The two parties privately negotiated an agreement to exchange approximately $59.6 million in aggregate principal amount of the Convertible Notes for approximately 6.6 million shares of the Company’s common stock, plus a payment for the accrued and unpaid interest. The exchange was closed on January 19, 2011. The convertible notes exchanged represented approximately 35 per cent. of the total outstanding convertible notes. In the first quarter of 2011, the Company will recognize a noncash charge of approximately $16 million in connection with this exchange in accordance with ASC 470-20 Debt – Debt with Conversion and Other Options.

Cash Deposit for 8 per cent. Senior Unsecured Notes due 2012

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

199

29. EARNINGS PER SHARE

Earnings per share for 2010, 2009 and 2008, are (amounts in thousands, except share and per share data):



2010 (as restated)	Net income (loss)			Weighted- average shares	Per share amount
Basic and diluted earnings per share	$	(5,926	)	34,895,527	$	0.17
2009
Basic and diluted loss per share (b)	$	(24,645	)	34,707,891	$	(0.71	)
2008
Basic earnings per share	$	13,337		34,409,754	$	0.39
Effect of stock options/trusts	0			428,474
Diluted earnings per share	$	13,337		34,838,228	$	0.38


(a)	The effect of stock options/trusts has been excluded as they were anti-dilutive.The weighted-average share amount excluded for stock options/trusts totalled 495,789 shares. The effect of convertible notes has not been included as they were anti-dilutive. The weighted-average share amount excluded for convertible notes totaled 16,764,701 shares.


(b)	The effect of stock options/trusts has been excluded as they were anti-dilutive. The weighted-average share amount excluded for stock options/trusts totaled 559,110 shares. The effect of convertible notes has not been included as they were anti-dilutive. The weighted-average share amount excluded for convertible notes totaled 483,481 shares.

30. SUPPLEMENTARY DATA – QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (All amounts in thousands, except per share data)



Quarter ended 2010	31 March		Year ended 30 June 30 September 31 December 31 December As Restated As Restated
Net sales	$	196,448	$	229,656	$	222,818		$	232,669		$	881,591
Gross profit (loss)	26,087		33,903		27,946			16,154 (a)			104,090
Net income (loss)	2,078		4,569		4,015			(16,588)(b)			(5,926		)
Per share amounts:
Basic	0.06		0.13		0.12			(.47)(b)			(0.17) (c)
Diluted	0.06		0.12		0.11			(.47)(b)			(0.17) (c)
2009
Net sales	$	232,604	$	206,983	$	141,496		$	146,516		$	727,599
Gross profit (loss)	30,063		29,746		(3,030		)	(814		)	55,965
Net income (loss)	7,041		5,910		(11,113		)	(26,483)(d)			(24,645		)
Per share amounts:
Basic	0.20		0.17		(0.32		)	(.76)(d)			(0.71		)
Diluted	0.20		0.17		(0.32		)	(.76)(d)			(0.71		)


(a)	Inventory reserves of $15.0 million for certain large earthmoving/construction tires were included in the quarter ended 31 December 2010.


(b)	Loss on note repurchase of $11.4 million was included in the quarter ended 31 December 2010.


(c)	As a result of changes in outstanding share balances and dilution factors, year-end per share amounts do not agree to the sum of the quarters.


(d)	Noncash goodwill impairment charge of $11.7 million was included in the quarter ended 31 December 2009.

200

31. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 8 per cent. senior unsecured notes and 5.625 per cent. convertible senior subordinated notes are guaranteed by each of Titan’s current and future wholly owned domestic subsidiaries other than its immaterial subsidiaries (subsidiaries with total assets less than $250,000 and total revenues less than $250,000.) The note guarantees are full and unconditional, joint and several obligations of the guarantors. Non-guarantors consist primarily of foreign subsidiaries of the Company, which are organized outside the United States of America. The following condensed consolidating financial statements are presented using the equity method of accounting.



	Consolidating Condensed Statements of Operations
	Year Ended December 31, 2010
(Amounts in thousands)	Titan		Non-
	Intl., Inc.	Guarantor	Guarantor
	(Parent)	Subsidiaries	Subsidiaries	Eliminations		Consolidated
	As Restated	As Restated		As Restated		As Restated
Net sales	$—	$881,591	$—	$—		$881,591
Cost of sales	2,340	775,161	—	—		777,501
Gross profit (loss)	(2,340)	106,430	—	—		104,090
Selling, general and administrative expenses	27,400	30,114	51	—		57,565
Research and development expenses	—	6,317	—	—		6,317
Royalty expense	—	9,263	—	—		9,263
Income (loss) from operations	(29,740)	60,736	(51)	—		30,945
Interest expense	(26,667)	—	—	—		(26,667)
Loss on note repurchase	(14,573)	—	—	—		(14,573)
Other income	921	183	1	—		1,105
Income (loss) before income taxes	(70,059)	60,919	(50)	—		(9,190)
Income tax provision (benefit)	(31,409)	28,168	(23)	—		(3,264)
Equity in earnings of subsidiaries	32,724	—	—	(32,724	)	—
Net income (loss)	$(5,926)	$32,751	$(27)	$(32,724)		$	(5,926	)



	Consolidating Condensed Statements of Operations
	Year Ended December 31, 2009
(Amounts in thousands)
	Titan			Non-
	Intl., Inc.		Guarantor	Guarantor
	(Parent)		Subsidiaries	Subsidiaries	Eliminations	Consolidated
Net sales	$—		$727,599	$—	$—	$727,599
Cost of sales	(6	)	671,640	—	—	671,634
Gross profit	6		55,959	—	—	55,965
Selling, general and administrative expenses	16,549		30,093	92	—	46,734
Research and development expenses	67		8,783	—	—	8,850
Royalty expense	—		7,573	—	—	7,573
Noncash goodwill impairment charge	—		11,702	—	—	11,702
Loss from operations	(16,610)		(2,192)	(92)	—	(18,894)
Interest expense	(16,246)		—	—	—	(16,246)
Gain on note repurchase	1,398		—	—	—	1,398
Other income	1,452		288	—	—	1,740
Loss before income taxes	(30,006)		(1,904)	(92)	—	(32,002)
Income tax benefit	(6,897)		(439)	(21)	—	(7,357)
Equity in earnings of subsidiaries	(1,536	)	—	—	1,536	—
Net income (loss)	$(24,645)		$(1,465)	$(71)	$1,536	$(24,645)

201



	Consolidating Condensed Statements of Operations
	Year Ended December 31, 2008
(Amounts in thousands)
	Titan			Non-
	Intl., Inc.	Guarantor		Guarantor
	(Parent)	Subsidiaries		Subsidiaries	Eliminations			Consolidated
Net sales	$—	$1,036,700		$—	$—			$1,036,700
Cost of sales	(922)	897,908		—	—			896,986
Gross profit	922	138,792		—	—			139,714
Selling, general and administrative expenses	20,332	33,251		78	—			53,661
Research and development expenses	17	3,473		—	—			3,490
Royalty expense	—	9,242		—	—			9,242
Income (loss) from operations	(19,427)	92,826		(78)	—			73,321
Interest expense	(15,122)	—		—	—			(15,122)
Noncash Titan Europe Plc charge	(37,698)	—		—	—			(37,698)
Other income (expense)	832	(33	)	1,710	—			2,509
Income (loss) before income taxes	(71,415)	92,793		1,632	—			23,010
Income tax provision (benefit)	(30,024)	39,011		686	—			9,673
Equity in earnings of subsidiaries	54,728	—		—	(54,728		)	—
Net income	$13,337	$53,782		$946	$	(54,728	)	$13,337



	Consolidating Condensed Balance Sheets
	December 31, 2010
(Amounts in thousands)
	Titan		Non-
	Intl., Inc.	Guarantor	Guarantor
	(Parent)	Subsidiaries	Subsidiaries	Eliminations		Consolidated
	As Restated	As Restated		As Restated		As Restated
Assets
Cash and cash equivalents	$239,362	$6	$132	$—		$239,500
Accounts receivable	—	89,004	—	—		89,004
Inventories	—	118,143	—	—		118,143
Prepaid and other current assets	17,981	16,722	—	—		34,703
Total current assets	257,343	223,875	132	—		481,350
Property, plant and equipment, net	7,678	240,376	—	—		248,054
Investment in subsidiaries	33,464	—	—	(33,464)		—
Other assets	22,183	6,600	22,693	—		51,476
Total assets	$320,668	$470,851	$22,825	$(33,464)		$780,880

Liabilities and Stockholders' Equity
Accounts payable	$1,406	$33,875	$—	$—		$35,281
Other current liabilities	16,066	41,006	—	—		57,072
Total current liabilities	17,472	74,881	—	—		92,353
Long-term debt	373,564	—	—	—		373,564
Other long-term liabilities	8,855	34,077	—	—		42,932
Intercompany accounts	(351,254)	359,962	(8,708)	—		—
Stockholders' equity	272,031	1,931	31,533	(33,464	)	272,031
Total liabilities and stockholders' equity	$320,668	$470,851	$22,825	$(33,464)		$780,880

202



(Amounts in thousands) Consolidating Condensed Balance Sheets 31 December 2009 Titan International Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Eliminations Consolidated Assets
Cash and cash equivalents	$	229,004		$	11		$	167		$	—		$	229,182
Accounts receivable	(201		)	67,714			0			0			67,513
Inventories	0			110,136			0			0			110,136
Prepaid and other current assets	19,857			18,528			0			0			38,385
Total current assets	248,660			196,389			167			0			445,216
Property, plant and equipment, net	7,602			246,859			0			0			254,461
Investment in subsidiaries	10,748			0			0			(10,748		)	0
Other assets	23,870			6,460			6,456			0			36,786
Total assets	$	290,880		$	449,708		$	6,623		$	(10,748	)	$	736,463
Liabilities and Stockholders’ Equity
Accounts payable	$	1,086		$	23,160		$	—		$	—		$	24,246
Other current liabilities	8,288			37,538			0			0			45,826
Total current liabilities	9,374			60,698			0			0			70,072
Long-term debt	366,300			0			0			0			366,300
Other long-term liabilities	5,574			32,564			0			0			38,138
Intercompany accounts	(352,321		)	377,281			(24,960		)	0			0
Stockholders’ equity	261,953			(20,835		)	31,583			(10,748		)	261,953
Total liabilities and stockholders’ equity	$	290,880		$	449,708		$	6,623		$	(10,748	)	$	736,463

203



	Consolidating Condensed Statements of Cash Flows
	Year Ended December 31, 2010
(Amounts in thousands)

	Titan				Non-
	Intl., Inc.		Guarantor		Guarantor
	(Parent)		Subsidiaries		Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$28,158		$22,588		$	(35	)	$50,711

Cash flows from investing activities:
Capital expenditures	(6,155)		(22,699)		—			(28,854)
Other, net	—		106		—			106
Net cash used for investing activities	(6,155	)	(22,593	)	—			(28,748	)

Cash flows from financing activities:
Proceeds from borrowings	200,000		—		—			200,000
Repurchase of senior notes	(206,166)		—		—			(206,166)
Proceeds from exercise of stock options	285		—		—			285
Payment of financing fees	(5,057)		—		—			(5,057)
Other, net	(707	)	—		—			(707	)
Net cash used for financing activities	(11,645	)	—		—			(11,645	)

Net increase (decrease) in cash and cash equivalents	10,358		(5)		(35)			10,318
Cash and cash equivalents, beginning of period	229,004		11		167			229,182
Cash and cash equivalents, end of period	$239,362		$6		$132			$239,500



	Consolidating Condensed Statements of Cash Flows
	Year Ended December 31, 2009
(Amounts in thousands)
	Titan				Non-
	Intl., Inc.		Guarantor		Guarantor
	(Parent)		Subsidiaries		Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$36,592		$35,742		$	(21	)	$72,313

Cash flows from investing activities:
Capital expenditures	(2,704)		(36,833)		—			(39,537)
Acquisition of shares of Titan Europe Plc	—		—		(2,399)			(2,399)
Other, net	—		1,042		—			1,042
Net cash used for investing activities	(2,704	)	(35,791	)	(2,399		)	(40,894	)

Cash flows from financing activities:
Proceeds from borrowings	172,500		—		—			172,500
Repurchase of senior notes	(4,726)		—		—			(4,726)
Payment on debt	(25,000)		—		—			(25,000)
Proceeds from exercise of stock options	1,142		—		—			1,142
Payment of financing fees	(7,107)		—		—			(7,107)
Other, net	(704	)	—		—			(704	)
Net cash provided by financing activities	136,105		—		—			136,105

Net increase (decrease) in cash and cash equivalents	169,993		(49)		(2,420)			167,524
Cash and cash equivalents, beginning of period	59,011		60		2,587			61,658
Cash and cash equivalents, end of period	$229,004		$11		$167			$229,182

204



(Amounts in thousands) Net cash provided by (used for) operating	Consolidating Condensed Statements of Cash Flows Year Ended 31 December 2008 Titan International Non‑ Inc. Guarantor Guarantor (Parent) Subsidiaries Subsidiaries Consolidated
activities	$	(25,759	)	$	75,319		$	1,610	$	51,170
Cash flows from investing activities:
Capital expenditures	(4,534		)	(75,419		)	0		(79,953		)
Other, net	7			97			0		104
Net cash used for investing activities	(4,527		)	(75,322		)	0		(79,849		)
Cash flows from financing activities:
Proceeds on revolving credit facility	25,000			0			0		25,000
Proceeds from exercise of stock options	3,536			0			0		3,536
Excess tax benefit from stock options exercised	4,131			0			0		4,131
Other, net	(655		)	0			0		(655		)
Net cash provided by financing activities	32,012			0			0		32,012
Net increase (decrease) in cash and cash equivalents	1,726			(3		)	1,610		3,333
Cash and cash equivalents, beginning of year	57,285			63			977		58,325
Cash and cash equivalents, end of year	$	59,011		$	60		$	2,587	$	61,658

205

32. SUBSIDIARY GUARANTOR FINANCIAL INFORMATION

The Company’s 7.875 per cent. senior secured notes are guaranteed by the following subsidiaries of the Company: Titan Tire Corporation, Titan Wheel Corporation of Illinois, Titan Tire Corporation of Freeport, and Titan Tire Corporation of Bryan. The note guarantees are full and unconditional, joint and several obligations of the guarantors. The following condensed consolidating financial statements are presented using the equity method of accounting. Certain sales & marketing expenses recorded by non-guarantor subsidiaries have not been allocated to the guarantor subsidiaries.



	Consolidating Condensed Statements of Operations
	Year Ended December 31, 2010
(Amounts in thousands)	Titan					Non-
	Intl., Inc.			Guarantor		Guarantor
	(Parent)			Subsidiaries		Subsidiaries	Eliminations		Consolidated
	As Restated			As Restated			As Restated		As Restated
Net sales	$—			$863,575		$18,016	$—		$881,591
Cost of sales	2,340			752,219		22,942	—		777,501
Gross profit (loss)	(2,340)			111,356		(4,926)	—		104,090
Selling, general and administrative expenses	27,400			8,491		21,674	—		57,565
Research and development expenses	—			6,190		127	—		6,317
Royalty expense	—			9,263		—	—		9,263
Income (loss) from operations	(29,740)			87,412		(26,727)	—		30,945
Interest expense	(26,667)			—		—	—		(26,667)
Loss on note repurchase	(14,573)			—		—	—		(14,573)
Other income	921			59		125	—		1,105
Income (loss) before income taxes	(70,059)			87,471		(26,602)	—		(9,190)
Income tax provision (benefit)	(31,409)			40,076		(11,931)	—		(3,264)
Equity in earnings of subsidiaries	32,724			(272	)	272	(32,724	)	—
Net income (loss)	$	(5,926	)	$47,123		$(14,399)	$(32,724)		$(5,926)



	Consolidating Condensed Statements of Operations
	Year Ended December 31, 2009
(Amounts in thousands)

	Titan				Non-
	Intl., Inc.		Guarantor		Guarantor
	(Parent)		Subsidiaries		Subsidiaries	Eliminations		Consolidated
Net sales	$—		$713,487		$14,112	$—		$727,599
Cost of sales	(6	)	650,820		20,820	—		671,634
Gross profit (loss)	6		62,667		(6,708)	—		55,965
Selling, general and administrative expenses	16,549		9,719		20,466	—		46,734
Research and development expenses	67		8,616		167	—		8,850
Royalty expense	—		7,573		—	—		7,573
Noncash goodwill impairment charge	—		—		11,702	—		11,702
Income (loss) from operations	(16,610)		36,759		(39,043)	—		(18,894)
Interest expense	(16,246)		—		—	—		(16,246)
Gain on note repurchase	1,398		—		—	—		1,398
Other income	1,452		125		163	—		1,740
Income (loss) before income taxes	(30,006)		36,884		(38,880)	—		(32,002)
Income tax provision (benefit)	(6,897)		8,479		(8,939)	—		(7,357)
Equity in earnings of subsidiaries	(1,536	)	(635	)	4,233	(2,062	)	—
Net income (loss)	$(24,645)		$27,770		$(25,708)	$(2,062)		$(24,645)

206



	Consolidating Condensed Statements of Operations
	Year Ended December 31, 2008
(Amounts in thousands)
	Titan			Non-
	Intl., Inc.	Guarantor		Guarantor
	(Parent)	Subsidiaries		Subsidiaries	Eliminations			Consolidated
Net sales	$—	$1,013,881		$22,819	$—			$1,036,700
Cost of sales	(922)	873,439		24,469	—			896,986
Gross profit (loss)	922	140,442		(1,650)	—			139,714
Selling, general and administrative expenses	20,332	10,543		22,786	—			53,661
Research and development expenses	17	3,472		1	—			3,490
Royalty expense	—	9,242		—	—			9,242
Income (loss) from operations	(19,427)	117,185		(24,437)	—			73,321
Interest expense	(15,122)	—		—	—			(15,122)
Noncash Titan Europe Plc charge	(37,698)	—		—	—			(37,698)
Other income (expense)	832	(267	)	1,944	—			2,509
Income (loss) before income taxes	(71,415)	116,918		(22,493)	—			23,010
Income tax provision (benefit)	(30,024)	49,152		(9,455)	—			9,673
Equity in earnings of subsidiaries	54,728	(1,062	)	32,200	(85,866		)	—
Net income	$13,337	$66,704		$19,162	$	(85,866	)	$13,337



	Consolidating Condensed Balance Sheets
	December 31, 2010
(Amounts in thousands)
	Titan		Non-
	Intl., Inc.	Guarantor	Guarantor
	(Parent)	Subsidiaries	Subsidiaries		Eliminations		Consolidated
	As Restated	As Restated			As Restated		As Restated
Assets
Cash and cash equivalents	$239,362	$3	$135		$—		$239,500
Accounts receivable	—	85,335	3,669		—		89,004
Inventories	—	103,265	14,878		—		118,143
Prepaid and other current assets	17,981	15,937	785		—		34,703
Total current assets	257,343	204,540	19,467		—		481,350
Property, plant and equipment, net	7,678	218,999	21,377		—		248,054
Investment in subsidiaries	33,464	9,057	10		(42,531)		—
Other assets	22,183	869	28,424		—		51,476
Total assets	$320,668	$433,465	$69,278		$(42,531)		$780,880

Liabilities and Stockholders' Equity
Accounts payable	$1,406	$32,305	$1,570		$—		$35,281
Other current liabilities	16,066	38,689	2,317		—		57,072
Total current liabilities	17,472	70,994	3,887		—		92,353
Long-term debt	373,564	—	—		—		373,564
Other long-term liabilities	8,855	28,083	5,994		—		42,932
Intercompany accounts	(351,254)	106,523	244,731		—		—
Stockholders' equity	272,031	227,865	(185,334	)	(42,531	)	272,031
Total liabilities and stockholders' equity	$320,668	$433,465	$69,278		$(42,531)		$780,880

207



	Consolidating Condensed Balance Sheets
	December 31, 2009
(Amounts in thousands)
	Titan		Non-
	Intl., Inc.	Guarantor	Guarantor
	(Parent)	Subsidiaries	Subsidiaries		Eliminations		Consolidated
Assets
Cash and cash equivalents	$229,004	$8	$170		$—		$229,182
Accounts receivable	(201)	65,533	2,181		—		67,513
Inventories	—	92,116	18,020		—		110,136
Prepaid and other current assets	19,857	17,881	647		—		38,385
Total current assets	248,660	175,538	21,018		—		445,216
Property, plant and equipment, net	7,602	222,184	24,675		—		254,461
Investment in subsidiaries	10,748	9,057	10		(19,815)		—
Other assets	23,870	760	12,156		—		36,786
Total assets	$290,880	$407,539	$57,859		$(19,815)		$736,463

Liabilities and Stockholders' Equity
Accounts payable	$1,086	$22,248	$912		$—		$24,246
Other current liabilities	8,288	35,817	1,721		—		45,826
Total current liabilities	9,374	58,065	2,633		—		70,072
Long-term debt	366,300	—	—		—		366,300
Other long-term liabilities	5,574	26,475	6,089		—		38,138
Intercompany accounts	(352,321)	128,302	224,019		—		—
Stockholders' equity	261,953	194,697	(174,882	)	(19,815	)	261,953
Total liabilities and stockholders' equity	$290,880	$407,539	$57,859		$(19,815)		$736,463



	Consolidating Condensed Statements of Cash Flows
	Year Ended December 31, 2010
(Amounts in thousands)
	Titan				Non-
	Intl., Inc.		Guarantor		Guarantor
	(Parent)		Subsidiaries		Subsidiaries		Consolidated
Net cash provided by operating activities	$28,158		$21,809		$744		$50,711

Cash flows from investing activities:
Capital expenditures	(6,155)		(21,865)		(834)		(28,854)
Other, net	—		51		55		106
Net cash used for investing activities	(6,155	)	(21,814	)	(779	)	(28,748	)

Cash flows from financing activities:
Proceeds from borrowings	200,000		—		—		200,000
Repurchase of senior notes	(206,166)		—		—		(206,166)
Proceeds from exercise of stock options	285		—		—		285
Payment of financing fees	(5,057)		—		—		(5,057)
Other, net	(707	)	—		—		(707	)
Net cash used for financing activities	(11,645	)	—		—		(11,645	)

Net increase (decrease) in cash and cash equivalents	10,358		(5)		(35)		10,318
Cash and cash equivalents, beginning of period	229,004		8		170		229,182
Cash and cash equivalents, end of period	$239,362		$3		$135		$239,500

208



	Consolidating Condensed Statements of Cash Flows
	Year Ended December 31, 2009
(Amounts in thousands)
	Titan				Non-
	Intl., Inc.		Guarantor		Guarantor
	(Parent)		Subsidiaries		Subsidiaries			Consolidated
Net cash provided by (used for) operating activities	$36,592		$35,986		$	(265	)	$72,313

Cash flows from investing activities:
Capital expenditures	(2,704)		(36,061)		(772)			(39,537)
Acquisition of shares of Titan Europe Plc	—		—		(2,399)			(2,399)
Other, net	—		25		1,017			1,042
Net cash used for investing activities	(2,704	)	(36,036	)	(2,154		)	(40,894	)

Cash flows from financing activities:
Proceeds from borrowings	172,500		—		—			172,500
Repurchase of senior notes	(4,726)		—		—			(4,726)
Payment on debt	(25,000)		—		—			(25,000)
Proceeds from exercise of stock options	1,142		—		—			1,142
Payment of financing fees	(7,107)		—		—			(7,107)
Other, net	(704	)	—		—			(704	)
Net cash provided by financing activities	136,105		—		—			136,105

Net increase (decrease) in cash and cash equivalents	169,993		(50)		(2,419)			167,524
Cash and cash equivalents, beginning of period	59,011		58		2,589			61,658
Cash and cash equivalents, end of period	$229,004		$8		$170			$229,182



	Consolidating Condensed Statements of Cash Flows
	Year Ended December 31, 2008
(Amounts in thousands)
	Titan				Non-
	Intl., Inc.		Guarantor		Guarantor
	(Parent)		Subsidiaries		Subsidiaries		Consolidated
Net cash provided by (used for) operating activities	$(25,759)		$73,451		$3,478		$51,170

Cash flows from investing activities:
Capital expenditures	(4,534)		(73,461)		(1,958)		(79,953)
Other, net	7		6		91		104
Net cash used for investing activities	(4,527	)	(73,455	)	(1,867	)	(79,849	)

Cash flows from financing activities:
Proceeds on revolving credit facility	25,000		—		—		25,000
Proceeds from exercise of stock options	3,536		—		—		3,536
Excess tax benefit from stock options exercised	4,131		—		—		4,131
Other, net	(655	)	—		—		(655	)
Net cash provided by financing activities	32,012		—		—		32,012

Net increase (decrease) in cash and cash equivalents	1,726		(4)		1,611		3,333
Cash and cash equivalents, beginning of year	57,285		62		978		58,325
Cash and cash equivalents, end of year	$59,011		$58		$2,589		$61,658

209

CONTROLS AND PROCEDURES Restatement

On 25 October 2011, management of the Company and Titan’s Audit Committee of the Board of Directors (Audit Committee) concluded that the Company’s consolidated financial statements as of and for the year ended 31 December 2010, contained in its Annual Report on Form 10-K and the unaudited consolidated condensed financial statements for the first and second quarters of 2011 included in the Company’s Quarterly Reports on Form 10-Q for the quarters ended 31 March 2011 and 30 June 2011 should no longer be relied upon as a result of the error described in the following paragraph.

In the third quarter of 2008, the Company began manufacturing the first generation (Gen 1) of its super giant tires. In the fourth quarter of 2009, the Company ceased manufacturing Gen l tires due to the creation of the second generation (Gen 2) of super giant tires which began production in the first quarter of 2010. During the fourth quarter of 2010, the Company recorded a $5.1 million charge to reduce the remaining Gen 1 tire inventory to an estimated market value of $10.6 million. In October of 2011, the Company determined that the analysis performed in the fourth quarter of 2010 that created the $5.1 million adjustment was not reflective of all the facts and circumstances that existed at 31 December 2010. After reconsidering the facts and circumstances that existed at 31 December 2010, the Company determined that the estimated market value of the Gen 1 tires that remained as of 31 December 2010 was $0.7 million. Accordingly, the Company is restating its consolidated financial statements as of and for the year ended 31 December 2010 to reflect an additional charge of $9.8 million for its Gen 1 inventory. In connection with this restatement, management determined there is a deficiency in the internal control relating to the valuation of Gen 1 inventory that should be classified as a material weakness.

Evaluation of Disclosure Controls and Procedures (Restated)

In the Company’s Annual Report on Form 10-K for the year ended 31 December 2010, originally filed on 24 February 2011, the Company’s principal executive officer and principal financial officer concluded the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of 31 December 2010. In connection with the Company’s decision to restate the 31 December 2010 consolidated financial statements, the Company’s principal executive officer and principal financial officer, re-evaluated the effectiveness of the design and operation of Titan’s disclosure controls and procedures and have concluded that the Company’s disclosure controls and procedures were not effective as of 31 December 2010, as a result of the material weakness related to the valuation of the Gen 1 tires as discussed below in Management’s Report on Internal Control Over Financial Reporting.

Notwithstanding the material weaknesses described below, the Company and its management have concluded that the Company’s consolidated financial statements for the periods covered by and included in this Annual Report on Form 10-K/A are fairly stated, in all material respects, in accordance with generally accepted accounting principles in the United States of America for each of the periods presented herein.

Management’s Report on Internal Control Over Financial Reporting (Restated)

Titan’s management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed by, or under the supervision of, Titan’s principal executive officer and principal financial officer, and effected by the Company’s Board of Directors, management and other personnel, 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 in the United States of America. Internal control over financial reporting includes those policies and procedures that:


●	pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the Company;


●	provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and


●	provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

210

As a result of the error discussed above and in Note 2 of the Company’s Notes to Consolidated Financial Statements in this Form 10-K/A, and material weakness discussed below, management reassessed the effectiveness of the Company’s internal control over financial reporting as of 31 December 2010. In making this reassessment, management used the criteria described in the “Internal Control-Integrated Framework” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statement will not be prevented or detected on a timely basis. Based on management’s reassessment, management is restating its original report and has now concluded that the Company’s internal control over financial reporting was not effective as of 31 December 2010, due to the fact that there was a material weakness related to its accounting for inventory. Specifically, the Company’s control with respect to its valuation of certain tire inventory (Gen 1) did not accurately calculate the decline in value as of 31 December 2010. This control deficiency resulted in the restatement of the Company’s 2010 annual consolidated financial statements and its interim financial information for the quarterly periods ended 31 March and 30 June 2011. If not remediated, this control deficiency could result in future material misstatement to inventory and cost of goods sold within the Company’s financial statements.

The effectiveness of the Company’s internal control over financial reporting as of 31 December 2010, has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is presented in this Annual Report on Form 10-K/A

Changes in Internal Controls Over Financial Reporting

There were no material changes other than the material weakness in the Gen 1 inventory described above in internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(t)) that occurred during the fourth quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

211

PART 8

TITAN EUROPE FINANCIAL INFORMATION

The page references in this Part 8: Titan Europe Financial Information relate to (i) the unaudited condensed Interim Financial Statements of Titan Europe for the six months ended 30 June 2012 which have been extracted from the Group Interim Report of Titan Europe which has been published immediately prior to the date of this document; and (ii) the consolidated financial statements of Titan Europe for the year ended 31 December 2011 which have been extracted from the Titan Europe statutory accounts, both for the purpose of inclusion in this document regarded by the FSA as being equivalent to that of a prospectus.

In this Part 8 references to “Company” are to “Titan Europe”, to “Group” are to “Titan Europe Group”, to “directors” are to “Titan Europe Directors” and to “shareholders” are to “Titan Europe Shareholders”.

The financial information contained in this Part 8 does not constitute statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information reproduced in this Part 8 contains only such information which is required to be reproduced in this document to comply with the Prospectus Rules. There are other elements of the statutory accounts which are required by the Companies Act 2006 which have not been included as they are not required by the Prospectus Rules, such as the report of Titan Europe’s directors, the key performance indicators (which are cross referenced from the director’s report) and the stand alone financial statements of Titan Europe (which are prepared under UK GAAP).

212

PART A – Titan Europe unaudited consolidated financial statements
for the six months ended 30 June 2012 (under IFRS)

CONSOLIDATED INCOME STATEMENT For the six months ended 30 June 2012



		Six months ended Year ended 30 June 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited £’000 £’000 £’000
Revenue		252,586		253,161		492,521
Trading profit		14,750		18,005		33,047
Restructuring and rationalisation costs	2	(376	)	(151	)	(3,165	)
Net impact of earthquake	3	(1,194	)	–		–
Significant legal costs		(314	)	–		(153	)
Profit from operations		12,866		17,854		29,729
Net finance costs	4	(4,977	)	(4,394	)	(10,333	)
Finance income/(charges)	5	108		(117	)	45
Other finance charges	6	(692	)	(730	)	(1,460	)
Net financing costs		(5,561	)	(5,241	)	(11,748	)
Share of profit of associate and joint venture	8	1,272		1,399		1,800
Gain on previously held interest in joint venture	8			1,826		1,863
Profit before income tax		8,577		15,838		21,644
Income tax charge	7	(3,594	)	(4,267	)	(4,012	)
Profit for the period attributable to equity shareholders		4,983		11,571		17,632
Earnings per 40p ordinary share
Basic	10	5.71p		13.73p		20.56p
Diluted	10	5.50p		13.30p		19.89p
Basic excluding exceptional items*	10	7.26p		11.65p		21.01p
Diluted excluding exceptional items*	10	7.00p		11.29p		20.33p

* This excludes, net of tax, restructuring and rationalisation costs, significant legal costs, net impact of earthquake and gain on previously held interest in joint venture.

213

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the six months ended 30 June 2012



	Six months ended Year ended 30 June 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited £’000 £’000 £’000
Profit for the period	4,983		11,571		17,632
Other comprehensive income
Hedge accounting on financial instruments
– current year (losses)/gains	(67	)	1,334		257
– reclassification to income statement	(321	)	131		(527	)
Tax credit/(charge) on hedge accounting on financial instruments	107		(403	)	74
Net actuarial (losses)/gains on pension liabilities	(1,128	)	296		205
Tax on net actuarial (losses)/gains on pension liabilities	319		(84	)	(62	)
Movement in translation adjustment	(4,777	)	(32	)	(8,057	)
Other comprehensive (expense)/income, net of tax	(5,867	)	1,242		(8,110	)
Total comprehensive (expense)/income for the period attributable to equity shareholders	(884	)	12,813		9,522

214

CONSOLIDATED BALANCE SHEET At 30 June 2012



	As at 30 June 2012 Unaudited £’000	As at 30 June 2011 Unaudited £’000	As at 31 December 2011 Audited £’000
ASSETS
Non-current assets
Property, plant and equipment	132,185	150,711	142,546
Intangible assets	56,539	57,923	56,999
Investments	12,889	13,619	12,237
Deferred taxes	30,042	36,716	31,634
Trade and other receivables	807	610	767
Total non-current assets	232,462	259,579	244,183
Current assets
Inventories	110,061	116,981	111,537
Trade and other receivables	102,644	107,411	85,682
Income tax recoverable	86	133	146
Cash and cash equivalents	34,155	29,901	40,262
Held for sale assets	–	2,457	1,210
Total current assets	246,946	256,883	238,837
Total assets	479,408	516,462	483,020
LIABILITIES
Non-current liabilities
Borrowings	99,884	109,621	109,663
Trade and other payables	2,049	2,260	2,213
Derivative financial instruments	3,976	1,047	4,068
Deferred taxes	11,894	20,390	12,527
Employee benefits	9,042	9,492	8,764
Provisions	1,955	859	2,495
Total non-current liabilities	128,800	143,669	139,730
Current liabilities
Borrowings	55,960	59,791	55,261
Trade and other payables	122,543	137,033	116,510
Current income tax liability	3,470	1,605	2,202
Derivative financial instruments	970	3,009	1,009
Employee benefits	1,932	1,650	1,484
Provisions	1,708	2,022	2,069
Total current liabilities	186,583	205,110	178,535
Total liabilities	315,383	348,779	318,265
Net assets	164,025	167,683	164,755
Equity
Issued share capital	35,057	34,852	34,921
Share premium account	79,241	79,241	79,241
Other reserves	6,458	6,458	6,458
Retained earnings	43,269	47,132	44,135
Total attributable to equity shareholders	164,025	167,683	164,755

215

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six months ended 30 June 2012

Attributable to Equity holders of the Company

Share
capital

£’000

Share premium account £’000

Other reserves

£’000

Retained earnings

Total

£’000

Retained earnings reserve £’000

Currency

Hedging translation

reserve reserve

£’000 £’000

Six months ended

June 30, 2011

Unaudited

At 1 January 2011

33,192

77,248

6,458

8,523

(2,961

)

28,704

151,164

Transactions with owners:

Proceeds from shares issued

1,660

–

1,660

Premium on shares issued

–

2,074

–

2,074

Costs associated with shares issued

–

(81

)

–

(81

)

Credit in respect of employee share schemes

–

1,660

1,993

–

Profit for the period

–

11,571

–

11,571

Other comprehensive income:

Movement in translation adjustment

–

247

(279

)

(32

)

Hedge accounting on financial instruments

–

1,465

–

1,465

Tax on hedge accounting on financial instruments

–

(403

)

–

(403

)

Actuarial losses on pension liabilities

–

296

–

296

Tax on actuarial losses for the period

–

(84

)

–

(84

)

Total comprehensive income for the period

–

11,783

1,309

(279

)

12,813

At 30 June 2011

34,852

79,241

6,458

20,359

(1,652

)

28,425

167,683

216

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the six months ended 30 June 2012

Attributable to Equity holders of the Company

Share
capital

£’000

Share premium account £’000

Other reserves

£’000

Retained earnings

Total

£’000

Retained earnings reserve £’000

Currency

Hedging translation

reserve reserve

£’000 £’000

Year ended

December 31, 2011

Audited

At 1 January 2011

33,192

77,248

6,458

8,523

(2,961

)

28,704

151,164

Transactions with owners:

Proceeds from shares issued

1,729

–

1,729

Premium on shares issued

–

2,074

–

2,074

Costs associated with share issue

–

(81

)

–

(81

)

Credit in respect of employee share schemes

–

122

–

122

Deferred tax in respect of
employee share schemes

–

225

–

225

1,729

1,993

–

347

–

4,069

Profit for the year

–

17,632

–

17,632

Other comprehensive income:

Movement in translation adjustment

–

403

(8,460

)

(8,057

)

Hedge accounting on financial instruments

–

(270

)

–

(270

)

Tax on hedge accounting on financial instruments

–

Actuarial gains on pension liabilities

–

205

–

205

Tax on actuarial gains for the year

–

(62

)

–

(62

)

Total comprehensive income for the period

–

17,775

207

(8,460

)

9,522

At 31 December 2011

34,921

79,241

6,458

26,645

(2,754

)

20,244

164,755

217

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued) For the six months ended 30 June 2012

Attributable to Equity holders of the Company



	Share capital £’000	Share premium account £’000	Other reserves £’000	Retained earnings						Total £’000
	Share capital £’000	Share premium account £’000	Other reserves £’000	Retained earnings reserve £’000		Currency Hedging translation reserve reserve £’000 £’000				Total £’000
Six months ended
June 30, 2012
Unaudited
At 1 January 2012	34,921	79,241	6,458	26,645		(2,754	)	20,244		164,755
Transactions with owners:
Proceeds from shares issued	136	–	–	–		–		–		136
Credit in respect of employee share schemes	–	–	–	60		–		–		60
Deferred tax in respect of employee share schemes	–	–	–	(42	)	–		–		(42	)
	136	–	–	18						154
Profit for the period	–	–	–	4,983		–		–		4,983
Other comprehensive income:
Movement in translation adjustment	–	–	–	–		113		(4,890	)	(4,777	)
Hedge accounting on financial instruments	–	–	–	–		(388	)	–		(388	)
Tax on hedge accounting on financial instruments	–	–	–	–		107		–		107
Actuarial losses on pension liabilities	–	–	–	(1,128	)	–		–		(1,128	)
Tax on actuarial losses for the period	–	–	–	319		–		–		319
Total comprehensive income for the period	–	–	–	4,174		(168	)	(4,890	)	(884	)
At 30 June 2012	35,057	79,241	6,458	30,837		(2,922	)	15,354		164,025

Other reserves represent a capital contribution reserve which in the opinion of the directors is not distributable.

The Hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective.

The Currency translation reserve relates to exchange differences arising on the translation of the net assets of the Group’s foreign operations, from their functional currency into the Parent Company’s functional currency.

218

CONSOLIDATED CASH FLOW STATEMENT For the six months ended 30 June 2012



	Six months ended Year ended 30 June 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited £’000 £’000 £’000
Cash flows from operating activities
Profit/(loss) for the period	4,983		11,571		17,632
Adjustments for:
Depreciation, amortisation and impairment	12,661		9,148		17,347
Profit on sale of property, plant and equipment and other intangible assets	(102	)	(137	)	(187	)
Impairment of held for sale assets	–		–		1,109
Net financial expense	4,972		5,567		11,100
Foreign exchange (losses)/gains	589		(326	)	648
Share of profit of associate and joint venture	(1,272	)	(1,399	)	(1,800	)
Income tax expense	3,594		4,267		4,012
Operating cash flow before changes in working capital, financial derivatives and other non-cash changes	25,425		28,691		49,861
(Increase)/decrease in inventories	(2,376	)	(15,970	)	(15,256	)
Increase in trade and other receivables	(20,583	)	(20,282	)	(2,914	)
Increase in trade and other payables	11,976		25,466		11,826
Decrease in provisions and employee benefits	(961	)	(603	)	905
Other non-cash changes	(1,702	)	(544	)	(3,413	)
Cash generated from operations	11,779		16,758		41,009
Interest paid	(3,823	)	(4,427	)	(8,722	)
Income taxes paid	(1,807	)	(1,746	)	(4,164	)
Net cash generated from operating activities	6,149		10,585		28,123
Proceeds from sales of property, plant and equipment	102		620		1,438
Proceeds from sale of held for sale assets	1,235		–		10
Dividends received	174		–		302
Purchase of subsidiary undertakings net of cash acquired	(756	)	(4,640	)	(4,764	)
Purchase of property, plant and equipment	(7,757	)	(7,670	)	(18,500	)
Purchase of intangible assets	(256	)	(423	)	(536	)
Net cash used in investing activities	(7,258	)	(12,113	)	(22,050	)
Cash flows from financing activities
Proceeds from issue of share capital net of issue costs	136		3,653		3,722
New bank loans raised	514		10,469		14,893
Repayment of borrowings	(6,056	)	(7,863	)	(8,058	)
Payment of finance lease liabilities	(537	)	(2,730	)	(3,322	)
Net cash (used)/generated in financing activities	(5,943	)	3,529		7,235
Net (decrease)/increase in cash and cash equivalents	(7,052	)	2,001		13,308
Cash and cash equivalents at the beginning of the period	21,993		9,608		9,608
Effect of exchange rate fluctuations on cash held	(372	)	177		(923	)
Cash and cash equivalents at period end	14,569		11,786		21,993

For the purposes of presenting the cash flow statement the components of cash and cash equivalents are offset, and is stated net of overdraft.

219

RECONCILIATION OF MOVEMENT IN NET DEBT For the six months ended 30 June 2012



	At 1 January 2012 Audited		Cash flow Unaudited		Other non-cash changes Unaudited		Exchange movements Unaudited		At 30 June 2012 Unaudited
	£’000		£’000		£’000		£’000		£’000
Cash and cash equivalents	40,262		(5,425	)	–		(682	)	34,155
Overdrafts	(18,269	)	(1,627	)			310		(19,586	)
	21,993		(7,052	)	–		(372	)	14,569
Borrowings due after one year*	(108,358	)	6,203		(923	)	4,425		(98,653	)
Borrowings due within one year*	(36,033	)	(661	)	(241	)	1,482		(35,453	)
Finance leases due after one year*	(1,305	)	134		(111	)	51		(1,231	)
Finance leases due within one year*	(959	)	403		(403	)	38		(921	)
Liquid resources	258		127		–		(5	)	380
Net debt	(124,404	)	(846	)	(1,678	)	5,619		(121,309	)

* Included within the Cash flow column is the net cash flow after taking into consideration changes in ageing of the borrowings and finance leases.

220

NOTES TO THE INTERIM FINANCIAL STATEMENTS For the six months ended 30 June 2012

1. Basis of preparation

The Group reported the results for the year ended 31 December 2011 under International Financial Reporting Standards as adopted by the European Union (“adopted IFRS”). The interim financial statements have been prepared in accordance with the accounting policies adopted in the last Annual financial statements for the year ended 31 December 2011. The accounting policies applied in the preparation of this financial information are consistent with those that will be adopted in the statutory accounts for the year ending 31 December 2012. The full accounting policies of the Group are set out in the last Annual financial statements.

The Group interim financial statements have been prepared on a going concern basis. The directors have reviewed the funding position of the Group. In doing so, the directors have considered and forecast the cash flow requirements and continued compliance with covenants of the Group arising from operational, investment and financing activities, and the continued availability of committed and non-committed facilities. They believe it is appropriate to prepare these interim financial statements on a going concern basis.

The information relating to the six months ended 30 June 2012 and 30 June 2011 is unaudited and does not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006. The statutory financial statements for the year ended 31 December 2011, prepared under adopted IFRS, have been reported on by the Group’s auditors and delivered to the Registrar of Companies. The auditors’ report was unqualified and did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2.Restructuring and rationalisation costs

Six months ended Year ended

30 June 30 June 31 December

2012 2011 2011

Unaudited Unaudited Audited

£’000 £’000 £’000

Redundancy costs 123 132 1,604

Restructuring of manufacturing plants 253 19 452

Impairment of held for sale assets – – 1,109

376 151 3,165

3.Earthquake impact

Six months ended Year ended

30 June 30 June 31 December

2012 2011 2011

Unaudited Unaudited Audited

£’000 £’000 £’000

Extra cost of sales 1,441 – –

Impairment of building 3,868 – –

Insurance advance payment to date (4,115)

1,194

221

The impact of the earthquake accounted for as at 30 June 2012, is split in to three main categories as follows:


●	Extra costs of sales includes all the additional costs incurred to produce and sell the products to our customers following the earthquake at the Finale Emilia facility;


●	Impairment of the building following a preliminary assessment of the building damage and remedial works required;


●	Insurance advance payment to date does not represent the full expected insurance reimbursement but simply the initial payment agreed with the insurers based on costs of remedial works and extra costs of sales incurred to limit business interruption.

The final rebuilding cost and full extent of the business interruption costs are yet to be determined.

Titan’s Italian operations at Finale Emilia recommenced limited production on the 16 July 2012 following the extensive building remedial work. We continue to manage customer supplies with the use of extensive internal and third party resources, giving rise to these extra costs of sales, and we are working closely with our insurance and loss recovery partners to ensure that the financial impact of this earthquake on the business is minimised. Despite this excellent recovery work, we cannot realistically anticipate that there will be no volume loss in the short term.

As indicated in the Trading update on 27 June 2012, further remedial work is underway to ensure the structural stability of the building occupied by the paint plant; the Board anticipates that production will recommence in October 2012; until then, the alternate painting arrangements will remain in use.


4.	Net finance costs

Six months ended Year ended

30 June 30 June 31 December

2012 2011 2011

Unaudited Unaudited Audited

£’000 £’000 £’000

Net interest expenses (4,388) (4,720) (9,685)

Finance foreign exchange (expense)/income (589) 326 (648)

(4,977) (4,394) (10,333)


5.	Finance income/(charges)

Six months ended Year ended

30 June 30 June 31 December

2012 2011 2011

Unaudited Unaudited Audited

£’000 £’000 £’000

Interest on defined benefit pension plan and long-term

employee benefits (213) (248) (482)

Net gains/(loss) on re-measurement of derivatives to fair value 321 131 527

108 (117) 45

222

6.Other finance charges

Six months ended Year ended

30 June 30 June 31 December

2012 2011 2011

Unaudited Unaudited Audited

£’000 £’000 £’000

Unwinding of the fair value adjustment on the

Accordo Quadro loans (692) (730) (1,460)

7.Taxation

The June 2012 tax charge on profit on ordinary activities excluding share of associate and joint venture and gain on previously held interest in joint venture, reflects an effective rate of 49.2 per cent. (June 2011: 34.0 per cent., December 2011: 23.0 per cent.) due to the impact of local Italian taxes, particularly IRAP which is increasing the effective tax rate by 12.0 percentage points. For the full year 2012 the final effective tax rate remains uncertain particularly in Italy as the full impact of the earthquake is yet to be determined.

During the period the main rate of UK corporation tax was reduced from 26 per cent. to 24 per cent., this change was effective from 1 April 2012. Further reductions to the main rate of corporation tax were announced in the March 2012 Budget. These changes propose to reduce the main rate of UK corporation tax by 1 per cent. per annum to 22 per cent. by 1 April 2014. These changes had not been substantively enacted at the balance sheet date, and therefore are not recognised in these financial statements.

8.Share of profit of associate and joint venture



	Six months ended Year ended 30 June 30 June 31 December 2012 2011 2011 Unaudited Unaudited Audited £’000 £’000 £’000
Share of profit of joint venture*	–	220	220
Share of profit of associate	1,272	1,179	1,580
Share of profit of associate and joint venture	1,272	1,399	1,800
Gain on previously held interest in joint venture		1,826	1,863
Total share of profit of associate and joint venture	1,272	3,225	3,663

*On 19 April 2011, the remaining 50 per cent. of Titan Jantsa was acquired, the share of profit of joint venture reflects the period up to the date of acquisition.

9.Foreign exchange

The exchange rates used to translate the subsidiaries’ accounts as at 30 June 2012 and as at 30 June 2011 from local currencies to UK sterling are as follows:



	Income statement Average	Income statement Average	Balance sheet 30 June	Balance sheet 30 June
	2012	2011	2012	2011
Euro	1.2151	1.1527	1.2415	1.1131
US $	1.5769	1.6163	1.5615	1.6018
AUS $	1.5185	1.5638	1.5367	1.5115
Brazilian Real	2.9327	2.6347	3.2422	2.5108

223

The translation effect on the Group’s (unaudited) June 2012 Balance sheet and Income statement as a consequence of the movement in exchange rates are shown in the following table:



	At month-end 30 June 2012 rates £’000		At month-end 30 June 2011 rates £’000		Variance £’000
Total non-current assets	232,462		256,232		(23,770	)
Total current assets	246,946		268,716		(21,770	)
Total assets	479,408		524,948		(45,540	)
Total non-current liabilities	(128,800	)	(144,318	)	15,518
Total current liabilities	(186,583	)	(204,028	)	17,445
Total liabilities	(315,383	)	(348,346	)	32,963
Net assets	164,025		176,602		(12,577	)
Total shareholders’ equity	164,025		176,602		(12,577	)
Net debt	(121,309	)	(135,673	)	14,364
	At average		At average
	2012 rates		2011 rates		Variance
	£’000		£’000		£’000
Revenue	252,586		261,647		(9,061	)
Trading profit	14,750		15,377		(627	)
Profit from operations	12,866		13,399		(533	)
Profit before income tax	8,577		9,016		(439	)
Profit for the period	4,983		5,309		(326	)

The trading profit included £386,000 of trading foreign exchange profit (June 2011: £88,000 loss) primarily as a result of retranslation of balances not held in the subsidiaries’ functional currency.

10. Earnings per share

The weighted average number of shares in issue used in the basic earnings per share calculation may be reconciled to the number used in the diluted earnings per ordinary share calculation as follows:

Six months ended Year ended

30 June 30 June 31 December

2012 2011 2011

Unaudited Unaudited Audited

Number Number Number



Weighted average number
Basic earnings per share denominator	87,323,425	84,250,273	85,753,393
Issuable on conversion of options	3,203,231	2,716,516	2,872,550
Diluted earnings per share denominator	90,526,656	86,966,789	88,625,943

224

The earnings to which the earnings per share calculation has been applied are as follows:

£’000 £’000 £’000

Earnings/(loss) attributable to equity shareholders 4,983 11,571 17,632

Significant one-off items (net of tax):

Restructuring and rationalisation costs 259 102 2,168

Significant legal costs 226



–	100

(1,856) (1,881)

Net impact of earthquake 870

Gain on previously held interest in joint venture –

Earnings/(loss) attributable to equity shareholders excluding

exceptional costs 6,338 9,817 18,019

11. Share capital

Allotted, called up and fully paid:

Number of

40 pence Ordinary

shares shares

(thousands) £’000

At 1 January 2012 87,303 34,921

Increase in issued share capital 340 136

At 30 June 2012 87,643 35,057

225

INDEPENDENT REVIEW REPORT TO TITAN EUROPE PLC Introduction

We have been engaged by the Company to review the Condensed Interim Financial Statements in the Group Interim Report for the six months ended 30 June 2012, which comprises the Consolidated Income Statement, Consolidated Statement of Comprehensive Income, Consolidated Balance Sheet as at 30 June 2012, Consolidated Statements of Changes in Equity, Consolidated Cash Flow Statement, Reconciliation of Movement in Net Debt and related notes. We have read the other information contained in the Group Interim Report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the Condensed Interim Financial Statements.

Directors’ responsibilities

The Group Interim Report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the Group Interim Report in accordance with the AIM Rules which require that the Condensed Interim Financial Statements must be presented and prepared in a form consistent with that which will be adopted in the Company’s Annual financial statements.

As disclosed in Note 1, the Annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The Condensed Interim Financial Statements included in this Group Interim Report has been prepared in accordance with the basis of preparation set out in Note 1.

Our responsibility

Our responsibility is to express to the Company a conclusion on the Condensed Interim Financial Statements in the Group Interim Report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the AIM Rules and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’ issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the Condensed Interim Financial Statements in the Group Interim Report for the six months ended 30 June 2012 is not prepared, in all material respects, in accordance with the basis of preparation set out in Note 1 and the AIM Rules for Companies.

PricewaterhouseCoopers LLP Chartered Accountants Birmingham

14 September 2012

Notes:


(a)	The maintenance and integrity of the Titan Europe Plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the condensed interim financial statements since they were initially presented on the website.


(b)	Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

226

PART B – Titan Europe audited Consolidated Group Financial Statements
for the year ended 31 December 2011

TITAN EUROPE

Independent auditors’ report to the members of Titan Europe

We have audited the Group financial statements of Titan Europe for the year ended 31 December 2011 which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated balance sheet, the Consolidated statement of changes in equity, the Consolidated cash flow statement, the Reconciliation of cash flow to net debt and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Respective responsibilities of directors and auditors

As explained more fully in the Statement of directors’ responsibilities as set out on page 17, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the Group financial statements:


●	give a true and fair view of the state of the Group’s affairs as at 31 December 2011 and of its profit and cash flows for the year then ended;


●	have been properly prepared in accordance with IFRSs as adopted by the European Union; and


●	have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors’ Report for the financial year for which the Group financial statements are prepared is consistent with the Group financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:


●	certain disclosures of directors’ remuneration specified by law are not made; or

227


●	we have not received all the information and explanations we require for our audit. Other matter

228

We have reported separately on the Parent Company financial statements of Titan Europe for the year ended 31 December 2011.

Andrew Hammond (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Birmingham

20 April 2012


(a)	The maintenance and integrity of the Titan Europe website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.


(b)	Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

228



TITAN EUROPE Consolidated income statement for the year ended 31 December 2011
		2011		2010
	Note	£’000		£’000
Revenue	4	492,521		355,202
Trading profit	4	33,047		14,064
Restructuring and rationalisation costs	5	(3,165	)	(1,497	)
Significant legal costs		(153	)	(220	)
Profit from operations	4	29,729		12,347
Net finance costs	6	(10,333	)	(8,068	)
Finance income/(charges)	7	45		(859	)
Other finance charges	8	(1,460	)	(1,443	)
Net financing costs		(11,748	)	(10,370	)
Share of profit of associate and joint venture	18, 19	1,800		1,456
Gain on previously held interest in joint venture	17	1,863		–
Profit before income tax		21,644		3,433
Income tax charge	9	(4,012	)	(807	)
Profit for the year attributable to equity shareholders		17,632		2,626
Earnings per 40p ordinary share
Basic	10	20.56p		3.16p
Diluted	10	19.89p		3.14p
Basic excluding exceptional items*	10	21.01p		4.58p
Diluted excluding exceptional items*	10	20.33p		4.54p

*This excludes restructuring and rationalisation costs, significant legal costs, and gain on previously held interest in joint venture.

The notes on pages 46 to 86 are an integral part of the financial statements.

229



TITAN EUROPE Consolidated statement of comprehensive income for the year ended 31 December 2011
		2011		2010
	Note	£’000		£’000
Profit for the year		17,632		2,626
Other comprehensive (expense)/income
Hedge accounting on financial instruments
– current year gains/(losses)		257		(24	)
– reclassification to income statement		(527	)	(359	)
Tax credit on hedge accounting on financial instruments	29	74		105
Net actuarial gains on pension liabilities	30	205		23
Tax on net actuarial gains on pension liabilities	29	(62	)	–
Movement in translation adjustment		(8,057	)	5,742
Other comprehensive (expense)/income, net of tax		(8,110	)	5,487
Total comprehensive income for the period attributable to equity shareholders		9,522		8,113

The notes on pages 46 to 86 are an integral part of the financial statements.

230



TITAN EUROPE Consolidated balance sheet as at 31 December 2011
		2011	2010
	Note	£’000	£’000
ASSETS
Non-current assets
Property, plant and equipment	15	142,546	142,377
Intangible assets	16	56,999	53,608
Investments	17	12,237	17,129
Deferred taxes	29	31,634	37,392
Trade and other receivables	20	767	375
Total non-current assets		244,183	250,881
Current assets
Inventories	22	111,537	96,730
Trade and other receivables	20	85,682	81,535
Income tax recoverable		146	799
Cash and cash equivalents	23	40,262	30,488
Held for sale assets	21	1,210	2,341
Total current assets		238,837	211,893
Total assets		483,020	462,774
LIABILITIES
Non-current liabilities
Borrowings	28	109,663	106,674
Trade and other payables	24	2,213	2,422
Derivative financial instruments	27	4,068	2,569
Deferred taxes	29	12,527	19,183
Employee benefits	30	8,764	9,497
Provisions	31	2,495	814
Total non-current liabilities		139,730	141,159
Current liabilities
Borrowings	28	55,261	57,470
Trade and other payables	24	116,510	105,314
Current income tax liability		2,202	1,329
Derivative financial instruments	27	1,009	2,874
Employee benefits	30	1,484	1,731
Provisions	31	2,069	1,733
Total current liabilities		178,535	170,451
Total liabilities		318,265	311,610
Net assets		164,755	151,164
Equity and reserves
Issued share capital	32	34,921	33,192
Share premium account		79,241	77,248
Other reserves		6,458	6,458
Retained earnings		44,135	34,266
Total attributable to equity shareholders		164,755	151,164

The notes on pages 46 to 86 are an integral part of the financial statements.

The financial statements on pages 40 to 86 were approved by the Board of directors on 20 April 2012 and were signed on its behalf by:

J M A Akers G Chesterton Registered Number: 03018340

Director Director

231

TITAN EUROPE

Consolidated statement of changes in equity for the year ended 31 December 2011

Attributable to Equity holders of the Company

Share
capital

£’000

Share premium account £’000

Other reserves

£’000

Retained earnings

Total Equity

£’000

Retained earnings reserve £’000

Currency

Hedging translation

reserve reserve

£’000 £’000

Year ended 31 December 2010

At 1 January 2010

33,192

77,248

6,458

5,297

(2,683

)

22,962

142,474

Transactions with owners:

Credit in respect of employee share schemes

–

577

–

577

––––––––

–––––––– ––––––––

––––––––

–

577

–

577

––––––––

–––––––– ––––––––

––––––––

Profit for the year

–

2,626

–

2,626

Other comprehensive income:

Movement in translation adjustment

–

5,742

Hedge accounting on financial instruments

–

(383

)

–

(383

)

Tax on hedge accounting on financial instruments

–

105

–

105

Actuarial gains on pension liabilities

–

Tax on actuarial gains for the year

–

––––––––

–––––––– ––––––––

––––––––

Total comprehensive income for the year

–

2,649

(278

)

5,742

8,113

––––––––

–––––––– ––––––––

––––––––

At 31 December 2010

33,192

77,248

6,458

8,523

(2,961

)

28,704

151,164

––––––––

–––––––– ––––––––

––––––––

Year ended 31 December 2011

At 1 January 2011

33,192

77,248

6,458

8,523

(2,961

)

28,704

151,164

Transactions with owners:

Proceeds from shares issued

1,729

–

1,729

Premium on shares issued

–

2,074

–

2,074

Costs associated with share issue

–

(81

)

–

(81

)

Credit in respect of employee share schemes

–

122

–

122

Deferred tax in respect of employee share schemes

–

225

–

225

––––––––

–––––––– ––––––––

––––––––

1,729

1,993

–

347

–

4,069

––––––––

–––––––– ––––––––

––––––––

Profit for the year

–

17,632

–

17,632

Other comprehensive income:

Movement in translation adjustment

–

403

(8,460

)

(8,057

)

Hedge accounting on financial instruments

–

(270

)

–

(270

)

Tax on hedge accounting on financial instruments

–

Actuarial gains on pension liabilities

–

205

–

205

Tax on actuarial gains for the year

–

(62

)

–

(62

)

––––––––

–––––––– ––––––––

––––––––

Total comprehensive income for the year

–

17,775

207

(8,460

)

9,522

––––––––

–––––––– ––––––––

––––––––

At 31 December 2011

34,921

––––––––

79,241

6,458

26,645

(2,754

)

20,244

164,755

–––––––– ––––––––

––––––––

The notes on pages 46 to 86 are an integral part of the financial statements.

Other reserves represent a capital contribution reserve which in the opinion of the directors is not distributable.

The hedging reserve represents the cumulative portion of gains and losses on hedging instruments deemed effective.

The currency translation reserve relates to exchange differences arising on the translation of the net assets of the Group’s foreign operations, from their functional currency into the Parent Company’s functional currency.

232



TITAN EUROPE Consolidated cash flow statement for the year ended 31 December 2011
		2011		2010
	Note	£’000		£’000
Profit for the year		17,632		2,626
Adjustments for:
Depreciation	15	16,403		16,187
Amortisation	16	944		967
Profit on sale of property, plant and equipment and other intangible assets		(187	)	(986	)
Impairment of held for sale assets	21	1,109		–
Net finance expense		11,100		10,606
Foreign exchange losses/(gains)		648		(236	)
Share of profit of associate and joint venture		(1,800	)	(1,456	)
Income tax expense		4,012		807
Operating cash flow before changes in working capital and other non-cash changes		49,861		28,515
Increase in inventories		(15,256	)	(11,481	)
Increase in trade and other receivables		(2,914	)	(22,797	)
Increase in trade and other payables		11,826		38,688
Increase/(decrease) in provisions and employee benefits		905		(2,378	)
Other non-cash changes		(3,413	)	632
Cash generated from operations		41,009		31,179
Interest paid		(8,722	)	(8,309	)
Income taxes paid		(4,164	)	(1,203	)
Net cash generated from operating activities		28,123		21,667
Proceeds from sales of property, plant and equipment		1,438		586
Proceeds from sale of held for sale assets	21	10		4
Dividends received		302		219
Purchase of subsidiary undertaking net of cash acquired	38	(4,764	)	–
Purchases of property, plant and equipment		(18,500	)	(11,144	)
Purchases of intangible assets		(536	)	(196	)
Net cash used in investing activities		(22,050	)	(10,531	)
Cash flows from financing activities
Proceeds from issue of share capital net of issue costs		3,722		–
New bank loans raised		14,893		7,051
Repayment of borrowings		(8,058	)	(1,182	)
Payment of finance lease liabilities		(3,322	)	(2,911	)
Net cash generated from financing activities		7,235		2,958
Net increase in cash and cash equivalents		13,308		14,094
Cash and cash equivalents at the beginning of the year		9,608		(5,422	)
Effect of exchange rate fluctuations on cash held		(923	)	936
Cash and cash equivalents at the end of the year	23	21,993		9,608

The notes on pages 46 to 86 are an integral part of the financial statements.

For the purposes of presenting the cash flow statement the components of cash and cash equivalents are offset. A reconciliation between the cash flow statement and the balance sheet presentation is shown in note 23.

233

TITAN EUROPE

Reconciliation of cash flow to net debt



for the year ended 31 December 2011		At 1 January		Cash				Other non-cash Exchange	At 31 December
		2011		flow Acquisitions				changes movements	2011
Note		—		—		—		£000 £000	—
Cash and cash equivalents	23	30,488		8,107		2,876		– (1,209)	40,262
Overdrafts	28	(20,880	)	2,325		–		– 286	(18,269	)
		9,608		10,432		2,876		– (923)	21,993
Borrowings due after one year*	28	(104,772	)	(4,241	)	(619	)	(2,012) 3,286	(108,358	)
Borrowings due within one year*	28	(33,290	)	(2,594	)	(275	)	(476) 602	(36,033	)
Finance leases due after one year*	28	(1,902	)	923		–		(351) 25	(1,305	)
Finance leases due within one year*	28	(3,300	)	2,399		–		(56) (2)	(959	)
Liquid resources	20	848		(586	)	–		– (4)	258
Net debt		(132,808	)	6,333		1,982		(2,895) 2,984	(124,404	)

The notes on pages 46 to 86 are an integral part of the financial statements.

*Included within the cash flow column is the net cash flow after taking into consideration changes in ageing of the borrowings and finance leases.

234

TITAN EUROPE

Notes to the consolidated financial statements for the year ended 31 December 2011

1. Accounting policies


a)	General information

Titan Europe is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is Bridge Road, Cookley, Kidderminster, Worcestershire, DY10 3SD.

The nature of the Group’s operations and its principal activities are set out in the Directors’ Report.


b)	Basis of preparation

The Group consolidated financial statements have been prepared in accordance with the Companies Act 2006 as applicable to companies reporting under IFRS and with those IFRS standards and IFRIC interpretations issued, effective and endorsed by the European Union as at the time of preparing these statements.

The Group consolidated financial statements have been prepared on a going concern basis. The directors have reviewed the funding position of the Group and the Company in light of the amended facilities with Intesa Sanpaolo SpA and UniCredit SpA. In doing so the directors have considered and forecasted the cash flow requirements of the Group and the Company arising from operational, investment and financing activities and they believe it is appropriate to prepare these financial statements on a going concern basis.

The financial statements have been prepared based on the accounting policies noted below, which are the same as the year ended 31 December 2010. They have been prepared under the historical cost convention, as modified by the revaluation of certain financial assets and liabilities (including derivative financial instruments) at fair value through the profit or loss.


c)	Basis of consolidation Subsidiaries

Subsidiaries are entities over which the Titan Europe Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than 50 per cent. of the voting rights. In assessing control potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date of acquisition. They are de-consolidated from the date that control ceases. All business combinations are accounted for by the acquisition method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are expensed as incurred.

Intra-Group transactions

Intra-Group transactions and balances and any unrealised gains and losses arising from intra-Group transactions are eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with policies adopted by the Group.

Associates

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. The consolidated financial statements include the Group’s share of the total comprehensive income and expense of associates on an equity accounted basis, from the date that significant influence commences until the date that significant influence ceases. The Group’s investment in associates includes goodwill identified on acquisition, net of accumulated impairment loss. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying

235

amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate.

Joint venture

Joint ventures are those entities where joint control exists and strategic operating, investing and financing decisions require the consent of a majority of the owners. The consolidated financial statements include the Group’s share of the total comprehensive income and expense of the joint venture on an equity method of accounting.

d)Presentation of the Income Statement

The format of the income statement adopted by the Group combines the specific requirements of IFRS together with additional disclosures designed to assist the understanding of the Group’s performance. The format is further explained below.

Profit/(loss) from operations is the result of the continuing subsidiary companies prior to finance costs and taxation. In order to present consistent and comparable information this is further analysed to show the results of normal trading activities (trading profit/(loss)), and individually significant items, which are considered exceptional. Such items arise because of their size or nature and comprise:

– charges relating to the restructuring and rationalisation programme;

– significant legal costs;

– the impact of curtailments to the Group’s post employment schemes; and

– the movement on fair value of forward foreign exchange contracts.

Net finance costs represent the cash costs and other charges arising from the Group’s financing activities. These have been further analysed in order to provide clarity over these costs as follows:

Cash costs/income

– Financing costs represents the Group’s interest cost on outstanding borrowings along with the

impact of currency movements on borrowings denominated in foreign currencies.

Non-cash costs/income

– Finance charges represents the interest charge associated with the Group’s post employment

obligations, offset by the expected return on the Group’s pension scheme assets and gains/losses on re-measurement of interest rate swaps; and

– Other finance charges represent the unwinding of fair value adjustments made to acquired debt

instruments.

e)Foreign currency

Transactions in foreign currencies are translated at exchange rates approximating to the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets such as foreign exchange swaps denominated in foreign currencies that are stated at fair value are translated at foreign exchange rates ruling at the dates the fair value was determined.

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated at an average rate for the period where this rate approximates to the foreign exchange rates ruling at the dates of the transactions.

236

Exchange differences arising from this translation of foreign operations, and of related qualifying hedges that satisfy the hedging conditions of IAS 39, are taken directly to retained earnings. They are released into the income statement upon disposal.

The Group has taken advantage of relief available in IFRS 1 to deem the cumulative translation differences for all foreign operations to be zero at the date of transition to IFRS (1 January 2006).

The functional currency of a subsidiary is determined by certain primary and secondary factors. Once determined, this functional currency is used and translated for consolidation purposes. For the purpose of the consolidated financial statements, the results and financial position of each Group company are expressed in pound sterling, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.


f)	Investments in debt and equity securities

Unlisted equity investments are stated at cost less impairment where the investment does not have a quoted market price in an active market that cannot be reliably measured.


g)	Derivative financial instruments and hedging Derivative financial instruments

Derivative financial instruments are primarily used to manage the Group’s exposure to market risks from changes in interest and foreign exchange rates. Derivative financial instruments are recognised at fair value.

Where derivative financial instruments are not designated as or not determined to be effective hedges, any gain or loss on the re-measurement of the fair value is taken to the income statement.

The fair value of interest rate swaps is the estimated amount that the Group would receive or pay to terminate the swap at the balance sheet date, taking into account current interest rates and the current creditworthiness of the swap counterparties. The fair value of forward exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

Cash flow hedges

Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability, or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in retained earnings. Any ineffective portion of the hedge is recognised immediately in the income statement.

When the forecast transaction subsequently results in the recognition of a non-financial asset or nonfinancial liability, the associated cumulative gain or loss remains in the hedging reserve and is reclassified into the income statement in the same year or years during which the asset acquired or liability assumed affects the income statement, i.e. when a non-financial asset is depreciated.

If a hedge of a forecasted transaction subsequently results in the recognition of a financial asset or financial liability, the associated gains or losses that were recognised directly in equity are reclassified into the income statement in the same year or years during which the asset acquired or liability assumed affects the income statement, i.e. when the interest income or expense is recognised.

When a hedging instrument expires or is sold, terminated or exercised, or the entity revokes designation of the hedge relationship but the hedged forecast transaction is still expected to occur, the cumulative gain or loss at that point remains in equity and is deferred in accordance with the above policy when the transaction occurs. If the hedged transaction is no longer expected to take place, the cumulative unrealised gain or loss recognised in equity is recognised in the income statement immediately.

237


h)	Property, plant and equipment

Property, plant and equipment are stated at cost, which includes the purchase cost plus costs directly associated with bringing the asset into use including interest, where required, less accumulated depreciation and impairment losses.

Where parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment which are reviewed on an annual basis. Land is not depreciated. The residual values are re-assessed on an annual basis. The estimated useful lives are as follows:

Freehold buildings* 33-40 years

Plant and machinery 5-30 years

Tools 4-6 years (included in fixtures, fittings, tools and

equipment in note 15)

Fixtures, fittings and office equipment 3-5 years (included in fixtures, fittings, tools and

equipment in note 15)

Motor vehicles 2-4 years (included within plant and machinery in

note 15)

* The normal estimated life for freehold buildings is between 33 and 40 years, however, when a company is acquired and asset fair values are reviewed external guidance is sought on the useful life which may differ from this range.

Leasehold property is depreciated over the life of the lease.

Assets in the course of construction are included in property, plant and equipment on the basis of expenditure incurred at the balance sheet date. No depreciation is charged on assets in the course of construction until they are brought into operational use.


i)	Held for sale assets

Assets or groups of assets are reclassified as held for sale assets in accordance with IFRS 5 when management have committed to a plan to sell the asset and an active program is in place to locate a buyer. The asset is measured at the lower of carrying value or cost, and once the asset is classified as held for sale it is no longer depreciated or amortised. See note 21.


j)	Hire purchase and finance lease arrangements

Leases in which the Group assumes substantially all the risks and rewards of ownership of the leased asset are classified as finance leases. Where land and buildings are held under finance leases, the accounting treatment of the land is considered separately from that of the buildings. Leased assets acquired by way of finance lease are stated at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses and included within property, plant and equipment. Assets are depreciated over the lower of the useful life and the term of the lease.

In line with the requirements of IAS 17, sale and finance leaseback assets are treated as having being sold and re-acquired with any gains recognised over the life of the lease.


k)	Intangible assets Goodwill

Goodwill, arising on acquisitions which have occurred since 1 January 2006, represents the difference between the fair value of the purchase consideration and the fair value of the identifiable net assets and contingencies of an acquired entity. In respect of acquisitions which occurred prior to 1 January 2006, goodwill is included on the basis of its deemed cost, which represents the amount recorded under previous GAAP. This is in accordance with the transitional provisions of IFRS 1.

Positive goodwill is recognised as an asset in the consolidated balance sheet and is subject to annual impairment review. Goodwill arising on the acquisition of subsidiary undertakings is recognised

238

separately as an intangible asset in the consolidated balance sheet. Goodwill arising on the acquisition of associated undertakings is included within the carrying value of the investment. In accordance with the transitional provisions of IFRS 3, any goodwill previously written off to reserves remains in reserves.

Goodwill is stated at cost less impairment. Goodwill is not amortised but allocated to cash generating units and is tested annually for impairment.

Research and development

Research expenditure is written off as incurred.

Where development expenditure results in a new or substantially improved product, service or process then such costs will be capitalised and amortised over the useful life and periodically reviewed for impairment. Assets are stated at cost less accumulated amortisation and impairment.

Computer software costs

Where computer software is not integral to an item of property, plant and equipment its costs are capitalised and categorised as intangible assets. Amortisation is provided on a straight-line basis over its useful economic life which is between three and five years. Assets are stated at cost less accumulated amortisation and impairment.

Other intangible assets

Other intangible assets are stated at cost less accumulated amortisation and impairment losses.

Amortisation is charged on a straight-line basis and is based on the useful economic lives of the assets concerned which are principally as follows:

Licences and patents 3-15 years

l)Impairment

The carrying amounts of the Group’s non-current assets are tested to determine if there is any indication of impairment. Assets which have an indefinite useful life are not subject to amortisation and are tested for impairment at each balance sheet date. Assets subject to depreciation and amortisation are reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised in the income statement based on the amount by which the carrying amount exceeds the recoverable amount. The recoverable amount is the higher of fair values less costs to sell and value in use.

m)Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently at their amortised cost less impairment losses based on the directors’ view of the collectability of those receivables. The amount of the provision is the difference between the assets carrying amount and the present value of estimated future cash flows.

The Group enters into factoring arrangements both with and without recourse. With recourse

These kinds of transactions do not meet IAS 39 requirements for asset derecognition, since risks and rewards have not been substantially transferred. Consequently, all receivables sold through factoring transactions which do not meet IAS 39 derecognition requirements are reflected in the Group financial statements, with a corresponding financial liability recorded in the consolidated financial statements.

Without recourse

In compliance with current reporting requirements, trade receivable balances that have been subject to non-recourse factoring arrangements do not get reported in the Group balance sheet.

239

Under its non-recourse factoring arrangements, the Group sells trade receivables balances to a third-party factoring company in exchange for a cash payment from the factoring company, net of fees. All the risks and rewards of the trade receivables subject to these arrangements are transferred to the factoring company and, accordingly, the trade receivables are derecognised in the Group balance sheet. Such arrangements are used from time to time by the Group to manage the recovery of cash from its trade receivables. As at 31 December 2011, the Group balance sheet included £8,900,000 (2010: £nil) of cash that would otherwise have been reported as trade receivables if these arrangements were not in place.

n)Inventories

Inventories are stated at the lower of cost and net realisable value (being the estimated selling price in the ordinary course of business less estimated costs of completion and selling expenses). Cost is determined on a first in first out basis. Cost comprises raw material, direct labour and appropriate production overheads based on the normal levels of business activity. Provision for slow moving or obsolete inventories are based upon the directors’ view of the recoverable value of the individual items included within inventory, based on ageing and usage reports.

o)Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a

component of cash and cash equivalents for the purpose only of the statement of cash flows.

p)Interest-bearing borrowings

Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.

q)Trade and other payables

Trade and other payables are recognised initially at fair value and subsequently stated at amortised cost.

r)Dividends

Dividends are recognised in the year in which they are approved by the Group’s shareholders or, in the case of an interim dividend, when the dividend is paid.

s)Employee benefits

Defined contribution schemes

Obligations for contributions to defined contribution pension schemes are recognised as an expense in the income statement as incurred.

Defined benefit schemes

For defined benefit pension schemes, the cost of providing benefits is calculated annually by independent actuaries using the projected unit credit method. The retirement benefit obligation recognised in the balance sheet represents the excess of the present value of scheme liabilities over the fair value of scheme assets. Differences between the actual and expected returns on assets and experience gains and losses arising on scheme liabilities during the year, together with differences arising from changes in assumptions, are recognised in the consolidated statement of comprehensive income.

Contributions to the scheme are paid in accordance with the scheme rules and the recommendation of the actuary. The charge to the income statement reflects the current and past service cost of such obligations. The expected return on scheme assets and the interest cost on scheme liabilities are included within the finance charges in the income statement.

240

Other post-retirement benefit scheme and long-term benefits scheme

For the accrued benefit schemes and long service leave provision the cost of providing benefits is calculated at least annually by independent actuaries using the projected unit credit method. The accrued benefit obligation recognised in the balance sheet represents the present value of scheme liabilities. The experience gains and losses arising on scheme liabilities during the year, together with differences arising from changes in assumptions, are recognised in the consolidated statement of comprehensive income in the year. The charge to the income statement reflects the current and past service cost of such obligations and the impact of curtailments. The expected return on scheme assets and the interest cost on scheme liabilities are included within the finance charges in the income statement.


t)	Share-based payment transactions

The share option programme allows Group employees to acquire shares of the ultimate Parent Company (Titan Europe); these awards are granted by the ultimate Parent. The fair value of options granted is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and spread over the period during which the employees become unconditionally entitled to the options. The fair value of the options granted is measured using an option valuation model, taking into account the terms and conditions upon which the options were granted. The amount recognised as an expense is adjusted to reflect the actual number of share options that vest except where forfeiture is due only to share prices not achieving the threshold for vesting.


u)	Provisions

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Warranty provisions are made for specific product issues based on an estimate of the likely cost

arising. It has been deemed prudent to provide for an amount based on historical information.


v)	Revenue

Revenue represents the total value of amounts invoiced to all customers in respect of goods or services rendered during the year net of credit notes, returns and any contractually agreed discounts, excluding value added tax.

Invoices for goods are raised when the risks and rewards of ownership have passed which may differ between customers depending on the contractual arrangements in place. Ownership typically will pass on dispatch or at the date of acceptance by the customer.

Revenue is recognised in the income statement when it can be reliably measured, along with the associated costs, and its collectability is reasonably assured.


w)	Expenses/other income Operating lease payments

Payments made under operating leases are recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives received are recognised in the income statement as an integral part of the total lease expense.

Finance lease payments

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each year during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.

241

Net financing costs

Net financing costs comprise interest payable, finance charges on finance leases, interest receivable on funds invested, dividend income, foreign exchange gains and losses and gains and losses on hedging instruments that are recognised in the income statement, unwinding of fair value adjustments, post employment obligation charges and expected return on pension scheme assets.

Interest income and interest payable is recognised in the income statement as it accrues, using the effective interest method. Dividend income is recognised in the income statement on the date the entity’s right to receive payments is established.

Government grants

Grants receivable from governments or similar bodies are credited to the balance sheet in the period in which conditions relating to the grant are met. Where they relate to specific assets they are amortised on a straight-line basis over the same period the asset is depreciated. Where they relate to revenue expenditure and/or non-asset criteria they are taken to the income statement to match the period in which the expenditure is incurred and criteria met.

Income from non-core trading

The margin on long-term contracts associated with one off projects such as the agreement with Minsk Tractor Works in Belarus are recorded within other operating income.

x)Taxation

Tax on the profit or loss for the year comprises current and deferred tax. Tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided on temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are not provided for: the initial recognition of goodwill; the initial recognition of assets or liabilities that affect neither accounting nor taxable profit other than in a business combination, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

y)Segmental reporting

IFRS 8 ‘Operating Segments’ requires a ‘management approach’, under which segment information is presented on the same basis as that used for internal reporting purposes. The segments are reported in a manner that is more consistent with the internal reporting provided to the Chief Operating Decision Maker (CODM). Goodwill is allocated by management to groups of cash generating units on a segment level, the allocation of goodwill remains as reported in 2010, between the Wheels and Undercarriage segments.

Operating segments are reported in a manner consistent with the internal reporting provided to the CODM on a monthly basis. The CODM has been identified as the Chief Executive Officer (CEO) who is responsible for assessing performance of the operating segments and allocating resources to these segments.

242

z) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as a deduction from the proceeds.

aa) Standards, amendments to standards and interpretations issued but not yet applied Interpretations effective in 2011:

There are no IFRSs or IFRIC interpretations that are effective for the first time for the financial year that would be expected to have a material impact on the Group.

Standards, amendments and interpretations to existing standards which are not yet effective

The following is a summary of relevant revisions and amendments to standards and interpretations which are unlikely to have a material impact on the Group’s results, assets or liabilities.

IFRS 9 ‘Financial instruments’ regarding classification and measurement of financial assets. IFRS 10 ‘Consolidated financial statements’ regarding determination of control.

IFRS 13 ‘Fair value measurement’ regarding fair value measurement and disclosure requirements.

IFRS 12 ‘Disclosure of interests on other entities’ regarding disclosure requirements for all forms of interest in other entities.

There are a number of standards, amendments and interpretations that are not relevant to the Group which have therefore not been listed above.

bb) Significant judgements, key assumptions and estimates

The Group’s significant accounting policies are set out above. The preparation of financial statements, in conformity with IFRS, requires the use of estimates, subjective judgement and assumptions that may affect the amounts of assets and liabilities at the balance sheet date and reported profit and earnings for the year. The directors base these judgements on the basis of past experience, professional expert advice and other relevant evidence. The accounting policies where the directors consider that more complex estimates, judgements and assumptions have to be made are those in respect of intangible assets, derivative financial instruments, employee benefits and taxation. See note 3.

2. Financial risk management Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, fair value interest rate risk and cash flow interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

Risk management is carried out centrally under policies approved by the Board of directors. Centrally management identify, evaluate and hedge financial risks in close co-operation with the Group’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial instruments and non-derivative financial instruments, and investment of excess liquidity.

Market risk

Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the euro and the sterling. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations.

243

Management has set up a policy to require Group companies to manage their own foreign exchange risk against their functional currency. Where appropriate, and in agreement with Group management, companies are required to hedge certain foreign exchange risk exposure. To manage their foreign exchange risk arising from future commercial transactions and recognised assets and liabilities, entities in the Group use forward contracts, transacted externally. Foreign exchange risk arises when future commercial transactions are denominated in a currency that is not the entity’s functional currency.

As the Group derives a significant amount of its earnings from overseas operations, the Group is affected by movements in exchange rates, primarily the euro. This would affect both the balance sheet and the income statement. For a 5 per cent. movement in the euro exchange rate, the operating profit would be affected by £871,000 (2010: £404,000) and the net assets by £819,000 (2010: £583,000).

Cash flow and fair value interest rate risk

As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in market interest rates.

The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During 2011 and 2010, the Group’s borrowings at variable rate were primarily denominated in the euro.

Based on calculations performed, the impact on post-tax profit of a 1.0 percentage point shift in variable interest rates would be a maximum increase or decrease of £573,000 of interest expense. However, to mitigate this risk 85 per cent. of the floating rate debt outstanding at 31 December 2011 was covered by a floating-to-fixed interest rate swap.

Based on the various scenarios, the Group manages its cash flow interest rate risk by using floating-tofixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Group raises long-term borrowings at floating rates and swaps them to fixed rates that are lower than those available if the Group borrowed at fixed rates directly. Under the interest rate swaps, the Group agrees with other parties to exchange, at specified intervals (primarily quarterly), the difference between fixed contract rates and floating-rate interest amounts calculated by reference to the agreed notional amounts.

Credit risk

Credit risk is managed on a divisional basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to Original Equipment Manufacturers (OEMs), and after-market customers, including outstanding receivables and committed transactions. Credit control assesses the credit quality of the customer, taking into account its financial position, past experience and other factors. The utilisation of credit limits is regularly monitored (see also note 26).

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and the availability of funding through an adequate amount of committed credit facilities. Due to the dynamic nature of the underlying businesses, the Group maintains flexibility in funding by maintaining availability under committed and uncommitted credit lines. The Group ensures that sufficient liquidity is available to meet obligations when they fall due and maintain sufficient flexibility in order to fund investment and acquisition objectives. Liquidity needs are assessed through short and long-term forecasts. Cash flow forecasting is performed in the operating entities of the Group. Group finance monitors headroom on all borrowing facilities. Undrawn borrowing facilities at the year end amounted to £45,237,000 (2010: £44,039,000).

244

The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows including contractual interest payment and finance lease charge cash flows. The difference between contractual undiscounted cash flows, and the book value of borrowings of £2,663,000 (2010: £4,162,000) is explained in note 28.



	Less than		Between 1		Between 2		Over
At 31 December 2011	1 year		and 2 years		and 5 years		5 years
	£’000		£’000		£’000		£’000
Borrowings	(55,261	)	(35,624	)	(74,968	)	(1,734	)
Contractual interest payments and finance lease charges	(426	)	(2,912	)	(103	)	(2	)
Derivative financial instruments	(1,009	)	(3,691	)	(377	)	–
Trade and other payables	(111,309	)	(252	)	(1,182	)	(779	)
	Less than		Between 1		Between 2		Over
At 31 December 2010	1 year		and 2 years		and 5 years		5 years
	£’000		£’000		£’000		£’000
Borrowings	(57,470	)	(24,697	)	(85,708	)	(431	)
Contractual interest payments and finance *lease charges	(548	)	(342	)	(2,414	)	–
Derivative financial instruments	(2,874	)	(2,354	)	(215	)	–
Trade and other payables	(99,955	)	(258	)	(1,206	)	(958	)

The Group’s derivative financial instruments will be settled on a net basis. The amounts are the contractual undiscounted cash flows. The impact of discounting is not significant.

Capital risk management

The Group defines capital as total equity plus non-current bank borrowings.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for the shareholders, benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. During the year the Group raised new share capital to provide additional funding to assist with the Turkish acquisition.

In line with external requirements, the Group closely monitors net debt on a monthly basis and has annual targets on the level of net debt. The Group was compliant with all covenants during the year.



	Note	2011		2010
		£’000		£’000
Total borrowings	28	(164,924	)	(164,144	)
Less liquid resources	20	258		848
Less cash and cash equivalents	23	40,262		30,488
Net debt		(124,404	)	(132,808	)

Group net debt is lower than last year at £124,404,000 (2010: £132,808,000), however, this is affected by the strengthening of the euro year-end exchange rate generating a translation impact as at 31 December 2011 of £2,984,000 (exchange movement reported in the reconciliation of cash flow to net debt). The Group’s net debt as at 31 December 2011 at the 2010 year-end exchange rate would have been £127,367,000.

Fair value estimation

The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance sheet date. The fair value of interest rate swaps is calculated as the present value of the

245

estimated future cash flows. The fair value of forward foreign exchange contracts is their quoted market price at the balance sheet date, being the present value of the quoted forward price.

The carrying value less impairment provision of trade receivables and payables is assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Estimated impairment of goodwill (note 16)

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(k). The recoverable amounts of cash generating units have been determined based on value-in-use calculations. These calculations require the use of estimates (note 16). No impairment charges arose in the Group during 2011.

Income taxes (notes 9 and 29)

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which the determination is made but management do not consider that any favourable or unfavourable movements would be material. Recognition of deferred tax assets, and hence credits to the income statement, is based on forecast future taxable income and therefore involves judgement regarding the future financial performance of particular legal entities of tax groups in which the deferred tax assets are recognised.

Fair value of derivatives and other financial instruments (note 27)

The fair value of financial instruments that are not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. Valuations are provided by external parties. The external parties select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date.

Employee benefits (note 30)

The Group operates two defined benefit schemes and also has several post-employment benefit schemes in place. The total liability is £10,248,000 (2010: £11,228,000), of the liability 15 per cent. (2010: 17 per cent.) relates to the French and German defined benefit scheme. A significant proportion, 81 per cent. as at 31 December 2011 (2010: 80 per cent.), of the total liability relates to the TFR (Trattamento di Fine Rapporto) scheme in Italy.

Business combinations and acquisitions – purchase price alocations (note 38)

For business combinations and acquisitions of associates and joint ventures, IFRS requires that a fair value exercise is undertaken allocating the purchase price (cost) of acquiring controlling interests and interests in associates and joint ventures to the fair value of the acquired identifiable assets, liabilities and contingent liabilities.

246

Any difference between the cost of acquiring the interest and the fair value of the acquired net assets is recognised as acquired goodwill. The fair value exercise is performed at the date of acquisition. As a result of the nature of fair value assessments the purchase price allocation exercise and acquisition-date fair value determinations require subjective judgements based on a wide range of complex variables at a point in time. Management uses all available information to make the fair value determinations.

4. Segmental analysis

Management has determined the operating segments, based on the reports reviewed by the Chief Executive Officer (‘CEO’), to monitor performance of the segments and make strategic decisions.

Management considers the business to have two segments, being Undercarriage and Wheels. The Undercarriage segment derives its revenue from sales of undercarriages to the OEM market and aftermarket. The Wheels segment derives its revenue from sales of wheels and tires to the OEM market. The Wheels segment as reported to management includes the head office company, Titan Europe Management fees are charged by head office to the two segments, and are reported within those segments.

Sales between segments are carried out at arm’s length. The revenue from external parties reported to the CEO is measured in a manner consistent with the income statement contained in the financial statements. There are no differences between the amounts presented to the Chief Operating Decision Maker (‘CODM’) and amounts included within the financial statements, with the exception of the classification of goodwill as explained on the following page.

The performance reports reviewed by the CEO are consistent with the format reported in the income statement, with the main measure reviewed being trading profit. Amounts reviewed with respect to total assets and liabilities are measured in a manner consistent with the financial statements. Both assets and liabilities are allocated based on the operations of the segment and the physical location of the assets.



	Wheels 2011 2010 £’000 £’000				Undercarriages 2011 2010 £’000 £’000				Total 2011 2010 £’000 £’000
Revenue
Total revenue	193,602		140,842		530,919		370,390		724,521		511,232
Intercompany revenue	(9,159	)	(5,197	)	(222,841	)	(150,833	)	(232,000	)	(156,030	)
External revenue	184,443		135,645		308,078		219,557		492,521		355,202
Trading profit	17,215		9,629		15,832		4,435		33,047		14,064
Restructuring and rationalisation costs	(1,836	)	(135	)	(1,329	)	(1,362	)	(3,165	)	(1,497	)
Significant legal costs	–		(47	)	(153	)	(173	)	(153	)	(220	)
Profit from operations	15,379		9,447		14,350		2,900		29,729		12,347
Share of profit of associate	1,580		1,134		–		–		1,580		1,134
Share of profit of joint venture	220		322		–		–		220		322
Gain on previously held interest in joint venture	1,863		–		–		–		1,863		–
Finance income	416		642		69		328		485		970
Finance expense and other finance costs	(3,059	)	(2,961	)	(9,174	)	(8,379	)	(12,233	)	(11,340	)
Profit before income tax	16,399		8,584		5,245		(5,151	)	21,644		3,433
Income tax expense	(3,981	)	(2,503	)	(31	)	1,696		(4,012	)	(807	)
Profit for the year	12,418		6,081		5,214		(3,455	)	17,632		2,626

247



	Wheels				Undercarriages				Total
	2011		2010		2011		2010		2011		2010
	£’000		£’000		£’000		£’000		£’000		£’000
Assets
Intangible assets*	3,322		(316	)	53,677		53,924		56,999		53,608
Property, plant and equipment	43,793		42,660		98,753		99,717		142,546		142,377
Interest in associate and joint venture	12,197		17,089		–		–		12,197		17,089
Other assets	92,816		75,578		146,682		135,931		239,498		211,509
Income tax recoverable	133		74		13		725		146		799
Deferred tax assets	5,686		5,114		25,948		32,278		31,634		37,392
Total assets	157,947		140,199		325,073		322,575		483,020		462,774
Liabilities
Borrowings#	(46,119	)	(48,817	)	(118,805	)	(115,327	)	(164,924	)	(164,144	)
Other liabilities	(49,162	)	(40,555	)	(89,450	)	(86,399	)	(138,612	)	(126,954	)
Income tax payable	(1,422	)	(952	)	(780	)	(377	)	(2,202	)	(1,329	)
Deferred tax liabilities	(5,298	)	(5,783	)	(7,229	)	(13,400	)	(12,527	)	(19,183	)
Total liabilities	(102,001	)	(96,107	)	(216,264	)	(215,503	)	(318,265	)	(311,610	)
Net assets	55,946		44,092		108,809		107,072		164,755		151,164
Other segment items
Capital expenditure
– intangible assets excluding goodwill	(182	)	(80	)	(354	)	(116	)	(536	)	(196	)
– property, plant and equipment	(5,415	)	(2,727	)	(13,489	)	(8,587	)	(18,904	)	(11,314	)
Total capital expenditure	(5,597	)	(2,807	)	(13,843	)	(8,703	)	(19,440	)	(11,510	)
Depreciation	(7,625	)	(7,117	)	(8,778	)	(9,070	)	(16,403	)	(16,187	)
Amortisation	(386	)	(372	)	(558	)	(595	)	(944	)	(967	)

* Consolidation adjustments to goodwill are reported above on the basis of the management accounts presented to the CODM. For statutory reporting purposes, an additional £8,014,000 credit to goodwill is reallocated to the Undercarriage segment, resulting in 2011 and 2010 goodwill for statutory purposes of £8,925,000 Wheels (2010: £6,103,000) and £44,571,000 Undercarriage (2010: £44,571,000).

# Borrowings in the Wheels segment includes Accordo Quadro of £23,037,000 (2010: £21,547,000), refer to note 28. This relates to the acquisition of ITM in December 2005.

The entity is domiciled in the United Kingdom. Revenue is based on the customer location, the geographical spread of revenue is disclosed below.



	Wheels		Undercarriages			Total
	2011	2010	2011	2010	2011	2010
	£’000	£’000	£’000	£’000	£’000	£’000
UK	9,021	5,508	12,726	9,639	21,747	15,147
Continental Europe	115,441	87,738	126,288	104,250	241,729	191,988
North America	13,255	9,409	45,620	27,262	58,875	36,671
South America	4,076	3,777	38,790	37,848	42,866	41,625
Asia	10,560	4,929	80,312	37,059	90,872	41,988
Africa	1,993	352	2,894	2,509	4,887	2,861
Oceania	30,097	23,932	1,448	990	31,545	24,922
Total	184,443	135,645	308,078	219,557	492,521	355,202

The directors consider that the above disclosure reflects most closely how the business is monitored by the CODM.

248



Non-current assets by location are summarised below: Wheels 2011 2010 £’000 £’000				Undercarriages 2011 2010 £’000 £’000		2011 £’000	Total 2010 £’000
Property, plant and equipment	43,793	42,660		98,753	99,717	142,546	142,377
Intangible assets	3,322	(316	)	53,677	53,924	56,999	53,608
Investments	12,197	17,089		40	40	12,237	17,129
Trade and other receivables				767	375	767	375
	59,312	59,433		153,237	154,056	212,549	213,489
By Location
UK	15,420	8,553			–	15,420	8,553
Italy	30,302	41,994		93,855	110,216	124,157	152,210
Other	13,590	8,886		59,382	43,840	72,972	52,726
Total	59,312	59,433		153,237	154,056	212,549	213,489
5. Restructuring and rationalisation	costs
						2011	2010
					Note	£’000	£’000
Redundancy costs						1,604	817
Temporary lay off costs						–	616
Retirement costs						–	64
Restructuring of manufacturing plants						452	–
Impairment of held for sale assets					21	1,109	–
						3,165	1,497

Of the costs incurred in the year £1,836,000 (2010: £1,362,000) relates to the Undercarriage division and £1,329,000 (2010: £135,000) relates to the Wheels division.

Included in accruals at the year end is £75,000 (2010: £1,896,000) of costs recognised to date which will be paid in 2012. Included in provisions at the year end is £2,275,000 which will be paid during the period 2012 – 2014. See note 31.



6. Net Finance Costs	Note	2011 £’000		2010 £’000
Finance income
Bank balances		378		288
Gains arising on the translation of foreign currency loans	14	4		294
Other		103		388
Total finance income		485		970
Finance expense
Bank overdrafts		(945	)	(725	)
Bank borrowings		(8,705	)	(7,787	)
Hire purchase and finance lease arrangements		(126	)	(289	)
Losses arising on the translation of foreign currency loans	14	(652	)	(58	)
Other		(390	)	(179	)
Total finance expense		(10,818	)	(9,038	)
Net finance costs		(10,333	)	(8,068	)

249

Interest on bank borrowings has increased by £0.9m, £0.4m is due to the full year effect of the 2010 Intesa Sanpaolo SpA and UniCredit SpA restructure, see note 7. The remaining increase is due to changes in mix of borrowings.



7. Finance income/(charges)
	2011		2010
	£’000		£’000
Interest on defined benefit pension plan	(33	)	(111	)
Interest on other long-term employee benefits	(449	)	(389	)
Net profit/(loss) on recycling of fair value of derivatives	527		(359	)
	45		(859	)

The profit on recycling of fair value of derivatives relates to the interest rate swap on the Intesa Sanpaolo SpA/UniCredit SpA borrowings and offsets the increase in note 6 above.



8. Other finance charges
		2011		2010
		£’000		£’000
Unwinding of the fair value adjustment on the Accordo Quadro loans		(1,460	)	(1,443	)
9. Income tax charge/(credit)
		2011		2010
	Note	£’000		£’000
Current tax
UK corporation tax:
– Current year		655		2
– Adjustment in respect of prior years		(18	)	1
Total UK current tax		637		3
Foreign corporation tax:
– Current year		4,975		2,877
– Adjustment in respect of prior years		(39	)	8
Total current tax charge		5,573		2,888
Deferred tax
Origination and reversal of timing differences		(1,987	)	(1,918	)
Adjustment in respect of prior years		426		(163	)
Total deferred tax credit	29	(1,561	)	(2,081	)
Tax on profits on ordinary activities		4,012		807

The current tax assessed for the year is lower (2010: higher) than the standard rate of corporation tax in the United Kingdom of 26.5 per cent. (2010: 28.0 per cent.). The effective tax rate for 2011 is 22.3 per cent. (2010: 40.8 per cent.), which is below the UK rate of corporation tax. This is due to the impact of our overseas entities, mainly Italian. The 2011 financial year was impacted by a change in the tax laws in Italy, which allowed the Group to reinstate previously written off deferred tax assets of £2,700,000. The tax expiry time limit on losses has now been removed. This adjustment will not impact the effective tax rates of future years.

Factors affecting future tax rate:

During the year the main rate of UK corporation tax was reduced from 28 per cent. to 26 per cent., this change was effective from 1 April 2011. The March 2011 budget announced that the main rate of UK

250

corporation tax would reduce from 26 per cent. to 25 per cent. effective from 1 April 2012. The impact of this is not considered to be material.

Further reductions to the main rate of corporation tax were announced in the March 2012 Budget. These changes propose to reduce the main rate of UK corporation tax to 24 per cent. effective from 1 April 2012 and then by 1 per cent. per annum to 22 per cent. by 1 April 2014. These changes had not been substantively enacted at the balance sheet date, and therefore are not recognised in these financial statements.



	2011 £’000		2010 £’000
Profit before tax	21,644		3,433
Less share of post tax earnings of joint ventures and associates	(3,663	)	(1,456	)
Profit before tax excluding joint venture and associate	17,981		1,977
Profit before tax at the UK tax rate 26.5% (2010: 28.0%)	4,765		554
Effects of:
Non-taxable items	(262	)	(42	)
Effect of foreign taxation rates	2,318		1,750
Movement in unrecognised deferred taxation	(3,178	)	(1,301	)
Adjustment in respect of prior years – current tax	(57	)	9
Prior year deferred tax	426		(163	)
Total tax charge	4,012		807
10. Earnings per share

The weighted average number of shares in issue used in the basic earnings per share calculation may be reconciled to the number used in the diluted earnings per ordinary share calculation as follows:



	2011		2010
Weighted average number
Basic earnings per share denominator	85,753,393		82,980,624
Issuable on conversion of options	2,872,550		715,934
Diluted earnings per share denominator	88,625,943		83,696,558
The earnings to which the earnings per share calculation has been applied	are as follows:
	2011		2010
	£’000		£’000
Earnings attributable to equity shareholders	17,632		2,626
Significant one-off items (net of tax):
Restructuring and rationalisation costs	2,168		1,025
Significant legal costs	100		149
Gain on previously held interest in joint venture	(1,881	)	–
Earnings attributable to equity shareholders excluding exceptional costs	18,019		3,800

251



11. Expenses by nature	Note	2011 £’000		2010 £’000
Changes in inventories of finished goods and WIP, raw materials and consumables used		255,509		174,183
Employee benefit expense	12	99,840		81,282
Depreciation and amortisation	15, 16	17,347		17,154
Transportation expenses		11,053		8,198
Utilities		20,146		16,567
Repairs and maintenance		8,167		6,327
Outsourcing costs		26,542		18,319
Operating lease payments –property		2,202		1,999
Operating lease payments – other		2,468		2,244
Foreign exchange (gains)/losses	14	(1,166	)	231
Other expense		21,915		18,394
Other operating income*		(4,549	)	(3,760	)
		459,474		341,138

* Other operating income comprises, profit on sale of property, plant and equipment and other one-off income occurring as a result of normal trading activities. Included in 2011 is the income associated with the factory development on behalf of Minsk Tractor Works in Belarus.



In the year, the Group incurred research and development expenditure of £3,874,000 (2010:		£3,387,000).
	2011	2010
	£’000	£’000
Audit services
– Fees payable to PricewaterhouseCoopers LLP for the statutory audit of the Company’s and consolidated annual accounts	194	177
– Fees payable to PricewaterhouseCoopers LLP and their associates for other services to the Group:
– Audit of the Company’s subsidiaries pursuant to legislation	341	309
Total audit fees	535	486
– Other services pursuant to legislation	59	37
– Tax services	141	139
– Other services	5	1
Total non-audit fees	205	177
Total fees payable to PricewaterhouseCoopers LLP and their associates	740	663

All fees payable to PricewaterhouseCoopers LLP, the Company’s auditors, include amounts in respect of expenses. All fees payable to PricewaterhouseCoopers LLP have been charged to the income statement.

252



12. Employee benefit expense	Note	2011 £’000	2010 £’000
Wages and salaries		71,972	59,666
Social security costs		18,174	15,370
Employee share options scheme charge	33	122	577
Pension costs – defined contribution plan	30	3,359	3,249
Pension costs – defined benefit plan	30	52	60
Other post-employment benefits	30	58	51
Temporary staff		5,418	1,774
Welfare		685	535
		99,840	81,282

The average number of persons employed by the Group (including executive directors) during the year was:

2011 2010

Number Number



Production	2,307	1,983
Selling and distribution	137	121
Administration	225	217
	2,669	2,321

The key management of the Group comprises the Titan Europe board of directors and other key management. Details of key management remuneration are included in note 37. Details of directors’ remuneration are contained in note 13.



13. Directors’ emoluments Emoluments paid by all Group companies to the directors of Titan Europe were:
	2011	2010
	£’000	£’000
Remuneration and benefits for executive services	1,660	1,192
Fees for non-executive services	60	60
Pension contributions to defined contribution scheme	149	188
	1,869	1,440

The number of directors for whom the Group made contributions to defined contribution pension schemes was 3 (2010: 4).

Included within J M A Akers remuneration and benefits for executive services is £175,000 (2010: £83,000) of taxable income where an election has been made to take salary due to pension thresholds being met, this pension payment is not therefore subject to tax relief.

253

Remuneration Pension

and Fees for contributions

benefits for non- to defined

For the year ended executive executive contribution

31 December 2011 services services scheme Total

£’000 £’000 £’000 £’000

Non Executive

M M Taylor – 20 – 20

F H Billig 20 – 20

P A Gartside – 20 – 20

Executive

J M A Akers 918 – – 918

M C La Manna 514 – 86 600

V M R Wicks 28 – 18 46

G Chesterton 200 45 245

1,660 60 149 1,869

Remuneration Pension

and Fees for contributions

benefits for non- to defined

For the year ended executive executive contribution

31 December 2010 services services scheme Total

£’000 £’000 £’000 £’000

Non Executive

M M Taylor – 20 – 20

F H Billig – 20 – 20

P A Gartside – 20 – 20

Executive

J M A Akers 620 54 674

M C La Manna 381 – 80 461

V M R Wicks 27 – 18 45

G Chesterton 164 – 36 200

1,192 60 188 1,440

14. Foreign exchange gains/(losses)

2011 2010

Note £’000 £’000

Trading foreign exchange gains/(losses) – operating cost 11 1,166 (231)

Net gain on retranslation of foreign currency loans – net finance cost 6 (648) 236

518 5

254



15. Property, plant and equipment Freehold land and buildings				Leasehold property		Plant and machinery		Fixtures, Assets fittings, in the tools and course of equipment construction				Total
	Note	£’000		£’000		£’000		£’000		£’000		£’000
At 1 January 2010
Cost		61,342		11,406		188,725		25,638		4,171		291,282
Accumulated depreciation		(9,001	)	(1,916	)	(109,863	)	(17,972	)	(2,353	)	(141,105	)
Net book amount		52,341		9,490		78,862		7,666		1,818		150,177
Year ended
December 31, 2010
Opening net book amount		52,341		9,490		78,862		7,666		1,818		150,177
Additions		680		38		5,242		1,322		4,032		11,314
Disposals		(11	)	–		(80	)	(2	)	(15	)	(108	)
Reclassifications				(360	)	807		210		(657	)
Foreign exchange movement		(1,423	)	(455	)	(824	)	(91	)	36		(2,757	)
Transfer from held for sale assets	21	–		–		5		–		–		5
Other						(61	)	(21	)	15		(67	)
Depreciation charge	11	(1,883	)	(268	)	(11,474	)	(2,562	)	–		(16,187	)
Closing net book amount		49,704		8,445		72,477		6,522		5,229		142,377
At 31 December 2010
Cost		60,412		10,486		188,701		26,583		6,273		292,455
Accumulated depreciation/ impairment		(10,708	)	(2,041	)	(116,224	)	(20,061	)	(1,044	)	(150,078	)
Net book amount		49,704		8,445		72,477		6,522		5,229		142,377
Year ended
December 31, 2011
Opening net book amount		49,704		8,445		72,477		6,522		5,229		142,377
Acquired with subsidiary				–		4,586		59		–		4,645
Additions		1,591		–		6,163		1,548		9,602		18,904
Disposals		–		–		(1,388	)	–		(3	)	(1,391	)
Reclassifications		8,843		(8,454	)	3,268		1,451		(5,108	)	–
Foreign exchange movement		(1,755	)	109		(3,280	)	(225	)	(463	)	(5,614	)
Other		2		–		13		15		(2	)	28
Depreciation charge	11	(2,212	)	(22	)	(11,394	)	(2,775	)	–		(16,403	)
Closing net book amount		56,173		78		70,445		6,595		9,255		142,546
At 31 December 2011
Cost		70,375		174		188,563		28,240		9,463		296,815
Accumulated depreciation/ impairment		(14,202	)	(96	)	(118,118	)	(21,645	)	(208	)	(154,269	)
Net book amount		56,173		78		70,445		6,595		9,255		142,546

Property, plant and equipment pledged as security for borrowings for 2011 was £12,263,000 (2010: £22,358,000). This includes the Group’s obligations under finance leases (see note 28) which are secured by the lessors’ title to the leased assets.

255

Included in property, plant and equipment are assets held under finance leases. The net book value of these assets as at 31 December 2011 is as follows:

Fixtures,

Freehold fittings,

land and Leasehold Plant and tools and

buildings property machinery equipment Total



	£’000	£’000	£’000	£’000	£’000
At 31 December 2011	1,630	78	4,048	376	6,132
At 31 December 2010	1,739	8,449	4,971	245	15,404

There is a further £234,000 (2010: £254,000) of assets included within Intangible assets held under finance lease.

The depreciation charge on leased assets was £868,000 (2010: £1,746,000).

16. Intangible assets



	Note	Goodwil £’000		Licences and patents £’000		Computer software £’000		Develop-ment costs £’000		Other £’000		Total £’000
Cost
At 1 January 2010		53,530		2,708		1,656		2,014		92		60,000
Additions				69		89		36		2		196
Disposals						(84	)					(84	)
Foreign exchange movement		106		(50	)	20		(42	)	12		46
Other				(38	)	(76	)	–		–		(114	)
At 31 December 2010		53,636		2,689		1,605		2,008		106		60,044
Acquired with subsidiary		–		–		–		–		1,224		1,224
Additions		3,031		77		242		217		–		3,567
Disposals				(14	)	(34	)	–		–		(48	)
Foreign exchange movement		(209	)	(21	)	(93	)	(44	)	(202	)	(569	)
Other				(195	)	(110	)	–		–		(305	)
At 31 December 2011		56,458		2,536		1,610		2,181		1,128		63,913
Amortisation
At 1 January 2010		(2,962	)	(912	)	(814	)	(959	)	(26	)	(5,673	)
Charge for the year	11			(268	)	(233	)	(455	)	(11	)	(967	)
Disposals		–		–		84		–		–		84
Foreign exchange movement		–		27		(26	)	10		(5	)	6
Other		–		38		76						114
At 31 December 2010		(2,962	)	(1,115	)	(913	)	(1,404	)	(42	)	(6,436	)
Charge for the year	11			(279	)	(273	)	(373	)	(19	)	(944	)
Disposals				14		34		–		–		48
Foreign exchange movement		–		12		62		35		4		113
Other				195		110						305
At 31 December 2011		(2,962	)	(1,173	)	(980	)	(1,742	)	(57	)	(6,914	)
Net book value
At 31 December 2011		53,496		1,363		630		439		1,071		56,999
At 31 December 2010		50,674		1,574		692		604		64		53,608
At 1 January 2010		50,568		1,796		842		1,055		66		54,327

256

Impairment

An impairment test is a comparison of the carrying value of assets of a business or cash generating unit (CGU) to their recoverable amount. Where the recoverable amount is less than the carrying value, an impairment results. During the year, all goodwill was tested for impairment, with no impairment charges resulting.

Goodwill attributable to the Undercarriage division amounted to £44,571,000 (2010: £44,571,000) and to the Wheels division £8,925,000 (2010: £6,103,000).

All of the recoverable amounts were measured based on value in use. Detailed forecasts for the next 5 years have been used which are based on approved annual budgets and strategic projections representing the best estimate of future performance.

Key assumptions

In determining the recoverable amount it is necessary to make a series of assumptions to estimate the present value of future cash flows. In each case, these key assumptions have been made by management reflecting past experience and are consistent with relevant external sources of information.

Pre-tax adjusted discount rates

Pre-tax adjusted discount rates are derived from risk free rates based upon long-term government bonds in the territories within which the CGU operates. A relative risk adjustment has been applied to risk free rates to reflect the risk inherent in the territories to which the cash flows arise, in prior years this risk adjustment was made to the cash flows themselves. The pre-tax risk adjusted discount rate used for Undercarriage of 14.7 per cent. (2010 comparable rate: 13.8 per cent.) and Wheels of 13.6 per cent. (2010 comparable rate: 11.7 per cent.), reflects the mix of geographical territories within the CGU.

Operating cash flows

The main assumptions within the forecast operating cash flows include the achievement of future sales prices, volumes, raw material input costs, and the level of on-going capital expenditure required to support forecast production.

Long-term growth rates

To forecast beyond the five years, a long-term average growth rate has been used, this is not greater than the average long-term growth rate in each of the territories where the CGU is based. This results in an average growth rate of Undercarriage 2.3 per cent. (2010: 3.4 per cent.) and Wheels 2.4 per cent. (2010: 1.9 per cent.).

Goodwill sensitivity analysis

The results of the Group’s impairment tests are dependent on estimates and judgements made by management, particularly in relation to the key assumptions described above. A sensitivity analysis as to likely and potential changes in key assumptions has therefore been performed.

The table below shows the assumptions used and the amount by which each assumption must change in isolation in order for the estimated recoverable amount to equal the carrying value. The directors do not consider this to be reasonably probable.

Assumptions Change Change

used required Assumptions required

Undercarriage Undercarriage used Wheels Wheels

Pre-tax risk adjusted discount rate 14.7% 2.0% points 13.6% 7.8% points

Long-term growth rate 2.3% 3.8% points 2.4% 21.0% points

257

17. Investments

Investments in subsidiary undertakings

The investments in subsidiary undertakings are at cost. Subsidiary undertakings are as follows:

Company’s equity shareholding at

Registered 31 December

Company country Principal business 2011

Titan Steel Wheels England Manufacture of steel wheels for off-road vehicles 100%

Limited

Titan Distribution (UK) England Distribution of wheels and tires for off-road and 100%

Limited agricultural vehicles

Titan ITM Holding SpA Italy Italian Holding Company 100%

Titan Italia SpA Italy Manufacture of agricultural wheels, idlers and See below +

brakes for off-road vehicles

Italtractor ITM SpA Italy Distribution of complete undercarriage See below +

components and assemblies

Italtractor Operations Italy Manufacture of undercarriage components and See below +

SpA assemblies

Dosfly SA Spain Dormant See below +

Titan Intertractor GmbH Germany Design, assembly and distribution of complete See below +

undercarriage frames. Distribution of

undercarriage components. Manufacture of steel wheels for off-road and agricultural vehicles

Piezas Rodajes SA Spain Manufacture of cast components for See below +

undercarriage and ground engaging tools

Casting Product SA Spain Dormant See below +

Italtractor ITM Track Ltd China Assembly and distribution of undercarriage See below +

components

Titan ITM (Tianjin) Co China Manufacture, assembly and distribution of See below +

undercarriage components

Titan ITM Japan Ltd Japan Representative office See below +

Italtractor Landroni Ltda Brazil Manufacture and distribution of undercarriage See below +

components

Intertractor America Corp USA Manufacture, assembly and distribution of See below +

undercarriage components

Titan France SAS France Manufacture of steel wheels for off-road and See below +

agricultural vehicles

Titan Wheels Australia Australia Assembly and distribution of steel wheels. 100%


Pty Ltd	Manufacture and distribution of agricultural wheels and associated components, construction and mining wheels. Distribution and service of Undercarriage components

Titan Wheels Indonesia Indonesia Assembly and distribution of steel wheels. See below #

PT Distribution of construction and mining wheels

Titan Wheels South South Africa Assembly and distribution of steel wheels. See below #

Africa Pty Distribution of construction and mining wheels.

Aros Del Pacifico S.A. Chile Assembly and distribution of off-highway wheels 100%

for mining and construction vehicles

258

Company’s equity shareholding at

Registered 31 December

Company country Principal business 2011

Aros Del Pacifico S.A.C. Peru Assembly and distribution of off-highway wheels 100%

for mining and construction vehicles

Titan Jantsa Jant Turkey Manufacture of agricultural wheels for off-road See below +

Sanayi Ticaret ve Sanayi vehicles

+ 100% held via the Company’s holding in Titan ITM Holding SpA

# 100% held via the Company’s holding in Titan Wheels Australia Pty Ltd

Investments are summarised below:



	2011 £’000	2010 £’000
Share of net assets of associated undertaking including goodwill	12,197	12,681
Share of net assets of joint venture including goodwill	–	4,408
Other investments	40	40
End of the year	12,237	17,129
The directors consider that the values of the investment are supported by their underlying	assets.
Share of profit of associate and joint venture
	2011	2010
Note	£’000	£’000
Share of profit of joint venture* 19	220	322
Share of profit of associate 18	1,580	1,134
Share of profit of associate and joint venture	1,800	1,456
Gain on previously held interest in joint venture	1,863	–
Total share of profit of associate and joint venture	3,663	1,456

* As explained in note 38 on 19 April 2011 the remaining 50 per cent. of Titan Jantsa was acquired, the share of profit of joint venture results reflects the period up to the date of acquisition.

18. Investment in associate

The investment in associate represents the 35.91 per cent. equity stake in Wheels India Limited, (held by the Parent Company, Titan Europe) a company incorporated in India and listed on the National Stock Exchange in India. The Group’s share of Wheels India Limited results and net assets is disclosed below:



	2011		2010
	£’000		£’000
Beginning of the year	12,681		11,293
Share of profit	1,580		1,134
Exchange differences	(1,762	)	473
Other equity movements	(302	)	(219	)
End of the year	12,197		12,681

259



	Goodwil	Assets	Liabilities		Revenues	Profit	Interest held
	£’000	£’000	£’000		£’000	£’000	%
2010	2,811	47,710	(37,840	)	80,779	1,134	35.91
2011	2,811	45,108	(35,721	)	93,431	1,580	35.91

The Company’s principal activity is the manufacture of commercial vehicle wheels. Wheels India Limited has a reporting date of 31 March to comply with reporting requirements in India. Results are included for the 12 months up to and including 31 December 2011.

Included in the profit for the year is an exceptional income movement on the fair value of foreign exchange contracts used for cash flow hedging of £79,000 (2010: £738,000 expense movement).

19. Investment in joint venture

As explained in note 38, on 19 April 2011 the remaining 50 per cent. stake in Titan Jantsa was acquired, up until this date investments in joint ventures comprise a 50 per cent. equity stake in Titan Jantsa, Turkey, held by Titan Italia SpA. The Group’s share of Titan Jantsa results and net assets is disclosed below:



	2011 £’000		2010 £’000
Revenues	1,341		4,365
Operating costs and other income	(1,087	)	(4,015	)
Profit from operations	254		350
Net financing costs	21		64
Profit before income tax	274		414
Taxation	(55	)	(92	)
Profit after income tax	220		322
Non-current assets			1,922
Current assets			3,458
Total assets			5,380
Non-current liabilities			(358	)
Current liabilities			(721	)
Total liabilities			(1,079	)
Goodwill			107
	2011		2010
	£’000		£’000
Beginning of the year	4,408		4,089
Share of profit	220		322
Transfer to investment in subsidiary	(4,483	)	–
Exchange differences	(145	)	(3	)
End of the year			4,408

260



20. Trade and other receivables	Note	2011 £’000		2010 £’000
Trade receivables		78,163		73,692
Less: provision for impairment of trade receivables		(586	)	(990	)
Trade receivables – net		77,577		72,702
Prepayments		4,173		4,480
Other receivables		4,441		3,865
Short-term deposits		258		848
Receivables from related parties	37	–		15
		86,449		81,910
Less: non-current portion:
Trade receivables – net		132		149
Prepayments		36		38
Other receivables		599		188
		767		375
Current portion		85,682		81,535
Analysis of trade receivables past due but not impaired:
		2011		2010
		£’000		£’000
Up to 3 months		11,469		8,725
3 to 6 months		478		1,111
Over 6 months		250		487
		12,197		10,323
Credit quality of trade receivables is outlined in note 26.
Currency analysis
		2011		2010
		£’000		£’000
Sterling		5,801		4,768
Euro		55,151		55,374
US dollar		7,247		6,414
Australian dollar		5,596		5,123
Other		12,654		10,231
		86,449		81,910

261



Provision against trade receivables
	2011		2010
	£’000		£’000
At 1 January	990		1,209
Provision for receivables impairment	45		307
Receivables written-off during the year as uncollectable	(289	)	(420	)
Unused amounts reversed	(167	)	(107	)
Unwind of discount	10		29
Foreign exchange movement	(3	)	(28	)
At 31 December	586		990

Trade receivables include £3,204,000 (2010: £3,261,000) of invoices under a recourse invoice discounting agreement.



21. Held for sale assets
		2011		2010
	Note	£’000		£’000
At 1 January		2,341		2,469
Transfer out of held for sale assets during the year	15	–		(5	)
Impairment during the year		(1,109	)	–
Foreign exchange movement		(11	)	(119	)
Disposals		(11	)	(4	)
At 31 December		1,210		2,341

Held for sale assets represent the building and plant and machinery of the Varese plant which has been closed as part of the on-going restructuring of the Undercarriage division. The asset is recorded at fair value, and was sold on the 29 February 2012 for the fair value.



22. Inventories
	2011	2010
	£’000	£’000
Raw materials	37,963	28,419
Work in progress	16,575	13,579
Finished goods	56,999	54,732
	111,537	96,730

The amount of any write down reversal recognised in cost of sales in the year was £154,000 (2010: £1,160,000 credit).

262

23.Cash and cash equivalents

2011 2010

£’000 £’000

Cash at bank and on hand 40,262 30,488

Cash, cash equivalents and bank overdrafts include the following for the purposes of the cash flow statement:



		2011		2010
	Note	£’000		£’000
Cash and cash equivalents		40,262		30,488
Bank overdrafts	28	(18,269	)	(20,880	)
		21,993		9,608
23. Trade and other payables
		2011		2010
	Note	£’000		£’000
Trade payables		91,992		79,240
Payables to related parties	37	4,610		3,529
Accruals and deferred income		15,629		18,109
Social security and other taxes		5,201		5,359
Other payables		1,291		1,499
		118,723		107,736
Less: non-current portion:
Accruals and deferred income		2,213		2,238
Other payables		–		184
		2,213		2,422
Current portion		116,510		105,314

Payables to related parties are unsecured, have no fixed date of repayment, and do not incur interest.

24. Financial instruments by category

Assets at fair value

through Derivatives

Loans and the profit used for

receivables and loss hedging Total



	Note	£’000	£’000	£’000	£’000
December 31, 2011
Assets as per balance sheet
Trade and other receivables		82,278	–	–	82,278
Cash and cash equivalents	23	40,262	–	–	40,262
Total		122,540		–	122,540

263



	Liabilities at
	fair value	Derivatives	Other
	through profit	used for	financial
	and loss	hedging	liabilities	Total
	Note £’000	£’000	£’000	£’000
December 31, 2011
Liabilities as per balance sheet
Borrowings	28	–	164,924	164,924
Trade and other payables	–	–	108,755	108,755
Derivative financial instruments	–	5,077	–	5,077
Total	–	5,077	273,679	278,756
		Assets at fair value through	Derivatives
	Loans and	the profit	used for
	receivables	and loss	hedging	Total
	Note £’000	£’000	£’000	£’000
December 31, 2010
Assets as per balance sheet
Trade and other receivables	77,422	–	–	77,422
Cash and cash equivalents	23 30,488	–	–	30,488
Total	107,910
	Liabilities at
	fair value	Derivatives	Other
	through profit	used for	financial
	and loss	hedging	liabilities	Total
	Note £’000	£’000	£’000	£’000
December 31, 2010
Liabilities as per balance sheet
Borrowings	28 –	–	164,144	164,144
Trade and other payables	–	–	97,595	97,595
Derivative financial instruments	–	5,443	–	5,443
Total	–	5,443	261,739	267,182

The fair value is considered to approximate to the carrying value as disclosed above.

26.Credit quality of financial assets

A significant proportion of the trade receivables comprise receivables with the major international Original Equipment Manufacturers (OEMs), in some cases these receivables are also covered by credit insurance. Cash and cash equivalents are held with primarily major non-UK banks. The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk, however against this there is some coverage from credit insurance, but no other collateral or other credit enhancements are held.

27.Derivative financial instruments

Derivative financial instruments which are used for hedging at the year-end relate to interest rate swaps. For the purposes of IFRS 7 these are categorised as level 2 fair value measurement. Periodically the Group uses foreign exchange rate derivatives for hedging, there were none in place at the year end (2010: nil).

264



28. Borrowings	Note	2011 £’000	2010 £’000
Non-current
Bank borrowings		108,358	104,772
Hire purchase and finance lease obligations		1,305	1,902
		109,663	106,674
Current
Bank overdraft	23	18,269	20,880
Bank borrowings		36,033	33,290
Hire purchase and finance lease obligations		959	3,300
		55,261	57,470
Total borrowings		164,924	164,144

Bank borrowings mature until July 2026 and bear an average interest rate of 5.5 per cent. annually (2010:



5.5 per cent. annually). The maturity analysis of total borrowings is given below:
	2011	2010
	£’000	£’000
Within 1 year	55,261	57,470
Between 1 and 2 years	35,624	24,697
Between 2 and 5 years	72,305	81,546
Over 5 years	1,734	431
	164,924	164,144

Total borrowings include secured liabilities of £125,036,000 (2010: £124,815,000). The main facility is the Intesa Sanpaolo SpA and UniCredit SpA facility which is secured by a pledge on the shares of Italtractor ITM SpA, Italtractor Operations SpA, Titan Intertractor GmbH and Intertractor America Corp.

The gross notional amounts and fair value of the non-current borrowings are as follows:



	Gross notional amount		Fair value
	2011	2010	2011	2010
	£’000	£’000	£’000	£’000
Bank borrowings	111,021	108,934	108,358	104,772
Hire purchase and finance lease obligations	1,305	1,902	1,305	1,902
Total	112,326	110,836	109,663	106,674

Accordo Quadro loans account for the main difference between gross notional amount and fair value. The fair value adjustment on the Accordo Quadro balance is £2,663,000 (2010: £4,162,000). For the purposes of IFRS 7 these are categorised as level 2 fair value measurement.

The fair value of current borrowings equals the carrying amount, as the impact of discounting is not significant.

265

The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the balance sheet dates are as follows:



	2011 £’000	2010 £’000
Floating rate:
Expiring within one year	42,035	49,646
Expiring beyond one year	55,568	56,189
Fixed rate:
Expiring within one year	13,226	7,824
Expiring beyond one year	54,095	50,485
	164,924	164,144

To mitigate the variable interest rate risk 85 per cent. of the floating rate debt (2010: 89 per cent.) was covered by a floating-to-fixed interest rate swap.

Further detail on the Group borrowings is given in the table below:



	2011 £’000	2010 £’000	Interest	Expiry
Intesa Sanpaolo SpA/	82,809	94,215	Euribor 3 months+	Oct 2015
UniCredit SpA			3.5% margin#
Accordo Quadro *	23,037	21,547	Fixed at 0.0% and 2.0%	Dec 2013
Other bank loans	38,545	22,300	Variable between 0.0% and	Earliest
			11.0% Weighted average 3.8%	Jan 2012 latest
				Jul 2026
Total bank borrowings	144,391	138,062
Hire purchase	2,264	5,202	Variable between 2.7% and 9.6%	Earliest
			Weighted average 4.8%	March 2012 latest
				August 2017
Bank overdraft	18,269	20,880	Variable between 3.1% and 4.6% Weighted average 3.6%	Annual renewal
Total borrowings	164,924	164,144

* The Custodian bank for the Accordo Quadro loans is UniCredit Corporate Banking SpA.

# Interest coupon will also be adjusted giving a ratchet down as the business performance improves.

Finance lease obligations fall due as follows: £959,000 within one year (2010: £3,300,000), £1,275,000 in one to five years (2010: £1,874,000) and £30,000 in more than five years (2010: £28,000).

Finance lease obligations gross of finance lease charges fall due as follows: £1,320,000 within one year (2010: £3,814,000), £1,595,000 in one to five years (2010: £2,471,000) and £32,000 in more than five years (2010: £28,000).

266



The Group’s borrowings are denominated in the following currencies:
	2011		2010
	£’000		£’000
Bank borrowings and hire purchase
Sterling	5,016		5,016
Euro	120,885		121,832
US dollars	9,914		6,232
Australian dollars	1,440		2,191
Other	9,400		7,993
	146,655		143,264
Bank Overdraft
Sterling	7,606		11,523
Euro	10,612		9,296
US dollars	47		61
Australian dollars	4		–
Other	–		–
	18,269		20,880
Total
Sterling	12,622		16,539
Euro	131,497		131,128
US dollars	9,961		6,293
Australian dollars	1,444		2,191
Other	9,400		7,993
	164,924		164,144
29. Deferred income tax
	2011		2010
	£’000		£’000
Deferred tax assets:
– deferred tax assets to be recovered after more than 12 months	26,258		30,545
– deferred tax assets to be recovered within 12 months	5,376		6,847
	31,634		37,392
Deferred tax liabilities:
– deferred tax liabilities to be recovered after more than 12 months	(11,297	)	(18,400	)
– deferred tax liabilities to be recovered within 12 months	(1,230	)	(783	)
	(12,527	)	(19,183	)
Deferred tax assets (net)	19,107		18,209

267



Assets 2011 2010 £’000 £’000				Liabilities 2011 2010 £’000 £’000				Net 2011 2010 £’000 £’000
Property, plant and equipment 5,823		12,153		(9,509	)	(15,104	)	(3,686	)	(2,951	)
Intangible assets 5		5		–		(5	)	5		–
Inventory 805		848		–		–		805		848
Interest-bearing loans and borrowings 1,704		1,820		(706	)	(1,165	)	998		655
Employee benefits 345		266		(317	)	(296	)	28		(30	)
Deferred government grants 146		103		–		(30	)	146		73
Provisions 1,910		1,755		(357	)	(358	)	1,553		1,397
Tax value of loss carry-forwards 17,922		17,763						17,922		17,763
Other 2,974		2,679		(1,638	)	(2,225	)	1,336		454
31,634		37,392		(12,527	)	(19,183	)	19,107		18,209
At										At
1 January		Recognised		Recognised				Exchange		31 December
2011		in income		in equity		Acquisition		differences		2011
£’000		£’000		£’000		£’000		£’000		£’000
Property, plant and equipment 2,951		543		–		418		(226	)	3,686
Intangible assets		(5	)	–		–		–		(5	)
Inventory (848)		39		–		–		4		(805	)
Interest-bearing loans and borrowings (655)		(299	)	(74	)	–		30		(998	)
Employee benefits 30		(116	)	62		(6	)	2		(28	)
Deferred government grants (73)		(77	)	–		–		4		(146	)
Provisions (1,397)		(194	)	–		–		38		(1,553	)
Tax value of loss carry-forwards (17,763)		(864	)			–		705		(17,922	)
Other (454)		(588	)	(225	)	–		(69	)	(1,336	)
(18,209	)	(1,561	)	(237	)	412		488		(19,107	)
		At								At
		1 January		Recognised		Recognised		Exchange		31 December
		2010		in income		in equity		differences		2010
		£’000		£’000		£’000		£’000		£’000
Property, plant and equipment		2,201		539		–		211		2,951
Intangible assets		(13	)	12		–		1		–
Inventory		(805	)	7		–		(50	)	(848	)
Interest-bearing loans and borrowings		(56	)	(562	)	(105	)	68		(655	)
Employee benefits		(9	)	40		–		(1	)	30
Deferred government grants		(108	)	30		–		5		(73	)
Provisions		(2,454	)	1,037		–		20		(1,397	)
Tax value of loss carry-forwards		(15,884	)	(2,213	)	–		334		(17,763	)
Other		346		(971	)	–		171		(454	)
		(16,782	)	(2,081	)	(105	)	759		(18,209	)

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through future taxable profits is probable.

268

Deferred taxation assets and liabilities that are unrecognised/unprovided comprise:



	Assets		Liabilities		Net
	2011	2010	2011	2010	2011	2010
	£’000	£’000	£’000	£’000	£’000	£’000
Deductible temporary differences	78	55	–	–	78	55
Unrelieved tax losses	3,057	6,244	–	–	3,057	6,244
	3,135	6,299	–	–	3,135	6,299

No asset has been recognised in respect of £3,057,000 (2010: £6,244,000) due to the prudent view that the Group takes on tax loss recognition. Unrecognised tax losses of £313,000 expire between 2012 and 2016 (2010: £2.7m between 2011 and 2015). Other losses may be carried forward indefinitely.

30. Employee benefits

The Group has established a number of pension schemes around the world covering many of its employees.

Defined contribution schemes

The Group operates a number of defined contribution pension schemes. The assets of the schemes are held separately from the Group in independently administered funds. Contributions by the Group during the year were £3,359,000 (2010: £3,249,000). Outstanding contributions at the end of the year amounted to £27,000 (2010: £19,000) and are included in accruals.

Defined benefit schemes

The pension scheme in France and the pension scheme acquired in Germany are of the defined benefit type. The pension cost amounting to £52,000 (2010: £60,000) has been charged to the income statement. A liability of £1,574,000 (2010: £1,931,000) is included within employee benefits and this represents the accumulated pension costs relating to the unfunded French scheme, and funded and unfunded German schemes.

The most recent actuarial valuation of the French scheme was at 31 December 2011. The valuation of the scheme used the projected unit method using the gender specific l’INSEE 2004-2006 mortality tables, and was carried out by Associé Gérant – Actuaire Conseil, independent and professionally qualified actuaries. The principal assumptions for the plan made by the actuaries were:



	2011	2010
	%	%
Main actuarial assumptions
Rate of increase in salaries	3.0	3.0
Discount rate	4.5	4.5

The most recent actuarial valuation of the German scheme was at 31 December 2011. The valuation of the scheme used the projected unit method, the Richttafeln 2005 G mortality tables, and was carried out by Aon Jauch & Hübener Consulting GmbH, independent and professionally qualified actuaries. The principal assumptions for the plan made by the actuaries were:



	2011 %	2010 %
Main actuarial assumptions
Rate of increase in salaries	2.5	2.5
Rate of increase of pensions in payment	1.75	1.75
Discount rate	4.3	4.7
Expected return on plan assets	4.5	4.5

269



	2011 £’000		2010 £’000
Movement in the fair value of plan assets
Opening balance	(1,114	)	(1,131	)
Exchange differences	24		55
Expected return on plan assets	(50	)	(57	)
Actuarial loss	11		19
Closing balance	(1,129	)	(1,114	)
	2011		2010
	£’000		£’000
Income statement
Current service cost	110		111
Included within profit from operations	110		111
Interest on obligation	532		557
Expected return on plan assets	(50	)	(57	)
Included within finance charges	482		500
Total	592		611
Analysis of amount recognised in consolidated statement of comprehensive	income
	2011		2010
	£’000		£’000
Experience gains and losses arising on the scheme liabilities	(193	)	36
Changes in the assumptions underlying the present value of the scheme liabilities	398		(13	)
Actuarial gain recognised in consolidated statement of comprehensive income	205		23



31. Provisions	Warranty Redundancy				Other		Total
	£’000		£’000		£’000		£’000
At 1 January 2011	1,742				805		2,547
Charged/(credited) to the income statement:
– Additional provisions	2,363		2,356		61		4,780
– Unused amounts reversed	(118	)	–		–		(118	)
Used during the year	(2,416	)	–		(97	)	(2,513	)
Exchange differences	(26	)	(81	)	(25	)	(132	)
At 31 December 2011	1,545		2,275		744		4,564



	Grant 2009		Grant 2010		Grant 2010
Grant date	01/06/09		08/09/10		08/09/10
Share price at grant date	0.34		0.63		0.63
Exercise price	0.4		0.63		0.63
Number of employees	10		3		6
Shares under option	3,890,000		832,500		720,000
Vesting period (years)	3		–		3
Expected volatility	105.7	%	107.1	%	107.1	%
Option life (years)	10		10		10
Expected life (years)	6.5		5.0		6.5
Risk free rate	2.64	%	1.71	%	1.71	%
Expected dividends expressed as a dividend yield	2.18	%	2.2	%	2.4	%
Fair value per option	0.23		0.43		0.44



2011 Weighted average exercise Number price	2010 Weighted average exercise Number price
Outstanding at 1 January 5,442,500 £0.47	3,890,000	0.40
Cancelled – –	–	–
Exercised (173,333) £0.40
Granted – –	1,552,500	0.63
Outstanding at 31 December 5,269,167 £0.47	5,442,500	0.47
Exercisable at 31 December 832,500 £0.63	832,500	0.63
The weighted average fair value of options granted in the year was £nil (2010:	£0.44).
The total charge for the year relating to employee share-based payments was £122,000 (2010:		£577,000).



	2011 £’000	2010 £’000
Expiring within:
One year	3,364	2,636
Two to five years	8,702	3,067
More than five years	1,568	229
	13,634	5,932



		2011 £’000		2010 £’000
Sales of goods:
– Titan International Inc. related companies		32		–
– Associate		–		–
– Joint venture		95		137
		127		137
Purchases of goods:
– Titan International Inc. related companies		(9,734	)	(6,628	)
– Associate		(534	)	(612	)
– Joint venture		(1,195	)	(3,319	)
		(11,463	)	(10,559	)
Year end balances arising from sales/purchases of goods
		2011		2010
	Note	£’000		£’000
Receivables from related parties:
– Titan International Inc. related companies		–		–
– Associate		–		–
– Joint venture		–		15
	20			15
Payables to related parties:
– Titan International Inc. related companies		(4,277	)	(2,270	)
– Associate		(333	)	(112	)
– Joint venture				(1,147	)
	24	(4,610	)	(3,529	)



	Book Value £’000		Adjustment £’000		Fair Value £’000
Cost of Investment
Cash					7,516
Fair value of previously owned investment					6,238
Fair value of total consideration					13,754
Fair value of assets and liabilities acquired
Property, plant and equipment	3,558		868		4,426
Intangible assets – non-compete agreement	–		1,224		1,224
Cash at bank	2,876		–		2,876
Current assets – inventory	1,157		125		1,282
Current assets – trade and other receivables	3,647		–		3,647
Non-current liabilities – bank borrowings	(619	)	–		(619	)
Non-current liabilities – employee benefit	(118	)	100		(18	)
Current liabilities – bank borrowings	(275	)	–		(275	)
Current liabilities – trade and other payables	(1,408	)	–		(1,408	)
Deferred tax	6		(418	)	(412	)
Fair value of net assets acquired	8,824		1,899		10,723
Goodwill					3,031
					13,754
Net cash outflow in respect of acquisition
Cash consideration extended					(7,516	)
Cash at bank acquired					2,876
					(4,640	)



2 December 2011, the assets acquired had a net book value of £0.8m.	Fair Value
	£’000
Cost of Investment
Cash	124
Deferred consideration	724
Fair value of total consideration	848
Fair value of assets and liabilities acquired
Property, plant and equipment	219
Current assets – inventory	724
Current liabilities	(95	)
Fair value of net assets acquired	848
Net cash outflow in respect of acquisition
Cash consideration extended	(124	)
	(124	)



(expressed in US$000) Assets Current assets	Titan International⁽¹⁾			Adjustments⁽²⁾ Titan Europe		Adjustment (3)(4)(5)(6)			Pro forma
Cash and cash equivalents	$	149,450		$	53,350	($4,800)⁽⁴⁾			$	198,000
Accounts receivable	237,418			137,839		(6,277)⁽⁶⁾			368,980
Inventories	214,858			171,915					386,773
Deferred income taxes	29,773			11,473					41,246
Prepaid and other current assets	38,637			22,626					61,263
Total current assets	670,136			397,203		(11,077		)	1,056,262
Property, plant and equipment, net	324,676			200,441					525,117
Deferred income taxes				35,931					35,931
Other assets	99,187			108,379		(29,534		)	178,032
Total assets	$	1,093,999		$	741,954	$	(40,611	)	$	1,795,342
Liabilities and Shareholders’ Equity
Current liabilities
Short-term debt	$	7,596		$	87,409				$	95,005
Accounts payable	109,555			152,384		(6,277)⁽⁶⁾			255,662
Other current liabilities	70,464			51,057					121,521
Total current liabilities	187,615			290,850		(6,277		)	472,188
Long-term debt	312,881			156,019		(6,277		)	468,900
Deferred income taxes	43,243			20,749					63,993
Other long-term liabilities	73,184			24,860					98,043
Total liabilities	616,923			492,478		(6,277		)	1,103,124
Shareholders equity
Common stock	37			54,759		(54,759)⁽⁵⁾			37
Additional paid-in capital	383,102			123,774		10,779⁽⁵⁾			517,655
Retained earnings	146,105			60,856		13,579(3)(5)			220,540
Other reserves				10,087		(10,087)⁽⁵⁾			–
Treasury stock	(16,600		)	–		–			(16,600		)
Treasury stock for deferred compensation	(1,233		)	–		–			(1,233		)
Accumulated other comprehensive loss	(36,135		)			6,154			(29,981		)
Total stockholders equity	475,276			249,476		(34,334		)	690,418
Noncontrolling interests	1,800			–		–			1,800
Total equity	477,076			249,476		(34,334		)	692,218
Total liabilities and equity	$	1,093,999		$	741,954	$	(40,611	)	$	1,795,342


(1)	The consolidated balance sheet of Titan International as at 30 June 2012, has been extracted, without material adjustment, from the Titan International unaudited condensed consolidated financial information for the six months period ended 30 June 2012, which is included in Part A of Part 7 of this document.


●	extraction from the unaudited IFRS financial statements of Titan Europe for the six months ended 30 June 2012, which are included in Part A of Part 8 of this document.


●	US GAAP adjustments to the IFRS financial information including the reclassification of certain assets and liabilities to different categories to align with the treatment adopted by Titan International.


●	conversion of the US GAAP financial information from Pounds Sterling to US Dollars at the exchange rate of £1 to US$1.562.



£’000	Deferred income tax liability	Other		Retained earnings impact
Adjust for treatment of leaseback^(a)	49	4,435		(4,486	)
Write off capitalized development costs^(b	231	278		(509	)
Adjust for treatment of rationalization costs^(c)	409	(1,487	)	1,078
To adjust treatment of deferred tax on share option^(d)schemes	392	–		(392	)
Total	1,081	3,226		(4,309	)


(a)	Under IFRS when a sale and leaseback results in a finance lease, the gain is amortized over the lease term. The rules under US GAAP are complex and as a result the gain recognized under IFRS can not be recognized under US GAAP. As a result an adjustment has been recorded to reverse £4,435,000 from property plant and equipment, as well as related deferred tax assets of £49,000.


(c)	Under IFRS a provision should be recognized when the company is demonstrably committed to restructuring. Under US GAAP communication must have been made to the employees who could be affected. An adjustment has been recorded to reverse the provision of £1,487,000 and the related deferred taxes of £409,000.


(d)	Under IFRS deferred taxes on equity settled stock options are revalued each period based on the closing share price, under US GAAP it is recognized based on the value at grant recognized over the service period. An adjustment has been recorded to deferred tax of £392,000 to reflect this.


(ii)	Assumes that all options under the Titan Europe Share Option Scheme are exercised as detailed in the Part I of this document and that there is no other exercise of options under any Titan International option scheme or any conversion under any Titan International convertible bonds or notes.


(iii)	Assumes acceptances of 90 per cent. or more to which the offer relates achieved.


(iv)	Titan Luxembourg held an interest in 18,993,821 Titan Europe Shares at 30 June 2012.



(5) The impact to Total equity can be summarised as follows:								Adjustments
(Expressed in US$’000)	A		B	C		D	E	to equity
Common stock	(54,759	)						(54,759	)
Additional paid-in capital	(123,774	)	134,553					10,779
Retained earnings	(60,856	)		(2,000	)	76,435		13,579
Other reserves	(10,087	)						(10,087	)
Accumulated other comprehensive loss	–						6,154	6,154
	(249,476	)	134,553	(2,000	)	78,235	6,154	(34,334	)


(7)	No adjustments have been made to the unaudited pro forma balance sheet to reflect the trading results on other transactions of Titan International or Titan Europe since 30 June 2012.


1.	US federal income tax consequences of the Offer 1.1 US Holders


2.	Ownership of New Titan International Common Shares or Titan International CDIs 2.1 Dividends on New Titan International Common Shares


(i)	there will not be any changes in general trading conditions, economic conditions, competitive environment, or levels of demand, in the countries in which Titan International operates or trades which would materially affect Titan International’s business;


(ii)	there will be no material cancellations in respect of orders currently placed with Titan International;


(iii)	there will be no business interruptions that materially affect Titan International, its major suppliers or major customers by reason of technological faults, natural disasters, industrial disruption, civil disturbance or government action;


(iv)	there will be no material change in legislation (including taxation) or regulatory requirements impacting Titan International’s operations or its accounting policies;


(v)	the estimated effective tax rate remains constant. This rate assumes that the nature (jurisdiction and character) of Titan International’s annual income would remain consistent through 31 December 2012;



	Authorised share capital		Issued share capital
Authorised	immediately	Issued	immediately
share	following	share	following
capital	the Offer	capital	the Offer⁽ⁱ⁾