**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549














**FORM
                10-K**





(Mark
      One)


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





For
      the
      fiscal year ended December 31, 2006


or


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





Commission
      file number 1-12936





**TITAN
      INTERNATIONAL, INC.**


(Exact
      name of registrant as specified in its charter)





**Illinois**
            
            **36-3228472**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (I.R.S.
                Employer
              Identification
                No.)





**2701
      Spruce Street, Quincy, IL 62301**


(Address
      of principal executive offices)





**(217)
      228-6011**


(Registrant’s
      telephone number, including area code)





**Securities
      registered pursuant to Section 12(b) of the Act:**





Title
                of each class
            Name
                of each exchange on which registeredCommon
                stock, no par value
            New
                York Stock Exchange (Symbol: TWI)





**Securities
      registered pursuant to Section 12(g) of the Act:** None





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      by
      Rule 405 of the Securities Act. Yes o No x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No x





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or such shorter period that the registrant was required
      to
      file such reports) and (2) has been subject to such filing requirements for
      the
      past 90 days. Yes x No o





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K is not contained herein, and will not be contained, to the best
      of registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.  x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer.


Large
      accelerated filer o    Accelerated
      filer x     Non-accelerated
      filer o





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Act). Yes o No x





The
      aggregate market value of the shares of common stock of the registrant held
      by
      non-affiliates was $227,988,853 based upon the closing price of the common
      stock
      on the New York Stock Exchange on June 30, 2006.





As
      of
      February 15, 2007, 20,024,032 shares of common stock of the registrant were
      outstanding.





**DOCUMENTS
      INCORPORATED BY REFERENCE**





Part
      III
      incorporates information by reference from the registrant's definitive proxy
      statement for its annual meeting of stockholders to be held May 17,
      2007.










**TITAN
      INTERNATIONAL, INC.**


Index
      to
      Annual Report on Form 10-K





Part
                I.
            
            PageItem
                1.
            Business
            3-9Item
                1A.
            Risk
                Factors
            9Item
                1B.
            Unresolved
                Staff Comments
            9Item
                2.
            Properties
            10Item
                3.
            Legal
                Proceedings
            10Item
                4.
            Submission
                of Matters to a Vote of Security Holders.
            10Part
                II.Item
                5.
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            11Item
                6.
            Selected
                Financial Data
            12Item
                7.
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            13-32Item
                7A.
            Quantitative
                and Qualitative Disclosures about Market Risk
            33Item
                8.
            Financial
                Statements and Supplementary Data
            33Item
                9.
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            33Item
                9A.
            Controls
                and Procedures
            33Item
                9B.
            Other
                Information
            33Part
                III.Item
                10.
            Directors,
                Executive Officers and Corporate Governance
            34Item
                11.
            Executive
                Compensation
            34Item
                12.
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            35Item
                13.
            Certain
                Relationships and Related Transactions, and Director
                Independence
            35Item
                14.
            Principal
                Accounting Fees and Services
            35Part
                IV.Item
                15.
            Exhibits,
                Financials Statement Schedules
            36Signatures
            37





2





**PART
      I**


**ITEM
      1 - BUSINESS**





**INTRODUCTION**


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.
      government, while the consumer market includes products for 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.





As
      one of
      the few companies dedicated to the off-highway wheel and tire market, Titan’s
      engineering and manufacturing resources are focused on addressing the real-life
      concerns of the end-users of our products. Titan’s commitment to product
      innovation is demonstrated by the development of the low sidewall (LSW) series
      of wheel and tire assemblies, which considerably enhances the performance of
      off-highway vehicles by pairing a larger diameter wheel with a shorter sidewall
      tire.





In
      2006,
      Titan’s agricultural market sales represented 62% of net sales, the
      earthmoving/construction market represented 27% and the consumer market
      represented 11% of net sales. For information concerning the revenues, certain
      expenses, income from operations and assets attributable to each of the segments
      in which the Company operates, see Note 28 to the consolidated financial
      statements of Titan, included in Item 8 herein.





**COMPETITIVE
      STRENGTHS**


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





*Strong
      Market Position* The
      Company has achieved a strong position in the domestic market for off-highway
      wheels, tires and assembly products. Titan’s ability to offer a broad range of
      different products has increased the Company’s visibility and has enhanced its
      ability to cross-sell products and consolidate market positions. Innovative
      marketing programs have strengthened Titan’s image in the marketplace, and the
      Company is reaching an increasing number of customers in the aftermarket. Years
      of product design and engineering experience have enabled Titan to improve
      existing products and develop new ones that have been well received in the
      marketplace. In addition, Titan believes it has benefited from significant
      barriers to entry, such as the substantial investment necessary to replicate
      the
      Company’s manufacturing equipment and numerous tools, dies and
      molds.





*Long-Term
      Core Customer Relationships* **** The
      Company’s top customers, including global leaders in agricultural and
      construction equipment manufacturing, have been purchasing wheels from Titan
      or
      its predecessors for many decades on average. Customers including AGCO
      Corporation, Caterpillar Inc., CNH Global N.V., Deere & Company, Kubota
      Corporation and the U.S. Government have helped sustain Titan’s leadership in
      wheel, tire and assembly innovation.





**BUSINESS
      STRATEGY**


Titan’s
      business strategy is to increase its penetration of the aftermarket for tires
      and the private branding business, to continue to improve operating
      efficiencies, to maintain emphasis on new product development and to explore
      possible additional strategic acquisitions.





*Increase
      Aftermarket Tire Business and Private Branding Business* **** The
      Company has concentrated on increasing its penetration of the tire aftermarket.
      The aftermarket offers higher profit margins and the tire aftermarket is larger
      and somewhat less cyclical than the OEM market. Additionally, Titan has
      developed a unique and efficient method of private branding the sidewall of
      its
      tires for sale through OEM retail distribution networks.





3




*Improve
      Operating Efficiencies* The
      Company continually works to improve the operating efficiency of its assets
      and
      manufacturing facilities. Titan integrates each facility’s strength, 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 is also
      continuing a comprehensive program to refurbish, modernize and enhance the
      computer technology of its manufacturing equipment. The Company has centralized
      and streamlined inventory controls. These efforts have led to improved
      management of order backlogs and have substantially improved Titan’s ability to
      respond to customer orders on a timely basis.





*Improve
      Design Capacity and Increase New Product Development* Equipment
      manufacturers constantly face changing industry dynamics. Titan directs its
      business and marketing strategy to understand and address the needs of its
      customers and demonstrate the advantages of its products. In particular, the
      Company often collaborates with customers in the design of new and upgraded
      products. Titan will occasionally recommend modified products to its customers
      based on its own market information. The Company tests new designs and
      technologies and develops methods of manufacturing to improve product quality
      and performance. These value-added services enhance Titan’s relationships with
      its customers.





*Explore
      Additional Strategic Acquisitions* **** The
      Company’s expertise in the manufacture of off-highway steel wheels and tires has
      permitted it to take advantage of opportunities to acquire businesses in the
      United States 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 may make additional strategic acquisitions of businesses
      that
      have an off-highway focus.





**ACQUISITION
      OF CONTINENTAL’S OTR ASSETS**


On
      July
      31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International,
      Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North
      America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of Bryan
      purchased the assets of Continental’s OTR tire facility for approximately $53
      million in cash proceeds. The assets purchased included Continental’s OTR plant,
      property and equipment located in Bryan, Ohio, and inventory and other current
      assets. The acquisition included an agreement with Continental to use the
      Continental and General trademarks on OTR tires.





**ACQUISITION
      OF GOODYEAR’S NORTH AMERICAN FARM TIRE ASSETS**


On
      December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International,
      Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire
      assets. Titan Tire purchased the assets of Goodyear’s North American farm tire
      business for approximately $100 million in cash proceeds. The assets purchased
      include Goodyear’s North American plant, property and equipment located in
      Freeport, Illinois, and Goodyear’s North American farm tire inventory. The
      acquisition included a long-term license agreement with The Goodyear Tire &
Rubber Company to manufacture and sell certain off-highway tires in North
      America, which includes the right to use the Goodyear trademark.





**AGRICULTURAL
      MARKET**


Titan’s
      agricultural rims, wheels and tires are manufactured for use on various
      agricultural and forestry equipment, including tractors, combines, skidders,
      plows, planters and irrigation equipment, and are sold directly to OEMs and
      to
      the aftermarket through independent distributors, equipment dealers and Titan’s
      own distribution centers. The wheels and rims range in diameter from 9” to 54”
with the 54” 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 the Company
      to offer a broad line of product models to meet customer specifications. Titan’s
      agricultural tires range from 8” to 85” in diameter and from 4.8” to 44” in
      width. The Company offers the added value of delivering a complete wheel and
      tire assembly to customers.


4





**EARTHMOVING/CONSTRUCTION
      MARKET**


The
      Company manufactures rims, wheels and tires for various types of 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
      Company provides customers with a broad range of earthmoving/construction wheels
      ranging in diameter from 20” to 63” and in weight from 125 pounds to 7,000
      pounds. The 63” diameter wheel is the largest manufactured in North America for
      the earthmoving/construction market. The earthmoving/construction wheels and
      tires produced by Titan are sold to OEMs and the aftermarket. Titan’s
      earthmoving/construction tires range from 30” to 109” in diameter and in weight
      from 50 pounds to 6,200 pounds. The Company offers the added value of wheel
      and
      tire assembly for certain applications in the earthmoving/construction
      market.





**CONSUMER
      MARKET**


Titan
      builds a variety of products for all-terrain vehicles (ATV), turf, golf and
      trailer applications. Consumer wheels and rims range from 8” to 16” in diameter.
      Likewise, Titan produces a variety of tires for the consumer market. ATV tires
      using the new stripwinding manufacturing process have been introduced to the
      marketplace, which improves tread durability. Titan’s sales in the consumer
      market include sales to Goodyear, which include an off-take/mixing agreement.
      This agreement includes mixed stock, which is a prepared rubber compound used
      in
      tire production. For the domestic boat, recreational and utility trailer
      markets, the Company provides wheels and tires and assembles brakes, actuators
      and components. The Company also offers the value-added service of a wheel
      and
      tire assembly for the consumer market.





**MARKET
      CONDITIONS OUTLOOK**


The
      Company experienced a softening in demand from OEMs for the Company’s products
      in 2006. The Company recorded an increase in sales as a result of the Goodyear
      North American farm tire acquisition and the Continental OTR acquisition. Titan
      is using the expanded agricultural product offering of Goodyear branded farm
      tires and the expanded earthmoving/construction product offering supplied by
      the
      Bryan facility, along with added manufacturing capacity from the Freeport and
      Bryan facilities to expand market share. Anticipated market conditions are
      as
      follows: (i) the agricultural market is expected to maintain current sales
      levels in 2007, (ii) the earthmoving/ construction market is anticipated to
      remain strong as a result of strong energy and mining markets, (iii) the
      performance of the consumer market, Titan’s smallest market, is largely tied to
      recreational spending habits and many other factors including weather,
      competitive pricing, energy prices and consumer attitude. Consumer market sales
      to Goodyear fluctuate significantly based upon their future product
      requirements. However, the Company expects the remaining consumer market sales
      to remain relatively stable in 2007.




**OPERATIONS**


Titan’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. The Company 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, the Company 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.


5





*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* **** The
      Company’s position as a manufacturer of both wheels and tires allows Titan to
      mount and deliver one of the largest selections of off-highway assemblies in
      North America. Titan 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 the Company’s system either
      through electronic data interchange or manually. The appropriate wheel-tire
      assembly delivery schedule is formulated based on each customer’s requirements
      and products are received by the customer on a just-in-time basis.





*Quality
      Control* **** The
      Company is ISO certified at all five main manufacturing facilities located
      in
      Bryan, Ohio; Des Moines, Iowa; Freeport, Illinois; Quincy, Illinois; and
      Saltville, Virginia. The ISO series is a set of related and internationally
      recognized standards of management and quality assurance. The standards specify
      guidelines for establishing, documenting and maintaining a system to ensure
      quality. The ISO certifications are a testament to Titan’s dedication to
      providing quality products for its customers.





**RAW
      MATERIALS**


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





**CAPITAL
      EXPENDITURES**


Capital
      expenditures for 2006, 2005 and 2004 were $8.3 million, $6.8 million and $4.3
      million, respectively. Capital expenditures in 2006 were used primarily for
      updating manufacturing equipment, expanding manufacturing capacity and for
      further automation at the Company’s facilities. Capital expenditures for 2007
      are forecasted to be approximately $16 million to $18 million and will be used
      to enhance the Company’s existing facilities and manufacturing capabilities
      including additional capacity for OTR tire production.





**PATENTS
      AND TRADEMARKS**


The
      Company 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 does not consider any one of
      them
      to be of such importance that the patent’s expiration or invalidity could
      materially affect the Company’s business. However, due to the difficult nature
      of predicting the interpretation of patent laws, the Company 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.





**MARKETING
      AND DISTRIBUTION**


The
      Company employs an internal sales force and utilizes several manufacturing
      representative firms for sales in North America. Sales representatives are
      primarily organized within geographic regions.





Titan
      distributes wheels and tires directly to OEMs. The distribution of aftermarket
      tires occurs primarily through a network of independent and OEM-affiliated
      dealers. The Company distributes wheel and tire assemblies directly to OEMs
      and
      aftermarket customers through its distribution network consisting of nine
      facilities in the United States.





**SEASONALITY**


Agricultural
      equipment sales are seasonal by nature. Farmers generally order equipment to
      be
      delivered before the growing season. Shipments to OEMs usually peak during
      the
      Company’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.


6





**RESEARCH,
      DEVELOPMENT AND ENGINEERING**


The
      Company’s research, development and engineering staff tests original designs and
      technologies and develop new manufacturing methods to improve product
      performance. These services enhance the Company’s relationships with customers.
      The Company continues to develop and introduce new LSW wheel and tire assemblies
      for the agricultural, earthmoving/construction and consumer markets. LSW wheel
      and tire assemblies reduce bounce, power hop, road lope and heat build-up,
      and
      provide more stability and safety for operators, which in turn may lead to
      greater productivity. The key to the success of the LSW is an increase in wheel
      diameter while maintaining the original outside tire diameter. This is
      accomplished by lowering the sidewall (LSW is an acronym for low sidewall)
      and
      increasing its strength. Maintaining the original outside diameter of the tire
      allows the LSW to improve the performance of agricultural,
      earthmoving/construction and consumer equipment without further
      modification.





**CUSTOMERS**


The
      Company’s 10 largest customers accounted for approximately 53% of net sales for
      the year ended December 31, 2006, compared to 55% for the year ended December
      31, 2005. Net sales to Deere & Company in Titan’s agricultural,
      earthmoving/construction and consumer markets combined represented 17% of the
      Company’s consolidated revenues for the year ended December 31, 2006, and 20%
      for the year ended 2005. Net sales to CNH Global N.V. in Titan’s three markets
      represented 11% of the Company’s consolidated revenues for both of the years
      ended December 31, 2006 and 2005. No other customer accounted for more than
      10%
      of the Company’s net sales in 2006 or 2005. Management believes the Company 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’s business, the Company believes that its diverse product mix and
      customer base minimizes a longer-term impact caused by any such
      loss.





**ORDER
      BACKLOG**


As
      of
      January 31, 2007, Titan estimates $171 million in firm orders compared to $122
      million at January 31, 2006, for the Company’s operations. The large increase in
      firm orders is primarily due to the Company’s recent acquisitions. Orders are
      considered firm if the customer would be obligated to accept the product if
      manufactured and delivered pursuant to the terms of such orders. The Company
      believes that the majority of the current order backlog will be filled during
      the present year.





**INTERNATIONAL
      OPERATIONS**


The
      Company accounted for its interest in Titan Europe Plc as an equity investment
      subsequent to the sale of a majority interest in April 2004. In December 2005,
      Titan Europe Plc issued additional shares of stock for an acquisition. As a
      result of these additional shares, the Company’s interest in Titan Europe Plc
      was diluted and decreased from 29.3% at December 31, 2004, to 15.4% at December
      31, 2005. The Company recorded the gain resulting from the change in ownership
      interest to equity in accordance with SAB 51. With the decreased ownership
      percentage, effective December 2005, the Company no longer uses the equity
      method to account for its interest in Titan Europe Plc.





In
      accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
      the
      Company records the Titan Europe Plc investment as an available-for-sale
      security and reports the investment at fair value, with unrealized gains and
      losses excluded from earnings and reported as a separate component of
      comprehensive income in stockholders’ equity. The Company’s stock ownership
      interest in Titan Europe Plc was 17.3% at December 31, 2006, and 15.4% at
      December 31, 2005. The increase in ownership percentage resulted from a December
      2006 transaction in which Titan Europe Plc issued additional shares to the
      Company in payment of approximately $7.9 million U.S. dollars of debt,
      representing the entire remaining long-term debt owed by Titan Europe Plc to
      the
      Company. The fair value of the Company’s investment in Titan Europe Plc was
      $65.9 million and $48.5 million at December 31, 2006 and 2005. Titan Europe
      Plc
      is publicly traded on the AIM market in London, England.





For
      the
      year ended December 31, 2004, the Company generated $49.4 million, or
      approximately 10% percent, of its net sales from foreign operations. All of
      these sales were recorded in the first quarter, prior to the Titan Europe
      sale.





**EMPLOYEES**


At
      December 31, 2006, the Company employed approximately 2,700 people in the United
      States. Approximately 48% of the Company’s employees in the United States were
      covered by collective bargaining agreements. In December 2005, the workers
      at
      the Des Moines and Freeport facilities ratified new labor agreements through
      November 2010. The workers at the Bryan facility ratified a new labor agreement
      in July 2006 with the same November 2010 expiration date. The Company believes
      employee relations are generally good.


7





**EXPORT
      SALES**


The
      Company had total aggregate export sales of approximately $57.4 million, $39.0
      million and $56.2 million, for the years ended December 31, 2006, 2005 and
      2004,
      respectively.





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 laws and policies of the United States 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 the Company’s ability to increase or maintain its export
      sales.





The
      Company purchases a portion of its raw materials from foreign suppliers. The
      production costs, profit margins and competitive position of the Company are
      affected by the strength of the currencies in countries where Titan purchases
      goods, relative to the strength of the currencies in countries where the
      products are sold. The Company’s results of operations, cash flows and financial
      position may be affected by fluctuations in foreign currencies.





**ENVIRONMENTAL
      LAWS AND REGULATIONS**


In
      the
      ordinary course of business, like other industrial companies, Titan 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. The Company’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. The Company 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, the Company 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.





**COMPETITION**


The
      Company competes with several domestic and international companies, some of
      which are larger and have greater financial and marketing resources than Titan.
      The Company 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 and certain other foreign competitors.





The
      Company competes primarily on the basis of price, quality, customer service,
      design capability and delivery time. The Company’s ability to compete with
      international competitors may be adversely affected by currency fluctuations.
      In
      addition, certain of the Company’s OEM customers could, under individual
      circumstances, elect to manufacture the Company’s products to meet their
      requirements or to otherwise compete with the Company. There can be no assurance
      that the Company 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’s
      products less competitive. From time to time, certain of the Company’s
      competitors have reduced their prices in particular product categories, which
      has prompted Titan to reduce prices as well. There can be no assurance that
      competitors of the Company will not further reduce prices in the future or
      that
      any such reductions would not have a material adverse effect on the
      Company.





**NEW
      YORK STOCK EXCHANGE CERTIFICATION**


The
      Company submitted to the New York Stock Exchange during fiscal 2006 the Annual
      CEO Certification required by Section 303A.12(a) of the New York Stock Exchange
      Listed Company Manual.


8





**AVAILABLE
      INFORMATION**


The
      Company’s annual report on Form 10-K, quarterly reports on Form 10-Q, current
      reports on Form 8-K, and any amendments to those reports are made available,
      without charge, through the Company’s website located at www.titan-intl.com as soon
      as reasonably practicable after they are filed with the Securities and Exchange
      Commission (SEC). The SEC maintains an Internet site that contains reports,
      proxy and information statements, and other information regarding issuers that
      file electronically with the SEC at www.sec.gov website.
      The following documents are also posted on the Company’s website:





Audit
      Committee Charter


Compensation
      Committee Charter


Nominating/Corporate
      Governance Committee Charter


Business
      Conduct Policy





Printed
      copies of these documents are available, without charge, by writing to:
      Secretary of Titan International, Inc., 2701 Spruce Street, Quincy, IL
      62301.





**ITEM
      1A - RISK FACTORS**





The
      Company 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 the Company. Realization of
      any
      of the following risks could have a material adverse effect on Titan’s business,
      financial condition, cash flows and results of operations.





·
            The
                Company operates in cyclical industries and, accordingly, its business
                is
                subject to the numerous and continuing changes in the
                economy.





·
            The
                Company’s debt and related interest expense may limit Titan’s financial
                and operating flexibility.





·
            The
                Company has incurred, and may incur in the future, net
                losses.





·
            The
                Company is exposed to price fluctuations of key commodities, which
                are
                primarily steel and rubber.





·
            The
                Company relies on a limited number of suppliers for key commodities,
                which
                consist primarily of steel and
                rubber.





·
            The
                Company’s revenues are seasonal due to Titan’s dependence on agricultural,
                construction and recreational industries, which are seasonal and
                typically
                have lower sales in the second half of the
                year.





·
            The
                Company may be adversely affected by changes in government regulations
                and
                policies, especially those related to farm and ethanol subsidies
                and those
                related to infrastructure
                construction.





·
            The
                Company 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’s
                business.





·
            The
                Company’s customer base is relatively concentrated with Titan’s ten
                largest customers historically accounting for over 50% of
                sales.





·
            The
                Company faces substantial competition from domestic and international
                companies, some of which operate in low wage
                markets.





·
            The
                Company’s business could be negatively impacted if Titan fails to maintain
                satisfactory labor relations.





·
            Unfavorable
                outcomes of legal proceedings could adversely affect the Company’s
                financial condition and results of
                operations.





·
            Acquisitions
                may require significant resources and/or result in significant
                unanticipated losses, costs or liabilities for the
                Company.





·
            The
                Company may be subject to claims for damages for defective
                products.





·
            The
                Company is subject to risks associated with environmental laws and
                regulations.





**ITEM
      1B - UNRESOLVED STAFF COMMENTS**





None.


9





**ITEM
      2 - PROPERTIES**





The
      Company’s properties are detailed by the location, size and focus of each
      facility as provided in the table below:


Approximate
                square footageLocation
            
            Owned
            
            Leased
            
            Use
            
            SegmentDes
                Moines, Iowa
            
            
            2,207,000
            
            
            
            
            
            Manufacturing,
                distribution
            
            
            All
                segmentsFreeport,
                Illinois
            
            
            1,202,000
            
            
            211,000
            
            
            Manufacturing,
                distribution
            
            
            All
                segmentsQuincy,
                Illinois
            
            
            1,134,000
            
            
            
            
            
            Manufacturing,
                distribution
            
            
            All
                segmentsBrownsville,
                Texas
            
            
            993,000
            
            
            
            
            
            Storage
            
            
            See
                note(a)Bryan,
                Ohio
            
            
            500,000
            
            
            
            
            
            Manufacturing,
                distribution
            
            
            All
                segmentsWalcott,
                Iowa
            
            
            378,000
            
            
            
            
            
            Storage
            
            
            See
                note(a)Greenwood,
                S. Carolina
            
            
            110,000
            
            
            
            
            
            Storage
            
            
            See
                note(a)Dublin,
                Georgia
            
            
            20,000
            
            
            
            
            
            Distribution
            
            
            All
                segmentsSaltville,
                Virginia
            
            
            14,000
            
            
            245,000
            
            
            Manufacturing,
                distribution
            
            
            Earthmoving/ConstructionNatchez,
                Mississippi
            
            
            
            
            
            1,203,000
            
            
            Storage
            
            
            See
                note(a)Cartersville,
                Georgia
            
            
            
            
            
            169,000
            
            
            Distribution
            
            
            All
                segmentsPendergrass,
                Georgia
            
            
            
            
            
            120,000
            
            
            Distribution
            
            
            All
                segmentsElko,
                Nevada
            
            
            
            
            
            4,000
            
            
            Distribution
            
            
            Earthmoving/Construction





(a)
            The
                Brownsville, Greenwood and Natchez facilities are currently being
                used for
                storage. The Company’s facilities in Brownsville, Texas, Greenwood, South
                Carolina, Natchez, Mississippi, and Walcott, Iowa, are not in operation.
                The Company has a contract for sale on the Walcott building.





The
      Company considers each of its facilities to be in good condition and adequate
      for present use. Management believes that the Company has sufficient capacity
      to
      meet current market demand with the active facilities. The Company has no
      current plans to restart manufacturing at the storage facilities described
      in
      note (a) above.




**ITEM
      3 - LEGAL PROCEEDINGS**





The
      Company is a party to routine legal proceedings arising out of the normal course
      of business. Although it is not possible to predict with certainty the outcome
      of these unresolved legal actions or the range of possible loss, the Company
      believes at this time that none of these actions, individually or in the
      aggregate, will have a material adverse effect on the consolidated financial
      condition, results of operations or cash flows of the Company. However, due
      to
      the difficult nature of predicting future legal claims, the Company cannot
      anticipate or predict the material adverse effect on its consolidated financial
      condition, results of operations or cash flows as a result of efforts to comply
      with or its liabilities pertaining to legal judgments.




**ITEM
      4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





No
      matters were submitted to the vote of security holders during the fourth quarter
      of 2006.





10


**PART
      II**





**ITEM
      5 - MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
      ISSUER PURCHASES OF EQUITY SECURITIES**





The
      Company’s common stock is traded on the New York Stock Exchange (NYSE) under the
      symbol TWI. On February 15, 2007, there were approximately 800 holders of record
      of Titan common stock and an estimated 2,800 beneficial stockholders. The
      following table sets forth the high and low sales prices per share of common
      stock as reported on the NYSE, as well as information concerning per share
      dividends declared for the periods indicated.


**2006**
            
            **High**
            
            **Low**
            
            **Dividends**
              **Declared**First
                quarter
            
            $
            17.64
            
            $
            16.55
            
            $
            0.005Second
                quarter
            
            
            19.76
            
            
            16.20
            
            
            0.005Third
                quarter
            
            
            19.40
            
            
            16.65
            
            
            0.005Fourth
                quarter
            
            
            20.85
            
            
            17.52
            
            
            0.005**2005**First
                quarter
            
            $
            15.45
            
            $
            12.30
            
            $
            0.005Second
                quarter
            
            
            15.85
            
            
            13.12
            
            
            0.005Third
                quarter
            
            
            14.58
            
            
            12.64
            
            
            0.005Fourth
                quarter
            
            
            18.17
            
            
            13.15
            
            
            0.005





**PERFORMANCE
      COMPARISON GRAPH**


The
      following performance graph compares cumulative total return for the Company’s
      common stockholders over the past five years against the cumulative total return
      of the Standard & Poor’s 500 Stock Index, and against the Standard &
Poor’s 600 Construction and Farm Machinery and Heavy Trucks Index. The graph
      depicts the value on December 31, 2006, of a $100 investment made on December
      31, 2001, in Company common stock and each of the other two indices, with all
      dividends reinvested. The Company’s common stock is currently traded on the New
      York Stock Exchange under the symbol TWI.









**Fiscal
      Year Ended December 31,**


**2001**
            
            **2002**
            
            **2003**
            
            **2004**
            
            **2005**
            
            **2006**Titan
                International, Inc.
            
            $
            100.00
            
            $
            28.49
            
            $
            65.97
            
            $
            326.28
            
            $
            373.25
            
            $
            436.47S&P
                500 Index
            
            
            100.00
            
            
            77.90
            
            
            100.25
            
            
            111.15
            
            
            116.61
            
            
            135.03S&P
                600 Const. & Farm Machinery Index
            
            
            100.00
            
            
            106.30
            
            
            179.20
            
            
            240.18
            
            
            305.31
            
            
            411.72





11





**ITEM
      6 - SELECTED FINANCIAL DATA**





The
      selected financial data presented below, as of and for the years ended December
      31, 2006, 2005, 2004, 2003, and 2002, are derived from the Company’s
      consolidated financial statements, as audited by PricewaterhouseCoopers LLP,
      an
      independent registered public accounting firm, and should be read in conjunction
      with the Company’s audited consolidated financial statements and notes
      thereto.





(All
      amounts in thousands, except per share data)


**Year
                Ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Net
                sales
            
            $
            679,454
            
            $
            470,133
            
            $
            510,571
            
            $
            491,672
            
            $
            462,820Gross
                profit
            
            
            72,778
            
            
            64,210
            
            
            79,500
            
            
            29,703
            
            
            29,741Income
                (loss) from operations
            
            
            22,011
            
            
            11,999
            
            
            33,322
            
            
            (16,220
            )
            
            (14,086
            )Income
                (loss) before income taxes
            
            
            8,574
            
            
            (2,885
            )
            
            15,215
            
            
            (33,668
            )
            
            (44,293
            )Net
                income (loss)
            
            
            5,144
            
            
            11,042
            
            
            11,107
            
            
            (36,657
            )
            
            (35,877
            )Net
                income (loss) per share - basic
            
            
            .26
            
            
            .61
            
            
            .62
            
            
            (1.75
            )
            
            (1.73
            )Net
                income (loss) per share - diluted
            
            
            .26
            
            
            .60
            
            
            .61
            
            
            (1.75
            )
            
            (1.73
            )Dividends
                declared per common share
            
            
            .02
            
            
            .02
            
            
            .02
            
            
            .02
            
            
            .02





(All
                amounts in thousands)
            
            **As
                of December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**Working
                capital
            
            $
            247,009
            
            $
            157,984
            
            $
            114,898
            (a)
            $
            183,971
            
            $
            170,263Current
                assets
            
            
            309,933
            
            
            206,167
            
            
            154,668
            (a)
            
            286,946
            
            
            254,569Total
                assets
            
            
            585,126
            
            
            440,756
            
            
            354,166
            (a)
            
            523,084
            
            
            531,999Long-term
                debt(b)
            
            
            291,266
            
            
            190,464
            
            
            169,688
            (a)
            
            248,397
            
            
            249,119Stockholders’
                equity
            
            
            187,177
            
            
            167,813
            
            
            106,881
            (a)
            
            111,956
            
            
            144,027(a)Amounts
                were affected by the April 2004 sale of a majority interest in Titan
                Europe, which is no longer consolidated.
              (b)Excludes
                amounts due within one year and classified as a current
                liability.





12





**ITEM
      7 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS**





**MANAGEMENT’S
      DISCUSSION AND ANALYSIS**


Management’s
      discussion and analysis of financial condition and results of operations
      (MD&A) is designed to provide readers of these financial statements with a
      narrative from the perspective of the management of Titan International, Inc.
      (Titan or the Company) on Titan’s financial condition, results of operations,
      liquidity and other factors which may affect the Company’s future
      results.





**FORWARD-LOOKING
      STATEMENTS**


This
      Form
      10-K contains forward-looking statements, including statements regarding, among
      other items:




·
            Anticipated
                trends in the Company’s business




·
            Future
                expenditures for capital projects




·
            The
                Company’s ability to continue to control costs and maintain
                quality




·
            Ability
                to meet financial covenants and conditions of loan
                agreements




·
            The
                Company’s business strategies, including its intention to introduce new
                products




·
            Expectations
                concerning the performance and success of the Company’s existing and new
                products




·
            The
                Company’s intention to consider and pursue acquisitions and divestitures





Readers
      of this Form 10-K should understand that these forward-looking statements are
      based on the Company’s expectations and are subject to a number of risks and
      uncertainties, certain of which are beyond the Company’s control.





Actual
      results could differ materially from these forward-looking statements as a
      result of certain factors, including:




·
            Changes
                in the Company’s end-user markets as a result of world economic or
                regulatory influences




·
            Fluctuations
                in currency translations




·
            Changes
                in the marketplace, including new products and pricing changes by
                the
                Company’s competitors




·
            Availability
                and price of raw materials




·
            Levels
                of operating efficiencies




·
            Actions
                of domestic and foreign governments




·
            Results
                of investments




·
            Ability
                to secure financing at reasonable
                terms





Any
      changes in such factors could lead to significantly different results. The
      Company undertakes no obligation to publicly update or revise any
      forward-looking statements, whether as a result of new information, future
      events or otherwise. In light of these risks and uncertainties, there can be
      no
      assurance that the forward-looking information contained in this document will
      in fact transpire.


13





**OVERVIEW**


Titan
      International, Inc. and its subsidiaries are leading manufacturers of wheels,
      tires and assemblies for off-highway vehicles used in the agricultural,
      earthmoving/construction and consumer markets. Titan’s earthmoving/construction
      market also includes products supplied to the U.S. government, while the
      consumer market includes products for 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.





The
      Company’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. The Company distributes products to OEMs, independent
      and OEM-affiliated dealers, and through a network of distribution
      facilities.





The
      following table provides highlights for the year ended December 31, 2006,
      compared to 2005 (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Increase**
              **(Decrease)**Net
                sales
            
            $
            679,454
            
            $
            470,133
            
            
            45
            %Income
                from operations
            
            
            22,011
            
            
            11,999
            
            
            83
            %Net
                income
            
            
            5,144
            
            
            11,042
            
            
            (53
            %)





The
      Company recorded sales of $679.5 million for 2006, which were 45% higher than
      2005 sales of $470.1 million. The significantly higher sales level was
      attributed to the expanded agricultural product offering of Goodyear branded
      farm tires and the expanded earthmoving, construction and mining product
      offering of Continental & General branded off-the-road (OTR) tires. These
      product offerings came with the added manufacturing capacity from the Freeport,
      Illinois, facility, which was acquired in December 2005, and the Bryan, Ohio,
      OTR facility, which was acquired in July 2006.





Income
      from operations was $22.0 million for 2006 as compared to $12.0 million in
      2005.
      Titan’s net income was $5.1 million for 2006, compared to $11.0 million in 2005.
      Basic earnings per share were $.26 in 2006, compared to $.61 in 2005. The
      Company’s net income was lower in 2006 as compared to 2005 as the result of a
      higher effective tax rate of 40% in 2006 as compared to a tax benefit recorded
      in 2005, resulting in an increase in income tax expense of $17.4 million in
      2006
      when compared to 2005.





**RECENT
      DEVELOPMENTS**





**Convertible
      Note Conversion Offer**


In
      January 2007, the Company filed a registration statement relating to an offer
      to
      the holders of its 5.25% senior unsecured convertible notes due 2009 to convert
      their notes into Titan’s common stock at an increased conversion rate (the
“Conversion Offer”). Per the Offer, each $1,000 principal amount of notes is
      convertible into 81.0000 shares of common stock, which is equivalent to a
      conversion price of approximately $12.35 per share. The offering price set
      forth
      will not include accrued interest; therefore, no accrued interest will be paid
      on the notes that accept this offering. Prior to the Offer, each $1,000
      principal amount of notes was convertible into 74.0741 shares of common stock,
      which was equivalent to a conversion price of approximately $13.50 per share.
      The registration statement relating to the shares of common stock to be offered
      was declared effective on February 21, 2007. The offer is scheduled to expire
      on
      March 20, 2007, unless extended or terminated.





**Credit
      Facility Amendment**


On
      February 8, 2007, the Company amended its revolving credit facility with LaSalle
      Bank National Association. The amendment extended the termination date to
      October 2009 (previously October 2008). The amendment also lowered borrowing
      rates, which will be based on a pricing grid. The borrowings under the facility
      will bear interest at a floating rate of LIBOR plus 1% to 2% (previously 2.75%).
      The amendment lowered the revolving loan availability from $250 million to
      $125
      million with the ability to request an increase back to $250 million.


14





**RESULTS
      OF OPERATIONS**


The
      following table sets forth the Company’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 the Company’s audited
      consolidated financial statements and notes thereto.





**As
      a Percentage of Net Sales**


**Year
      ended December 31,**


**2006**
            
            **2005**
            
            **2004**Net
                sales
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of sales
            
            
            89.3
            
            
            86.3
            
            
            84.4Gross
                profit
            
            
            10.7
            
            
            13.7
            
            
            15.6Selling,
                general and administrative expenses
            
            
            6.2
            
            
            6.9
            
            
            7.5Royalty
                expense
            
            
            0.7
            
            
            0.0
            
            
            0.0Idled
                assets marketed for sale depreciation
            
            
            0.5
            
            
            1.0
            
            
            1.0Dyneer
                legal charge
            
            
            0.0
            
            
            3.2
            
            
            0.0Goodwill
                impairment on Titan Europe
            
            
            0.0
            
            
            0.0
            
            
            0.6Income
                from operations
            
            
            3.3
            
            
            2.6
            
            
            6.5Interest
                expense
            
            
            (2.5
            )
            
            (1.8
            )
            
            (3.2
            )Noncash
                convertible debt conversion charge
            
            
            0.0
            
            
            (1.6
            )
            
            0.0Debt
                termination expense
            
            
            0.0
            
            
            0.0
            
            
            (0.7
            )Other
                income, net
            
            
            0.5
            
            
            0.2
            
            
            0.4Income
                (loss) before income taxes
            
            
            1.3
            
            
            (0.6
            )
            
            3.0Provision
                (benefit) for income taxes
            
            
            0.5
            
            
            (2.9
            )
            
            0.8Net
                income
            
            
            0.8
            %
            
            2.3
            %
            
            2.2
            %








In
      addition, the following table sets forth components of the Company’s net sales
      classified by segment for the years ended December 31, (in
      thousands) :


**2006**
            
            **2005**
            
            **2004**Agricultural
            
            $
            421,096
            
            $
            310,361
            
            $
            316,235Earthmoving/Construction
            
            
            183,357
            
            
            131,982
            
            
            160,297Consumer
            
            
            75,001
            
            
            27,790
            
            
            34,039Total
            
            $
            679,454
            
            $
            470,133
            
            $
            510,571





The
      following is a summary of the Titan Europe results included in the historical
      results of the Company for the years ended December 31, (in
      thousands) :


**2006****(a)**
            
            **2005****(a)**
            
            **2004****(a)**Agricultural
            
            $
            0
            
            $
            0
            
            $
            24,264Earthmoving/Construction
            
            
            0
            
            
            0
            
            
            23,460Consumer
            
            
            0
            
            
            0
            
            
            1,722Total
            
            $
            0
            
            $
            0
            
            $
            49,446





**(a)**
            Majority
                interest in Titan Europe sold in April
                2004.





15





**SENIOR
      UNSECURED NOTES**


In
      December 2006, the Company closed its offering of $200 million 8% senior
      unsecured notes. The notes were sold at par and are due January 2012. Titan
      used
      the net proceeds from this offering to repay outstanding existing debt at the
      time of closing, excluding the 5.25 percent senior unsecured convertible notes.
      The outstanding balance on the Company’s revolving credit facility was paid down
      in December and had no cash borrowings at December 31, 2006. The Company
      anticipates paying off approximately $10 million of industrial revenue bonds
      in
      the first quarter of 2007 and will use the remaining cash for general corporate
      purposes.





**ACQUISITION
      OF CONTINENTAL’S OTR ASSETS**


On
      July
      31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International,
      Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North
      America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of Bryan
      purchased the assets of Continental’s OTR tire facility for approximately $53
      million in cash proceeds. The assets purchased included Continental’s OTR plant,
      property and equipment located in Bryan, Ohio, inventory and other current
      assets. The acquisition included an agreement with Continental to use the
      Continental and General trademarks on OTR tires. In addition, the Company
      recorded intangibles related to the acquisition as noncurrent assets and assumed
      warranty liabilities. This acquisition expanded Titan’s product offering into
      larger earthmoving, construction and mining tires and added the manufacturing
      capacity of the Bryan, Ohio, facility.





The
      productivity obtained since startup after the July 31 acquisition date
      associated with the Bryan facility is meeting Titan’s current expectations. The
      Bryan facility achieved a manufacturing output of approximately $41 million
      since the July 31, 2006, acquisition date through year-end December 31,
      2006.





**ACQUISITION
      OF GOODYEAR’S NORTH AMERICAN FARM TIRE ASSETS**


On
      December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International,
      Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire
      assets. Titan Tire purchased the assets of Goodyear’s North American farm tire
      business for approximately $100 million in cash proceeds. The assets purchased
      include Goodyear’s North American plant, property and equipment located in
      Freeport, Illinois, and Goodyear’s North American farm tire inventory. In
      addition, the Company recorded intangibles related to the acquisition as
      noncurrent assets. This acquisition expanded Titan’s product offering into
      Goodyear branded farm tires and added the manufacturing capacity of the
      Freeport, Illinois, facility.





The
      productivity obtained during 2006 associated with the Freeport facility is
      meeting Titan’s current expectations. The Freeport facility achieved a
      manufacturing output of approximately $186 million during the year ended
      December 31, 2006.





**OTR
      PRODUCTION REALIGNMENT**


Due
      to
      capacity constraints at Titan’s Bryan, Ohio, OTR tire facility, the Company is
      adding OTR tire capacity at its Freeport, Illinois, and Des Moines, Iowa,
      facilities. Titan is aligning synergies, which includes retooling, retraining
      personnel and movement of equipment at the Bryan, Freeport and Des Moines
      facilities. This realignment decreased the Company’s gross margin for the fourth
      quarter of 2006 as labor costs that are normally dedicated to making products
      were instead used for retooling, retraining and movement of
      equipment.





**IDLED
      ASSETS MARKETED FOR SALE**


The
      idled
      assets marketed for sale had no balance at December 31, 2006, and a balance
      of
      $18.3 million at December 31, 2005. The idled assets marketed for sale were
      being depreciated in accordance with SFAS No. 144. Depreciation on these idled
      assets was $3.6 million, $4.7 million, and $5.3 million for the years ended
      December 31, 2006, 2005 and 2004, respectively.





As
      a
      result of the Goodyear North American farm tire asset acquisition and the
      Continental OTR asset acquisition, the Company is placing these assets back
      into
      service primarily at the Des Moines, Iowa, Freeport, Illinois, and Bryan, Ohio
      facilities. Therefore, the idled assets marketed for sale balance, of
      approximately $14 million, at December 31, 2006, was reclassified to property,
      plant and equipment.


16





**TERMINATION
      OF CASH MERGER OFFER**


On
      October 11, 2005, the Company received an offer from One Equity Partners LLC
      (One Equity), a private equity affiliate of JPMorgan Chase & Co., indicating
      One Equity’s interest in acquiring Titan International, Inc. in a cash merger
      for $18.00 per share of Titan common stock. On April 12, 2006, Titan and One
      Equity announced the termination of discussions regarding the proposed cash
      merger. On April 17, 2006, the Company’s Board of Directors met and thanked the
      Special Committee, which had been formed to pursue discussions regarding One
      Equity’s proposed cash merger, for all their efforts expended and agreed that
      their Special Committee responsibilities have been completed.





**CONVERTIBLE
      NOTE CONVERSION**


In
      June
      of 2005, Titan finalized a private transaction in which the Company issued
      3,022,275 shares of common stock in exchange for the cancellation of $33.8
      million principal amount of the Company’s outstanding 5.25% senior convertible
      notes due 2009, as proposed to the Company by certain note holders. Titan
      recognized a noncash charge of $7.2 million in connection with this exchange
      in
      accordance with SFAS No. 84, “Induced Conversions of Convertible
      Debt.”





**SALE
      OF A MAJORITY INTEREST IN TITAN EUROPE**


In
      April
      2004, Titan Luxembourg Sarl, a wholly-owned European subsidiary of the Company,
      sold 70% of the common stock of Titan Europe to the public on the AIM market
      in
      London. Titan Luxembourg was the largest single stockholder in Titan Europe
      Plc,
      retaining a 30% interest on the date of the transaction. In the first quarter
      of
      2004, the Company recognized a $3.0 million goodwill impairment charge on the
      pending sale of a majority interest in Titan Europe in accordance with the
      Company’s goodwill impairment process. The historical results of the Company for
      the year ended December 31, 2004, included Titan Europe results of $49.4 million
      in net sales, $8.3 million in gross profit and $0.4 million in income from
      operations.





The
      Company accounted for its interest in Titan Europe Plc as an equity investment
      subsequent to the sale of a majority interest in April 2004. The Company
      recognized equity income on its investment in Titan Europe Plc of $2.9 million
      in 2005 and $1.3 million in 2004. In December 2005, Titan Europe Plc issued
      additional shares of stock for an acquisition. As a result of these additional
      shares, the Company’s interest in Titan Europe Plc was diluted and decreased
      from 29.3% at December 31, 2004, to a 15.4% ownership position at December
      31,
      2005. The Company recorded the gain resulting from the change in ownership
      interest to equity in accordance with SAB 51. With the decreased ownership
      percentage, effective December 2005, the Company no longer uses the equity
      method to account for its interest in Titan Europe Plc.





In
      accordance with SFAS No. 115, the Company records the Titan Europe Plc
      investment as an available-for-sale security and reports the investment at
      fair
      value, with unrealized gains and losses excluded from earnings and reported
      as a
      separate component of comprehensive income in stockholders’ equity. The
      Company’s stock ownership interest in Titan Europe Plc was 17.3% at December 31,
      2006, and 15.4% at December 31, 2005. The increase in ownership percentage
      resulted from a December 2006 transaction in which Titan Europe Plc issued
      additional shares to the Company in payment of approximately $7.9 million U.S.
      dollars of debt, representing the entire remaining long-term debt owed by Titan
      Europe Plc to the Company. The fair value of the Company’s investment in Titan
      Europe Plc was $65.9 million and $48.5 million at December 31, 2006 and 2005,
      respectively. Cash dividends received from Titan Europe Plc were $1.3 million,
      $0.9 million and $0.3 million for the years ended December 31, 2006, 2005 and
      2004, respectively. Titan Europe Plc is publicly traded on the AIM market in
      London, England.


17




**CRITICAL
      ACCOUNTING ESTIMATES**


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





**Inventories**


Inventories
      are valued at the lower of cost or market. Cost is determined using the
      first-in, first-out (FIFO) method in 2006 for approximately 74% of inventories
      and the last-in, first-out (LIFO) method for approximately 26% 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.
      Should this experience change, adjustments to the estimated provisions would
      be
      necessary.





**Impairment
      of Goodwill**


The
      Company reviews goodwill to assess recoverability from future operations during
      the fourth quarter of each annual reporting period, and whenever events and
      circumstances indicate that the carrying values may not be recoverable. The
      Company’s goodwill was $11.7 million at December 31, 2006 and 2005. Significant
      assumptions relating to future operations must be made when estimating future
      cash flows in analyzing goodwill for impairment. Should unforeseen events occur
      or operating trends change significantly, impairment losses could
      occur.





**Valuation
      of Investment Accounted for as Available-for-Sale Security**


The
      Company has an investment in Titan Europe Plc of $65.9 million as of December
      31, 2006, representing a 17.3% ownership position. Titan Europe Plc is publicly
      traded on the AIM market in London, England. This investment is recorded as
      “Investment in Titan Europe Plc” on the consolidated balance sheet. In
      accordance with SFAS No. 115, 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 a
      separate component of stockholders’ equity. 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. Should unforeseen events
      occur or investment trends change significantly, impairment losses could occur.
      Declared dividends on this investment are recorded in income as a component
      of
      other income.





**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.


18





**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 relating to any intangibles recorded in the acquisition. To aid
      in
      establishing the value of any intangible assets at the time of acquisition,
      the
      Company typically engages a professional appraisal firm.





**Retirement
      Benefit Obligations**


Pension
      benefit obligations are based on various assumptions used by third-party
      actuaries in calculating these amounts. These assumptions include discount
      rates, expected return on plan assets, mortality rates and other factors.
      Revisions in assumptions and actual results that differ from the assumptions
      affect future expenses, cash funding requirements and obligations. The Company
      has two frozen defined benefit pension plans and one defined benefit plan that
      purchased a final annuity settlement in 2002. The Company expects to contribute
      approximately $5 million to these frozen defined benefit pension plans in 2007.
      For more information concerning these costs and obligations, see the discussion
      of the “Pensions” and Note 21 to the Company’s financial
      statements.





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


December
                31, 2006
            
            2007Increase
            Increase
            
            IncreasePercentage
            (Decrease)
            (Decrease)
            
            (Decrease)Assumptions
            Change
            PBO(a)
            Equity(b)
            
            ExpensePensionDiscount
                rate(c)
            +/-.5
            $(2,876)/$3,113
            $2,876/$(3,113)
            
            $(74)/$76Expected
                return on assets
            +/-.5
            
            
            
            $(296)/$296





(a)
            Projected
                benefit obligation (PBO) for pension
                plans.




(b)
            Pretax
                minimum pension liability
                adjustment.





(c)
            Pretax
                impact on service cost, interest cost and amortization of gains or
                losses.




19





**FISCAL
      YEAR ENDED DECEMBER 31, 2006, COMPARED TO FISCAL YEAR ENDED**


**DECEMBER
      31, 2005**





**RESULTS
      OF OPERATIONS**


The
      following tables and discussions provide highlights for the year ended December
      31, 2006, compared to 2005 (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Increase**Net
                sales
            
            $
            679,454
            
            $
            470,133
            
            
            45
            %Gross
                profit
            
            
            72,778
            
            
            64,210
            
            
            13
            %*Gross
                profit percentage*
            
            
            *10.7*
            *%*
            
            *13.7*
            *%*





**Net
      Sales**


Net
      sales
      for the year ended December 31, 2006, were $679.5 million compared to $470.1
      million for the year ended December 31, 2005. The large sales improvement of
      $209.4 million, or 45%, for the year ended December 31, 2006, was attributed
      to
      the expanded agricultural product offering of Goodyear branded farm tires and
      the expanded earthmoving, construction and mining product offering of
      Continental & General branded off-the-road (OTR) tires. These product
      offerings came with the added manufacturing capacity from the Freeport,
      Illinois, facility, which was approximately $186 million in 2006, and the Bryan,
      Ohio, OTR facility, which was approximately $41 million since the acquisition
      date of July 31, 2006.





**Cost
      of Sales and Gross Profit**


Cost
      of
      sales was $606.7 million for the year ended December 31, 2006, as compared
      to
      $405.9 million in 2005. Gross profit for the year 2006 was $72.8 million or
      10.7% of net sales, compared to $64.2 million, or 13.7% of net sales for 2005.
      Due to capacity constraints at Titan’s Bryan, Ohio, OTR tire facility, the
      Company is adding OTR tire capacity at its Freeport, Illinois, and Des Moines,
      Iowa, tire facilities. Titan is aligning synergies, which includes retooling,
      retraining personnel and movement of equipment at the Bryan, Freeport and Des
      Moines facilities. These realignment costs of approximately $9 million to $11
      million lowered the Company’s gross profit for the fourth quarter of 2006, as
      labor costs that are normally dedicated to making products were instead used
      for
      retooling, retraining and movement of equipment. These costs resulted in an
      approximate 2% reduction in the annual gross profit percentage.





**Administrative
      Expenses**


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


**2006**
            
            **2005**
            
            **%
                Increase**Selling,
                general and administrative
            
            $
            42,142
            
            $
            32,270
            
            
            31
            %*Percentage
                of net sales*
            
            
            *6.2*
            *%*
            
            *6.9*
            *%*





Selling,
      general and administrative (SG&A) expenses were $42.1 million or 6.2% of net
      sales for the year ended December 31, 2006, as compared to $32.3 million or
      6.9%
      of net sales for 2005. Research and development (R&D) expenses, which were
      previously shown separately, have been combined with the SG&A expenses due
      to the reduced level of R&D expenditures. R&D expenses were $1.3 million
      and $0.8 million for the years ended December 31, 2006 and 2005, respectively.
      SG&A expenses for the year ended December 31, 2006, were approximately $5
      million higher as a result of the Freeport and Bryan acquisitions and their
      associated selling expenses. However, as a result of the higher sales levels,
      SG&A expenses decreased by approximately 1% when expressed as a percentage
      of net sales.





**Royalty
      Expense**


Royalty
      expense was as follows (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Increase**Royalty
                expense
            
            $
            5,001
            
            $
            0
            
            
            n/a





The
      December 2005 Goodyear North American farm tire asset acquisition included
      a
      license agreement with The Goodyear Tire & Rubber Company to manufacture and
      sell certain off-highway tires in North America. Royalty expenses for the year
      ended December 31, 2006, were $5.0 million. No royalty expense was recorded
      in
      the year ended December 31, 2005, as this license agreement was not yet in
      place.


20





**Idled
      Assets Marketed for Sale**


Idled
      asset marketed for sale depreciation was as follows (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Decrease**Idled
                assets depreciation
            
            $
            3,624
            
            $
            4,736
            
            
            (23
            %)





The
      Company’s profit margins have been negatively affected by the depreciation
      associated with the idled assets marketed for sale. The Company incurred $3.6
      million and $4.7 million in depreciation related to the idled assets for the
      years ended December 31, 2006 and 2005, respectively. As a result of the
      Goodyear North American farm tire asset acquisition and the Continental OTR
      asset acquisition, the Company is placing these assets back into service
      primarily at the Des Moines, Iowa, Freeport, Illinois, and Bryan, Ohio
      facilities. Therefore, in December 2006, the idled assets balance of
      approximately $14 million was reclassified to property, plant and equipment,
      leaving no balance at December 31, 2006.





**Dyneer
      Legal Charge**


The
      State
      Court of California in 2005 allowed the disbursement of restricted cash funds
      held in the Vehicular Technologies case. In 2005, Titan recognized the Dyneer
      legal charge of approximately $15.2 million for the judgment related to this
      case, which is now closed.





**Income
      from Operations**


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


**2006**
            
            **2005**
            
            **%
                Increase**Income
                from operations
            
            $
            22,011
            
            $
            11,999
            
            
            83
            %*Percentage
                of net sales*
            
            
            *3.2*
            *%*
            
            *2.6*
            *%*





Income
      from operations for the year ended December 31, 2006, was $22.0 million or
      3.2%
      of net sales, compared to $12.0 million or 2.6% in 2005. Income from operations
      was affected by the items previously discussed in the cost of sales,
      administrative, royalty, idled assets, and legal charge line items.





**Interest
      Expense**


Interest
      expense was as follows (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Increase**Interest
                expense
            
            $
            17,001
            
            $
            8,617
            
            
            97
            %





Net
      interest expense for the year 2006 was $17.0 million compared to $8.6 million
      in
      2005. The Company’s average debt balances in 2006 were substantially higher when
      compared to 2005. The average 2006 debt balances were higher with the Goodyear
      farm asset acquisition of approximately $100 million and the Continental OTR
      asset acquisition of approximately $53 million. These higher average debt
      balances in 2006 resulted in an increase in interest expense of approximately
      $5
      million when compared to 2005. The Company’s average interest rates were 7.7% in
      2006, compared to 6.2% in 2005, resulting in an increase in interest expense
      of
      approximately $3 million.





**Noncash
      Convertible Debt Conversion Charge**


In
      June
      2005, Titan finalized a private transaction in which the Company issued
      3,022,275 shares of common stock in exchange for the cancellation of $33.8
      million principal amount of the Company’s outstanding 5.25% senior convertible
      notes due 2009, as proposed to the Company by certain note holders. The Company
      recognized a noncash charge of $7.2 million in connection with this exchange
      in
      accordance with SFAS No. 84, “Induced Conversions of Convertible
      Debt.”





**Other
      Income**


Other
      income was as follows (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Increase**Other
                income
            
            $
            3,564
            
            $
            958
            
            
            272
            %





Other
      income of $3.6 million in 2006 included (i) interest income of $1.7 million,
      (ii) dividend income from the Titan Europe Plc investment of $1.3 million,
      (iii)
      currency exchange gain of $1.0 million and (iv) other expense of $0.4 million.
      The $3.6 million of other income in 2006 compares to $1.0 million in
      2005.


21





**Income
      Tax Expense**


The
      Company recorded an income tax expense of $3.4 million in 2006 as compared
      to an
      income tax benefit of $13.9 million in 2005.   As a result of several years
      of previous losses, the Company recorded a valuation allowance against its
      net
      deferred tax asset, consistent with the Company’s accounting policies. As a
      result of anticipated utilization of net operating loss carryforward in
      connection with its future Federal income tax filings, the Company recorded
      a
      tax benefit of $13.9 million in 2005 as a result of the reversal of the
      Company’s valuation allowance in accordance with SFAS 109. The Company’s net
      operating loss carryforward of approximately $32 million expires in
      2023.




**Net
      Income**


Net
      income was as follows (amounts
      in thousands) :


**2006**
            
            **2005**
            
            **%
                Decrease**Net
                income
            
            $
            5,144
            
            $
            11,042
            
            
            (53
            %)





Net
      income for the year ended December 31, 2006, was $5.1 million, compared to
      $11.0
      million in 2005. Basic earnings per share were $.26 for the year ended December
      31, 2006, as compared to $.61 in 2005. Diluted earnings per share were $.26
      for
      the year ended December 31, 2006, as compared to $.60 in 2005.





**Agricultural
      Segment Results**


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


**2006**
            
            **2005**
            
            **%
                Increase****(Decrease)**Net
                sales
            
            $
            421,096
            
            $
            310,361
            
            
            36
            %Income
                from operations
            
            
            27,351
            
            
            31,750
            
            
            (14
            %)





Net
      sales
      in the agricultural market were $421.1 million for the year ended December
      31,
      2006, as compared to $310.4 million in 2005. The expanded product offering
      of
      Goodyear branded farm tires, along with the added manufacturing capacity from
      the Freeport, Illinois, facility accounted for the agricultural market higher
      sales levels.





Income
      from operations in the agricultural market was $27.4 million for the year 2006
      as compared to $31.8 million in 2005. The decrease in income from operations
      in
      the agricultural market was attributed to higher sales volumes in relation
      to
      higher fixed overhead costs including fourth quarter of 2006 costs normally
      dedicated to making products were instead used for retooling, retraining and
      movement of equipment.





**Earthmoving/Construction
      Segment Results**


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


**2006**
            
            **2005**
            
            **%
                Increase**Net
                sales
            
            $
            183,357
            
            $
            131,982
            
            
            39
            %Income
                from operations
            
            
            21,837
            
            
            17,664
            
            
            24
            %





The
      Company’s earthmoving/construction market net sales were $183.4 million for the
      year ended December 31, 2006, as compared to $132.0 million in 2005. The
      expanded product offering of the Continental and General brands for OTR tires,
      along with added manufacturing capacity from the Bryan, Ohio, facility accounted
      for the earthmoving/construction market higher sales levels in 2006. These
      sales
      increases were offset by a decrease in sales to the United States government,
      which were approximately $21 million lower in 2006 as compared to 2005. Sales
      to
      the United States government are dependent on government appropriations and
      have
      a tendency for significant fluctuations.





The
      Company’s earthmoving/construction market income from operations was $21.8
      million for the year 2006, up from $17.7 million in 2005. The Bryan, Ohio,
      facility produces tires for earthmoving, construction, and mining machinery
      in
      sizes larger than the Company was able to produce before this facility was
      acquired on July 31, 2006. The increase in income from operations in the
      earthmoving/construction segment is the result of margins realized on these
      larger earthmoving, construction and mining tires.


22





**Consumer
      Segment Results**


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


**2006**
            
            **2005**
            
            **%
                Increase (Decrease)**Net
                sales
            
            $
            75,001
            
            $
            27,790
            
            
            170
            %Income
                from operations
            
            
            1,655
            
            
            1,825
            
            
            (9
            %)





Consumer
      market net sales were $75.0 million for the year ended December 31, 2006, as
      compared to $27.8 million in 2005. The Goodyear farm tire acquisition included
      an off-take/mixing agreement for certain product sales to Goodyear, the majority
      of which are included in the consumer segment. Sales to The Goodyear Tire and
      Rubber Company under this agreement of approximately $48 million in 2006 were
      the reason for the substantial increase in consumer market sales. Consumer
      market income from operations remained stable at $1.7 million for the year
      2006
      as compared to $1.8 million in 2005.




**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 $28.8 million for the year ended
      December 31, 2006, as compared to $24.0 million in 2005. The increase in
      corporate expenses related primarily to higher sales and marketing expenses
      related to the acquisition of Freeport and Bryan of approximately $3 million
      for
      2006 as compared to 2005.


23





**FISCAL
      YEAR ENDED DECEMBER 31, 2005, COMPARED TO FISCAL YEAR ENDED**


**DECEMBER
      31, 2004**





**RESULTS
      OF OPERATIONS**


The
      following table provides highlights for the year ended December 31, 2005,
      compared to 2004


(amounts
      in thousands, except per share data) :


**2005**
            
            **2004**Net
                sales
            
            $
            470,133
            
            $
            510,571Gross
                profit
            
            
            64,210
            
            
            79,500*Gross
                profit percentage*
            
            
            *13.7*
            *%*
            
            *15.6*
            *%*Income
                from operations
            
            
            11,999
            
            
            33,322Net
                income
            
            
            11,042
            
            
            11,107Earnings
                per share - Basic
            
            
            .61
            
            
            .62Earnings
                per share - Diluted
            
            
            .60
            
            
            .61





The
      following is a summary of the Titan Europe results included in the historical
      results of the Company for the year ended December 31, 2005, compared to 2004 (amounts
      in thousands, except per share data) :


**2005****(a)**
            
            **2004****(a)**Net
                sales
            
            $
            0
            
            $
            49,446Gross
                profit
            
            
            0
            
            
            8,272*Gross
                profit percentage*
            
            
            *0.0*
            *%*
            
            *16.7*
            *%*Income
                from operations
            
            
            0
            
            
            420





**(a)**
            A
                majority interest in Titan Europe sold in April
                2004.





**Net
      Sales**


Net
      sales
      for the year ended December 31, 2005, were $470.1 million compared to $510.6
      million for the year ended December 31, 2004. Had the sale of the majority
      interest in Titan Europe occurred on January 1, 2004, pro forma net sales would
      have been $470.1 million and $461.1 million for the years ended December 31,
      2005 and 2004, respectively. Sales on a comparative basis were higher by $9.0
      million, a 2% increase.





**Cost
      of Sales and Gross Profit**


Cost
      of
      sales was $405.9 million for the year ended December 31, 2005, as compared
      to
      $431.1 million in 2004. Gross profit for the year 2005 was $64.2 million or
      13.7% of net sales, compared to $79.5 million, or 15.6% of net sales for 2004.
      Had the sale of the majority interest in Titan Europe occurred on January 1,
      2004, pro forma gross profit would have been $71.2 million, or 15.4% of net
      sales for 2004. Gross profit was negatively impacted by higher raw material
      and
      energy costs. Raw material and energy costs increased by approximately $7
      million in 2005 over 2004, accounting for a gross profit decrease of 1.7% of
      net
      sales.





**Administrative
      Expenses**


Selling,
      general and administrative (SG&A) and research and development (R&D)
      expenses were $32.3 million or 6.9% of net sales for the year ended December
      31,
      2005, as compared to $37.9 million or 7.4% of net sales for 2004. Administrative
      expenses as a percentage of net sales were positively impacted by the sale
      of a
      majority interest in Titan Europe, which had administrative expenses that
      averaged 10% to 11% on a historical basis. Titan Europe administrative expenses
      of $7.9 million were included in 2004.





**Idled
      Assets Marketed for Sale**


The
      Company’s profit margins have been negatively affected by the depreciation
      associated with the idled assets marketed for sale. The idled assets balance
      at
      December 31, 2005, was $18.3 million. Included in the December 31, 2005, balance
      is land and a building at the Company’s idled facility in Greenwood, South
      Carolina, of $1.9 million. Machinery and equipment located at the Company’s
      idled facilities in Brownsville, Texas, and Natchez, Mississippi, totaling
      $16.4
      million are also included in idled assets at December 31, 2005. With the sales
      process extending more than 12 months, the idled assets were depreciated during
      the fourth quarter of 2004 in accordance with SFAS No. 144, and the Company
      incurred $4.7 million and $5.3 million in depreciation related to the idled
      assets for the years ended December 31, 2005 and 2004,
      respectively.


24





**Dyneer
      Legal Charge**


The
      State
      Court of California in 2005 allowed the disbursement of the $24.5 million of
      restricted cash funds held in the Vehicular Technologies case. In 2005, Titan
      recognized the Dyneer legal charge of approximately $15.2 million for the
      judgment related to this case, which is now closed. The Company received $4.3
      million of the cash funds.





**Income
      from Operations**


Income
      from operations for the year ended December 31, 2005, was $12.0 million or
      2.6%
      of net sales, compared to $33.3 million or 6.5% in 2004. Excluding the Dyneer
      legal charge, income from operations for the year ended December 31, 2005,
      was
      $27.2 million or 5.8% of net sales. The Company recognized a $3.0 million
      goodwill impairment charge in the first quarter of 2004 on the pending sale
      of a
      majority interest in Titan Europe in accordance with the Company’s goodwill
      impairment process. The decreased income from operations in 2005 as compared
      to
      2004 resulted primarily from the decreased gross profit of $15.3 million and
      the
      Dyneer legal charge of $15.2 million offset by the administrative expense
      decrease of $5.6 million and the $3.0 million goodwill impairment charge in
      2004.





**Interest
      Expense**


Net
      interest expense for the year 2005 was $8.6 million compared to $16.2 million
      in
      2004. The Company’s average debt balances were approximately $83 million lower
      when compared to 2004, resulting in a reduction of interest expense of $6.1
      million. The Company’s average interest rates were 6.2%, approximately one
      percentage point lower in 2005 than the average 2004 interest rate resulting
      in
      an interest savings of $1.5 million.





**Noncash
      Convertible Debt Conversion Charge**


In
      June
      2005, Titan finalized a private transaction in which the Company issued
      3,022,275 shares of common stock in exchange for the cancellation of $33.8
      million principal amount of the Company’s outstanding 5.25% senior convertible
      notes due 2009, as proposed to the Company by certain note holders. The Company
      recognized a noncash charge of $7.2 million in connection with this exchange
      in
      accordance with SFAS No. 84, “Induced Conversions of Convertible
      Debt.”





**Debt
      Termination Expense**


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





**Other
      Income**


Other
      income was $1.0 million in 2005 as compared to $1.7 million in 2004. Included
      in
      other income is equity income on the Titan Europe Plc investment of $2.9 million
      in 2005 as compared to $1.3 million in 2004. Currency exchange, which is also
      included in other income, was a loss of $1.3 million in 2005 as compared to
      gain
      of $0.5 million in 2004.





**Income
      Tax Expense**


The
      Company recorded an income tax benefit of $13.9 million and an income tax
      expense of $4.1 million for the years ended December 31, 2005 and 2004,
      respectively.   As a result of several years of previous losses, the
      Company recorded a valuation allowance against its net deferred tax asset,
      consistent with the Company’s accounting policies. As a result of anticipated
      utilization of net operating loss carryforward in connection with its future
      Federal income tax filings, the Company recorded a tax benefit of $13.9 million
      as a result of the reversal of the Company’s valuation allowance.




**Net
      Income**


Net
      income for the year ended December 31, 2005, was $11.0 million, compared to
      $11.1 million in 2004. Basic earnings per share were $.61 for the year ended
      December 31, 2005, as compared to $.62 in 2004. Diluted earnings per share
      were
      $.60 for the year ended December 31, 2005, as compared to $.61 in
      2004.


25





**Agricultural
      Segment Results**


Net
      sales
      in the agricultural market were $310.4 million for the year ended December
      31,
      2005, as compared to $316.2 million in 2004. Had the sale of the majority
      interest in Titan Europe occurred on January 1, 2004, net sales in the
      agricultural market for the year ended December 31, 2005, would have been $310.4
      million, as compared to $292.0 million in 2004. Income from operations in the
      agricultural market was $31.8 million for the year 2005 as compared to $38.6
      million in 2004. Income from operations in the agricultural market was
      negatively affected by higher raw material and energy costs of approximately
      $5
      million.





**Earthmoving/Construction
      Segment Results**


The
      Company’s earthmoving/construction market net sales were $132.0 million for the
      year ended December 31, 2005, as compared to $160.3 million in 2004. Had the
      sale of the majority interest in Titan Europe occurred on January 1, 2004,
      net
      sales in the earthmoving/construction market for years ended December 31, 2005
      and 2004, would have been $132.0 million and $136.8 million, respectively.
      The
      Company’s earthmoving/construction market income from operations was $17.7
      million for the year 2005, up from $16.6 million in 2004 due to higher margins
      related to product mix that offset the higher raw material and energy costs
      of
      approximately $2 million.





**Consumer
      Segment Results**


Consumer
      market net sales were $27.8 million for the year ended December 31, 2005, as
      compared to $34.0 million in 2004. Had the sale of the majority interest in
      Titan Europe occurred on January 1, 2004, net sales in the consumer market
      for
      the years ended December 31, 2005 and 2004, would have been $27.8 million and
      $32.3 million, respectively. Consumer market income from operations remained
      relatively stable at $1.8 million for the year 2005 as compared to $1.9 million
      in 2004.




**Foreign
      Subsidiaries Sales**


Net
      sales
      at foreign subsidiaries were $0.0 million for the year ended December 31, 2005,
      as compared to $49.4 million in 2004. The sales decrease at foreign subsidiaries
      was due to the April 2004 sale of a majority interest in Titan Europe, which
      comprised all of the Company’s foreign subsidiary sales. Titan retains a 15.4%
      ownership in Titan Europe Plc at December 31, 2005. Titan Europe’s sales were no
      longer consolidated with Titan beginning in the second quarter of 2004 as a
      result of the ownership decrease to approximately 30% upon the April 2004
      transaction.





**Corporate
      Expenses**


Income
      from operations on a segment basis does not include corporate expenses carried
      at the corporate level totaling $24.0 million for the year ended December 31,
      2005, as compared to $23.8 million in 2004. The Dyneer legal charge of $15.2
      million is also not included in income from operations on a segment
      basis.





**TITAN
      EUROPE SEGMENT RESULTS**


The
      following is a summary of the Titan Europe results included in the historical
      results of the Company for the year ended December 31, 2004 (in
      millions) :


**2004**
            
            **Agricultural**
            
            **Earthmoving/**
              **Construction**
            
            **Consumer**
            
            **Reconciling**
              ******Items**
            
            **Consolidated**
              ******Totals**Revenues
                from external customers
            
            $
            24.3
            
            $
            23.4
            
            $
            1.7
            
            $
            0.0
            
            $
            49.4Income
                (loss) from operations
            
            
            0.8
            
            
            0.5
            
            
            (0.1
            )
            
            (0.8
            ) (a)
            
            0.4





(a)
            Represents
                corporate expenses.





26





**LIQUIDITY
      AND CAPITAL RESOURCES**





**Cash
      Flows**


As
      of
      December 31, 2006, the Company had $33.4 million of cash balances within various
      bank accounts. This cash balance increased by $32.8 million from December 31,
      2005, due to the following cash flow discussion items.





**Operating
      cash flows**


For
      the
      year ended December 31, 2006, cash of $5.5 million was used for operating
      activities. This usage was primarily the result of increases in accounts
      receivable and inventories of $26.8 million and $19.5 million, respectively,
      offset by an increase in other current liabilities of $13.4 million and noncash
      charges included in net income of $26.9 million for depreciation and
      amortization. Net income of $5.1 million was offset by other operating
      activities.





In
      comparison, for the year ended December 31, 2005, positive cash flows from
      operating activities of $22.9 million resulted primarily from net income of
      $11.0 million, noncash charges included in net income of $20.7 million for
      depreciation and amortization and a $7.2 million noncash convertible debt
      conversion charge offset by a noncash deferred income tax benefit of $14.5
      million.





For
      the
      year ended December 31, 2004, positive cash flows from operating activities
      of
      $18.1 million resulted primarily from income of $11.1 million and noncash
      depreciation and amortization charges included in net income of $24.9 million
      offset by accounts receivable and inventories increases of $10.8 million and
      $8.8 million.





**Investing
      cash flows**


Net
      cash
      used for investing activities was $52.7 million in 2006, as compared to $76.7
      million used in 2005 and $62.4 million positive cash flows in 2004. Titan
      invested $44.6 million for the Continental OTR tire acquisition in 2006, while
      the Company invested $100.0 million for the Goodyear North American farm tire
      acquisition in 2005. In 2004, the Titan Europe Plc sale provided $40.8 million
      in cash.





The
      Company invested a total of $8.3 million in capital expenditures in 2006,
      compared to $6.8 million in 2005 and $4.3 million in 2004. The Company estimates
      that capital expenditures for 2007 could range between $16 million and $18
      million. A decrease in restricted cash provided $24.5 million and asset sales
      provided $5.5 million in 2005.





**Financing
      cash flows**


Net
      cash
      provided by financing activities in 2006 was $91.1 million. This cash was
      primarily provided by $88.9 million of net debt proceeds. In addition, the
      exercise of stock options provided $5.4 million in cash and the payment of
      financing fees used $3.7 million of cash. In 2005, cash of $53.3 million was
      provided by financing activities, the result of net debt proceeds of $53.4
      million. In 2004, $85.8 million in cash was used for financing activities,
      primarily the result of net debt payments of $65.8 million.





**Debt
      Covenants**


The
      Company’s revolving credit facility contains various covenants and restrictions.
      The financial covenants in this agreement require that:




·
            Collateral
                coverage be equal to or greater than 1.20 times the outstanding revolver
                balance.




·
            If
                the 30-day average of the outstanding revolver balance exceeds $100
                million, the fixed charge coverage ratio be equal to or greater than
                a 1.0
                to 1.0 ratio.





Restrictions
      include:




·
            Limits
                on payments of dividends and repurchases of the Company’s
                stock.




·
            Restrictions
                on the ability of the Company to make additional borrowings, or to
                consolidate, merge or otherwise fundamentally change the ownership
                of the
                Company.




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




·
            Other
                customary affirmative and negative covenants.







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


27





The
      Company is in compliance with these covenants and restrictions as of December
      31, 2006. The collateral coverage was calculated to be 23.4 times the
      outstanding revolver balance at December 31, 2006.





The
      fixed
      charge coverage ratio did not apply for the quarter ended December 31, 2006.
      The
      credit facility usage was $15.7 million at December 31, 2006, consisting
      exclusively of letters of credit of $15.7 million with no cash
      borrowings.





**Other
      Issues**


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





The
      Company’s Board of Directors authorized Titan to repurchase up to 10.0 million
      shares of its common stock. No Titan stock was repurchased in 2006 or 2005.
      The
      Company repurchased 7.5 million shares in prior years leaving Titan with
      authorization to repurchase an additional 2.5 million common shares subject
      to
      debt agreement covenants.





**LIQUIDITY
      OUTLOOK**


At
      December 31, 2006, the Company had unrestricted cash and cash equivalents of
      $33.4 million and $109.3 million of unused availability under the terms of
      its
      revolving credit facility. The availability under the Company’s $125 million
      revolving credit facility was reduced by $15.7 million for outstanding letters
      of credit. The Company estimates that capital expenditures for 2007 could range
      between $16 million and $18 million.





The
      Company has scheduled debt principal payments amounting to $0.1 million due
      during 2007. However, the Company anticipates paying off approximately $10
      million of industrial revenue bonds in the first quarter of 2007. The Company
      expects to contribute approximately $5 million to its frozen defined benefit
      pension plans during 2007. The Company has a net operating loss carryforward
      of
      approximately $32 million, expiring in 2023, which is expected to reduce the
      Company’s income tax payments in the future.





Cash
      on
      hand, anticipated internal cash flows from operations and utilization of
      remaining available borrowings are expected to provide sufficient liquidity
      for
      working capital needs, capital expenditures, and payments required on short-term
      debt. However, if the Company were to exhaust all currently available working
      capital sources or were not to meet the financial covenants and conditions
      of
      its loan agreements, the Company’s ability to secure additional funding may be
      negatively impacted.





**INFLATION**


The
      Company is subject to the effect of price fluctuations. During 2006, 2005 and
      2004, the Company realized price increases for purchases of steel and rubber
      used in the manufacture of its products. While the cost outlook for commodities
      used in the Company’s production is not certain, management believes it can
      manage these inflationary pressures by introducing appropriate sales price
      adjustments.


28





**CONTRACTUAL
      OBLIGATIONS**


The
      Company’s contractual obligations at December 31, 2006, consisted of the
      following (in
      thousands) :


**Payments
                due by period****Contractual
                Obligations**
            
            **Total**
            
            **Less
                than****1
                year**
            
            **1-3**
              **years**
            
            **3-5**
              **years**
            
            **More
                than****5
                years**Long-term
                debt(a)
            
            $
            291,364
            
            $
            98
            
            $
            81,766
            
            $
            9,500
            
            $
            200,000Interest
                expense(b)
            
            
            91,733
            
            
            20,330
            
            
            38,736
            
            
            32,000
            
            
            667Operating
                leases
            
            
            6,071
            
            
            2,575
            
            
            2,487
            
            
            1,009
            
            
            0Purchase
                obligations
            
            
            2,825
            
            
            1,408
            
            
            1,355
            
            
            62
            
            
            0Other
                long-term liabilities(c)
            
            
            8,200
            
            
            5,000
            
            
            3,200
            
            
            0
            
            
            0Total
            
            $
            400,193
            
            $
            29,411
            
            $
            127,544
            
            $
            42,571
            
            $
            200,667





(a)
            Long-term
                debt includes current maturities.





(b)
            Interest
                expense is estimated based on the Company’s year-end 2006 debt balances
                and maturities including interest rates that are anticipated to remain
                at
                the current rates. The estimates assume no conversion of convertible
                notes
                and no revolver borrowings. The Company’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.





(c)
            Other
                long-term liabilities represent the Company’s estimated funding
                requirements for the frozen defined benefit pension plans. The Company’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**


The
      Company has no material off-balance sheet arrangements.


29





**MARKET
      RISK SENSITIVE INSTRUMENTS**





**Exchange
      Rate Sensitivity**


The
      Company is exposed to fluctuations in the British pound and Euro world
      currencies. Titan does not hedge foreign currency transaction or translation
      exposures. The Company’s net investment in foreign entities translated into U.S.
      dollars was $65.9 million at December 31, 2006, and $56.9 million at December
      31, 2005. The hypothetical potential loss in value of the Company’s net
      investment in foreign entities resulting from a 10% adverse change in foreign
      currency exchange rates at December 31, 2006, would amount to approximately
      $7
      million.





**Commodity
      Price Sensitivity**


The
      Company 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, the Company is exposed to price fluctuations
      of
      its key commodities, which consist primarily of steel and rubber. The Company
      attempts to pass on certain material price increases and decreases to its
      customers, depending on market conditions.




**Interest
      Rate Sensitivity**


The
      Company has a revolving credit facility and an industrial revenue bond that
      have
      variable interest rates. If the revolving credit facility were fully drawn,
      a 1%
      change in the interest rate would change the Company’s interest expense by
      approximately $1 million.





At
      December 31, 2006, the fair value of the Company’s senior unsecured convertible
      notes, based upon quoted market prices obtained through independent pricing
      sources, was $130.8 million, compared to the carrying value of $81.2 million.
      The Company believes the carrying value of its other debt reasonably
      approximates fair value at December 31, 2006.





**MARKET
      CONDITIONS AND OUTLOOK**


In
      2006,
      the Company experienced a softening in demand from OEMs for the Company’s
      agricultural and military products. In December of 2005, the Company acquired
      the Goodyear North American farm tire assets, which included a manufacturing
      facility in Freeport, Illinois. The transaction also included a license
      agreement with Goodyear for Titan to manufacture and sell Goodyear branded
      farm
      tires in North America. On July 31, 2006, Titan Tire Corporation of Bryan,
      a
      subsidiary of the Company, acquired the OTR tire facility of Continental Tire
      North America, Inc. in Bryan, Ohio. The Bryan facility produces tires for
      earthmoving, construction and mining equipment in larger sizes than Titan
      previously produced.





Titan
      is
      using the expanded agricultural product offering of Goodyear branded farm tires
      and the expanded earthmoving/construction product offering supplied by the
      Bryan
      facility, along with added manufacturing capacity from the Freeport and Bryan
      facilities to expand market share. Due to capacity constraints at Titan’s Bryan,
      Ohio, OTR tire facility, the Company is adding OTR tire capacity at its
      Freeport, Illinois, and Des Moines, Iowa, tire facilities.





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





**AGRICULTURAL
      MARKET OUTLOOK**


Agricultural
      market sales are forecasted to be stable for 2007. The farm economy is being
      helped by strong commodity prices. However, the farm economy is also affected
      by
      high input costs for fuel and fertilizer. A continuing increase in the use
      of
      grain-based ethanol and soybean-based biodiesel fuel should support commodity
      prices and farm income levels in the long-term. The Company believes the
      increasing demand for biofuels may possibly result in a stronger market than
      is
      now being forecasted. The Company’s largest customer, Deere & Company,
      extended its long-term wheel agreement with Titan from an expiration date of
      October 31, 2007, to October 31, 2010. Many variables, including weather, grain
      prices, export markets, and future government policies and payments can greatly
      influence the overall health of the agricultural economy.


30





**EARTHMOVING/CONSTRUCTION
      MARKET OUTLOOK**


Sales
      for
      the earthmoving/construction market are expected to remain strong in 2007.
      Metals, oil and gas prices have declined from their 2006 highs. However, these
      commodity prices remain at levels that are attractive for continued investment,
      which will maintain support for earthmoving and mining sales. The Bryan facility
      produces tires for large earthmoving, construction and mining machinery, which
      Titan did not previously produce. Therefore, Titan’s 2007 sales in this segment
      are expected to be higher than those in 2006. The Company’s OTR production
      realignment will allow Titan to expand production in earthmoving/construction
      tire sizes that are in short supply. The earthmoving/construction segment is
      affected by many variables, including commodity prices, road construction,
      infrastructure, government appropriations and housing starts. Many of these
      items are very sensitive to interest rate fluctuations.





**CONSUMER
      MARKET OUTLOOK**


Titan’s
      sales in the consumer market include sales to Goodyear, which fluctuate
      significantly based upon their future product requirements, including an
      off-take/mixing agreement. This agreement includes mixed stock, which is a
      prepared rubber compound used in tire production. The Company’s consumer market
      sales will fluctuate significantly related to sales volumes under the
      off-take/mixing agreement with Goodyear. However, the Company expects the
      remaining consumer market sales to remain relatively stable in 2007. The
      all-terrain vehicle (ATV) wheel and tire market is expected to offer future
      long-term growth opportunities for Titan. Many factors affect the consumer
      market including weather, competitive pricing, energy prices and consumer
      attitude.




**PENSIONS**


The
      Company has two frozen defined benefit pension plans and one defined benefit
      plan that purchased a final annuity settlement in October 2002. These plans
      are
      described in Note 21 of the Company’s Notes to Consolidated Financial
      Statements.





The
      Company’s recorded liability for pensions is based on a number of assumptions,
      including discount rates, rates of return on investments, mortality rates and
      other factors. Certain of these assumptions are determined with the assistance
      of outside actuaries. Assumptions are based on past experience and anticipated
      future trends. These assumptions are reviewed on a regular basis and revised
      when appropriate. Revisions in assumptions and actual results that differ from
      the assumptions affect future expenses, cash funding requirements and the
      carrying value of the related obligations. During the twelve months ended
      December 31, 2006, the Company contributed $4.0 million to its pension plans.
      The Company expects to contribute approximately $5 million to these frozen
      defined benefit pension plans during 2007.





Titan’s
      projected benefit obligation at December 31, 2006, was $68.8 million as compared
      to $71.8 million at December 31, 2005. During 2006, the Company recorded net
      periodic pension cost of $1.2 million. Accumulated other comprehensive income
      recorded for defined benefit pension plans, net of tax, was $18.6 million and
      $17.2 million at December 31, 2006 and 2005, respectively. Other comprehensive
      income is recorded as a direct charge to stockholders’ equity and does not
      affect net income. Titan will be required to record net periodic pension cost
      in
      the future; these costs may fluctuate based upon revised assumptions and could
      negatively affect the Company’s financial position, cash flows and results of
      operations.


31





**RECENTLY
      ISSUED ACCOUNTING STANDARDS**





**Financial
      Accounting Standards Board Interpretation Number 48**


In
      July
      2006, Financial Accounting Standards Board Interpretation (FIN) No. 48,
“Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement
      No. 109,” was issued. FIN No. 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. This
      interpretation also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, and disclosure requirements for
      uncertain tax positions. FIN No. 48 is effective for fiscal years beginning
      after December 15, 2006. The Company is evaluating the effect the adoption
      of
      this interpretation will have on its consolidated financial position, results
      of
      operations and cash flows.





**Statement
      of Financial Accounting Standards Number 157**


In
      September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
      “Fair Value Measurements,” was issued. This statement defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles, and expands disclosures about fair value measurements.
      This Statement applies under other accounting pronouncements that require or
      permit fair value measurements. This statement is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. The Company is evaluating the effect
      the adoption of this standard will have on its consolidated financial position,
      results of operations and cash flows.





**Statement
      of Financial Accounting Standards Number 158**


In
      September 2006, SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
      and Other Postretirement Plans,” was issued. This statement requires an employer
      to recognize the overfunded or underfunded status of a defined benefit
      postretirement plan as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income. An employer with publicly traded
      equity securities is required to initially recognize the funded status of a
      defined benefit postretirement plan and to provide the required disclosures
      as
      of the end of the fiscal year ending after December 15, 2006. The Company
      adopted SFAS No. 158 as of December 31, 2006. The adoption of this statement
      had
      no material effect on the Company’s consolidated results of operations or cash
      flows. See Note 21 to the consolidated financial statements of Titan
      International, Inc., included in Item 8 herein for the effect this statement
      had
      on the Company’s consolidated financial position.





**Staff
      Accounting Bulletin Number 108**


In
      September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.” SAB 108 requires that
      public companies utilize a “dual-approach” when assessing the quantitative
      effects of financial misstatements. This dual approach includes both an income
      statement focused assessment and a balance sheet focused assessment. The
      guidance in SAB 108 is effective for annual financial statements for fiscal
      years ending after November 15, 2006. The adoption of this guidance had no
      material effect on the Company’s consolidated financial position, results of
      operations and cash flows.


32





**ITEM
      7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Reference
      is made to Item 7, Part II of this report.




**ITEM
      8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**





Reference
      is made to Item 15, Part IV of this report, “Exhibits, Financial Statement
      Schedules.”




**ITEM
      9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE**





None.




**ITEM
      9A - CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**


The
      Company’s principal executive officer and principal financial officer believe
      the Company’s disclosure controls and procedures (as defined in Exchange Act
      Rules 13a-15(e) and 15d-15(e)) are effective as of the end of the period covered
      by this Form 10-K based on an evaluation of the effectiveness of disclosure
      controls and procedures.





**Changes
      in Internal Controls**


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





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




**ITEM
      9B - OTHER INFORMATION**





None.


33





**PART
      III**





**ITEM
      10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE**





**Directors**


The
      information required by this item regarding the Company’s directors is
      incorporated by reference to the Company’s 2007 Proxy Statement under the
      captions “Election of Mr. Campbell and Mr. Taylor as Directors”, “Election of
      Mr. Akers as a Director Contingent upon Amendment to Bylaws”, “Directors
      Continuing in Office”, “Committees and Meetings of the Board of Directors” and
“Corporate Governance.”





**Executive
      Officers**


The
      names, ages and positions of all executive officers of the Company are listed
      below, followed by a brief account of their business experience during the
      past
      five years. Officers are normally appointed annually by the Board of Directors
      at a meeting immediately following the Annual Meeting of Stockholders. The
      Chief
      Executive Officer and Secretary are brother and sister. There is no arrangement
      or understanding between any officer and any other person pursuant to which
      an
      officer was selected.





Maurice
      M. Taylor Jr., 62, has been Chief Executive Officer and a Director of the
      Company since 1990, when Titan was acquired in a management-led buyout by
      investors, including Mr. Taylor. Mr. Taylor served as President of the Company
      from 1990 to 2005 and was appointed Chairman in 2005.





Ernest
      J.
      Rodia, 63, joined the Company in 2005 as Executive Vice President and Chief
      Operating Officer. Prior to Titan, Mr. Rodia was employed for nearly 40 years
      by
      Goodyear Tire and Rubber Company, holding various engineering and manufacturing
      positions.





Kent
      W.
      Hackamack, 48, served as Corporate Controller of the Company from 1994 to 1996.
      Mr. Hackamack was appointed Vice President of Finance and Treasurer in
      1996.





Cheri
      T.
      Holley, 59, joined the Company in 1994 as General Counsel and Secretary. Ms.
      Holley was appointed Vice President in 1996.





**Section
      16(a) beneficial ownership reporting compliance**


The
      information required by this item regarding beneficial ownership reporting
      compliance is incorporated by reference to the Company’s 2007 Proxy Statement
      under the caption “Section 16(a) Beneficial Ownership Reporting
      Compliance.”





**Business
      conduct policy**


The
      Company adopted a business conduct policy, which is applicable to directors,
      officers and employees. The Company has also adopted corporate governance
      guidelines. The business conduct policy and corporate governance guidelines
      are
      available under the investor information category of the Company’s website, www.titan-intl.com .
      The
      Company intends to satisfy disclosure requirements regarding amendments to
      or
      waivers from its business conduct policy by posting such information on its
      website. A printed copy of the business conduct policy and corporate governance
      guidelines are available, without charge, by writing to: Secretary of Titan
      International, Inc., 2701 Spruce Street, Quincy, IL 62301.




**ITEM
      11 - EXECUTIVE COMPENSATION**





The
      information required by this item is incorporated by reference to the Company’s
      2007 Proxy Statement under the caption “Compensation of Executive
      Officers.”


34





**ITEM
      12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS**





Except
      for the information concerning equity compensation plans, the information
      required by this item is incorporated by reference to the Company’s 2007 Proxy
      Statement under the caption “Security Ownership of Certain Beneficial Owners and
      Management.”





The
      following table provides information about shares of Titan common stock that
      may
      be issued under Titan’s equity compensation plans, as of December 31,
      2006:


Plan
                Category
            
            (i)
              Number
                of securities to
              be
                issued upon exercise
              of
                outstanding options,
              warrants
                and rights
            
            (ii)
              Weighted-average
              exercise
                price of outstanding options,warrants
                and rights
            
            (iii)
              Number
                of securities
              remaining
                available for
              future
                issuance under equity compensation plans (excluding securitiesreflected
                in column (i))Equity
                compensation plansapproved
                by security holders
            
            
            1,150,060
            (a)
            
            13.29
            
            
            1,213,720Equity
                compensation plans not approved by security holders
            
            
            0
            
            
            n/a
            
            
            0Total
            
            
            1,150,060
            
            
            13.29
            
            
            1,213,720





(a)
            Amount
                includes outstanding options under the Company’s 1993 Stock Incentive
                Plan, 1994 Non-Employee Director Stock Option Plan and 2005 Equity
                Incentive Plan.




For
      additional information regarding the Company’s stock option plans, please see
      Note 22 of the Company’s Notes to Consolidated Financial
      Statements.





**ITEM
      13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE**





The
      information required by this item is incorporated by reference to the Company’s
      2007 Proxy Statement under the caption “Related Party Transactions” and
“Corporate Governance” and also appears in Note 26 of the Company’s Notes to
      Consolidated Financial Statements.




**ITEM
      14 - PRINCIPAL ACCOUNTING FEES AND SERVICES**





The
      information required by this item is incorporated by reference to the Company’s
      2007 Proxy Statement under the caption “Audit and Other Fees.”





35





**PART
      IV**







**ITEM
                15 -**
            **EXHIBITS,
                FINANCIAL STATEMENT SCHEDULES**(a)1.
            Financial
                StatementsManagement’s
                Responsibility for Financial Statements and Report on Internal Control
                Over Financial Reporting
            F-1Report
                of Independent Registered Public Accounting Firm
            F-2
                through F-3Consolidated
                Statements of Operations for the years ended December 31, 2006, 2005
                and
                2004
            F-4Consolidated
                Balance Sheets at December 31, 2006 and 2005
            F-5Consolidated
                Statements of Changes in Stockholders’ Equity for the years ended December
                31, 2006, 2005 and 2004
            F-6Consolidated
                Statements of Cash Flows for the years ended December 31, 2006, 2005
                and
                2004
            F-7Notes
                to Consolidated Financial Statements
            F-8
                through F-322.
            Financial
                Statement ScheduleSchedule
                II - Valuation Reserves
            S-13.
            ExhibitsThe
                accompanying Exhibit Index is incorporated herein by
                reference.





36




**SIGNATURES**





Pursuant
      to the requirements of Sections 13 or 15(d) of the Securities Exchange Act
      of
      1934, the registrant has duly caused this Report to be signed on its behalf
      by
      the undersigned, thereunto duly authorized.





**TITAN
                INTERNATIONAL, INC.****(Registrant)**








**Date:**
            February
                27, 2007
            **By**:
            /s/
                MAURICE M. TAYLOR JR.Maurice
                M. Taylor Jr.Chairman
                and Chief Executive Officer





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed below by the following persons on behalf of the registrant and in the
      capacities indicated on February 27, 2007.





Signatures
            Capacity/S/
                MAURICE M. TAYLOR JR.
            Chairman
                and Chief Executive OfficerMaurice
                M. Taylor Jr.
            (Principal
                Executive Officer)/S/
                KENT W. HACKAMACK
            Vice
                President of Finance and TreasurerKent
                W. Hackamack
            (Principal
                Financial Officer andPrincipal
                Accounting Officer)/S/
                ERWIN H. BILLIG
            DirectorErwin
                H. Billig/S/
                EDWARD J. CAMPBELL
            DirectorEdward
                J. Campbell/S/
                RICHARD M. CASHIN JR.
            DirectorRichard
                M. Cashin Jr./S/
                ALBERT J. FEBBO
            DirectorAlbert
                J. Febbo/S/
                MITCHELL I. QUAIN
            DirectorMitchell
                I. Quain/S/
                ANTHONY L. SOAVE
            DirectorAnthony
                L. Soave





37




**TITAN
      INTERNATIONAL, INC.**





**Exhibit
      Index**


**Annual
      Report on Form 10-K**





ExhibitNo.
            DESCRIPTION3.1
                (a)
            Amended
                Restated Articles of Incorporation of the Company3.2
                (b)
            Bylaws
                of the Company10.1
                (c)
            1994
                Non-Employee Director Stock Option Plan10.2
                (c)
            1993
                Stock Incentive Plan10.3
                (d)
            Credit
                Agreement dated July 23, 2004, among the Company and LaSalle Bank
                National
                Association and General Electric Capital Corporation10.4
                (d)
            Indenture
                between the Company and U.S. Bank National Association dated July
                26,
                200410.5
                (e)
            First
                Amendment to Credit Agreement among the Company and LaSalle Bank
                National
                Association
                and General Electric Capital Corporation dated February 16,
                200510.6
                (f)
            2005
                Equity Incentive Plan10.7
                (g)
            Second
                Amendment to Credit Agreement among the Company and LaSalle Bank
                National
                Association dated October 21, 200510.8
                (h)
            Third
                Amendment to Credit Agreement among the Company and LaSalle Bank
                National
                Association dated June 28, 200610.9
                (i)
            Fourth
                Amendment to Credit Agreement among the Company and LaSalle Bank
                National
                Association dated February 8, 200721*
            Subsidiaries
                of the Registrant23*
            Consent
                of Independent Registered Public Accounting Firm31.1*
            Certification
                of the Principal Executive Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200231.2*
            Certification
                of the Principal Financial Officer pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232*
            Certification
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002








*Filed
      herewith





(a)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s Form
                10-Q for the quarterly period ended September 30, 1998 (No.
                001-12936).


(b)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s
                Registration Statement on Form S-4 (No.
                33-69228).


(c)
            Incorporated
                by reference to the Company’s Registration Statement on Form S-3 (No.
                333-61743).


(d)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s Form
                10-Q for the quarterly period ended June 30, 2004 (No.
                001-12936).


(e)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s
                Annual Report on Form 10-K for the year ended December 31, 2005 (No.
                001-12936).


(f)
            Incorporated
                by reference to Appendix A of the Company’s Definitive Proxy Statement
                filed on March 30, 2005.


(g)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s
                Current Report on Form
                8-K filed on October 24, 2005.


(h)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s
                Current Report on Form
                8-K filed on June 29, 2006.


(i)
            Incorporated
                by reference to the same numbered exhibit contained in the Company’s
                Current Report on Form
                8-K filed on February 8,
                2007.


38




**Management’s
      Responsibility for Financial Statements**





Management
      is responsible for the preparation of the Company’s consolidated financial
      statements included in this annual report on Form 10-K. Management believes
      that
      the consolidated financial statements fairly reflect the transactions and the
      financial statements reasonably present the Company’s financial position and
      results of operations in conformity with accounting principles generally
      accepted in the United States of America.





The
      Board
      of Directors of the Company has an Audit Committee comprised entirely of outside
      directors who are independent of management. The Committee meets periodically
      with management, the internal auditors and the independent registered public
      accounting firm to review accounting control, auditing and financial reporting
      matters. The Audit Committee is responsible for the appointment of the
      independent registered public accounting firm and approval of their fees.





The
      independent registered public accounting firm audits the Company’s consolidated
      financial statements in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). The consolidated financial
      statements as of December 31, 2006, have been audited by PricewaterhouseCoopers
      LLP, an independent registered public accounting firm, as stated in their
      report, which is included herein.




**Management’s
      Report on Internal Control Over Financial Reporting**





Management
      is responsible for establishing and maintaining adequate internal control over
      financial reporting. 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.





Management
      has performed an evaluation of the effectiveness of the Company’s internal
      control over financial reporting as of December 31, 2006, based on criteria
      for
      effective internal control over financial reporting described in “Internal
      Control-Integrated Framework” issued by the Committee of Sponsoring
      Organizations of the Treadway Commission. Based on this assessment, management
      concluded the Company maintained effective internal control over financial
      reporting as of December 31, 2006. Management’s assessment of the effectiveness
      of the Company’s internal controls over financial reporting as of December 31,
      2006, has been audited by PricewaterhouseCoopers LLP, an independent registered
      public accounting firm, as stated in their report which is included herein.





The
      audited consolidated financial statements of the Company include the results
      of
      the Company’s facility in Bryan, Ohio, which was acquired on July 31, 2006. The
      Bryan facility accounted for approximately 9% of the Company’s total assets at
      December 31, 2006, and Bryan’s manufacturing output accounted for approximately
      7% of the Company’s total cost of sales for the year ended December 31, 2006.
      The Bryan facility was excluded from the management’s evaluation of the
      effectiveness of the Company’s internal control over financial reporting as of
      December 31, 2006.


F
            - 1





**Report
      of Independent Registered Public Accounting Firm**





To **** the
      Board
      of Directors


and
      Stockholders of


Titan
      International, Inc.:




We
      have
      completed integrated audits of
      Titan
      International Inc.’s  consolidated financial
      statements and of its internal control over financial reporting as of December
      31, 2006 ,
      in
      accordance with the standards of the Public Company Accounting Oversight Board
      (United States). Our
      opinions, based on our audits, are presented below.





Consolidated
      financial statements





In
      our
      opinion, the accompanying consolidated financial statements listed in the appendix under Item 15(a)(1)  present
      fairly, in all material respects, the financial position of Titan
      International Inc. and its subsidiaries **** at  December
      31,  2006
      a nd 2005, and the
      results of their operations
      and their cash
      flows for each of the three years in the period ended  December
      31, 2006 **** in
      conformity with accounting principles generally accepted in the United States
      of
      America. In addition, in our opinion, the financial statement schedule listed
      in
      the index appearing under Item 15(a)(2) presents fairly, in all material
      respects, the information set forth therein when read in conjunction with the
      related consolidated financial statements. These financial statements are the
      responsibility of the Company’s management. Our responsibility is to express an
      opinion on these financial statements based on our audits. We conducted our
      audits of these statements in accordance with the standards of the Public
      Company Accounting Oversight Board (United States). Those standards require
      that
      we plan and perform the audit to obtain reasonable assurance about whether
      the
      financial statements are free of material misstatement. An audit of financial
      statements includes 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. We believe that our audits provide a
      reasonable basis for our opinion.





Internal
      control over financial reporting





Also,
      in
      our opinion, management’s assessment, included in Management's Report on
      Internal Control Over Financial Reporting appearing on page F-1, that the
      Company maintained effective internal control over financial reporting as of
      December 31, 2006  based
      on
      criteria established in *Internal
      Control - Integrated Framework* issued
      by the Committee of Sponsoring Organizations of the Treadway Commission (COSO),
      is fairly stated, in all material respects, based on those criteria.
      Furthermore, in our opinion, the Company maintained, in all material respects,
      effective internal control over financial reporting as of December 31, 2006,
      based on criteria established in *Internal
      Control - Integrated Framework* issued
      by the COSO. The Company’s management is responsible for maintaining effective
      internal control over financial reporting and for its assessment of the
      effectiveness of internal control over financial reporting. Our responsibility
      is to express opinions on management’s assessment and on the effectiveness of
      the Company’s internal control over financial reporting based on our audit. We
      conducted our audit of internal control over financial reporting in accordance
      with the standards of the Public Company Accounting Oversight Board (United
      States). Those standards require that we plan and perform the audit to obtain
      reasonable assurance about whether effective internal control over financial
      reporting was maintained in all material respects. An audit of internal control
      over financial reporting includes obtaining an understanding of internal control
      over financial reporting, evaluating management’s assessment, testing and
      evaluating the design and operating effectiveness of internal control, and
      performing such other procedures as we consider necessary in the circumstances.
      We believe that our audit provides a reasonable basis for our opinions.


F
            - 2





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.




As
        described in Management’s Report on Internal Control Over Financial Reporting,
        management has excluded the Bryan, Ohio facility from its assessment of internal
        control over financial reporting as of December 31, 2006 because it was acquired
        by the Company in a purchase business combination during 2006. We have also
        excluded the Bryan, Ohio facility from our audit of internal control over
        financial reporting. The Bryan, Ohio facility is a wholly-owned subsidiary
        whose
        total assets and total output represent 9% and 7%, respectively, of the related
        consolidated financial statement amounts as of and for the year ended
        December 31, 2006.





PricewaterhouseCoopers
      LLP


St.
      Louis, Missouri


February
      26, 2007


F
            - 3


**TITAN
      INTERNATIONAL, INC.**


**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


**(All
      amounts in thousands, except per share data)**





**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**Net
                sales
            
            $
            679,454
            
            $
            470,133
            
            $
            510,571Cost
                of sales
            
            
            606,676
            
            
            405,923
            
            
            431,071Gross
                profit
            
            
            72,778
            
            
            64,210
            
            
            79,500Selling,
                general and administrative expenses
            
            
            42,142
            
            
            32,270
            
            
            37,915Royalty
                expense
            
            
            5,001
            
            
            0
            
            
            0Idled
                assets marketed for sale depreciation
            
            
            3,624
            
            
            4,736
            
            
            5,275Dyneer
                legal charge
            
            
            0
            
            
            15,205
            
            
            0Goodwill
                impairment on Titan Europe
            
            
            0
            
            
            0
            
            
            2,988Income
                from operations
            
            
            22,011
            
            
            11,999
            
            
            33,322Interest
                expense
            
            
            (17,001
            )
            
            (8,617
            )
            
            (16,159
            )Noncash
                convertible debt conversion charge
            
            
            0
            
            
            (7,225
            )
            
            0Debt
                termination expense
            
            
            0
            
            
            0
            
            
            (3,654
            )Other
                income, net
            
            
            3,564
            
            
            958
            
            
            1,706Income
                (loss) before income taxes
            
            
            8,574
            
            
            (2,885
            )
            
            15,215Provision
                (benefit) for income taxes
            
            
            3,430
            
            
            (13,927
            )
            
            4,108Net
                income
            
            $
            5,144
            
            $
            11,042
            
            $
            11,107Income
                per common share:Basic
            
            $
            .26
            
            $
            .61
            
            $
            .62Diluted
            
            
            .26
            
            
            .60
            
            
            .61Average
                common shares and equivalents outstanding:Basic
            
            
            19,702
            
            
            18,053
            
            
            17,798Diluted
            
            
            20,044
            
            
            18,284
            
            
            21,574




See
      accompanying Notes to Consolidated Financial Statements.





F
            - 4


**TITAN
      INTERNATIONAL, INC.**


**CONSOLIDATED
      BALANCE SHEETS**


**(All
      amounts in thousands, except share data)**




******December
                31,****Assets**
            
            **2006**
            
            **2005**Current
                assetsCash and cash equivalents
            
            $
            33,412
            
            $
            592Accounts receivable(net
                of allowance of $4,818 and $5,654, respectively)
            
            
            73,882
            
            
            47,112Inventories
            
            
            154,604
            
            
            122,692Deferred income taxes
            
            
            29,234
            
            
            20,141Prepaid and other current assets
            
            
            18,801
            
            
            15,630Total current assets
            
            
            309,933
            
            
            206,167Property, plant and equipment, net
            
            
            184,616
            
            
            140,382Idled assets marketed for sale
            
            
            0
            
            
            18,267Investment in Titan Europe Plc
            
            
            65,881
            
            
            48,467Goodwill
            
            
            11,702
            
            
            11,702Other assets
            
            
            12,994
            
            
            15,771Total
                assets
            
            $
            585,126
            
            $
            440,756**Liabilities
                and Stockholders’ Equity**Current
                liabilitiesShort-term debt(including
                current portion of long-term debt)
            
            $
            98
            
            $
            11,995Accounts payable
            
            
            25,884
            
            
            24,435Other current liabilities
            
            
            36,942
            
            
            11,753Total current liabilities
            
            
            62,924
            
            
            48,183Long-term debt
            
            
            291,266
            
            
            190,464Deferred income taxes
            
            
            27,924
            
            
            13,581Other long-term liabilities
            
            
            15,835
            
            
            20,715Total
                liabilities
            
            
            397,949
            
            
            272,943Commitments
                and contingencies:Notes
                14, 23 and 24Stockholders’
                equityCommon stock(no
                par, 60,000,000 shares authorized,30,577,356
                issued)
            
            
            30
            
            
            30Additional paid-in capital
            
            
            258,071
            
            
            255,299Retained earnings
            
            
            36,802
            
            
            32,053Treasury stock(at
                cost, 10,678,454 and 11,074,150 shares, respectively)
            
            
            (96,264
            )
            
            (99,817
            )Accumulated other comprehensive loss
            
            
            (11,462
            )
            
            (19,752
            )Total
                stockholders’ equity
            
            
            187,177
            
            
            167,813Total
                liabilities and stockholders’ equity
            
            $
            585,126
            
            $
            440,756







See
      accompanying Notes to Consolidated Financial Statements.





F
            - 5


**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**
            
            **Accumulated
                other comprehensive income (loss)**
            
            **Total****Balance
                January 1, 2004**
            
            
            #21,197,320
            
            $
            27
            
            $
            203,050
            
            $
            10,629
            
            $
            (81,204
            )
            $
            (20,546
            )
            $
            111,956Comprehensive
                income (loss):Net income
            
            
            
            
            
            
            
            
            
            
            
            11,107
            
            
            
            
            
            
            
            
            11,107Currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (584
            )
            
            (584
            )Minimum pension liability,net
                of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            4,564
            
            
            4,564Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            11,107
            
            
            
            
            
            3,980
            
            
            15,087Dividends
                paid on common stock
            
            
            
            
            
            
            
            
            
            
            
            (351
            )
            
            
            
            
            
            
            
            (351
            )Exercise
                of stock options
            
            
            23,570
            
            
            
            
            
            189
            
            
            
            
            
            
            
            
            
            
            
            189Treasury
                stock purchases
            
            
            (4,894,464
            )
            
            
            
            
            
            
            
            
            
            
            (20,000
            )
            
            
            
            
            (20,000
            )**Balance
                December 31, 2004**
            
            
            16,326,426
            
            
            27
            
            
            203,239
            
            
            21,385
            
            
            (101,204
            )
            
            (16,566
            )
            
            106,881Comprehensive
                income (loss):Net income
            
            
            
            
            
            
            
            
            
            
            
            11,042
            
            
            
            
            
            
            
            
            11,042Currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,168
            )
            
            (3,168
            )Minimum pension liability,net
                of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (18
            )
            
            (18
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            11,042
            
            
            
            
            
            (3,186
            )
            
            7,856Dividends
                paid on common stock
            
            
            
            
            
            
            
            
            
            
            
            (374
            )
            
            
            
            
            
            
            
            (374
            )Gain
                on investee transaction,net
                of tax
            
            
            
            
            
            
            
            
            10,471
            
            
            
            
            
            
            
            
            
            
            
            10,471Bond
                conversion
            
            
            3,022,275
            
            
            3
            
            
            40,928
            
            
            
            
            
            
            
            
            
            
            
            40,931Exercise
                of stock options
            
            
            135,860
            
            
            
            
            
            568
            
            
            
            
            
            1,220
            
            
            
            
            
            1,788Issuance
                of treasury stock under 401(k) plan
            
            
            18,645
            
            
            
            
            
            93
            
            
            
            
            
            167
            
            
            
            
            
            260**Balance
                December 31, 2005**
            
            
            19,503,206
            
            
            30
            
            
            255,299
            
            
            32,053
            
            
            (99,817
            )
            
            (19,752
            )
            
            167,813Comprehensive
                income (loss):Net income
            
            
            
            
            
            
            
            
            
            
            
            5,144
            
            
            
            
            
            
            
            
            5,144Unrealized gain on investment,net
                of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            6,126
            
            
            6,126Minimum
                pension liability,net
                of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,225
            
            
            3,225Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            5,144
            
            
            
            
            
            9,351
            
            
            14,495Adjustment
                to initially apply SFAS No. 158, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,061
            )
            
            (1,061
            )Dividends
                paid on common stock
            
            
            
            
            
            
            
            
            
            
            
            (395
            )
            
            
            
            
            
            
            
            (395
            )Exercise
                of stock options
            
            
            382,190
            
            
            
            
            
            2,647
            
            
            
            
            
            3,432
            
            
            
            
            
            6,079Issuance
                of treasury stock under 401(k) plan
            
            
            13,506
            
            
            
            
            
            125
            
            
            
            
            
            121
            
            
            
            
            
            246**Balance
                December 31, 2006**
            
            
            #19,898,902
            
            $
            30
            
            $
            258,071
            
            $
            36,802
            
            $
            (96,264
            )
            $
            (11,462
            )
            $
            187,177







See
      accompanying Notes to Consolidated Financial Statements.





F
            - 6


**TITAN
      INTERNATIONAL, INC.**


**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


**(All
      amounts in thousands)**





**Year
                ended December 31,****Cash
                flows from operating activities:**
            
            **2006**
            
            **2005**
            
            **2004**Net
                income
            
            $
            5,144
            
            $
            11,042
            
            $
            11,107Adjustments
                to reconcile net income to net cash provided
                by operating activities:Depreciation and amortization
            
            
            26,850
            
            
            20,746
            
            
            24,907Deferred income tax provision (benefit)
            
            
            2,597
            
            
            (14,476
            )
            
            0Noncash convertible debt conversion charge
            
            
            0
            
            
            7,225
            
            
            0Goodwill impairment
            
            
            0
            
            
            0
            
            
            2,988Noncash debt termination expense
            
            
            0
            
            
            0
            
            
            1,486Undistributed earnings of unconsolidated affiliate
            
            
            0
            
            
            (2,024
            )
            
            (1,022
            )Excess tax benefit from stock options exercised
            
            
            (646
            )
            
            0
            
            
            0(Increase)
                decrease in current assets:Accounts receivable
            
            
            (26,770
            )
            
            5,669
            
            
            (10,822
            )Inventories
            
            
            (19,509
            )
            
            2,212
            
            
            (8,804
            )Prepaid and other current assets
            
            
            (3,675
            )
            
            1,938
            
            
            (944
            )Increase
                (decrease) in current liabilities:Accounts payable
            
            
            1,449
            
            
            (2,298
            )
            
            4,689Other current liabilities
            
            
            13,443
            
            
            (260
            )
            
            140Other,
                net
            
            
            (4,423
            )
            
            (6,875
            )
            
            (5,576
            )**Net
                cash (used for) provided by operating activities**
            
            
            (5,540
            )
            
            22,899
            
            
            18,149**Cash
                flows from investing activities:**Continental
                off-the-road (OTR) asset acquisition
            
            
            (44,642
            )
            
            0
            
            
            0Goodyear
                North American farm tire acquisition
            
            
            0
            
            
            (100,000
            )
            
            0Capital
                expenditures
            
            
            (8,282
            )
            
            (6,752
            )
            
            (4,328
            )Decrease
                in restricted cash deposits
            
            
            0
            
            
            24,500
            
            
            24,609Titan
                Europe Plc sale
            
            
            0
            
            
            0
            
            
            40,757Asset
                disposals
            
            
            0
            
            
            5,509
            
            
            1,354Other,
                net
            
            
            198
            
            
            0
            
            
            0**Net cash (used for) provided by investing
                activities**
            
            
            (52,726
            )
            
            (76,743
            )
            
            62,392**Cash
                flows from financing activities:**Proceeds
                from borrowings
            
            
            200,000
            
            
            0
            
            
            115,348Payment
                of debt
            
            
            (11,995
            )
            
            (1,296
            )
            
            (225,525
            )(Payment)
                proceeds on revolving credit facility, net
            
            
            (99,100
            )
            
            54,700
            
            
            44,400Proceeds
                from exercise of stock options
            
            
            5,407
            
            
            1,500
            
            
            0Excess
                tax benefit from stock options exercised
            
            
            646
            
            
            0
            
            
            0Repurchase
                of common stock
            
            
            0
            
            
            0
            
            
            (15,000
            )Payment
                of financing fees
            
            
            (3,725
            )
            
            (1,500
            )
            
            (4,788
            )Dividends
                paid
            
            
            (393
            )
            
            (358
            )
            
            (375
            )Other,
                net
            
            
            246
            
            
            260
            
            
            189**Net cash provided by (used for) financing
                activities**
            
            
            91,086
            
            
            53,306
            
            
            (85,751
            )Effect
                of exchange rate changes on cash
            
            
            0
            
            
            0
            
            
            (216
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            32,820
            
            
            (538
            )
            
            (5,426
            )Cash
                and cash equivalents, beginning of year
            
            
            592
            
            
            1,130
            
            
            6,556Cash
                and cash equivalents, end of year
            
            $
            33,412
            
            $
            592
            
            $
            1,130







See
      accompanying Notes to Consolidated Financial Statements.




F
            - 7
 
 **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. Titan records its investment in each
      unconsolidated affiliated company (20% to 49% ownership) at its related equity
      in the net assets of such affiliate, as adjusted for equity earnings and losses.
      Investments of less than 20% of non-publicly traded entities are carried at
      cost. Investments of less than 20% of publicly traded entities are carried
      at
      fair value in accordance with Statement of Financial Accounting Standards (SFAS)
      No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The
      Company records change of interest gains and losses directly to equity. All
      significant intercompany accounts and transactions have been
      eliminated.





**Inventories**


Inventories
      are valued at the lower of cost or market. Cost is determined using the
      first-in, first-out (FIFO) method in 2006 for approximately 74% of inventories
      and the last-in, first-out (LIFO) method for approximately 26% 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.





**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
            
            
            25Machinery
                and equipment
            
            
            10Tools,
                dies and molds
            
            
            5





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.


F
            - 8
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**Deferred
      financing costs**


Deferred
      financing costs are costs incurred in connection with the Company’s (i)
      revolving credit facility, (ii) senior unsecured notes, (iii) senior unsecured
      convertible notes and (iv) industrial revenue bonds. The costs associated with
      the revolving credit facility are being amortized over the remaining term of
      the
      facility. The costs associated with the senior unsecured notes are amortized
      straight line over five years, the term of the notes. The costs associated
      with
      the senior unsecured convertible notes are amortized straight line over five
      years, the term of the notes. The costs associated with the industrial revenue
      bonds are being amortized over the life of the bonds on a straight-line basis.
      Amortization of deferred financing costs for the various debt facilities
      approximates the effective interest rate method.





**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 convertible notes due 2009
      are
      the only significant financial instrument of the Company with a fair value
      different than the recorded value. At December 31, 2006, the fair value of
      the
      convertible notes, based on quoted market prices obtained through independent
      pricing sources, was approximately $130.8 million, compared to a carrying value
      of $81.2 million.





**Available-for-sale
      securities**


The
      Company has an investment in Titan Europe Plc of $65.9 million as of December
      31, 2006, representing a 17.3% ownership position. Due to the dilution in the
      Company’s ownership interest from 29.3% at December 31, 2004, the Company began
      accounting for its investment in Titan Europe Plc as an available-for-sale
      security during 2005. Accordingly, this investment is recorded as “Investment in
      Titan Europe Plc” on the consolidated balance sheet. The Company reports this
      investment at fair value, with unrealized gains and losses excluded from
      earnings and reported in a separate component of stockholders’ equity. If the
      fair value declines below the amortized cost basis, the Company determines
      if
      this decline is other than temporary. If the decline in fair value is judged
      to
      be other than temporary, an impairment charge is recorded.





**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 SFAS No. 52, “Foreign Currency
      Translation.” 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 2006, the Company’s investment in Titan Europe Plc was classified as
      available-for-sale securities and this investment is recorded as “Investment in
      Titan Europe Plc” on the consolidated balance sheet. 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 to assess recoverability from future operations during
      the fourth quarter of each annual reporting period, and whenever events and
      circumstances indicate that the carrying values may not be recoverable, as
      required by the adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
      The carrying amount of $11.7 million of goodwill by segment at December 31,
      2006, was (i) agricultural of $6.9 million, (ii) earthmoving/construction of
      $3.6 million and (iii) consumer of $1.2 million. Based on a discounted cash
      flow
      method at December 31, 2006, the Company’s computation showed no impairment. See
      Notes 9 and 18 for additional information.


F
            - 9
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**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 these 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 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**


Selling,
      general and administrative expense is comprised primarily of sales commissions,
      marketing expense, selling and administrative wages, management information
      system costs, legal fees, bank charges, audit fees, research and development,
      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 and included as part
      of selling, general and administrative expense. R&D costs were $1.3 million,
      $0.8 million and $1.9 million for the years of 2006, 2005 and 2004,
      respectively.





**Advertising**


Advertising
      expenses are included in selling, general and administrative expense and are
      expensed as incurred. Advertising expenses were less than $1 million for each
      of
      the years ended December 31, 2006, 2005 and 2004.





**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. Warranty
      costs were $5.5 million, $2.6 million and $2.4 million for the years of 2006,
      2005 and 2004, respectively. The warranty costs in 2006 increased approximately
      $3 million due to the acquisition of the Freeport and Bryan
      facilities.





**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.





**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 senior unsecured convertible notes.





**Statement
      of cash flows**


For
      purposes of the Consolidated Statements of Cash Flows, 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 $15.6 million, $7.5 million and $17.9 million for interest in
      2006,
      2005 and 2004, respectively. In 2006, the increase in interest paid of
      approximately $8 million was due to borrowings related to acquisition of the
      Freeport and Bryan facilities.


F
            - 10
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**Income
      taxes paid**


Titan
      paid $0.2 million, $1.9 million and $0.7 million for income taxes in 2006,
      2005
      and 2004, respectively.





**Global
      market risk**


The
      Company manufactures and sells products and purchases goods in the United States
      and foreign countries. The Company is potentially subject to foreign currency
      exchange risk relating to receipts from customers and payments to suppliers
      in
      foreign currencies. As a result, the Company’s financial results could be
      affected by factors such as changes in foreign currency exchange rates or weak
      economic conditions in the foreign markets in which the Company conducts
      business. Gains and losses arising from the settlement of foreign currency
      transactions are charged to the Consolidated Statement of Operations for the
      related period. Translation adjustments arising from the translation of foreign
      subsidiary financial statements are recorded in accumulated other comprehensive
      income in stockholders’ equity in the accompanying consolidated balance
      sheets.





**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
      December 31, 2006, the Company has three stock-based compensation plans, which
      are described in Note 22. In 2005 and prior years, the Company applied the
      recognition and measurement principles of Accounting Principles Board (APB)
      Opinion No. 25, “Accounting for Stock Issued to Employees,” and related
      Interpretations in accounting for those plans. No stock-based compensation
      expense was recorded in the consolidated financial statements under this method,
      as any options granted had an exercise price equal to the market value of the
      underlying common stock on the date of the grant. The following table
      illustrates the effect on net income and income per share if the Company had
      applied the fair value recognition provisions of SFAS No. 123, “Accounting for
      Stock-Based Compensation,” to stock-based compensation (in
      thousands, except share data) :


**2005**
            
            **2004**Net
                income - as reported
            
            $
            11,042
            
            $
            11,107Deduct:
                Total stock-based compensation expensedetermined under fair value method for all awards,net of related tax effects
            
            
            (5,255
            )
            
            0Pro
                forma net income
            
            $
            5,787
            
            $
            11,107Income
                per share:Basic - as reported
            
            $
            .61
            
            $
            .62Basic - pro forma
            
            
            .32
            
            
            .62Diluted - as reported
            
            $
            .60
            
            $
            .61Diluted - pro forma
            
            
            .32
            
            
            .61





The
      Company granted no stock options in 2006 or 2004. The weighted-average fair
      value of options granted in 2005 was $9.56 and was calculated at the time of
      issue using the Black-Scholes option-pricing model with the following
      assumptions used for grants in 2005:


**2006******(a)
            
            **2005**
            
            **2004******(a)Stock
                price volatility
            
            
            n/a
            
            
            66
            %
            
            n/aRisk-free
                interest rate
            
            
            n/a
            
            
            3.7%
                - 4.4
            %
            
            n/aExpected
                life of options
            
            
            n/a
            
            
            6
                years
            
            
            n/aDividend
                yield
            
            
            n/a
            
            
            .43%
                - .62
            %
            
            n/a





(a)
            The
                Company granted no options during 2006 or 2004.





F
            - 11
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**Reclassification**


Certain
      amounts from prior years have been reclassified to conform to the current year’s
      presentation. The 2005 and 2004 Consolidated Statements of Operations have
      been
      revised to combine research and development (R&D) expenses, which were
      previously shown separately, with the selling, general and administrative
      expenses due to the reduced level of R&D expenditures.





**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**





**Financial
      Accounting Standards Board Interpretation Number 48**


In
      July
      2006, Financial Accounting Standards Board Interpretation (FIN) No. 48,
“Accounting for Uncertainty in Income Taxes-an Interpretation of FASB Statement
      No. 109,” was issued. FIN No. 48 prescribes a recognition threshold and
      measurement attribute for the financial statement recognition and measurement
      of
      a tax position taken or expected to be taken in a tax return. This
      interpretation also provides guidance on derecognition, classification, interest
      and penalties, accounting in interim periods, and disclosure requirements for
      uncertain tax positions. FIN No. 48 is effective for fiscal years beginning
      after December 15, 2006. The Company is evaluating the effect the adoption
      of
      this interpretation will have on its consolidated financial position, results
      of
      operations and cash flows.





**Statement
      of Financial Accounting Standards Number 157**


In
      September 2006, Statement of Financial Accounting Standards (SFAS) No. 157,
      “Fair Value Measurements,” was issued. This statement defines fair value,
      establishes a framework for measuring fair value in generally accepted
      accounting principles and expands disclosures about fair value measurements.
      This Statement applies under other accounting pronouncements that require or
      permit fair value measurements. This statement is effective for financial
      statements issued for fiscal years beginning after November 15, 2007, and
      interim periods within those fiscal years. The Company is evaluating the effect
      the adoption of this standard will have on its consolidated financial position,
      results of operations and cash flows.





**Statement
      of Financial Accounting Standards Number 158**


In
      September 2006, SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension
      and Other Postretirement Plans,” was issued. This statement requires an employer
      to recognize the overfunded or underfunded status of a defined benefit
      postretirement plan as an asset or liability in its statement of financial
      position and to recognize changes in that funded status in the year in which
      the
      changes occur through comprehensive income. An employer with publicly traded
      equity securities is required to initially recognize the funded status of a
      defined benefit postretirement plan and to provide the required disclosures
      as
      of the end of the fiscal year ending after December 15, 2006. The Company
      adopted SFAS No. 158 as of December 31, 2006. The adoption of this statement
      had
      no material effect on the Company’s consolidated results of operations or cash
      flows. See Note 21 for the effect this statement had on the Company’s
      consolidated financial position.





**Staff
      Accounting Bulletin Number 108**


In
      September 2006, the SEC staff issued Staff Accounting Bulletin (SAB) 108,
“Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in Current Year Financial Statements.” SAB 108 requires that
      public companies utilize a “dual-approach” when assessing the quantitative
      effects of financial misstatements. This dual approach includes both an income
      statement focused assessment and a balance sheet focused assessment. The
      guidance in SAB 108 is effective for annual financial statements for fiscal
      years ending after November 15, 2006. The adoption of this guidance had no
      material effect on the Company’s consolidated financial position, results of
      operations and cash flows.


F
          - 12
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




***2.***
            **ACQUISITIONS**





**Acquisition
      of Continental’s OTR Assets**





On
      July
      31, 2006, Titan Tire Corporation of Bryan, a subsidiary of Titan International,
      Inc., acquired the off-the-road (OTR) tire assets of Continental Tire North
      America, Inc. (Continental) in Bryan, Ohio. Titan Tire Corporation of Bryan
      purchased the assets of Continental’s OTR tire facility for approximately $53
      million in cash proceeds, including an initial cash payment of approximately
      $44
      million and subsequent payment due of approximately $9 million. The assets
      purchased included Continental’s OTR plant, property and equipment located in
      Bryan, Ohio, inventory and other current assets. In addition, the Company
      recorded intangibles related to the acquisition as noncurrent assets and assumed
      warranty liabilities. This acquisition expanded Titan’s product offering into
      larger earthmoving, construction and mining tires and added the manufacturing
      capacity of the Bryan, Ohio, facility.





The
      allocation of the Continental OTR asset acquisition was as follows (in
      thousands) :


Inventory
            
            $
            11,053Prepaid
                and other current assets
            
            
            1,350Property,
                plant and equipment
            
            
            42,197Noncurrent
                assets
            
            
            742Liabilities
                assumed
            
            
            (1,800
            )$
            53,542




The
      allocation of the Continental OTR asset acquisition may be subsequently adjusted
      to reflect additional information relating to the estimates and judgments used
      in determining the purchase price allocation. Any changes to the acquisition
      allocation will be made by July 2007.





**Acquisition
      of Goodyear’s North American Farm Tire Assets**





On
      December 28, 2005, Titan Tire Corporation, a subsidiary of Titan International,
      Inc., acquired The Goodyear Tire & Rubber Company’s North American farm tire
      assets. Titan Tire purchased the assets of Goodyear’s North American farm tire
      business for approximately $100 million in cash proceeds. The assets purchased
      include Goodyear’s North American plant, property and equipment located in
      Freeport, Illinois, and Goodyear’s North American farm tire inventory. In
      addition, the Company recorded intangibles related to the acquisition as
      noncurrent assets. This acquisition expanded Titan’s product offering into
      Goodyear branded farm tires and added the manufacturing capacity of the
      Freeport, Illinois, facility.





The
      allocation of the Goodyear North American farm tire acquisition was as follows (in
      thousands) :


Inventory
            
            $
            40,246Prepaid
                and other current assets
            
            
            4,680Property,
                plant and equipment
            
            
            55,074Noncurrent
                assets
            
            
            604$
            100,604





F
            - 13
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**Pro
      forma financial information**


The
      following unaudited pro forma financial information gives effect to the
      acquisition of Continental’s OTR assets and the acquisition of Goodyear’s North
      American farm tire assets as if the acquisitions had taken place on January
      1,
      2005. The pro forma information for the Bryan, Ohio, facility was derived from
      a
      carve-out of Continental’s OTR historical accounting records. The pro forma
      information for the Freeport, Illinois, facility was derived from a carve-out
      of
      The Goodyear Tire & Rubber Company’s historical accounting records.





Pro
      forma
      information for the year (in
      thousands, except per share data) :


**2006**
            
            **2005**Net
                sales
            
            $
            761,796
            
            $
            828,183Income
                before income taxes
            
            
            21,786
            
            
            8,383Net
                income
            
            
            13,072
            
            
            17,803Diluted
                earnings per share
            
            
            .61
            
            
            .92





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 acquisitions
      actually occurred on January 1, 2005, nor is it necessarily indicative of
      Titan’s future consolidated results of operations or financial
      position.





**3.**
            **ACCOUNTS
                RECEIVABLE**





The
      Company had net accounts receivable of $73.9 million and $47.1 million at
      December 31, 2006 and 2005, respectively. These amounts are net of allowance
      for
      doubtful accounts of $4.8 million and $5.7 million for the years ended 2006
      and
      2005, respectively.





**4.**
            **INVENTORIES**





Inventories
      at December 31, 2006 and 2005, consisted of the following (in
      thousands) :


**2006**
            
            **2005**Raw
                material
            
            $
            57,814
            
            $
            42,511Work-in-process
            
            
            16,738
            
            
            10,939Finished
                goods
            
            
            84,863
            
            
            74,793159,415
            
            
            128,243Adjustment
                to LIFO basis
            
            
            (4,811
            )
            
            (5,551
            )$
            154,604
            
            $
            122,692




Included
      in the above inventory balances at December 31, 2006, and December 31, 2005,
      are
      reserves for slow-moving and obsolete inventory of $3.2 million and $2.7 million
      respectively.




F
          - 14
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**5.**
            **PREPAID
                AND OTHER CURRENT ASSETS**





Prepaid
      and other current assets at December 31, 2006 and 2005, consisted of the
      following (in
      thousands) :


**2006**
            
            **2005**Prepaid
                supplies
            
            $
            9,227
            
            $
            8,051Other
            
            
            9,574
            
            
            7,579$
            18,801
            
            $
            15,630








**6.**
            **PROPERTY,
                PLANT AND EQUIPMENT**





Property,
      plant and equipment at December 31, 2006 and 2005, consisted of the following (in
      thousands) :


**2006**
            
            **2005**Land
                and improvements
            
            $
            3,088
            
            $
            2,521Buildings
                and improvements
            
            
            78,230
            
            
            63,572Machinery
                and equipment
            
            
            269,730
            
            
            202,598Tools,
                dies and molds
            
            
            52,205
            
            
            51,859Construction-in-process
            
            
            4,587
            
            
            2,284407,840
            
            
            322,834Less
                accumulated depreciation
            
            
            (223,224
            )
            
            (182,452
            )$
            184,616
            
            $
            140,382







The
      significant increase in property, plant and equipment resulted from the July
      2006 purchase of Continental’s OTR assets. The property, plant and equipment
      included in this purchase totaled $42.2 million. See Note 2 for additional
      information. Depreciation on fixed assets for the years 2006, 2005 and 2004
      totaled $20.7 million, $14.3 million, and $17.4 million, respectively. In
      addition, $3.6 million, $4.7 million, and $5.3 million of depreciation was
      recorded on idled assets marketed for sale in 2006, 2005, and 2004,
      respectively.





**7.**
            **IDLED
                ASSETS MARKETED FOR SALE**





The
      idled
      assets marketed for sale had no balance at December 31, 2006, and a balance
      of
      $18.3 million at December 31, 2005. The idled assets marketed for sale were
      being depreciated in accordance with SFAS No. 144. Depreciation on these idled
      assets was $3.6 million, $4.7 million and $5.3 million for the years ended
      December 31, 2006, 2005 and 2004, respectively.





As
      a
      result of the expectation that the Company can use these assets to refurbish
      or
      increase capacity at the plants associated with the Goodyear North American
      farm
      tire asset acquisition and the Continental OTR asset acquisition, the Company
      is
      placing these assets back into service primarily at the Des Moines, Iowa,
      Freeport, Illinois, and Bryan, Ohio facilities. Therefore, in December 2006,
      the
      idled assets balance of approximately $14 million was reclassified to property,
      plant and equipment leaving no remaining balance at December 31,
      2006.


F
          - 15
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**8.**
            **INVESTMENT
                IN TITAN EUROPE**





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


**2006**
            
            **2005**Investment
                in Titan Europe Plc
            
            $
            65,881
            
            $
            48,467





In
      April
      2004, Titan Luxembourg Sarl, a wholly-owned European subsidiary of the Company,
      sold 70% of the common stock of Titan Europe to the public on the AIM market
      in
      London, England. Titan Luxembourg was the largest single stockholder in Titan
      Europe Plc, retaining a 30% interest on the date of the transaction. In the
      first quarter of 2004, the Company recognized a $3.0 million goodwill impairment
      charge on the pending sale of a majority interest in Titan Europe in accordance
      with the Company’s goodwill impairment process. The historical results of the
      Company for the year ended December 31, 2004, included Titan Europe results
      of
      $49.4 million in net sales, $8.3 million in gross profit and $0.4 million in
      income from operations.





The
      Company accounted for its interest in Titan Europe Plc as an equity investment
      subsequent to the sale of a majority interest in April 2004. The Company
      recognized equity income on its investment in Titan Europe Plc of $2.9 million
      in 2005 and $1.3 million in 2004. In December 2005, Titan Europe Plc issued
      additional shares of stock for an acquisition. As a result of these additional
      shares, the Company’s interest in Titan Europe Plc was diluted and decreased
      from 29.3% at December 31, 2004, to a 15.4% ownership position at December
      31,
      2005. The Company recorded the gain resulting from the change in ownership
      interest to equity in accordance with SAB 51. With the decreased ownership
      percentage, effective December 2005, the Company no longer uses the equity
      method to account for its interest in Titan Europe Plc.





In
      accordance with SFAS No. 115, the Company records the Titan Europe Plc
      investment as an available-for-sale security and reports the investment at
      fair
      value, with unrealized gains and losses excluded from earnings and reported
      as a
      separate component of comprehensive income in stockholders’ equity. The
      Company’s stock ownership interest in Titan Europe Plc was 17.3% at December 31,
      2006, and 15.4% at December 31, 2005. The increase in ownership percentage
      resulted from a December 2006 transaction in which Titan Europe Plc issued
      additional shares to the Company in payment of approximately $7.9 million U.S.
      dollars of debt, representing the entire remaining long-term debt owed by Titan
      Europe Plc to the Company.





The
      fair
      value of the Company’s investment in Titan Europe Plc was $65.9 million and
      $48.5 million at December 31, 2006 and 2005, respectively. Cash dividends
      received from Titan Europe Plc were $1.3 million, $0.9 million and $0.3 million
      for the years ended December 31, 2006, 2005 and 2004, respectively.





**9.**
            **GOODWILL**





The
      carrying amount of goodwill by segment at December 31, 2006 and 2005, was (i)
      agricultural of $6.9 million, (ii) earthmoving/construction of $3.6 million,
      and
      (iii) consumer of $1.2 million.





The
      Company reviews goodwill to assess recoverability from future operations during
      the fourth quarter of each annual reporting period, and whenever events and
      circumstances indicate that the carrying values may not be recoverable as
      required by the adoption of SFAS No. 142, Goodwill and Other Intangible Assets.
      Based on a discounted cash flow method at December 31, 2006, the Company’s
      computation showed no impairment. There can be no assurance that future goodwill
      tests will not result in an impairment charge.


F
          - 16
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**10.**
            **OTHER
                ASSETS**





Other
      assets at December 31, 2006 and 2005, consisted of the following (in
      thousands) :


**2006**
            
            **2005**Deferred
                financing
            
            $
            7,534
            
            $
            4,014Note
                receivable from Titan Europe Plc
            
            
            0
            
            
            5,191Other
            
            
            5,460
            
            
            6,566$
            12,994
            
            $
            15,771





The
      increase in deferred financing is the result of additional deferred financing
      related to the December 2006 issuance of the Company’s $200 million senior
      unsecured notes due 2012. The decrease in the note receivable is the result
      of
      Titan Europe Plc issuing additional shares to the Company in December 2006
      in
      satisfaction of the note.





**11.**
            **OTHER
                CURRENT LIABILITIES**





Other
      current liabilities at December 31, 2006 and 2005, consisted of the following
      accruals (in
      thousands) :


**2006**
            
            **2005**Off-the-road
                acquisition
            
            $
            8,900
            
            $
            0Wages
                and commissions
            
            
            8,800
            
            
            3,381Warranty
            
            
            4,688
            
            
            1,838Insurance
            
            
            4,458
            
            
            2,430Other
            
            
            10,096
            
            
            4,104$
            36,942
            
            $
            11,753





The
      off-the-road (OTR) acquisition liability is the remaining amount due on the
      Continental OTR asset acquisition after final settlement. The increase in wages
      and commissions results from the accrued wages for the Freeport and Bryan
      facilities. The employees of these facilities became part of Titan in
      2006.





**12.**
            **WARRANTY
                COSTS**





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


**2006**
            
            **2005**Warranty
                liability, January 1
            
            $
            1,838
            
            $
            1,762Warranty assumed with asset purchase
            
            
            1,800
            
            
            0Provision for warranty liabilities
            
            
            5,534
            
            
            2,622Warranty payments made
            
            
            (4,484
            )
            
            (2,546
            )Warranty
                liability, December 31
            
            $
            4,688
            
            $
            1,838





**13.**
            **OTHER
                LONG-TERM LIABILITIES**





Other
      long-term liabilities at December 31, 2006 and 2005, consisted of the following (in
      thousands) :


**2006**
            
            **2005**Accrued
                pension liabilities
            
            $
            8,682
            
            $
            15,476Accrued
                employment liabilities
            
            
            4,741
            
            
            2,775Other
            
            
            2,412
            
            
            2,464$
            15,835
            
            $
            20,715





See
      Note
      21 for additional information regarding the decrease in accrued pension
      liabilities. Accrued employment liabilities at December 31, 2006, includes
      approximately $2 million for contractual and performance obligations upon
      retirement for certain executive officers.


F
          - 17
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**14.**
            **REVOLVING
                CREDIT FACILITY AND LONG-TERM
                DEBT**





Long-term
      debt at December 31, 2006 and 2005, consisted of the following (in
      thousands) :


**2006**
            
            **2005**Senior
                unsecured notes
            
            $
            200,000
            
            $
            0Revolving
                credit facility
            
            
            0
            
            
            99,100Senior
                unsecured convertible notes
            
            
            81,200
            
            
            81,200Industrial
                revenue bonds and other
            
            
            10,164
            
            
            22,159291,364
            
            
            202,459Less
                amounts due within one year
            
            
            98
            
            
            11,995$
            291,266
            
            $
            190,464





Aggregate
      maturities of long-term debt are as follows ( in
      thousands ):


2007
            
            $
            982008
            
            
            5662009
            
            
            81,2002010
            
            
            9,5002011
            
            
            0Thereafter
            
            
            200,000$
            291,364





**Senior
      unsecured notes**


In
      December 2006, the Company closed its offering of $200 million 8% senior
      unsecured notes. The notes were sold at par and are due January 2012. Titan
      used
      the net proceeds from this offering to repay outstanding existing debt at the
      time of closing, excluding the 5.25 percent senior unsecured convertible notes.
      The outstanding balance on the Company’s revolving credit facility was paid down
      in December and had no cash borrowings at December 31, 2006. The Company
      anticipates paying off approximately $10 million of industrial revenue bonds
      in
      the first quarter of 2007 and will use the remaining cash for general corporate
      purposes.





**Revolving
      credit facility**


The
      Company’s revolving credit facility with agent LaSalle Bank National Association
      had a 2008 termination date and is collateralized by a first priority security
      interest in certain assets of Titan and its domestic subsidiaries. At December
      31, 2006, the borrowings under the facility bore interest at a floating rate
      of
      prime rate plus 1.25% or LIBOR plus 2.75%. There were no borrowings under this
      facility at December 31, 2006. The facility contains certain financial
      covenants, restrictions and other customary affirmative and negative covenants.
      The Company is in compliance with these covenants and restrictions as of
      December 31, 2006.





**Credit
      facility amendments**


In
      October 2005, the revolving credit facility was amended. The amendment increased
      the revolving loan availability to $200 million from $100 million, extended
      the
      termination date to October 2008 from the previous termination date of July
      2007
      and removed General Electric Capital Corporation as a participant. In July
      2006,
      upon the closing of Titan’s acquisition of the Continental OTR assets, the
      facility was amended increasing the loan availability from $200 million to
      $250
      million.





*Recent
      Development* **** On
      February 8, 2007, the Company amended its revolving credit facility with LaSalle
      Bank National Association. The amendment extended the termination date to
      October 2009 (previously October 2008). The amendment also lowered borrowing
      rates, which will be based on a pricing grid. The borrowings under the facility
      will bear interest at a floating rate of LIBOR plus 1% to 2% (previously 2.75%).
      The amendment lowered the revolving loan availability from $250 million to
      $125
      million with the ability to request an increase back to $250
      million.


F
            - 18
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**Senior
      unsecured convertible notes**


The
      $81.2
      million of 5.25% senior unsecured convertible notes are due 2009. These notes
      are convertible into shares of the Company’s stock at any time on or before
      maturity at a conversion rate of 74.0741 shares per $1,000 principal amount
      of
      notes ($13.50 per common share), subject to adjustment. This conversion rate
      would convert all of the notes into approximately 6.0 million shares of the
      Company’s common stock. In June of 2005, Titan finalized a private transaction
      to exchange $33.8 million of the Company’s outstanding 5.25% senior unsecured
      convertible notes due 2009 for 3,022,275 shares of common stock as proposed
      to
      the Company by certain note holders. The Company recognized a noncash charge
      of
      $7.2 million in connection with this exchange in accordance with SFAS No. 84,
      “Induced Conversions of Convertible Debt,” during the second quarter of 2005.





*Recent
      Development* In
      January 2007, Titan filed a Form S-4 registration statement relating to an
      offer
      to the holders of the senior unsecured convertible notes to convert their notes
      into Titan’s common stock at an increased conversion rate. See Note 27 for
      additional information.





**Industrial
      revenue bonds and other**


Other
      debt primarily consists of industrial revenue bonds, loans from local and state
      entities, and other long-term notes. Maturity dates on this debt range from
      one
      to three years and interest rates ranged from 3% to 4% rate.





*Recent
      Development* In
      January 2007, the Company issued a notice of redemption for $9.5 million in
      industrial revenue bonds. These bonds, which were previously due February 2010,
      are expected to be redeemed in the first quarter of 2007.





**Redemption
      of 8.75% senior subordinated notes**





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





**Debt
      termination expenses**


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





**15.**
            **ACCUMULATED
                OTHER COMPREHENSIVE INCOME
                (LOSS)**





Accumulated
      other comprehensive income (loss) consisted of the following (in
      thousands) :


**Currency**
              **Translation**
              **Adjustments**
            
            **Unrealized**
              **Gain
                on**
              **Investments**
            
            **Minimum**
              **Pension**
              **Liability**
              **Adjustment**
            
            **Unrecognized**
              **Losses
                and**
              **Prior
                Service**
              **Cost**
            
            **Total****Balance
                at January 1, 2005**
            
            $
            1,985
            
            $
            0
            
            $
            (18,551
            )
            $
            0
            
            $
            (16,566
            )Currency
                translation adjustments
            
            
            (3,168
            )
            
            0
            
            
            0
            
            
            0
            
            
            (3,168
            )Minimum
                  pension liability adjustment, net of tax of
                  $10
            
            
            0
            
            
            0
            
            
            (18
            )
            
            0
            
            
            (18
            )**Balance
                at December 31, 2005**
            
            
            (1,183
            )
            
            0
            
            
            (18,569
            )
            
            0
            
            
            (19,752
            )Unrealized
                  gain on investment,net of tax of $3,299
            
            
            0
            
            
            6,126
            
            
            0
            
            
            0
            
            
            6,126Minimum
                  pension liabilityadjustment, net of tax of
                  $595
            
            
            0
            
            
            0
            
            
            3,225
            
            
            0
            
            
            3,225Adoption
                  of SFAS No. 158, net of tax of $651
            
            
            0
            
            
            0
            
            
            15,344
            
            
            (16,405
            )
            
            (1,061
            )**Balance
                at December 31, 2006**
            
            $
            (1,183
            )
            $
            6,126
            
            $
            0
            
            $
            (16,405
            )
            $
            (11,462
            )






F
          - 19
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**16.**
            **STOCKHOLDERS’
                EQUITY**





In
      June
      of 2005, Titan finalized a private transaction to exchange $33.8 million of
      the
      Company’s outstanding 5.25% senior unsecured convertible notes due 2009 for
      3,022,275 shares of common stock as proposed to the Company by certain note
      holders. The Company recognized a noncash charge of $7.2 million in connection
      with this exchange in accordance with SFAS No. 84, “Induced Conversions of
      Convertible Debt,” during the second quarter of 2005.





The
      Company is authorized by the Board of Directors to repurchase an additional
      2.5
      million common shares subject to debt agreement covenants. The Company paid
      cash
      dividends of $.02 per share of common stock per year for 2006, 2005 and
      2004.





**17.**
            **ROYALTY
                EXPENSE**





The
      December 2005 Goodyear North American farm tire asset acquisition included
      a
      license agreement with The Goodyear Tire & Rubber Company to manufacture and
      sell certain off-highway tires in North America. Royalty expenses recorded
      for
      the year ended December 31, 2006, were $5.0 million. No royalty expense was
      recorded in 2005 and 2004, as this license agreement was not yet in place during
      those years.





**18.**
            **GOODWILL
                IMPAIRMENT ON TITAN EUROPE**





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





**19.**
            **OTHER
                INCOME, NET**





Other
      income consisted of the following (in
      thousands) :


**2006**
            
            **2005**
            
            **2004**Interest
                income
            
            $
            1,681
            
            $
            367
            
            $
            669Dividend
                income - Titan Europe Plc
            
            
            1,281
            
            
            0
            
            
            0Foreign
                exchange gain (loss)
            
            
            975
            
            
            (1,338
            )
            
            537Equity
                income - Titan Europe Plc
            
            
            0
            
            
            2,938
            
            
            1,278Other
                (expense)
            
            
            (373
            )
            
            (1,009
            )
            
            (778
            )$
            3,564
            
            $
            958
            
            $
            1,706





Interest
      income for the year ended December 31, 2006, includes $1.1 million of interest
      income received in March 2006 regarding the final calculation of interest earned
      associated with restricted cash previously on deposit. As a result of decreased
      ownership percentage in Titan Europe Plc, effective December 2005, the Company
      no longer uses the equity method to account for its interest in Titan Europe
      Plc.


F
          - 20
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**20.**
            **INCOME
                TAXES**





Income
      (loss) before income taxes, consisted of the following (in
      thousands) :


**2006**
            
            
            **2005**
            
            
            **2004**Domestic
            
            $
            5,310
            
            $
            (5,048
            )
            $
            12,533Foreign
            
            
            3,264
            
            
            2,163
            
            
            2,682$
            8,574
            
            $
            (2,885
            )
            $
            15,215





The
      provision (benefit) for income taxes, was as follows (in
      thousands) :





**2006**
            
            
            **2005**
            
            
            **2004**CurrentFederal
            
            $
            120
            
            $
            549
            
            $
            2,571State
            
            
            475
            
            
            0
            
            
            0Foreign
            
            
            183
            
            
            87
            
            
            1,537778
            
            
            636
            
            
            4,108DeferredFederal
            
            
            2,442
            
            
            (13,413
            )
            
            0State
            
            
            210
            
            
            (1,150
            )
            
            0Foreign
            
            
            0
            
            
            0
            
            
            02,652
            
            
            (14,563
            )
            
            0Provision
                (benefit) for income taxes
            
            $
            3,430
            
            $
            (13,927
            )
            $
            4,108





The
      provision (benefit) for income taxes 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:





**2006**
            
            **2005**
            
            **2004**Statutory
                U.S. federal tax rate
            
            
            35.0
            %
            
            (35.0
            )%
            
            35.0
            %Valuation
                allowance
            
            
            0.0
            
            
            (488.7
            )
            
            (47.3
            )Nondeductible
                convertible debt conversion charge
            
            
            0.0
            
            
            87.7
            
            
            0.0Dyneer
                legal charge
            
            
            0.0
            
            
            (60.7
            )
            
            0.0State
                tax rate change
            
            
            0.0
            
            
            21.2
            
            
            0.0Repatriation
                  of foreign earnings, net ofAmerican Jobs Creation Act
                  benefit
            
            
            11.6
            
            
            19.0
            
            
            29.3Nondeductible
                goodwill write-off
            
            
            0.0
            
            
            0.0
            
            
            6.9Foreign
                taxes, net
            
            
            (12.0
            )
            
            (18.1
            )
            
            0.0State
                taxes, net
            
            
            6.2
            
            
            (2.9
            )
            
            0.0Other,
                net
            
            
            (0.8
            )
            
            (5.2
            )
            
            3.1Effective
                tax rate
            
            
            40.0
            %
            
            (482.7
            )%
            
            27.0
            %





Federal
      income taxes are provided on earnings of foreign subsidiaries except to the
      extent that such earnings are expected to be indefinitely reinvested
      abroad.


F
            - 21
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





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 December 31, 2006 and 2005, are
      as follows (in
      thousands) :


**2006**
            
            **2005**Deferred
                tax assets:Net operating loss carryforward
            
            $
            12,618
            
            $
            14,120Pension
            
            
            4,501
            
            
            5,619Employee benefits and related costs
            
            
            3,720
            
            
            2,050Allowance for bad debts
            
            
            1,830
            
            
            2,148Inventory
            
            
            1,351
            
            
            459EPA reserve
            
            
            1,226
            
            
            1,236Warranty
            
            
            1,112
            
            
            699Other
            
            
            2,876
            
            
            3,025Deferred tax assets
            
            
            29,234
            
            
            29,356Deferred
                tax liabilities:Fixed assets
            
            
            (16,534
            )
            
            (14,705
            )Unrealized gain on available-for-sale security
            
            
            (8,937
            )
            
            (5,638
            )Foreign deferred gain
            
            
            (2,453
            )
            
            (2,453
            )Deferred tax liabilities
            
            
            (27,924
            )
            
            (22,796
            )Net
                deferred tax asset
            
            $
            1,310
            
            $
            6,560





The
      Company recorded an income tax expense of $3.4 million, an income tax benefit
      of
      $13.9 million and an income tax expense of $4.1 million for the years ended
      December 31, 2006, 2005 and 2004, respectively.   As a result of several
      years of previous losses, the Company recorded a valuation allowance against
      its
      net deferred tax asset, consistent with the Company’s accounting policies. As a
      result of anticipated utilization of net operating loss carryforward in
      connection with its future Federal income tax filings, the Company recorded
      a
      tax benefit of $13.9 million in 2005 as a result of the reversal of the
      Company’s valuation allowance in accordance with SFAS 109. The Company’s net
      operating loss carryforward of approximately $32 million expires in 2023.





**American
      Jobs Creation Act of 2004**


In
      October 2004, the American Jobs Creation Act of 2004 was signed into law by
      the
      President of the United States of America. This legislation resulted in sweeping
      revisions to the U.S. Internal Revenue Code and related regulations. The Act
      provides for a number of changes, including providing taxpayers with an
      opportunity to repatriate foreign-source income in the U.S. if such repatriated
      income is invested in the U.S. under a properly approved domestic reinvestment
      plan. The repatriation provisions of this Act benefited the Company by
      preserving net operating loss carryforwards.





During
      2004, prior to the passage of the Act, the Company had estimated a $15 million
      reduction to the valuation allowance related to its net deferred tax asset
      position. The $7.1 million reduction in this estimate at December 31, 2004,
      was
      due to the repatriation, under the provisions of the Act, of foreign earnings
      associated with the sale of a majority interest in Titan Europe. This
      repatriation under the Act allowed the Company to pay a current tax rate of
      5.25% on the repatriated foreign earnings rather than utilizing net operating
      loss carryforwards.


F
          - 22
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**21.**
            **EMPLOYEE
                BENEFIT PLANS**





**Pension
      plans**


The
      Company has a frozen defined benefit pension plan covering certain employees
      of
      Titan Tire Corporation. The Company also has a frozen contributory defined
      benefit pension plan covering certain former eligible bargaining employees
      of
      its Walcott, Iowa, facility. Additionally, the Company maintains a contributory
      defined benefit plan that covered former eligible bargaining employees of Dico,
      Inc. 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 December 31, 2006, presentation are the Titan Tire and Walcott
      plans, which have a projected benefit obligation and accumulated benefit
      obligation of $68.8 million, exceeding the fair value of plan assets of $60.2
      million at December 31, 2006. At December 31, 2005, these plans had a projected
      benefit obligation and accumulated benefit obligation of $71.8 million,
      exceeding the fair value of plan assets of $56.3 million. 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
      December 31, 2006, 2005 and 2004.




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 December 31, 2006 and 2005 (in
        thousands) :
 
 **Change
                  in benefit obligation:**
              
              **2006**
              
              **2005**Benefit
                  obligation at beginning of year
              
              $
              71,796
              
              $
              75,748Interest
                  cost
              
              
              3,934
              
              
              4,158Actuarial
                  gain
              
              
              (144
              )
              
              (1,342
              )Benefits
                  paid
              
              
              (6,742
              )
              
              (6,768
              )Benefit
                  obligation at end of year
              
              $
              68,844
              
              $
              71,796**Change
                  in plan assets:**Fair
                  value of plan assets at beginning of year
              
              $
              56,802
              
              $
              57,985Actual
                  return on plan assets
              
              
              6,578
              
              
              1,753Employer
                  contributions
              
              
              4,028
              
              
              3,832Benefits
                  paid
              
              
              (6,742
              )
              
              (6,768
              )Fair
                  value of plan assets at end of year
              
              $
              60,666
              
              $
              56,802**Unfunded
                  status at end of year**
              
              $
              (8,178
              )
              $
              (14,994
              )Unrecognized
                  prior service cost
              
              
              
              
              
              1,848Unrecognized
                  net loss
              
              
              
              
              
              28,906Unrecognized
                  deferred tax liability
              
              
              
              
              
              (337
              )Net
                  amount recognized
              
              
              
              
              $
              15,423**Amounts
                  recognized in consolidated balance sheet:**Current
                  assets
              
              $
              0
              
              $
              n/aNoncurrent
                  assets
              
              
              504
              
              
              n/aNoncurrent
                  liabilities
              
              
              (8,682
              )
              
              n/aPrepaid
                  benefit cost
              
              
              n/a
              
              
              483Intangible
                  asset
              
              
              n/a
              
              
              1,848Accrued
                  benefit costs
              
              
              n/a
              
              
              (15,476
              )Accumulated
                  other comprehensive loss
              
              
              n/a
              
              
              28,568Net
                  amount recognized in the consolidated balance sheet
              
              $
              (8,178
              )
              $
              15,423




F
          - 23
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**Amounts
                  recognized in accumulated other comprehensive loss at December
                  31,
                  2006:**Unrecognized
                  prior service cost
              
              $
              (1,711
              )Unrecognized
                  net loss
              
              
              (25,030
              )Unrecognized
                  deferred tax liability
              
              
              281Deferred
                  tax effect of unrecognized items
              
              
              10,055Net
                  amount recognized in accumulated other comprehensive loss
              
              $
              (16,405
              )
  The
          weighted-average assumptions used in the actuarial computation that derived
          the
          benefit obligations at December 31 were as follows:
 **2006**
              
              **2005**Discount
                  rate
              
              
              5.75
              %
              
              5.75
              %Expected
                  long-term return on plan assets
              
              
              8.50
              %
              
              8.50
              %
 
 The
        Company adopted SFAS No. 158 as of December 31, 2006. The incremental effect
        of
        applying SFAS No. 158 on individual line items in the consolidated balance
        sheet
        at December 31, 2006, is as follows (in
        thousands) :
 **Before
                  application of**
                **SFAS
                  158**
              
              **Adjustments**
              
              **After
                  application of**
                **SFAS
                  158**Deferred
                  tax asset
              
              $
              28,583
              
              $
              651
              
              $
              29,234Other
                  assets
              
              
              14,705
              
              
              (1,711
              )
              
              12,994Accumulated
                  other comprehensive loss, net of tax
              
              
              (10,401
              )
              
              (1,061
              )
              
              (11,462
              )Total
                  stockholders’ equity
              
              
              188,238
              
              
              (1,061
              )
              
              187,177
 
 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 December 31, 2006, 2005 and
        2004 (in
        thousands) :
 
 **Components
                  of net periodic benefit cost and other**
                **amounts
                  recognized in other comprehensive income**Net
                  periodic benefit cost:
              
              
              **2006**
              
              
              **2005**
              
              
              **2004**Interest cost
              
              $
              3,934
              
              $
              4,158
              
              $
              4,465Assumed return on assets
              
              
              (4,673
              )
              
              (4,809
              )
              
              (4,394
              )Amortization of unrecognized prior service cost
              
              
              137
              
              
              137
              
              
              136Amortization of unrecognized deferred taxes
              
              
              (56
              )
              
              (56
              )
              
              (56
              )Amortization of net unrecognized loss
              
              
              1,848
              
              
              1,754
              
              
              1,609Net
                  periodic pension cost
              
              $
              1,190
              
              $
              1,184
              
              $
              1,760
 
 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 $1.6 million, $0.1 and $(0.1) million,
        respectively.
 
 The
        weighted-average assumptions used in the actuarial computation that derived
        net
        periodic pension cost for the years ended December 31, 2006, 2005 and
        2004:
 **2006**
              
              **2005**
              
              **2004**Discount
                  rate
              
              
              5.75
              %
              
              5.75
              %
              
              6.25
              %Expected
                  long-term return on plan assets
              
              
              8.50
              %
              
              8.50
              %
              
              8.50
              %




F
            - 24
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





The
      allocation of the fair value of plan assets was as follows:


**Percentage
                of Plan Assets**
              **at
                December 31,**
            
            **Target**
              **Allocation****Asset
                Category**
            
            **2006**
            
            **2005**
            
            **2007**U.S.
                equities(a)
            
            
            65
            %
            
            64
            %
            
            44%
                - 80
            %Fixed
                income
            
            
            21
            %
            
            20
            %
            
            20%
                - 40
            %Cash
                and cash equivalents
            
            
            5
            %
            
            8
            %
            
            0%
                - 20
            %International
                equities(a)
            
            
            9
            %
            
            8
            %
            
            0%
                - 16
            %100
            %
            
            100
            %





(a)
            Total
                equities may not exceed 80% of total plan
                assets.





The
      Company invests in a diversified portfolio consisting of an array of asset
      classes in an attempt to maximize returns while minimizing volatility. 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 Lehman
      Government / Corporate Index. The U.S. equities asset category included the
      Company’s common stock in the amount of $2.3 million (four percent of total plan
      assets) and $2.7 million (five percent of total plan assets) at December 31,
      2006 and 2005, respectively.





The
      long-term rate of return for plan assets is determined using a weighted-average
      of long-term historical 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 8.5% over the long-term. This rate assumes historical returns of 10%
      for
      equities and 7% for fixed income securities using the plans’ target allocation
      percentages. Professional investment firms, none of which are Titan employees,
      manage the plan assets.





Although
      the 2007 minimum pension funding calculations are not finalized, the Company
      estimates those funding requirements will be approximately $5
      million.





Projected
      benefit payments from the plans as of December 31, 2006, are estimated as
      follows (in thousands):


2007
            
            $
            6,1702008
            
            
            6,0362009
            
            
            5,9272010
            
            
            5,7642011
            
            
            5,5782012-2016
            
            
            26,460





**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. Beginning in July of 2004, Titan provides a 25% matching
      contribution in the form of the Company’s common stock on the first 6% of the
      employee’s contribution in this plan. The Company issued 13,506 shares and
      18,645 shares of treasury stock in connection with this 401(k) plan during
      2006
      and 2005, respectively. Expenses to the Company related to this 401(k) plan
      were
      $0.3 million for each of 2006 and 2005. There was no treasury stock issued
      or
      expense recorded for the 401(k) plan in 2004 as the Company used forfeited
      shares within the plan to satisfy matching contributions.





A
      second
      plan is for employees covered by a collective bargaining arrangement at Titan
      Tire Corporation and does not include a Company matching contribution. Employees
      are fully vested with respect to their contributions.





The
      Company’s third plan received a 401(k) plan transfer in 2006 for the employees
      covered by a collective bargaining agreement of Titan Tire Corporation of
      Freeport. This plan does not include a Company matching contribution. Employees
      are fully vested with respect to their contributions.


F
            - 25
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





Previously,
      the Company adopted 401(k) plans for the employees of Titan Tire Corporation
      of
      Texas and the employees of Titan Tire Corporation of Natchez. These plans relate
      to the non-operational facilities in Brownsville, Texas, and Natchez,
      Mississippi. The matching contributions on these 401(k) plans were discontinued
      in November 2003.




**22.**
            **STOCK
                OPTION PLANS**





On
      January 1, 2006, the Company adopted SFAS 123(R), “Share-Based Payment,” using
      the modified prospective method of adoption, which does not require restatement
      of prior periods. The Company previously applied the recognition and measurement
      principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,”
and related Interpretations in accounting for share-based option awards. SFAS
      123(R) requires companies to estimate the fair value of share-based option
      awards on the date of the grant using an option-pricing model. The value of
      the
      portion of the award that is ultimately expected to vest is recognized as
      expense over the vesting period. No stock-based compensation expense was
      recorded during 2006, 2005 or 2004. See Note 1 for 2005 pro forma information
      illustrating the effect on net income and income per share if the Company had
      applied the provisions of SFAS 123(R). The Company granted no options during
      2006 or 2004. All previously granted options were fully vested before January
      1,
      2006.





In
      accordance with SFAS 123(R), cash flows from income tax benefits resulting
      from
      tax deductions in excess of compensation cost recognized for share-based option
      awards have been classified as financing cash flows prospectively from January
      1, 2006. Previously, these excess tax benefits were presented as operating
      cash
      flows.





**Stock
      Incentive Plan** **


The
      Company adopted the 1993 Stock Incentive Plan (the Plan) to provide grants
      of
      stock options as a means of attracting and retaining qualified employees for
      the
      Company. There will be no additional issuance of stock options under this plan
      as it has expired. Options previously granted were fully vested in 2005 and
      expire 10 years from the grant date of the option.





**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 were fully vested in 2005 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 2.1 million shares are reserved for the 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. In 2006 no options were granted under this
      plan. In 2005, a total of 890,380 options were granted under this plan. These
      options were fully vested in 2005 and expire 10 years from the grant date of
      the
      option.





Stock
      options outstanding and exercisable as of December 31, 2006, were as
      follows:


**Options
                Outstanding**
            
            **Options
                Exercisable****Price
                Range**
            
            **Weighted
                  Average**Contractual Life
            
            **Number
                  of**Options
            
            **Weighted
                  Average**Exercise Price
            
            **Number
                  of**Options
            
            **Weighted
                  Average**Exercise Price$
                4.54-$ 6.69
            
            
            4.3
                years
            
            
            135,000
            
            $
            5.47
            
            
            135,000
            
            $
            5.47$
                8.00-$ 9.50
            
            
            2.2
                years
            
            
            169,870
            
            $
            8.40
            
            
            169,870
            
            $
            8.40$12.75-$14.45
            
            
            6.6
                years
            
            
            389,215
            
            $
            13.35
            
            
            389,215
            
            $
            13.35$16.00-$18.00
            
            
            7.1
                years
            
            
            455,975
            
            $
            17.37
            
            
            455,975
            
            $
            17.371,150,060
            
            $
            13.29
            
            
            1,150,060
            
            $
            13.29







F
            - 26
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





The
      following is a summary of activity in the stock option plans for 2004, 2005
      and
      2006:


**Shares
                Subject**
              **to
                Option**
            
            **Weighted-
                Average**
              **Exercise
                Price****Outstanding,
                January 1, 2004**
            
            
            948,650
            
            $
            11.29Granted
            
            
            0
            
            
            -
            (a)Exercised
            
            
            (23,570
            )
            
            8.00Canceled/Expired
            
            
            (122,690
            )
            
            12.16**Outstanding,
                December 31, 2004**
            
            
            802,390
            
            
            11.25Granted
            
            
            890,380
            
            
            15.20Exercised
            
            
            (135,860
            )
            
            11.04Canceled/Expired
            
            
            (9,400
            )
            
            13.47**Outstanding,
                December 31, 2005**
            
            
            1,547,510
            
            
            13.53Granted
            
            
            0
            
            
            -
            (a)Exercised
            
            
            (382,190
            )
            
            14.15Canceled/Expired
            
            
            (15,260
            )
            
            16.00**Outstanding,
                December 31, 2006**
            
            
            1,150,060
            
            $
            13.29





(a)
            The
                Company granted no options during 2004 or
                2006.





The
      total
      intrinsic value of options exercised in 2006 was $1.7 million. Cash received
      from the exercise of options was $5.4 million for 2006. The tax benefit realized
      for the tax deductions from options exercised was $0.6 million for 2006.





The
      Company currently uses treasury shares to satisfy any stock option exercises.
      At
      December 31, 2006, the Company had 10.7 million shares of treasury
      stock.





**23.**
            **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 $3.2 million, $3.2 million and $2.9 million for the years
      ended December 31, 2006, 2005 and 2004, respectively.





At
      December 31, 2006, future minimum rental commitments under noncancellable
      operating leases with initial or remaining terms in excess of one year are
      as
      follows (in
      thousands) :


2007
            
            $
            2,5752008
            
            
            1,5252009
            
            
            9622010
            
            
            6602011
            
            
            349Thereafter
            
            
            0Total
                future minimum lease payments
            
            $
            6,071




F
          - 27
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**24.**
            **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 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.





**25.**
            **CONCENTRATION
                OF CREDIT RISK**





Net
      sales
      to Deere & Company in Titan’s agricultural, earthmoving/construction and
      consumer markets represented 17%, 20% and 22% of the Company’s consolidated
      revenues for the years ended December 31, 2006, 2005 and 2004, respectively.
      Net
      sales to CNH Global N.V. in Titan’s three markets represented 11% of the
      Company’s consolidated revenues for each of the years ended December 31, 2006,
      2005 and 2004. No other customer accounted for more than 10% of Titan’s net
      sales in 2006, 2005 or 2004.





**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. During 2006, 2005 and
      2004, sales of Titan product to these companies were approximately $6.4 million,
      $6.5 million and $4.6 million, respectively. On other sales referred to Titan
      from these manufacturing representative companies, commissions were
      approximately $2.0 million, $1.6 million and $1.5 million during 2006, 2005
      and
      2004, respectively. These sales and commissions were made in the ordinary course
      of business and were made on terms no less favorable to Titan than comparable
      sales and commissions to unaffiliated third parties. At December 31, 2006 and
      2005, Titan had trade receivables of approximately $0.6 million and $0.9 million
      due from these companies, respectively.





**27.**
            **RECENT
                DEVELOPMENTS**





**Convertible
      Note Conversion Offer**


In
      January 2007, the Company filed a registration statement relating to an offer
      to
      the holders of its 5.25% senior unsecured convertible notes due 2009 to convert
      their notes into Titan’s common stock at an increased conversion rate (the
“Conversion Offer”). Per the Offer, each $1,000 principal amount of notes is
      convertible into 81.0000 shares of common stock, which is equivalent to a
      conversion price of approximately $12.35 per share. The offering price set
      forth
      will not include accrued interest; therefore, no accrued interest will be paid
      on the notes that accept this offering. Prior to the Offer, each $1,000
      principal amount of notes was convertible into 74.0741 shares of common stock,
      which was equivalent to a conversion price of approximately $13.50 per share.
      The registration statement relating to the shares of common stock to be offered
      was declared effective on February 21, 2007. The offer is scheduled to expire
      on
      March 20, 2007, unless extended or terminated.





**Credit
      Facility Amendment**


On
      February 8, 2007, the Company amended its revolving credit facility with LaSalle
      Bank National Association. The amendment extended the termination date to
      October 2009 (previously October 2008). The amendment also lowered borrowing
      rates, which will be based on a pricing grid. The borrowings under the facility
      will bear interest at a floating rate of LIBOR plus 1% to 2% (previously 2.75%).
      The amendment lowered the revolving loan availability from $250 million to
      $125
      million with the ability to request an increase back to $250 million.


F
          - 28
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**28.**
            **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 and chief operating
      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
      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.





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 December 31, 2006, 2005 and 2004 (in
      thousands) :


**2006**
            
            **Agricultural**
            
            **Earthmoving/**
              **Construction**
            
            **Consumer**
            
            **Reconciling**
              ******Items**
            
            **Consolidated**
              ******Totals**Revenues
                from externalcustomers
            
            $
            421,096
            
            $
            183,357
            
            $
            75,001
            
            $
            0
            
            $
            679,454Depreciation
                & amortization
            
            
            15,324
            
            
            7,402
            
            
            1,409
            
            
            2,715
            (a)
            
            26,850Income
                (loss) from operations
            
            
            27,351
            
            
            21,837
            
            
            1,655
            
            
            (28,832
            )
                (b)
            
            22,011Total
                assets
            
            
            273,787
            
            
            145,964
            
            
            22,678
            
            
            142,697
            (c)
            
            585,126Capital
                expenditures
            
            
            5,184
            
            
            2,192
            
            
            339
            
            
            567
            (d)
            
            8,282**2005**Revenues
                from externalcustomers
            
            $
            310,361
            
            $
            131,982
            
            $
            27,790
            
            $
            0
            
            $
            470,133Depreciation
                & amortization
            
            
            11,738
            
            
            5,183
            
            
            1,447
            
            
            2,378
            (a)
            
            20,746Income
                (loss) from operations
            
            
            31,750
            
            
            17,664
            
            
            1,825
            
            
            (39,240
            )
                (b)
            
            11,999Total
                assets
            
            
            239,581
            
            
            89,241
            
            
            22,963
            
            
            88,971
            (c)
            
            440,756Capital
                expenditures
            
            
            3,365
            
            
            1,615
            
            
            230
            
            
            1,542
            (d)
            
            6,752**2004**Revenues
                from externalcustomers
            
            $
            316,235
            
            $
            160,297
            
            $
            34,039
            
            $
            0
            
            $
            510,571Depreciation
                & amortization
            
            
            12,084
            
            
            6,980
            
            
            1,585
            
            
            4,258
            (a)
            
            24,907Income
                (loss) from operations
            
            
            38,585
            
            
            16,627
            
            
            1,891
            
            
            (23,781
            )
                (b)
            
            33,322Total
                assets
            
            
            173,335
            
            
            78,116
            
            
            17,211
            
            
            85,504
            (c)
            
            354,166Capital
                expenditures
            
            
            2,493
            
            
            1,417
            
            
            185
            
            
            233
            (d)
            
            4,328





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





(b)
            Represents
                corporate expenses including those referred to in (a). Includes Dyneer
                legal charge of $15.2 million in
                2005.





(c)
            Represents
                property, plant and equipment and goodwill related to certain acquisitions
                and other corporate assets. Approximately $37 million of the increase
                in
                2006 from 2005 related to the higher 2006 year-end cash
                balance.





(d)
            Represents
                corporate capital expenditures.




F
            - 29
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





The
      table
      below presents information by geographic area as of and for the years ended
      December 31, 2006, 2005 and 2004 (in
      thousands) :


**2006**
            
            **United****States**
            
            **Italy**
            
            **Other****Countries**
            
            **Consolidated**
              **Totals**Revenues
                from external customers
            
            $
            679,454
            
            $
            0
            
            $
            0
            
            $
            679,454Long-lived
                assets(a)
            
            
            196,318
            
            
            0
            
            
            0
            
            
            196,318**2005**Revenues
                from external customers
            
            $
            470,133
            
            $
            0
            
            $
            0
            
            $
            470,133Long-lived
                assets(b)
            
            
            152,084
            
            
            0
            
            
            0
            
            
            152,084**2004**Revenues
                from external customers
            
            $
            461,125
            
            $
            29,584
            
            $
            19,862
            
            $
            510,571Long-lived
                assets(c)
            
            
            92,346
            
            
            0
            
            
            0
            
            
            92,346




(a)
            Idled
                assets marketed for sale in the amount of $14 million reclassed/included
                in the 2006 long-lived assets.





(b)
            Idled
                assets marketed for sale in the amount of $18 million are not included
                in
                the 2005 long-lived assets.





(c)
            Idled
                assets marketed for sale in the amount of $31 million are not included
                in
                the 2004 long-lived assets.





F
          - 30
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**





**29.**
            **EARNINGS
                PER SHARE**





Earnings
      per share for 2006, 2005 and 2004, are (amounts
      in thousands, except share and per share data) :


**2006**
            
            
            **Net
                income**
            
            
            **Weighted-**
              **average
                shares**
            
            
            **Per
                share**
              **amount**Basic
                earnings per share
            
            $
            5,144
            
            
            19,701,614
            
            $
            .26Effect
                of stock options
            
            
            0
            
            
            342,685Diluted
                earnings per share(a)
            
            $
            5,144
            
            
            20,044,299
            
            $
            .26**2005**Basic
                earnings per share
            
            $
            11,042
            
            
            18,052,946
            
            $
            .61Effect
                of stock options
            
            
            0
            
            
            230,663Diluted
                earnings per share(b)
            
            $
            11,042
            
            
            18,283,609
            
            $
            .60**2004**Basic
                earnings per share
            
            $
            11,107
            
            
            17,798,483
            
            $
            .62Effect
                of stock options
            
            
            0
            
            
            75,247Effect
                of convertible notes
            
            
            2,137
            
            
            3,700,669Diluted
                earnings per share
            
            $
            13,244
            
            
            21,574,399
            
            $
            .61





(a)
            The
                effect of convertible notes has not been included as they were
                anti-dilutive. The weighted-average share amount excluded for convertible
                notes totaled 6,014,815 shares.





(b)
            The
                effect of convertible notes has not been included as they were
                anti-dilutive. The weighted-average share amount excluded for convertible
                notes totaled 7,146,627 shares.




F
          - 31
 **TITAN
            INTERNATIONAL, INC.**
 **NOTES
            TO CONSOLIDATED FINANCIAL STATEMENTS**




**30.**
            **SUPPLEMENTARY
                DATA - QUARTERLY FINANCIAL INFORMATION
                (UNAUDITED)**





(All
      amounts in thousands, except per share data)


**Quarter
                ended**
            
            **March
                31**
            
            **June
                30**
            
            **September
                30**
            
            **December
                31**
            
            **Year
                ended**
              **December
                31****2006**Net
                sales
            
            $
            182,577
            
            $
            175,194
            
            $
            156,120
            
            $
            165,563
            
            $
            679,454Gross
                profit
            
            
            31,114
            
            
            22,442
            
            
            17,080
            
            
            2,142
            
            
            72,778Net
                income (loss)
            
            
            8,593
            
            
            5,603
            
            
            488
            
            
            (9,540
            )
            
            5,144Per
                share amounts:Basic
            
            
            .44
            
            
            .28
            
            
            .02
            
            
            (.48
            )
            
            .26Diluted(a)
            
            
            .36
            
            
            .24
            
            
            .02
            
            
            (.48
            )
            
            .26**2005**Net
                sales
            
            $
            136,129
            
            $
            134,709
            
            $
            102,712
            
            $
            96,583
            
            $
            470,133Gross
                profit
            
            
            24,081
            
            
            22,502
            
            
            10,973
            
            
            6,654
            
            
            64,210Net
                income (loss)
            
            
            11,201
            
            
            4,200
            (b)
            
            1,182
            
            
            (5,541
            )
            
            11,042Per
                share amounts:(a)Basic
            
            
            .68
            
            
            .25
            (b)
            
            .06
            
            
            (.28
            )
            
            .61Diluted
            
            
            .51
            
            
            .23
            (b)
            
            .06
            
            
            (.28
            )
            
            .60




(a)
            As
                a result of the variances in the outstanding share balances, the
                year-end
                per share amounts do not agree to the sum of the
                quarters.





(b)
            Noncash
                convertible debt conversion charge of $7.2 million was included in
                the
                quarter ended June 30, 2005.




F
            - 32


**TITAN
      INTERNATIONAL, INC.**





**SCHEDULE
      II - VALUATION RESERVES**




**Description**
            
            **Balance
                at beginning**
              **of
                year**
            
            **Additions
                to costs and****expenses**
            
            **Deductions**
            
            **Balance**
              **at
                end**
              **of
                year****Year
                ended December 31, 2006**Reserve
                deducted in the balance sheet from the assets to which it
                appliesAllowance
                for doubtful accounts
            
            $
            5,654,000
            
            $
            1,596,000
            
            $
            (2,432,000
            )
            $
            4,818,000**Year
                ended December 31, 2005**Reserve
                deducted in the balance sheet from the assets to which it
                appliesAllowance
                for doubtful accounts
            
            $
            4,259,000
            
            $
            1,455,000
            
            $
            (60,000
            )
            $
            5,654,000**Year
                ended December 31, 2004**Reserve
                deducted in the balance sheet from the assets to which it
                appliesAllowance
                for doubtful accounts
            
            $
            5,331,000
            
            $
            1,698,000
            
            $
            (2,770,000
            )
            $
            4,259,000








S-1