Titan International, Inc. (TWI) Q2 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Titan International Corporation First Quarter 2014 Earnings Conference Call. [Operator Instructions] Any statements made in the course of the conference call that state the company's or management's intentions, hopes, beliefs, expectations or predictions for the future are considered forward-looking statements. Please note of the Safe Harbor statements contained in the company's latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission extend to this conference call, and any forward-looking statements involve risks and uncertainties as detailed therein. At this time, I'd like to introduce Titan's Chairman and CEO, Maurice Taylor. Please go ahead.

Good morning, everyone. I expect that everybody that is on the conference call has already seen the press releases. The first thing I'd like to do is explain -- we'll cover this past quarter and what we see. There is no question there was a softness in the large size of ag. There's probably a number of reasons for that. Construction has slowed and mining is still just sitting there, popping around, not doing too much. The dealers are moving, and they have had this last month, a fairly significant amount of used equipment, all of the equipment dealers over the last few years have watched their inventory of used equipment go up. And I think they're really concentrating on moving that down. And of course, that's not -- unless it's older than 4 or 5 years, that doesn't help much with the tire side. As of now -- this past, well, let's say, 30 days, I've been out in the Midwest pretty heavy. I believe that there's going to be record yields on the crops. So everybody's seeing all of commodity crops have all dropped in pricing. But the farmers are not going to be hit too bad because the pricing is dropping, but the yields are going to be, as I just mentioned, close to records, we believe. Now there are some, actually, some real, real good things going on. Number one, the program of our large farms, and what we've been doing the last few years, is starting to show some real pickup. The major OEs now in the farm are offering our LSW as options in the farming side. Our LSW, which we call the low sidewall, has -- reduces the power hop for the farmer and road lope. This is the first time this has happened, and we're excited about it. We also expect that this not only carries a new wheel, it carries a new tire. So we're pushing it and we're pushing it real hard. Then as they keep increasing the horsepower of tractors, we've got the perfect answer. Up to now, they can make all the horsepower they want, but if you can't move what you're trying across the ground, you're in trouble. The other situation is what's happening pretty much around the world. Everything has kind of like slowed up. The only place, and I'm referring to the mining side, is up in Canada at the oil sands, and that's working real well. And we got a lot of faith in why we're going to grow our business as we go up there. But South America, even though the currency is moving down, reference to the dollar, they're doing a good job. They're increasing their market share, and we expect the growth to continue down there on the products that we're making, which is in the bias side of trucks and in the agricultural and construction side. The -- Europe is a different situation. It just seems to stay flat, just bounces up or bounces down a little bit from where it's at. But because of our LSW technology that we've been moving, we believe that over this next year, we're going to be able to pick up a little bit more market share and pick up some business by offering that. In Russia, we're still working to improve everything over there, their product, so that we can supply it into Europe. We have always looked at this to be a 3- to 4-year project, and we believe we're making the progress we need. With the current Ukrainian situation, we don't believe it's going to go for too awful long time, but it does cause a little bit of problems for us in the short term. We've looked at this and there's one thing about our history, anybody that looks at any time that we have a downturn. We've always come out of the downturn with a stronger market position and a stronger company than we went in. And we expect this to be the same situation going forward. The new group that's being led by Paul and John are making a lot of changes. And in this last quarter, they went through a lot of things and I think they've done a good job. So I'm going to turn it over to Paul and let him explain what's happened from the operations side at the various facilities around the world. Paul, go ahead.

Sounds good. Thanks, Morry, and good morning, everyone. It's been quite a ride for this company that was started from a deserted plant in Quincy, Illinois over 30 years ago. And if you look back just 5 years ago, we were a company with 5 plants in the U.S. 2 years ago, we had those U.S. plants plus one more in Brazil. Today, we operate in over 20 locations, covering nearly all parts of the world. With that global growth, you can see the outline of the solid foundation we've built with our assets and operations, but it also illustrates the significant amount of change our company has experienced. And if you look at our end markets, as Morry was talking about in ag, mining and construction, or if you look at our products with wheel, tires or track, it's apparent we operate in a world that has changed swiftly from a competitive standpoint in recent years. These challenges are illustrated with our recent financial performance. So the bottom line is that we need to drive change within the walls of our company to keep pace with these challenging global markets we operate in. Then from there, we need to keep on consistently changing and evolving as the world around us does. Now when I use the word change, I want to make it clear, that's one area at our company -- there's one area at our company that's off-limits and that's our culture. And you guys would see it, if you've been to our plants or you spent some time talking to our employees. From my first day at Titan, I've seen it live within our powerful can-do spirited culture. It's in our DNA and it makes us who we are. And as the saying goes, culture isn't important, it's everything. When I started this position a few months ago, I knew this culture was a strong foundation, which we needed to build upon. And also, we need to push off from it to drive changes for the long-term benefit of Titan. So where do we start in driving change at our company? I think it first starts with the daily actions and decisions that take place at all our locations. As we've been growing in recent years, at times, we've had too many people operating with divergent actions and unsynchronized motions that really creates the potential for poor decisions that aren't in the best interest of the company. So therefore, I've been putting into place a strategy and a framework for how we are going to approach making decisions and how we're going to operate. First, we must use accurate, relevant information and data in our daily thoughts and communications. We can't have people saying, "I've always done it this way" as an answer to a question or an issue. We can't have people using their own anecdotal viewpoints in place of data. Now I'm not sitting here today saying, we're going to become the slow analytical turtle. We're not going to sit around and pontificate and become a lethargic bureaucratical mess. As noted earlier, that's not in our cultural DNA, and it's not going to be ever. The expectation is that our people will bring to the table, relative -- relevant information and analytical thoughts that they've themselves pored over, and we will then use them in driving our discussions and our decisions. It's a mistake to theorize or draw conclusions before one has information and facts, otherwise, you just end up twisting the facts to fit the theory, instead of creating solutions to fit the facts. Next, we must have transparency within our organization on a consistent day-in, day-out basis. By that, I mean straightforward, direct communications and interactions that allow us to create an accurate assessment of a situation or an issue. The next area is accountability. I got to tell you, we have some really good people in this organization that have shouldered and oversized burdening in growing us to where we are today. The problem is the company is too large to compete successfully, relying on efforts of these folks, while others, quite frankly, sit around and don't -- do little or contribute their share to the overall pie. Therefore, we must ensure we are all holding our people in the organization accountable. This is definitely needed to build the required depth within our teams in our organization and utilize our valuable human capital to their full potential. The people that will thrive in our company will take charge and take action, while the others that try to hide until directed to take action aren't going to make the grade, and certainly, aren't going to enjoy being held accountable for the contributions to their team and our company. Those 3 areas are going to serve as the framework for driving towards better daily decisions that are consistently in the best interest of the long-term benefit of the company. However, in order to successfully adhere to that framework, we're introducing some additional initiatives. First, we're going to implement an EVA system and use economic value-added as a measure to drive transparent understanding of our people, our divisions and our company, and then hold them accountable for driving this EVA. This will be part of an overall integrated performance management system that will focus on converging the management of the balance sheet and the P&L. These long-term programs have been supplemented with more immediate programs such as the profit optimization initiative that focuses on getting our current profits and enhancing opportunities on the table and addressed by our team. These initiatives are being rolled out by John, who has tremendous experience in this area. We'll definitely be sharing more about this in the future as we move forward. But if you're curious, Google him, and you can see more firsthand about what he's accomplished in his prior career before coming to Titan. So we're really excited about what we can do in this area. Second, we need to find, and we're going to put the right people on the team and in the right place within the company. Otherwise, we're going to feel like we're running a marathon, carrying a couple of bowling balls. There's no other way to accomplish our goals without the right people. Let me jump over to the plant and product side of the business. Titan has, through the years, worked hard to develop a massive arsenal of dies and molds. And when you combine that with our engineering and technical knowledge, we are definitely well positioned to deliver tremendous value to our end customers. Morry alluded to that before, in downturns, we get stronger. On top of that, who else can deliver these wheel tire assemblies to our customers like us. However, we haven't always taken full advantage of these unique assets. In order to do so, we need to continue to focus on a couple of key areas. First, we must sell, sell, sell. Our markets have gotten more competitive, and we must be aggressive in pursuing all opportunities. We brought in our definition of our customers to include the all-important end user such as farmers and construction operators, and with that, we've created a team of great folks, technical specialists who spend each and every day in the field assisting farmers, getting better and more efficient with their equipment. And we know that is very critical to where the world is growing to feed a growing population. We then are going to combine this field knowledge with our engineering excellence and with our extensive product line up and align it with an aggressive, motivated sales force. This is already evident with the LSW program, the low sidewall program, that's been rolled out. As Morry talked about, it's gaining traction with our customers, and we're really leading the way with the technological change that's going to benefit our end customers in a significant way. And as we move forward, we're driving these changes within a global marketplace. We can't afford to lose sight of the consistent need to meet the expectations of our customers by producing quality products that are delivered on time. Quite simply, we must do what we say we're going to do. This means our global team must operate together without exception as one Titan, not as individuals or silos. This is needed to successfully drive the change and to ultimately succeed in driving long-term shareholder value. Thus far, I've focused my comments more on the long-term, so I just want to wrap up by speaking a bit about the short term. It goes without saying that we're currently operating in a challenging environment with our end markets. It's put pressure on our sales and margins, with weaker volumes and price reductions. We are and will remain focused on keeping our costs and headcount levels in balance with our sales. We'll continue to do what it takes to effectively manage the efficiency levels at our plants. Through the first half of this year, we've reduced headcount by nearly 800 people around the world, and we have been able to maintain the output efficiency level at our locations. And we will continue on doing that as needed through the rest of this year and into next. Clearly, we got other initiatives in place that we view will help us in other ways, but we will balance the expense side of our company as we deal with the changing marketplace. Through these challenging times, we see opportunities and I'm excited to drive us forward towards those opportunities. So with that, like to turn the call over back to John.

Thanks, Paul. Good morning, everyone. Well, needless to say, Q2 is disappointing in terms of performance, continuing against the backdrop of price reduction, mining downturn and the decline of ag, specifically large ag equipment. Related to mining, we recorded an asset impairment of $23.2 million on machinery equipment molds used to produce giant mining tires. In addition, we recorded an inventory write-down of $11.6 million to adjust the value of mining product inventory to estimated market value. So let's begin by breaking down our revenue to understand the drivers. Quarter sales were at $524 million, this was down nearly 12% from Q2 of last year and up 3% from first quarter. The 12% year-over-year decrease was driven primarily by reductions in North American large ag and North American earthmoving and construction, primarily mining. So let's talk about the ag market. We are experiencing a correction that is occurring in large farm equipment sales after multiple years of significant growth. In North America, large ag equipment sales declined in June. Dealers' inventories are still considered high. Four-wheel drive tractor sales are down 24% from prior year; combine sales, down 25%; and row crop tractor sales are down 16%. Put this together with lower crop prices and across-the-board increases in production input costs, with the exception of fertilizer, and it is a perfect storm for lower profitability, and as a consequence, negatively impacting new equipment sales. Specifically, our large ag equipment sales were down $37 million from previous year Q2. Ag in total was down nearly $40 million. Inherent in these variances are price concessions due to raw material decreases related primarily to rubber, for which we are contractually obligated to pass these along. Our other markets, Europe and Brazil, have also experienced the negative effects of the lower ag demand. Growth from acquisitions, represented by our Voltyre-Prom acquisition in Russia, contributed $17 million to our ag segment, unfortunately, very little flow through the show for it. With all this various ag talk, I'd be remiss if I didn't talk about something positive. So Section 179 is the amount of depreciation farmers can take in a given tax year. 2014 was to mark the end of this elevated deduction and revert back to prior years' limit of $25,000. However, the Senate and House have passed a bill to reinstate the $500,000 amount for both 2014 and '15. This is going to the President for signature. If signed, the farmers will certainly give more consideration to buy new equipment in order to take advantage of this significant deduction. So let's turn our attention to Earthmoving/Construction. As I indicated earlier, we recorded $34.8 million in asset impairment and inventory write-down associated with the giant mining tires. Some of the larger OEs believe that 2014 may have marked the bottom of the mining downturn. So while this downturn has significantly impacted both sales and profitability in North America, it has also harmed our Australia and global undercarriage businesses. For the quarter, sales for Earthmoving/Construction were down $44 million or 21% from Q2 of last year. The inventory de-stocking, competitive pricing pressures, lost leverage and productivity due to the significant decline in sales has compounded negative impact on profitability. While we don't disclose this separately, we did have a pickup in small construction, experiencing some growth this quarter. I want to make a quick point on consumer. We experienced some nice growth here across-the-board, Europe, Australia, Russia, Russia being all incremental. In terms of the growth in Europe, this is primarily represented by high-speed disc brakes sold in Spain. In the press announcement, Morry mentioned and referred to the ITM steel foundry in Spain has just entered a partnership agreement in principle to provide railroad cast steel brakes. This product generates attractive margins that should positively impact our GP performance going forward. So with the first 2 quarters under our belt, that puts us at just under $1.1 billion year-to-date compared to $1.2 billion last year, representing an erosion of 9.3%. While ag is down $32 million year-to-date, primarily North America, this would have been $73 million or 13%, excluding the addition of Russia. Earthmoving/Construction is the real culprit here when looking at year-to-date sales, down $101 million year-to-date, as Q1 2013 was a strong quarter for mining. Consumer is up $24 million year-to-date on the strength of Europe and Australia and the incremental Russia sales. We also got hit with FX at $11 million. Greater than 100% of this impact was driven by the Brazilian real. So now let's turn our attention to margin performance. We reported a decline in gross profit performance of 4.3%, or 11% on an adjusted basis for the quarter, again, adjusted for the mining asset impairment inventory write-down. That compares to 14.6% from Q2 of last year and 10.1% in Q1. So even on an adjusted basis, this obviously represents a sizable decline to last year's performance well above prior quarter. At 14.9%, we experienced 240 basis points decline in ag GP performance from Q2 last year. This is not surprising given the reduced sales and specifically in our higher gross margin large ag product and the addition of Russia's sales lacking flow through. Most of the negative impact stems from mining, again, associated with North America, Australia and our undercarriage businesses. I know you're all very knowledgeable of the mining downturn story. After adjusting for the asset impairment inventory write-down, our Earthmoving/Construction business is at 7% versus 12.9% Q2 one year ago, an erosion of 590 basis points. As mentioned earlier, this is a result of the significant decline in sales and associated profit, de-stocking, competitive pricing pressures for the business that remain and lost leverage and productivity. As I stated back in Q1, we are responding to this downturn positively. We build very good 49s, 51s and the 57-inch loader we're competitive there. With our super giants, the 57s and 63s, we have been in process for a while now, systematically making changes to this product to improve both quality and performance, and they're currently being tested in the field. We have shipped and we'll be getting feedback soon in the coming months on a group of 57-inch tires that represent our most significant improvement to date in terms of both design and process. These tires will be monitored by our field engineering group in South Africa. We are very optimistic and believe that we'll obtain very good performance. As I mentioned back on the Q1 call, our customers are not comfortable with the duopoly of Michelin and Bridgestone. They want us to be successful and level the playing field. In Australia, the story is different, but the outcome very similar. In late 2012, a slowdown in mining commenced, coinciding with the government introducing a super profit mining tax. This tax has stifled exploration and expansion, but there has been some recent developments. The government repealed the carbon tax and it appears, the removal the mining tax is imminent. It is too early to speculate on the timing and size of impact that we will have as we look forward, but this is very positive news, nonetheless. Material cost reduction, made up of primarily natural and synthetic rubber, we're at $13 million for Q2, basically a push with the North American price concessions we made due to raw materials reduction. Q2 is a nice story relative to our warranty cost. We picked up nearly $15 million to the positive side when compared to Q2 1 year ago. This is primarily due to the 2013 giant mining tire claims that have worked through the system and improved quality associated with our newer version tires. On a smaller scale, we've also realized improvement from compound and structure changes in our Freeport and Des Moines tire plants that have proved successful. As Paul mentioned earlier, we've reduced headcount significantly in the plants to respond to both lower volume and our current profitability challenge. While the plants are working hard at improving productivity and reducing costs, we still have experienced erosion in labor and overhead as it is very challenging to overcome the significant impact of lower sales. From a broader perspective, we continue to experience this mix shift impact. Our acquired or international businesses were 20% of our sales volume back in 2012, 44% in 2013 and now account for more than half of our business this quarter at 52%. This has had a negative consequence from a gross profit performance standpoint, as the lower international gross margin performance at 11.3% was 600 basis points less favorable for our legacy or North American business at 17.3% in 2013; 390 basis points less favorable at 9.1% versus 13% Q2 of this year. While the gap has narrowed, this is primarily due to the considerable decline in the North American margins based on the impact of mining and large ag described earlier. So getting back to the impact of this mix shift. For Q2, there was 123 basis points decline in 2014 from 2012 and 30 basis points from 2013, 2013 being less severe due to the mining and large ag impact just noted and growing share of international. Let's turn our attention to the expense side of the equation. SG&A was up $1.4 million or 8.6% of sales for the quarter versus 7.4%, one year ago. While there are a series of puts and takes across this category, this increase is primarily attributable to the incremental SG&A associated with the Voltyre-Prom acquisition at $4.2 million for the quarter. R&D in Q2 was $3.2 million, representing a $400,000 increase over Q2 of the previous year. This was primarily due to the U.S. new product tire testing, of which our LSW concept makes up a good portion of this expenditure. As described with the gross margin geographic mix impact, we have experienced a similar effect with expenses, as the international SG&A, as a percent of net revenue is higher than our North American business. So for Q2, international SG&A was 9.1% versus the North American business at 8%. Outside of declining sales, this is primarily to why our operating expenses declined as a percent of sales. So let's move down to P&L. Our interest expense continued at a run rate of approximately $9 million, which is consistent with the first quarter. We did have some debt reduction during the quarter, primarily in Europe and Russia, relating to overdraft and working capital facilities in those locations. We see this current run rate right around $9 million, subject to any further changes in our debt. Foreign currency. We experienced a gain of $3.7 million for the quarter, primarily from our intercompany balances and the favorable FX shift between those balances. This gain consisted of approximately $2.5 million from Russia, which was a partial recovery from the $3.8 million loss in Q1. Obviously, the events in Russia over the past several months have resulted in significant swings in the ruble. We also had a gain of $600,000 during the quarter for balances tied to the Australian dollar. During the past 12 months, we've continued to address these intercompany currency exposures through balance reductions and development of a future hedging practice. Let's summarize and bring this to bottom line relative to profit. We had the 2 adjustments for mining asset impairment inventory write-down in the quarter. So our adjusted net income attributable to Titan is $0.03 per share, EBITDA at $35 million. That compares to adjusted net income of $0.24 per share and EBITDA of $57 million from Q2 one year ago, and $0.05 per share and $24 million EBITDA in Q1. As I stated when we began this discussion, our Q2 results are disappointing and are being addressed in a diligent manager -- manner by management, and you heard comments from both Morry and Paul in this regard. As Paul mentioned earlier, we've reduced our employee population by nearly 800. We will consider further reductions as future business conditions require. In addition to the headcount reductions, we've embarked on a number of short-term profit optimization initiatives to address our current profitability challenge. But equally important, perhaps more important than our long-term success, we are also focused on developing and implementing an integrated management framework, performance management framework, or EVA, as Paul referred to earlier, that will support decision-making, enhanced transparency and accountability with a clear link to shareholder value creation and you'll hear a lot more about this concept in the near future. So despite our disappointing results and the current industry downturns described, we remain very optimistic and excited by our future. The LSW concept, and I know we've kind of beat this to dust, but this is at the core of our strategy and I think generates the most excitement in our company. I've heard a lot about it. It -- and again, it's core to our complete wheel tire assembly system strategy, for which no other competitor possesses this capability. It is really starting to take hold in the marketplace with the OEs and our equipment dealers. And request for drawings, information, meetings are accelerating. The aftermarket is warming to the concept as well. This will allow us to truly realize the rewards of leveraging our core competency as a complete wheel tire assembly system, differentiating ourselves from our discrete wheel and tire competitors. In Europe, our waffle wheel technology continues to be adopted by our customers, combining the 2 attributes of adjustable track with high speed and strength. We are the only producer in the market to provide this capability and have a patent pending to protect this innovation. Each year, demand has doubled. This technology is truly driving differentiation in the market for Titan. And our newest initiative, just announced last month, 10-year service agreement with Suncor Energy, for the recycling of used tires, utilizing our TVR or Thermo Vacuum Reactor technology. A single 63-inch tire produces approximately 500 gallons of oil, 4,000 pounds of carbon black and 2,000 pounds of steel. Carbon credits will be generated as well, and we expect this system to be operational in 2015, with further expansion planned as new acreage becomes available and new customers commit to the process. Let's run through the balance sheet for a moment. AR is down $26 million on $15 million sales decrease from the previous quarter, experiencing a nice decrease in DSO, down 3 days to 52 days. Inventory is also down $8 million, improving days in inventory by 1 day to 75. CapEx, we added $14 million for the quarter, putting us at $31 million year-to-date. We have started to spend money on the Thermo Vacuum Reactor project referred to previously, $5 million year-to-date. For the quarter, PP&E was down $25 million due to the mining asset impairment and depreciation. Cash ended the quarter at $162 million compared to $200 million last quarter. Through all the ebbs and flows, this is primarily attributable to the repayment of the Titan Europe overdraft facility in the U.K. of $38 million. This facility of Deloitte bank was set to expire at the end of May, and we elected not to renew it. This was purposeful on our part to rationalize our global banking partners and account as part of our integration of the Titan Europe acquisition. We established a multicurrency notional pooling structure through Bank of America to replace Deloitte's facility. From a debt perspective, our debt-to-trailing EBITDA measure has doubled from 1 year ago to 2.91. This is primarily a function of our falling profitability as our debt level today is lower than 2013 yearend. So wrapping up, clearly, there is a lot of work to do and that was mentioned by both Morry and Paul. But as I mentioned earlier, it is our belief it is our passion that there are a number of significant innovative initiatives that will set up our company for long-term success. So with that, I'd like to turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from Ian Zaffino with Oppenheimer. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Can you just talk about some of the implementation -- or ease, I would say, the implementation of what you're going to be implementing when you talk about the EVA and some of the other initiatives. What sort of timeframe -- are we going to see any pushback from spike, what should we expect there?

When you're asking about what we're going to implement, explain what you're... Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Well, I know Paul mentioned implementing some EVA metrics as different ways to judge a performance of sort of shop floor and what's going on there as far as your operations. So when you talk about that, what type of timeframe are we looking at, what's the ease of implementation there? Are we going to, again, hear stories about some [indiscernible] employees who are giving you too much pushback?

No, no. It's -- Ian, what we're driving towards is just making better daily decisions. And what we're implementing is a framework to accomplish that. Using EVA gives us a metric and a way to judge the performance that we can drive down into the plants, we can drive to the divisions, looking at it from our company level. And we really don't have that tool in place right now. And again, it's not about a massive cultural overhaul or a massive system change. We've met with the EVA company that will help us implement the system and it's something you can get put in place in a matter of few months. What I'm more interested in what it does for us again, on the ability to make good solid, fundamental decisions and how we can ensure that's happening consistently around the world. And so this isn't an ERP, this isn't something -- a CRM, this isn't going that direction. For us, it's the start of, again, just driving some changes within our 4 walls. What John will elaborate on in the future, and again, if you do want to learn more about it, he's done this at LK before he came to Titan. And that's get in to the integrated performance management program. And that goes into another level that will certainly take us more time. But the EVA, that program is going to be -- we're going to get it kicked off next quarter and then kind of get it fundamentally pushed out to the rest of the company, therefore, after that.

And Ian, if I could just add a couple of things. So we're actually going to embark on a one-year pilot program. And EVA was introduced well over 20 years ago. And I will tell you, when it was introduced, I think, in its form, it was difficult to use. You couldn't trace EVA back to performance drivers. It was difficult to implement. Really, it was not practical, it was just a dollar measure. And it's tedious and manual to maintain. There's no software solutions for this. Best practice EVA introduced around April of last year has a much higher level of application and benefit. You can deconstruct EVA back to its performance drivers and make this pervasive across your company in terms of people who will participate and impact and grow EVA. There's an introduction of a new ratio framework that again allows you to deconstruct to the performance drivers in the forms of EVA margin and momentum. And there is, now, a very good software that will automate these calculations and tracking for management purposes. So we're very excited about moving forward with this concept. And this concept, more than anything, is really about culture. It's about shaping culture and a mindset in our company. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. And then I don't know if you have this granularity. But on the ag side, can you give us an idea of what was aftermarket versus OE? And how much did that shift? And I guess, I'm assuming, you had a shift towards aftermarket. What did that contribute in terms of margin, I guess, accretion if you could think of it that way. Because I guess the theory is always, that aftermarket is higher margin and when things slow down, you'll get like a favorable mix shift towards aftermarket. Is that the case? And if it is the case, what was sort of the contribution if you have that granularity?

Well, before they give you a number, the -- it's a known fact that the OE is about 35% of the market. Okay? And we at our -- try to run at a 50-50. And the reason being is because we mount so many wheels in this market. And as this market turns down, the situation that's running in the aftermarket is the aftermarket is being a drag out there because number one, the newer big tires, generally, a large farm tractor, in most places in the country, run a 4- to 5-year lifecycle. And so that is where the margins are. So that is why we have concentrated at the OE level. And we are going into the smaller, but there has been -- pricing is dropping all over in that. So we're banking on 2 things. Once the options are at the OE level, the fellow who bought the same tractor now, he has to turn around and he looks whether it's a Case, whether it's a Deere, whether it's an Agco. His ex-model, he's got these tires on there, but he can't go real fast because it starts bouncing out in the field. He takes those tires up, puts ours on, he can run up to the new stuff at 10 miles an hour. And you're not bouncing. We're setting that up, a system, so we can turn around and capture that business. And that's got big margins. So that's what we're looking for in 2015. Go ahead, whoever, Paul or John, on this other part of his question.

OK, are you good Ian? Yes, I think Morry got to the crux of it of how we look at the aftermarket versus the OEMs splits. I mean, we clearly run a different than the competition that focuses on either wheels or tires and our mounting business is a key driver for us as we move into the future. To answer your question, we haven't seen much changes between the splits that's been anything significant over Q2 versus Q1.

Our next question comes from Larry De Maria with William Blair. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: A couple of questions. You guys took a charge for Bryan. How do we think about the likelihood of a charge for the European business at this point, given that obviously, the markets are challenged like you referenced. And can you update us now on the covenants and how the write-downs maybe affect the covenants going forward, please?

Well, let me just jump in on the write down, Larry. The reason, get to the heart of the fact and to the board, when we built that, as you know, we -- and I have stated, our maximum capacity, mainly because of the big super giants, was between $500 million and $600 million. That's having the cost situation where it is, with the same amount of material costs. Well, when we made the statement that we were not going to in the big super giants, the pricing is coming down like a rocket. So we're switching that facility. We're going to program that. What we said was that we're to look at that facility at a $250 million and what margins we can earn on that. And we can do very well. Well, that puts it all into a specialized. And we've got everything there, which we've told everybody, we're going out for the various loader tires. We still have the capabilities. We still have everything for the super giants. That hasn't really gone away. But when you redo that, this write-down is strictly a paper situation. I will not be able to tell the IRS, if I buy, I make all this -- doesn't affect us on the tax rates. So that's why we did it. Europe, I don't see, at this stage, where anything would come into it. Now in the covenants, John or Paul can jump in on that.

Right, Larry, I'm not aware that this would have any effect on covenants relative to our debt structure. And Europe, Europe was not part of this analysis nor were there -- was there a triggering event. Australia was part of this analysis -- in the testing Australia was a very minor portion of the overall impairment. In fact, there was just a slight write-down of inventory. We did test both goodwill and intangibles, it passed. So that comprises the impairment and write-downs that we recorded in Q2. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: Okay. That's helpful. And then you guys talked a lot about, obviously, a lot of new initiatives that you have been putting in place. You also talked about how complex the business is getting in terms of factors going from, I think, it's 5 to 20 globally. Is there a comprehensive view or comprehensive plan on what the right footprint is and how to consolidate production and running the enterprise more efficiently from a global production standpoint. Are we anywhere near that, given that, obviously, things have been a lot more complex in the last few years.

We're doing that, Larry. And Paul and them are working on it. In reference to components, it's so simple that when you look at, let's take the wheel side. The wheel side in our construction, we had exactly, I think, 7 different suppliers on the same part around the world. So they went and everybody has their own choice, for whatever reason. Well, now, that is down to 2 suppliers, and we will save considerably, joining everybody's volume and going to those 2 sources. So there are items in reference to the situation on the wheel side. On the tire side, you have a whole different problem. Number one, freight. There are certain -- when you have natural rubber keep dropping and if natural rubber gets down into the $0.60, $0.50, well when you have a competitor that is coming into the U.S., his problem is the freight he has to put on is greater than our labor cost. Because as you know, tires get to be even on the ag side, they're pretty big. So you can't squash them all down and send them in that way. So certain competitors of ours will start having bigger problems competing over here. The same thing is true in Europe. And we -- because of the Goodyear situation, which we announced, that the last year, 1.5 years, we lost a lot of tire business at the OE level because the major OEs thought that Goodyear for the European section handled almost close to 122 countries, and so that hit us real hard from the standpoint of producing a Goodyear brand and shipping it to the OEs in America that ship product overseas. We think that, that problem will be rectified in the next few months. So that will turn around and again, as you mentioned, dictate where we produce certain tires.

And Larry, what Morry has referred to, with the sourcing of our components, that's part of the profit optimization program where we were sourcing from 7 different sources, and then you throw in there, we were doing even more expensive manufacturing of some of those components ourselves. And so we're streamlining it, becoming a global company when it comes to sourcing, and it will drive a significant impact to the bottom line. The other part of the strategy, though, I want to comment on that just for a second. I mean, if you look at the performance in North America over the years with Titan, this is our core, and we've been extremely successful on both sides of the fence, when you look at wheels and tires over the years, and what we can do with assemblies. And when we look at our strategy moving forward, yes, we've added a number of locations that have added this complexity to the business. But the simplicity of our business is that we're the only guys that can do wheels and tires in North America the way we can and our strategy is that simple to be able to do that in the key locations around the world. And so you look in Brazil, we got tires, you look in Europe, we have wheels and you look in the CIS, we have tires. A key component of our strategy is being able to do both wheels and tires in those areas around the world. And so as we've gotten more complex to really leverage our locations and be able to utilize an infrastructure efficiently, and like you said produce in the right spot, reduce costs. I do believe that we need to finish our strategic footprint by building it out where we do have wheels and tires in the critical areas that we operate. And also where our customers are located, that's the key thing. Like Morry was saying, these products don't ship very well. Our geographical locations is a huge advantage for us. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: Okay, that's really helpful. And it brings up a good point, Paul. The -- for the strategic plan of building out, obviously, wheel tire assembly globally, you have a new board member. And I think you've had some meetings now. Has there been any shift or friction or change in strategy coming from -- with change on the board or is it business as usual? And then I'll hang up.

Well, we have actually 3 new board members besides you're referring to, who I call the Doc. He's the youngest one. But Peter McNitt, his deal is -- Peter's always came through for the banking side. We got Gary Cowger, who come out of GM and his is manufacturing. So we're very honored and lucky to have all 3 of them. I think as we look, go through, we have a plan. They know what our plan is, and they know the positives of what we can do. And know the risk. So they're going to manage -- they're going to look at the risk and from a board standpoint, I think they all agree on the strategy that it will be how much they look at it and that's up to the management team to present it to them and be able to actually show the risk -- risk-reward. That's the decision they'll make. But there's no -- we have a board that's very, very good at, and there's not going to be a -- any one that is shouting, "This is what you're going to do." I don't believe that.

Our next question comes from Peter Cross of LM Cohen [ph].

Morry, it's Peter Cross [ph] here. Over the last few months, you've had 2 13Ds filed by companies where they feel there's a great value in the company, and the company is selling at substantially less than the true value. Has the company considered using this discount, especially that's happening today to possibly buy back some of its own stock and creating better value?

Well, it's always been my decision not to ever get myself, get this company where you, on money that you went out borrowed with your bonds to make acquisitions, to turn around and just by your stock. That's a board decision. And up to this point, no one on the board has even mentioned that. So that's all I can say on that, Peter.

Well, I would encourage you to possibly to discuss it at your next board meeting.

I will -- I'll mention it.

Next question comes from Bob Franklin of Prudential Financial.

First, a quick question for John. Did you give you an EBITDA number? I think you said $35 million? Did I hear that right?

$35 million, yes.

Okay. And are you adding anything back there besides the stuff that was laid out in the income statement?

No.

Okay. Second, with all the work you're doing, is there any kind of guidance you want to give us for what CapEx is going to be this year?

CapEx should be anywhere between $70 million and $80 million, and that's really predicated on the progress we made -- we make with the TVR project.

Okay. And then, I guess, finally, with the new steps you're implementing here, do you have a sense of, say, at current levels of revenue, how many more -- how much more margin you can get out of this out of your business?

Well, I think it'd be probably too premature to project something like that. But I do believe that it can be significant. And the timeframe by which we would realize that is ahead of us in terms -- begin planning that as we get into the implementation of EVA. But all can say is I do believe I have a great deal of passion that we have a significant growth ahead of us in profitability.

[Operator Instructions] Our next question comes from John Rosenberg of Loughlin Water Partners.

You spoke a lot on the call or one of you, I'm sorry, spoke a lot about culture and not changing the culture but then went on to talk about a lot of changes that actually have to be made, and -- which I applaud and I wish you luck with. But I wonder, you guys have grown so quickly. Are you one ERP systems or several enterprise systems right now? And is that -- if you are on several, is there any thought to integrating that to improve your purchasing abilities and management?

Yes, that's part of our journey. We operate under a very similar platform or a similar company when it comes to our systems. But we do not all operate on the same version of that particular system. And so we do have some disconnects when you talk about the various locations. We've embarked on a plan that started in our Bryan, Ohio location to roll out the latest version so that our company will operate on under the same version under that platform that I mentioned. It's all produced by the same company. We've rolled it out in Brazil. We're next going to move into our major wheel facility in North America, and we'll continue down the road in doing that. It is a journey, along with the other initiatives that we're rolling out. And I think it's an important part of it that will certainly streamline our operations and our ability to make effective decisions. But at this point, it is definitely going to be a journey versus something that will be here soon and quick.

Let me just add, when you talk about -- and Paul, and everyone talks about, and John talked about the culture. Your question is, yes, we have gotten an awful lot of cultures referenced on the tire side, but prior to that, in the wheel side, we turned around and we ended up with -- worldwide, with many different cultures. And we developed our own culture in the wheel business, which allowed us, of course, to become the largest in the world, bar none in what we do. And we're very proficient in what we do. Customers have begun that where they used to have to order and wheels back in the early '80s. We take your order one year in advance to get your wheel. We can get you a you wheel today in 24 hours, a little bit like the cat [ph] system. So that's the culture of Titan, of our wheel side. Now what we're trying to do is take that culture, and you'll have the Goodyear culture, we've got the Continental General, we've got the Armstrong Pirelli culture and then you start moving overseas. So that is, as Paul said, a journey. And what they're trying to do is not just run around and wipe out everybody's culture. But if there's something that they do better, we're going to adopt that across the company. But there is a situation where you have to turn around and maintain the entrepreneur and the drive from the Titan culture, and that's what we're trying to do.

That is actually -- that is quite helpful. And additionally, on the point about the ERP systems, that is good to hear that it's actually several versions of one company's systems. And I realized that in the field, in the real world, implementing that stuff amongst your many facilities does take time and a lot of managerial effort and attention. So good luck.

This concludes our question-and-answer session. I'd like to turn it over to Maurice Taylor.

Thanks, everybody. Have a great weekend and a great summer. And we'll talk to you on the next quarter. Goodbye.