Titan International, Inc. (TWI) Q4 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Titan International Inc. Fourth Quarter 2014 Earnings Conference Call. During this session all lines will be muted until the question-and-answer portion of the call. [Operator Instructions], Please note the call is being recorded. 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 that 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 would like to introduce Titan’s Chairman and CEO, Maurice Taylor.

Good morning, everyone. There is no doubt 2014 wasn’t what we expected. But you got the press release out there you’ve probably read a lot. But for those who haven’t yet this morning, we’re going to just touch on what the situation was in 2014 and then we’ll go on to what we’re planning for 2015. The sales drop in 2014, were across all the product lines and across the farmer, construction and the mining. The OE schedules were mainly, they just got it sliding them out and then they started reducing in fact, actually at the end of the year they just stopped. And that really affected for a number of reasons, that hit you not only with how do you plan your own schedule but also the employment side. But we’ve made our adjustments to all in 2014 last quarter. So that was a big hit. And there is not, even though we are such a strong OE position, we are also very strong in the aftermarket. And so, we have switched and I’ll cover that in a few minutes. The other thing that really hit us hard was the U.S. dollar strength. And as you all know, the Euro, the Real, the Aussie dollars, the rubles, they’re all lost big time value. The ruble went from 30 to 1, to 60 to 1. Now that hit not only our inventories, it hit the receivable line and all of those things have taken a hit. And there is some good about all of this, about the currency changes but we’ll get into that in a minute. I’m just going through the things that really smacked us. The goodwill, that, was triggered because there was some goodwill on the books from Russia and Brazil and I think a little bit from Australia. What happens is my understanding is they go through every quarter, especially when you have a drop in currency and it’s not Grant Thornton and our people go through it but there is another outside McGladrey I believe at this that cuts through it. And of course with the drops and everything else, that sits out. So, at least now going forward, we’re down with goodwill because they take it off the books, it’s a non-cash deal. But that’s what happened on that situation. When you get into what else we have reduction, we took out approximately 2,500 employees total that started. About 1,500 of those were planned even going into 2014. All of that, the big hit of course was Russia, Brazil and Italy. But in Italy, we got a little break but it also cost money. We had decided to close two factories in Italy, one did the stamping for the center of wheels, and they shipped at about 40 miles to the other facility. So, what really happened, the decision was made close to stamping facility and moved part of the equipment to the other wheel plant, which we were building up because of the earthquake this thing. The local municipality and the Italian government wanted to help on that. So, we decided that and we were hoping to get, we went in for a reduction to get 80 people, hoping we would get number of 60, there were 192 I think when we started. And loan behold, we got lucky and got the 80. All of this was, and of course the severance and everything, everything I’m talking about was the hit in 2014. No place was, everything was looked at and the reductions were made. At corporate we had a reduction so that an analyzed reduction of about $3 million approximately in reference to the people who retired and the people that left. Now, if we stop on this, those were the big items besides just the drop in the sales. And the drop in the sales was not only into what units and what they drop off, it was also in the reduction of price. So you get hit a double way. Going forward and two of the facilities that we are at the process of not only increasing our product but putting equipment into process, a better quality product at a lower cost, one is Russia now. We couldn’t do it until you had removed from 2,500 down to 1,000 people. So, we took out 1,500. And Bill Campbell, who did retire, an old war horse, in the next two years, he’s going to spend a lot of time backing towards getting what we need over there and get net base up. I’ll be helping out in Brazil, but in Brazil, South America, we had got to look at going and putting in, one way or another, a wheel facility. We have a lot of OEs that list that. And we’ve been down the road quite a while, quite ways to get that. And the other is, the wheel business and it consolidates in Italy, and a bright spot over there is Turkey, which the tractor manufacturers are expanding there to introduce wheels in Turkey. So we’re pretty excited of what we can do there. And touching, going forward into 2015, the best thing we have is the aftermarket. The aftermarket is almost not quite but almost double the OE business. And so, we plan to take market share in that and the reason we believe we can push into that, take a bigger market share, it’s because our Titan, for Titan Goodyear has in North America has the largest servicing dealers of anyone. And with the capacity we have plus the LSW which is finally on the move after all these years, we do believe that we can increase our market share. Europe is a little different situation. But you go back up to what I talked about earlier, we had the ruble go from 30 to 1, to 60 to 1, our leverage has been cut in half. Our productivity should improve. So everything in Russia lends itself to being able to export more. And the same is true with Brazil, when Brazil was at the Real was like 1.6 to the dollar. It was pretty hard to shift up into some of the other franchise. But now, well that’s well over 2, we should be able to increase their output. And that’s what we plan to do. The other situation is going to expand, I go to my press release, we have 24 Grizz squad team members out in the field they’ve done an excellent job. And we plan to expand that to 36. And the LSW tires have been approved now, sprayers, combines and tractors at the major OEs. And this has happened only because of large farmers which over the last three years that we’ve been out in the field with winch industries to earn well. Now this past year, we may start to order the equipment. It was the dealers, the big dealers that they use went in, with the bat because number one, the tires or the wheels that we produce have improved all the characteristics of the equipment that they’re on. They turn around and they have less contraction, they have less well drilled, less power up plus they’re adding about 6% in fuel savings. And the reason being is the rolling reviews these tires are collared and normal tires. Now, there was a lot of, at the OEs, you turn around and then there were people who got little nervous because number, we’re the only ones that are making in the world, so this got overridden and took the Senior VP to do it, who said we better start thinking more of our customer than we are about what your strategy since purchasing are. And this is nothing that is new. The U.S. military has been using super singles for 20 years. And in the farm industry for use tools, you know anything about it, combines and tractors, when they come out of the factory they are generally purchased with the duals to the tune of almost 90%. So, when you can sell the farmer that you’re going to put these great big super singles on, and he’s going to have no power hot, no load dual, less ground compaction and fuel savings, it’s well not they understand exactly. And that’s only gone, in fact we’re taking these chances up to all the way down to the drivers and all the implements and the grain tariffs. So we have a lot of optimism in reference to our market that is down, and it’s going to be down in middle equipment. But we do believe that the aftermarket not only will go up a little bit, but we believe we can take the market share. And we in the construction side and the mining side, we believe that they’re going to move along with no, can be flat in the next year, we don’t see anything in those moving up. But in the aftermarket, we see a lot of progress there that we can take some market share. And we have concentrated as I mentioned before into the loader business and the smaller sizes. And we’re doing a pretty good job at this point in time. And so we have a lot of, there been a lot of change, lot of new faces, lot of old faces have gone into retirement. But they’re there as well to call upon if you need. But I’m excited about it. And with that, I’ll turn it over to John. John, go ahead.

I think Paul want to make his comments ahead of me.

Okay, all right, go ahead Paul.

Thanks, Morry, good morning everybody. This past year has certainly presented us with challenges. And a quick look at our 2014 financials may have you saying it was more like New York Jets or Oakland Raiders type season. However, these channel de-ties did present us with good opportunity to drive change. And so I would look at this past year more like an Indianapolis Colts type season, in which we definitely made good progress of building a stronger business for the future. So, what we accomplished this year? We’ve seen big improvements in the overall brand perception of Titan. We significantly rolled out our Ag tire cost and quality through reduced warranty and lower scrap rates. LSW, LSW, LSW, man, we certainly saw progress this year with LSW in demonstrating to the market and our end-users to value. We are sure to see even bigger strides taken in 2015 as we continue to move forward and really making LSW to industry standard. In response to a rapidly changing market this year, we’re trying to reduce our operating cost base through headcount reductions without sacrificing plant efficiency. In fact, along with those expense reductions, we improved our overall output per man-hour worked in our tire division. Looking beyond the 2014 savings, with savings, we launched projects that will drive further improvements to our bottom line in the future such as pricing optimization, salesforce.com, a business improvement framework and EVA. We completed organizational restructuring in North America and launched the One Titan initiative that aligned the structure of our company with our biggest strength, our global wheel and tire assets. If we spend just a few minutes this morning talking a bit more in depth about a couple of these accomplishments, let’s start with the Titan brand. Branding is fundamental and essential in building value for our company. And that’s never been more accurate than in today’s competitive marketplace that we face. In over the past six months, it’s been really cool for us to hear the positive feedback from our tire dealers, equipment dealers, farmers, OEMs, about the change that are taking place at Titan. A good example of that as an event, I agreed to sponsor along with Vanderwal Equipment in January in Boone, Iowa. You’re talking January and Boone, Iowa, that was designed to be an educational day about tires and wheels and for us to showcase what’s been going on at Titan with our products. We expected probably 30 maybe 40 local farmers to show up. We had 300 people from farmers to OEMs, tire dealers along with equipment dealers. People have been hearing about what’s going on at Titan and the shutter drives to learn more. We saw the same thing at the National Farm Show in Louisville couple of weeks ago. They’re hearing about us and the word is getting out in a very positive manner. All this is attributable to the efforts of many people working hard and working together at Titan. We see these brand improvements as sustainable and extremely valuable to our future in a couple of ways. First, our technologically leading LSW products absolutely hit the sweet spot with end users by improving their equipment performance and efficiency to pretty good formula. And that produced a product that benefits the customers and meets need, they didn’t even know they had, because they simply accepted the same basic wheels and tires for the past 30 plus years. The fun part of what we’re doing right now is we’re really just getting rolling with LSW. Good things lay ahead of us and most importantly for our customers. While at LSW, we’re building strength of a brand through the Grizz squad. You’ve heard Morry mention that earlier, this is just an awesome group of people that are out there every day working with farmers, construction operators, equipment dealers, spreading the word about Titan’s new products and also helping ensure they’re satisfied with their existing products. And as a result, we are now more connected to the end-users of our products than ever before. And the collective intelligence that we now have in the organization about what’s going on in the market has grown exponentially. And it’s really starting to kick-in and provide value to us in a number of ways. Also helping propel our brand in 2014 was 1.5% decrease as a percentage of sales, and the total cost of quality of our North American farm tires. That’s nothing to sneeze at. While with millions of dollars and financial benefit, it translates into customers experiencing improvement with our existing products out in the field. Our brand is therefore gaining on both sides of the fence. Yet LSW pushing to new improved products that solves many existing end-user problems, and we have more satisfied current customers. It’s a straight-forward recipe for building a strong long-term brand by providing better solutions to our end-users. Along with building a foundation with our brand, we’re building a better organization. Earlier this year, I’ve talked about One Titan and I’m not going to repeat today all the mumbo-jumbo that I discussed earlier this year, but I am going to probably state that our employees and customers have made repeated comments about the improvements they’ve seen with the adoption of One Titan. With this initiative, we are essentially uniting our organization around a shared vision of utilizing the strength of our wheel and tire assets, which I must say we do have the best Ag assets and tooling in our industry. What we’ve done is remove the silos and improve our internal and external communication to provide a better customer experience we will continue to drive improvements to an overall customer experience that is critical obviously to success. We’ve also created an environment of accountability to Titan Inc., and we further to ensure that we have each other’s back in these challenging times. One Titan has allowed us to move quickly through the rapidly changing market and as Morry said earlier, reduce our headcount by over 2,000 people and it has also enabled us to launch a business improvement framework for 2015 as our organization initiative to enhance our bottom line. The framework along with the headcount reductions will provide over $50 million of EBIT benefit in 2015. I look forward to moving the organization forward under the One Titan umbrella to drive value to our shareholders. It’s a journey with many phases to it. And 2014 was definitely a foundational step forward for our company. Now I would like to turn the call over to John.

Thank Paul, good morning everyone. Well, in terms of financial performance and the recent impairment, we are obviously disappointed. We continue to struggle through the mining downturn decline of Ag, specifically large Ag equipment that overcame as in the back half of the year. Story hasn’t changed we’re still in two major cyclical downturns that eroded every area of our performance in 2014 in terms of revenue pricing and productivity. Related to our locations in Russia, Australia and Brazil, as Morry noted, we’ve reported goodwill impairment in Q4 of $36.6 million or $20.8 million after adjusting for non-controlling interest. I’m sure also everybody noticed that we incurred a significant loss of $20.5 million related to currency exchange in Q4, totaling $31.7 million for the full year. These losses primarily reflect the translation of inter-company loans at foreign subsidiaries denominating currencies other than the functional currencies. These losses were significant due to the relative strength of the dollar, U.S. dollar and while these translation losses were significant during the quarter and year, the P&L amount does not represent an actual realized loss from the settlement of these inter-company obligations. We have the ability to dictate the ultimate turnaround timing of these actual settlements. So, if we were to adjust for the currency exchange losses, non-controlling interests, impairment and inventory write-down that occurred in the second half of the year, full-year net income attributable to Titan would be a loss of $17.6 million when compared to the net income loss of $130.4 million as reported in the 10-K. So, let’s begin talking about revenue. Sales for the year were at $1.9 billion, this was down $268 million or 12.4% from prior year. The year-over-year decrease was driven at a gross level almost entirely by the reductions in North American Ag and mining. The rest of this is the addition of Russia at $86 million offsetting the other small reductions. So, let’s talk a little bit more about Ag. So as we discussed in Q2, we’re experiencing a correction that is occurring in large farm equipment sales after the multiple use of significant growth. There are a number of negative forces that are well documented they’re creating a perfect storm. I talked about these in Q3. Farming commenced down with 2015 headed for third straight decline, will post its largest slides since the great depression. The U.S. Department of Agriculture recently said that net farm income is expected to fall by 32% in 2015 to $73.5 billion. That would mark the second consecutive year of double-digit declines. With lower income, higher input cost, increasing rents, many farmers are challenged to cover their production costs. For those farmers who don’t own their land, we are now starting to see them walk away from leases. As a consequence, loan volume has increased pushing the loan deposit ratios and agriculture banks to their highest levels since 2010. The ripple effect of a prolonged weakness could mean farm consolidation, fewer dealers, fewer elevators and ultimately fewer farmers. Now, I’d like to end my comments on Ag with some positive note. Farmers remain relatively prosperous based on the average earnings over the past decade. Also, many believe the softening Ag equipment sales in 2014 would represent a return to normalcy rather than a fall-off. The ASEM or association of equipment manufacturers, indicate that for each tractor category the 2014 sales were as, good or better than the 5-year and 10-year averages. High commodity prices and depreciation rose, farmers could not resist investing in machinery in recent years. Many believe that commodity prices are also normalized, and the data from the last 10 years demonstrates this as well. So we hear one dealer put it, and it’s easy to forget how good the past few years have been when compared to last year. We should remember, we enjoyed double-digit growth for the past five years, so flattening out or some decrease in sales should be expected. Specific to Titan, our large equipment, Ag equipment sales were down $132 million from prior year. Ag in total was down $165.3 million, this would be $227 million or 19.2% if you excluded Russia. Inherent in these variances, Morry referred to this earlier, price concessions due to raw material decreases related primarily to rubber for which we are contractually obligated to pass along. In Europe, the continued decline in Ag is driving our customers to utilize various tools to adjust lower production. Latin America continues to suffer from an uncertain political environment, limited credit availability and very aggressive pricing pressures. Growth from acquisitions represented by our Voltyre-Prom acquisition in Russia, contributed $71 million to our Ag segment, unfortunately with very little flow through the show for it. So let’s turn our attention to earthmoving construction. There is an interesting movement out there in regards to the strong dollar impact on mining. Some mining companies are emphatic that they will not cut productions citing the strong dollars cushioning the blow so to speak in our steady falling commodity prices. So, basically these companies are benefiting from the receipt of U.S. dollars for their commodities but pay for labor and many other costs in local currency. And the rally so far this year is fuelling that higher yet. The impact mining companies that might otherwise be forced to mothball projects at today’s commodity prices are keeping minds open. And in some cases, ramping up production as currency shifts to improve profitability. Many mining companies see this as a means to survival as many miners borrowed heavily during the boom times, and the need profits to service their debt. I believe this ultimately could have a negative effect, supplies could continue to increase and metal prices fall lower and stay there longer. I think this could possibly constitute kicking the can, where will the demand come from, China, the top commodity consumer their economy in 2014 has expanded at its lowest pace in decades. So, this could potentially have an impact of perpetuating an already bad situation. Specific to Titan, our sales for earthmoving construction were down $138.5 million or 18.5% from prior year. Inventory de-stocking, competitive pricing pressures, loss leverage and productivity due to the significant decline in sales is compounded the negative impact on our profitability in 2014. To remind everybody, we recorded an asset improvement associated with our Bryant facility of $23.2 million in Q2, and inventory write-downs of $18.2 million in the second half associated with mining tires. So the total expense in 2014 is $41.4 million associated with those events, but this did not have an impact on cash. So, while this downturn has significantly impacted both sales and profitability in North America, it continues to harm both our Australia and global undercarriage businesses as well. I want to make a quick point on consumer we’re experiencing nice growth here in Europe and Russia, Russia being mostly incremental. In terms of the growth in Europe, this is primarily represented by the high-speed disk-brakes sold into Spain driven by demand in China. This product generates attractive margins that will positively impact GP performance going forward. So with the book closed on 2014 that puts our sales at $1.9 billion compared to $2.2 billion last year and as I said earlier an erosion of 12.4%. With the continued challenges in mining and in Ag, it is our goal to hold revenue flat in 2015, hopefully drive a little growth with many big initiatives that both Paul and Morry spoke about earlier. So, let’s turn our attention to margin performance. We reported a decline in gross profit performance at 7.4%. That compares to 13.6 last year and 9.5% when we adjust for the impairment and inventory write-downs. That 9.5%, this represents a 410 basis points decline in GP performance from prior year. This is not terribly surprising given the reduced sales and pricing pressures, specifically in our higher gross margin large Ag products and Super Giants and the addition of Russia’s sales lacking flow through. In addition, our international mix is now growing to greater than 50% at lower margins when compared to our North American business. With all this said, this certainly is not the performance we accept as we’re engaged in a number of initiatives to improve our margin performance and Paul spoke about a number of those previously. Net material cost reductions are led by natural rubber, but these were all given back so to speak relative to competitive pressures in our contractual agreements with our OE customers. We are also realizing reductions in both synthetic rubber and carbon black due to lower oil and natural gas prices. Relative to natural rubber procurement, we have centralized purchasing and introduced a hybrid purchasing strategy in Q3 to consist a forward value so they act like a hedge Sycom [ph] contracts that mimic more the market and stock price. This new methodology is designed to reduce both our cost and price volatility risk. As we’ve discussed on previous calls, we have reduced headcount significantly both Morry and Paul referred to that. And we have plans to respond to both the lower volume and our profitability challenge. So while the plants are working hard at improving productivity and reducing cost, in 2014 we did still experience some erosions relative to labor and overhead as it is very challenging to overcome the negative impact of lower sales. Another barrier in this regard with the significant headcount reductions, we had many employees learning new jobs resulted in productivity during, as they come up the learning curve. So, for example our Freeport facility due to then number of loss, we had many people replaced in brand new jobs or returning to jobs that had not performed in years. But this is behind us now, and we fully expect our costs will continue to improve with productivity gains. Quality, and Paul referred to this, it was a very positive story in 2014. As we realized more than $25 million to the positive side relative to our warranty cost when compared to just one year ago. This is primarily due to the 2013 giant, super giant tire claims that it worked through the system, and improved quality associated with our newer version tires. We’ve also realized tangible improvements from compound and structure changes in both our Freeport and Des Moines tire plants that have proved very successful in the market. As Paul said earlier, we are consistently getting feedback from our customers that our quality has improved significantly. And this coupled with the momentum on LSW is having our customers view us in a much, much more positive light. And Paul earlier referred to the event in Boone, Iowa, I think that’s a testament that what we’re seeing from customers now in terms of how they view us. Quick note on the operating expense side of the equation, SG&A and R&D, they were up $8.9 million or 4.6% to prior year. While there is a series of puts and takes across these categories, this increase is primarily attributable to the incremental operating expenses associated with the addition of Russia at $6 million and the $5 million associated with the closure of the Italy facility. This closure should result in $5 million of annual cost savings beginning in 2016. So, while our operating expense structure has been historically lean, we believe there is opportunity to redeploy funding to other areas of strategy investments. And again, you heard on the call before me, a number of those initiatives that we’re making investments. Moving down to P&L, our interest expense at $36.6 million is $10.6 million less than last year due to the 2017 senior notes repurchased, and debt reduction in Europe. Foreign currency, as discussed when I opened this conversation, we experienced a loss of $31.7 million in 2014 associated with our inter-company loans and balances. This represents $26.8 million unfavorable variance to prior year, when you exclude non-controlling interest and net loss attributable to Titan Europe, $16.2 million. So, this loss is driven primarily by Russia and Titan Europe, the recent events in Russia resulted in significant swings in the ruble driving $22 million of the loss. As stated last quarter during the past 12 months, we’ve continued to address these inter-company currency exposures through balance reductions and development of a hedging policy. In late Q4, we entered into a derivative, hedging our Euro on British Pound denominated inter-company loans for which we had realized $3.8 million benefit through January of this year. We did not enter into derivatives of Russian Ruble, the Brazilian Real or Aussie Dollar as they are cost prohibitive. And the FX for us is from inter-company loans are not realized as I spoke about earlier. So, let’s summarize and bring this to bottom line relative to profit. Our 2014 net income attributable to Titan is a loss of $80.5 million or negative $0.55 per share and EBITDA of $55 million. This compares to net income attributable to Titan of $35.2 million, or $0.75 per share, and EBITDA at $192 million from prior year. When we adjust and I want to reiterate, when we adjust for impairment inventory write-down in currency, our net income attributable to Titan loss is reduced to $17.6 million and EBITDA growth to $86.3 million. So as I stated, when we began this discussion, our 2014 financial results are disappointing, our 2015 look-forward is quite exciting. We will continue to address these initiatives in a very diligent manner. And as mentioned earlier, we’ve reduced our employee population by over 2,000. And in addition to headcount reductions, we’re aggressively pursuing a number of business improvement initiatives to address these profitability challenges. We’ll continue to aggressively build out our integrated performance management framework; a component of this that was referred to earlier EVA was announced last year. We recently engaged in constructing a three-year plan that will be grounded in EVA and that will be correlated to a share price target. This global plan will be rich with initiatives that we will diligently track to ensure execution. We’re confident EVA will significantly enhance decision making, transparency and accountability with a clear link to shareholder value creation. So, let’s run through the balance sheet very briefly. AR is down $64 million from prior year driven primarily by lower revenue. We experienced a slight decrease in DSO from 2013 and 7.5 days or nearly 14% improvement from 2012. Inventory was also down $54 million driven by both revenue and inventory management. DSI is improving 6.2 days or 8.4% from prior year, and 18.4 days or 21.3% from 2012. So, we’ve done a pretty good job managing the working capital components. PP&E for 2014 was down $111 million, driven by a Q2 mining impairment of $23 million, reduction $61 million and CTA and $30 million in net capital, so capital additions offset by depreciation and amortization. So, for the year, we have invested $58 million in capital while our original 2014 budget was to spend $80 million. We’ve diligently scrutinized capital and ensure strategic alignment in cash generation. So speaking of cash, cash ended the quarter at $202 million compared to $189 million at the beginning of the year. So, we’ve done a very good job in managing this in the face of declining profitability. Through all the ebbs and flows, this is primarily attributable to four items. So, $52 million net working capital reduction, we received a $36 million tax refund check in Q1, $30 million net capital reduction as I indicated earlier and $11 million capital grant received from the Italian government for the earthquake damage reconstruction. These four drivers are offset in large part by $60 million in Europe from Russian debt reductions that occurred in 2014 and then of course $54 million of net income loss after the impairment and inventory. So, from a debt perspective, our debt to trailing EBITDA measure has nearly tripled from one year ago to $5.89 million. This is solely a function of falling profitability as our debt level today is $50 million lower than 2013 year end. I want to provide some clarity as we get this question a lot. We do not have any financial covenants with our debt. So wrapping up, clearly, there is a lot of work to do. And we have been getting after it. I’ve spoken a lot to analysts, investors over the 12 months I’ve been with the company. And I will reiterate Titan is not two to three quarter turnaround. Our markets would signal that along. But we are engaged in many initiatives that will improve short-term results but more importantly will position us strongly for the long-term. And we strongly believe that through market adoption of our LSW solutions, and elevation of our professional management practices, One Titan and the ultimate recovery of Ag and Mining, we will prosper again and reward our shareholders for their confidence and trust. And with that, I’d like to turn the call back over to the operator for questions.

[Operator Instructions]. The first question comes from Sean Williams from BB&T Capital Markets. Please go ahead.

Hi, good morning.

Hi Sean.

I wondered if we could maybe talk about the revenue outlook as we move into 2015, a lot of moving pieces here. FOREX headwinds, you’ve got macro working against you but some of that being possibly offset by LSW and then maybe some other opportunities. I know you gave a kind of an, EBITDA guidance for 2015, are you willing to give kind of a revenue range that or ballpark do you think plausible?

I’m back in, I missed the question.

So, the question Morry was essentially, I mean, you gave EBITDA guidance for 2015 of about $115 million. Are you willing to kind of put a ballpark around kind of what the top-line could look like just given all the moving pieces with FOREX, macro headwinds, possibly offset by some of the traction on LSW?

Well, we don’t know. Forecasting with the end of the sales side, I can tell you because I’ve been on the frigging road now with this LSW program for three years. But this last year, I know the aftermarket people who are ordering the tire and wheels, I know that we got compared to, let’s just say the standard tire, we’ve got margins as Paul and John talked about that we’ve looked at it real good. And I know where that is going, I know that we have out of Canada a dealer who is, when a guy steps up and ship these order of 800,000 and tire on some ways, and this is for his customers, and it’s starting to roll and when you have your managers, who have not [technical difficulty]. Europe, with Europe, we’re not counting Europe. We’re not going to have LSW so that’s the shipment from the U.S. And I think we’re going to be having to keep that going. And the other item is that we’ve done it on the construction and the mining. And on the mining side, we’re looking at. We’ve been told that if we produce the LSW in a big, we’ve already got the ones who are the CAT 994, that’s their biggest loader. And we have one mine that had this thing for years now, and it’s been through all the tests. And they’re so excited. But they also have some marathon on the turn. So, we have turned and we’re making the marathon and the turn. And we look for them to cut the contract with us for 13 mines. So when you look at where it is and when you look at the goal, and you put those numbers together that’s what I kind of like based, I didn’t take it off of $1.8 billion or $1.9 billion because I know where the wheels, and I know where the margin. And let’s face it, the margin is in new product, the margin is being slammed, tires and wheels that have been the same, tires and wheels for approximately 50 years. So that’s where, you just add up the margins and the construction, the mining and the Ag, where it should be. And what we should be able to turn that because you remember now every one of those that we sell, we sold that. So, it helps you in sales dollars a little bit, but it also takes away the other sales dollar that you would have sold that you wouldn’t have made any margin. It’s like the, one of the great big loader tires is the 45 R 45. So, we’re making that now in a 45 R 65, we just came off our test with delta. We’ve put it to the test. It blew away our standard 45 R 45, which we make is a real good tire. So, before this latter part of this year, that’s going to really kick in. And those are not cheap tires and wheels. So that’s what it’s from. And I think it’s a very doable number.

Okay. And then if I could follow-up maybe on the specifics around the cost savings. I mean, it sounds like you’ve bumped that up from kind of $40 million to now $50 million in savings. Can you guys clarify how much of that $50 million is incremental versus what you’ve already kind of partially captured in the back half of ‘14, so some of the savings you theoretically already captured, maybe some of that in Q3 and Q4. Could you may be dissect how much of that is kind of truly incremental as we move into 2015?

Yes. Sean, I mean, when you look at it, the headcount reductions you got over $40 million coming through that. So, like you said, that’s already plugged in from the back half of the year. We’ve accomplished our goals and keeping headcount in line with the volume changes. The rest of the benefit is really coming from initiatives that have been watching, and certainly that’s coming from a number of different sources, it’s really across the board. And I couldn’t sit here and tell you that there is one area that’s driving that, a lot of it, I think it’s a lot of team-work, it’s a lot of efforts across the tire organization realizing that we need to be focused on the bottom-line and work together to make some enhancements to it. So, the $50, to guess with you, we even got more over that, we’re working on beyond that. So, I would answer your question, you got over $40 million that’s baked in already with headcount. We feel pretty confident that you can get up to the $50 with what we’ve got baked in internally. And then I will say this amongst our group here, we’re already looking at a number above and beyond that and we’re going to keep driving that higher.

So, Sean, let me add one more thing to you. You see, the - we took on an awful lot in Russia, and Russia is going to go. But as the new equipment comes in and everything and I appreciate the product range they have. They probably should take another 200 out. But when you take it over and you take out the group you have, you got a big shock. In fact, I met with the President of the Union. And he even said to us that he said, he appreciated, he wished it didn’t happen but he appreciated the fact that we not only did it to the hourly, we took down the whole salary group too. So, and he knows he wants to see it become strong and viable. And I think that technically they had got the techniques, they got all the technical know-how everything else, they just got to get a little bit stronger on their management and accountability and a few other things. But then you move through the other, as Paul stated, we paid all the severances as been approved in ‘14 and everything there so if you’re talking about. But the results that you’re going to get are really going to start coming in the second quarter of this year, because you got - you’re dealing with people and the rumor now just runs violent, okay. And the situation you have in the North America as Paul mentioned, there is so many other opportunities but you’d be yet to do very careful in this market that you don’t grow hog-wild. And then you end up short-searching a customer and this is the wrong time to do that. So, I think that we’re very conservative on everything. Personally, but they’re making that $50 million is going to be, I think they’ve got chances to go above that, personally.

Hi Sean, I’ll just add a couple of comments. The $40 million that Paul referred to, I mean, as I’ve said a number of times over the past couple of quarters, this is really just chasing the revenue decline and playing catch-up in terms of trying to mitigate the erosion and loss that occurred from the revenue reduction. So that’s a bit of catch-up and just being responsible from a standpoint of adapting to the revenue loss. Now what Paul referred to also above and beyond that is the business improvement framework that we have a number of initiatives that are being driven across the globe that we planned for, we assigned probabilities. We have points of discussions around progress and resource alignment and investment and things like that, these - we do plan, we do forecast and project the execution but none of this is guaranteed, some projects like you referred to in terms of the pricing practice. But we’re pursuing, I talked earlier about the rubber purchasing, the hybrid approach and that’s going to produce savings. So, as we get a little bit further into the year, we’ll get more clarity in terms of the probability of execution and what that will mean for our bottom line.

All right, John. And maybe if I could sneak in one more here, obviously you’ve put in some new FOREX hedging mechanisms. I wondered if you could, I don’t know just assuming we don’t see significant further changes and where the FOREX levels are, can you kind of clarify what were the losses that you incurred in 2014 and how much of that potentially goes away as you moved into 2015 given some of these new mechanisms that you have in place?

All right, well, yes, I’ll talk a little bit about that. I mean, obviously I can’t predict where some of these currencies are going to move. You would have liked the thought they would have stabilized as we came out of the year, but early in 2015, they’re on a run again. So, the Russian Ruble obviously contributed significantly, it was over two thirds of our loss this year. Europe was a big part of the loss. Now I did say we hedged both the Euro and the British Pound. So I feel like we’re going to mitigate any - for the most part hopefully any potential 2015 impact to close with those two currencies. As I said earlier, we did not take a hedge position at derivative against the ruble, the Brazilian Real or the Aussie dollar and they were cost prohibited, specifically the ruble. And against inter-company loans, these are not realized losses. So it wouldn’t make a great deal of sense for us to pay money to do that. Now with all that being said, we had not been actively hedging before, so this is kind of our first throw on the table. We have another meeting with our partner in March to explore other dimensions of how we start to mitigate more and more aspects of risks associated with our currency. So, you’ll hear more about that in quarters to come. But that’s probably the best answer I have for you at this point.

Okay, thanks guys. I’ll get back in the queue here.

The next question comes from Alex Blanton of Clear Harbor Asset Management. Please go ahead.

Good morning.

Good morning.

I didn’t hear all of the opening remarks did you discuss the tire recognition project and all Maurice?

No, I didn’t go in that. That’s in it.

In the press release, there is a paragraph about it, but I wonder if you could give us a little more color on that, tell us where it was?

What happened is our partner up there on this is Suncor. We’re on the voyagers’ side that bring - they turned around and they bought for I think it was like $5 billion. And they’re building a refinery there. So, those who want to know that this was a multiyear situation. We also have a partner in our situation which is the first nation up there. I would tell you the tribe but I can’t pronounce it. And so what happened is, the Suncor turned around and hired Jacobs Engineering and a couple of other firms. And what they did is they turned around and went through everything and went what was going on, and lowered up thought for them. And they, what we are planning to do is very viable and it works. So, what happens is, it’s too cold up there by the time they got the lease for the site, its 10 acres and they got it all done. The winner had sat in, so at this point we have signed up other companies to do the same situation. We have - the unique thing about this is that we will probably at patent side, we’ll probably be doing tires and wheels of certain sizes for them as future goes, and the few partners with them. It’s a pretty good thing. So, we’re going to be taking their tires and taking their all of the delta, anything basically has got the lever. And it will there will be six reactors there, three minimum will be up by September, by which the reactors would be ready, it’s just how fast we can get all of this and transport it up there and get it going, so.

What kind of revenue do you expect from six reactors?

The revenue right now what we’re looking at is that we’re going to do, we will take let’s see, we’ll take four tires per unit per day, so we will take 24 tires, so 24 tires will be approximately £240,000 a day. And we can figure out the oil, we can figure out the carbon black and the price of steel at advance, because if you got a commodity and we will probably use most of the carbon black ourselves but that’s a commodity. So we have the numbers but that’s like, you got different numbers, if oil is up at $80 or $100 a barrel, then when it’s at $45. So, until we see exactly and sign some contracts with the people, who are going to buy it with us, I’ll just be giving you a guess. I do believe that the - for Titan’s part. I believe that the wheels and tires, the track will probably generate in the years ahead anywhere from a minimum of $40 million probably at the $80 million a year. That’s just them buying through us.

That’s just the six reactors?

Pardon.

Is that $40 million to $80 million year for those six reactors or is there more that you’re planning to put?

No, no, no, the $40 million is the amount of business that Titan will get in wheels, tires and tracks. That has nothing to do with the reactor side.

Okay.

Okay.

What kind of corporate margins do you expect on revenue from that operation?

Well, the tire, wheel and track business flows into - doesn’t flow through TTRC, it flows back through to the Titan Mining in which we own. So, it will be the same profit margins, probably a little bit that we’re doing pretty much in the aftermarket. When you turn around and you get to the other, I think that we’re going to be right around 50% EBITDA.

Okay, thank you.

You’re welcome.

The next question comes from Tom O’Shea of Castle Hill. Please go ahead. Tom O’Shea: Hi, I guess you sort of talked about this, but just on the $150 million EBITDA guidance, can you give us some type of bridge from where you stand today or just talk about the three divisions whether or not you think sales are up or down - it sums up with the model at all?

Well, I think what’s going to happen, I think that, I think Ag sales that the problem that is so hard right now, the figure to top it out for you, is I think the wheel sales are going to be down because overall Ag from an OE side is going to be down. But our tire size, tire business should be better this next year than it was last year in almost all of our segments, okay. So, when we looked at everything, we - you have it down but since the uptake of the LSW which we only got notification of the OEs and acceptance and like December, there was talk back in the Spring, not the Spring, the Fall, they had but they didn’t actually go out and put it in their pricing books so dealers could order it, okay. In fact, it took down almost how 90 to 100 and some days to put it in the price book, we had dealers. We had farmers calling them. And they were telling, we don’t have that option, we don’t have that option. So it took some very angry big dealers to get that moved. So, and most of that, a big chunk of it is going to come from the LSW added business and the Ag, and the construction in OE. We’re going up to a big shell in Saskatchewan in a couple of weeks. And we’re going to prey it up, our new 20.5 by 31.5 snow tire, which we never produced before. And that’s what they want for motors and graders. So, and that maybe is going to do a hell of a job. So that’s what we’re banking on and I’m pretty confident the situation of Europe we baked in, I do believe that the latter half of the year, I think the Russians are going to kick in pretty good mainly because their cost has just been wavered to us, it’s cut in half. So they’re going to be able to export, and I mean, export quite a bit, in fact we - because I get all my competitors on the phone, I’m not going to give them a bunch of information four, five months ahead of time. But with the new product we have for them and what we’re going to do for them is pretty good. We have moulds we can ship them brand new moulds that would make everything real nice for them, into Europe. And then price wise that should be competitive with anybody. So we’re excited about it.

And I’ll just add a few comments in response to the question. First of all, I think guidance was used a couple of times. This is the goal that Morry stated in the press release on the call it’s not a function of a forecast. So the goal at this point, not particularly I would not say guidance. In terms of what are some of the drivers that would allow us to improve profitability we talked about a number of them, I mean Morry referred to aftermarket, I think everybody knows that after market, we have higher margins. We do expect some nice slight aftermarket growth associated with the replacement cycle, the tires that were purchased in ‘11 and ‘12. Morry referred to Russia, Australia, they’ve made a number of operational improvements. The headcount reduction again is chasing the revenue curve, that’s a significant improvement that was talked about. And then the business improvement framework that Paul Reitz referred to, there was a number of initiatives that we are engaged in and exercising well beyond just headcount reductions that will significantly improve profitability both short-term and long-term for the company. Tom O’Shea: Okay. And CapEx for this year is like 65?

Yes, correct. Tom O’Shea: Thank you.

The next question comes from Charles Rowel [ph], a private investor. Please go ahead.

Yes. It appears as I recall, we change the way we pass through the price of rubber in our pricing to customers. Now that rubber is starting to move up in price, has that change proven to be wise or do you wish we were back in the old manner?

This is Morry. I think what happens, I don’t know with - what happens if it’s in OE, and rubber goes up, it will get passed through. On the aftermarket, is mainly what you can do that the market will grow, and generally unless the boys here have changed something that is Greek to me?

Hi Morry, let me clarify. We have not changed the pass-back methodology that you referred to. I think maybe where there might be some confusion what we have changed is, we’ve constructed and adopted a new purchasing and procurement process relative to rubber by which we think we can lower a cost base as they mitigate risk. But we’ve not changed how we pass back costs to the OE.

Okay, that answers my question. Thank you.

You’re welcome.

This concludes our question-and-answer session. I would like to turn the conference back over to Maurice Taylor for any closing remarks.

I thank all of you. I’m assuming it’s still cold up there in the Northeast and wherever you’re at. That’s another thing we’ve burned up a lot of energy this past year. But thank you all. And you have a good spring, it’s coming. Talk to you later. Bye-bye.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.