Ladies and gentlemen, welcome to the Titan International Inc Fourth Quarter 2016 Earnings Conference Call. During this session, all lines will be muted until the question-and-answer portion of the call. [Operator Instructions] Any statements made in this 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 risk and uncertainties as detailed therein. Please note that this call is being recorded. At this time, I would like to introduce Titan Chairman, Maurice Taylor. Please go ahead.

Thank you, dear. Good morning, everyone. Of course, this is -- you should have the paper work if you are on a call. This is our year end and 2016 which was an interesting year. Number one, we started the year at everybody was worried about our liquidity. And of course that triggered a lot of the events through the year, which is spelled out in the press release you have. The other situation is when the -- and I want to talk about our market before I turn this over to Paul. And in fact I am talking about Paul, it was a big year 2016, the end of the year, Paul took over as the President and CEO of Titan, which he can cover on his team and what they are doing. But I think it's very exciting what they have got planned and what they have been able to do in the last couple of years. The situation in the third -- I have to call it the end of the third quarter, I mentioned I thought we were pretty well scrapping and bouncing around the bottom. I think the results show that is true. I think Ag is bottom out, construction market is bottom down and the earthmover is bottom out. Last week, CONEXPO arrived which it arrives every four years in Las Vegas. I've been to probably all the way from CONEXPO that used to be up in Milwaukee, I believe, and then it went to Chicago before resting out in Vegas. I've never seen a more active, bigger, CONEXPO than what happened this past week. And the unique thing about last week never did I ever see all the contractors, people that they send, not just one person, two person, there was teams and…

Thanks, Morry. Good morning, everybody. I am going to start off by talking sports for a couple minutes here. Just think what took place in 2016 with the recent sport season that concluded. Yet the cups come back from 3:1 down deficit win their first world series since 1908. The Cavaliers came back from 3-1 down to bring a championship to the beleaguered city of Cleveland. And then of course most recently you had New England come back from 28-3 down late in the third quarter to make Tom Brady then winning to Super Bowl quarterback of all time. You may have not like these results of these games but one thing that we consistently heard from the players behind those comeback is that they kept their focus on the task immediately ahead of them and not their deficit they are looking at. The players realized that they must take things one step at a time in order to come back from near defeat. So let's tie these 2016 sporty events together with Titan. As we started our 2016 financial season, we were in year three of a massive cyclical downturn in our end markets. Our sales were down over 40% from our peak, our stock was at $3, and our bonds were at $1.63. Now I am not saying Titan won world championship in 2016 and I am just having some fun with the sports comparison but in all seriousness the Titan team has done a really good job of applying that same competitive mindset to keep our focus on moving forward one step at a time. This past year not once did I hear anyone from my team whining about the market conditions and the challenges that we are battling. We believed in what we are doing, the…

Thanks, Paul. I'll begin with the reminder that the audited results we are about to review were presented in our news release issued this morning and will be discussed in more detail in our Form 10-K which was filed this morning. Let's start with the income statement. Net sales for the fourth quarter of fiscal 2016 came in at just over $307 million. This was down less than 1% or $0.5 million from a year ago and a smallest decline we've seen this year. Sequentially net sales were up $1 million from third quarter fiscal 2016. Here is what that meant in terms of segments. Agriculture and consumer net sales were higher but offset by lower earthmoving and construction. Increases in net sales were largely driven by favorable prices and currency. Net sales volume was down slightly in all segments with the biggest decline occurring in agriculture which was down less than 4%. Turning to geographies. North American business continues to see lower net sales volumes across all segments. The good news is that in spite of lower net sales in North America, we were able to improve gross margin while other geographies showed improvements in both net sales and gross profit. Moving on to gross profit and margin. Gross profit for the fourth quarter was $32.5 million, up $14.7 million over the prior year. That's an 83% increase over the prior year on similar net sales. Overall, our gross margin performance was up 480 basis points from the prior year to 10.6%. This is a great accomplishment by our team to have accomplished that level of margin improvement in the fourth quarter which has historically been our toughest quarter. We've talked about our improvements in margin for several quarters and are proud what we've accomplished our one Titan team…

[Operator Instructions] Our first question comes from Larry DeMaria of William Blair. Please go ahead.

Hi. Good morning. Hey, guys. It sounds like obviously you've seen some stabilization. Can you kind of discuss the overall segment outlook for 2017? Do you expect improving sales and operating margins in all businesses in 2017? And maybe just discuss your order of magnitude, if you can.

Yes. I am not sure Larry at this moment we can talk about that level in granularity. We did not give out forward looking guidance at the beginning of 2017 and so not to sidestep your question it's certainly a good question but because we've not issue formal guidance and there has not been any comment in our filed releases at this point we'll have to talk in generalities but I think you are out of CONEXPO and you certainly feel that the momentum is turning and a good foot going forward to 2017 from the construction side which fits well with our obviously our ITM business is doing well in that segment. We certainly see some opportunities with our wheel business in the construction segment coming out of last week. We reorganized our team to be more focused on taking advantage of those opportunities. I would say one of our weaker areas has been construction wheels and we reorganized our team and see some positive things coming from that. Going back into last year with the mine expo, you certainly have seen some trend lines that are start to look pretty good in mining. And again that fits good with our replacement business in the ITM. And then talking about our core business with Ag, we see the replacement side of the Ag business in North America off to a good start as Jim mentioned in his comments, the Ag business in South America finished the year strong and is rolling into 2017 in good shape. Russia, we finished 2016 with the number one position in Russia with over 50% of that market. When I say Russia referencing the entire CIS region. So we see that business again continuing to perform on those same lines and improve on what they done in 2016. And then Europe is Europe Larry, it's kind of stuck where it's at and moving in a direction that's stable but not anything significant upwards or downwards side anything for us. Europe, our opportunities are organic in what we can do with the Goodyear brand. And so we have a lot going on in Russia to expand our Goodyear product platform and its production capabilities looking at producing some product down in Brazil, have some other projects and the works to be expand our Goodyear Europe presence. So I think for us the opportunities in Europe are exciting to see with what we can do organically. So as we look around the world, I know it's a high level look, Larry, but I think we do see some positive things going on in just about other areas.

Thanks, Paul. Do you fully expect to be able to penetrate the continental European market with the Russian -- with the GT brand coming from Russia, is that right?

We got it come out from a different ways. We'll get more into that later this year as we get our portfolio build up but there will be a couple of different ways that we'll have to attack the market there with Russia being a part of it we've equipment that's already there, getting installed as we speak and has some of it's already installed, more of it's continued to be installed year this quarter this month, next couple of months. So with what Russia can do, they are already combined with what we are adding with the additional equipment. We certainly feel good about not only our CIS position which I mentioned earlier is over 50% of the market, what we can do with exporting from Russia into Europe. We feel like our cost to production there is very favorable. And again the improvements we are making with the equipment and the quality will get us to the point where Russia would be a big part of our European strategy. And there is other pieces too that we'll talk about late in years as we get those finalized.

If I could throw little more light to that, Larry, is that you have seen in Europe they have a total different problem, farmers too than they are have in the US or lot of South America. They use our tractors mainly as a pickup so if you have noticed you see all these what they calling different names so it's central inflation system, you see on the trucks over there too where they try to keep the air pressure way up. When you go into combines and tractors out in the field, you need lower air so this has been thing they have fact and that's 20 years ago this was one developed for the Desert storm for the US military came out of France. Well, you turned around and use now LSW you are down to anywhere from 12 to 15 psi. So that will go through your fields any place in Europe and because the sidewall doesn't bulge down, you can get on the road and you want to do 65-70k fine. So we are going to attack you with LSW and selling over there is a situation of -- you actually sell to a group of individual farmers as how you make your end roads. And as Paul mentioned, that's what we are going to do. We have everything there actually bringing to little more advanced technology and save the farmer a ton of money.

Thank you, Morry. If I could ask one other question, ITM, obviously you are going to keep it now, but you mentioned in the release that there could be some other opportunities. So could you explain think about give us some thoughts about other opportunities and the required investment you will need to make in ITM should you keep it? And then, should we also expect potential divestitures from TTRC in Brownsville? Are those still on the table? Thank you.

Well, I think speaking for the Board, yes; the other two are on the table. We have bankers for the situation at TTRC up in Canada. The thing that's happen is the problems of Ontario, notified all the tire manufactures that you own the tires even after you sell them, to dispose of them, the TTRC there is a lot of people on environmental end but what happens out there is it's in total sale system, you put the tires in and you get the oil and you get carbon black and you get the steel. So it's a total pollution free system allows the others through the pyrolysis they are out their burning a gas that comes off and so this system is a little bit different. And we expect that it's going to be added to the bottom line of Titan as it goes on but to expand it and take a tremendous amount of capital. And we have a number of people who will be interested. We want a process of getting at least six months of operations under it before we look at disposing of it. Brownsville, they did an appraisal came higher than what we were thinking it would be and of course until our President gets the situation straightened out, Brownsville is super hot market and it's a cash generator for Titan. So it's sitting there generating a little bit of cash so I think the Board right now is and I think Paul will back it up that it's something do you actually expand -- we are quite a bit of property down there. And we've got a big power source right now on the property so there are a lot of things outside of the wheels and tires that they've got to look at that will generate cash for the company. Reference ITM, ITM has been a very strong OE producer. They have great probably with the best engineering; it's all German engineered so the aftermarket we are just kind of scrapping the surface. So we have three items that we always knew would generate about $250 million in ready cash and that's kind of like been going up so there is no hurry, I don't believe as Paul mentioned on any of it at this point, with your bottomed out and what we are looking for, I think it's, it's all good. You are at the show, you've seen what happened at the show, and I have never seen as much enthusiasm in any show as I have seen out in CONEXPO. And we are seeing that right now in the order deck. That's -- unless you want to add to it Paul.

Yes. Larry, as we referred ITM and the opportunities, the opportunities are already in process. We are going to have invested significantly in order to continue to exploit those opportunities. I mean part of it is driven by the market; part of it is driven by what we've done with the business over the past couple of years. And so kind of circling back to your other question, your first question as well, our CapEx for 2017 is forecasted to be relatively in line with where we were in 2016. So I talked about some opportunities that we are exploring in Europe with what we are doing in Russia and other possible avenues. That's already baked into that number. So I don't see a significant change in our CapEx for 2017. We did some investment that will make in the Brazilian wheel plant that we've already talked about before and those will be separately disclosed but again those would of relatively small number in the big picture. So I don't see our CapEx changing that much. So these opportunities are really already lane out there in front of us whether we talked about ITM, Europe or Brazil and so again I know we didn't give guidance for 2017 but I do want to comment that we don't see a significant change in our CapEx for the year.

Our next question comes from Joe Mondillo of Sidoti & Company. Please go ahead.

Hi, guys. Good morning. So just wondering if you could comment on pricing both in the market and what you are seeing in -- how pricing is trending relative to sort of where raw material cost are. And then also if you could comment on your internal pricing and new system that you are implementing and how that's sort of trending and going so far this year and how that's benefiting gross margin?

Sure. I mean the market right now is dealing with lot of changes with raw material cost. That is something that we put a lot of time monitoring not just on the supply chain in our input cost perspective but also how the market responds to it. At this point just about everybody, if not everybody has announced some sort of price increase. Ours are rolling into a fact as well. We did do anything that necessarily across the board, there was some strategy involved with that so kind of the second part of your question. We rolled out some strategic moves to start the year and how we positioned our products that were very well received. We've taken out a significant amount of variability that existed across our product portfolio, really came out to the market strong start of the year, so have seen a nice uptick in orders. And so as went through this price increase but again kind of caught everybody off guard I think what's going with raw materials is somewhat driven by speculative Chinese movements that aren't necessarily supply demand driven but needless to say everybody have to react to it because the cost, the raw material cost changes have been so significant so we made sure that as we did that we didn't undo what we've already done before January 1 with our strategic move. And so we apply some strategy, we waited to as long as we could to see some of the competitors moves were and to answer your question there is a lot of moving pieces as we see here starting in March 1st going into April across really all of our products on the pricing side. The more so on the tire side but definitely on the steel, the wheel and undercarriage side you are experiencing some input changes there as well. OEM business do have contracts so to answer your question on the impact on margins, there are some contracts that are you change it in every quarter, some are changing every six months depending on the fluctuation in index prices. So there are some opportunities out there where you are going to just stay naturally perfectly aligned with the changes in your raw materials and there is going to be in some cases we have 30 to 60 day lag and when you can push through those price changes. So lot of moving pieces, not to repeat that same saying again but it's something we put a lot of effort into both strategically and then in dealing with the raw material changes here recently. And we'll continue to stay at top of it. I made a comment in my announcements earlier in the call that we have really deployed a lot of resources both from a systematic and human capital perspective to make sure that we stay up there in front of the game when it comes to this so.

All right. And in regard to the effect that you are seeing with raw material prices, have we seen the worst within your results yet in terms of the near term or are you expecting first quarter just given how rubber and steel has moved -- are we expecting in the near term to see a little bit weaker effects from raw material cost?

You do have some situations where you have some lags and been able to push those through. Certainly we move as quickly as we can in line with what the market is doing and then obviously what our costs are doing but there are some situations where do you have a lag or timing difference when you can necessarily make those price changes. And when you get some cost impact that hit you. So we are still looking at it closely. I would say the first part of the year not much of an impact but there is a little bit of lag as you kind of get caught year the tail end of this quarter so I think for the most part our industry; our business is reacted to the changes in the raw materials. But there is some strategy involved with how you make those changes. So with the OEM we do have some lag impact that will hit us in part of this quarter.

Okay. And then in regard to SG&A, I know you commented on that you are going to take a more of focus this year on SG&A. But your SG&A outpaced revenue in the fourth quarter. What exactly drove that? I know you are focusing on the LSW tires and trying to get out there in terms of marketing and such. Was that the driver of that? And, if so, with the focus of trying to transition farmers to the LSW tire and focusing on marketing and such, do you expecting the near term the SG&A regardless of these commenting that you are going to focus on it, do you expect SG&A to sort of continue to outpace revenue at least in the next couple quarters?

I'll let Jim make a couple comments. And I'll just open by saying that what we experienced in the Q4 was driven some legal fees associated with the countervailing and anti-dumping cases, little bit of incentive changes that hit us in Q4. Jim can talk a little bit further about that but my comments we are getting to some structural things that we see we can attack differently in 2017. We've really done a good job focusing on the operational side at the plant level and there is some different things that we are going to take a look at from the SG&A side to forming some different views on ways we can structure the business and look at things to really those cost out of there so as we move forward into 2017 there is going to be an immediate impact to what I just said, it's going to take some time but definitely I think as we move into the tail half of the year we'll see more of an impact from that. We do have some legal fees that our legal is running higher than it has been traditionally. So that will naturally reverse itself over time but I think when you look at Q4, those are the two primary areas. Jim, is there any -- you want to add on that?

Yes. I'd just say that as you mentioned the incentive and the legal were sort of one time that they should incentive is incentive but legal I would see that not being as much as it was before. The other thing is just the whole idea I call them profit leaks but I am in royal cost managers so we are taken the culture as to look at all expenses which we do, that's really everyday business but then in the long term I'd say that we are really taken a hard look at our systems and talk about information technology systems or operating systems. So we've set up IT steering committee, so we've set up IT steering committee so we are taken a bit hard look at that. And those systems will -- I have a nice ROI or else we wouldn't do it. So that's more of a long term thing that will be carried out through 2017.

Okay. I think it referenced when you are talking about the SG&A, you had the lawyer fees, it was substantial and I think both Jim and Paul and their group, a lot of it was driven into making sure that the material weakness it was taken off -- taking care off. All the other as items that we had, there were a lot of lawyers involved and that's hard thing at the point until you get the bill. And I think as Jim mentioned, it's one time thing and you can't very well fire on when you are half way through the system until you get their bill. But anyhow looking at it, it's something I don't think it's going to be repeated. So it's pretty well gone. The other thing that it just give you a flavor if President Trump puts his tariffs that he says he is going to, if you were to put a 25% to 30% tariff, with the capacity that Titan has in their tire facilities and even in the wheel side, you probably look at over a 1,000 employees we have to go hire because that makes a big differential and I think it's going to happen and when, that's a big magical question. But as time goes I don't think the US is going to be a dumping ground for manufacture products. I think they will get that solved by the middle of this year. If you want to put a big boost into this economy. And that just my take on it. And there is a lot of other manufactures the same way. So wait and see.

All right. Great. Just a lastly one could quantify the legal expenses in the fourth quarter and then two, regarding the balance sheet and sort of managing risk, where are you comfortable on a leverage standpoint and how do you think about being -- we were eight years from seeing a recession, how do you think about sort of balancing that risk and maybe not taking the opportunity to selling some of these assets and just giving some more breathing room in the near term.

As far as breathing room in the near term I think we've maintained a same cash balance now for three years. If you look at our cash balance, it says a $150 million roughly in cash but we move $50 million into investment. So we are right around that same $200 million level that we've been at for the past three years. So I don't think we are facing any near term issues. We had the converts as Jim mentioned that converted in January. We've been through the list of assets that we have that certainly could be monetized. Again ITM is an attractive asset. We have the Brownsville asset, we have TTRC, and so I don't think there are any short term issues. As far as the leverage ratio, we are comfortable at. I think at this point when you look at the ability we have to monetize those assets, you look at our balance sheet, you look at our cash position, you look at where we are in multiyear downturn, I don't think we have a specific leverage target we are looking at. I mean our business has been cyclical and fluctuating quite significantly over the past few years. So I think you can look at the fact that we've managed it very well through that downturn. And I think at this point you look at things moving upwards versus moving -- the risk of the moving downward. So if anything we may have to deploy a little bit of capital into working capital to get our inventory levels in place to adjust to the increased level of sales. But that's about the only near term thing I'd put on the radar map.

Well, the follow up on that, that $50 million is a CD so basically as Paul said $200 million and if you turn around and decided to exit the track business and the other two assets, and add that to your cash, you wipe out your bond debt and you are -- you still got $50 million in cash so the liquidity is a fake bogeyman running around in my opinion.

Our next question comes from Joe Gomes of William Smith. Please go ahead.

Good morning, guys. Just wondering, maybe you can provide a little more detail on the LSW. We've talked a lot about that and what it could mean to the company. I was wondering for 2016, where did we end up, what kind of level of sales or percentage of the overall revenue was to LSW? And what kind of growth do you think you can see here year over year in 2017?

Well, we haven't put those specific numbers out there into the market. But I will say our gross margin dollars for 2016 were up over 75%, our sales continue to grow double digits. We -- in our internal forecast we certainly believe those trends will continue. It's not a material level that we disclosed that in any of our releases or financials and at this point I don't want to disclose it because it's something the competition doesn't need to know. I think we have enough proof in 2017 from these shows that I mentioned in previously what is really change, Joe, is that when we go to the shows or any type of event, the ground swell of people that come up to us and they already know about LSW, they've heard about its benefits and they want us to educate them further on it versus trying to go out to people and pull them and say, hey, we want to tell you about this product we have. There has been a significant shift in so far this year and end of last year that definitely we believe translates into sales. And I think we are continuing to get LSW growth that we believe is meeting our expectations and obviously as the market get better and with our end users that's only going to help. So I feel really good about where we at as far as the message are out there. And as there is an improvement in the market, it's something that we are seeing a lot of people look to as not just a benefit but its competitive advantage. I mean clearly commodity prices haven't rebounded to a level where there is a lot of excess cash flying around. They managed to input cost well for them in their balance sheet, but if they can get a competitive advantage over others then we are seeing the farmers realize that this is a way they can do that. And we are going to keep pushing that. We've invested in it; we are going to continue to invest in it. We feel that we have the right sales team, the marketing team; our product development is just got to continue to push new products out there. And we certainly are seeing the benefits of that. So I don't think at this point we are going to disclose anything further that gets into the financial side of it. But I think I highly recommend you that you attend a show and stop by the Titan booth and you can see first hand yourself what's going on and take a few pictures back with you.

The follow up on that, we last November Paul and I went and visited the farmer who happened to be a equipment dealer which we can't put a press release out, since then in Iowa, we are going to have a big situation a spring of a planning where the number of acres that could be planted in corn, the number of acres that could be planted in soybean is large enough so that when they harvesting that out there, they are going to find that they are going to get at least five bushel per acre more of corn and probably at least seven bushel more of soybean that they wouldn't get without the LSW tires. We are also going to do that in Illinois. So there be up in Canada, its different crops but we are scheduling to do the same situation up there. And once that takes place you are at a situation now where whether a farmer is running duals, it makes no difference whether they are our brands or somebody else's brand; he is going to want to go super sales. How? Just added crop he gets will pay for it. It's not going to be a situation where you got a run just now it's all gone they want to see it. Once they see it, we are off to the races big time.

Our next question comes from Aaron Steele of Feltl and Co. Please go ahead.

Hi, guys. Good morning. Just wondering if you could provide some comments on the aftermarket versus OE markets in North America, how that is setting up for 2017, and then given that the OE demand has kind of cleaned up the inventory there?

Yes. Definitely the aftermarket business in North America is off to a really good start in 2017. Part of it is just the natural kind of seasonal market as we have seen fewer OEM equipment reached the market. You've seen the replacement obviously start to take for hold from there but for us I think personally we've done some good moves also that have helped boost our aftermarket in North America beyond what the natural market tendencies would be but in overall definitely aftermarket is start to bounce back. The OEM, Morry has talked about it not just in this call but in prior calls that we felt like it was bouncing around the bottom and start to pushes way off from there, I think there is part that OEM market over the last couple of years have been good when you look at the small, mid sized equipment and there has been the large horsepower that is definitely falling off most significantly over the last few years. And so I think you see some inventory trends when you talk to dealers, when you see the dealers' inventory levels that are starting to move in a positive direction. So to bifurcate as you asked, I would say the aftermarket is already off and running and in the OEM they are starting to looking better and more favorable than they have been that's for sure.

All right. Thanks. And then I wonder if you could comment on the orderbook year- over-year on the Ag side, and then how you view the earthmoving and construction business going forward in 2017. You saw the decline in the fourth quarter, so I was just wondering if that trend might continue.

I mean the orderbook is off to a good start. We are up over the 2016 level; again there are some strategic moves that we've done to help propel that. Our plants are running at a pretty healthy level, clearly we are pushing more production out this year than we have been in last year. So order books are good and looking to continue to get better. That's on the farm side, on earthmoving is as you asked, earthmoving, we had some products that we are behind on and we have some products that again kind of looking at plant capacity level we need to push more product out to door so I think the opportunity exist in both sides of the business whether you are talking OTR or farm and on the OTR side we are little bit more constrained on output than in farm. And so that's something we are trying to correct here as we move into 2017. As I mentioned earlier in a call, I think on the OTR wheel side is where we got some opportunities, we are currently going through the process and consolidating our Saltville facility. So that will take us a little bit of time to move around some things there but at the same time it creates a lot of opportunities for us. And so we are not just simply moving things around and leaving status quo, we certainly believe there is a lot of opportunities that we can exploit on the OTR wheel side. And with that when you start to selling more wheels, you also start to selling more tires. So we look forward to what they can do for the rest of 2017 on the OTR side of our business. And that's in North America but that also starts to trend set itself around the world as well as we make those improvements here in North America. We got a hit a little bit in Europe to answer your question on earthmoving. A little bit of change in Europe where we saw some of that softness and weakness but our European business unit leader is out at the show last week and there is some opportunities that look like they are coming back into play for 2017. But that numbers you are referencing primarily were driven by Europe.

Okay. Good to know. And then just wondering, maybe one more here, how the setup in Russia has progressed in the quarter. You were kind of looking at shipping the Goodyear tires I think in this quarter. Maybe that's pushed out a little bit. Do you have any update on the timing I guess that we might start to see that and then updates on the LSW tires in that plant as well?

Well, I mean the equipment is there. We are working on getting it installed. I would say, I believe in some of other comments we talked about that being a second half of this year than versus of first half of this year. I don't think we are falling off from our original timetable. I mean the equipment is there, it is getting set out, you got to go through your trials and get things going but we've taken the Goodyear molds that we had purchased and we are getting those positions in the right location and I think we'll have that business whether it is in Russia or other locations, we'll have that going in the second half of this year. So it's coming along. There really hasn't been -- again I didn't expect anything to be shipping the first quarter this year. So I don't think we are missing any internal timetable that we have established.

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

Just have a great day everybody. It's finally starting to percolate. So thank you. Have a great one. Bye, bye.