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Executives

Maurice Taylor – Chairman and CEO

Paul Reitz – CFO

Analysts

Ian Zaffino - Oppenheimer

Alex Blanton - Clear Harbor Asset Management

Schon Williams - BB&T

Philip Volpicelli - Cantor Fitzgerald

[ph] Carl Edwards

James [ph]

Titan International Inc. (TWI) Q4 2012 Earnings Conference Call February 26, 2013 9:00 AM ET

Operator

Good day ladies and gentleman, welcome to the Titan International Fourth Quarter 2012 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 the course of this 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 Statement contained in the Company’s latest form 10-K and form 10-Q filed with the Securities and Exchange Commission extends to this conference call and any forward-looking statements involving risks and uncertainties as detailed there in. At this time I would like to turn the conference over to Titan’s Chairman and CEO Maurice Taylor, please go ahead.

Maurice Taylor

Good morning everyone, we’re up here in [ph]Sunny, Boston today. Actually, we’re at an investor conference. All of you should by now if you’re on the call you would have gotten the release as you probably see one thing -- some of you did not get would have been the 10-K that will be going out Wednesday, the reason that is, we have been putting amount the same time we do the press release, but because of everything in Europe, the acquisition and everything, it’s been a little or more time consuming to get everything gone through the numbers between our internal audit check and everything. Besides our outside auditors, they’ve had a real interesting time, getting everything how we have to do for (inaudible). So, that’s the only reason that’s going to be a day late, so anyhow, they’re working on it.

We had a great year. Well ’12 goes down as our record year. The fourth quarter brought us a few surprises, it’s not that we are going too cranked up on it, but I’m going to concentrate first on the fourth quarter, as you seen by now, we added the acquisitions. I made my first trip to Australia, and went through between Titan Australia, and our planet group and between the two of them, they are doing approximately a $130+ million. I expect I have told my board, there is no reason why in a short period of time they should not be able to double that business. And I’m really excited about what’s going down there.

The other situation is of course, the Titan Europe, and Titan Europe has problems (inaudible) and earthquake in their wheel business. And in order to take care of their customers, they went out and they contracted with a number of competitors to get rims and some of them in certain instances are total finished wheels. That then ended up, they’ve kept their business, their customers were kept going, but the amount of their profit went from positive to negative and the wheel business is generally a very good business and you can count on it, because you know what’s coming.

The other situation is that not only did they buy from competitors, they bought from us and we’ve shipped some product to them, and you can all appreciate the counting terms. If you shipped something over there to them and then you buy them, they got to reverse some of that because you can’t count on this as a sale and you can’t count. Now, it goes back in to the inventory or it goes to sale. We did not finished the wheels, we just made the rims. So, it’s in process still. So, that’s part of getting everything turned around there. The track business, which is the large portion of Titan Europe, everything over in the construction site on their side when South Brazil was a real surprise package that came up but most of everything they’ve got hammered. We turned around and what we did is we said, alright, got to run your plants and better to build some inventory and we’re going to need some inventory because of what we have been doing not only here, our plants in the U.S. but also our plants in Australia, Brazil or South America and in Africa.

We’ve got a real good feel for where, what and how that’s happening? The other situation is one that I can touch on a little bit, but I cannot go too deep in it, mainly because of the confidentialities that come from each source and what’s going on. Everyone knows that have followed us that in 2010, we had a long honest fair straight up discussion with our unions in 2010 and what happened is that we turned around – we did not cut anyone’s hourly pay, but there was a lot of things that were redone. Overtime was redone, the medical was redone with more participation of our employees in it because of the rising cost. It was also a lot of different work rules, we decided that to run our plant, that is our job, it is not for us to have consultation with union groups as you’re paying them while you have the consultation. Anyhow, in 2010 two of the plants we put a best and final one on the table and of the three plants that (inaudible) approved it, Bryan and Freeport did not. So, we’ve worked the last couple of years under our best and final.

Now, when you go into negotiations this year. We started mainly in September and of course they had a awful lot of – that is about 45 of them which they use up the union business time that have accumulated or the international [ph]has to pay them, but you go through this and it has been – they present their side and we present our side and this goes on and what transpired is we have come to a mutually satisfied where we believe that it is a fair deal for our employees and we believe that is a fair deal for us and what it covers is going to vote, March 4, they are taking the proposed new contract and they’re going around to the factories. The situation is that as I stated a moment ago that the main trust of the agreement is something that as a company we believe that with all the stuff we’re done we should be able to absorb it to increase in efficiencies and our employees will still be some of the highest paid in that manufacturing. We look forward to a positive vote and we hope that they recognize the same thing, but after the fourth we cannot – the only thing I have said in the press release, if they approve it, it will be a full year contract and if I live to my word from what I am looking to do then this was my last time that I’ll have to go through negotiating a contract with the U.S. labor union.

Moving on, what did that do? Well when you turn around, you have negotiations for a week then they go back to the plants for a week and they got to communicate it and everything slows, things don’t run the way they should do because of all the misinformation and everything else and if anyone of you on this phone understand labor law, you cannot while hearing negotiations with the union, you cannot go out and talk to your workforce and tell them what is going on, that is unfair bargaining and that has to rely that the international union of the union reps tells them and keep them abreast of the situation. And any time you have this many people involved, it kind of gets itself a little bit screwy. So, there is no answer, that is about it. In the fourth quarter, we suffered for that. Our wheel business, which is non-union drove right along. So, we believe, after the fourth, we should have things often run in or we’ll just keep going under our best and final that we had before, I mean that’s the risk that you take. I think that all of the committees for the various plants, I believe which I, is just my opinion, I believe they will recommend it, but you never know when you’re dealing in this situation. I know we’re going to do. So, with that, I’ll move forward.

The farm business in North America and South America, we expected to bring much be a very very good year. We expected that the aftermarket, the demand, and what’s happening and what we’re doing with our new product we believe that will probably do a little bit better and that situation in even last year on the agricultural site.

The construction site is an unknown, I believe I’ve seen that you know, some of the major customers are looking at slight pick-up, starting in the second quarter and going up. I like that one be there, we did not and to our numbers, we have not added that to them, and that will be surprise.

The earth mover side, I expect that to continue, to be a robust business. I don’t know how much it will turn and it will grow, but I do believe that what we are doing in the mining sector with our Titan Mining, was opening new facilities in Chile, Peru, with our partners in this. We have through the acquisition of Titan Europe, it’s given us the facilities in Australia, Chile, Peru, Canada and South Africa. And truthfully, we also got an office now in Russia, so we’re excited about that and we expect the situation as we go forward, the guidance we gave in December, I don’t see any change at this point. If anything happens, the mode I’m seeing right now from the aspect of not only the mining companies we’ve talked to or everybody else. I believe that is a good forecast for where we at now and if anything happens it will move it on the high side of that forecast. I really believe that Europe has an awful lot of upswing to it and I know Australia does and South America, there is a lot of things there.

One other thing, I like to just touch on is that today, I were here and New York, we have decided that the, my board has given us authorization to take our current bond and we’re going to take that and we are in negotiations with a couple of bankers to increase that by approximately $275 million. Officially, if everything works right, we should look at next week going out. And what would we do? Well, our idea would be to pay down some of the debt we acquired from Titan Europe and then the rest of the money will be used mainly for acquisitions because we have a number of those that we have been working on. Originally, I had expected us to sign one of them before the end of this past year that did not get done for a number of reasons. Our due diligence, we find a few things and the main thing is we are doing our due diligence and it’s a good acquisition and it’s going to be good for us and it’s good for the people who are buying out. But, I should have heck, don’t want to do Caterpillar, so that’s why we are going and that should get announced and signed yet this March. So, with that Paul, I will let you take the numbers.

Paul Reitz

Sounds good, thanks Maurice. I just wanted to start by looking back on 2012 whether it really was a transformational year for us where we became a true global player. And really, the segments we serve, but also getting out there closer to the customers we serve, and we did that by getting into Australia with the Planet Group acquisition, we got into Canada with SWT joint venture. This really strengthened our presence out there with these expanding locations, but it also gave us that ability to grow and expand our mining services capability. Then we got into Titan Europe and their worldwide footprint gave us good proximity to our customers throughout Europe, but as Maurice mentioned, it gave us global locations that again gives us that platform that’s out there closer to our mining customers and gives us that ability to really expand into the service side of that business.

In Sao Paulo, we had really a good strong finish to the year with our investment there. We got the approval from the government and we are moving forward this year with the implication of a calendar line, we got a state-of-the-art strip winder up in place there. So, things are looking great with the investment we have been able to make in Sao Paulo. And then you look at our US plans in 2012. We increased our mining capacity. We got our Union City rubber mixing facility up and running very successfully. We got new systems in place. We have also been able to put extra R&D investment with really the top farms out there in the US. So, all in all 2012 was a transformational year for us and all that is really good for the company as we build the foundation for the future, but we also delivered solid growth on our earnings and profits in 2012.

We finished the year with revenue of $1.82 billion and adjusted EBITDA of $242 million, compare that to $1.49 billion and EBITDA of $183 million the year before, that’s incremental EBITDA margins of 18% this past year. Looking at our pro forma revenue for 2012, it would have been $2.42 billion, including the impact of the full year Titan Europe business, that’s coming from about $730 million, just four years ago for our business.

Operating expenses in 2012 once again came in under 7% at 6.6%, so through all this international growth we were able to keep our operational costs very efficient and effective. Our adjusted net income was up over $0.40 per share to $1.93 compared to $1.50 last year. We did have some adjustments that you will see in the table in the press release, a little over $12 million, $12.3 million associated with the gain on our investment in Titan Europe, $2.5 million for European rationalization cost associated with earth quake and headcount reductions, and then $15.2 million of amortization associated with the acquisition accounting and the inventory write-up associated with that.

Ag, our main operating segment, representing 59% of our business in 2012 grew 12%, has incremental gross margins of 25% for the year. John Deere and CNH are still two largest customers at 19% of our total revenue combined, however, our sales concentration of our top 10 customers did go down to 50% from 55% in 2011 as we continue to spread out globally and expand other parts of our business. The drought did have an impact on our business in Q4 with the demand from the after markets. Overall deals of (inaudible) as we enter 2013 season is in a very good position and we have all seen the reports coming out of OEMs with strong forecast for the year as well.

Our Latin America business had good volume growth in a relatively flat Ag market there. They are up about 4% in volume. As I mentioned earlier, with the equipment installed, so we are excited about the prospects for this year. Also the overall Ag economic prospects in Latin America is looking very good, many forecasts are showing there would be up over 10% for 2013. The downside out of Latin America harbor is the weak reis. For the year, in our Ag and our consumer business, we lost about $40 million of revenue and around $3 million to $4 million worth of profits associated with the weak reis. And that weakness will continue to hurt our comparable through the first quarter of 2013.

Earthmoving/construction, we grew that business 64% with incremental gross margins of 18% in 2012. Clearly, we spent a lot of time and energy and focus on this segments with our investments in the Bryan. It’s good to say at this point that we got the LX system up and running, the sharp flow over there. We definitely look forward to the benefits that we can deliver through those system improvements in our other plants now. We have pretty much finished especially with Bryan, we got a number of pieces of equipment in place during the December shutdown and we got a little bit more to accomplish in Q1 and that facility will be up and running.

As far as the consumer business go, there is primarily focus on our Latin America truck business. We compared over from Goodyear in June and since then we have had good volume improvements. Obviously, the weak reis does have an impact on that as I mentioned earlier when you look at the comparable. But with the new equipment that is coming into Latin America, we certainly look to benefit from the cost efficiencies that that equipment will bring to us later in a year.

Now, looking specifically at the fourth quarter, where we did report adjusted net income of $0.09 per share. You have heard Maurice’s comments on union’s situation and our reduction in headcount during the quarter was also picked up in various local press publications. That did have a sizable reduction in our overall production levels. Also, there are some other items that impacted Q4 that I think are very important to understand. We have OEM type of contracts and these contracts are very beneficial to us.

When you look back in 2010 when natural rubber went from $1.35 to $2.70, you look at our result, we were very insulated and protected from those shocks of the systems when raw materials spiked that fast. However, when raw material prices do go down, rather substantially, these contracts did have a reversal negative impact on us. I can’t get into the specifics because these contracts are not public and they do vary from customer to customer, but when you are in a declining environments you are exposed, you may get a little too far out on your ski trips and get burned with your rubber cost compared to the prices that you can charge your customers, and that did have a negative impact on our results in the fourth quarter.

The steel prices look at the other side of the business, it does not work like our tire business, the rubber side. We are able to really pass on the price changes to our customers. But I do want to point out that while the steel price changes do not impact margins, I do want to point out that steel prices are down in the upper single-digits over the last couple of quarters and compared to fourth quarter of last year. So that does have a significant impact on our revenue for the fourth quarter of 2012. Once again, just looking at the weak reis, that did impact us about $10 million in sales for the fourth quarter and about $1 million worth of profits.

The tax expense for the quarter will jump out, there is no doubt about that. There is a few items that really impacted it significantly this quarter. It was an acquisition quarter as you are aware with Titan Europe. On our books we did and have recorded some gains associated with our prior investments. With that when you reverse those gains it did trigger some additional book tax expense. We also were impacted with some section 162(m) compensation limitations. So, those two items alone impacted our tax expense and our overall bottom line about $0.12 per share. And those are not impacted or ran through the adjusted net income line. We do have a tax expense in our adjusted net income that you will see for our FIN 48 tax accruals that adjusted net income back up $2.3 million in Q4 and $6.7 million for the year. So, that will have an impact on the tax expense line in the P&L but not on the adjusted net income numbers.

SG&A expense did come in higher at 9.5% for the fourth quarter, that’s primarily due to the addition Titan Europe. If you were to apply our Q4 2011 SG&A rates to our 2012 fourth quarter results, that would have impacted us positively about $0.06 per share. So, clearly Titan Europe had an impact on our SG&A cost base there. It is a higher cost base than what we do have with the legacy Titan Inc. business, but in no way are we saying or forecasting that our 2013 levels are going to be at this 9.5% for SG&A for the year.

Titan Europe, it’s important to understand a few more things about that business for the fourth quarter. It is a different business model than ours. They are 75% exposed to earthmoving and construction and so, as Maurice alluded to earlier, when the European markets have turned down for the construction side, that does have a direct and immediate impact to the significant part of their business. They do operate with lower historical operating margins. They do have more locations, the higher cost base, and again it really is a different business than ours. These are some strong efforts and needs for improvements. It is going to take us some time to keep the ball rolling there, make those improvements, but I think one thing is, if you look back on the track record of this company, we are extremely good and improving operations after an acquisition.

I also do want to point out that we use October 31st for the opening balance sheet date. That is important, it does not impact our bottom line for the fourth quarter. But by using October 31st or versus October 4th or October 19th, the days where the stock was either issued or the acquisition vote was approved, we lost about $25 million to $35 million or so worth of revenue. So, again, no impact to the bottom line, but for accounting reasons we were able to use October 31st for our opening balance sheet dates for Titan Europe. You will not see Titan Europe spelled out specifically in our 10-K when it’s filed tomorrow, other than in the pro forma information in the footnote, Titan Europe will roll up into our segments, just like the rest of our businesses. However, through the pro forma information that is presented in the 10-K you will see and be able to really understand through that information that it was a negative year to the bottom line for 2012 for the Titan Europe business overall for the year.

But don’t forget the big picture about this business. This is a very strategic acquisition. The global footprint as we highlighted already, it does give us the ability to add a tire business to that side of the world, which was a great fit with the existing Titan plants in that direction of the world. It also allows us to expand into the mining service business and really makes us a true global player with a strong overall geographical footprint.

Just want to wrap up here, a couple more comments on the balance sheet and cash flow. We ended the year $189 million of cash. Cash operating flow was $130 million for the year. We did finish CapEx for the year at $65 million compared to a forecast of $55 million. We picked up about $5 million extra for Titan Europe and we picked up about $5 million extra for a project with a wheel plant here in Quincy, Illinois. During the year, we spent $33 million on the Planet Group acquisition and that was offset by $34 million worth of cash acquired from Titan Europe, so those two will net on our cash flow statement. We did add about $265 million worth of debt to our capital structure and issued 6.3 million shares for the Titan Europe acquisition.

I do want to point out, to my knowledge, the first US to UK public company deal that did not involve a cash sweetener to make the deal take place. So, a very successful deal from that forefront. Even with this additional debt, our EBITDA ratio net cash to trailing 12-month EBITDA ratio is still on 1.4 times. As Maurice mentioned, we are planning to take a look at refinancing some of this debt over there in Titan Europe.

Our working capital levels are a little bit higher. You will notice in our balance sheet due to the impact of Titan Europe and the earth quake, but we are still right around that 20% of sales level.

So, wrapping this up, I just want to say, we started the year as a $1.5 billion with six operational locations on two continents, so we ended as a $2.5 billion company with 24 operational locations all around the world. So with that, I would now like to turn the call over to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And we have a question from Ian Zaffino. Please go ahead.

Ian Zaffino - Oppenheimer

Hi, great. Thank you very much.

Maurice Taylor

Good morning, Ian.

Ian Zaffino - Oppenheimer

Good morning. Paul, can you give the revenue contribution-wise for Titan Europe to the quarter?

Paul Reitz

Unfortunately here, we cannot break that out separately. You will see in the 10-K that the pro forma information was $2.42 billion for the combined entities for the year, but again, Titan Europe will just get folded into our existing segments, that’s about 75% of that will go into earth-moving construction.

Ian Zaffino - Oppenheimer

Okay. And then on the overtime in the U.S., can you give their incremental overtime costs were or maybe quarter-over-quarter, year-over-year, how much more are you paying in the fourth quarter compared to a typical year?

Paul Reitz

As far as quantifying it, we will be able to quantify it. As an operation, we do want our plants to get a significant amount of overtime. That has been our practice and it’s been successful from an efficiency standpoint. We have seen a spike in that as mentioned with the union situation, we have had to – we haven’t been able to adjust headcount. And so, it’s a key talk with demand, we have seen a spike in our overtime, but again as major of our business operations are we are traditionally running with overtime throughout the year anyways.

Ian Zaffino - Oppenheimer

Okay. And then just final accounting question here. What’s the diluted shared count, if you had a profit for the quarter?

Maurice Taylor

If we had a profit, it would be right around that, getting close to 60 million, it’s about 58 million. Let me get you the exact number on that.

Ian Zaffino - Oppenheimer

Okay. Thanks guys.

Operator

Thank you. And our next question is from Alex Blanton. Please go ahead.

Alex Blanton - Clear Harbor Asset Management

Hi, good morning. Just to continue the last question, what part of that – can you say what part of the pro forma, 242 it Titan Europe?

Maurice Taylor

No, we can’t Alex. Unfortunately, Titan Europe is part of our overall operating segment results.

Alex Blanton - Clear Harbor Asset Management

I understand that, but typically when companies make a sizeable acquisition, they do break out the sales from that’s added for a full year until I loaned it a year, so that people can get a sense of what the organic growth is. And you are not going to do that.

Maurice Taylor

We will have to discuss internally what we may present going forward. Now, keep in mind, we only have two months of results that are in this quarter.

Alex Blanton - Clear Harbor Asset Management

It was two months, what, November and December, right?

Maurice Taylor

Yes, November and December. So, the impact is fairly small at this point, Alex.

Alex Blanton - Clear Harbor Asset Management

Well, but the pro forma numbers are not small?

Maurice Taylor

Right, the pro forma is for the entire year, correct.

Alex Blanton - Clear Harbor Asset Management

Well, I hope that you do disclose that because that would be helpful in understanding the company now. On December 6th in the guidance call, you discussed the outlook for 2015 being 4.0 to 4.5 in sales. With this year being 2.4 to 2.7, well, now we see that the 2.4 really would be flat on a pro forma basis. Correct?

Maurice Taylor

The first thing is, Alex, we are turning around and I gave my guidance, okay. And I said in the earlier part, I know what happened in the fourth quarter. And a question was asked to me earlier today and last night. Am I going to change? I said no. I said if anything I think will go up. I also said, let me finish now. I also said, and I have stated, I have some more acquisitions that are coming, okay. So, if you are asking me, and I know what I said on the 4.5, when I gave that number, I also said to you, that would probably be the maximum that we could go because I will run into regulatory problems, and I am still on trail to do that. And if I stay healthy, and I stay where I am at in this business, that’s what I expect.

Alex Blanton - Clear Harbor Asset Management

I was just trying to get a sense of the numbers here. The 2.4 would be flat. So, actually it’s not increased as it looks like. By the way, the 2.4 does include the shortfall in the fourth quarter from these labor problems and so on, I assume. And it’s the actual number, right?

Paul Reitz

That’s correct, Alex.

Alex Blanton - Clear Harbor Asset Management

Okay. So, if you don’t have those problems this year, it would really affect more than that, so that the base here of sales, 2.4 to 2.7 that you mentioned in December, really isn’t that outlandish. It’s a reasonable number, correct? I mean, you are already there in effect. Now –

Maurice Taylor

I am a reasonable guy, Alex.

Alex Blanton - Clear Harbor Asset Management

I understand that. Now, do these problems in effective to fourth quarter that you talked about, the labor slowdown and so on, will they affect the first quarter? Because the labor – the vote is until March 4th. So, what’s happened in January and February?

Maurice Taylor

What you are asking me is start commenting on the quarter, we don’t have all of the results, but I think there is a lot of other things that have no bearing, no that, and that’s got to do with Europe and that’s got to do with my real plans. So, they are doing pretty good. The Titan boys should always be doing better, okay. That’s a little bit of a curse that you get, reference to the workforce that you have, and I do believe that we probably run those factories at a better performance level than anyone else does in a country with a unionized workforce. But I think I am confident that going forward, you will have to understand there is a lot of rules and regs when you scroll around in the labor force. It’s not just we would be up on somebody over in a different country, we got the same problem here in the U.S. It doesn’t take a lot. You got a quota of appeals that overturns the National Labor Relations Board, they will just ignore them. So, I can’t quite do that. But we are marching forward.

Alex Blanton - Clear Harbor Asset Management

One more question and I will get off. You didn’t acquire the Goodyear plant at France, but that plant looks like it will shut down. Correct? What will happen to those sales? Will you pick those sales up somewhere else without acquiring that plant?

Maurice Taylor

Well, you have so many – first thing, let’s talk about the Goodyear facility there and which I have said publicly. They try to save 500 jobs. They lost, I think you have probably corrected. So, the closing now and what the losses were about $200 million. The CGT union over there is a very leftist. And the guy, that’s the president of it, Michael something, I call him Spike. It just shows you what has to happen. I answered the letter. It’s quite obvious. The minister put it out public, I did not leak nothing. I told the truth. The whole joke, I probably share to put in the letter, what the hell is he bothering me for, I don’t own the factory. They are not my employees. And why in the hell aren’t you over with Goodyear and them settling it? He even understood his own laws, I can’t talk to him. If I start talking to that Goodyear Union, then I own the problem. That’s how goofball they are. So, the whole thing is goofy over there. And we are going to try to take care of our customers, and at this point in time, it’s premature for me on a conference call to turn around and tell you and everybody on this call which happens to be an awful lot of my competitors what now am I going to do. So, we are going to be in that market. I will leave it at that.

Alex Blanton - Clear Harbor Asset Management

Thank you.

Maurice Taylor

Ian and others on the call, I just want to get back on that diluted share count. If we had a positive result for the quarter, it would have been 58.3 million. Sorry, operator. Thank you.

Operator

No problem. And the next question is from Schon Williams. Please go ahead.

Schon Williams - BB&T

Hi, good morning.

Maurice Taylor

Good morning.

Schon Williams - BB&T

Paul, perhaps maybe you could quantify the impact of the earthquake? I mean, is there a number you want to wrap around in terms of sales or operating earnings impact from that event and did that carry into Q1 of this year?

Paul Reitz

Unfortunately, the only item we disclosed within our adjusted net income where we did include it in part of our $2.5 million of rationalization costs are the earthquake-related costs. Since we are still negotiating insurance settlement, we are really not in a position to be able to discuss what we view the impact to be or what the actual costs were because we are still in the discussion stage with the insurance company.

Schon Williams - BB&T

But the full number is included in that Q4 restructuring?

Paul Reitz

No, that’s more of the hard costs. That’s more of the costs you could pull out, the overall insurance claim amount will be much larger than that.

Schon Williams - BB&T

Okay. And then has that disrupted operations in Q1?

Maurice Taylor

The problem that we ended up having, which I spoke earlier about, is take this example, Titan Europe, orders from Titan U.S. before the acquisition and we ship over to them the 25 container loads of rims. They get the product. Now, we cut the deal, and we own them. That receivable has not been paid. Now, since we own them 100% per se, you turn around and it’s an inventory over there. So, I don’t know exactly which way, but we have a deal which is like, now intercompany transfer pricing. So, you got to go through that whole process. So then, it gets lowered probably over here in our side, we lose, and then what takes effect is it make them look a little rosier than what it would have been the other way. And they got the same situation where they bought a lot of inventory of rims, and they are wearing that off from the standpoint of getting it out of their inventory in the first part of the year. But I believe the cost that was over and above their internal costs was picked up in the fourth quarter. We should have done it, I don’t know if it was done.

Schon Williams - BB&T

Okay. And maybe, I know you don’t want to I guess delve too much into the numbers in terms of the labor dispute, but I mean, could you just quantitatively, should I expect the impact that the labor disruptions had in Q4? Should I see something for the same level in Q1 or should I see it essentially kind of trailing off throughout the course of the quarter and essentially, assuming we get a deal done, March, there should be no impact kind of going into Q2?

Maurice Taylor

Well, I don’t believe I think that my belief is that the union negotiated with us with the intent of getting for their members the best deal they could. And we as management of Titan, negotiated so that what we gave that through our efficiencies in what we are doing should not add to the cost of our product because you can’t add to the cost of the product, and I believe that the international and I also believe all the members that were part of that bargaining company at least from what I have been told were probably recommended, and if they do, I think the employees will ratify it, but that’s an unknown. (inaudible) And I can’t talk to the employees, that’s another thing that’s stupid. But that’s the way it is. I can’t – you asked me questions, you know, I know what answer I gave you. It’s an answer that’s going to case many problems. So, we will wait till March 4th. To tell you, it’s a four-year agreement. That’s the only thing I can tell you.

Schon Williams - BB&T

All right. Maybe kind of switch gears here and just kind of last question. Maybe positive surprise in the quarter, the fact you have gotten government approval down in Brazil. Can you talk maybe about what your thoughts would be in terms of margin expansion there, now that you have got some of that equipment in place and maybe talk about – are there growth opportunities? At one point, you talked about expanding into the Mexican market. Are there opportunities in Brazil on the consumer side you should start to realize in 2013?

Maurice Taylor

There’s no question that, number one, let me clarify something. Last week is when we had approval. So, we don’t have that equipment even in the containers to ship, and I mentioned that earlier. So, we are working (inaudible) has got a team working on getting that stuff into containers and all the paperwork that will be shipped. So, we are not going to see that equipment probably until the end of the third or fourth quarter there. South America, things are moving up. They are getting their situation down there. We are pleased to see. Of course, the other situation is, as Paul said, currencies headed south. So, I would imagine that’s great for customers. It will give us a bigger leverage for Mexico, but I believe that we are excited about what we are doing in South America. I will be down there in a couple of weeks, and we are going to do some acquisitions down there.

Schon Williams - BB&T

All right. Thanks. I will take that.

Maurice Taylor

Thank you.

Operator

And our next question is from Philip Volpicelli. Please go ahead.

Philip Volpicelli - Cantor Fitzgerald

Good morning, it’s Phil Volpicelli. Maury and Paul, I was just wondering if you guys could give us the pro forma EBITDA that goes with the $2.42 billion of pro forma revenue?

Paul Reitz

Unfortunately we can’t because Titan Europe only would go through a six-month review where they release public information. So, we have a dark period there from July to September, October that was not reviewed by any accounts, and because of that, we were not able to give up that pro forma information for EBITDA. In a 10-K, you will see information that pertains to the overall bottom line, but again that’s not fully audited or reviewed information. So, we’re pretty limited on what we can present because of that.

Philip Volpicelli - Cantor Fitzgerald

Okay, and then Paul, can you walk us through with the proposed change in terms of the $275 million increase to the bonds. What that will do with the cash structure, obviously even if you (inaudible) involve how much and then, what else from the cash structure you are going to pay them? Can you give just give what the pro forma cash structure look like post that transaction?

Paul Reitz

Yes, we will get into that when we officially launch the deal and at this point we have not, as Maurice said we got the board approval to move forward but we have not launched. But when you look at [ph]our year debt structure, it’s been pretty well known throughout the acquisition process that we were going to do something with it, to get rid of their bank debt that had some pretty stringent covenants and use the ability and the strength of being a global company to improve our capital structure. So, give us a little bit of time, but we will get that out publicly soon.

Philip Volpicelli - Cantor Fitzgerald

Maybe I can ask you a different way, pro forma of the transaction, you expected to be leveraged neutral or do you think that leverage goes up slightly?

Paul Reitz

Well, we are looking to probably keep a little extra cash around, so I would say at this point I would leave us a little room to see the leverage go up slightly.

Philip Volpicelli - Cantor Fitzgerald

Not to push, but can you quantify how much of is it? Half a turn or turn, just any kind of guidance you can give?

Paul Reitz

At this point, I can’t we’ll get more information out there, I mean Titan Europe’s status $265 million at the end of the year. They have a variety of different bank facilities and, clearly you look at our debt structure, it’s a little cleaner and we have a favorable preference issuing bonds. So, at this point, I’ll kind of leave it at that and we’ll move forward with that here in the near future.

Philip Volpicelli - Cantor Fitzgerald

Okay, great, thank you.

Operator

Thank you and our next question is from the line of [ph]Carl Edwards, please go ahead.

[ph] Carl Edwards

Good morning Mr. Taylor.

Maurice Taylor

Well, good morning, the godfather, what I wonder you sitting on in this sunshine.

[ph] Carl Edwards

We’re down in Sarasota here. Let’s say, where does the plant managers come in to the act here with regard to the labor issues and back in the third quarter and the second quarter of these workers were working the way they normally work and when did they suddenly, they changed their behavior? I first thought they be hired French workers, but probably as in this case.

Maurice Taylor

You’ve been sitting in that sun, you just couldn’t leave the French out of this, could you? You thought that was so good didn’t you?

[ph] Carl Edwards

When did your guys start to notice that there was efficiency issues and…

Maurice Taylor

I don’t think we had efficiency issues, but I would say that, I really didn’t want to hear their excuses when an efficiency issue because of some of the unionized work force off for their negotiation periods, okay. But then when you get into it and you’ll find out that I got a bunch of freaking lawyers that tell me that’s true Maurice, but they told them that they’ll be gone this next week and here’s how many they take and their allowed to do that and now you’ll end up going to this hotel room in Indiana and they are all, approximately 45 of them and chit chatting, you know, they are allowed to do that by federal law, you know that. And then what happens is as long as I got that UB time even though if they – because they are in negotiation under Federal Labor Law, they have the right if they flock out to UB time, they have the right to go see their members and of course there is a little clause in there that says, “you have the right to (inaudible) them and not allow them to disrupt production all this other, but you’ve been around long enough, yes, I can have umpteen arbitration hearings and everything else, but I am trying to run a plant and I am trying to get an agreement for four years. So, I backed off, okay. So, I am not going to blame those people. That falls on me. I would rather end up with a fair deal for four years than just steam roll. If I had to steam roll, I will.

[ph] Carl Edwards

There was an earlier question about the lingering effects of those issues into the first quarter.

Maurice Taylor

It lingered in there, mainly into January. But since January the bargaining really then became more language. Everybody – those 45 plus everybody in the international, they are all reading this document, a word at, a word here, or this was off, all these things did take time. So, that’s what they did in the month of February. In fact, last night, a deal came up on – who sits on the freaking trust for the Viva, because Viva has got all those cash in it. I said, I don’t want anybody. Well, lawyers took that, I wanted nobody, but by law the company has to appoint somebody to sit on the Viva Trust. So, I did.

[ph] Carl Edwards

Maurice, one other question. I have known you for a long time, you are assuming, you are telling like it is, and you are pretty straight forward. Back in December when you gave your guidance, you kind of knew what was going on here in the fourth quarter, why didn’t you use that opportunity to just alert people that, hey, we got some issues here in the fourth quarter, it’s going to affect the fourth quarter, you will have to wait until February 26, you are surprising everybody.

Maurice Taylor

Well, because number one, in December the other situation that I was doing is I got umpteen lawyers that are telling you, you can’t say deadly crap, alright. You realize that the goals I set that’s why I have to have it so that I can only say the goals that I set for the managers of this business. You think it’s easy to jump and say, hey, here is this or that, it’s not my friend.

[ph] Carl Edwards

You can make a complex disclosure as long as it’s a proper disclosure, just say, hey, we are having issues, this is going to impact our fourth quarter or the period. I don’t know what would be illegal about that.

Maurice Taylor

Well, here, you have got a lot of other things that are clicking at the same time. You turn around, I am just giving you what was told to me at that time. I would have just assumed to turn around. Of course, you got two problems when you open your mouth like that. Number one, is you are falling into a trap of who has got power and who don’t have power in reference to your union negotiation, okay. So, there is a lot going on. I appreciate how you are going to look at it sitting in the damn sun, okay. So, I would rather go and do a few months battle and then have it set for the next four years, so, good, better and difference, and with all due respect to you, godfather.

[ph] Carl Edwards

Good luck to you. Hopefully you get it set, get it straight, Maurice. Thank you.

Maurice Taylor

I hope to. Is that it? Do we have anymore?

Operator

We do have one other question in queue from James [ph], please go ahead.

James [ph]

Hi, good morning. Thanks. I will just squeeze it in. Just a question I have, I guess it’s for Paul, I think you mentioned in your comments that you are estimating pro forma net leverage at the end of the year at 1.4 times. I guess, a question that was asked earlier about the sort of the pro forma EBITDA. Is that sort of a number we could use to get a sense of kind of what you are estimating the pro forma EBITDA was for the full year of 2012?

Paul Reitz

I mean, it’s a very rough estimate, just to give you an idea that our leverage isn’t going crazy. What I am using is just six-month figures that were reported already under Titan Europe’s last filing before the acquisition. It’s just a very rough number again just to illustrate that. Even after acquiring the $265 million, our leverage ratios didn’t go crazy.

James [ph]

Perfect, okay. Thanks for clarifying that. The only other question I had is I think you mentioned a 58.3 million share count on a diluted basis. And I was just curious, that doesn’t include I guess maybe the way I ask the question is, we will learn in the 10-K, but what’s the shares outstanding at the end of the year and what were the shares outstanding the pro forma for the convertible bonds exchange, if you have that information?

Paul Reitz

Yes, the average shares outstanding for the year was 54.6 million, and then the actual shares outstanding is 50.3 million is the actual and then the convertible bond impact, but like I said, the fully diluted number gets you to that 58.3 million. What will change in that, I need to point this out is while you will see in the 10-K, if you haven’t seen already is we did do a convertible debt exchange in January. So, we reduced our convertible debt down another $57 million.

James [ph]

Right. And so, that’s just whatever, the number of 4 million or 5 million additional shares on top of the --?

Paul Reitz

Exactly, 4.9 million shares. So, that’s why our share count numbers are changing. You kind of what we reported in December then we had a loss, so you got another set of numbers and then you have that convertible debt exchange which is creating the updated most recent numbers that aren’t really out there publicly yet.

James [ph]

Okay. All right. Thank you for clarifying.

Operator

And we do have a follow-up question from Alex Blanton. Please go ahead.

Alex Blanton - Clear Harbor Asset Management

Question on the acquisition, you mentioned, I take it that’s the one that you talked about in December on the guidance call, being about 300 million that you hope to do before the end of the year and that’s been delayed?

Maurice Taylor

It looks like, yes, that’s the revenue that they do, I think spending that. So, we expect –

Alex Blanton - Clear Harbor Asset Management

I mean, the revenue?

Maurice Taylor

Yes, that’s the revenue. And I believe in the next two weeks, (inaudible) final due diligence for signing that should be complete. We are going to sign it, we will announce it, I think in closing this schedule this April.

Alex Blanton - Clear Harbor Asset Management

All right. You said that, it got delayed because of due diligence because you didn’t want to do a caterpillar?

Maurice Taylor

I didn’t say that.

Alex Blanton - Clear Harbor Asset Management

Yes, you did.

Maurice Taylor

I am sorry.

Alex Blanton - Clear Harbor Asset Management

But the point here is – does that indicate –

Maurice Taylor

Now, you are all ticked off that me, you know?

Alex Blanton - Clear Harbor Asset Management

I am not.

Maurice Taylor

No, not you. They will be.

Alex Blanton - Clear Harbor Asset Management

Well, it will be in the transcript. Anyway, the point here is, did that indicate to do some of the Chinese company?

Maurice Taylor

No.

Alex Blanton - Clear Harbor Asset Management

No, because that’s sort of -- they had the problem.

Maurice Taylor

I know where they had the problem. No, not a Chinese, okay.

Alex Blanton - Clear Harbor Asset Management

Okay. Thank you.

Maurice Taylor

I got another shot at it. Is that it?

Operator

Thank you. There are no further questions in queue.

Maurice Taylor

Thank you everybody, have a great day. Bye-bye.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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