Titan International, Inc.
Q3 2008 Earnings Call Transcript

Published: 30 Oct 2008

[Operator:]

Ladies and gentlemen, welcome to the Titan International, Incorporated, Third Quarter Earning 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 in the Securities and Exchange Commission extend to the conference call and any forward-looking statements involve risks and uncertainties as detailed therein. At this time, I would like to introduce Titan's and CEO, Morry Taylor. Please go ahead, sir.

[Morry Taylor:]

Good morning America.

[Operator:]

We've got all the lines now, sir.

[Morry Taylor:]

Pardon?

[Operator:]

Your line is open, sir.

[Morry Taylor:]

Alright. Good morning, everyone. I'm assuming that all of you have the release on our earnings. And as you can see it was a very, very good quarter. I'm not going to spend a lot of time going over it. But -- because I think my statement said most of it. The unique thing about the third quarter, as I stated, was that when you look at all the periods for maintenance and everything else, all of our plants plus our customers' facilities from the OE side, batten down the hatch and we've done fairly well. In fact, when you look at the third quarter, the situation where the material cost and everything else were all still rising and you had all this, it was truly remarkable. We have a -- very fortunate that we have a great team. The situation that all of you, of course, would say is, okay, third quarter's over, what are you going to do for us in the fourth quarter. Let me start off and tell you that the fourth quarter is so robust that I have talked with both group presidents and they have put together a plan to try to get out all of the orders that we have. Contrary to the panic of everybody else running around, the situation is that large farm is still going strong and so is the big mining sector. So we're just looking at increasing and increasing and increasing as fast and rapidly as we can within what we have the power to do. So I personally believe and we've set the goal that -- to take the fourth quarter make it the largest quarter that we've ever done. And we're on track for that the reason it will be that largest quarter, of course, is also in our super giant mining tires. And while I'm talking about that, I should just point out, as it said in the press release, we have had tires out in the marketplace since July. There is -- and I'm not giving any specific numbers. But it is a tremendous amount of tires to go out running since July, there has not been one failure, the tires are more awesome than we thought. It's really remarkable. So that's for the tires for all the rumors that come out, remember how they were having to be taken off and, by the way, they're running on inner and outer number two, they're not on the fronts, because under in Canada and in the mining industry, you have to run them six months on the rears before they put them to the fronts so that's just flat out how it is. We are, by the -- this quarter, actually they're running in multiple locations

[Kent Hackamack:]

Thanks, Morry. Just for everybody, I want to highlight a few items that occurred during the quarter. And to remind everybody, we have filed with the Securities and Exchange Commission the SEC, our report on Form 10-Q for our third quarter ended September 30, 2008. As Morry mentioned and the release has, our third quarter was an all time record sales for us at $255 million. And that's 31% higher when you compare it to the third quarter of '07, where we came in at $195 million. As we go over and look at it by market, the large increase was attributed to the exceptionally strong demand in our agricultural product offering. And going over the quarterly sales by market, you can see that the ag sales were higher by over $60 million. And when you put that to a percentage it's about 50%. And ag sales came at $179 million this quarter, and that compares to $118.5 million that we recorded in the third quarter of 2007. As we move to the earth moving construction sales, they came in at $71.3 million. They were higher in the quarter when you compare it to $69.4 million that we recorded last year. Dropping to the consumer sales segment, they came in at approximately $5 million this quarter, and that compares to the $7.5 million in 2007's third quarter. Dropping down to the Company's gross profit, you can see the huge increase. It increased $19 million or over 100% to $37.4 million in the quarter. And that compares to $18.3 million in the third quarter of 2007. Our selling, general administrative expenses were $13.8 million this quarter, and that compares to the $14.1 million in the third quarter of 2007 as well. The royalty number for the third quarter of 2008 was higher by nearly $1 million. And that had to do with the record sales level that we've talked about in the quarter. Our income from ops increased by over $18 million in the quarter, and when you put that to a percentage, it's a large one it's 688% and it came in at $21.3 million and that compares to the $2.7 million in 2007's third quarter. And to remind everybody, our -- the Titan Board of Directors authorized a stock split. So the following earnings per share numbers have been adjusted to reflect the August 15, 2008 five for four stock split. And looking at the Titan's net income quarter-over-quarter, we had recorded a loss of $878,000 in '07. And when you put that to the shares its $0.03 per share loss and that compares to our net income of $10.3 million and basic and fully diluted earnings of $0.30 per share that we recorded in third quarter of 2008. Also to remind everybody, in September of this year, Titan announced it is no longer pursuing a possible offer to purchase up to all the outstanding or ordinary shares of Titan Europe PLC. We still remain with our ownership of about 17% of Titan Europe going forward. Taking a look at the balance sheet, as Morry mentioned, September 30, 2008, we had $35.6 million of cash. Accounts receivable came in at $148.5 million. And our inventory balance ended the quarter at $143.7 million. Looking at our debt balances, we had no cash borrowings drawn on our $250 million revolving credit facility at September 30, 2008. And the only Titan debt that the company has is the $200 million long term 8% unsecured note and that's not due until January 2012. Also, our short term debt is 0 at quarter's end. Finishing up with our equity account, it has moved tired during the first nine months of 2008. Our equity has increased over $25 million year-to-date. And it has moved up from the $272.5 million at year end 2007 to at the current balance of $297.7 million at September 30, 2008. I remind everybody the Company's website is www.titan-intl. And with that, Alex, let's go to their questions.

[Operator:]

Thank you. (Operator Instructions) and our first question goes to the line of Alex Blanton with Ingalls & Snyder. Please go ahead.

[Alex Blanton:]

Good morning.

[Morry Taylor:]

Good morning.

[Alex Blanton:]

I enjoyed your comments, Morry, and regarding the possible delays of some projects, and I would mention that we've already seen one. In the oil sands, SunCorp announced last week it would delay an expansion project for one year up in the tar sands. You said that this really wouldn't affect you because there would be more production from existing mines as a result. But what about the oil price decline? At what point would the oil price decline, which could go further, inhibit the production in general of all the facilities up there and cause people to push out orders for some of these trucks? What do you think?

[Morry Taylor:]

Well, I believe that you're going to have to see oil, number one, go down to probably in the $30 range before they get it -- you'd see a real slow down up there. Their biggest problem right now, as you should know if you're watching everything, is just getting the bodies up there, getting people. I mean, they're so short now. And I think what's happened, truthfully, is that they'll probably start getting a little more efficient if they stop some of this building that they're doing up there. And so everybody should also understand when you go up there to, I call it the swamp, you end up the first thing they have to do build these big huge structures to be able to put in when they start opening the -- trying to expand the output that they can throw into those pipelines to shove that stuff down to Edmonton or down to Calgary. And they have these big, I don't know what the hell you call them. But they're these great big facilities where you truck in the oil sand to get it processed to put in these pipes to push. You just don't have -- that's where they're getting themselves -- they're not going to -- they've got to go get more, build more of these things, whereas, what they've got right now can't take the added increase that they want to do. So I don't care if they don't do that. Then they go around and they're still going to have to keep those trucks going for what they've already built. And then you scoop this stuff out in the depth of it, you have another mine. They have more and more and more property. But instead of opening up a [gazillion] of them, they just kind of like keep running where they're at. And that's how I see it. And the other thing you have to understand, because we're not just talking oil sands, you go to, you know, when you go to the iron ore, the iron ore is a simple thing. You just dig it up, put it on a conveyors and then it can be shipped over and they can just throw it into a ship, because iron ore doesn't really go through much. So that's a pretty simple one. But when you turn around and you see where they're not going to go open up a new copper mine, they're going to delay it, or they're going to -- of gold mine or something, everybody has to understand that those mines, they build the smelter. They spend billions of dollars before they start digging. So and they -- because when they open up another mine, it doesn't have anywhere to the location of where the other mine was, so they got to go spend all that money. So now what happens is they're going to have to stick at the mines they're at and just dig like hell to get more. And generally the reason they've got to dig more is because there's less ore in the [necks]. So that means you dig more and run those trucks harder. And if you've got your -- the main thing there is to just wear those suckers out faster. That's the simple way. And for where we're at right now and where the market's at, the only thing that'll happen is the whole thing could stop. We're in a real good position because our tire is, we believe, will totally out perform anything that's out there.

[Alex Blanton:]

Yes.

[Morry Taylor:]

So, hell, I'm -- I don't worry about that. Plus, hell, it'll be through next year before I get looking at whether we should expand or not. I don't think there's any problem with what we've got coming and what we -- I look at it all rosy.

[Alex Blanton:]

Yes.

[Morry Taylor:]

And with the age the way it is, I mean, everybody thinks, well, you know -- I think Deere in two weeks is going to come out with their earnings. And I think they're going to be between their five and six bucks. So [tomorrow it may increase]. Every one of them wants to increase 20% or higher. We're not even close at Deere, I mean, in the farm economy back to '97. I mean, we're not even -- we're just around 50%, 60% when you come to four-wheel and big combines, because there's -- they just can only build so many. And no one's building factories. They're trying to make some shifts around to get more, reference at Mother Deere and CNH. In fact, CNH held their board meeting in Burr Ridge this past week. And I think even held a Fiat board meeting. But they all went up to Fargo to hold their big management meeting. And they just got to get more out. Because they asked me to come over, and I was there on Monday. I mean, they -- there's no negative what you got to get out, except they got to get more, you know. The amount of tires they want and everything else, it's not going to be a problem I don't -- I think we -- I've told them we can handle it. I just think it's -- but like I told them, you've got to figure out what you want. You can't just all the sudden run in and say you want 307 1042s and you forgot what you need for the fronts. You know, this is not Wal-Mart, folks, you know.

[Alex Blanton:]

Morry, just one more question. And that is the sales in the earth moving and construction. I take it that's where the mining tires are.

[Morry Taylor:]

Yes.

[Alex Blanton:]

They were up $2 million year-over-year, down about $5 million sequentially. Also your farm was down about 3% sequentially. Now, I assume that is seasonal. You mentioned plant shutdowns. Is that correct? And then --

[Morry Taylor:]

Well, what do you mean -- what do you mean by -- what are you comparing that to?

[Alex Blanton:]

Second quarter.

[Morry Taylor:]

Oh, well, yes. I just set a record in the third quarter. You don't -- no disrespect. But you don't understand the market then. Okay.

[Alex Blanton:]

It's a --

[Morry Taylor:]

Yes, everybody shuts down. Everybody here shutdown. But they were shutting down, but the orders are so large, but you can't ship to them when they're shutdown for two weeks while they do their maintenance.

[Alex Blanton:]

Okay. Got it.

[Morry Taylor:]

All of our factories -- read the press release. I say that. And I tell you also if you've got an employee that wants -- it's not just you guys that go on vacations. But they have to have their vacations. So the average is almost three to four weeks vacation. Almost all of the people take it at least two to three weeks in the summer. Now, we're going to lose, if you don't know, out in New York or wherever, but the 15th of November, you might as well just shut your factories down, because, truthfully out here, it's called the hunting season, deer season.

[Alex Blanton:]

Yes.

[Morry Taylor:]

In fact, we're going to have a new one. We're thinking about doing on November 1st and call it politicians. So it's only a six-hour where you get to free shoot them. So that'd empty out the rest of the country. But, no, it's -- this is where you have it. So your third quarter is always going to be and always has been kind of like the lower third and fourth quarter versus first and second.

[Alex Blanton:]

Yes.

[Morry Taylor:]

But like I said earlier on the call, because of the ramp up of the super giants, and if you put the math to it, you -- we're going to pump out, which we are doing right now, so many of these big factors, we have the -- not have. I believe it will be our all-time record, which means we've got to trump our friends at the second quarter which was our all-time record. And I've stated publicly that we'll be over a billion dollars this year, which is the first time in the history, so.

[Alex Blanton:]

Okay. I got that. Now, and the other part of that question was, you were only up $2 million year-over-year, yet you said you shipped a good number of the giant tires, I guess it's 50,000 each or something. So something must be -- would it have been down without those? Is that why we don't see a big number there --

[Morry Taylor:]

Well --

[Alex Blanton:]

-- in that segment versus last year?

[Morry Taylor:]

Well, your construction, in construction is your road machinery.

[Alex Blanton:]

Right.

[Morry Taylor:]

Alright. That's been down.

[Alex Blanton:]

Right.

[Morry Taylor:]

Okay. And you can go back and look at previous ones, alright. That business was – will had already taken the impact. So now your only thing that is showing -- continuing to show big growth is in your mining sector. And your mining sector are the ones that go from mainly your 39 inch, your 49, your 51s, 57s, and 63s.

[Alex Blanton:]

Got it.

[Morry Taylor:]

Okay. And so we started with the 63. But as people been in through the plant, we're going all the way down to the 39 inch, and those are almost all radial-type tires. Right now we're doing this 59-by-63. That's the largest one there is. Then we're coming in with the 53-by-63 that we'll be shipping hopefully in the next 15 days. And then we roll with that one. Then we're going into the 57s and we're rolling on that one. Then we're going to jump to the 49s before we do the 51s. We'll do the 49s, then we'll do the 51s. Then we'll shoot down and the last one will be -- actually we've got the 45s that are coming in and the forty -- and the 39s. But those, it's just like your quarries, if you were to call up Vulcan which owns quarries all over the country, or Martin Marietta, those boys are probably only running a few days a week because of the slack in the road construction and the roads that they put in for residential and everything. They're the ones that crush up all your gravel and that. So that market I don't figure is going to come back for about 18 months, while they try to figure out where all the smart people hid the money.

[Operator:]

Thank you. Now we have a question from the line of Ian Zaffino with Oppenheimer. Please go ahead.

[Ian Zaffino:]

Good morning. Thank you.

[Morry Taylor:]

Morning, Ian.

[Ian Zaffino:]

How are you?

[Morry Taylor:]

I'm doing pretty good.

[Ian Zaffino:]

I will try to keep this brief. The first question would be, how much margin did you lose because of higher raw materials cost?

[Morry Taylor:]

I have no idea.

[Ian Zaffino:]

Okay.

[Morry Taylor:]

Okay.

[Ian Zaffino:]

Number two, what's your run-rate production right now of 63 inchers?

[Morry Taylor:]

Now why would I go tell you to tell my competitors?

[Ian Zaffino:]

Well, you're telling us you're going to do 900 by the end of the year, so.

[Morry Taylor:]

That's what I said. So you just figure out anything you wish to figure out. I haven't changed my spot and I've told you what we're going to do. And third quarter come in, you know, so we're cranking.

[Ian Zaffino:]

Okay. On the OE side, how much of revenues is now OE?

[Morry Taylor:]

Sorry, I didn't look at it. I have no idea. I've never spelled that out.

[Ian Zaffino:]

Well, if you add up like CAT, Deere, and CNH, and all the big guys, what kind of number would you get to?

[Morry Taylor:]

Well, I haven't done it. What do you do? You forget about [Kimzey], everybody else? I have no idea. That's why I run a 5% to 7% SG&A. I guess I could have accountants running around and people just looking at that for you to do it, but I don't, okay. I don't know. I answered it.

[Ian Zaffino:]

Okay. Alright. Thanks, Morry.

[Morry Taylor:]

You're welcome, big guy.

[Operator:]

Next question comes from the line of Greg Parcella with Freestyle Fund. Please go ahead. Mr. Parcella, your line is open.

[Greg Parcella:]

Hi, Morry. Sorry. My question's been answered. Thank you.

[Operator:]

Alright. We now go to the line of Philip Volpicelli with Goldman Sachs. Please go ahead.

[Philip Volpicelli:]

Morning, Morry. How are you?

[Morry Taylor:]

Pretty good, Phil. How's everything at Goldman? You guys still hanging on or are they moving furniture or what's going on?

[Philip Volpicelli:]

No furniture moving. We're doing just fine over here.

[Morry Taylor:]

Well, good.

[Philip Volpicelli:]

And you guys seem to be doing quite well over there.

[Morry Taylor:]

We're doing real well. In fact, the opportunities are sitting out there now. They're starting to bud and it looks pretty good. I appreciate there's a lot of other people that got a lot of trouble and this and that. But it looks like grinding out the way we've had to grind out, the -- we're going to do great. So what can -- what do you want to know?

[Philip Volpicelli:]

So when you say you're going to have a record fourth quarter, you're talking about revenue? Is that the metric you're looking at there?

[Morry Taylor:]

I'm looking at -- I'm hoping that I have a record quarter which will be greater than any quarter we've ever had, both in revenue and in the -- in our earnings from ops.

[Philip Volpicelli:]

Okay.

[Morry Taylor:]

I think we've got a real opportunity. And I've said before, the ag is so strong, both in the tire and the wheel side, of what they want us to get out, and appreciate we have, by contract, periods of shutdown at Easter and everything else. But with the giant tires and what we're shipping to -- out and how that production's coming out, that we're going to have a big shot at doing it. And we rolled into October real strong and November is super, super strong. And some of these boys will be in the OEs, will be running right through the Christmas holidays, I believe. So it's going to be a -- the demand is still there. In fact, I can tell all the people, it is so strong that if you go out to check with equipment dealers, I know at CNH, because I was told, they just flat tell you, you just order the tractor and if we can get tires and wheels, take what you get. You know, we'll work out getting what you need later.

[Philip Volpicelli:]

Okay.

[Morry Taylor:]

So it's strong. And that's mainly because no one's ever seen it like it is.

[Philip Volpicelli:]

Right. When you talk about acquisitions that you're looking to make either later this year or early next year, does that include Titan Europe? And if so --

[Morry Taylor:]

I was not talking about Titan Europe.

[Philip Volpicelli:]

Okay.

[Morry Taylor:]

I was talking about some other items that are just coming up on the radar screen.

[Philip Volpicelli:]

And these would be domestic manufacturing of --

[Morry Taylor:]

I'm not going to cover it because everybody runs around. It's a small world, that things come around, you know.

[Philip Volpicelli:]

Okay. How about maybe I ask it another way. Would it be similar sizes to the acquisitions you've made previously?

[Morry Taylor:]

One would be from the smaller side, one would be on the larger side.

[Philip Volpicelli:]

Okay. And does one preclude you from doing the other or would you do both?

[Morry Taylor:]

No, you'd do both.

[Philip Volpicelli:]

Okay. That's great. And then Titan Europe, so that's off the table? You're not looking at that any longer?

[Morry Taylor:]

Well, I'm in a -- I'm in jail for -- I went in the penalty box for six months.

[Philip Volpicelli:]

Right. Right.

[Morry Taylor:]

So I can't come out. And then you've got to take a look. And I've got to re-look, because these other items turn around and are, you know, they can just fit right in. When these things come, you don't really have a luxury of, okay, put this over, and you wait until this and this and this. It comes an opportunity that they -- these people are owned by other companies that decided they want to exit a portion. So if they do, that's how you got to look at it, so.

[Philip Volpicelli:]

And then fourth quarter CapEx, are you looking for that to come down from the third quarter level or is it still going to remain high as you ramp up production of the 63s?

[Morry Taylor:]

I think our CapEx should start -- I don't know what those -- you know, they're going to come between now and the end. But we should start between -- in the next two quarters, the fourth quarter and the first quarter should be a continuation of everything coming down, alright. We're -- we'll be finished up with what we're doing by the end of the first quarter.

[Philip Volpicelli:]

Okay. That's great.

[Morry Taylor:]

Because everybody -- I don't know if you've been out since, but we actually did the second bay too.

[Philip Volpicelli:]

Okay.

[Morry Taylor:]

So we've done that. And we also did a lot, reference our ag to increase our large ag curing capacity and everything else. So all of that's in there too. So that was not looked at where we thought we would be, but that's been put in. So as I said in my little note, when you look at all five facilities, the wheel plants, everybody else, everybody has been involved into the expansion, reference the super radial giants plus the expansion into the large radial ag increasing our capacities. The wheel boys, because they're so good with guys and everything, they've had to jump in to speed the manufacturing of our big curing mold process for the situation in -- up in Bryan. At the same time, the new 130-inch process, which will be used in Des Moines and Freeport, those have been -- also been handled by Quincy. So it's -- everybody's had a lot to do and, you know, training a lot of new employees.

[Philip Volpicelli:]

That's great. My last question, and I just wanted to spell this rumor once and for all. With regard to the mining tires that are currently our there, I guess the question that people had or the rumor that was out there was that they were rubbing against one another when they were put side-by-side. And did you have to redesign them at all or is this the same design that you've always had out there running?

[Morry Taylor:]

No. No. For all the people with all the rumors is that the tires did not rub. They -- our tire was -- which we built to the maximum for the tire rim specs. Well, our competitors were down on the, more or less on the minor side, the minimum side. So we went to the max. So what happened is that it was me who's sitting there next to the photograph looking at them, and then I walked over and I looked at the other, and I says, you like these? Yes, if I leave the tread alone, can I narrow the side up? And oh, yes, we don't care. Good and that's what I did. And, of course, when you narrow the side up with our tire, we save a substantial amount that just goes right to your profit. And that's what I did.

[Philip Volpicelli:]

Okay. So you're selling the same tire, same price but you're now using less material in making that tire, so.-

[Morry Taylor:]

That's right. And what happened is we found out when we were up there. We priced everything for what we were told was the competitive market. Then when we got up there, we found out that we were 10% under the competitive market. So that really ticked me off.

[Philip Volpicelli:]

Well, I'm sure you're taking steps to improve that. Thank you, Morry. Good Luck.

[Morry Taylor:]

Thank you, Phil.

[Operator:]

Next question comes from the line of Saul Ludwig with KeyBanc. Please go ahead.

[Saul Ludwig:]

Good morning, Mr. Taylor.

[Morry Taylor:]

Good morning, Saul. I'm surprised you're still working on a cold day like today.

[Saul Ludwig:]

It's too cold outside. I had to be inside.

[Morry Taylor:]

Yes. Well, the guy that's got as many -- you've got more years than anyone else on this phone call and you --

[Saul Ludwig:]

Listen, are these --

[Morry Taylor:]

You should be in Florida where --

[Saul Ludwig:]

Tires going for --

[Morry Taylor:]

It's nice and warm.

[Saul Ludwig:]

45 grand a piece?

[Morry Taylor:]

Pardon?

[Saul Ludwig:]

What are you selling these giant tires for? What's the average unit price?

[Morry Taylor:]

I would say, we're probably, if I was a betting man -- because why should I give my pricing over a conference call. But I would say you a 5-0 is a fair number to get to.

[Saul Ludwig:]

You mean $50,000?

[Morry Taylor:]

Yes.

[Saul Ludwig:]

Okay. So if you're going to, let's say sell 900 and let's just say 700 or 800 of them are going to go in the fourth quarter that would be $35, $40 million in sales. So this earth moving and construction, getting back to that earlier question that someone asked, should show a whopping big increase in revenues in the fourth quarter of '08 versus the fourth quarter of '07. Would that be correct?

[Morry Taylor:]

I would think that would be a correct assumption.

[Saul Ludwig:]

Okay. And then in the current quarter, while your results were outstanding and you deserver kudos for that. To what extent were results impacted by, let's call it the startup costs? You didn't make a lot of the big tires. You have a big investment in the plant.

[Morry Taylor:]

I don't even care.

[Saul Ludwig:]

Well, I know you might not care, but we might care.

[Morry Taylor:]

Why?

[Saul Ludwig:]

I just wonder if maybe you could give us some clue as to what degree were your earnings negatively impacted?

[Morry Taylor:]

I told you I'm not -- let me give you two answers.

[Saul Ludwig:]

Yes.

[Morry Taylor:]

Okay. The first one --

[Saul Ludwig:]

You could give one. Okay.

[Morry Taylor:]

I didn't care because I'm cranking, okay. We're trying to crank. The next thing is, I run that 5 to 7. So poor, Hackamack, I watch him. He don't have that many accountants that can run around and do it all. As long as it's all expensed, nobody can say to me, you know, hey, I did wrong, I spent. We're just real simple. Here's what we make. There's no hidden stuff. And so if I go hire the more, I have to add more in my SG&A.

[Saul Ludwig:]

I wonder if your CFO even has an inkling as to what magnitude it might be of cost, not down to the first or second [estimate], just order of magnitude.

[Morry Taylor:]

I think he puts --

[Kent Hackamack:]

Here's an answer for you, Saul. If you look in the Q.

[Saul Ludwig:]

Right.

[Kent Hackamack:]

We said on the bigger tires, approximately $2 million hit us in the third quarter.

[Saul Ludwig:]

Okay.

[Kent Hackamack:]

Does that help?

[Saul Ludwig:]

$2 million pre-tax?

[Kent Hackamack:]

Correct.

[Saul Ludwig:]

Okay. That's helpful. Thank you very much.

[Kent Hackamack:]

You're welcome.

[Saul Ludwig:]

Well, I will look forward to the good news in January, Morry.

[Morry Taylor:]

Hey, I think it's going to be a -- we'll come through. I think what I said was '08 was going to be a record-smashing year. We're going to cross over our billion. We, as all those on the phone should know, I'm just a 42-year-old jock now, just like you, Saul.

[Saul Ludwig:]

Hey, you got an extension to your contract I saw. You're going to hang around a lot longer than we all thought.

[Morry Taylor:]

Well, I figured I should just -- when we were all kicking it around and one of the shareholders was asking why this and this. And I says, well, I might as well stay around so that I can go see my friends at the Steelworkers. Why should I leave someone else the joys of discussing union contracts, okay.

[Saul Ludwig:]

I understand.

[Morry Taylor:]

So that's what my plan is, okay. You got to have a little warm.

[Saul Ludwig:]

I'm glad we're going to have you to kick around for a few more years.

[Morry Taylor:]

You got to have some old fart, you know, that tells you the way he sees it, so.

[Saul Ludwig:]

Okay. Very good. Well, see you at SEMA.

[Morry Taylor:]

All right, sir.

[Operator:]

Next question comes from the line of Charlie Rentschler with Wall Street Access. Please go ahead.

[Charlie Rentschler:]

Good morning, Morry.

[Morry Taylor:]

Hey, Charlie. I forgot about you, you see, because you got me by a couple years too. I'm glad to see that the old folks are starting to come down from the hill. What can I do for you today, Charlie?

[Charlie Rentschler:]

Well, I don't think you've commented yet about the '09 outlook for the 63-inch super giant tires. Is your forecast --

[Morry Taylor:]

As I said in a press release, as soon as our board approves the budget, all right, which is being put together. We scheduled the approval process in December, first part of December. And that's when I did last year too. And then we will come out and I will do my -- what I believe the range of the sales level will be and where we're going to be in the range of the EBITDA. And this will be done at that point, okay.

[Charlie Rentschler:]

Do you think your forecast for the 6,000 tires, is that still in the ballpark?

[Morry Taylor:]

I think, well, you see, I think everybody has to understand, and you've been to the facility, you know that the 6,000 will be in the big, the super big ones. But I believe, because we have already done the second bay, as being done right now. And so with that and what we've funded in our capital, what the market considers when I say the radial super giant tires, I would say that we're probably going to be north of that. And I'll probably tell everybody, but I would look for us to be between 7 and 9,000 in super giant tires in the year of '09. Now, everybody's got to which I'll cover then too, Charlie, is that we will have a better idea because the pricing is going to start to work itself down just because of your commodities. So the contracts you make with people, you reduce it for the cost of material. And you stop and think about it, steel was up to 1,100 bucks a ton. Now, is it going to settle at 8, settle at 9, 750, where is it? That's a big crack when you talk wheels. You get to rubber. I think April, rubber right now all the contracts are out at about a buck 40 something. But you're at $0.80 in April. So is $0.80 going to be what you go for or by April is it going to be $0.55 for natural rubber? Now, you look at that and you talk thousands of pounds on a tire, big differential.

[Charlie Rentschler:]

Let me, on my follow-up, switch over to ag. I'm assuming that your ag business is largely replacement tire business versus OEM. In any event, you make the money probably in replacement. And I just --

[Morry Taylor:]

No, that's a negative.

[Charlie Rentschler:]

That's not true?

[Morry Taylor:]

No. You make it in both. But the ag right now at mother -- you know, you live in Indiana. Big ag is just still crunching.

[Charlie Rentschler:]

Can you just characterize how the replacement market is looking or?-

[Morry Taylor:]

Replacement market is in the same boat.

[Charlie Rentschler:]

Strong.

[Morry Taylor:]

Now you go out and try to get the big combine tires, go try to buy a 30.5, 32.

[Charlie Rentschler:]

Yes. Thank you.

[Morry Taylor:]

All right, sir.

[Operator:]

Next question comes from the line of Randy Laufman with Imperial Capital. Please go ahead.

[Randy Laufman:]

Good morning, Morry.

[Morry Taylor:]

Good morning, Randy.

[Randy Laufman:]

Just a couple follow-up questions. Most of it's been covered. Just wanted to follow-up on the last question kind of the giant OTR and the '09 outlook. And I know you're not providing guidance at this time. But when we sat here and talked about the giant OTR project at the beginning, you know, probably about 18 months ago. You said that you were going to look to obtain commitments from mining companies. If you met your milestones and you wouldn't kind of go about this project unless you had those commitments in hand. I'm just wondering if you could talk about if there's a portion of that capacity, and you just mentioned potentially north of 6,000, that actually have commitments as we stand today. And whether, you know, it appears that you've met all the milestones. So it seems like those commitments should be good.

[Morry Taylor:]

Well, the first thing is that when you're in a market that's moving and it's moving up, and if you figure you go out, you sure the hell don't want to lock yourself down. It's a little bit like hotel rooms. You sure don't want to have your -- lock up all of your hotel rooms at $100, then they're all going for $250. You look pretty stupid. So what we did is we went out and we made a few commitments. Then we backed up and we knew exactly what we had to do. And we figured the -- had some guidance from, I've got a very strong Board of Directors. And you back up and you say, hmm. So what's happened is we've had a number of people who approached us, and we switched to where they buy the big [mold]. Well, long as they keep taking tires off of it, that's fine. If they don't, then we can use it to go wherever we wish. And we're doing that as we walk through. They just call that a prepayment, so to speak. And we think that is the smartest way to do. We also found that we believe our tire, number one, as I stated earlier, and you should know this, we filed patents on it. The tire is twice, the casing is twice as strong as our competitors. It's also a much safer tire. It doesn't explode like 18 sticks of dynamite. So we're even looking at taking that and having the certain safety agencies, it's not OSHA it's MIOSHA or something like that for mining. We're looking real good at what we expect and what we do. So we are not worried about a sales level of tires, trust me.

[Randy Laufman:]

So as far as those milestones that you had set, I mean, is it fair to assume that we've met all those milestones at this point? You've started production?

[Morry Taylor:]

We've met our milestones. Everybody is real pleased for what we have done and we're pleased. But you just don't sit back and start having a party. Our job right now is to just keep going like there's a fire, okay. And the third quarter was there. I think in January everybody's going to be -- we're going to hit the milestone, excess of a billion. That's not what we thought a year ago. And I think we're pretty happy, what we see out in the future, contrary to what the doom and gloom, except for yesterday, on the market. I mean, I don't think the -- politicians basically created the mess and so now we've got the politicians trying to solve the mess. And regretfully, a lot of people in the financial business of this world are going to have a rough few years. Our plan is that we figure we're probably one of the fortunate ones. We have our cash. We have our banking lined up, and it's the opportunity for us to make some deals, because there are -- a lot of people are running around panicky that they got to build a cash hoard. And so we're going to sit there. And someone once said, cash is king. So that's what we're looking to have by the end of the year. And so if they want to balance themselves up, we'll be more than happy to accommodate.

[Randy Laufman:]

Sounds good. That actually is a good lead on to my next question, is about the cash and the working capital. You mentioned in your comments that working -- you expect to generate cash from working capital in the fourth quarter. I'm just wondering if the increase in working capital, specifically inventory in the third quarter was more related to the rise in material cost or maybe the fact that you've been ramping the production of the giant tire that haven't actually been shipped yet in anticipation of the fourth quarter, and whether you're actually sitting on a significant amount of inventory of these giant tires.

[Morry Taylor:]

Well, I'm not sitting on an inventory of giant tires, okay. Any one day there might be 15 tires there, okay. But that's basically because they're waiting for trucks, okay. We start pumping these things out, man, you've got to truck them out of the way, because you can only, if you have a wheel in them, you can only ship two, all right. So if you have no wheels you get to ship three. And a truck takes, I forget how long to get up to the oil sands. So and, you know, they're all over-width loads, all right. When you're shipping overseas everything goes out it's over-width. So you all got permits and everything else, depending on what state you got to cross. The inventory, what I'm referring to, is that what we wish to do is to, we believe, that between now and the end of the year, that there could be some reduction in raw material costs. And if that reduction comes right at the end of the year, then we don't want to have any inventory, all right. At the same time, we don't want to be real, real slack in chasing our receivables because there's very few in the after-market dealers who are pure ag or pure mining. Therefore, they're in truck, passenger car and everything else. So that business, I'm assuming is not doing as well, even though they might be doing great in their ag business. But, it's a lower percentage, so even if it's great, they're probably limping along on it. But we want to make sure. So we've turned around and we've insured now, I believe most of all of our accounts. And we just believe that we should go after to collect our money. That's really a simple way of stating it. And you get your inventories down, so that you come to the end of the year. You don't have a lot of inventory because if you got LIFO, that sector will kill you. So you're better off to turn around and all that value of that material when it was going up is sitting on your books. You haven't turned it into cash. So if it starts to go down, you need to turn it into cash if you don't have any. Do you understand that?

[Randy Laufman:]

Yes, absolutely.

[Morry Taylor:]

And that's what we're going to do.

[Randy Laufman:]

Sounds good.

[Morry Taylor:]

I'm not interested in why accountants don't care. They just go, whoop, okay, well, you had it during this two years in here, now, whoop, you know. But if I can get it off, then, you collected a star. You got the cash out of that, so.

[Randy Laufman:]

Great. Well, thanks a lot, Morry.

[Morry Taylor:]

Thank you.

[Randy Laufman:]

And we'll see you in a couple weeks.

[Morry Taylor:]

All right, big guy.

[Operator:]

Next question comes from the line of Brian Delaney with EnTrust. Please go ahead.

[Brian Delaney:]

Good morning, Morry. Great job on the quarter.

[Morry Taylor:]

Thank you.

[Brian Delaney:]

Is it possible to help me understand within the agriculture line item what the breakdown was between units and pricing? So revenue's up 51% year-on-year. How much was incremental pricing this year versus last year versus units?

[Morry Taylor:]

I -- I'm -- to be honest, I don't have the number. I don't even think we do it. Hack, do we even do that?

[Kent Hackamack:]

No, we don't.

[Morry Taylor:]

No. No. So it just all goes in with ag, you know. Like ag tires generally go on single-piece rims. That's how we do it. So you got small ag. You got big ag. Big ag is where you make your money just like John Deere makes some money selling big equipment.

[Brian Delaney:]

Well, said another way then, do you know the number of tires shipped in ag this year versus last year, just on an absolute basis? Or you don't provide that either?

[Morry Taylor:]

No, I never ever look at it. We make millions of tires, okay.

[Brian Delaney:]

Okay. And then --

[Morry Taylor:]

So I don't look at it.

[Brian Delaney:]

And within the earth moving and construction line item, within the $71 million in revenues.

[Morry Taylor:]

All right.

[Brian Delaney:]

What is the dollar amount of revenues associated with the 63 inch? I know they're $50,000 each. Was it greater than --

[Morry Taylor:]

Well, those --

[Brian Delaney:]

$50,000? Was it $50,000? Was it zero?

[Morry Taylor:]

You talking the third quarter. Now, if I told you the exact -- I don't give numbers, because all that does is help my competitors.

[Brian Delaney:]

Was there any dollars recognized in the third quarter for the 63-inch tire in that line item?

[Morry Taylor:]

Yes. Yes. We've been shipping every month, July, August, September. We're ramping up. We're ramping up in October. We're ramping up in November. And we're ramping up in December. And I'm ramping, every month I'm doing more tires and more tires. So I've put the top of my goal was to do 900, okay. And --

[Brian Delaney:]

Okay. So to --

[Morry Taylor:]

My goal --

[Brian Delaney:]

Some earlier questions then --

[Morry Taylor:]

Because I've got to be able to come out to do [6-2] plus thousand in super giant tires in '09.

[Brian Delaney:]

But I'm saying, so on a sequential basis in the fourth quarter, we should see that line item up materially sequentially because of the pretty significant sequential increase around the units sold and --

[Morry Taylor:]

If I can't --

[Brian Delaney:]

Recognized as revenue?

[Morry Taylor:]

If I can't get those units out, if I can't do that, then it would be almost an impossibility to set a record in the sales level because you're shut down for Thanksgiving, your tire plants and the wheel plants, and you're shut down for Christmas. And you lose, because most of our hourly workforce is men, they're out shooting Bambi, okay.

[Brian Delaney:]

Yes.

[Morry Taylor:]

So that's just the fact of life.

[Brian Delaney:]

And when you say record, it's a fourth quarter record as opposed to an --

[Morry Taylor:]

A fourth quarter --

[Brian Delaney:]

Absolute --

[Morry Taylor:]

The fourth quarter record is already given. It's a -- I'm going for the record of records.

[Brian Delaney:]

Meaning --

[Morry Taylor:]

For the best --

[Brian Delaney:]

The best quarter ever?

[Morry Taylor:]

Quarter ever we had. You got it.

[Brian Delaney:]

Not. So if I look at --

[Morry Taylor:]

And the best quarter, to help you out was what, 263?

[Brian Delaney:]

269 in the second quarter of this year.

[Morry Taylor:]

All right. I got to beat that.

[Brian Delaney:]

Okay. All right. Thank you very much. Good luck. Thank you.

[Morry Taylor:]

You're welcome.

[Operator:]

Next question comes from the line of Jim Young with West Family Investments. Please go ahead.

[Jim Young:]

Yes. Hi. Good morning. My question that I'd like to pursue is how you're thinking about expansions to your plant capacity. You mentioned the strong demand you're seeing in both ag and -- big ag and also in mining. So as you think about expanding your plant capacity, can you do this incrementally with like 10% to 20%, or do you need to have double capacity? And over what kind of a time frame would you -- would it require to expand this capacity and how much capital would this also require? Thank you.

[Morry Taylor:]

Well, the first thing is that we've been doing this for the last year, okay. And we're in it. We built, in the Bryan facility, we added basically a quarter of a million square feet. And that's where all this big capital went. Reference to the Des Moines facility and reference to the Freeport tire plants, there's no brick and mortar involved, it's all internal. And we brought the -- from the shutdown plants in Natchez and Brownsville, we brought that equipment up to those facilities. But when you move these 100-inch presses or 88-inch presses, you're talking truckloads. You're talking about pounding holes in the floor and putting the foundations for these presses. This stuff is huge. Freight alone is roughly over a $0.5 million to $0.75 million just to move the damn stuff. Now you -- so those, there's no brick and mortar. And we've been doing this -- this year. And so our plan is to be wrapping all this up no later than the -- we've got to have it in place and roaring first quarter of '09. Then you -- in the wheel side, that's where we did the big expansion for the test facility to test this big bull wheel, which we went in, that was over $8 million down there. But we also took the -- we still have a factory, that's south in Greenwood. We took the whole eco facility and paint facility from there. We just brought that to Quincy to improve upon what we did in our production facility there. So, and then we put some new equipment into [Southville] for the new big 63-inch wheels. So, I mean, every facility has had something. So, -- but our plan is to be able to wrap this up, as we see it right now, no later than the first quarter. Because after that, you're expansion, if you want to really expand, you would end up looking at probably an acquisition, because our growth that we can do, we can probably do to success of more than double-digit expansions and then you're capped out with the facilities you got. Does that answer your question?

[Jim Young:]

Yes. So to do those two double-digit plant expansion, is that an '09 kind of a time frame or is that more like an '010? And then again, I appreciate all the changes and improvements and plant shutdowns and equipment that you moved and the testing facility in Quincy which you've expended a lot of capital and manpower to get these things down, which you've executed flawlessly. But the question is, going forward is --

[Morry Taylor:]

Going forward now, it's like growing apples on an apple tree, okay. You planted the tree now and everything. And when I do in August, I'm going to tell you what our goal is for -- and it's big time -- it's double time. But what is -- the reason it's double time is because we're going to get to harvest our apples in '09, okay. So what we did? Everything we've done in '08, you could have basically almost got it there, except for this quarter, without the super giant and the freaking money we all spent to get that baby going, if you understand what I'm saying, okay. I probably would have made a hell of a lot more profit in '08, if I had not done this super giant. That's just a pure fact, okay. My sales level would have been pretty close to where it was and we would have made it churn a lot more money. But you turn around, you couldn't have expanded that too greatly and your growth would have been hindered coming up into '09. But your double digit in '09 growth now because what we did in '08 was this super giant. So you're going to look a minimum of 20% growth you're going to catch in '09. So you're going to get more apples off the tree. And then in '010, you'll even get more apples, okay. That's a fact. Unless the whole world blows up, and then I'm not going to worry about nothing either. That answers your question?

[Jim Young:]

Yes, it does. Thank you.

[Morry Taylor:]

You're welcome.

[Operator:]

And our next question comes from the line of Ken Holden with AmFund. Please go ahead.

[Ken Holden:]

Hi, good morning, Morry. Congratulations on the big quarter.

[Morry Taylor:]

Thank you.

[Ken Holden:]

I wanted to ask. Last time we were in Bryan, your operations guys were talking about receiving all of the equipment for the additional bays right around Halloween. I was wondering if that equipment has arrived.

[Morry Taylor:]

I would say a lot of it has arrived and we're installing as I talk with you right now. And I've got -- on my first stage, the -- we got -- there's a couple machines that they're not going to hit me until middle of November, the end of November.

[Ken Holden:]

Okay.

[Morry Taylor:]

And I need those for my January launch though.

[Ken Holden:]

Right.

[Morry Taylor:]

So, like everything in life, everybody gets to be a little bit behind and, you know, then what happens is we're going to work through the holidays, that's a fact, so --

[Ken Holden:]

Yes. Now, there you talked about a month to month and a half to get the stuff installed and up and running. When that second bay then gets up and running, what will that do for your capacity?

[Morry Taylor:]

Well, that second bay is the bay that gives me the smaller sizes of all the radials, okay. That gives me the smaller sizes. We've looked at that and we figure that these -- there's quite a range on the 57 on tires. And we think that the high volume 57 inch, we can throw on to that too, just as a backup if we need it. But that -- the range is where I said the -- a little earlier, I think that the -- from the 7 to the 9,000 is what I've stated is what I'm looking at coming out of that expansion up there.

[Ken Holden:]

But that would be with the third and fourth lines too, wouldn't it?

[Morry Taylor:]

No.

[Ken Holden:]

Okay.

[Morry Taylor:]

That's the first two that are there.

[Ken Holden:]

Okay. And can I ask --

[Morry Taylor:]

The front line, if you were there, the front line is going to do the 6,000.

[Ken Holden:]

Yes.

[Morry Taylor:]

All right. Then the second bay, when everybody said I could go up to 15,000, but I'm not putting everything in for 15,000. What the hell, I'm not spending the money just to look at it.

[Ken Holden:]

Okay. The stock certainly cares about the production of the giant tire. And I'm just curious why you're reluctant to tell us what the unit sales were or the dollar sales for the quarter.

[Morry Taylor:]

Why?

[Ken Holden:]

Yes.

[Morry Taylor:]

Well, because number one, I got three competitors, every Chinaman in the world that's probably on this conference call we're talking to. And then the first thing is, the rumor mill, everybody runs with rumor, and I've had enough rumors. And now when we're really starting to click, and like I've told you, I've shipped enough, all right, that we turn around and we know there's been no failure, because I've got engineers at every one of the sites, okay. So why would I give my competitors, you know --

[Ken Holden:]

Well, I think that --

[Morry Taylor:]

And remember, I've done everything that I said.

[Ken Holden:]

In most industries the competitors have better knowledge than the investors do anyway. But for those of us that bought the stock in the high 30s, it's a little bit frustrating to see it here at $10 and not be able to get our questions answered.

[Morry Taylor:]

Well, I'm -- Now wait a minute. Now wait a minute, okay. I'm a big boy, okay. I did everything I said. I've answered everything frigging rumor, okay. I've answered everything anybody asked, okay. So all I can do in my job, all right, is to keep going, keep making the money and tell you what I'm going to do. And I've done that, okay.

[Ken Holden:]

Okay. So you say then in the fourth quarter -- or for the year you're going to do 900 of the giant tires. On the conference call for the December year-end quarter, are you going to tell us how many you did in '08?

[Morry Taylor:]

I'm going to tell you how many I did in '08.

[Ken Holden:]

All right. I'll look forward to that. Thank you very much.

[Morry Taylor:]

You're welcome.

[Operator:]

And our final question comes from the line of Alex Blanton with Ingalls Snyder. Please go ahead.

[Alex Blanton:]

Just a follow-up, Morry. I got cut off in the middle of your answer the last time. So I'll look at the transcript. Looking ahead, when you get the tires ramped up, what's your upside target on gross margin for the company as a whole? I'm not asking for the individual tires.

[Morry Taylor:]

Well, we have publicly stated our goal, our goal is to have a -- and I -- you know, everybody gets into which way. Our EBIT, earnings before interest and taxes, we have a goal of 15% to 20%, a run-rate goal. Because what happens if you get above that, I believe you invite, just pure and simple, too much competition.

[Alex Blanton:]

Okay.

[Morry Taylor:]

So that's where we're trying to go, all right. And we have been pecking away at it. I believe if we had never done the super giants, we would have hit it, okay. But I believe you can't let the opportunity run when you have what we did with the super giants. There's no question about it, okay.

[Alex Blanton:]

Okay. Is that because of start-up costs in those? Not because of the lower margin in those?

[Morry Taylor:]

No, because you're -- what you do is you have to remember what I stated before. When you turn around and you take on this project, every plant is involved.

[Alex Blanton:]

Right.

[Morry Taylor:]

So there's not one plant of Titan that you can honestly say hasn't been affected in their operation and their efficiencies for just -- if they didn't have to fool with this.

[Alex Blanton:]

Right.

[Morry Taylor:]

All right. Plus the 200 people you've put through to train, the amount of scrap you get in all while they're all training. You start putting these tires -- I destroyed 16 tires -- or 19, I believe it is, in our test results. So I mean all of this is -- and these aren't cheap suckers on the big stuff. And all your other plants are running. So that's why I say it's a -- that's our goal.

[Alex Blanton:]

Okay. And one final thing. You indicated that because raw material prices or costs are coming down, you implied a price --

[Morry Taylor:]

They stabilized. They stabilized.

[Alex Blanton:]

Right.

[Morry Taylor:]

And I believe, I believe that next year they're going to come down, okay.

[Alex Blanton:]

So that means that your selling price, what you're implying --

[Alex Blanton:]

Will be coming down too.

[Alex Blanton:]

Yes. So we can't use 50,000 per unit for next year, is that correct? Something less than that?

[Morry Taylor:]

Yes, but I don't know where or what or how that's going to affect, okay.

[Alex Blanton:]

Yes.

[Morry Taylor:]

So then you'd have to play with that by quarter-to-quarter and you'll know. If you're -- when we started this thing, the price was 40Gs.

[Alex Blanton:]

Right.

[Morry Taylor:]

Okay?

[Alex Blanton:]

Yes.

[Morry Taylor:]

And then it went to 50 --

[Alex Blanton:]

Right.

[Morry Taylor:]

Before I even had a chance to figure it, all right? So you got to see where the sucker is going.

[Alex Blanton:]

Okay.

[Morry Taylor:]

They're at an all-time high right now.

[Alex Blanton:]

Right. I think we got the range there. And finally, of the 7 -- you said you might go to 7 to 9,000, is that just the 63 inch, or does that include 57, for example?

[Morry Taylor:]

No, that includes super giant. That includes your 57s, your -- there's two 63s right now. We've been looking at a third one.

[Alex Blanton:]

Okay.

[Morry Taylor:]

There's the 53-by-63.

[Alex Blanton:]

Yes.

[Morry Taylor:]

And there's the 59-by --

[Alex Blanton:]

Okay.

[Morry Taylor:]

63. So you've got a whole range of those tires in there.

[Alex Blanton:]

Okay. So the 57 is not quite as many dollars as the 63, right?

[Morry Taylor:]

Correct.

[Alex Blanton:]

Okay. How much less percentage-wise?

[Morry Taylor:]

Well, I would say that you're probably -- one of those is -- I'm just trying to think. I would say the 57s are probably in the range of about 35Gs.

[Alex Blanton:]

Okay.

[Morry Taylor:]

All right.

[Alex Blanton:]

Got you. Thank you.

[Morry Taylor:]

You're welcome.

[Operator:]

And, Mr. Taylor, we have no other questions.

[Morry Taylor:]

Thanks, everybody. And, hell, they've already left once they know anyhow. But to you, Alex, you have a great day. Bye-bye.

[Operator:]

And, ladies and gentlemen, this conference will be available for replay after 11