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Titan International, Inc. (NYSE:TWI)

Q4 2008 Earnings Call

February 26, 2009 09:00 AM ET

Executives

Maurice M. Taylor Jr. - Chairman and Chief Executive Officer

Analysts

Alex Blanton - Ingalls & Snyder

Ian Zaffino - Oppenheimer & Co

Charlie Rentschler - Wall Street Access

Randy Laufman - Imperial Capital

Philip Volpicelli - Goldman Sachs

Operator

Ladies and gentlemen, welcome to the Titan International Incorporated Fourth Quarter and Year-End Earnings Call. During this session all lines will be muted until the question-and-answer portion of the call. (Operator Instructions).

Any statements made in this course of this conference call that state the company's or management intentions, hopes, believes, expectations or predictions for future are considered forward-looking statements.

Please note that the Safe Harbor statements contained in the company's periodic filings with the Securities and Exchange Commission extend to this conference call and any forward-looking statements involves risks and uncertainties as detailed there in.

At this time I'd now like to turn the conference to Titan's Chairman and CEO Morry Taylor. Please go ahead.

Maurice M. Taylor Jr.

Thanks, Stacy. And good morning to everyone. I want to take a moment, hopefully you all have the press release. I know you don't have the 10-K and I'll cover that why.

We had a great, great '08. Just plain example, fourth quarter was really good and I want to go over that. But the big item in the news of the day is the 38... approximately $38 million charge we took for the investment into Titan Europe and non-cash charge.

Let me explain before I go into everything else what transpired as of this past Monday, our Board's Audit Committee... Board of Directors' Audit Committee had their conversations with PW on everything. And everything was... the question came up in reference to the Europe because of the stock price and everything else.

But their book value is greater and personally Mike Akers has been through rougher times over there. He is the CEO of that business and though weathered the storm, there is no question in my mind and came out stronger. And so the 10-K was prepared, everything was ready, Board, everybody was satisfied and actually pretty impressed by what happened in '08.

Yesterday, we got a call from PW and someone in New York for PW had determined that because of all the things going in New York and everything else, the transparency that it would be prudent if we took this charge plus we've had such a record year.

So that's why it's on there. And I guess if it goes back up I'm not the accountant. I don't know what happens if it all it goes back up and I guess we just had back money, but anyhow.

So let's talk about the situation of performance for what we do. Number one, the quarter was just absolutely great except there was a little minor hiccup that we had in Bryan and even if you have been here we had the... our new 59-inch curing press mold, whether we wish to call it arrived and this was the new design for all the rest of them which was a hydraulic plant had 17 clamps.

And then outside contractor then I think there was a little design problem in the mechanism but what transpired on a Sunday night they attempt to do the first tire and which is a wrong time to do anything but anyhow if you see a 100,000 pounds bowl of steel going through 40 feet in the air it made a big nest.

We jumped on that we got that up but the design change and everything we had to do to all the others that were already made and coming in, may be that's a little bit delay or we would have, I believe set the record for the quarter of all quarters. But needless to say the numbers we didn't get there but we have a great, great year.

And then I appreciate most of you on hearing and also going forward and I would like to take a moment to talk about why it was such a great year and the reason it was such a great year is that every factory that Titan has was involved one way or another into creating this new giant tire which when you look at it, when you have the big dogs the Michelins, the Bridgestones, the Goodyears and everybody else telling you that it can't be done it really made us that much sweeter.

And for the future it's nonetheless for what's going to happen, where we're going to go in the future. We have an unbelievable team, of not only managers but already workers who participated this and I know myself I am very, very grateful to have the ability to work with them.

And the numbers you can, all of you can go through the 10-K will be filed shortly, Mr. Hackamack and his team and we've great team from PW out of St. Louis they spent a whole night trying to redo the, what they thought was already done on Monday. And hopefully they will get this thing done sometime today or next few days and get this off to you. And we will keep you posted on that.

Going forward, is what everybody is concerned about and if you sit there and look at the Big Ag, it's going strong. In fact, last week Deere came out and you can go to Deere's website and get I believe their presentation. There everybody looks and says Ag is at 5% but if you look at what they presented you will see that their real crop tractors, they expect them to be up double digits to four wheel drive. They expect that to be strong double digits and their combines up approximately 13%. And that's from the retail sales that they have in the month of January and they expect it to go.

Now, I know there's a bunch of people who are worried about, well what about the farmer. Well the estimates, if you look right now in the commodity market. The figure in corns are going to settle in right around, this is Deere's number, 335 that figure at least going to be 535.

Soybean is a $8 and cattle about 57 a pound. While when you look at where the farmer's variable cost is this doesn't thrill in the lane. You'll see that they... it's like 232 for corn, we'll reached 3.19 and soybean just 347. So farmers are going to make money with $3.10 corn, 5.44 on wheat and 6.50 on soybean.

So the point, that is our bread and butter. And both in our big tires and what we have done is to keep our increase going because the construction, all the construction side whether it's a back grow skid steer, reloaders everything else. That's just in the toilet (ph), okay?

So we converted in Bryan and to be producing large ag tires because we have the curing presses, we have all the stuff, we had biofuel adaptors and everything else. But mainly we have them all so we adopted them all, and we're in production. And we hope that production keeps increasing as we go.

Everything, I mentioned in reference to John Deere and what they have came out is the same when you look at CNH and at AGCO. But together remember 50% of the North American business that market is owned by John Deere. And in fact, last week I was with Mr. John Dawson (ph) who is one of the largest farmers, farm 45000 acres in Illinois.

And there was concern about financing the equipment and I will repeat what he said to me, he says anybody that's farming 100% for business has no problem buying an equipment. And this was confirmed by a Tom Sloan, of by Sloan Equipment is one Deere's largest dealers. Again he is looking for another great year, he has used the equipment for export will be down. But he agrees he said no problem while getting their financing. So that's all good signs for us, big mining will still be okay.

We've not seen any cancellations. We did have an account delay for four months for large tire work due to the delay of starting up a new mine that everything was ready to go but they decided to wait and also came climbing it was damn cold up there. But the gold market and the coal market; they are still rolling. At least, they are in North America. There is a lot of negatives out there but you don't worry about them. I look at what's good, there are some opportunities in our business for consolidation and if they make sense. And they can help take this bottom-line and tightly move forward on.

The challenge comes how to finance an acquisition. And before I go on I want to say to all those rumor boys, the picture of the first; some of you have seen the picture of the first 59/80-by-63 tires (ph) that went up to the oil sands last July. Those tires are still running. They got over 4,000 hours on them. We have learned an awful lot. We have got tires all over.

Everybody is in fact I would have to say the last week at the OTR Convention at San Antonio, Texas. The key note speaker was the North American Head of Yokohama. And they even turned around and gave us a little praise. They stated that if you believe you can do it and you put the effort to it, it will happen. And they showed the big picture of our big tire in Titan and no one believed. But we did it. And we are very, very proud of what we did. And it's going help our company as we go forward.

Now do we have challenges ahead? Yeah. Do I worry about them? Not really.

The reason being is we've got great managers. We've been through all the rough roads before and we understand what we have to do if the market gets smaller, our goal is to take a bigger market share.

Our goal is to be very innovative with new product. We are not stopping from there. As I said in the press release, anybody that can predict the future right now of what's going on is pretty bold, as we see the order deck where we see the pressure. We got to stand pretty much with our goals we set.

Those goals will be effected the commodity prices, the materials that we are buying, our dropping the main ones. Steel has dropped in our wheel business, you have natural rubber that's dropping, synthetic has dropped a little bit not a lot.

You have your carbon black it was dropped. The nylon that you buy for the fabric which is a big thing has not, actually its going up and the reason DuPont is basically the world supplier of that.

So what we will do, as I said in the press release, is we'll revisit for the second six months. Right now, the forward six months and nonetheless all calamity blows these which I don't think it will.

We're going to have another good year. The stimulus package that our beloved politicians have put forth, I've no clue but I don't see how that will transform into equipment sales which you can probably have more knowledge on than I do.

So with that Stacy let's turn it over to any questions anybody has.

Question-and-Answer Session

Operator

Certainly. (Operator Instructions). Our first question comes from Alex Blanton Please go ahead.

Alex Blanton - Ingalls & Snyder

Good morning.

Maurice Taylor Jr.

Good morning.

Alex Blanton - Ingalls & Snyder

Morry, could you update us on your goal for the 53-inch tires for '09. Has it previously been 6,000 tires per se, you said there be a 90-day delay in the production of that tire. So how does the affected? When is the 90 days up and so on?

Maurice Taylor Jr.

Well, part of the 90 days already went up.

Alex Blanton - Ingalls & Snyder

Right.

Maurice Taylor Jr.

What transpired is when we had the little rocket launch here in Bryan, what transpired is that we lost probably the week to 10 days we got it covered and we're back, okay?

Our insurance, we have $250,000 deductible for property, all the other stuff and we have $250,000 deductible for the business interruption. Now, we had part of the... in the process of the stress malls what we were doing is that we were converting to this new clamping mechanism. So that it would, you push a button and all of these things would open up instead of having 23-inch bolts, okay. So it would speed the whole process and we were running enough so that what we were trying to do was like anything else keep the pressure on to reduce your time and more parts you get per day.

Now, what transpired is that we had to go in and you have to make a decision and the decision was that do you sit there and now try to build one and put it in and try to see what really happened, was it worth taking the chance of relaunching with the bad something designed that no ones look at to figure out, where the failure part was even though we knew the first one the contractor did not put heavy welds all over around because he thought he would only do the sample part and then he will have a week while it was testing to go back and re-weld it up. But our engineers and the people who designed it, thought that it might be prudent to design make a few design changes. But when you are dealing with something that's generating 5.2 million pounds of pressure you best not get too experimental.

So I made the decision to convert them all back to what we know is prudent and we've improved upon that to speed that up. And when we'll get all finished then we'll go back to revisit whether it makes sense for picking up the extra hour a day per unit and that's where we went. So what's happened is that, we've continued to produce tires but we ended up actually when the contractor to build the curing press, mold curing press. He was running, he was due to us in September and he didn't give it till November and we actually got those parts out in February and we are still ramping up late at this moment that I speak to you.

So when I say here the 90 days, the 90 days is really up behind 90days where I thought I should have been, okay? If I wouldn't have the accident and if we would have... everything would have worked back in November. We have put out 900 units. Those are goal, we fell short because we always knew we had to have a big November and December to hit it.

We almost hit our sales goal because of Big Ag, so strong. But, it hurt us to hid it. So we've made the jump forward. There is no shortage today to my knowledge and the 63-inch tires because we are producing them and we are filling the void any place whatever.

Today, I have couple of mines everything else today and we are picking it up. We've learned a lot of things as we go, we still have to go back make some minor changes, there's always been a few hiccups but you don't set a low bar, you set a high bar and I set a high bar. The 57-inch, next week, we should deliver our first 57-inch and we are moving the second line that we put in we'll run this next week.

So that's why I haven't changed our goal... except to say that I go and revisit that sucker who said we're making it for all of '09 and we will run it for the first six months and see we are on that.

Alex Blanton - Ingalls & Snyder

I am sorry I didn't understand it. You are going to revisit the 6,000?

Maurice Taylor Jr.

No, no I have the capacity?

Alex Blanton - Ingalls & Snyder

Yeah, the capacity.

Maurice Taylor Jr.

I've got all the capacity, I get the capacity for more than 6,000.

Alex Blanton - Ingalls & Snyder

So why are you looking at that--

Maurice Taylor Jr.

But I got to go visit yes. If everybody just pulls cork and just goes and sits at their gates and don't run anything then I said right now the first six months I know we are strong, so I am going to wait until I do that, before I look at the back six months.

Alex Blanton - Ingalls & Snyder

Okay, so you are not going give us new numbers than for those tires?

Maurice Taylor Jr.

I haven't, no I haven't changed nothing, that's what I said in the press release, I just said that hey, Big Ag is running strong and big mining is running. But if someone can tell me, assure me everything is going to stay the same, it's so fluid out there, I don't know.

Alex Blanton - Ingalls & Snyder

Okay.

Maurice Taylor Jr.

Gold is good, copper is good, I mean not copper, gold is good and coal is good all right and there is few other mining groups that are going good, the diamond business sucks, the oil sands is still hanging in there, had a good grip its but if oil goes to 25 then they are going to be losing money, so that I don't know.

Alex Blanton - Ingalls & Snyder

Follow-up question, just a clarification in the press release the last paragraph of the first page it says, sales levels should move down because of lower material costs. Now are you talking your overall sales?

Maurice Taylor Jr.

Yes, if you turnaround, let's just say I sell a tire for $1,000, okay?

Alex Blanton - Ingalls & Snyder

Yes.

Maurice Taylor Jr.

And say that, that $1,000 tire has a 250 pounds of natural rubber.

Alex Blanton - Ingalls & Snyder

Yeah, I understand all that Morry.

Maurice Taylor Jr.

And the number goes then that extra 50 or $100 that you got to back off the price to because that's how some of my contracts.

Alex Blanton - Ingalls & Snyder

Yeah, I understand that.

Maurice Taylor Jr.

That's what I mean.

Alex Blanton - Ingalls & Snyder

When you boil it all down, are you forecasting that your sales in 2009 overall will be lower than 2008, is that was said?

Maurice Taylor Jr.

No.

Alex Blanton - Ingalls & Snyder

What does the meaning sales level should move down then, what does that mean?

Maurice Taylor Jr.

Well, because if you turnaround if I made the same amount of units.

Alex Blanton - Ingalls & Snyder

Okay.

Maurice Taylor Jr.

Same amount of units in '09 that I made in '08 the sales level would be down.

Alex Blanton - Ingalls & Snyder

So you are--

Maurice Taylor Jr.

But I think in January they went up, I am still going up, okay?

Alex Blanton - Ingalls & Snyder

Okay. So you are going to have more units--

Maurice Taylor Jr.

More units.

Alex Blanton - Ingalls & Snyder

Okay, okay. Thank you.

Maurice Taylor Jr.

Next question.

Operator

We have a question from Ian Zaffino. Please go ahead.

Ian Zaffino - Oppenheimer & Co

No you don't say (ph) good morning.

Maurice Taylor Jr.

Good morning, Ian.

Ian Zaffino - Oppenheimer & Co

How to understand the breakout in the mine business assuming the different commodities oil sands, between coal and gold?

Maurice Taylor Jr.

Okay. From what I have seen you have the oil sands are the largest users of the 63-inch tires. Everybody is trying to move up. The next largest user of tires would probably be the coal boys. And that would be in all from the big hope for big coal mines and then you have the gold boys who are moving very fast into the 63s, okay? And when go to Australia and you get into those iron ore mines, they just dig them up and run the trucks there and they are pretty well established.

Everybody else the 50,000 whatever it is, in the copper, the other big mines, the 57s or the big tire, big volume users. They draw the 63-inch, the future is the 63 but the past. So we will end up producing I would guess more at least in the next year to two years, we will produce more 57s than you will 63s but now there is a new 57 which is just approximately 6 inches wider than the old 47, one is a 40 inch wide tire and the next one is 46, the great thing about our production and how we produce the tire it's just a spacer.

So everything we put spacers even though the stuff is so huge, but that's how you run them. You don't have to go build new building jobs. You don't have to go get new bladder stuff, you got to get the barrel you have to change, its just a short of barrel but you don't need all the other high-end stuff and the same is true in curing. You just put a spacer and the space is felt.

So all those things we got the fortunate ability to as we were building this stuff to build it for in we can adjust it to go and that's what our plan is and we are really excited. We got orders right now and we have an even pop that first one, it will be next week and which again is I am about 90 days behind that math and I should add that November or first part of December but the unique thing about that is the people have already ordered the tires from us mainly because of what they have seen out in the field already. We are doing pretty decent, so and we got a great compliment from our competitor. So I think if our patent holds up that we filed for, we will be in say make over, that's what I say.

Ian Zaffino - Oppenheimer & Co

All right. And thanks for that. And then the question would be on your friend Obama talking about fixed direct payments, direct payments, will you talk to there and how that might affect your business?

Maurice Taylor Jr.

I didn't catch the direct payments for what?

Ian Zaffino - Oppenheimer & Co

For farmers?

Maurice Taylor Jr.

For farmers?

Ian Zaffino - Oppenheimer & Co

And then potentially reducing some of the fixed direct payments.

Maurice Taylor Jr.

Right now, are you taking about government subsidies?

Ian Zaffino - Oppenheimer & Co

Exactly.

Maurice Taylor Jr.

You're... right now. The government subsidies for everybody and else the government subsidy is probably at about $2.25 for corn and as I said there and everybody else is forecasting for this year, the fact you can pick up the Wall Street Journal today and look at it, at 3.35 if the farmer I spoke to they turnaround and some of them got corn just a few weeks ago, December corn.

They sell to... on the commodity for this next December at $4. But right today if you want to take the gamble you lose all your corn now. I mean so or you can wait and think that it may go back up to $5. But when you look at the variable cost is 2.32 and that corn is only at 3.10 damn they are making a good return.

So I don't think what the government does and I think that's a slide of helm. I won't worry about what they are doing. That's just my own personal belief, okay?

Ian Zaffino - Oppenheimer & Co

All right. Thank you very much Morry.

Maurice Taylor Jr.

Thank you.

Operator

Thank you. We have a question from the line of Charlie Rentschler. Please go ahead.

Charlie Rentschler - Wall Street Access

Yes, good morning, Morry.

Maurice Taylor Jr.

Good morning, Charlie.

Charlie Rentschler - Wall Street Access

I had a question about the 57 and the 63-inch super giants--

Maurice Taylor Jr.

Right.

Charlie Rentschler - Wall Street Access

Leaving aside the market outlook you kind of talk about that, but how settled is, first of all your product design and secondly your manufacturing processes for both of them, I know your... you never get through tweaking that stuff but--

Maurice Taylor Jr.

Well, we get to tweaking it, but the, the equipment is the design of the equipment that we built ourselves is pretty damn good and pretty trouble free. The equipment that we bought even though its impressive as hell, we probably will have all of that like to fine tune engine by the end of this year.

I mean there is too many kinds in all. You go down and you have to pierce them off and you're looking there. And instead of having some real good key ways they got over such tools. And you got... machined it in a bank. We had to, we do a lot of the stuff from the standpoint that it's, this stuff is big and it's heavy and people don't understand when you stick in a way out and enter the shop, shafting, rotating 13,000 pounds. It's a hell lot of moment.

So but I believe that, that's just part of manufacturing. And I think we are doing pretty damn good. In reference to the design of our tire, the first one we came out, we got the biggest 59/80-by-67 or 63 and it's a great tire. That's the one still running up there in the tire sands. And that's on the 797B brand new Caterpillar. But CAT built a 797A which has a much lower stroke, which really means your tire has to be 3 inches narrower or it will kiss the side of it.

So in order to not let that market for those trucks what we have done is we make a narrower 59/80 63 for it and we basically call it right out. The tires run cooler, we have found two different compounds for the truck, we have like three different truck thicknesses because we can just pull from them as you have seen and that's because in the oil sands, they don't need a lot of truck, because they never wore a tire out, they cut the tire from... they cut the sidewalls up.

But when you go to the coal people, they just turnaround and where the tires down, off of the truck, so they like a thicker truck and which we can do. But you also have to look at the shoulders of those tiers and your cushion compounds you need to have cushion compounds that disburse the heat that's generated as well as having a strength factor because the coal guys have a tendency some of them to get those trucks going with 400 ton at 25 mile an hour and they are running for a number of miles. And, when you have that the heat is your killer but it also creates an awful lot of stress, did I answer your question?

Charlie Rentschler - Wall Street Access

Yes, it sure does. My follow-up on just how bad is the construction light to medium construction equipment business a lower or back on those pages--

Maurice Taylor Jr.

Well, I think that's just like its like you're sitting there and you put your feet up and you take out your 44 and you decide to make your day. You've already shut off. You've kept your piggy and your big toe on your right foot and you've shot two of the middle toes off on your left leg.

I mean that's about where it is right now in the construction. I'll give you an example. The quarries over in Chicago, there is like 10 of these new quarries and they were running 24 hours a day, seven days a week and when you're running in those quarries, you eat up tires.

Well, last week the fellow that handles that area told me, out of 10 quarries, eight are running and they are running one shift a day through the week. So if you figure that out you said 10 times, three you would have 30 shifts and you are down to two.

Now, of course its winter time, but that's still clearly quite a drop, if not so across the country. So I would say that business is and I don't see that business scratch and back up for a couple of years my own personal belief but that's just me. But I travel a lot and I talk to a lot of people and that's what I see, I think the only business that is going to stay strong is Big Ag and you are in Indiana you go out and talk to people and I think the big mining is going to continue to be good.

So but that's only in the commodities of the oil sands, gold and coal; might be a few other things. But I think the first ones that will pick up will be the steel mills. Steel mills will pick-up. When the steel mills pick-up, your quarries will pick-up and so will your iron ore and I think that's the way it'll start to move. Everybody else will be at least 12 month lag behind them.

Charlie Rentschler - Wall Street Access

I agree with your comment about the Big Ag as long as they don't mess with the ethanol or what have you so--

Maurice Taylor Jr.

No, they... everybody is going to know that corn, ethanol only sucks up. Lot of others say, everything in the corn sucks it up. All ethanol really did, I mean when you look at how much of it eats up. It's just gave a little bit of a pop to help corn, that's all it really did and but that corn is used in the feed and everything else but look at soybeans.

The cost, the variable production cost this is from John Deere. This is what Deere, they have got more economists doing their stuff for me but they presented on their earning conference call, the first quarter on the 9th of February and they said that the '09 variable production cost is 3.47.

Now if it's 3.47 and their new number for '09, '10 $8 soybeans because the drought is so bad in South America. And that is the reduction of the '08 which was I think 9.30, 9.39 that's where it ended up for last year. At $8 you are stilling double in the Dow, you got the price of your land, but that's... they are making money, I would like to be able to do it, who know but that probably wouldn't be a very good farmer. Did I answer your question?

Charlie Rentschler - Wall Street Access

Yes, sir thank you Maurice.

Maurice Taylor Jr.

Thanks Charlie.

Operator

Thank you. We have a question from the line of Randy Laufman. Please go ahead.

Maurice Taylor Jr.

Well, our California flash, how are you doing Randy?

Randy Laufman - Imperial Capital

Pretty good how are you Morry?

Maurice Taylor Jr.

Well, I am doing pretty good out here in a foggy Midwest in Bryan.

Randy Laufman - Imperial Capital

That's good. Just a couple of questions here, number one just wanted to go back to the fourth quarter all that and target over that did not function at the plant, I was wondering if there is anyway do you quantify the cost if there were any kind of one-time cost associated with the clean up and if you can may have impacted the margins beside just the loss sales in the quarter?

Maurice Taylor Jr.

Well, when I asked Kent (ph), his comment to me was that, hey you just stay just run a right through the book so we just run everything through the books, insurance people by the time they get done because of all the other stuff that's wanted and you will be screened around this for another year so. We don't record anything, what we think or anything else, we expense what we had to do, all right? And got the sales back up. So, that's just rolls through there I mean, if it wasn't would have happened, I think I could have got that extra 10 million out in sales which would have pushed me over the 267, which was the second quarter of '09. So I told everybody what the goal was, again a little bit short, though it didn't get anybody hurt.

Randy Laufman - Imperial Capital

Now, what about the margin, I mean the gross margin was lower than its been all year and even that commodity price--

Maurice Taylor Jr.

Gross margin is always lower in the third quarter because what happens to you is you got Thanksgiving, Christmas you pay it all those employees and you really didn't do much, okay? And then you paid all your bonuses and every other thing. So you have, from that point its always going to be the lower side on the fourth quarter.

But you compare that fourth quarter to the fourth quarter of '07. That was big time. I mean you got all those holidays and that's where you get hit Randy. You can't it's probably Christmas; Santa Clause is trying. You got 3,000 people on, you don't have a building tires and everything else. But while they are eating that turkey and everything they will be paid. So, that does hit your margin line.

Randy Laufman - Imperial Capital

Sure. Now looking the cash balance went up quite a bit in the quarter?

Maurice Taylor Jr.

Now, the reason the cash balance was way up in the quarter was real simple. We were finishing up and we have a new bank line that you read into the press release, okay? We hadn't borrowed any money from the bank, and we have a different bank group.

So I said go out and I said Jesus (ph), you can go borrow the money, when was the last time you ever borrowed money at 1.2% or something, okay? So go borrow the money from them, go borrow 25 million, and you know I can't. Well, they are not going to pay me any interest on it. I said that hey, borrow the 25 million, whatever little bill it cost us, it's a Christmas bank, thank you for the bank's bag when they gave us the money, okay? And that's what we did.

We said some of the bankers had basically told us because they were in... we don't borrow money from them and if we are not borrowing money from them, they got all these capital problems. So tied up, so we said fine.

Randy Laufman - Imperial Capital

And do you anticipate carrying a balance on the revolver throughout the year or paying that down as you go cash throughout the year?

Maurice Taylor Jr.

The cash wasn't going to pay it down; that's our plan. All right?

Randy Laufman - Imperial Capital

Okay. And then just one last question. Wondering on the seasonality, obviously just kind of, I bet you kind of looking out the second half, but typically you see a spike in the first and second quarters. Just given normal seasonality. I was wondering if you still expect that spike this year or if you think it's going to be a gradual ramp throughout the year?

Maurice Taylor Jr.

Well, you see, I think number one you going to come off as I said, you've got a good year, you've got a good six months coming at you, okay? That's because of how the Angus possess, all right. The big kicker is going be what happens and you have to understand, because it's so freaking cold out where and all these places you do the mining, okay? It was 50 below up in the oil sands.

You can't get the efficiencies on what you wanted to up there. So as the spring cost come, they pick up and then they run like hell during the summer. The same thing is with the coal boys out in the Powder River Basin, and the same thing is to the gold boys. So you can say this next year I think that business we are still building. We are building the inventory and I believe they pick up as the year goes, they start to go down more in November through February is their slow peak, that peak generally speaking starts when you ramp up for the big game. So I don't know, because I have never been able to have this product running for how we go. So I am not going to tell you something I don't know.

Randy Laufman - Imperial Capital

Is that I mean what you saying... have you seen a typical seasonality so far in the first quarter?

Maurice Taylor Jr.

Yes, we have screened that right now for tires, our wheels that's all we. The boys in the construction side, like I said earlier, are down. There is no answer; that's about them, okay? We are banking on the other to keep growing. And the unique thing about this coming year is that you don't have to be very smart to see that there is so many opportunities that are available now where, not real big competitors, but competitors in certain businesses that compete in our business, I am starting to say hey, maybe we should be getting out of this business and concentrate in some place else, and that's what I said in my press release. But it makes sense we will be doing that. We are going to expand. We are not looking to contract, we are looking to expand. And the are only problem that is going to be interesting is if we can the financing it. So that's the thing everybody is concerned with. If we get lucky and everything works, it should be something to do.

Randy Laufman - Imperial Capital

Okay. Thanks a lot Morry.

Maurice Taylor Jr.

Thanks again.

Operator

Thank you. And we have question from line of Philip Volpicelli. [Goldman Sachs]. Sorry.

Philip Volpicelli - Goldman Sachs

It's Okay. Hi Morry, how are you?

Maurice Taylor Jr.

Hey sorry (ph). How are you doing?

Philip Volpicelli - Goldman Sachs

I am good, good to be back on the call with you.

Maurice Taylor Jr.

Good to be back and congratulations on your new job.

Philip Volpicelli - Goldman Sachs

Thank you.

Maurice Taylor Jr.

So what can I do, sir?

Philip Volpicelli - Goldman Sachs

Well, I guess expanding upon the last questioned with regard to acquisitions, there was a period within which you couldn't back to tightening Europe situation; when does that expire?

Maurice Taylor Jr.

That expires in, let's say, I think we did that September. I think it's the end of March, first part of April.

Philip Volpicelli - Goldman Sachs

Okay. And as you look around the world, what's the best place for you to expand if acquisitions are part of your plan? Is it building out geographically, is it building within the United States and adding more capacity here or how would you think about growing the business?

Maurice Taylor Jr.

Well, I think what we've stated publicly and everything else, I think we should stay with what we do. I think we should look at tires and wheels and what we call the off-the-road type whether it's farming or OTR, wheels and tires. And I think we should look at it from the standpoint of... if there is an acquisition and is in the case where we can consolidate it within what we have or if we acquire something, can we consolidate in two or three facilities and put them into one, okay?

We think that the technology that we have created reference what we have is the best in the world now, especially in our radio what we have learned. There is some other items, partnering with other people, where if what they are trying to do would mean new wheels and tires in our LSW line, and if that works that will revolutionize a lot of the equipment in the OTR side of business that we are in.

Philip Volpicelli - Goldman Sachs

That's the low side, where tires you are talking about.

Maurice Taylor Jr.

Yeah, because of the product they do, they got to have a bigger wheel, but to get out of that, they keep the earlier tire the same, so they need a lower side wall tire, where they can put a bigger wheel attached to what they've got. And if that happens, trust me, all of you will know real quick.

Philip Volpicelli - Goldman Sachs

That sounds good. In terms of... if you were to do an acquisition at some point in 2009, I think when you did the bond, you've got to about 3.5 times leverages. Is there a target leverage that you would not go above in terms of pro forma or transaction?

Maurice Taylor Jr.

Well, I think you've got to look at it what the acquisition is. I haven't been known to it, just I am not smart enough to run out there and do all those EBITDA and everything, I just look at through the assets.

Philip Volpicelli - Goldman Sachs

Understood.

Maurice Taylor Jr.

And where you are going from there; and are you guys into the loaning money?

Philip Volpicelli - Goldman Sachs

Well, you and I can talk about that offline, but...

Maurice Taylor Jr.

Okay, all right, well. That's when it comes time, I'll come out and talk to everybody, okay?

Philip Volpicelli - Goldman Sachs

Sounds great. Thanks Morry,

Maurice Taylor Jr.

All right.

Philip Volpicelli - Goldman Sachs

Good luck to you.

Maurice Taylor Jr.

I want to end the call now, because I've got to go out here to this production meeting.

So I want to thank you everybody and like I said, you will get the 10-K as soon as our poor friends in PW, they're getting a little sleep I think right now. They busted the little chops and Hackamack is probably doing the same thing.

So thanks all of you, and we'll get it out. Any questions you have, call in later today; Hack will probably be taking calls. Thanks everybody. Bye.

Operator

Thank you ladies and gentlemen. This conference will be available for replay after 11 O'clock today running March 5th until midnight. You may access the AT&T Replay System at anytime by dialing 1-800-475-6701, international participants dial 1-320-365-3844 and when prompted enter the access code of 984757. Those numbers again: 1-800-475-6701, international 1-320-365-3844; access code is 984757.

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