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Executives

Morry Taylor – Chairman and CEO

Analysts

Alex Blanton – Ingalls & Snyder

Ian Zaffino – Oppenheimer

Charlie Rentschler – Wall Street Access

Philip Volpicelli – Cantor Fitzgerald

Saul Ludwig – KeyBanc

Sara Hunt – Alpine

Titan International, Inc. (TWI) Q1 2009 Earnings Call Transcript April 29, 2009 9:00 AM ET

Operator

Ladies and gentlemen, welcome to the Titan International, Inc. First Quarter 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 the course of this conference call that state the company’s or management’s intentions, hopes, believes, expectations or predictions for the future are considered forward-looking statements.

Please note that the Safe Harbor statements contained in the company’s latest Form 10-K and Form 10-Q filed with the Securities and Exchange Commission extend to this conference call and any forward-looking statements involves risks and uncertainties as detailed therein.

At this time, I would now like to introduce Titan’s Chairman and CEO, Mr. Morry Taylor. Please go ahead, sir.

Morry Taylor

Thank you, John, and good morning to everyone and to any of the internationals, since I’m over doing this from Heathrow Airport, good afternoon. I’m assuming all of you on the call have already received the announcement. The quarter was a very interesting quarter, it is a good quarter.

One thing that’s missing on there that we didn’t put in was that we probably could have trumped the record for the whole first quarter, not just the ag sales, but what happened in the quarter, you know if you went through it, the construction and earthmoving especially on the mid size and the small size, mainly just shut right down. And what transpired is that we were moving a lot of our big ag tire because that happened. We’ve been moving it into our Bryan, Ohio facility because the new mining section, new mining tires have been doing fairly well, but the other side was mainly just shut down.

So, we were moving the moles, moving everything and this process from the standpoint it’s lower cost to produce them in the Bryan facility than it is up in the Freeport, Illinois and long term, that’s where we believe between Des Moines and Bryan we should go especially with the cost factors and the situation up in Freeport. So, we shut Freeport for – because of the union contract, you can’t just make the employment level down to a certain point and then you got to shut it down. So, that’s what we did.

If we would have kept it open, I believe we would have set the record because there is still strong – very high, strong demand for the large tires and as I said in the – large agricultural tires and we see that continuing through the second quarter. What happens after that is anybody’s guess in my opinion even though corn prices are holding up and so are soybeans.

The mining side, there is no shortage of super giant tires. As I stated, I believe that would be after the first quarter and that is true. The pricing is going to continue to drop as the commodity prices are dropping very fast and we are going to be – and we have passed that on to our customer base.

The situation on covered wheels, the price of steel in less than a year has gone from $900, went to beginning of this year to $600 and something, and I believe that it will crack through $500 probably by the beginning of the third quarter of this year and who knows where it’s going. You can see the losses of the steel companies, but pricing is headed down. The same is with natural rubber, everything except nylon. Nylon has stayed pretty – if anything, it’s mainly moved a little bit on the upper side.

So, all in all, we can look out for a decent second quarter. We are going to keep our SG&A down and we are looking to – we have to go out now and sell, we have to show what’s going on, we are continuing to improve on all of our products and we expect to. The bright sides still are the large super giants and the big farm-in. Everything else has taken a big, long snooze and I don’t think anybody can tell us when that’s going to go.

But to give you a real flavor of what’s happening, if you look in the Chicago area, there was 10 quarries where they dig up the gravel, crush the gravel, et cetera, when you fly over, you can see them. And those 10 quarries less than a year ago were running seven days around the clock. So, there is three shifts, seven days. So, if you add that, you say 10 times three is 30 times seven, you are mainly doing approximately 210 shifts.

Those same quarries today, two of them are running – they are running five days and that’s it. So, what happens is those – if they have flats, they have tires that go, they just take them from the other. They do the same with the wheels and eventually they will do the same with the engines until it turns around and they can turn it on real quick.

So, we – I don’t quite think the stimulus package is going to do all that. So, we looked at that, we are banking on the other two to carry us through, the big mining, there is gold, it’s going good, copper is starting to percolate back up, and the coal so far has been holding pretty steady.

And I’ve been out to Elko, Nevada last week, I was in the Powder River Basin in Wyoming and I’ll be, as I said in the press release, visiting all the big mines and preaching our story. We are starting to pick up more export orders, up until this point we weren’t looking. We’ve got the – we’ve got repeat orders from the oil sands. They also – price of oil is what dictates up there and if it goes back up pushing the $60 there will be a lot more activity. If it doesn't, then you got to go work for the business and that’s what our plans are to do.

So, we’ve seen this before. If anything picks up, then the sweet days will be back, but there is a lot of opportunities for us from the standpoint of growth and anything that we do look at, if it’s a case of acquiring, it will be with a mind of consolidation.

So with that, why don’t we – Kent, is on the phone, so whether it’s a financial or whatever, why don’t we just turn it over to questions?

Question-and-Answer Session

Operator

(Operator instructions) And first, from the line of Alex Blanton with Ingalls & Snyder. Please go ahead.

Alex Blanton – Ingalls & Snyder

Hi, good morning.

Morry Taylor

Good morning, Alex.

Alex Blanton – Ingalls & Snyder

The two quarries that you mentioned, are they running three shifts, five days a week?

Morry Taylor

The what now?

Alex Blanton – Ingalls & Snyder

The two quarries you mentioned in Chicago?

Morry Taylor

No, they are running one shift.

Alex Blanton – Ingalls & Snyder

One shift?

Morry Taylor

One shift.

Alex Blanton – Ingalls & Snyder

Five days?

Morry Taylor

Five days. So, you go – two is 10, okay, compared to –

Alex Blanton – Ingalls & Snyder

210.

Morry Taylor

You’ve got it. And this is why – there is two things that happened when this – is everybody realizes that all these big companies are taking so long to build what they are doing and of course now what’s going to happen because every economist that they have I think projected this going all the way up and they – I don’t know why anybody keeps economist, but anyhow she went the other way on them. So, my – you see Michelin gave their numbers out and I think they are all retrenching. They’ve – material has dropped, pricing has dropped like a – your commodities to go buy natural rubber is dropping. Where is it going to end? I actually believe it’s going to come down into the $0.30. But is it going to make it this year or next year? I don’t know.

Alex Blanton – Ingalls & Snyder

What’s going to be $0.30?

Morry Taylor

Natural rubber.

Alex Blanton – Ingalls & Snyder

Okay. And it’s now what?

Morry Taylor

Right now it’s quoted out for this month around $0.80. It was $1.52, but it’s – they’ve already forecasted by the end of the year at $0.50, but I think it’s going to continue to go down because there is no way they are going back in a short period of time to 16 million cars; it’s just not going to happen. And it’s the same over in Europe and every other thing. So, everybody is retrenching.

Alex Blanton – Ingalls & Snyder

Most of it is replacement, isn’t it? I mean not –?

Morry Taylor

Well, yes, but it’s the first time in what, 30 years that the mileage has dropped in the US?

Alex Blanton – Ingalls & Snyder

Right.

Morry Taylor

It’s the same every place else. So, you are going to see that hit us on the south. So, that’s just all of this excess and I can say, well, China is going to, but hey, anybody looks China compared to what happens in the US is pretty small potatoes. So, I expect that the big thing is to look at some consolidation and the nice thing is agricultural is still running pretty good.

So, we think that if the farmer is loaded with cash, so the question – I was with one farmer, a very, very large farmer and his worry was his banks. Where do you put millions of dollars of cash? So, you got to spread it around a lot of banks if you want to be protected. Who knows? So, anyhow it’s – but so far, they’ve got it and I think Deere shows the same thing on big equipment. The small equipment, mid-size is getting beat up and well, it has been. It’s been beat up since ’06. So, that part of the business is still perking along, but I don’t look for that to increase.

Alex Blanton – Ingalls & Snyder

What is the price of your tires now? It was $50,000, and the last time you talked to us, it was down to $40,000. I mean –?

Morry Taylor

Yes, I think it’s still right at this moment – it’s at the 50 –

Alex Blanton – Ingalls & Snyder

Hello?

Morry Taylor

Yes, hello.

Alex Blanton – Ingalls & Snyder

Yes.

Morry Taylor

But I think what’s going to happen –

Alex Blanton – Ingalls & Snyder

I missed that part.

Morry Taylor

Yes, it’s in the $40,000 now. I think it’s going to – with the natural rubber, I think it will limit itself right around the $30,000 some.

Alex Blanton – Ingalls & Snyder

30,000? And you mentioned – and one more question, you said that you are okay for the second quarter and after that is anyone’s guess. Why is that? I mean, do you have a backlog coming up or what?

Morry Taylor

Because they can move their orders. John Deere is going to review their order deck. You turn around, so is CMH. They are going to look at what’s happened and then they are going to try to make the adjustment at the end of the year. When you deal with the after-market, the same thing. If it –

Alex Blanton – Ingalls & Snyder

Well?

Operator

And we have lost Mr. Taylor’s line.

Alex Blanton – Ingalls & Snyder

Hello?

Operator

One moment while we reconnect. Ladies and gentlemen, thank you for holding. We will be reconnecting with Mr. Taylor in just a few moments. Mr. Taylor, you are back on line.

Morry Taylor

Yes. Sorry about that, Alex, but AT&T and Heathrow cut me off.

Alex Blanton – Ingalls & Snyder

Yes.

Morry Taylor

So, back to what is happening out there is that these – they can move very fast when it hits. So, contrary to everybody else, we try not to build anything unless we got an order. So, we have orders, we are probably 30,000 to 40,000 tires out of stock right at this moment. So we are going to pound that, so we do have the backlog. But when you are making millions, when is it going to – somebody start pulling the plug?

So, the OE represents probably 35% to 40% of our business. So, we’ll get that in the fourth quarter, but that’s when they’ll make their adjustments or they slow them down because they don’t want no inventory, nobody wants any inventory. But the dealers that you sell to on the big tire side, you don’t know. And all the shortage that was in the big super tires, as I said before, with the volume we have available, we take care of that problem.

So, now what happens is we will be replacing the Chinese and everybody making biased tires in the big tires because we can now sell a radial, all right? So, that side stays good, but the – in the big ag space, the other, who knows? If it comes back, hallelujah. I read just like you guys, some things are supposed to come back, but I’m taking the conservative approach.

Alex Blanton – Ingalls & Snyder

Okay, thank you.

Morry Taylor

You are welcome.

Operator

Our next question is from the line of Ian Zaffino with Oppenheimer. Please go ahead.

Ian Zaffino – Oppenheimer

Hi, Morry.

Morry Taylor

Good morning, Ian.

Ian Zaffino – Oppenheimer

How are you?

Morry Taylor

I’m sitting here, now I’m on my cell phone because of the phone service over here, but pretty good. And you are getting any sleep now with the kids?

Ian Zaffino – Oppenheimer

Trying to, trying to.

Morry Taylor

Or you just drinking wine and passing on? Okay, what’s the question you want?

Ian Zaffino – Oppenheimer

What’s capacity utilization at your plants? What is the opportunity of taking more cost out of the business?

Morry Taylor

Well, first thing is your material cost is dropping like a rocket, okay? So, that takes it out. You are going to – you are not going to from maybe on the big tires, efficiencies will get better. Utilization, I would say on big tires we are probably still running pretty close to 90% utilization, I referenced the ag. The wheel side, we are probably running at 50%. We could run – but we always never have been much higher than 65% to 70% because it’s just the sheer volume what we could go. So, we got all the volume in the world there.

But the smaller size, what you would call backhaul, what you would call compact tractors, skid steer, all of that business I would say we are probably only running maybe at a 40% click through the first part of the first quarter. I mean, we got tremendous amount of capacity we could run to crank that up, and the same on the ATV and everything.

So, what you are going to do, as reference to cost, is you do it with your employment adjustment and you are not going to take out SG&A because you already have 5% to 7%. So, what you are going to do is you are going to go out and take it in the market share. That’s what I believe we are going to do.

Ian Zaffino – Oppenheimer

Okay. And what’s capacity utilization in the Bryan plant?

Morry Taylor

Well, the Bryan plant right now is, you probably have – I have the capacity, geez, the – you got both two lines in the new super giants going. So, they are not – I’ve got probably close to 9,000 capacity of super giants and the market is just not there. So, not yet, I mean we are going to – we got tires that went to Chile, now we got tires on the way on the boats to Australia, we’ve got people going to South Africa. But that’s a slow buildup, okay? So, I would – the tar sands is doing good, we are in the gold mines and we are in the coal. So, that’s coming.

So, that part is going to offset everything that was in the old portion, which was the OTR and construction because that’s down drastically. I mean, all you have to do is look at the first numbers. You look at last year, you had no super mining tires. Well, that business has been probably 80% off. I mean, just look at Cat, look what everybody is doing there. So, even though it’s not off that number, that’s because of the super mining tires that came through there. So, I don’t have the exact point because what we are running at now, but that’s what’s going on.

Ian Zaffino – Oppenheimer

Okay. All right, thank you very much.

Morry Taylor

You are welcome again.

Operator

And next from the line of Charlie Rentschler with Wall Street Access. Please go ahead.

Morry Taylor

How are you doing Charlie?

Charlie Rentschler – Wall Street Access

Great. How are you?

Morry Taylor

Pretty good, pretty good. How is the farming down there in Indiana?

Charlie Rentschler – Wall Street Access

Pretty wet right now.

Morry Taylor

Okay.

Charlie Rentschler – Wall Street Access

Earlier, you implied that you might go from three tire plants to two and I wondered if you could give us your thoughts on what that might do for the bottom line.

Morry Taylor

Well, on the bottom line, over time, what you – what I’m telling you is that if this thing – if it goes – keeps going down, you got to take one of the facilities, your big plants like that, you got to have the ones that produce the best at the lowest cost. You got to keep them full. So, you take your highest labor cost facility and that would be the Freeport facility. So, you would take and keep the others cranking out as long as you’ve got that flexibility and that’s what we looked at and what our plan would be. Is it there yet? No, because we are still – the volume is still there as I said earlier on big ag.

But how long is big ag going to keep going? You know yourself, you are in the farm country, you know soybeans are $10, you know that corn is just under $4. Farmer is going to make great money at those prices, super good, because most of your life and my life they were never even close to that.

And everything has dropped and it’s just like people, most people don’t understand the highest cost more than seeds is the fertilizer that the farmers use. And the new seeding equipment, the fertilizer is attached to the planter and it goes down and just drops it in right before the seed. So, you are not fertilizing the whole area and that means they are cutting their cost left and right, and they’ve got big price. So, I mean – does that mean they keep buying the equipment? I don’t know, Charlie. What’s your thoughts?

Charlie Rentschler – Wall Street Access

I think there is a lot of hesitation out there, but coming back to the Freeport then, as long as the big ag demand continues strong you are saying you need that facility. Is that what you are saying?

Morry Taylor

Well, yes, as long as you’ve got demand, you will be able to run it. Now, I’m banking that both Bryan and both Des Moines, especially Bryan with all the curing presses they’ve got, they are just going to continue. If the OTR business, big construction doesn’t come back, then they’ll just keep – you will keep them building and you would bring down the Freeport. But if the demand stays, then you – I am not building brick and mortars, so we will keep Freeport, it will be at a – because of their cost structure, it will be at a lower level.

Charlie Rentschler – Wall Street Access

Okay. And then my last question had to do with this year’s capital expenditure program. You are still going strong at Bryan, $12 million this year versus –

Morry Taylor

Well, no, what happened is, your stuff comes in, you got to pay the bill, okay? So that’s capital that went out to pay the bills. That that’s going to continually – that has come and there might be a few straggler bills that roll back too, but it’s on the quite spigot at now.

Charlie Rentschler – Wall Street Access

You are going to have capacity for the two sizes of the super giants, right? That’s what you are doing, you are building that out.

Morry Taylor

Well we’re building here – we’re building not only the 63, but the 57s, we are doing both right now. And then we are going to be – the second line is running that’s where we are running the 57s. And we are going to produce the 51s, the 49s and the 39 radials and but we are going to cure those over on the other side with the stuff that we automatically have and that’s what we are doing there, we don’t have to add any more capital. We’ve already bought that that equivalent.

Charlie Rentschler – Wall Street Access

Okay. So what do you think your total CapEx for this year for the company will run?

Morry Taylor

I think we’re – well from accounting terms, we have put that approximately $20 million and then you’re probably looking I would say for probably $16 million to $20 million on what we’re going to.

Charlie Rentschler – Wall Street Access

For the last three quarters?

Morry Taylor

Yes.

Charlie Rentschler – Wall Street Access

Okay. Okay, thank you, Morry.

Morry Taylor

You’re welcome Charles.

Charlie Rentschler – Wall Street Access

Same way [ph].

Operator

Our next question is from the line of Philip Volpicelli with Cantor Fitzgerald. Please go ahead.

Philip Volpicelli – Cantor Fitzgerald

Good morning, Morry. How are you?

Morry Taylor

Pretty good. Phil, how is yourself?

Philip Volpicelli – Cantor Fitzgerald

Very well. Thank you.

Morry Taylor

So you guys get a little nervous now then when you’re seeing the Presidential plane flying back and looking at you guys.

Philip Volpicelli – Cantor Fitzgerald

People weren’t comfortable, I will tell you that much. A big gaffe on their part. I was listening to the CNH call and some of the other construction equipment manufacturers’ call and they are talking about 40% to 50% drop in production of construction equipment in 2009. How does that sound to you? And then on the Ag side, they’re talking 15% to 20% for tractors and combines 25% to 30% down, did those numbers sound like what you’re seeing or is it worse from your standpoint?

Morry Taylor

No. Well I believe on their construction side, they’re probably pretty true because what’s happening is that all the stimulus, this is just politicians. They have just approved the money and they are just keeping that, it is not going to any place. It’s staying in the politician’s hands.

The problem you have with the CNH is that CNH is probably true, but most of their tractors and everything else what they’re talking about is in Europe and I think you’ll see that in Europe. Whereas the US side, CNH only makes four-wheel drives up in Fargo. And the construction part at Fargo has really taken a hit. So when they tell you we’re laying people off, they are, but that’s all with their construction site.

When they talk about combines, they have got those two combine plants in Europe and I think those are getting hit, but Grand Island, they might take a little bit. But otherwise, Grand Island is going pretty good. Klaus is doing pretty good out there. So the big iron, according to Deere and what I see is not being hit. Now they’ve all told us, they’re going to reveal it in on the fourth quarter. So that’s in your fourth quarter what’s theirs would be our third quarter. Most of that will probably come in August. So I mean that’s what I see.

Philip Volpicelli – Cantor Fitzgerald

On the aftermarket side. Sorry, go ahead.

Morry Taylor

To what now?

Philip Volpicelli – Cantor Fitzgerald

On the aftermarket side, what do you think we should use as an estimate for the declines and I guess mining, construction, and Ag, I mean that’s going to be down to just probably half that, maybe quarter of that?

Morry Taylor

Well I would say that the construction business, the aftermarket, the construction business is really going to be hard to get a handle on it, because those are all independent guys. They’ll just – they just turn the damn thing off or they scream like hell to turn it back on. I don’t see what I consider the 25-inch OTR tires, they are down. They have been down. They went down this past November. And by right after their first of the year, it’s just like you turned the light off, okay? That and so we kind of figured that too.

But when you look and you’ll say, well we could have had a still a great – and once we had a good quarter, but we would have a greater quarter if we would have not brought Freeport down while we’re moving some stuff into Bryan on the big Ag. We are still behind on big Ag. We are behind both to our dealers and everything else. So that demand -- that because you got to have it in the planning season. So that’s going good. But the – I just don’t see the construction at all in ’09. So I think the – our super giants, I am counting on the super giants to fill that void and that’s when I said to you in the fourth quarter that that should fill the void as we go through this year and while we were on the other and if the other comes back, hurray.

Philip Volpicelli – Cantor Fitzgerald

All right.

Morry Taylor

But I think the big super giants are the one that’s going to ride the roost.

Philip Volpicelli – Cantor Fitzgerald

How many –

Morry Taylor

And I am counting on big Ag. If big Ag goes down and it’s everybody just hunker in and just ride the thing out and conserve cash.

Philip Volpicelli – Cantor Fitzgerald

All right. How many super giant tires are you manufacturing either per month or planning to manufacture for the year? Do you have a target?

Morry Taylor

We will have, we will be able to go over 20 tires a month right now. We’re going to just probably lay in pretty close to – when we get done, we can utilize the other equipments, so we have backed off on adding more curing capacity. We can build right now approximately 31. So we are going to just sit back and as the orders come, we will fill her up.

Philip Volpicelli – Cantor Fitzgerald

All right.

Morry Taylor

And that’s really what we are doing.

Philip Volpicelli – Cantor Fitzgerald

The last question from me is on acquisitions, you mentioned, if there is something out there you guys would look to strategically strike. Is there a certain sector or certain region of the world that you would be looking to add capacity towards?

Morry Taylor

Well I think – well I think what’s happened is real simple. We’re sticking to what we do. So it’s going to be Ag related or it’s going to be construction, mining related and tires and wheels. And we are making a good push. We have a great product and we’ve got to look at leveraging our side. The great thing about where we are in, probably one of the best if we aren’t the best in it.

We know we’re the lowest cost, so everybody else has got some little serious problems with their mainline businesses. So we are back to the tail of the dogs. So there will be a few opportunities to we believe expanded. You got to have faith in what you do. So everything is going to turn around, it’s just a matter of how quick and what you can do.

Philip Volpicelli – Cantor Fitzgerald

Is there a maximum –?

Morry Taylor

Existing now, it’s cheap. Pardon.

Philip Volpicelli – Cantor Fitzgerald

Is there a maximum leverage that you wouldn’t go above more in terms of obviously the world is in a recession, some of your end markets aren’t doing well. Maybe it’s an opportunistic time to buy a competitor or a facility, but what kind of leverage will be comfortable running with during this slowdown in the economy or a recession in the economy?

Morry Taylor

Well it depends on how you do it. It – you don’t have to just go see a – a bank to give you the money. You can turn around, if somebody else is – has got it and you’re only interested if they want to sell the damn thing, okay? And so you say okay. Here we will work a deal with you on this, bang, bang. But we will pay you the interest and we will do this and they can keep that what they got as security to take it over.

Philip Volpicelli – Cantor Fitzgerald

I got you.

Morry Taylor

Why should I go – why should I be a dummy to take all the risk going forward?

Philip Volpicelli – Cantor Fitzgerald

All right. Okay.

Morry Taylor

I am going to become – with my Board members, Mr. Cashin, 5% down and I will pay you the rest over time.

Philip Volpicelli – Cantor Fitzgerald

That sounds great. Well thanks Morry. I appreciate. Have a great day.

Morry Taylor

Okay, thanks. Bye-bye.

Operator

And we have a question from Saul Ludwig with KeyBanc. Please go ahead.

Morry Taylor

How you’re doing, Saul?

Saul Ludwig – KeyBanc

Good morning, Taylor.

Morry Taylor

Well, you’re going to say at least I am a tire guy who’s making money.

Saul Ludwig – KeyBanc

I was going to say. You made more than your guys here in Ohio.

Morry Taylor

I made more than a few others.

Saul Ludwig – KeyBanc

Hi, what’s happened to prices in the Ag area, I know you talked about the prices on the giant tires being down to 25%, what about on the Ag?

Morry Taylor

They’re starting – well the Ag is starting to move on the downward trend too, okay, because of material. So it runs the same way. I mean you got to give the reduction in your material cost if I passed it on when I got hit, so I got to give some of it back when it comes down.

Saul Ludwig – KeyBanc

Are they down as much as the 25% in the giant tires?

Morry Taylor

Some tires are.

Saul Ludwig – KeyBanc

You’re thinking –

Morry Taylor

It depends on the mixture; it depends on how much natural rubber, plus synthetic and everything else. We gave a price reduction and then the damn stuff just keeps dropping. So we will probably – this quarter we gave some in the second quarter. Then we will review it at the end of the second quarter.

Saul Ludwig – KeyBanc

I see here that the natural rubber has a – had a pretty good spur off the bottom, where it’s probably up 30% from the lows that it reached in the middle of December. Are you a little concerned at all about I mean you made a comment about natural rubber, expecting it to go lower. But the recent move from the middle of December until now is probably up around 25%, 30%.

Morry Taylor

Well I have no idea what you are looking at, Saul. But I – if you turn around and read the projections, the stuff was like $1.52, went down to $0.80 and they’re projected it to be at $0.50.

Saul Ludwig – KeyBanc

Okay. How did that happen? Do you think that the –

Morry Taylor

I think it will go down to $0.30 myself.

Saul Ludwig – KeyBanc

Okay. Do you think that the price reductions that you’re having to give are 100% based on raw material cost come down or is there an element of excess capacity creeping into the pricing equation that maybe exacerbates the price decline more than what would be justified by merely these raw material cost?

Morry Taylor

Well that would be on your page supply tires like in your radials that the 25 inch and et cetera there. But you’ve got prior to this past year, you know that that pricing was driven down because of Chinese imports that they were dumping the damn stuff, okay?

Saul Ludwig – KeyBanc

But you’re cut –

Morry Taylor

They’re now – so now they’re basically over dumping in the Europe, okay? So that’s the European’s problem not mine. But I think the Europeans are going to take care of it, you see. And I think it’s just shear late now the pricing – and all but who knows you know? The big dogs, they can just start dumping tires all over the place that’s their choice, okay? But that’s not what the Chairman of Bridgestone say he was going do. Michelin has really dropped, but you can justify Michelin’s drop was strictly because of materials. Now maybe they decided to give up a little gravy, I have no idea.

Saul Ludwig – KeyBanc

What do you sense –?

Morry Taylor

Pardon.

Saul Ludwig – KeyBanc

Commitment to this business from both Goodyear and Bridgestone, they are both sort of appendages to their core business. Do you think they still are committed to staying with these large tires and or do you think –?

Morry Taylor

Well that’s for them. They’re all big companies. They’ve got a lot to do. I have no idea and I wouldn’t tell you if I did what they were going actually do, but I didn’t know this that they’re going to have to – when they start traffic [ph], they – somebody is going to start taking a good look and they’ve got unlimited cash. And I know they can’t do anything that is economically as we can. You know that too.

Saul Ludwig – KeyBanc

Sure.

Morry Taylor

So this is our business. So – and if they stay, then we are going to turn around and we’re going to change some product. And now is the time you get the product changed. Our 31.5 has just come out replaces the 29.5 25 with the three piece, that tire is going to be cheaper, outperform, it will be going on a couple of OE’s trucks, they will be running their tests and I have also put those up in the tar sands. So all of that will be probably coming to fruition by the – some time at the latter part of this year. And when that happens, everybody is going to sit up and take a real quick notice, what’s going on. So then they’re all going to have spend a hell lot more capital than I got to spend.

Saul Ludwig – KeyBanc

Okay, very good, Morry. Thank you.

Morry Taylor

Thank you. By the way, I want to ask you a question.

Saul Ludwig – KeyBanc

Sure.

Morry Taylor

You there?

Saul Ludwig – KeyBanc

I am here.

Morry Taylor

Now since the steel workers are trying to stop the import of the automotive and truck tires, how come they don’t have one of the American companies supporting them?

Saul Ludwig – KeyBanc

Yes, that’s a good question, Morry.

Morry Taylor

I want to know why.

Saul Ludwig – KeyBanc

I think they’re trying to – you were suing enough because of dumping at low prices. I think this case hasn’t have to do with dumping at low prices, it has to do more with just an acceleration of taking market share and I am not exactly sure I understand all the new nuances of this particular case.

Morry Taylor

But why does it take the steel workers and not the guys that own the business?

Saul Ludwig – KeyBanc

Yes I don’t know I will have to ask that on the conference call at 10 o’clock.

Morry Taylor

Okay. All right, because I can’t get involved, I don’t make car tires of that, you see?

Saul Ludwig – KeyBanc

No, I understand.

Morry Taylor

Okay. I’m just a troublemaker.

Saul Ludwig – KeyBanc

Our friend, Mr. Bloom, has a new job these days.

Morry Taylor

Yes, he is going to take care of the car boys.

Saul Ludwig – KeyBanc

All right.

Morry Taylor

I mean that’s called government motors now, all right?

Saul Ludwig – KeyBanc

Government motors, that’s a good name.

Morry Taylor

Just do a Chapter – they should a Chapter 11 and straighten the whole thing up. I don’t how we are going to get rid of all the dealers.

Saul Ludwig – KeyBanc

They don’t even have to change, I mean they just keep calling the GMC.

Morry Taylor

While they’re going to turn around, it’s full employment act for all the lawyers, okay?

Saul Ludwig – KeyBanc

Very good, Morry.

Morry Taylor

Thank you, sir.

Saul Ludwig – KeyBanc

You’re welcome.

Operator

And we have a question from Sara Hunt with Alpine. Please go ahead.

Sara Hunt – Alpine

Good afternoon. How you’re doing?

Morry Taylor

Hi Sara.

Sara Hunt – Alpine

Just a quick question about inventories. I noticed that there was an inventory build and I just wanted to serve – try to get some color on whether or not you expect that to continue and/or what sort of building in inventory?

Morry Taylor

No, the inventory is (inaudible) and the reason the inventory was up was because when we at the last fall, we brought a bunch of material in and that material was on the books. And we – the same with the steel and we are fast pulling that down, because generally speaking, the first quarter and the second quarter because of OE business to have the material available, we don’t want the cost like we did last year with not being supplied, but that’s not going to happen this year. So you can’t shoot your purchasing department who made the call actually last summer, because of the natural rubber. The steel has always been strong in the first half of the year of inventory and we have pushing that to reduce that and we are in the process of probably each month through the second year, it will drop by each month considerably.

Sara Hunt – Alpine

Okay, so it’s not finished inventory. It’s in the – it’s more – the build is more about the higher raw material levels than –?

Morry Taylor

That’s correct.

Sara Hunt – Alpine

Okay.

Morry Taylor

And what had happened is that this year some of our big accounts who happened to at OEs conveniently the last two days of the month, they could not find trucks to haul the stuff, okay?

Sara Hunt – Alpine

Got you. Yes.

Morry Taylor

So when the clock clicked at midnight, that’s – that wasn’t gone on a truck. We had it. I think they were out on a highways stopping the trucks, okay? So they looked good and we got stuck.

Sara Hunt – Alpine

Okay.

Morry Taylor

So.

Sara Hunt – Alpine

Just wanted to make sure it was a –?

Morry Taylor

Well give me the second quarter.

Sara Hunt – Alpine

Right. Okay.

Morry Taylor

I will make sure that.

Sara Hunt – Alpine

Okay.

Morry Taylor

Thank you.

Sara Hunt – Alpine

All right, thanks.

Morry Taylor

All right.

Sara Hunt – Alpine

Yes.

Morry Taylor

All right, bye-bye.

Sara Hunt – Alpine

Bye.

Operator

And Mr. Taylor, there are no future questions in queue.

Morry Taylor

I want to thank everybody and all have a great week. And I am headed back to a good old USofA. I am not bringing any swine flu. All right, ciao.

Operator

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect.

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