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Titan International (NYSE:TWI)

Q3 2010 Earnings Call

October 28, 2010 09:00 am ET

Executives

Morry Taylor - Chairman and CEO

Paul Reitz - CFO

Analysts

Ian Zaffino - Oppenheimer

James Kitchell - Goldman Sachs

Philip Volpicelli - Deutsche Bank

Larry De Maria - Sterne Agee

Charlie Rentschler - Boenning & Scattergood

Chris Doherty - Oppenheimer

Bennett Lim - Jefferies & Company

Operator

Ladies and gentlemen, welcome to the Titan International Incorporated Third Quarter Earnings Call. During the 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 states the company’s or management’s intentions, hopes, beliefs, expectations or predictions for the future are considered forward-looking statements.

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

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

Morry Taylor

Thank you, Stacey, and good morning everyone. Good morning actually from Calgary, headed for the oil sands. Most of you have probably seen the press release. We had actually a very outstanding third quarter and as I said in the statement kind of little bit better than what I even expected.

The situation is that you can see the agricultural side is moving steady, going up just as we thought it would be. Last year, when we were comparing it to last year, what happened was they turned the light switches off. So, that’s good.

Then the one that’s really is interesting is earthmover construction, which our mining falls into that. That is getting stronger and stronger and the reason being is that the success of our new generation II tires that we have come out with is going good, the market’s is good. It’s kind of interesting. You have a little problem, everybody in the world that gets slapped the other way, and then what happens is when it comes back and people are starting to say, Jesus, these guys aren’t a bunch of dummies, they’re really, they’re really doing some good stuff, so it comes back to help you.

The only thing of our three segments that we call out our construct, our consumer side. And that’s pretty well situated. It putzy and dutzy’s along, but that’s our brakes and actuators. And most of that is used in the commercial side, referenced the bulk trailers et cetera. And that business, as everyone knows is hanging on. But it doesn’t really affect us that much, it’s a good business. And we actually expect that business to start showing some life, especially since we have RV sales coming up. So, overall for this past quarter, I think everybody can be pretty pleased that we are on the right track and we are going. The big item that we spent a little bit of time on during the third quarter, which actually closed on October the 1st, was our financing; financing so we can get things moving.

So we can have a very interesting 2011. And that’s just what I think is going to happen. I know, you know you can look at the past numbers and everything, so they’re booking to the record book. Now, moving forward, what we see is we see the continuation of all of our markets on the upswing. We believe that we’re going to be able to move ahead very strongly in the next year, the next quarter to come. We have a lot on our plate. We have the people that can handle it. We’ve put some of our management changes in, and brought some people on. Other people have stepped over to take on some new, let’s say, positions of authority as we go on into the future to grow this company.

And with that I am going to turn it over to Paul, who will just quickly run through the numbers, and then we can turn over to question and answer.

Paul Reitz

Great. Thank you, Morry. The third quarter was an excellent quarter for Titan on multiple levels that Morry just mentioned. Titan posted strong operational results on a year-over-year and quarter-over-quarter basis. And we made significant improvements to our capital structure. I am going to take a few minutes to go through these items and then we will turn it over to your questions.

First, operations for Titan, what a difference a year makes. At this time last year we saw the wheels fall off on our sales in the third quarter and our visibility for future demand had become quite murky. Now we’re simply making more and selling more wheels and tires than we were last year with much better visibility to our future demand levels.

Our third quarter 2010 net sales were up 57% to 223 million, from 142 million in Q3 of 2009. Large Ag demand continues to run hot and help propelled our sales up in the Ag segment by 65 million, or 62%. The increase in large Ag sales is a fairly even split between volume and price mix improvements. Our earthmoving and construction segment had an impressive quarter as well, with revenue increasing 56% to 48 million.

Our construction related products experienced a solid gain this quarter, however, that gain is coming after a drop in 2009 of over 80% from levels attained a couple of years ago. So on a dollar basis, the increase is not nearly as significant to our overall revenue performance.

As Maurice mentioned, our revenue from mining continues to move forward as we had a good quarter of sales on our 49 to 51 inch mining tires. The performance data in the field with our generation II super giant tires is looking good, giving us some positive trends for the mining segment as we move into the Q4 and into 2011.

On a quarter-over-quarter basis, our sales were down 3% to 223 million from 230 million in Q2. The revenue change in the third quarter when compared to Q2 is due to our summer shutdowns that were between one and two weeks at all of our plants, with most plants being shut down for a full two weeks. The shutdown period is used to complete required maintenance and work on projects to improve our plant operations.

After factoring in the impact the shutdowns had on our current quarter revenue, we’re very pleased with our topline performance this quarter and our demand levels as we exit the quarter are stronger than they were at the beginning of the quarter.

Our gross profit margin for the third quarter of 2010 was 12.5% as compared to 14.8% in the prior quarter. We estimate that we lost between 150 to 175 basis points in gross margin due to the additional repair and maintenance costs associated with the shutdown period and by not having certain products available in finished goods during the shutdown period.

During the third quarter and throughout 2010 for that matter, we experienced an increase in demand from OE’s, and resulting shift in sales from aftermarket to OE. While the increase in OE sales activity is certainly positive to the overall bottom line and very welcomed by the company, it does have a negative impact on our gross margin levels. We estimate the impact to be around 25 basis points for the third quarter.

Natural rubber prices continue to be volatile and have increased significantly in recent months. For the quarter, this did not have a significant impact on our gross margin as raw material cost increases have been primarily offset by price increases.

We continue to keep a lid on our SG&A as these costs represented 5.4% of our sales in the third quarter. In dollar terms, SG&A decreased by 125,000 from the prior quarter primarily due to decreased selling costs. I want to remind you guys that interest expense for the third quarter was 1.9 million higher than the prior year due to the Senior Convertible notes issued in December of 2009.

Moving over to the balance sheet. We were very active and successful this quarter making significant changes to our capital structure, which certainly helped position the company well for the future. First, we amended our bank credit agreement. This entailed reducing our revolver line to a 100 million, from 150 million and adding two years on to the maturity. This reduction in size was driven by the company, not by the bank syndicate, as it reflects the fact that we don’t view our bank line as a source of liquidity to fund ongoing operations.

We also had our plant and equipment removed as collateral on the line, so the only assets that are now secured in the revolver are accounts receivable and inventory. Next in mid-September, we went out with a tender offer to pay a $75 premium for each $1000 of our January 2012 notes outstanding, which totaled 140 million at the time of the tender offer. We closed the offer on October 1st with 99.2% of the notes being tendered. As a result, I want to remind everyone that Titan will report an approximately $12 million of charges in the fourth quarter associated with this transaction.

Lastly, in September, we went to market and closed on a bond deal to issue $200 million at 7 and 7/8%, senior secured notes due in 2017 to replace the 8% senior notes due in January 2012. Overall, the bond offering went very well with a strong response from the marketplace that enabled us to upsize to 200 million, and to obtain an interest rate that was on the low side of our initial expectations.

The notes are secured by the land and buildings on most of our operational properties. The issuing of the new bonds gives us a slightly lower interest rate and additional five years of tenure and additional flexibility in capital to pursue future acquisitions.

You’ll notice that with our new credit agreement and bonds in place, that our machinery and equipment is now not held as security by either of these new facilities. These changes to our capital structure leave us with outstanding debt obligations consisting of 172.5 million of 5 5/8 convertible notes, and 200 million of 7.875 senior secured notes due in 2017. Our revolver is untapped and we have the availability up $100 million with fixed charge coverage ratios that kick in at the $70 million level.

The last thing I’d like to cover today is taking a look at our pro forma cash and leverage ratios as of October 1st, which is the date we closed on the tender offer and issued the new 2017 notes. As of September 30, the end of the quarter, we had $159 million of cash. We then received net proceeds of approximately 196 million for the new 2017 notes and proceeded to pay off our 139 million of the 2012 notes that were tendered.

On top of the note repayment, we had to cover the tender premium and associated fees of approximately 12 million. This results in the cash balance on October 1st of a little over 200 million, giving us a net debt position of around 170 million. If you use the upper range of our initial 2010 forecast provided early in the year, that gives us a net debt leverage ratio of between 2 and 2.3 times which is a very comfortable level for us.

We are extremely pleased with the financial transactions completed this quarter and are confident that we have a capital structure that enables us to grow and prosper in the coming years. Our third quarter results were very strong; we carry good momentum into the fourth quarter.

Now Stacey, I’d like to turn it over to callers’ questions. Thank you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions)

And first we will go to the line of Ian Zaffino with Oppenheimer. Please go ahead.

Ian Zaffino - Oppenheimer

Okay. As far as the earthmoving construction business, you said that that’s coming back nicely and you indicated a lot of that was on generation two. How is the other areas of that segment doing other than generation two or what you’re doing in the oil sands? How’s construction? How’s covered mining? How’s pretty much everything else?

Morry Taylor

On the construction side, the construction side is still on the slow end. It’s picking up. When its construction, I’m referring to the yellow equipment you see around roads and residential. It’s doing okay. Then you go around and you look at the mining, and the mining is doing good. You’re seeing much more activity there. And that falls into the generation two, but you have to also understand we now are exporting more. We’ve made our first, I believe, big shipments going over to Africa. And we’re starting to move out. It took time to go over to those various spots and arrange to have dealers and move into those markets, and we’re doing that. The same goes when you come out with a new tire. Actually it’s been called the tall tire, which means it doesn’t squash down as much. It helps the traction. There’s so many better things that we’ve gotten, so what’s happening is we are starting to see the order deck, and the order deck is getting larger and larger and that’s from the good side. So that’s what we see.

Ian Zaffino - Oppenheimer

Okay. Also, I know on the last conference call you had indicated that third quarter was probably not going to be as strong as second quarter. What really surprised you there? Was it more orders came in? Where’d they really come in from?

Morry Taylor

Well, I think what happened is that in the third quarter, I think that what happened is that the from the earthmover side, I figured it was moving, but I did not feel that it would move as fast as it was because I had been out to various spots. And then what happened is, the situation is that our tires are performing pretty damn good. In fact, you know when you come out with a generation two, you look and you say well, is it going to affect the chunking or is it the wear? And what’s happened is that we’ve been able to go out and you measure the wear, and the forecast of the wear. We did have some sites that came in and they forecasted the wear was going to greater than anyone’s. Which you kind of like take that with a grain of salt, to a certain degree. You’re proud of it. But, it’s moved around. So the orders have started to come in.

Plus, what we have done is we turned around and we moved from just making the hall tires which everybody looks at with volume. We’ve come out now with our new radial lines for the loaders, and that’s starting to move. And in fact we are getting ready to ship our first sample of our new, call it the 29 5 25 was the old standard which everybody goes on articulating dump, so many things, loaders et cetera. But now we are going to do it in a 31.5 three piece and the first sample four pieces are going to one of these big, huge cranes that they use in the ports. And the reason being is it doesn’t squash. And so if it takes off and if that works, we’ll probably be scrambling for that industry, because it becomes a better product, it makes their equipment better, it’s safer and it will do the job.

So there is a whole mess of things, Ian. I mean, it’s not just one thing. If it was one thing, you could focus on, it’s just like a shotgun, it’s not a single bullet. Everything is just banging.

Operator

Great. Thank you. And next we’ll go to the line of James Kitchell with Goldman Sachs. Please go ahead.

James Kitchell - Goldman Sachs

Just fine. I noticed in the Q you guys made some comments about seasonality obviously being slightly different in the third quarter than in prior years. Just wondering if maybe you could comment on how you’re seeing things develop? And here in the fourth quarter, you know if the seasonal trends are returning to more normal patterns or if you’re continuing to see elevated levels of sales relative to the typical pattern?

Morry Taylor

Well, I think everybody in New York and everything is cyclical.. Farm is cyclical, everything is cyclical. But the only thing that’s not is you guys keep eating and when you start looking at the farm and if I would have told you you’re going to look at futures in farm at 550, probably the only person out there that would have believed me was Barry Rosenstein, because he knows, the last time I told him to jump on it, he did real well. But what you have is the U.S. dollar.

As long as that dollar is going to be weak, man, our farming, our equipment, everything attached to that segment is going to boom. Even our friends at Caterpillar. It hurts them, so to speak, in certain ways but it sure doesn’t hurt the equipment being made in Decatur, or over at Aurora, or there other factories in the U.S. I mean, so the demand in the whole world is driving this. And it’s generally the third quarter, when you think of the third quarter because you end up with July, August and September; you end up with the July, our friends at Deere would generally shut down for a month, and everybody takes all their holidays and everything.

And I appreciate that that doesn’t affect their selling. And most of the time their combines have been sold, et cetera, but they didn’t let up and the OE’s didn’t let up. There was a situation out there in the various sections of the country, things switched. Some got too much rain, some the harvest was just perfect. I mean it was everything, so the truth of the matter is that it was even stronger than what we thought, and I chalk it up that it’s because of export orders.

James Kitchell - Goldman Sachs

Okay. That’s very helpful, Morry. I guess maybe one other question for Paul. It looks like your primary working capital balance is inventory’s and receivables decline in the quarter and I was curious if you could comment maybe on how that’s trending in the fourth quarter and sort of what your expectations are for working capital for the rest of the year?

Paul Reitz

Yes, James, I anticipate that our working capital will remain fairly level where it’s at now. I mean, you see some heavy spikes that took place from the end of the year where inventory levels were depleted and sales were dropping, so AR was coming down significantly as a result.

I see where we are at right now, our inventory levels, they’re at a light level considering the amount of sales we have going out the door, but with our backlog we anticipate that our inventory will continue to move out the door pretty quickly. So I would say the levels we are at, we will remain pretty stable. And as far as AR goes, it has doubled since the end of the year, but it’s still in a very strong position when you look at the quality of our receivables. We’re as are strong as we were at any point over the last couple of years. And so we are not seeing the deterioration at all in our AR.

James Kitchell - Goldman Sachs

Okay, great. Thanks a lot.

Morry Taylor

That’s like a typical Goldman person. Maybe we need to get you more money. Build more inventory. You guys all wear the salesmen hat. Great job.

Operator

Thank you. And next we will go to the line of Philip Volpicelli with Deutsche Bank. Please go ahead.

Philip Volpicelli - Deutsche Bank

The volume in the price increase, I think Paul you mentioned that on the agricultural side it was roughly even, both from price and volume in the quarter. Can you break down construction, which was up about 55? Was that also even price and volume?

Paul Reitz

I can’t breakdown construction specifically, because it is combined our earthmoving segment. But I will say Ag is fairly even with the split. Construction and earthmoving are little bit more driven towards volume. But, again, it’s still going to be pretty close to a 50-50 split between price increases.

Philip Volpicelli - Deutsche Bank

Okay. Great. And then, I think you mentioned that rubber prices are roughly 5.4% of sales, is that what I heard?

Paul Reitz

Rubber prices, no, no. Rubber prices have been volatile during the quarter, but we’ve been able to pass on the raw material price increases through our own price increases. So overall, on margins, it did not have a significant impact.

Philip Volpicelli - Deutsche Bank

Okay. Maybe it was the SG&A that was 5.4.

Paul Reitz

SG&A, correct. SG&A was 5.4.

Philip Volpicelli - Deutsche Bank

Got you.

Paul Reitz

And which is consistent with prior period.

Philip Volpicelli - Deutsche Bank

Yes. Yes. Okay. Sorry I just wrote that down wrong in my notes. Morry, can you update us on where we are with all I know there’s one big acquisition and there’s a couple of more that are in the hopper. Can you just update us, high level, as to where we are in the acquisition?

Morry Taylor

Well, we’re closer than what we were last quarter. I mean we’re zooming in and where we have to be. There’s like everything. You get down to the nitty-gritty of crossing the t’s and dotting the i’s right now. I would expect that there will be something in the short-term here. We have quite a bit on our plate, but we’re looking at it and we plan to have things pretty well moving along. We have an October Board meeting and I think it’s the 12th of November, and we hope to have things so that we can bring our Board up to date and have some decisions at that period of time. Of course, you’ve got an election coming up here and who in the hell knows what’s going to happen right after that election, whether the market takes a rocket ship and goes north or whether you guys all trying to drill it down so that you see where the Chilean miners were. I mean, who really knows what’s going to happen.

Philip Volpicelli - Deutsche Bank

Okay. And am I correct in assuming that with the $200 million of cash on the balance sheet, the 100 million available on the revolver facility, you guys won’t need to raise any additional financing; you’ve got what you need to make the acquisition?

Morry Taylor

We have everything that we need. As you know, the friends from Goldman were trying to see if we could entice us to go get more, but no we believe that we’ve got a capital structure that is going to be very good for what we want to do as our future acquisitions and also what’s in the best interest of our shareholders.

Philip Volpicelli - Deutsche Bank

And then just lastly, Paul you mentioned at the end of the year if you reach your target you will be 2 to 2.3 times net leverage. Is that the target or where would you be comfortable operating the business? I guess both Morry and Paul can comment on that.

Morry Taylor

It’s simple. Have no leverage. That’s what I’d like. So, what the hell, you have to work to pay off, Paul. We’re going to have some leverage because we got the bond holders; we can’t buy them out. I think we have a three year, isn’t it a three year no-call.

Paul Reitz

Correct.

Morry Taylor

Yes, so on that seven year bond, it’s three year no call. So you know I’m going to have it out there for three years, but if we do what we are planning to do, our cash generation in the future, we should generate enough cash so that we should be able to turnaround and buy them back.

If you look at our business, our business is a real simple business. If we make our acquisitions, we do what we should do, we are going to run into the situation that we can’t go any larger around the world, mainly because of regulatory problems. And if we hone in the way we should, we will be able to have various market shares and be able to do what we should and you generate cash. And if you are a public company and if you don’t have any debt it’s simple, you generate the cash and pay it out in a dividend. Because once you’ve got this thing set up, you do not need great amounts to maintain. And I think that’s what we are trying to do.

Operator

Thank you. We go to line of Larry De Maria from Sterne Agee. Please go ahead.

Larry De Maria - Sterne Agee

Couple of questions. Material cost, you guys talked about, obviously you’re doing a good job staying ahead of the curve. We should more or less expect that to continue, right, and especially with more business shifting to OEM which is generally passed through. So you would stay ahead of the curve in material costs, it looks like?

Morry Taylor

Yes. We hope to. I don’t to see any reason why.

Larry De Maria - Sterne Agee

Okay. And as far as Gen 2 goes, sounds like you’ve obviously going pretty well. Are they at this point fully commercially available, I’m sure there will be tweaks going forward naturally. Okay, so you’re getting orders for Gen 2 now.

Morry Taylor

Well, when I get off, or I get back from this trip up here, we have changed over probably, totally I think about seven of the molds with different inserts. I held up on the other ones. So we’ll probably release to change over the rest of the molds to bring our full complement up. And that will take a few months, but if it works the way we think for 2011, and we’ll get a better feel for that over the next fourth quarter because I make some more trips back up here. But if that happens, then we will be, unless the lights get turned off again, we will rock and roll.

Larry De Maria - Sterne Agee

That sounds good, rock and roll. So of the roughly $48 million in earthmoving you guys did this quarter, can you give us a handle on just how big maybe the 49 to 53’s are in terms of how big that is?

Morry Taylor

No, we didn’t segment it out. Okay.

Larry De Maria - Sterne Agee

Right.

Morry Taylor

But, right now, we’re running, we actually have to get a couple, I signed a rec to buy a few more building drums because they will be able to build product. And we’re looking for it to be a very good 2011. It’s going to go. Now are we going to explode going up? Hey, sometimes we just hook on to a rocket and away it goes. So mostly we are going to prepare a parachute so that something happens and it takes off we could at least float down. It’s a real bear, riding it back down.

Larry De Maria - Sterne Agee

No, much better than the way up. Okay. And then there’s been some talk obviously the Chinese trade issues. Can you just update on that because I know obviously you are pretty close to that, if that’s an issue or not or how you are thinking about Chinese imports?

Morry Taylor

The problem, you know the Chinese are going to do what the Chinese can try to get away with, okay. And not to, I think we’re at this moment in time the bureaucrats and government are starting to realize that they are going to get a lot of angry people showing up in Washington and of course I can appreciate the elite side as saying well, here’s how. And they’re liable to all be looking for new careers, so I think that they are going to start looking a little closer because I think they’re taking a look at, you better start protecting your own manufacturing.

I mean you look at what’s happening and there is, I think the U.S. has got some real good possibilities of the American people waking up, they are going to start. But, hey, you’ve got a couple of days to go before we find out, so I think it’s going to happen. I think you’ve got people getting energized and I can tell you right now from our own workforce, there is some people that are deciding that they’ve had enough. So that’s what I believe. So we will have to wait and see. I am not worried about it.

Larry De Maria - Sterne Agee

Okay. Sounds good. Then one final thing, Morry. We’re hearing of constraints in certain tires from the large OEMs, particularly ones, actually that you are nodding right now...

Morry Taylor

Some what now?

Larry De Maria - Sterne Agee

Some constraints in some tire sizes from some of the large OEMs, not one’s that you’re into right now. Did you have a chance to pick up some incremental business or sign new deals at this point, given that there’s constraints?

Morry Taylor

Well, I will tell you what, when you run into where there’s a restraint, you tell that OE to call me. Okay? My number is always been published, everything else. Maybe I’ve learned that a lot of them, they look for an excuse. But tell them to call me. We’ll be more than happy to take care of their problem. Okay? I don’t see where there is a constraint. I think the last time everybody talked about the constraint, it was actually fake. You had hoarding, my friend. So that’s also what happened in ‘09, because then they dumped it all. So I don’t quite believe what you just said. I don’t think that’s an actuality myself.

Larry De Maria - Sterne Agee

Okay. Maybe it’s limited then.

Morry Taylor

I don’t think it’s even limited. All right. You tell them they want the tires, call us. All right.

Larry De Maria - Sterne Agee

All right. Good stuff. Thanks.

Morry Taylor

Get all you analysts up, building tires. It would be good conditioning for all of you.

Operator

And we’ll go to the line of Charlie Rentschler from Boenning & Scattergood. Please go ahead.

Charlie Rentschler - Boenning & Scattergood

Hey first question, in view of the strong outlook for Ag, how much are the big OEMs, big Ag OEMs constrained by capacity and if they are what are they doing about it, or is that kind of a drag for you guys?

Morry Taylor

Well, first thing is, I think if push comes in to shove, I think all of the big boys in Ag could crank out more. I think what’s happening is that they’ve been able to turn around and as you know, Charlie if you go look at the price of a tractor or combine, and you look over the last four years, you’ll see that they’ve raised the prices pretty good, all right. And they’re doing a lot of things.

In fact, a couple of the big Majors are bringing back a lot of components that were made overseas back into the U.S. And if you go look at the size of their facilities, they got, they can do a few things and really pop out more iron when they decide that that’s what they wish. I think the biggest constraint that’s on some of them is the ones who are making their own engines. The situation there is keeping up with the technology or all the regulation that the government is throwing at them. I think regulation is the biggest problem everybody’s got to take care of.

Charlie Rentschler - Boenning & Scattergood

Yes, the interim [four thing]. Moving on, how happy or unhappy are you with the gross margin of 12.5% in the third quarter. I mean do you...

Morry Taylor

I’m unhappy with it. I think we can, I think we got a chance to double it, okay. But you can’t do that when you have mass of plants that are still not running at the full board. That’s the other situation and what’s happened to you is you, and I have told people this on every quarter. You know when we, last year when the world was coming to the end, we went to cash. Now there’s two things happen if you’re in the tire side. , You go to cash and you called it wrong, then it takes you quite a while because you’re just running, scrambling to keep things going. You’re not setting up and running one size tire because you know we have tremendous warehouses, and you fill those up. You bring your inventory up and you got to do it when the seasonality’s, so that you can build it for when you get into the harvest time. And if you don’t, you’re changing. You’re changing every [freaking] day because you let that inventory go down. We took 75 to 100 million out of our inventory at the end. You know that, you can read the quarter.

Charlie Rentschler - Boenning & Scattergood

Right, right.

Morry Taylor

So, we’ve been paying in margin all year to take care of our accounts. We actually could have probably sold if we had it, the right stuff. You can’t go sell the rear tires and you don’t have the fronts to match. Looks a little funny. It’s not like a car. So you got to live through this and that’s what we had to. I can bring in every one of our aftermarket dealers who will tell you flat out, we could have sold twice as many tires, if you would have got them to us. And that’s right. They will tell you, hey, yes, you’ll send me this tire, but what good is I’ve done already right. How dumb can all we be that you send me the fronts and I need the rears, if he’s changing out his tractor. I understand that.

Charlie Rentschler - Boenning & Scattergood

Okay. And Morry, finally, are you still sticking to your 2011 goal of 2000 of the big mining truck tires, is that still a good number?

Morry Taylor

Yes. Right now I could probably be late on that. So, but, hey, we give our budget to Campbell and his people give the budget to myself and the Board on November 12 and Dave Salens with Ron Schultz will be giving theirs on the same day for the Wheel Group and my Board will have a lot of comments on that. . And then I will have my own comments and we will look at it. And when they come out of there, everybody will know what their budget is. In December I’ll tell everybody, give my little goals, because that’s when I’ve already set them with my guys. So generally in December, I’ll come out and tell you, and if you look goals from last year, I’m going to come out pretty damn close. Correct?

Operator

Next in line is Chris Doherty with Oppenheimer. Please go ahead.

Chris Doherty - Oppenheimer

Morry, you quickly talked about sales to Africa and if you look at the U.S. dollar and the weakness which you also mentioned, is that an opportunity for you guys to grow and maybe without acquisitions?

Morry Taylor

We’re going to grow regardless of the acquisitions, all right. It’s a real simple mathematical situation. We have the capacity internally right now where if everything turns around, you don’t have the shortages, you get the things set right and everything where you can turn around and produce in our facilities, probably up to about 1 million, 1.2 billion to 1.4 billion. That’s with today’s price of product.

If something happens in the future and it drops 20%, then you’re going to still produce the same units. Conversely, if prices go up 20%, I’m referring to units in today’s dollars. That’s where our physical capacity is right now, running these factories the way they should run. And so that growth would come from outside the borders of the U.S. And I believe though that with a couple of acquisitions and everything we should end up being a little bit over, right around the 2 billion mark. And once you get to there and the market conditions, it goes up or it goes down, you’re going to rise up to say 2.5 billion plus, or maybe you drop down to 1.8 in a bad year. And that’s how your range is going to go.

Chris Doherty - Oppenheimer

Paul, if you look at the price increases that you got on the Ag, were those price increases in response to rubber costs or were they just happened to be offset by rubber cost.

Paul Reitz

They primarily were in response to rubber costs.

Operator

Then we’ll go to the line of Bennett Lim with Jefferies & Company. Please go ahead.

Bennett Lim - Jefferies & Company

What is the outlook for Capital expenditure in the fourth quarter and next year?

Morry Taylor

Well, we are going to, what I’ve told everybody is our CapEx is going to run between 12 and 16 million in reference to maintenance CapEx. We turned around and we had the opportunity when Denman Tire came up at an auction and we brought it for approximately 7.4 or whatever it was. So we’re going to come within that number in this year of ‘10. Now ‘11, I haven’t stated yet, and I state that in December after the Board approves what we are going to do.

Bennett Lim - Jefferies & Company

Okay. And your depreciation and amortization for this quarter is about the same as last quarter?

Paul Reitz

Yes. It is running at consistent levels.

Operator

Thank you. And this time there are no questions in queue.

Morry Taylor

Everybody have a great day. Our friends at Goodyear go at 9 o’clock. Talk to you all. Bye.

Operator

Thank you. Ladies and gentlemen, this conference will be available for replay after 11 o’clock today running through November 4th till midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 or 1-320-365-3844 and when prompted enter the access code of 173602. Those numbers again are 1-800-475-6701 or 1-320-365-3844 with the access code of 173602. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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