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Titan International Inc. (NYSE:TWI)

Q4 2007 Earnings Call

February 28, 2008 9:00 am ET

Executives

Maury Taylor - Chairman and CEO

Kent Hackamack - CFO

Analysts

Charlie Rentschler

Brad Liss

Alex Blanton

Chitra Sundaram

Philip Volpicelli

Alan Straus

Randy Laufman

Operator

Ladies and gentlemen, welcome to the Titan International 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 the course of this conference call that state the company's or management's intentions, hopes, beliefs, expectations, or predictions for the future are considered forward-looking statements. Please note that the Safe Harbor 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's Chairman and CEO, Maury Taylor.

Maury Taylor

Good morning, everyone. I am talking to you from Bryan, Ohio, the new place that we are going to make the 63-inch and 57-inch super giant tires. Most of you, I believe, -- probably all have the press releases and the 10-Q, everything that has gone out. And I'll touch on a little bit on last year.

Last year was not only a record sales year, it was a big year for transformation from the standpoint of taking on a project that everyone kind of like thought we were a little bit off our rocker but like many things, everyone likes a good challenge. I think we did an excellent job and it's a lot of effort, spent a lot of money. But we believe the fruits will start paying very fast.

So we have been real excited. I think I speak for Titan's Board when I tell you that they were impressed quite a bit with what transpired also not only from my side, of the management side. Going in -- we'll leave anything else referenced last year to the question-and-answer.

Going forward though, it is probably in my 35 years of being in this business. It is probably the greatest forward look I have ever seen, not just from my optimistic point of view. It is from the big green machine, from Ag. Ag is going nuts and that's going to affect all the players. With the U.S. dollar the way it is, of course, the number one beneficiary of all of that is our friends at Mother Deere. And I think Deere is trying to increase their capacity. They probably will get some. It's too bad they couldn't double it or they would.

When you have wheat that is up as high as it is, which is record and you have soybeans that are just blowing through the roof -- corn is up at $5 right today if no one has looked -- there's just going to be wild times I believe for -- out through 2011. I think that's what Deere is also forecasting. Deere has a tendency to forecast a little bit on the conservative side. I believe it is going to be much bigger.

Well what that does is that also turns around and because the farmers want new equipment, our friends at Case or whatever they have in the U.S. is running full out, but it also opens up for our friends at AGCO, even though their production, most of it comes from offshore. Pricing is -- should not be an issue and we are working with them also to get them new tires and wheels. So it is off and running.

The aftermarket has -- orders have -- are starting to flow like we haven't seen since 1995 when there was a strike. So the good times on that end are really moving along at a warp speed. The only negative in all of that is that I don't think we've seen the end of the price of materials going up. We announced in January a price increase. We announced one for March 1st. We're going to announce another one for April 1st. We're just going to keep moving it up as long as everything else goes.

So that is from an Ag side. If you go and look at the earth mover and the OTR, the mining side, that is just still going nuts and with the first belt to the first tire of the 63-inch, we have all of a sudden now have more friends than we ever knew was possible. We are sticking to our previous announcements that we expect to have our testing completed on our tires by the middle of the first part -- middle of May, the first part of June.

Tires will then be going out to various mines with production commencing the first part of July. We believe that -- and that production in July would be at a rate of 150 63-inch tires per day -- excuse me -- per month. And we believe that will continue through. We might be able to increase it as the months goes. Time will tell on that.

There has been a lot of -- I should cover one point with the press release when I was out at the OTR convention. I announced how the capacity that we have that has been put in, being put in Bryan, I basically did the math -- we have previously told everyone we're going to build up this capacity for 6000 tires a month in the 63-inch. Well, with people coming out, various investors and analysts and everything, it became quite obvious if they looked they would -- should be able to figure out that there's enough room on each bay for 18 of the curing mold presses for the 63-inch and if you have three bays, then you could max out with 54 of these 63 curing presses. So that would give you 54 mold curing presses that could do the 63-inch tire.

So I am not saying we are going to do that but we surely needed to have everyone realize that when you are building these facilities your holdup is always in the curing. And that's when we put it in -- we went all the way across. So if you were to back that off, was that mean if you make 57s, 49s, 51s you will take up less room and they cure faster. So you would end up with more capacity in that size tire.

So what is going to be done? Our plans are still to this day to put the 20 63-inch mold curing presses and then from there we will look to see if we need more or if it is in the 57s and other sizes that benefit us better if we do that. That is what our plan is there.

The other situation is that as everything -- the price of the tires have been going up, up, and up. Whereas when we started this thing actually May of last year, we were looking at these tires, the 63-inch tire at $3 to $3.15 a pound and the tire weighs about 12,000 pounds. Well, the pricing has gone up so that it's around $4.08 to $4.15 a pound. But the other item that happened is the 57-inch, which was around $2.40 has moved up to be at the same per pound base as the 63-inch.

So the dollars are moving in the right direction, but of course your costs for materials are going up too. I don't believe they are quite going as fast, but that is supply and demand. So the future looks real good.

Now before I turn this over to Kent to cover any of the financial side, I should put out that in the last conference call there was a few things written about Maury Taylor's GAAP accounting and everything. So before I don't have to have a bunch of questions on it, so if the analysts that are on the phone when you go through and if you look at the income from ops of 25, you add the $3 million for other, you get $28 million, and you add back depreciation, you get the $57 million. Then you turn around and these are the Maury Taylor add backs. All right?

The $24 million -- anybody who's been out here knows what we've done with the realignment costs. There is none of that going forward. That was about $24 million. Then you have about -- in the corporate section even though we kept our SG&A down pretty damn good to 6.3%, that is going to ride up closer to 7% as the year goes on. But you've got the -- there's $7 million in the corp. and that has to do with how their booking on the stock price reference umpteen years out when I retire that would shove you to 88 and there's about $6 million in what I would like to call professional fees that are really a onetime lag that should not be reoccurring. There is a little bit that we'll have this year but that is not a normal expense of what should be in there. And that is buried in the corporate.

And then you have -- there was a special -- that puts you at $94 million. I'm helping all these analysts do the math. And then there's $2 million in there that was a special bonus that was paid out to a lot of management this past year because of what's been highlight to keep going as you are trying to run production and what took place was pretty awesome which will shove you to $96 million. Then you had the $5 million which is what we did for -- I had mentioned earlier about the Goodyear inventory and some of the general inventory and some of you that have been through the plants know where that was and how -- so you get $5 million there that you blew away in this past year and that should put you at $101 million.

With that, Maury Taylor's GAAP. I've been -- now I got a Maury Taylor's tax out there from my friends, from the Chinese, so we might as well have Maury's GAAP. With that, I will turn it over to Kent.

Kent Hackamack

Thanks, Maury. I will just hit a few items because I know you want to get to some questions, Maury, for the quarter and for the year. Just to remind everybody, we have filed our Form 10-K for the year ended December 31, 2007.

As Maury went over, the markets remained very strong in the fourth quarter. We had our record sales of $204 million. They were 24% higher when we compare them back to the $165 million in fourth quarter of '06.

Moving over to the year, again all-time record sales, $837 million, 23% higher when you compare them to the $679 million in '06. Looking at the sales by market on a year-over-year basis, the Ag market was up $94 million or 22% and we ended the year with Ag sales of right around $515 million. Earthmoving construction was higher by $93 million. It was our biggest percentage mover. It was up percentage wise 51%. Again, we ended the year at $277 million.

Our consumer market was down $30 million year-over-year and it ended the year at about $44 million. And to remind everybody, we do have -- that fluctuates with some of the mix stock and sales to Goodyear and they were down year-over-year of about $24 million. So that is making up the majority of that difference in the consumer market.

If we look at the percentage of the overall Ag market and the markets for 2007, Ag represented 62% of sales. Earthmoving construction was 33% and consumer market came in at 5%. Those compared to percentages of the 2006 numbers where Ag came in at 62%, earthmoving construction came in at 27% and consumer came in at 11% in 2006.

Moving down the income statement, we were able to achieve a double-digit fourth-quarter gross profit of $11 million. That compares to a $2 million gross profit in fourth quarter of '06. And as Maury mentioned, we continued to have in the fourth quarter the ongoing realignment regarding the production of larger OTR tires.

Moving to the year, the 2007 annual gross profit came in at $84.1 million, which was approximately 16% higher when you compare it to the $72.8 million in '06. Loss from operations, we were able to cut in half in the fourth quarter of '07 to $5.4 million and that compared to the loss of $11.6 million in fourth quarter of 2006. For the year, Titan had income from ops of $24.8 million. That was approximately 13% higher when you compare it to the $22 million recorded in '06.

At the bottom of the income statement, our net loss for the fourth quarter was $8.8 million or $0.32 loss per diluted share versus the $9.5 million loss or $0.48 in the fourth quarter of '06. Moving over to the year on the income statement, we had the benefit of the negatively -- impacted by the $13.4 million non-cash convertible debt charge for the year of '07. And to remind everybody, this non-cash charge was not deductible for tax purposes. So for the year Titan had recorded a loss of $7.2 million or $0.28 per diluted share compared to the $5.1 million of net income or $0.26 per share of income for the year 2006.

Moving over to the balance sheet, as you can see, we had a substantial cash balance of approximately $58 million. Accounts receivable ended the year at $98 million and our inventory balance was $128 million at December 31, 2007.

Looking at our investment in Titan Europe, we have our 17.3% ownership and based on the accorded market price on the AIM, it was currently valued at approximately $34.9 million at December 31, 2007 and that compares to Titan Europe's value of $65.9 million at 12-31-06. The major reduction in Titan Europe's value was due to the substantial reduction in their stock price and right towards the end of 2007, and to remind everybody, their stock is traded on the AIM market in London, England.

Moving on to the debt side of the balance sheet, we saw a few changes in our debt issues. In '07, the company amended its revolving credit facility that basically did three things. First, we extended the termination date one year to October 2009 from the previous date of October 2008. The second part was we lowered our borrowing rate to a floating rate of LIBOR plus it is a sliding scale of 1% to 2% versus the previous flat rate that was two and three quarters. And third, Titan ended '07 with a $250 million credit facility.

As far as any borrowings, the company had no cash borrowings on the $250 million revolver at year-end '07 and Titan's only debt consisted of a five-year $200 million unsecured 8% note that is due January of the year 2012. That brings the company's total debt at December 31, 2007 to $200 million and that compares to $291 million at the end of '06.

To remind everybody, the primary reduction in the debt related to the conversion of 100% of $81.2 million of convertible notes that were converted into Titan common stock, so that was the primary reduction of the total reduction, debt reduction of $91.3 million or 31% on a year-over-year basis.

Finishing up with the equity, as you can see it was a little over $85 million higher or a 45% increase year-over-year. We moved from $187.2 million at year-end '06 and we finished December 31, 2007 with an equity balance of $272.5 million.

To remind everybody, our website is www.titan-intel.com. And with that, Brandy, let's go to their questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from the line of Charlie Rentschler. Please go ahead.

Charlie Rentschler

Yes. Good morning.

Maury Taylor

Good morning Charlie.

Charlie Rentschler

I wondered if you could give us any information about how your prototype 63-inch tire has been received. Presumably that was shipped to a customer or is there anything?

Maury Taylor

No, it is sitting right out here in the front for the next time you come, Charlie, I'll take a picture of you with it. No, the first tire, actually the first I would say first seven to eight tires we will be destroying. The first one we're not going to destroy because it is the first one. We're having that for the display and keep it. The second one that we are getting ready to produce will be cut up as you've seen cut up tires here. And then hopefully by the time we produce the third one, we will have it pretty good. We figure we can run it across the big bull wheel in Quincy.

The bull wheel should be ready to take it probably in about another week to 10 days. We finally got approval, what we have to do so we don't blow up the building. So, that is what our plan is. So our plan is still the same as it was to turn around and run them through our tests before we ship anything to a customer.

Charlie Rentschler

Okay, I know you have been moving production around from plant to plant, but are you basically through all of that or is there still…

Maury Taylor

We are through everything. There is no more realignment, Charlie.

Charlie Rentschler

No more realignment, so no disruption and commotion from that?

Maury Taylor

No, not -- the commotion right now is coming from mainly from our customers who are changing at the last moment and instead of wanting 46-inch tires, they decided they need 42-inch, or they want 50-inch. So it's getting real wild out there and it's going to get worse and worse as time goes.

Charlie Rentschler

Just one final thing about your inventory situation, how would you -- how would you describe it? Are you just in a situation say in Ag tires where you are just scrambling to try to keep people happy or you just can't build enough inventory or what?

Maury Taylor

Well, no, number one is you don't know what the weather is going to do, Charlie, so you sure to hell don't want to be building inventory. We build -- we are the only ones in this business who have a tendency to stick to our guns and we build to order. So if they are going to sit there and think this is Wal-Mart, then those purchasing people are going to get in trouble.

Charlie Rentschler

I was really thinking about your in-process. Are you pretty pleased with the level of your in-process inventory flowing through the -- (multiple speakers)?

Maury Taylor

Well, in-process inventory is a pretty -- you run that pretty well at the same time as just the orders you get. Because there's different types of nylon you use and as you go. We are putting in extra curing capacity which we announced and that should be up and ready to run by sometime in August, at the end of August. Those curing presses are coming out of our facilities that we still have in Brownsville and Natchez, and we've announced that and that will allow us to jack up the rear radial tire production because you make more money on those. And I think what is -- what you are seeing out there now is the situation where everybody is trying to figure out what do you have, because everybody knows there's going to be a record -- there was a record corn crop I believe this last year.

But not the talk is because wheat is so expensive, a lot of the farmers are going to plant wheat and then back it up with soybeans because they can make a hell of a lot more money if wheat stays up and soybeans. Well, that means then the corn crops will be down next year, which who the hell knows where the price will go? But what happens when this takes effect is that your tires are going to be different.

And I think the last time I'd seen you I was looking for March to start seeing the aftermarket percolate up. I think that's what I told you, right? And it is, baby. What happens is it gets worse than it really should be, but that's what we see and --

Charlie Rentschler

Thanks a lot. I will let somebody else jump in.

Operator

Our next question is from the line of [Brad Liss]. Please go ahead.

Brad Liss

My phone line cut out when you went to the last $5 million item on the EBITDA add backs. What was that last $5 million?

Maury Taylor

That was for the -- we discounted and blew off the excess inventory we picked up from our friends for Goodyear. Previous calls I talked about how they ran -- its good inventory, but if you have seven years of some supply, there's no sense in hoofing it around.

Brad Liss

Got it, so it is just like an inventory charge?

Maury Taylor

Yes.

Brad Liss

Thanks. Then also can you just give the fourth-quarter EBITDA number under Maury's GAAP?

Maury Taylor

I didn't do that. I did year-end.

Brad Liss

Do you have the fourth-quarter number handy?

Maury Taylor

No.

Brad Liss

I guess I can just back into it, the three quarters.

Maury Taylor

Okay, we will call it your method.

Brad Liss

All right, sounds good. That's all I really needed to have. That's it. Thank you.

Operator

Our next question is from the line of Alex Blanton. Please go ahead.

Alex Blanton

Good morning. I just want to ask some questions about the 63-inch tire and the capacity. You mentioned 20 molds would be how many tires a year? I don't have a clear idea of that.

Maury Taylor

6000.

Alex Blanton

That would be your 6000. And so you basically when you said the other day that you could go up to 15,000, you'd have to put in those 54 presses to do that?

Maury Taylor

Yes.

Alex Blanton

And then you mentioned 150 a month starting in July of tires.

Maury Taylor

Right.

Alex Blanton

That's about 1800 a year. How would that -- for modeling, how would we model that going up to, say, the 6000 and over what time period?

Maury Taylor

I have publicized the whole schedule. So I'll do it again for you. The dates are this. We have to produce six tires a day starting the first of July. So I have to do 150 tires a month. July through to the end of the year. Starting January 1 of '09, I have to produce 500 a month. There's your 6000.

Alex Blanton

Okay, very good. Now in your view and I've talked to Kent about this in the past, what is the need out there? What drove you to say for example that you might go up to 15,000?

Maury Taylor

The first thing is this. You have too many people walking around out here, okay? I am talking analysts and shareholders, so someone as we're starting to fill up these -- I appreciate this is not you guys' normal business, all right? So when you walk through and all of a sudden someone is going to turn around and they are going to notice that gee whiz, they can put 18 in this bay and you look and there's two more bays, then they are going to say. So one of the shareholders asked and so I thought, jeez, I'd better come out and tell everybody. Okay?

So we proved the point that we know what the hell we're doing. So the next point is -- and we did it in seven months, which no one in the world has ever even seen that happen from drop go. So if we wish to add the extra 36 molds, it would not take us very long. But everybody will sit there and say, well, if you only add 18 more, then how much will you get when you make the others? Well, that all depends, because 57s you can make faster than you can make a 63. The same is true of a 49. And so you can actually because these pits are just open and long, so you might squeeze an extra couple in so you get more out. Do you see what I'm saying? So I took the biggest number and that is what I used.

Alex Blanton

But do you have an indication or have you done any work with all these customers you're mentioning to determine what the actual demand is? Right now there's a shortage, but what would it take to alleviate, to eliminate the shortage?

Maury Taylor

I told everybody that I believe -- I stated I believe the shortage of OTR tires is going to occur by the end of the first quarter of '09. I am the only one that's said that and the reason I -- and I explain except for our tires. You see, what we also announced is that our new steel radial tire is we patented the way we make this tire. What is going to happen is we believe that the mines are going to find out that we are from anywhere from 15% to say, 25% greater life in this tire of 63 against our competitors.

Then what is going -- I am not selling it cheaper either. And it is also a lower-cost tire the way to manufacture it. But then what happens is we believe we come out with a 73, which is only making the hole inside the tire bigger. The fit, form, and function will be the same. But we believe that will even make a better operational. They get everything down to how much tonnage you are going to haul, what their cost is, and everything else.

So the same thing will happen on also the 57-inch, which there is -- last figure I heard over 60,000 required per year. So you can't arbitrarily just fill the whole market. You are never going to do 100% of the market. But everybody is going to want the type of tire we wish. They will be able to put a tire on. They might not be able to get the ones they wish for us. So that is how we see it. We don't see any slack of demand out through 2012 for the big stuff we're going to make.

Alex Blanton

Okay. Thank you.

Operator

Our next question is from the line of Chitra Sundaram. Please go ahead.

Chitra Sundaram

Just a couple of questions. On restructuring -- the calculations to arrive at the core EBITDA of $101 million, I just didn't understand it was $25 million, you added back $3 million. Could you just help me understand -- I think the $24 million was obviously the realignment costs. What was the $3 million you were mentioning?

Maury Taylor

The $3 million was other income.

Chitra Sundaram

Okay, you were arriving from net income, I've got you. Then there have been obviously press releases for example, Barrick Gold, entering into a long-term contract with I think Yokohama Rubber which actually buys tires which I understand significantly…

Maury Taylor

Over a year ago.

Chitra Sundaram

Lower quality. I am sorry.

Maury Taylor

Pardon.

Chitra Sundaram

No. You said something?

Maury Taylor

Yes. They did that a year ago.

Chitra Sundaram

Yes, there was a recent press release as well about the fact that Yokohama was going to be expanding its plant to support this maybe previously announced or new contract. I guess my point is given the expansion you all are undertaking and quite obviously the clear demand for these tires and the shortage out there, it seems to me that if you had or were able to come out with some sort of announcements as regards supply contracts that perhaps you are entering into or you are talking with mines, that would be very useful. And I am wondering where the conversations might be and at what stage those conversations might be?

Maury Taylor

Well, here let me help you out. Okay. I have no idea how old you are, but do you ever remember what a typewriter looked like?

Chitra Sundaram

I do, actually, so I am rather old.

Maury Taylor

Okay, so now let's -- you think about that typewriter, all right? I will tell you that that is the way that the OTR business, the tires, that is how the radial tire is today, like the typewriter. Then all of a sudden you have your little teeny little laptop where you push the keys. It even corrects the words and all the other -- you push a few levers. All right. Now I'm not going that extreme, but what I said to you, we knew about the Barrick-Yokohama deal last May. They did it 30 days before we even started. Now the situation is that that is going up to the 57-inch. I don't know if you knew that or not?

Chitra Sundaram

No, no, that's very true actually.

Maury Taylor

That's fine. Everybody is increasing their capacity and there's no problem with that. The only difference being is that, hey, we are not in the situation of running down that same road. So what we did is a different way, which in turn gives you a different manufacturing method. And it gives you the same -- actually it gives you a much better process in performance of a tire. Call it just good old American ingenuity or call it just pure poison luck, okay? I don't really care.

You know, as I said in my speech out at the OTR, I feel sorry for all of you that have to go back to your CEOs and tell them that you need more money because your method that you just spent all your money on is now outdated. And that is just a fact and this is not new technology. This is technology that we took from the industry as a whole that was out there and we just put it together and it outperforms. We've built enough tires now to know that. So I don't worry about anything out there now. So I don't know what your real question is, but there is enough demand in there to take it.

Chitra Sundaram

No. That was actually very useful, thank you. If I could follow-up, to the extent that --

Maury Taylor

Are you sitting over in [Cherry] England with that accent or are you on this side of the border?

Chitra Sundaram

No, I am into U.S., sorry. I'm in the U.S. for sure. So just to follow up on that, as the production of 150 tires commences from July, assuming that there are specific partners with whom you all will be placing those tires who are committed to then testing them?

Maury Taylor

I don't care. I am selling it to them, okay? Here, you have to understand how this business -- up until Titan decided to get into this business, you would build the tire, then you would send the tire around to various mines around the world and they would start running them, and they would tell you after how many hours the tire failed or it wouldn't complete it or whatever, all right? This process generally took a few years because even though the tires would blow, you'd have to send some more and just by sending your technical people around to see what it is, by the time you get the tires back, you would find out whether or not they hit a big hole, they run over and drop down, all these things is what you'd find.

Now, that is not how you do passenger car tires. That is not how you do truck tires. That is not how you do agricultural tires and that is not how you do tires up to an OTR to approximately 35-inch in diameter. You run them across a great big bull wheel, which means you can run them at the speed. You load the tires up to like 180% of their rated load capabilities. And you run them until they blow or there's a problem. And what that tells you is how strong the carcass of the tire is.

Now in order to do that with these big mining tires, someone would have to have at minimum a 24-foot in diameter bull wheel, which you would have to be able to run the tire up to 42 miles per hour and have to have a load with a capability to put up to a maximum of 400,000 pounds. Well, if you went to Quincy now and you looked at the physical size of this thing, how big it is, how mammoth, so the building of the machine is one thing. But you also have to be able to understand that when that tire blows, it is the same thing as letting-off 16, 18 sticks of dynamite. It is one bad explosion.

But if you do that, you turn around and you can cut their test time down to 10 days. So then, once you have their tire tested, you can send it to any place in the world and the only thing you are testing then is what type of tread compounds for your cutting, chunking, your tread design, how is it getting out of mud, you know, all those things. And you have 13 different compounds you can just switch in whatever you wish.

So if you are going to send tires that are going to be running through some hot sand, you can make those different than you do someone that's running through and are just in stone.

Chitra Sundaram

So what you are saying is between now and July, that's the time when the testing occurs so that when the production starts we are really in a position to start sending them out and then --

Maury Taylor

I am selling tires, yes. I'm not giving anything away, okay? I might have to take the first half a dozen tires and cut them up myself here, and that's the way you go. But when we send the tires out, I am selling them. That is a just simple situation.

Chitra Sundaram

Got you. And just finally on the wheat versus corn, you mentioned that as the type of crop grown changes the aftermarket demand. If I understood you correctly, so the type of tire changes could you just guide us to sort of what the difference in the tire side would be if you are growing corn versus wheat?

Maury Taylor

Yes, if you're dealing corn and you are running through corn, you generally have to have -- you have different spacing for the rows, you understand?

Chitra Sundaram

I got you.

Maury Taylor

So you can't have great big fat tires and run through, and you do cultivating and all the rest of the stuff for the bugs and weeds. Whereas in wheat, you generally just go on through and plant it and throw your fertilizer, whatever you got, your herbicides when you plant it and then it goes until you come running across it and harvest it.

And cotton is different than corn. Soybeans is different. All right? And then the other thing that throws it really off if it's dry, then you use -- you can use narrow tires. You don't need to have big flotation. If it's wet, you go with flotations. Farming in the U.S. is like we explain to our friends at AGCO, they make all their tractors over in Europe. You just can't ship a tractor over with the European tires because the Europeans do not farm the same way that Americans farm.

When you travel around Europe, you don't see very many pickups because they use their tractor as a pick up to save on the fuel. But over here you park the tractor and you drive the truck. So it's totally different. You can have the same engine, the same everything, but where rubber meets the ground, it's different. Okay.

Chitra Sundaram

Thank you very much.

Maury Taylor

You are welcome.

Operator

Your next question is from the line of [Philip Volpicelli]. Please go ahead.

Philip Volpicelli

Hi, Maury and thank you for the reconciliation between your numbers and my numbers.

Maury Taylor

Hey, you are the one that branded me Maury's new GAAP. Okay, so, no problem.

Philip Volpicelli

I appreciate it. With $6 million professional fees, what were those? Were those design of the new tire, design of the new line?

Maury Taylor

You know, they weren't yours, but there is other people, you are trying to fish around for the brokers there you know. So, there's part of that in that and there is some of it for some lawyers. You know, I've done -- some of my poor friends are Chinese, been banging them up pretty good. Those aren't things you constantly do.

Philip Volpicelli

And then the special bonus to management, assuming that with cash?

Maury Taylor

That was cash.

Philip Volpicelli

Okay, great. Then in terms of the timing of the tires, and thanks, you built the first one in February. It sounds like you are building the second one. That bull wheel will be done in about 10 days, then it takes 10 days to test. So, should we be thinking sometime in March that you'll know how tires are performing?

Maury Taylor

I don't understand what you say performing. Are the tires going to work? yeah, they are going to work. The question is this, so the only thing you are going to find out when you go to test the thing is you are going to find out what your max carcass strength is going to be and then what you do is how you turn around and on your turn-ups, can you take a little bit out? Should you take some more out? How is the flexibility there? How is it bonding for there? Those various things which you can turn around and until you load that sucker up at the loads I'm telling you, you really don't -- you can theoretically figure it all out, but it show that how does help to have a test you know?

And that's what you do and then when you make any change, you've got to test it again. So, I am looking as I said a few minutes ago, I am looking for to keep testing these tires and to keep tweaking with it into May. And then, what you do is you send out the next dozen to 15 tires, you send to certain customers and you charge them and then what you do is you get everything greased for that you are rocking and rolling and you are producing these tires. I've got to produce six a day starting July 1st.

Philip Volpicelli

And those agreements, that's with one buyer or with several buyers that you have to --?

Maury Taylor

No, I've got them with multi -- selling tires is no problem. Okay?

Philip Volpicelli

And then in terms of the ramp up, you mentioned going from 6,000 to 15,000 potentially. What would be the incremental cost to get there and when would you make that decision as to spending or not?

Maury Taylor

You wouldn't make that decision until towards the end of '08. Haven't even discussed it.

Philip Volpicelli

Okay. And do you have a sense of what that might cost you?

Maury Taylor

Not a lot.

Philip Volpicelli

All right, I guess -- in the 10-K, you mentioned.

Maury Taylor

Why the hell would I tell you that, Phil?

Philip Volpicelli

You know, I'm always digging, Maury, I can't stop.

Maury Taylor

I appreciate it.

Philip Volpicelli

You said $55 million to $65 million of CapEx for '08, $35 million to $45 million of that is very large mining tires so should we assume that it's a much smaller percentage of that, maybe 25% of that? Can you give me a range or sense?

Maury Taylor

You know, you'll just have to get your tush-off and come on out here, okay?

Philip Volpicelli

Sounds good.

Maury Taylor

And then walk around, Okay? You got my competitors and everybody else on this phone call. Next question?

Philip Volpicelli

All right, and going back to Alex Blanton's question and kind of talking about the overall market, you mentioned all of your competitors are increasing capacity. Obviously you believe you've got a better product and we'd love that to be the case and hope it is. What is the dearth that is out there now? If everyone is increasing capacity, at what point does capacity reach demand in terms of on an ongoing basis? Is this going to be a shortage of supply for a year, two years, three years and then things correct? Or what's your sense of that?

Maury Taylor

Well, I've already stated it. I don't think after -- with what we are doing, I don't think there is going to be a shortage after first quarter of '09. Everybody else thinks they are going to last out there, but I stated publicly in Hawaii last Friday. This is not something that, we're just the kids off the block. This is a simple fact. We pretty well know what we are doing and we took it different. We've tested it. If you think we spent this kind of money just on a fly by night, you are totally mistaken. So, what happens is you are going to see the big boys I think turn around and go. Okay?

Remember, this is not their core business so they will have to go back and get some more money and then they've got a little problem. They are going to fight -- in order to do what we do, they are going to have to fight a patent that's sitting out there too. We filed for it, so what does it take, 18 months to get it? It would be pretty foolish for anybody to cut the tire apart and start making them if I've got it sitting out there.

Philip Volpicelli

Yes, and when you guys increased the revolver from 125 to 250, you mentioned that specifically you said Titan is increasing financial capacity and flexibility in order to facilitate and respond in an expedient manner to opportunities that develop or may develop in the marketplace. Can you give us a sense was that referring to possibly going from 6,000 to 15,000 tires or making acquisitions? Can you give us a little bit of color on that?

Maury Taylor

Yeah. That's real simple. I've told everybody out there, it's public, that I think there is approximately $1.7 billion in acquisitions that would fit very nicely with Titan and that we have had friendly chitchats. The other parties all understand and it's in their ballgame.

Philip Volpicelli

Right.

Maury Taylor

It's just that -- you know, what you don't want to do is have the opportunity show up and you are running around now trying to line it up. It is a lot better off if you choose to go after it.

Philip Volpicelli

Right. And just with regard to that, what would be the maximum leverage you guys would be comfortable running with and --?

Maury Taylor

You know I don't like leverage, okay? So there, your question is answered.

Philip Volpicelli

And would you comfortable -- if you drew the entire $250 million, you guys will be somewhere around 4 times this leverage. Is that something you wouldn't want to do?

Maury Taylor

That's time -- everybody has to just sit and wait, just like you do. And tell your bankers, don't be calling me up as soon as you get off the phone either.

Philip Volpicelli

So, last question from me, would you want to have the very large mining tires in production, in other words, all the testing done and having the ramp up well under foot before undertaking an acquisition or do you think that you guys can handle both at the same time?

Maury Taylor

Well, it is quite obvious we can handle whenever it is thrown to us, you know? It's like, here, it's real simple. To let everybody understand what takes place, and this is what I did when I was out in Hawaii. And I showed everybody there what I thought, but the Titan way is a little different. You know, we hired some talented retired engineers, guys that are really wanted to be doers and not a bunch of BS artists, and then hired 14 new young engineers that had no idea how to build a tire. But you take and tell them to ask questions. You don't know, ask. It's the only way you'll learn.

Then you bring the wheel boys in, the engineers from the wheel company because you can't change anything. If you don't change a wheel or the tire, they both have to match-up. And then the biggest thing you do is you look at history and you go get a movie and you get the movie called Patton, okay, and you show the people and you explain to them, here, you know, Eisenhower was a corporate boy. Eisenhower was very smart and everything else, but he never led troops so if you turned around and you switched it and had Eisenhower leading the troops during World War II, we should still be fighting Germans.

But you took a guy who didn't do it by memos, who did it by going out in front and most people don't know at one time he had 250,000 people under his command. And if you look at history, every place everybody thought it was impossible, there is no way he could have his troops where they were, and they were there. And he didn't do it like I said, sitting back in the back. And he didn't shoot anybody [or drive a tank]. You just do it and that's what you do. Hell, you only live once. This is great. We are having a great time.

Philip Volpicelli

That's good, thank you. Can I just sneak one last one in? On February 7th, Titan Europe announced that they had received a takeover approach. Does it make any sense to put the two businesses back together again or is that separation between Titan International and Titan Europe?

Maury Taylor

Well, first they may had to do that, everybody has speculated us. They speculate Terex doing it. Everybody else, I'm a non-Executive Chairman. What the hell, I can't say one way or another to you or anybody.

Philip Volpicelli

Okay. Thanks, Maury, wish you best of luck.

Operator

Your next question is from the line of [Alan Straus].

Alan Straus

Sorry, my question has already been answered.

Maury Taylor

Thanks, Alan.

Operator

Your next question is from the line of Alex Blanton.

Alex Blanton

Hi. Just a quick follow-up, Maury. What was that meeting you were attending in Hawaii? Is your speech available on the Internet?

Maury Taylor

I don't know if they allow that much swearing in there. I was the keynote speaker to the OTR convention and that's off the road. Had a record crowd, and then, I don't think the Chinese that were there were very -- none of them came up to talk to me and I had no question about banging them and it was real simple. I don't know if they took the slides and put them on the Titan website or not. But I don't have a problem if somebody wants to.

We gave a little history about Titan and what we do. We told everybody that we checked everybody's tires and we thought Michelin made the best, our little French friends, but the Bridgestone, our Japanese friends, are right fast behind.

And that's what I told them all to make sure they wear protective coating on their backside when they go up to the head of the dog to get more money, because what they have been spending they're going have to spend a hell of a lot more because the new way we are doing it, is not just for the 63-inch tires. We are going to be able to do this all the way through into our Ag tires, all the way down. So, we are really excited, that you can't just push a button and it all happen. But we are pretty confident. And I told them that what our plans were, what we are going to do and that we just concentrate in farm and mining, so to speak. And with the wheels, we are the only ones in the world now that can start changing stuff where it fits up to the equipment the way it is. And I made to mention about our friends at Cat and the equipment manufacturers and --

Alex Blanton

What did you say about Cat?

Maury Taylor

I said hey, if you check, Cat makes great equipment, but what they do is they just make the equipment, and they just go to a book and see what tire will fit. It's a hell of a way I said there's no tire engineers at Cat. They don't even have a wheel engineers and they've looked at it as a commodity and of course, since it's got someone else's name on it, they do warrant the stuff. Hell, you go look at the old John Wayne movies back in World War II, that 25-inch wheel is still on Cat's equipment. Most of those guys at Cat because they are younger than me, weren't even born.

So, you would think someone would come up with something though. So, I explained what we are going to do, why it will make the equipment perform better, and, you know, it's our core business and when it is your core business, you look at it.

And those three big dogs, Michelin, Bridgestone, and Goodyear, those dogs got to keep their heads pointed towards each other. They don't have a lot of time to be looking back at the tail of their dog. And that's where we are at. We just run around biting the tail. As long as you stay away from the head, you are okay. So I had a lot of fun --

Alex Blanton

Okay, thank you.

Maury Taylor

All right, bye-bye.

Operator

Our next question is from the line of [Randy Laufman]. Please go ahead.

Maury Taylor

(inaudible)

Randy Laufman

Good morning, Maurey. Just you've touched on the -- and we've had a lot of discussion on (inaudible), so I will touch on some other points. Just to go back to [some of the add backs], the $6 million professional fees and the $2 million special bonus, was that in the fourth quarter or was that throughout the year?

Maury Taylor

Well, you paid the $6 million is paid through the year. The $2 million is at the end.

Randy Laufman

Okay. And then the realignment this year was a big transition and you are moving a lot of the OTR capacity to other facilities. I am wondering if you could comment on how much OTR capacity you are getting out of the Freeport and Des Moines facilities and how much capacity do you expect to get out of that in '08?

Maury Taylor

Well, we expect that to really crank up in '08, but I am trying to think right now off top of my head, but I believe we are looking at in the range of our OTR is going to run itself pretty close to -- this is not counting any of the super giant tires, but I believe we've got to be pushing pretty close to almost $300 million now, and that is the combination of Freeport and Bryan. We've already got our benefit that we were trying to get.

Randy Laufman

Great. Thanks. Then just moving over to the Ag side, you announced that you are adding additional curing presses on the Ag side and we just saw an announcement this morning from Deere that they are increasing their capacity in their Iowa plant. I am wondering if that's kind of in connection with Deere's additional capacity? And you also said that you may be taking some presses from other facilities. I was wondering how much is going to be old equipment as opposed to some new investments you have to make?

Maury Taylor

Well first thing is, as you guys all sit back and remember last year. We told you that we were always taking a separate charge for our facilities down in Natchez and Brownsville and we keep depreciating it and so we told you that's where all the equipment is coming from. So, what we are paying and our cost is to move it and set it up, which will be capitalized, but the equipment we already own. Actually, I would have to think that a majority it's been already depreciated.

Randy Laufman

Okay, great. Thanks. Lastly, you put out guidance in December. I am just wondering if you could comment on whether you are sticking with that guidance for '08?

Maury Taylor

I am sticking. I'll tell you guys more after the first quarter. I could be on the light side, but we will wait and see. Things are starting to really smoke and you turn around and it has been a long time in coming and I want to make sure that everybody sits there and you all look backwards. I've been looking forward. We got to 63. Now, we got to start dressing that baby up and I think that time will reward us with that. I've been concentrating on it, but with the farm going, we are not going to let our other business slough-off. Now, that we have got the realignment done, now that we know where we are going from the standpoint of the Ag and how strong it is, we believe that the numbers will start to prove that and then I'll give you a little more guidance after the first quarter.

Randy Laufman

Okay, sounds good.

Maury Taylor

There is no question now that every quarter is going to just totally trump anything in our past history. Depending on the 63 and how we go, this could be the first time in the history of Titan where we actually have the opportunity to get bigger every quarter as we run. It has never happened before.

Randy Laufman

Great, well, thanks a lot, Maury.

Maury Taylor

Thanks. Bye-bye.

Operator

At this time, there are no further questions.

Maury Taylor

Everybody, have finally talked you all out. All right. Again, I would like to welcome all of you to come on out. That is you who our shareholders or investment community. I don't need my competition out here. And we would like to take you through and we are pretty proud, and it is pretty impressive when you see what has transpired.

So with that, you all have a great week and we look forward to talking to you later. Bye.

Operator

Ladies and gentlemen, this concludes today's presentation. We thank you for your participation. You may now disconnect.

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Source: Titan International Q4 2007 Earnings Call Transcript
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