Titan International, Inc. (TWI) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Titan International Incorporated Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Any statements made in the course of the 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 involve risks and uncertainties as detailed therein. At this time, I would like to introduce Titan Chairman and CEO, Maurice Taylor. Please go ahead.

Good afternoon, everyone. As you already should have, the, of course, the press release and the 10-Q, I'll just get right into the situation, the third quarter. Of course, it handles all of our -- both with Europe being shut down for August, and with the U.S. shutdown a couple of weeks, which you have to do the maintenance. And -- but overall, from going into the third quarter and not knowing what was going to actually take effect, reference to how fast things were going to shut down or they weren't going to shut down, I think the -- we had a lot of things to get done in this third quarter. We did close -- on the acquisition front, we closed on the deal that we have in Russia. And we're kind of excited about the future of that. I know there are some people that wonder what the excitement is about, but part of it mainly is the team that we think that we have over there, plus the technical capabilities and the situation of growing our brand in our ag market over there, which we believe is going to get stronger and stronger. So let's cover all the topics and what we see. Ag, ag is still strong. We do not see the ag market expanding. We do believe that it'll be pretty well on the flat side. We look at our situation, you'll see in dollar revenue and everything with the price of tires coming down and wheels because of steel and natural rubber. We see that abating, just kind of like we don't think we're going to see the differential in the pricing. We think second -- probably by the second half of this next year, it might start actually going up a little bit. We're really excited in the ag from what we have put out. And I would tell everyone who has the press release, if you read on there, it says click on the video, that you will see for the first time, a big 4-wheel-drive tractor with our new 846 tires, which we call our LSW stuff, run out across the field, pulling at 5.3 miles an hour, same speed as what that Quadtrac, and we surprised a lot of people. And the reason I state that is if you were to take and put 838s, whether we make them, Michelin or Bridgestone, they would only get to 3 miles an hour instead of 5 miles an hour. That's why you buy those big and spend $60,000, $70,000 more is for the speed. Now the farmer can just come through and get the right set of tires for it and he can maintain it. We've been doing that all across North America, and it's got some real, real possibilities for Europe. So from the ag side, we believe -- which is our largest segment, we believe that it's good. And as time goes, we will continue with our new products that we have for that market, not only in the rear tires. We have come up with wheels so that Europe, we're going to introduce them at the big ag show this November. If they want a 70k to 80k wheel that's an adjustable wheel, that's what they need in Europe, we have that. So we're really excited about our ag and where we think we can be in the next year or 2. The situation in the construction industry is that when you look at homebuilding, you look at the road building, you'll see things are starting to firm up. And I have been one that wasn't really excited about it because I hadn't seen any of this until this last quarter, it started ticking. We met with our dealers this past weekend and we've noticed from the OEs, a much double-digit, higher-strength reference to what we would call the construction side, which would be the skid steer, backhoe, your telescopic handlers. In fact, if you pick up a paper, the Naples paper, it was yesterday, I believe, they're talking about -- they have a shortage now in the amount of homes to sell. They can't get the process in for what the demand. I think there's going to be a real good push for that, finally, over the next -- and I think it'll last for more than just this year. I think it will go for little bit longer. So from that side point -- standpoint, it's really good. But when you get into the mining side, the -- you go to the big, big item, I think I've talked -- since my last conversation publicly, I've had conversations with some big, big mining companies, both here and the U.S. and out of the country. And there is no question that they have a tremendous amount of inventory, which is going to force down the price of tires, not only just because of material costs, but the margins on the shrink. So if you want to build the same damn tire that's out there today, that's been out there for the last 30 to 50 years, then you're not going to be making a lot of margin. What we have been doing for the last 5 years is developing the -- what we call our LSW. No different than if you look on that farm view and you see it. We've got approval in July from Caterpillar on the largest loader in the world, the 994. Now what that is, that's a 58 by 63. But this standpoint, this moment, we are the only ones in the world to make it. But that tire met all the qualifications and did the field trial out in British Columbia. And it has done an excellent job. So we're very excited. And we put some in Australia. We've got them going to South America. We do believe that we are going from -- that's the biggest, and we've already got them approved in CAT's book as an option on the smaller sizes. So we're real, real excited about where we're going with that. We've also turned around and decided that on the big haul truck tires, we're doing the same thing. We do not expect that to move as fast as it will in the loader side because we believe in the loader side, the reasons not only can we produce the tire, not only can we produce the wheel and present it to the OEs -- not the OEs, but the mining companies, that they will save money in all of them that put the chains on. So that gets to be anywhere from $10,000 to $30,000 on a vehicle. So you only get people interested -- and that's what's happening at every mining company now, they want to look at how to reduce their cost. So from the timing aspect, it works out perfectly, what we've been doing for the last 4 or 5 years in all the developments. So we're excited about that. When you look over into our track side, our track is picking up in South America very good. We made the cuts, we made the sacrifices. And Italy, they get things in line. And we believe that the smaller size reference in the U.S., because of the small excavators and the small crawlers that go with the construction, the homebuilding and a lot of the roadwork, they're going to see an uptake in that business. So from a standpoint of market share and a standpoint of new products, we've got a real rosy future coming. Now the last thing, some people has taken mining services since we have been -- we started this a few years ago, but now, it's getting some real life. And that's because we came up with what they call the [indiscernible]. That's been around since the '20s, '30s, 1900s. But what we've been able to do is we have been able to mechanize this process, so that if you take a large 63-inch tire, say it's 10,000 pounds, and you stick that in -- you stick a few of them in, but you don't -- just one tire is going to give you approximately 500 gallons of oil. Now this oil becomes a biofuel. So you get paid for the oil. You generate over 4,000 pounds of carbon black. The carbon black, again, you got a number of sources to move it. Number one, you can sell it as a fuel because it burns real, real hot and it is -- because it's been reclaimed, you can get carbon credits for it. Or it fits into an awful lot into the specialty, whether it's a flat belting, whether it goes into car moldings. There's so many things that have carbon black. Mattes are a real simple one. You can only use a little bit of it into new tires. But on the other deal, the others various products I mentioned, you can go ahead and use that. Now when carbon black is up around 70 -- currently today, it's about $0.70 a pound. So you get this carbon black. And if you sell it from anywhere from $0.10 to $0.20, as you can see, you got attractive recycle in this tire in a very profitable way. The other part that comes out of this is you get about a ton of steel. So you're not only are getting money for the product that you recreate, you're also getting paid to go ahead and do it. And then the people giving you the tires are happy to pay you a fee. So as I said in my press release, this is probably going to be the highest-margin item that we've ever obtained. And it will be a much better situation, actually, than building the doggone tires. But you have got to go to all the locations to where they got these things. So that's a -- that means you go away from civilization. But we put in there where we're going to put up the facilities. There will be 63 reactors in all those total. And if everything works the way we wish, it should be anywhere from about $250 million to $300 million business. So we're excited about it. And with that, Paul, I'll turn it over to you.

Great, thanks, Maury. Good afternoon, everybody. Let me start by walking through our revenue and then I'll dive into our earnings. For the quarter, we came in at $498 million, compared to $405 million last year, so we're up 23%. The overall volumes did have a decrease of 4%, and I want to kind of walk through that because it is a tale of 2 different stories right now. When you look at Latin America, our volumes were up 29%. So we're continuing to roll along really strong there. Good OEM business, gain in market share, really executing well on all our plans. When you look ahead to 2014, we actually have got some capacity increases that will come with the equipment CapEx investments we've been making. So another good quarter for Latin America with some good gains. And then in North America, we saw another strong quarter with volume gains of 5%. So coming off some tough comparisons from last year. Feel real good about where that business is rolling. So you look at our franchise, core, high-market-share businesses in North and South America and you can really say that Q3 was another good quarter for them. The other side of the story is when you look at earthmoving and construction. As you'll see, our volumes decreased about 6% in that area. The pain of the construction market continues. It's just a tough market and really, it's everything that's been stated since last year about this time. We're using incentives. We're getting creative to continue to try and drive some volumes, but really, what you're looking at is 2014. Looks like that's going to be more of a good turning point for the construction segments. Mining, no surprise to everybody, is what Maury said and what Caterpillar had been saying in their comments. It's slow, and looks like that's going to continue to remain in that type of pullback. We've also pulled back a little bit on production of a couple of sizes. So the results for -- earthmoving/construction is really being impacted with reduced volumes because of those regions, but you kind of stand back and look at what we're able to accomplish in this type of situation. And it's really a good time for us to make some changes. And we've been able to do that. We've been able to put a lot of time and investment into Bryan, and really focus diligently on making the changes and improvements to the plant, to get this plant positioned where we want it to be. So when the market does rebound, we're going to be in a good spot to -- with that. We've got the LX system up and running. The process flows are much better there. So we feel good about the changes we've been able to make in the Bryan area. When you look at Titan Europe and Australia, we've added $141 million this quarter. If you actually exclude Australia from that, you would see that Titan Europe was up a couple of percent for the quarter. So in light of the roof repair and everything going on in that area, we are actually seeing parts of Europe come back up a little bit, and we are up year-over-year for the quarter. Where we're continuing to get hurt is when you look at price mix. It's about 5% decline, once again, this quarter, so it's about $20 million. You see the heaviest decline coming in the earthmoving/construction segment of a 26% price mix decline. And that mix is really just due to the shift with mining. We continue to get hit a little bit with currency, about a 3% hit this quarter for about $12 million. When you look at Q3 over Q2, it's really tough to make those comparisons. We had the $498 million in Q3 to $593 million last quarter, but it's tough to compare the quarters because, as Maury mentioned, we had the U.S. plant shutdowns, normal maintenance shutdowns that we do every year. That knocks off about $30 million of revenue compared to last quarter. We also have the August holiday, where Europe pretty much disappears. And so you see about another $25 million to $30 million coming off from the impact of that. And then in Latin America, with a weakening real, we lost about $10 million compared to last quarter. That's the core of the changes when you look at Q3 to Q2. But again, it's a tough quarter to compare, so I'm not going to spend a lot of time in that area. When you look at the year-to-date results we're at $1.67 billion compared to $1.33 billion last year, so up 26% for the year, solid gain for ag on the year with volume gains of 6% driving that, so adding almost $50 million in revenue. Europe added another $430 million of revenue this year. And so far this year, Europe has been performing in line with the budget expectations we had for the year. Their wheel business is actually up over those budgets. You look at ag in France has been some of the areas that have helped the cause. Undercarriage is performing well in Latin America and Brazil. So even though Europe is down, when you look at the year-over-year results -- or year-to-date results year-over-year, we certainly feel that the performance has been in line with our expectations, as noted in the fact that they're in line with the budget. Where we're losing steam, though, is on price mix. For the year, we've got about $100 million of revenue that's been knocked out because of just price mix shifts. A lot of that is due to the natural rubber decreasing. And the good news at this point is we're seeing expectations that natural rubber's hit the floor, and that actually in 2014 we could expect to see about a 10% increase in the price of natural rubber, which, of course, will help us gain back some of that revenue that's been lost just from those price mix shifts. FX has cost us about 2% or $27 million for the year. So when you drop down and you start looking at margins, the ag margins for the quarter, considering it was a shutdown period, were very strong. It's 17.7%. That compares very favorably to the last couple of quarters, where we were at 17.3% and 17.4%. So again, considering it was a shutdown period, our core ag businesses performed very strong. I just wanted to note, kind of stating the obvious, but be careful when you look at the margins of any of our segments compared to last year because last year did not include Titan Europe. We closed that acquisition on early part of October. So last year, Q3 was 19.5% for ag. But again, that's -- did not include Titan Europe for that. We did continue to get hurt a little bit by raw materials this quarter. When you look at it year-over-year, about $3 million impact to gross margins was driven by the impact of natural rubber as we've been discussing in the prior quarters. But again, forecasts are that we're at or very close to the bottom of where we expect natural rubber prices to be going forward. Titan Europe, their margins continue to hover right around 12%, as Titan Italy has had the impact of the earthquake repairs going on with the roof there. But again, margins have remained very consistent during that repair time. So really, when you look at earthmoving/construction, you'll see that our margins for the period were 6.7%, compared to just under 13% last quarter. So the difference being about $0.10 per share when you look at that particular segment. And really, the story is pretty simple there. It's just a factor of volumes. With Bryan, the plant is doing much better, cost controls and improvements and systems have been put in place. So there's really not any oddities that have impacted the overall margins, just really being driven by the volume issues and the -- just the weakness that we're seeing in those end markets. Last quarter, we did talk about North America mining having $6 million of additional warranty costs. I do bring that up just to mention that this quarter, it was not nearly the same impact that we experienced last quarter. So we're -- we did have a few additional claims, but nothing near what we had last quarter, and again, nothing worth calling out as a separate note like we did in last quarter. So I just wanted to give everybody an update on that. So looking at the operating expenses of the business or for SG&A, third quarter, we came in at just under 8%, 7.8% to be exact. Legacy Titan businesses, even with all the acquisition activity, the professional fees associated with that, legacy Titan companies are still running at 7.4%, so still a very efficient, effective machine considering the revenue level changes. So on a percent basis, still very effective, considering the revenue shifts. Titan Europe has done a good job as well managing some of their SG&A this year. They've been able to take out about $4 million of their cost so far this year. So we do realize that the acquired entities we've been bringing on do have a cost structure that's higher than what we've seen on the legacy companies and something that we're focusing hard on. We do believe that the volume leveraging will help drive the infrastructure leveraging, I should say. As we add in Russia, we move into other regions outside the U.S. We do believe that there is a strong base there that can be leveraged even stronger to drive more efficiency through our cost structure. Looking at interest expense, we did go up to over $12 million compared to about $6 million last year. I just want to remind everybody it's due to the debt issuance of $325 million in March, which added about $5.4 million. And then Titan Europe added about a little over $1 million this quarter as well, when you look at it compared to last year. So dropping down to the bottom line. We had no adjustments this quarter. So the EPS came in at $0.15 per share diluted. Really, the big impact being out of the earthmoving/construction segment where, as I noted earlier, the difference between this quarter and last was about $0.10 per share, which just the volume levels being just too much overcome for this particular period. So then you look at the balance sheet, and in managing the balance sheet in this type of environment, we're really been watching closely on AR side, as AR has declined in relation to sales. So really no impact to DSO or no negative impact to cash flow. Inventory did increase -- it increased by about $7 million, but I want to note that, actually, just about all of that was due to changes in the currency rates, primarily out of Europe. So it was not an increase in more inventory. And then, again, we really are going to continue to watch inventory. But I want to mention, with what we expect to see in some of the end markets for next year, it's not about just getting rid of inventory, it's about making sure we have the right inventory on hand. So there is such a thing as good inventory and we certainly believe that we're going to find ourselves in a good position when the markets do turn around. Our CapEx for the quarter puts us right in line where we want to be for the year. We're at $19 million this quarter, $55 million year-to-date. Cash for the end of the quarter came in at $448 million. That was compared to $424 million at the end of last quarter. I just wanted to give everybody an update on the transaction that took place subsequent to the end of the third quarter. And that is, we issued a new $400 million bond at 6 7/8 that matures in 2021. With that, we've got a tender of 74% of the outstanding $525 million of 2017 notes. We then proceeded to call the remaining 26%. So subsequent to the end of the quarter, the pro forma impact to cash is about $160 million, which includes the reduction in debt of $125 million and the associated tender and call fees to remove that debt. So our annual interest savings going forward, as we look to next year, will be about $0.13 per share. Then looking at our debt structure after this transaction, we'll be at about $600 million of debt compared to at the end of the first quarter when we were at $865 million. So we really find ourselves with a simple structure of just those $400 million now outstanding in 2021 bonds, $60 million in outstanding converts and then another $130 million that will be overseas debt primarily located in Europe. So it was a challenging quarter, in some aspects, to wrap things up here, but really a positive, productive quarter in many others. Our team continues to grow bigger and stronger as we really build on this strategy and vision that we have laid out in front of us. Bryan is seeing a lot of improvements; it's a much better plant. And then we were able to get the Russian deal closed with Voltyre-Prom, which is just a great opportunity in that region with a business that has strong aftermarkets. And we certainly feel that the OEM potential there is going to be very strong over the coming years as well. So with that, Chad, I'd like to turn it over to you for some questions.

[Operator Instructions] Our first question comes from Ian Zaffino with Oppenheimer. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Just a quick question for Paul first. The $100 million you said, the price mix impact, what is that -- if you walk it further down. I don't know if you said it on the profit line, were there any puts and takes? What sort of number are we going to be looking at more on the profit side?

Well, on the profit side, I think, really, there's 2 items I would call out. Again, we were impacted by natural rubber, which is not related to volumes, obviously, whatsoever, and that was about $3 million this quarter. I would say the primary impact that you're seeing is really just in earthmoving/construction segment, where you see their performance this quarter was about $0.10 a share different than last quarter. The rest of the revenue impact, when you look at price mix, even though you lost -- year-to-date, we've lost $96 million in price mix. This quarter, that only costs us about $3 million. So a lot of that flows through naturally to your end customer without having an impact on the bottom line. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. So it's just $3 million in the quarter, and then maybe a...

Yes, $3 million in the quarter and then the other impact was just $10 million of -- well, about $12 million of FX, actually. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. The following question for Maury. It seems like your friend Arnaud is back in the picture. Can you give some comments on that as far as what the ambitions are?

Who? Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Your very tall, tall friend, who would make the great wide receiver. The...

Are you talking about the Frenchies? Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Yes.

Well, I didn't know if you were talking about Cashin [ph]. I didn't know if you were talking about Cashin [ph] or if you were talking about the minister. Well, it's a fact that. Yes, it's a fact that I was requested, and I went and I met with the minister in August. And I told them and had the lawyers present, and he had all his lawyers, and I basically said, "Hey, the situation is that it's not our plant, it's not our workers. They're part of the CGT. So the first thing is, I'm not talking to the CGT until you've arranged that they and Goodyear, at least coming to some sort of a tentative agreement. And then if Goodyear brings us into it, then fine." And so then he talked and he wanted to know. He appreciated that. And so we started talking about he wanted to know, well, how many people. Well, you have to tell them that you need at least 333 people. And then -- but you've got to have so many maintenance people, so many tire builders. And I said, the situation that you're at, Mr. Minister, is that whether this was in the U.S. or whether it's in France, or whether it's in any place, you have laws. And your laws are -- and Goodyear's can close that plant, appreciate that they're suing the heck out of them. But eventually, whether it's next year or something, they're going to get it closed. So if the CGT and the other unions there agree with Goodyear, then personally, I believe that 100 -- if I was those workers, 100% of them, I think, will take the severance pay. And then Titan should have the opportunity to pick out of the whole 1,200 because you're going to have electricians, tire builders, all of that. So he said, "Well, you're still interested?" And I said, "We've always been interested because that gives us the whole -- we came to our agreement with mother Goodyear and we can brush that off real quick. And it fits with what we're doing in Russia, and it fits everything." So that's what I said to him. And so he says, "Okay." He says, "I know what to do." He said, "I will -- I'll look forward, sir, Grizz, to have some cameras and you sipping, drinking some and toasting with French wine." I said, "I'd love nothing else better." And I said, "You'll probably have a couple hundred cameras shooting at us." And that's the story. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. So it doesn't seem like there's anything imminent. It seems like there still a lot of -- a lot more to go as far as getting what you want and getting in the shape you want it to be?

You cannot, Ian -- this thing could be done in 2 weeks if the parties -- he's been bringing some -- the pressure to apply to certain people over there, that this is the betterment for the working men and women. This is not some chess game of intellectuals, okay? I think it -- he's finally decided that he's got to -- he's figured out exactly how he has to start swinging his club, okay? So we'll see what happens. Ian A. Zaffino - Oppenheimer & Co. Inc., Research Division: Okay. And then final question would be on the destocking, going from the 14 months of inventory at the mines down to 6 months. When do we reach that 6-month point? Is that soon? Is that -- I'm not even...

I think what happens is you can't go around to every mine, okay, and talk to them. I had to -- one of our major competitors had an Investor Day, and they talked about their long-term 5- and 10-year contracts, take your pay, all that other. And I happen to know, I have a few of those 56-page contracts, too. You don't win in this world suing your customer, okay? So I would -- I think it depends on the account, and I haven't been to all of them. I can tell you, the world's largest buyer of tires in our business is -- has 14 months. So they haven't told me if they're going to 7, if they're just going to slow it up, I don't know. And I'm not planning on it. I had my board meeting. We're doing our budgets right now to present to our board in the next couple of weeks. And so, I know what number I think that we can sell and be very profitable in that business and I'm going to wait and see. I think that's the best way of handling it.

Our next question is from Stephen Volkman with Jefferies.

I'm just trying to think sequentially. I don't know, maybe this one's for Paul, I'm not sure. But the margins, obviously, in earthmoving and construction, pretty weak here. Ag seems to be kind of holding in at reasonably good level. So I guess the question is how much of the earthmoving/construction headwinds would you think would start to fade as we move into the fourth quarter? Is it all volume and we're not going to get much volume relief in the fourth quarter? Or are there some other temporary things that might make the fourth quarter look a little bit better?

Well, as Paul mentioned, it's a volume -- you see, the problem that we started, or I started banging, and we had a meeting a few weeks ago, and I think everybody is getting it through their head now, Steve, is that, if you're going to sit there and make the same stupid round, simple tire and wheel that's been on the market for the last 35 or 40 years, that's a commodity. If you're going to get off your tush and you're going to change and make the same outside diameter tire, but you're going to put a bigger wheel into it, then, and we've had this stuff out, and we've had the successes. If you look at that video, that video shows what happened 30 days ago. And like I said in the deal -- in our meeting, we've got people now and we've got to execute and deliver it. Not only do you have the opportunity to increase your sales, you have the opportunity to increase your margins, and you're actually helping the end-user. And if it's going to an OE, you're helping them. I think that we have a lot of opportunity, and it's like one of our accounts that buys an 1,800 by 25 tire, that's a 25-inch wheel. But that tire on a 34.5-inch wheel will perform so much better, it goes on a forklift. And they burn them up in the steel mill of which we're the supplier. So why in the hell wouldn't we be supplying them with the new tire and wheel? Well, no one had an answer. So there's a team for getting answers. Now, will they catch it by December? It's not going to really affect you in the fourth quarter, but it could be a real boon to you starting right in the first. And the reason I say this is because not only does it give us the wheel business, it gives us the tire business and we have good margins on it, because you save so much of that material that you made up with the steel, and then you also turn around and your customer has a better product and he's paying the same amount per se. So there's so many things we've got. So we'll see in the next week or so, when -- how they do it. And I said I think the 15th of December, I'm going to give the old '14 guidance.

Hey Steve, I'll add one thing on that. I had a chance as Maury delivered that message a couple of weeks ago, to follow up with people in North, South America and Europe, and it really is an exciting message. Now it's not a short-term message, like Maury said. But really, when you look at what we could do for the mid- and long-term with product redesign, with LSW concept, there's nobody else that can keep up with what we're doing when it comes to the wheel and the tire. And a time and an environment we're in right now is really creating this opportunity for the company to get synergized, to get the common message and really, get everybody on the same page with it. And I definitely feel that the message is out there. Like Maury said, we're putting together the budgets right now, and we'll see how it all rolls out. But the timing from the perspective of us being able to deliver on this is quicker than anybody else. Nobody can move as fast as we can, with the advantages we have with the wheel and the tire. But it isn't a short-term thing. It's a mid- to long-term enhancement, improvement and competitive advantage that we have.

So it sounds like what you're saying is margins -- especially in earthmoving/construction, could be sort of flattish sequentially in the fourth quarter, but then have a good chance of being higher in '14, and we'll have to wait until December for details on that part?

Yes, 100% correct there, Steve. The unknown we have in our fourth quarter right now is the amount of changes that have occurred from, let's just say, through the whole third quarter. All of those are going to -- are kicking in and have been kicking in this month of October. So I think that we're going to be a little more pleasantly surprised, like some of the margins that will start creeping back up, as we roll into the first of the year. So I'm not writing it all off in the fourth quarter, not by a -- we're still going to have, I think, a fairly decent -- as fourth quarters go.

Our next question comes from Schon Williams with BB&T Capital Markets. Christopher Schon Williams - BB&T Capital Markets, Research Division: Wonder if you could just talk a little bit about the timing of some of the raw material impact. It sounds like, you feel like there's a bottom that we found here on the rubber, when would we start to see that benefit the gross margins? I mean, would we see that as soon as Q4? Or do we need to go kind of 2 or 3 quarters down the line and kind of wait for that, those turns to happen? Can you just help me out on the timing there?

I would say the timing on that happens, it always has in the rubber side, it happens when you have turned around and you've run like about a quarter with it on bottom. Because then what happens, because it's a cartel, then what they'll do on the natural rubber, they'll just bump it up a little bit and see how long that thing holds, okay? So since we don't control it, it's pretty tough. And since I got you on the phone, Schon, since you were out to the Bryan facility, you can tell anybody how much improvements you saw instead of coming from an old man like me. Christopher Schon Williams - BB&T Capital Markets, Research Division: I mean, certainly, there were a lot of improvements at the Bryan facility, and it looks like there is still room for opportunity down the road. You just need the volumes to help you out a little bit.

That's it. And how you do that is by taking the product you got and polishing it up a little bit. Make a bigger hole in it and put a bigger wheel. Well, we'll see how that -- there's plenty of tooling. This is not something that's going to take them 60, 90 days to do. So we'll see how fast they crunch it. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay. But I mean, just in terms of the raw materials though, I mean, it's reasonable to think that even if we are seeing a bottom today, it would take a couple of quarters before you guys would start to feel it. Is that the right impression?

I would think, if the bottom -- if it stays at the bottom, like you just mentioned, through this quarter, that it would be beginning of second quarter where you'd really start seeing something. It takes a quarter, it doesn't take 2 quarters. Christopher Schon Williams - BB&T Capital Markets, Research Division: Okay, that's helpful. And then just -- maybe as a follow-up to our conversation on Bryan. I mean, at this point, you feel confident that a lot of the warranty issues, either on the production side or in terms of accruals, you feel like that's largely behind you? Or can we still see little bit more going into Q4?

No. I think most of that is -- I think it's been reserved, all right? There is -- from what I've been witnessing, what's been happening and how, I think they've got that message in the processes and the people have been either retrained or they're no longer with us. I think those big issues have been identified and corrected. I think, out in the field, that we've got a pretty good handle of what's there. Am I going to say it's 100%? I don't know that for sure because I haven't been all around. But I like to be -- I think Paul stepped up and reserved it. And I think we're reserved pretty damn strong on it. That's my feeling. So Paul, you speak up.

Yes. I mean, Schon, we've got a lot of new product coming of Bryan since we made the improvements and the changes there. We'll continue to get more feedback on that, as we roll through Q4. So a little bit early to tell exactly where we're at on the new products. In a way, the longer it takes to hear, to hear any feedback, it's certainly not a negative, it means it's out there running. So we'll wait, we'll be able to give you an update as we get through the end of Q4. But this quarter was much quieter than the second quarter, and we've made a lot of improvement since then.

The next question is from Larry De Maria with William Blair. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: Question. As it relates to Russia -- I'm sorry, to France, is there a new -- what's the new price talk, if there is price talk? And would you -- I know there's a lot of negotiation that has to go on with labor unions. But would you take this if it wasn't profitable right out of the gate? Because I think it's losing money now if I'm correct, and obviously, you want to restructure that. So how would you take this coming out of the gate?

Well, the first thing is, is that you have to have all the parties agree, okay? That's the first thing, okay. Nobody has agreed to anything. So that's the simplest thing. I think the ball is in Mother Goodyear's, the minister -- Goodyear, the minister and the CGT. Goodyear knows, we've done enough stuff with Goodyear, that we have the interest. I think what everybody is missing, Larry, is that, if this thing transpires and happens, I've been through too much of this. Under French law, whatever Goodyear offers those employees for a shutdown, because this will be a shutdown and severance. You're not -- if you don't get 100%, then somebody is mentally ill, okay? Because they're going to get 100%. How many people are going to take that, then they've got a lot of cash right then and there. So you probably have a shutdown, and you'll have probably 2 weeks to a full month before you have to -- you'll have your comparable workforce and everything to start up. And actually, you won't have to be paying anybody. So I actually think it works out real well. I would expect that facility not to be profitable for maybe the first quarter, maybe the second quarter, but you see, you're going to have a lot of inventory. So you should be able to -- that loss has already been accumulated. So you're going off of that inventory in a market condition. So I think it translates pretty good, personally. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: Okay. Got it. And then, you guys, in the release, and you talked positively on the construction market the next year already, I'm just curious. How do we get to 20%, 25% growth in construction? Because that's -- the OEs are -- maybe they're just talking things down, but they're not talking about that kind of a number yet for next year. So how do we get there? Is it just a snapback in production? And do you have to go out and hire people to get there? And is that what we should be planning on?

No, no. No, no. We have a capacity with our workforce. We don't have to do any of that. The situation and how did I get there, well, the reason most of the people that are all on this call know that, we know this pretty good, now, when you go look at my friends, whether it's Pierre or whoever it is, okay, or the big CAT machine, they kind of like give you big, big pictures, you see. A lot of stuff gets thrown in. Ours gets right down to the simple fact of a wheel and a tire. So you know if a wheel or a tire is going on it. That only happens on most of the smaller size. So I question some of the numbers, too. And I've told Jay [ph], you could be at 20% and that's what's been first of the year is going to start off that way, whether it goes all to hell, I don't know. But I don't do a lot of good forecasting. But I can tell you that we didn't create it. But that's what everybody's looking. And I'll tell you, you're running around with all the dealers, too. They're telling you the same thing, the quarries are going real strong, all through, that's cement, that's stone. So I've been with a few of them the last 2 weeks, I was kind of shocked. I didn't believe the numbers either. But that's what it's looking like for the first 6 months, pretty strong. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: Okay. Well, that's great. And then, maybe just finally, some good color on the mining tires, but I think we still lack a little bit perspective. Just trying to figure out, Bryan, I guess, specifically, to break that away from the construction business, how do we think about that being down this year? And is next year, are we going to be at a much higher run rate? Or are we still kind of struggling along into next year? I'm just trying to understand where we come from, where we are, in terms of utilization, and where we might be going because that's going to be a big driver to the story that we're kind of confused about.

Well, I appreciate what you're saying. I think on the big, big stuff, if you're looking for just popping out that same doughnut in, what you call, the superclass trucks, the 57s and the 63s. I think that's -- that business, the only way you're going to really maintain the business is you go out there and you start pricing at what the market's going to carry come this next June. I think, for the first 6 months, it won't be too bad. But I've already -- we went through all the equipment and what we've got, and where we think we should be running, and how fast -- what we have to do to keep it into the large size for the special -- specialty market that's out there. And when you look at that, when you look at -- I'd rather be able to sell specialty tire for $50,000 and make a decent double-digit margin, than to go sell something for $35,000, and I'm trying to get a single digit. That's what we're really doing on that sector. And that sector is in the big giant class. There's still going to be an awful lot of business out there in the 51-inch and down. And like I've told everybody, you can run that Bryan plant wide open, just go get the business now and get it done because we've put the resources there to do it. So I've got -- I'm telling you the same thing I told my board, I've got a lot of faith in what we're going to be doing in this next year in the, basically, the earthmover. Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: Okay. So we should be thinking about this differently then. The mix might change, but your utilization in terms of tonnage that's coming out of that plant might be up next year, but it's a different mix. Is that right?

That's it. As long as you keep the mix, you're going to still make the money, okay? And that's what you have to do. You can't get yourself -- people have a tendency to get some welded that I don't want to make this big huge tire. And well, you make 2 small ones, you got the same tonnage, you can make them twice as fast, and actually, sometimes you save on people. So the big tire was great as long as you've got $40,000 to $50,000, and it cost you $20,000 some thousand to make it. But if you're only going to get $30,000, you got better margins on the other side because there's not the same amount of capacity.

Our next question comes from Robert Marsen [ph] with Ten Capital Management.

Actually I have 2, maybe 3, if you have time. How's the integration of Titan International coming? And if business doesn't really pick up and sort of just struggles along for the next 4 or 5, 6 quarters, is there anything we can do, in general, to attempt to raise those gross margins back up from the low to mid-teens to the high teens to the 20% plus target we were talking about 4 to 6 quarters ago?

There's no question. We're not waiting 4 to 5 months. We're already going in a hunt. And what that basically is, what we're trying to do is take the product that we're already making, and we've been going around, and we've been showing people how to make the change and how we can improve it in here. And that's like everything else. It starts slow, but then it starts moving faster and faster. So we've been on this for a big bang, that's what I've been doing, running around North America. That's in the farm side, which is our biggest market. But we've got the same situation in the construction side. And all of that brings much better margins than what you do by making the same dumb widget. And so it entails both the wheel guy and it entails the tire. So that's going in pretty good tandem.

Does this roll out to OE or aftermarket first?

Doing -- the first thing is, I spent 40 years trying to show a lot of stuff to the OE. So in the last 2, 3 years now, I've been on the road and I'm doing it to the aftermarket. Now I'm starting to get some size into the aftermarket, which, in turn, the OEs are going to start to ask the question, what's he doing? What's he doing? It's a lot like this, gentlemen. Caterpillar, 95% of every big machine they sell, they sell it without wheels and tires. That doesn't happen in the farm industry. It's like I said to Mother Deere, I say: "You sell not one dual wheel and tire in Europe. 80% to 85% duals you sell over here." What do they do with it? Nothing. We sell it to them. And like I said, you know, you should be doing the same thing in Europe because there's 16 dual manufacturers over there. And here's an option. This is the simplest thing in the world, both to Case, Deere, Agco, all of them. Here, just put it in your book because you're going to make more money because this is what the farmer wants. In fact, here, here's your largest dealer in America. Sells more 4-wheel-drive tractors than anybody else. And he'll tell you, you'll order 100% of them with it and then make a little bit more money. So I already know what we have is a success just because of what it does to the equipment. It would be a lot better just to send it to Deere, send it to Case, send it to Agco, and let them all make a little bit more money on it. But you got to appreciate up to this point, their sales force has never had to do anything, just listen to guys screaming at them. So they haven't really been in a hurry. But now, when all of a sudden, they start seeing you start taking something from them, trust me. And I protected our tush because when it goes way up to chain and someone says, what in the hell? I showed you guys, I've been waiting 5 years for you. I'm getting to be old. I can't do this anymore. So I know what we're doing. And eventually, they will be going. The question is, how fast? So I'm not waiting. That's why I'm in the aftermarket. Did I answer your question?

That answered one of them. The second -- the first one was the Titan International integration. Did we learn anything about that deal? Is that all done and operating the way you want it?

The Titan International integration. Now you talk about ... Lawrence T. De Maria - William Blair & Company L.L.C., Research Division: All the European businesses and all that kind of fun stuff?

Yes, they're all meshed in. Are they -- have we squeezed all of it and got the benefit of the synergies and everything else? No. We haven't got it all. I mean, is it coming? As Paul said, yes, it's coming. But they don't move in the same speed zone that the U.S., okay? That's why they use kilometers, it makes them think they're going faster. So no, we still got room to move. In fact, the big ag show over there -- you see, people don't understand, farming in Europe, a tractor in Europe is used not only as a tractor, but it's used as a pickup. So they want it to run real fast down the road. Now they snap, they dual everything over there, but they snap them off when they're going to run up and down. So -- and that's because of fuel, the price of fuel. There's no tax on farm tractors. But we're the only ones that have adjustable wheels. So that you can put it on the front, you can put it on the back, and it's adjustable and it's got a pin so you can make any adjustment, in that it stays running true and you can do 70k to 80k. So like I said to our people, why aren't we offering it? So it's over here, but we don't really need it over here because we have pickups, nobody thought of it. So we're making a big splash in November at the big farm expo over there.

We count on innovation to drive the demand and market share gains and get pricing premium, et cetera, to help the gross margins the next couple of years.

That's where we're going, okay? We've done it before. We do it over here on certain things and all the acquisitions we've made. Now we've got to just -- we've been a little -- people have been too busy looking at every other damn thing than to look at what we can do to grab business that we don't have to be in the same competitive nature.

One final question. You've really changed the nature of the business in the past decade and it's grown a lot. It's a far-flung empire with lots of new customers, products, businesses, very different from just 5 or 10 years ago. Do you really need some kind of global manufacturing plan, detail-oriented guru to supplement your vision and your deal-making expertise? Is the management not deep enough to handle this stuff? Because, quite frankly, we've been shareholders for a few years, and we've had Roseanne Roseannadanna quarters. There's always something. We haven't had many clean quarters in the last 8 quarters, and we're just wondering if the business is being run as tightly as it could be, now that it's expanded so vastly into so many different areas from the past.

The answer to that question is that, you've taken, over the last 4 years, your growth has been almost mid-double digit each year, okay? It hasn't been internal growth, a little maybe, but not a lot, but you've kept that, and you don't get your choices sometimes, because if you look at the price we paid for the stuff, I did not pay a lot of money. You can look at the price of the stock, and I don't have a damn thing to do with the price of the stock, okay? If you went after 90 -- or 2009, we were -- we didn't do too bad as we're rolling. But our stock went from whatever the hell it was down to 2 62. There's some people who bought it there. Some people bought it there, so yes, did it go back up? It goes down. I can't worry about that. And since you've known also all the years, I tell you the same thing. I haven't gotten -- fallen off the road. I keep going down the road. I haven't got into a head-on crash. I've set it up for the next umpteen years, the finances of the company. We've got the money to do our next acquisitions, and then, we're basically done. Then when you're done with the acquisitions, you -- it's not a case of a whirl, all those places have some pretty good managers, it's just that they haven't had the freedom and they haven't had the, what I would call, the luxury of innovation. And now they're getting it. We bought the plant from Goodyear, that's 96, in general. I got saddled. Did I make revolutionary changes to the labor agreement when I bought them? Yes. But I got locked for 5 years or 4.5 years. And then the second bite of the apple was 2010. And last year, as someone, I forget who, I think it was Paul mentioned, Freeport went from the biggest loser to the most money. Now Bryan, Bryan had some problems. And we've got in and figured out what that is. And regretfully to say, it cost us a little bit of money. But we've got them, I think, on a pretty good movement. Would I like to hire a few more engineers? Yes. Do I need heavier management at the top? I think we've got the system pretty well there that will bring us through for the future.

Okay, you got the IP, you got the management horsepower to run all these new businesses and new geographies and new products, servicing new customers.

We could turn around and, well you haven't probably met...

All at 7% SG&A. These guys are working cheap for you there, Maury.

Well, I don't need that comment because they're on the phone listening. Okay? I mean, I don't need everybody coming in ...

Everybody's coming in for raises this year, bonuses, Maury.

You see? So there's some real good people and like everything else, most of them are new within the last 2 to 3 years. So -- and there are a hell of a lot, they're young, they're all in their 40s. So they've learned a lot. They make a lot of little mistakes but they're getting better. And I think they're going to be a power to generate this thing.

Okay. In summary, even with sloppy demand, as long as the world doesn't fall apart, you're expecting to drive this business forward on a revenue and especially a margin basis the next couple of years?

There are no ands, ifs or buts about it. It's like, here. We had all of our dealers in Florida this weekend. And my board got to chit chat with all the ops boys from around the world in this. And like one guy said to them about Russia, he says, I believe we have the opportunity to make more margin in that facility as time goes than any other facility we have. And I actually have to agree with him. I just figured I wouldn't have thrown that out at that time yet, but I happen to agree with him. So there's a lot of things. But you don't know, maybe Putin declares war on somebody and Jesus, then I won't be able to get the money out. But I don't think that's going to happen. So I got a lot of faith.

This concludes the question-and-answer session. I would like to turn the conference back over to Maurice Taylor and Paul Reitz.

I'll just say goodbye, goodbye to everybody and have a great day. Thank you. Ciao, ciao.