Titan International, Inc. (TWI) Q1 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by and welcome to the Titan International First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to our host, Mr. Maury Taylor. Please go ahead, sir.

Good morning, everyone. I’m assuming everybody has got our release out. That's why you’re calling in. Number one, we had a very, very good quarter as all of you can see, its record on almost every scale or anyway you want to measure it. But, there is -- in this market, is just going and going. And as I said in the release, I don’t expect anything to even attempt to slow this thing down until towards the end of 2013 if there is, but we'll be getting our second leg by then. One thing we should do and I should talk to you about is the -- is what happened in the first quarter. The first quarter, of course, this is the leap year, so we’ve got an extra day in, but it really came down to a lot of our new employees that we’ve been hiring and we’ve still got more coming in. They’re picking up the pace, the efficiencies will get better and as I time goes, it will effect and strengthen our margins. So everything is looking so encouraging as we go forward. The other situation is that we had a mild winter too, so it’s interesting to see that where all of our plants are, there was no days that we lost -- not lost, but would have an awful lot of people that couldn’t get in to work because of snow, that didn’t happen this year. So for those who like the wish about global warming, I’m happy. The other situation, so that falls right in to that, is the price of natural gas. As everybody knows, it cost a lot of money in the winter to heat those facilities and to -- all the process teams and everything else. And of course, we do have a mild weather it sure does help and all these things helped us we were going to this quarter. And I believe they’re going to help us we move into the rest of this year and into 2013. We have started shipping out of Tennessee, we just started that this past week. They’ll be taking shipping to various plants, mixed rubber stock, and that is slowly but surely is coming up and that’s going to be a real big help for us as we march into the rest of the this year and we go through, we expect a lot of our tooling and the equipment that is coming in will -- it has been coming -- starting to land in this month and we’ve been in the factories moving equipment. So hopefully, this will get stronger a leg to give us a push, if it doesn’t help us in the second, it sure as hell is going to help us in the third. So we’re excited on all these fronts. I took a little note that in the press release, we get a little mixed up, people get us mixed up that we’re in the automotive. As most of you know, we don’t touch anything in automotive. So, I put that in there because I get tired of being told that we’re in that automotive bracket. The other situation is that we have a situation where some people are concerned about the competition is spending $2.5 billion to bring new capacity on stream. I think that’s a very good point and some people can get worried about it, we are not worried about it because as you noticed, we run a 6% SG&A, none of those other companies have ability to run at that. So to spend that kind of money we’re -- we spend much less, we believe that our business is going to grow to the size that we expect to be between $3 billion and $4 billion and everyone else is trying to hammer out, we think we’re going to have a very compelling situation of where we will be the lowest cost producer and we will have a -- our products making the wheel and the tire will be able to come up with an awful lot of innovative and new products to make the equipment that uses the tires and wheels perform better. So, we’re excited and it just goes to prove what we’ve stated. This thing has got real legs, most of that equipment won’t come out until 2014. So we welcome everybody coming to the USA to go head to head. I do believe that we have reached a point in our business plan, which we should start to be able to really make some long-term strides, not only in our productivity, but to give us the flexibility to grow and this is coming out of the Tennessee facility we bought in November. I’m excited. I think all of my management is on board and excited as well. We -- the order deck is actually full and so the only thing you do there is you have to increase your output and our dealers to start increasing the output and our only fallback is that there is so much in the aftermarket that we're not at this point -- have been -- not been able to handle, because the other side has been so busy all weeks, but we believe come the third quarter, we should make enough of an increase in the production so that we can start getting caught up into that. So we get back to the 50-50, 50 OE, 50% after market and that’s in the tire side. The business is, as I mentioned, it makes no difference whether you’re in the U.S. here or you go down to the South, it’s a situation where demand, new product, it’s just going crazy. I was up in the oil sands in fact tomorrow, we have people coming in from there and that place is exploding as we’ve stated in the press release. We no sooner opened up the place, everybody is known we've been working on that for a while and we have to double it. So, in our little neck of the words, things are really, really in the positive light. And I think when you’re seeing the release from cap, I don’t know how they got beat up. But they are going hard, they are going to be increasing so is there. It’s a very, very good time. So with that, why don’t you bring us up to date on all the numbers there, Paul.

Hey, sounds good, Maury. I appreciate it and good morning, everyone. Quite simply, it was just an excellent financial quarter for us. It really sets a new bar for what this company is capable of accomplishing. If you look at our revenue, it jumped up $182 million to $463 million this quarter. That does include $90 million that came in from Latin America. So even if you back out that Latin America piece, you’re still looking at organic growth this quarter of 33% over last year and 15% just from last quarter. Our growth is how you’d like to see it. It’s a good mix of strong volume gains and good price mix improvements. So as you heard already this morning and saw on our press release, I mean the order deck is in great shape as we move into Q2 and this sales engine without doubt is going to keep on turning. Our gross profit was the highest ever at 20.2%, surpassing last year’s record of 20% in the first quarter. You got to remember last year’s first quarter didn’t include Latin America. So this is important if you back out Latin America this quarter, we are actually at almost 22% gross margin. If you’re looking at strong volume gains that are driving up our margins, but really I mean this company and its people are continuing to get stronger and learn and develop as we go. So it’s not just simply volumes that are making the margins go higher. Lots of noise was around our SG&A last quarter, so we’re happy to report this quarter we’re back at a lean 4.8%, when you just out the CEO comp. This quarter also includes some additional IT expenses related to some plant wide and corporate wide system upgrades that will be going on throughout this year. So even with that additional expense, you see that we’re still under the 5% level. We had stated before that our range for SG&A would be in that 5% to 7% range typically. But if you look back in 2010, we were at 6%, 2011, we were at 5.9% and actually 3 of the last 4 quarters, we’ve been below 5%. So absent that, Q4 in frequent type activity, which a good bit of it was non-cash. I mean you’ll see that we’re running this place with a very efficient SG&A model. Looking at operating income that came in at 12.7% of revenue, so that means it only took us 7.5% of total revenue in operating expenses to run the company. So if we can get this business gross margin levels up, you will see that everything flows through the bottom line very well and indeed that’s what you saw this quarter with our adjusted net income of $40.5 million or $0.78 per share. In the segment side, you’ll see that the earthmoving and construction hit a homerun this quarter with incremental margins of 37% and brought our margin up to 21% from 12% last year. Clearly, we’re starting to get very good return in absorption on the investment we’ve made into the Supergiant platform in 2008, 2009 with increasing volumes that we’re getting. And we’re starting to see the impact of the CAT deal that we announced a few months ago as that starts to ramp up into 2012. The Ag area continues on a strong path with sales of $296 million and margins of 22.3%. This includes $33 million of revenue from Latin America and this is against the backdrop last year of $201 million and 22.7% margins. So, yes, margins did have a slight decrease from last year’s levels, but again you need to remember that last year did not include Latin America, which does have a slightly lower margin profile than our North American Ag business. So all this certainly illustrates that our plants are efficient operations that can run very well at these levels and produce the heck a lot of wheels and tires. But this company really just feels like we’re reaching and warming up for the middle of the race, because we think about it, Brazil is only 1 year old with a lot of improvement and gain to come forward in the future. We got the Supergiant platform that’s only 3 to 4 years old. Our venture into construction only started about 6 years old. And then the Goodyear Ag name is only 7 years old. So even with our revenue on pace this year to more than double 2010 levels, we’re just getting going in a lot of these areas and we certainly have the ability to take on more growth. As noted in our press release, we brought in quite a few new members of the team. And with that, we brought a different perspective and some new ideas to the business. But really the benefit of that is comes in effect that you can combine it with experienced members of the team. I mean the people that have created his business from the ground up and you take the 2 and you combine them and you really have an operation that’s running with a lot of energy and passion. And the team understands our roles and where we’re going as a company and certainly we’re all very excited and working hard in making this bigger and better place. So looking over the balance sheet, cash did stay relatively flat at $129 million this quarter with our growth, we have seen our investments into AR and inventory. AR was up $55 million on sales growth of $60 million this quarter. DSO did pickup about 48 this period, but that’s expected to come off and shutdown week at the end of the December. And then, we did have a strong March and so that’s certainly went to an uptick in AR at the end of the quarter. About the only thing in is changing that I will point out is that, with the growth in the earthmoving construction line with some of the larger tires be shipped overseas, we do have to offer different payment terms to allow for the additional freight time to get through the product to arrival oversees. And so, other than that, again, AR has been driven by growth. Inventory is certainly been a fun topic this quarter with some of the media reports up there. It is up a bit to $214 million. But again inventory is moving well, it’s tied to demand. Inventory turns remain high levels of our historical range. We did push some extra into finished goods in this quarter to prepare ourselves for some demand from a few key customers in the second quarter. But we’re putting our focus on our inventory levels, we're watching that closely, but basically is tied to future demand and revenue growth. During the period, we were able to pay off $12 million of working capital there in Brazil. And then, we also invested $8.2 million into CapEx this quarter on our guidance for the year of spending approximately $50 million of investment in CapEx. So with that guys, I’d like to turn the call back over to the operator for questions.

[Operator Instructions] Our first question today comes from the line of Ian Zaffino from Oppenheimer.

On the mining side, what is the incremental margin there? I mean, there seem to be in the high 30s, I don’t know if you could if can kind of confirm that and really what’s driving that? Is that cost absorption? What’s going on there?

Well, I think what’s happening, number one, I don’t want to get into what, where and how, but the mining sector at this point time is going very, very robust. It’s going to continue to go robust. Contrary to what a lot of people think commodity prices may go down. It just means that the equipment they have, they’re going to run it faster and faster, and when they run it faster and faster the tires go out and the new mines are opening, a lot of them if everybody goes back to the ‘O7, ‘08 period, you know that those mines that they made the discovery of and decided to open them, they are coming on the stream, now they don’t come on stream and they put a bunch of trucks and just started digging a whole, and start moving the stuff. They have to have their smelters, all the rest of their plants either built or created and that’s what they’ve been doing. So the other factor is that I believe everyone has had a time to do their test, find out, and that by God, we're here to stay, we are getting better every year. And I think a lot of companies at least what they’ve told me is that we’re going to keep you guys around because we’re the ones that make everybody else come to the party. We doubt if our friends at Michelin or Bridgestone would have taken $2.5 billion and be throwing it into plants, equipment, without us being there to make them a little nervous. I mean that’s how we see it. So your margins, which we’ve already stated, once we’ve got going, it’s going to be pretty hard to dislodge us and compete in the cost, and that’s where we’re at.

Okay. Great. And then also, could you give us an update on what’s going on the Europe?

Well, actually I had a call yesterday that I believe the union has notified Goodyear that they want to face the negotiations. We're not in the negotiations, the union wanted us to be part of them all and finally we said, hey guys, you’ve got to make your deal with Goodyear, you get done with your deal with Goodyear and we are going to negotiate with Goodyear and then we’ll negotiate with you. You’re not doing it totally backwards, it’s kind of deal with us, we don’t have nothing there. So, I think that finally between the people at Goodyear over in Europe, I think they finally got the message from Akron, what they better get done. So that’s how I see it. Right now, we’re pretty content -- moving some of the other operations and we are doing and we’re doing pretty good until they -- they get it done, when they get it done, we’ll finish the negotiations but I think it’s going real close right now.

And our next question comes from the line of Saul Ludwig from Northcoast Research.

Now, things -- it’s hard to complain here but things are terrific in the first quarter. But what kind of surprise to me is, on your, you’re sort of 66% increase in sales, you got the same increase in gross profit. You’ve commented about the good weather, you didn’t have any down days, you commented about lower natural gas costs. I guess I was surprised that the gross margin improvement wouldn’t have been leveraged more to the revenue growth then it was. So one part of -

Let me ask that question. The reason is if you look and you throw into a tire factory -- factories, there is 3 of them. You’ve got approximately the 500 new employees that you’ve thrown in, it’s actually could be a greater net today. So all the time you are training them, you should see your -- in the normal process, you should see the revenue keep going up, up as you open up but your efficiency should be worse, worse, so worse until you’ve got them in season then for enough time. But what is happening if you’re actually picking up some of this and you stayed the same. So if you stayed the same, how did that happen? It should of went and the margins should have dropped. And that’s why I try to explain to you, we had an extra day which helps. And the other side question is, is that a lot of the people are getting a little bit better than what we thought quicker and so with that and everything else your margins as stayed or just went up, and that’s a pretty damn good.

We understand that what the real dropping a little the Ag market is really heating up in Brazil are very, very frothy but here we have more export opportunities and that should to play and well into your Brazilian operations. Now, when we get to the second and subsequent quarters you prepare an apples-and-apples now with Brazil in both years. And you will have -- you always have new employees that your training, so that negative is going to be there, but you have the other new employees that are moving up the learning curve. When do you see the leverage whereby gross profits will start to increase at a faster rate than your revenue growth?

I think you’ll start to see that in the fourth quarter of this year.

In the which quarter?

Fourth.

Fourth quarter. So, until then we are going to see more commensurate type of gross profit with revenue growth.

Well, I think you’re going to see -- I think you’ll see the revenue go up and I think that the situation with the gross margins will pretty well stay in their range there at, and come the fourth quarter I think to answer your question that the percentages will go up and I think fourth quarter going on.

And then just finally Maurice, from the seasonable standpoint you make X in the first quarter. You typically make 120x in the second and then 80x in the third or how do you see the seasonal pattern unfolding?

Well, the thing is, is that in the mining, you don’t get a seasonal pattern that that’s the -- that’s what throwing everything in a little bit of down key, in fact if everything works well. We should be adding OTR [ph] capacity in South America and what we are doing in Tennessee, I have to wait a few more months to make sure everything is working good there. That should help us and we believe that the mining will turn around and be so strong and it could twelfth [ph] where we’re at in the Ag side. So we’ve got to wait and see that one.

But second question is generally better than your first quarter in the overall picture right?

If they slip back-and-forth, they slip back-and-forth. So what happens in the second quarter we are doing quite a different expansion by adding lot of the equipment and from the building side and the Bryan facility. In fact we’ve pulled -- we had to stop some lines when we put some more equipment and what just going to jack up our capacity quite a bit. So, which is also going to improve the hell out of our margins, but that’s happening right as we speak. But overall, it’s just depends, right now, everything we can possibly breakout, we have to do. So I can say there is a bad quarter or lower quarter going out, but you’re going be affected by shutdowns, vacations and heat more than anything else. And with more new employees, it means we don’t have to shut down for so long. So that’s what’s really going on so.

And our next question comes from the line of James Kitchell with Goldman Sachs.

I guess the demand for tire, big tires are growing, supply is growing, my question is really, if there is a real risk in your mind that the supply demand balance could get out of whack in a few years, at least with respect to the investments in it that have been announced today by competitors?

Well, I’m not going to speak on the competitors half because I know really no longer in our thinking. But that question more or less belongs to them. We have -- they’re going to put out 2.5 billion. So when you look at how much money Titan has to put out to get the same bang, means I’ve got a lot of more leverage then those boys do, it’s the other way around. So I’m glad to see it because it proves what we’ve told everybody, all right. Everybody keeps wondering when this things going to die out. Well, when you start to think about it, and you pick up the paper and China is going to build 20 million cars for their market. It just trumps any place else in the world. And then you got India, so I think when you start looking at the tires and the wheels that are going in this stuff, we’re going to be pretty -- we took a different avenue than both our 2 big boys, Bridgestone and Michelin. And they make great products. They're great companies. But they do not have the flexibility that we at Titan have. And I believe that everybody in this business now, any place on the globe has heard of us, have seen product, have seen and visited our facilities. And I think they are kind of quite impressed, with what we can do and we are not looking to be the largest in that business. We don’t have the interest, which is adding and adding. We do want to sell our facilities, and if we run our facilities, the way I stated, if we can get ourselves between the $3 billion and $4 billion, that’s it. We can't grow any bigger. So you just sit there and get the baby all honed in. And I think that’s -- that’s a very doable situation and I believe turns us into one hell of a cash cow and that’s where we are going. We haven’t changed our focus or anything. I don’t care what -- any of the competitors do. They don’t say. The Ag side and everybody against American’s and we're as American as apple pie, so that’s all I say.

Do you have a question I had. It’s sort of unrelated, but you talked a bit in your comments just now about -- about your growth plans which you’ve been very clear about. I was just -- I know you don’t like to talk too much about, net-debt-EBITDA ratios and stuff like that. But, in light to your growth plans I guess, can you update us at all on sort of balance sheet parameters that you may have, I am thinking about how to achieve the growth, sort of what the uptrend of the leverage level sort of borrowings, that you feel comfortable with at this juncture and that would be helpful?

Well. Yes, we want to buy everything as buy those cheap as we can buy it. All right, I mean that’s simple enough. We have a situation, expansion, what we’re planning out for Europe and we believe that when that is done that opens this up a big new area for us to go prowl around them. I’ve stated that, when you look at that we spent in the first quarter $8.5 million in CapEx. A lot of that went into our situation of the mining services right up in the oil sands. And we’ve got it have to double that now and then we’re going to have put the same facility in South America, we're going to put more in Africa. I mean, it’s we got a lot on our plane and now that basis can grow well and it just ties in with everything. So we’re kind of really excited for what we’re doing and most of that without a doubt can be financed through what we’re doing. So, we’re in -- we’re really operating in a good environment. And we think it’s going to keep going. So, that’s hopefully answered the question.

And our next question comes from the line of Larry De Maria from William Blair.

Here I ask the questions. A lot of company to bring up good ag mark numbers to start the year off and some of the reason may be open handset funding, portfolio demands from early planning season. And then their concerned would be that falls off. So from basing off your order book and where you’re seeing talking to customers and farmers. Do you see that as a risk or continues to growth or is that on the [indiscernible]?

There is -- first thing is on, we do the tires and the wheels, so first things is just, we’ve got to crank out more tires just for the aftermarket. And we think that Ag is going to stay so strong and the reason -- what’s happening in the Ag is the price of the crops, I mean -- do more ground, but contrary to what everybody is talking as you go out in the fields, you go around this country, you’ll see -- I don’t -- there might be more acreage into corn as the government would say. But the problem we’re going to have is that, that’s all of that marginal land, that’s all the land that farmers think what the heck, why leave it when the government -- get a little government check for being conservationist. They’re going to plow that because they will get -- maybe they only get 80 or 90 bushel an acre in corn, but there’s a lot of the other corn acreage that is good corn growing, which is being put into soy beans because they have to replenish the soil. And that’s what you do by rotating crops and soy beans are just going absolutely gangbusters, because South America had a bad year in the soy bean. So when you look at what’s happening in the farmland, it’s just going to get bigger, bigger and bigger. And you can see that, everybody is talking about it, you see in all their numbers come out. Deere is stronger than ever. So I just think that they’re going to keep this thing rolling at least through 2013 and then the only thing that would change is if everybody in the world just has a fantastic growing season. But there’s so many more mouths to feed anyhow so. I just think Ag has been running now since pretty heavy. There’s no subsidies going to these farmers. The price of crops is always too high. So that’s what I see.

Okay. You mentioned the aftermarket. Have you guys been able to start picking share back up or is the demand so strong and [indiscernible] obviously BKT, the Indian guys have been coming in and selling tires here. Is there anything you can do similar to what you guys did on the wheel front with trade restrictions coming from China? Can you do that with India? Is that on the radar?

Well, you’ve got the -- you’d have a hell of time doing right now when you can’t make enough tires. I mean, you’re not going to supply that. The problem has been is selectively a lot of our competitors, I'm referring to big boys, when things get light there, they determine to sell to their dealers the tire and of course they put the OEs on allocation. And so if the OEs want to have some more tires, they got to go into the aftermarket and that’s how they get their tires, but they pay a lot more for that. So, we actually have done ,because it’s in our business long-term, we have taken care of the OEs, but I will now this past month and told a lot of them that, listen, we’re going to balance this thing up. Why should we leave money in the aftermarket, we think you should just go back with the baseball bat and hit our competitors and tell them, give me more tires. We don’t mind doing what we were in a percentage term, but it’s -- doesn’t help our bottom line as well as it would if I sold tires to the aftermarket. And that’s where we’re at today.

Okay. If I could just take one more in there. Further you guys are doing very well obviously, can you give us an idea of the production come out of -- in the first quarter and if 6,000 is still a good number for the year? And then obviously and your production margins they need to improve or for this base we have in the first quarter with more production? And could this be the low margins in quarter in that segment for the year?

There is a possibility to sell fast as I said earlier. We are installing the equipment as I’m speaking to you. We’ve been cutting the holes, shutting down some lines and moving stuff around, all of this is we get reduce cost into producing certain things and get more output. And we are final “move” in this is over the Fourth of July weekend. So, our whole premise is that, we expect Bryan to increase its output every quarter as we go through this year. And if that happens, exactly that way, there’s no question with what we’re doing. Our margins will go up and if we're going to satisfy the commitments -- let’s say, we’ve taken. This is what’s going to happen and we’re heavy -- a lot of orders that we have taken are real heavy on the third and fourth quarter of this year in the mining side.

So you haven't even seen the biggest sequential increases that coming out Bryan yet, it’s still to come. I guess.

Yes.

And our next question comes from the line of Ryan Connors of Janney.

So a couple of questions. Just following up on your comments there on the OEMs and how you’ve been less likely than some of your competitors to put OEMs on allocation. Are there any of your customers -- OE customers that are being rationed, maybe some of the smaller players like center pivots or anything like that or is that just not present in your business at this point.

On the irrigation accounts, most of those accounts are wheel and tire accounts and they have been going gangbusters. So if there is a wheel and a tire involved, we have a tendency to take care of those accounts, okay. Mainly because of that affects both products we have, if it was an account, we just say didn’t buy a wheel, but wanted to buy tires, they would probably more than likely be on allocation.

Okay, okay. That’s interesting. And then I wanted to talk a little bit about your calls on your road is sort of SG&A target range of 5% to 7% and I’m just wondering how to think about that longer-term layout, increasing significant revenue number a few years out, north of $3 million. One would assume that, in that kind of timeframe they would be start to these in pretty significant SG&A leverage on that into that percent of revenue would drop. Can you just kind of give us your thoughts on that.

Well. I think if you look, there's very few public companies that can run about specially what we do, a 5% to 7% SG&A, in that range. So we believe that’s the Holy Grail that we have to hear to, we can get the load down lower and lower. Well, that’s fine, but you have to be able to understand that even in our company, it’s hard to make sure our people keep the discipline. It’s like going to trade shows, all right. You don't think much about it, but the next thing you’ll look at -- what the hell I got 30 people going out here for? Look, we'll all go to Vegas, right, like the government GSA. What’s this? Or how? I used to run that show myself with one other guy. And I got 30 going? Look for -- they walk around -- give me a break. So you have to kind of like always keep your eyes on the certain things, and make sure it don’t -- I appreciate everybody likes to have a good time, but I think they should do it on their own nickel. I just -- I had a trip with 2 people going to Moscow for the Russian mining show. You know what they’re going for, to show us our breaking actually. Not to tire the little guys, what in the hell is going to show break and actually we look for? The only thing they would do is, buy one copy and then start building it over there. I mean, so this what I say you have to keep -- you have to watch it, that’s like anything. So that’s what we try to do.

And then a final question, I guess more of a big picture question. I just wanted to get your view on kind of tracking and treading, tread technology, as a substitution risk longer-term. I mean, I know it’s a niche product right now, but does give a lot of buzz out there. It’s tough to go to John Deere and Booth and so forth, even they seem to be featuring it pretty prominently. And then, you yourself talked about marginal and coming online, and sometimes that’s where the tread technology is deployed. So I’d be interested in your thoughts, just longer-term on that technology? And whether you have any intent to play there, and if not how you view it as a potential substitution risk?

Now, when you say the technology -- the technology, you have to be little more specific -- technology for...

Well, I mean, this sort of tank style treading for the tractors?

Oh, well. First thing is that, there is so many things that add at it, okay. Number one is, you got marginal wang [ph]. And marginal wang can be the situation that whatever the ingredients are in the soils are not good. You could have marginal land that has lot of clay in it, all right? And then you got to have different types of cleats on your tires where it gets out of there and doesn’t just have you spinning like a top down there. There is so many different things and then you get into a brace of nest and what goes on. So you get down into Arizona, you get the gleaching [ph], tire owned last year now there as it’s working were at all, same tire would get 4 to 5 years and a big hard work farm up in the Midwest. So none of this is new, none of this is earth shattering technology that all regions came up with this. And that’s a little more of a BS the biggest technology that is going today is the situation of making bigger wheels and less sidewalls. So you keep a flat across the topic -- keep a flat across the top the tire will start to track and don’t get confused between European, what they have to do in Europe and what you have to do in America, total 2 different breeds. Deere has the tendency and a lot of OE’s, can we get just one that goes worldwide. Well, I hate to tell them that you just can't, so that’s -- that’s just the way it is. So we’re pretty up on most of everything and I think we did a very pretty good job of it to.

And we do have a question from the line of David Snider, Private Investor.

Hello, I’m just wondering your stock in Titan Europe that bounces around, did you have any long-term plans for that and especially given what’s happening in Europe and the possibility of socialist winning the final election in France in the coming weeks?

Well, Titan Europe, it helps because we are holding on to our position, we have agreements with them and helping them certain designs and everything because our big account of course in the U. S. is mother dear, over there you have both AGCO and CNH are stronger in Europe and the situation of Mother Deere. So right now everything kind of works pretty good, as what we’re doing. They give us the feedback of anything that we feel we can bring over here to use here, and vice versa. We give them stuff that will help over there. So, no, there’s nothing that’s out there that, on a conference call, I’m going to state what’s going on. I don’t see the problem on the socialist party over there. It’s not going to affect the farming too much because that’s one thing they all need to over there, there is lot of food. And there are more farmers than per acre then there is in the U.S. So from our site, it’s a half dozen, we don’t really care. So, that’s how we look at it.

Okay. You converted that portion of the convertible bond deal that you floated sometime in the past last year, and I remember when you did that convert, I sort of cringed because it was because it was so potentially massively dilutive to your earnings per share and when you report good numbers as you just did, there is a very significant difference between primary and fully diluted EPS. So, is there -- do you really need all that extra cash that was raised, is that you still have plans for that?

We have plans for it. Okay, one of them is the acquisition of Goodyear’s European business, which was asked earlier, and there is another 1 or 2 acquisitions that are going to happen and those are going to be on the cash basis. So both of them are going to be accretive, so that’s a good part.

Our next question comes from the line of Steve Riccio from Buyside Research.

Did I hear correctly in your prepared comments, I guess when -- I guess the CFO said that CAT contract has not really kicked in yet?

He said that, yes.

Okay.

The CAT contract what we did as we have 6 months from the time that it was signed and what that meant is that we could -- that’s what it kicks through for what we said we would do. And up until that point, I had told that CAT that if I get some little extra and all that I would push it their way. But contractually, I have got until the -- I believe it’s end of May, 1st of June it kicks in.

Okay. So really that could be obviously a nice little additional revenue tailwind in the middle of this quarter towards the end of this quarter.

That’s correct.

Okay. Good. Another question, on the space you leased out in Tennessee, are you going to be breaking that out separately going forward? Is that going to be buried in one of these business segments?

What we’re doing in Tennessee, well, there is a zillion little things going on in Tennessee. We’re not only going to be doing some mixing where we’ve got, we’ve set up a lab, we got a warehouse going in, we’ve got a machinery center going in there. We’ve decided that we’re looking at a situation where everything gets prepackaged in to these plastic bags with all of the -- I want to say there is like 180 different types of chemicals that if you put them all in these little bags and when you make up recipe too, you throw one of this and 2 of these bags and 4 of these. So we’re looking at setting all that up down there and have it all precisely measured and sealed into bags. And then okay here is a box, so you take box one and you don’t know all of box one and that’s going to be formula of 45. So we are looking at that and figured it out is do we wish to go that way because what happens is that makes it so much faster, it takes all the air out of the sucker, and so we’re looking at setting that up, it takes a lot of room and of course, we got enough room, when you figure the 53 acres under roof. So that’s what we’re looking to do. So I don’t know -- where they’re going to put all that is going to be up to Paul and the accountants.

And last question, free cash flow for the year. Do you guys have an estimate on that?

I haven’t looked at it. Did you look to that, Paul?

Yes. I mean, in simple terms, we put out there that we forecast any $50 million on CapEx and then we got tax interest expense of about $6 million a quarter.

Our next question comes from the line of Chris Edwards from Jefferies & Company.

You sound pretty optimistic, how do you feel about guidance these days?

Well. I like this idea, that I go out, I put everything out there and then how I got to go out and ratchet it up. So I think probably, on the next call I’m going to have to change the guidance, the way it looks.

Okay. Now, that makes sense that, but the -- so far does it seem, I know that you have franchise of the tooling and equipment arriving a little bit earlier, all of that seems like it’s on track because I know that you said that I guess last quarter that, guidance increase was kind of independent on how that goes.

Well. Things are moving for us. I mean, you can’t deny it and everybody is pulling together to make it go now. So that’s great, so time will tell, Okay?

One last one on raw materials. I know that rubbers bounced around a little bit and steel is down, how do you see kind of the cadence of raw material expense going through the air?

I don’t see, I -- we only have to allow the OEs in April because the first quarter, April we had given back a little bit of money and then reduce prices on certain things, just because of that and that’s all under the contract part. So I don’t expect materials will go up in the rest of this year, but who the hell knows, okay. There are so many things factor that. Mostly I’ll do this to hit will be one quarter. Okay.

And that last question today comes from the line of Jim Young with West Family Investments.

Hi, when you were asked a question about the use of cash you had alluded back up, most of the acquisitions would be accretive, under what circumstances would you do a dilutive transaction?

I hope never. The only time you’d look at that as if for some incidents, you have an opportunity to take out a competitor of and off the bat it would be, not accretive. But, eventually it would, that being the other way. Otherwise why do it.

You’re welcome. Thanks everybody. And I appreciate the comments and look forward to speaking with all of you in the future. Have a great, great rest of the week. Bye.

And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT&T executive teleconference service. You may now disconnect.