This excerpt taken from the TWI 8-K filed Dec 14, 2006.
We operate in cyclical industries and, accordingly, our business is subject to the numerous and continuing changes in the economy.
Our sales are substantially dependent on three major industries, the agricultural equipment industry, the earthmoving/construction equipment industry (including military) and the consumer products industry (including trailers and ATVs). The business activity levels in these industries are subject to specific industry and general economic cycles. Accordingly, any downturn in these industries or general economy could materially adversely affect our business.
The agricultural equipment industry is affected by crop prices, farm income and farmland values, weather, export markets and government policies. Recently, demand for corn has caused significantly increased corn prices, which is generally good for our business. However, corn prices are subject to a number of risks and could decrease, which could have a material adverse effect on us. Corn prices are heavily dependent on federal legislation and new legislation is expected in 2007 or 2008, with a new majority in both the House of Representatives and the Senate. Any significant changes, or the expectation of significant changes, to federal agricultural policy, could have a material adverse effect on us. Another factor which has had significant positive impact on corn prices recently is demand for ethanol. This has been driven by high oil prices and federal legislation that encourages ethanol production and imposes limits on imported corn and ethanol. Reductions in oil prices or changes in federal ethanol policy, or the expectation of changes, could have a material adverse effect on our business. In addition, the agricultural equipment industry is subject to weather risks, including drought, flood and climate risks, any of which could have a material adverse effect on us.
The earthmoving/construction industry is affected by commodity prices, the levels of government and private construction spending and replacement demand. The consumer products industry is affected by consumer disposable income, weather, competitive pricing, energy prices and consumer attitudes. In addition, the performance of these industries is sensitive to interest rate changes and varies with the overall level of economic activity.
Due to capacity constraints at our Bryan, Ohio OTR tire facility, we are adding OTR tire capacity at our other tire facilities. This may have an effect on our results of operations. For example, during the end of the fourth quarter of 2006, we are moving and re-tooling some of our equipment to meet anticipated increases in demand for off the road (OTR) tires. This may decrease our gross profit (as a percent of sales) during this quarter, because labor costs that are normally dedicated to making products will instead be used for re-tooling and other purposes. As a result, this could have a negative impact on our gross profit in the fourth quarter of 2006.