Titan International Inc (TWI) 2016 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Titan International, Inc. third-quarter 2016 earnings conference call. (Operator Instructions)

Any statements made in this course of the conference call that state that Company's or management's intentions, hopes, beliefs, expectations, or predictions for the future are considered forward-looking statements. Please note that the Safe Harbor statements contained in the Company's latest Form 10K 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.

Good morning, everyone. The numbers -- you should have all the press release information and everything. During this past quarter I have visited farmers, dealers, and OEs all across North America. As I stated in the previous quarters, big iron is down. It's down about 70%.

I believe it's at the bottom, but it's not going to bounce up until pricing of the equipment -- and I'm referring to big iron -- drops considerably. Because in my visits, when you look at the new tractors and the new combines, they are a little bit like Obamacare. They have everything that you can imagine electronically, and basically I believe, in listening to farmers, a little too much. So the price has to, I think, back off, because when you look at good used equipment, it's moving off of dealer's lots if it is priced right.

The smaller equipment at the OE level is going to stay pretty much for this next year, we believe, where it's at. So we expect that to actually move maybe just a little -- 3% to 5% up. That's a real bright little spot.

Construction equipment is the same as big iron. You listen to contractors; you visit with them, talk to them -- it costs a lot of money. If they can keep the other running, change tires, whatever, so be it. I think that's going to bounce along.

So how do we increase our sales? Well, we have some great opportunities over the next six months.

First is our LSW. We issued a press release a couple weeks ago. What happened in Southern Missouri? Big farmer and an owner of Delta New Holland did a big test using identical tractors and planters. The only differential in this was that one tractor had duals; the other was fitted with our LSW 1100 x 46s on the rear and 1000 x 32 on the front.

The lower compaction from the LSW tires versus the duals increased the yield in corn by 5 bushels an acre. And on soybeans, it was 6 bushels an acre.

When you look at these numbers, that tells you there is a long-term growth for LSW tires in terms of the future for the aftermarket in changeovers. We were very, very excited about that. We believe over the next six months our LSW sales will continue to grow. That's one of the brighter spots in that -- in reference in tires and wheels -- we have.

You're also going to see a growth -- in talking with farmers and talking with a lot of tire dealers, they all expect the aftermarket of the current tires to be growing. Now, when you look at the wheel business, the wheel business is that -- it just bumps along, except for the LSW wheels, which we believe will also continue to grow.

Now, when you move to Europe and our European business, that is a different story. It's tied right to the OEs. And we looked at -- over there that's pretty close to on bottom. And so the main thing over there, because we do not have plans at this point, for at least the end of next year, to be pushing LSW tires into what you would call Western Europe.

Our concentration is going to be to our Russian facility because of the huge farms and what manage they can get. So the main thing we are doing in Europe is reducing costs. And we believe that that's the main factor we have to work on.

Last week, as I mentioned, I was also over in our Russian factory with a team to go over the LSW tires and wheels. Sales are growing over there. They are at a bright spot. They will be exporting larger radial tires once the equipment we shipped over a few months ago is there and up and running.

So we will hit that in the first quarter of 2017. We will also be assembling LSW wheels and regular wheels for the farm and construction wheels in the areas for Russia and exporting into Ukraine and all of the old CIS countries.

Now, we -- our plan there is to ship components, rims and the centers, from our plants in Turkey and in Italy. So that will help them, but we're going to assemble them and paint them so we have some Russian content.

Moving on to our facility in South America, it is slowly coming back. And we are waiting now for government approval, which we expect before the end of this year, on shipping our wheel equipment -- which has been ready for months -- into Brazil. Our LSWs down there are performing at a much better situation down there than we even expected.

And the reason being is that the equipment they were using was so slow because of the problems they had with traction that not only are they getting much less compaction, but they are getting more speed. They're getting more speed. And so when you take the smaller tractors they use in reference to comparison to North America, they are actually getting double the speed. So when you get double the speed in the same vehicle, you are also getting a big increase in fuel economy, besides planting faster.

And we will be making LSW tires there by mid-2017. We will have to continue to ship the wheels from the US until we get up and running down there. But that is the real quick what we see and what we go.

The other basic news is touching on our TTRC up in the oilsands. And that is up. It's running. We are doing crew training for the operations and safety. We are running probably at about a third to 50% to what we really want to crank it up, because we are waiting for the carbon black shifting system, which you have to -- it's like a shaker, and the carbon black goes through, and you get out the -- you take out little slivers of the steel that are inherent that you get in the carbon black, because you can't have any steel in it. And you also get a bit of the ash out. And that -- units are coming this month.

And the last piece of the magnetic system is due the first week of December. That is a real, real bright spot. And there has been a few items that really are shoving that up to be more important than ever before, and that is -- at the Province of Ontario we used to have a disposal fee on tires. They announced they passed a law that that ends January 1, and any tire manufacturer that sells a tire into the Province is responsible forever that tire.

So that's gotten everybody up in the dithers, because actually we were at that with TTRC meeting, and we are the only ones that have zero pollution and actually convert everything into reusable products. And we get them carbon credit. So that's the real bright spot, what's going on up there.

The other item that there's been some question on from calls is: how are we doing on ITM? ITM is moving. We expect that the final bids will be in on December 1. According to what we have heard is that the bidding should be up around the upper range than where we -- originally when I came out and said it, I thought the Board would approve.

So I expect when it's all done, unless there's some big curveball, that that will come by the end of the year from the Board, and we will make an announcement then one way or another. They've done a real good job in this downturn. They have been expanding. So we are kind of like -- pleased what's going on.

Now, when you -- the main business -- we make tires and wheels, and that's what we've been trying to pass reference to the market and where we are trying to get ourself to. I have been -- the last time anything like the downturn to hit this was back in the late 1970s. Most of you on the phone were not in this business -- what you're in -- but maybe a couple of you out there were.

And we came out of that big and better. And I expect the same thing with this. The main thing is you just got to cut your costs; you've got to keep looking for new products, what you can do. And it all comes back. And that's how I look at it.

And I think we are in the best position for the growth. Appreciate that everybody likes to see all positive numbers, but as Paul will go through, of all the things, if you get your costs down -- and we've been able to generate cash, so I think we are on the right track. And with that, we'll turn it over to Paul, because he is closer to all the cost reductions and what he's got planned. So take it away, Paul.

Hey, sounds good. Thank you, Morry. Good morning, everybody.

How about those Cubs last night? Let's start building that Theo statue. I think it's going to be a pretty big one shining all over the city of Chicago. And not sure how Boston feels about the victory last night, but certainly fun to see.

Despite the continuing market challenges, I think we had some good things going on this quarter. I would like to spend a few minutes talking about that this morning.

You heard Morry already talked about our LSW down in Brazil and also the test that we performed. Titan has been and will remain committed to R&D in developing the products that make us a leader in our industry for the foreseeable future.

That is in the DNA of our Company. We have not reduced any investment in engineering and R&D during the downturn. So we talked about cost cuts being efficient, but we believe and continue to believe our future rests on being a leader in developing the best products in the industry.

And so with that stated commitment, I don't want to make this an LSW infomercial, but we are big believers in what this means for our future. And we have many end-users who now experience and have seen the benefits of it.

We have been introducing LSW into Brazil, and I have to say, I have even been surprised how quickly we have been able to get some really good testimonials and results from a few huge farmers down there. Our grid squad will keep pushing LSW into Brazil.

And along with that, we're developing our wheel manufacturing operation in San Paulo. They will be right in our tire plant there. So you're looking at a really good opportunity with LSW in the wheel business and what we can do for the farmers and the OEMs in Latin America coming our way in 2017.

But I want to jump back a minute to that press release we put out a couple weeks ago from our LSW test. Morry referenced it, but this is a really big win, because it demonstrated the improved yields you get from using LSW tires and wheels.

And Morry and I went up there, and we spent some time with this farmer. And he's also an equipment dealer, so he covers both sides of the business. And we just listened. And in listening to his success story that he had with LSW and seeing firsthand the genuine enthusiasm he had towards the performance of LSW, I have to say his positive energy was absolutely impressive and infectious.

And keep in mind, he is an equipment dealer. So he is not going to risk his reputation for no reason to promote LSW. He's not just a farmer.

So we at Titan already know that LSW makes equipment perform better. It improves the fuel efficiency, the ride. But when you combine that with improved yields, you truly have a win-win for the farmers that puts more money in their pockets. And if you look at that picture in our press release, the depth and the breadth of the roots says 1,000 words that we've been trying to communicate for a couple years about what LSW can do.

So, look, at this point we are satisfied with the growth we have seen at LSW this year. We continued to position it as a premium-priced product in the market, but we all know at Titan -- and with the current users of LSW -- that there is much, much more to come with LSW in the future. And we will continue to develop, along with LSW, the biggest portfolio of wheels and tires in our industry. And that is a commitment that we stand behind.

Next I want to spend a few minutes on the accomplishments with our financial performance this quarter. We saw our revenues stabilize to within a few million of last year. And that's clearly good to see happen, but what is even better to see is that our gross margin percentage was up 230 basis points this quarter over last year.

That jump in GP percentage resulted in an improvement to operating income of over $6 million. And the part I am most proud of what our team accomplished is that our Q3 operating income was up over last year in nearly all of our main geographies that we operate in.

We will cover that later in more detail in the call, but what I want to illustrate is that our teams in Latin America, Australia, Europe, ITM, Russia have all done a really good job improving their results in tough market conditions. And North America, who is fighting the biggest challenge of all, like Morry talked about earlier with big iron -- considering the reduction in large horsepower volumes in North America, their performance and our performance in North America is not that far off from last year's operating income.

So obviously sales are down, but we have managed the bottom line well there. I am positive that we are a better operation in North America now than when we were before the downturn began.

And in a tough market, these financial results across the board, across all our major geographies, don't come easy. And it really requires the effort of many, many people from our team working together to make these good daily decisions on a consistent basis. So again, I'm proud of our consistency across the board with that this quarter.

On the other side of the fence, cash remained strong, $215 million. Bonds are trading in good territory, in the 90s -- you know, bouncing back from those lows that we saw in the 60s. So demonstrating the success we've had in managing the balance sheet side of our business. So, again, I will let Jim cover that later in the call.

But what I want to say is that this -- these accomplishments on the financial side as a measuring stick really speak to what we have done in the face of the continuing challenges of a down market. If you look back a couple years ago, there are some that view Titan as an organization that was running in far too many different directions in a somewhat unorganized manner.

And look, under the One Titan umbrella, we as an organization have done a lot to get to where we are today. And again, I think the results speak for themselves. And I do believe that this team and Titan as a Company is much better now than we were a few years ago when the downturn start. And we will continue to respond well to the challenges that are ahead of us.

So with that note, I want to say that I still believe we've got some good runway ahead of us to continue moving this organization forward. We've done a good job managing the plant efficiencies as revenue has declined.

But even though our SG&A is less than last year, as a percent of sales, it is higher than we would like it to be. We have taken some bites out of it over the last couple of years. There's some challenges in doing that with prior commitments and agreements you have.

But we are definitely as an organization focused on bringing it down in the future without -- and I say this very sincerely -- without it impacting the quality of our overall customer experience. Because again, in these tough markets, you cannot impact the value that you bring to your customer and think you're not going to damage your overall bottom line.

So we'll talk more about that in 2017. We're still in the process of putting together all our plans for the year, but definitely believe there are some good paths ahead of us to continue managing the operating expense side of this business.

Another change we made recently was to reorganize our sales organization. I mentioned quite a bit in previous calls the changes and additions we made our sales teams. But the re-org went a step further.

And what we did is we align our grid squad group with our sales territory managers. The grid squad has done a great job, being out there in the field, bringing our test -- our LSW to our test farms, providing technical assistance to many of our existing customers.

But the reality is we have moved beyond that test phase with LSW, and now it's time to go sell products. And in North America now, when you take the grid squad and align it with our territory managers, you are unleashing a much larger sales group here in North America that will be out there on the street every day, visiting current and potential customers. So again, I think in a tough market, I'm pretty excited to see what we can do with this large group of individuals that are going to be out there every day pushing for Titan.

We continue to work diligently on our pricing and our marketing programs for 2017. Today's world, you've got to be spot-on with both those to really earn the sales and the dollars from your customers.

Over the years, the reality is we have been a difficult company for our customers to work with on pricing of our products -- and I'm referencing North America tire when I talk about that. I think we have probably out-thought ourselves. We have made things more complicated, and by thinking we are smart and adding complications, we have been hard to understand -- our pricing structure. And as a result, you are harder to work with as a company.

And so we, over the past few months, have really been working diligently. And in the early part of 2017, we will release our new pricing program, and it will make us much easier to work with. We have learned more in the last four or five months about our pricing, and our strategy, and where we fit within the marketplace than I think we have in a long, long time.

And, in fact, I have a grisly veteran that runs our North American sales team, and he has been in the industry over 30 years. He has said to me multiple times over the last couple of weeks that with what we've done with these price initiatives, he has never been more excited for an upcoming year than like he is now.

So these are just a few examples of what we're doing that has moved our organization forward and we're excited about. We know 2017 is going to continue to have his challenges. And as I stated earlier, we are definitely prepared to meet them.

However, I was out with a big tire dealer earlier this week. And in talking business, he agreed that the OEM market is going to continue to remain challenged. But he said he believes 2017 is really going to be a good year for the tire replacement business.

And the point of that is: there are bright spots out there. You just got to go find them, and you got to chase them hard. And we're looking forward to doing that.

What I want to do now is turn the call over. As we noted last quarter, we hired Jim Froisland as our temporary CFO -- who, along with our Chief Accounting Officer, has been doing a good job in addressing that material weakness and preparing solid, timely financial information to our organization. So I've been very pleased with where things have been over the last couple quarters with that group.

Titan is still working through the process of hiring a permanent CFO, but I do want to introduce Jim on today's call, and would like now to turn it over to him to discuss the financials. So, Jim, it's all yours.

Well, thanks, Paul. Let's take a look at our financial results now.

As stated in the press release, sales for the quarter came in just over $306 million. This was down less than 1% or $2.6 million from a year ago. The quarter-over-quarter decrease was primarily driven by price mix.

In terms of segments, earthmoving and construction volumes were higher, but offset by lower volumes in both ag and consumer. There was virtually no impact from currency. This is a welcome change, given the volatility we've seen over the past several quarters.

Turning to geographies, our North America business continues to see lower sales volumes across each of their segments. The good news is we have had other geographies that have seen business improvements in both sales and gross profits. As Morry and Paul stated, we saw both -- we saw sales, but also we saw gross profit increases in our regions outside of North America: in Latin America, Europe, Russia, and Australia. So again, some positives coming out of those markets.

Moving on to gross profits and margins, our gross profit dollars were up nearly $7 million for the third quarter. That's a 26% increase from the prior year on slightly lower sales.

As Paul stated, our overall gross margin performance was up 230 basis points from the prior year to 10.8%. It's a tremendous accomplishment in our team's part to have achieved that level of margin improvements in the third quarter, given the challenges and the strong headwinds in our end markets.

We have talked about our margin performance for several quarters, and we are proud of what we have accomplished. Our One Titan team operating model, along with business improvement framework, have really been instrumental for us to be able to maintain and actually improve our gross margin percent -- despite the large reductions in sales on favorable price mix that we have experienced.

Let's take a look now at our segments. Our agriculture segment revenue was down $2 million or 1%, which is in line with overall sales decline. The North America region continues the slow declines in the high horsepower products that Morry mentioned, with an overall North American decline of 17%, which, again, was driven by primarily volume.

The bright spot for this segment was Latin America, which rebounded in the third quarter over the prior year with a 54% increase in sales. Our market share in this region continues to improve, which positions us well in Latin America for nice, profitable growth when this economy starts to pick up again.

Europe and Russia also increased sales over last year. On a gross margin basis, ag improved 235 basis points, with every region showing improvement from the same quarter last year.

North America improved 180 basis points, in spite of the previously mentioned volume decline. This further demonstrates the actions taken from our business improvement framework are taking hold, and we're seeing the results thereof.

Let's move on to earthmoving and construction. Our sales for earthmoving and construction were up $3 million or 3% for the quarter. While North America showed ongoing softness, we continue to see improvement in our undercarriage, mining, and aftermarket business.

We talked about this growth last quarter, and it's nice to see the investment in these projects continue to pay dividends each quarter. Our Australian mining business within this segment has also been -- has seen modest improvements.

Similar to my comments within the agri segment, we experienced a 239 basis point improvement in gross margin, while earthmoving and construction -- with all regions showing gains compared to last year's third quarter. In our consumer segment, you'll notice revenue was down $4 million for the quarter. Lower sales were driven by a decline in low margin supply agreements in Brazil as well as lower sales of high-speed train brakes in China. Again, we were able to improve gross margin by 230 basis points on lower sales.

Now turning to operating expense, SG&A was slightly up by $800,000 for the quarter compared to the prior-year period. As we have stated over the past several quarters, our strategy with our operating expenses has and continues to be to invest in sales and marketing, as Paul mentioned, as well as R&D during the downturn. This represents a way for us to combat the market conditions we face currently.

We are starting to see the benefits of those investments in our results, and this will continue to improve as the market improves. We have also spent some money this period in the anti-dumping case that you are aware of. This impacted our SG&A during the quarter. So let me summarize the P&L results.

Our third-quarter adjusted EPS came in at $0.18 loss per share. Adjusted EBITDA for the period was $9.6 million. Comparing that to last year, we were at an adjusted loss of $0.59 per share, with an adjusted EBITDA of $2.7 million.

Now, these are adjusted numbers I'm quoting, but the only adjustment during the quarter in either year was the removal of the redemption value adjustment relating to the settlement put option in Russia. So we showed improvement overall when you compare this third quarter to last year.

I would like to -- moving to the balance sheet, I would like to touch quickly on a couple items there for the quarter. Accounts receivable was down $12 million. DSO remained similar to third quarter of the prior year at 54 days.

Inventory was up slightly during the quarter. Our days sales inventory increased 7 days during the quarter to 93 days. This was a 15-day increase from 78 days at this time last year. This was driven by a strategic increase in select inventories related to both the mining aftermarket as well as certain tire products. We continue to manage inventory while aligning ourselves with customer demands for specific products needed in the market on both a seasonal and competitive basis.

Accounts payable did not -- did increase $7 million this quarter. This reflects a 12-day improvement in DPO since the start of the year and a 10-day improvement over third quarter of 2015.

Our cash balance ended the quarter at $215 million. This is compared to $200 million at the beginning of the year and $207 million at the end of our most recent quarter. So we continue to be diligent in managing our liquidity and our cash flow in the midst of these tough market conditions. Balance sheet management remains a significant focus during the quarter and will certainly be on a go-forward basis.

Just a couple more things involving our debt: I want to bring up our $60 million of convertible bonds, which are due in -- this January, while our positive cash position gives us flexibility and comfort with using our cash to repay this debt. Our stock has recently traded at a level which exceeds the $10 in [civic license per-share] conversion price.

Either way, this event is expected to reduce our debt and the associated interest costs beginning in early 2017. Although we have no current borrowings under our revolving credit facility, we have begun renewal discussions, and we currently anticipate completion of this renewal process in early 2017 in advance of the December 2017 maturity.

So wrapping up, there are some positive takeaways from the financial results this quarter, despite the continuing challenges within our markets. We have seen some stabilization in ag -- improved margin performance, diligent liquidity management is just to name a few. As an organization, our Titan team remains focused on managing those areas which we can control.

So with that, I would like to turn the call over now to the operator for questions. Thank you.

(Operator Instructions) Brent Rystrom, Feltl.

Could you guys give us a sense -- when you talk about LSW tires, and we think about the aftermarket opportunity, how we should think about the incremental revenue, and then how the margin should look on a replacement cycle?

The first thing -- and I know you have traveled, and you've seen it, and you understand what's cooking -- the big thing is the OEs basically average around -- for tractors and big iron and combines, duals, on 75% of all the equipment they have been producing for the last umpteen years.

The market out there is huge. What we have found out is that horsepower -- if you go from the duals to the super singles, you actually can use a lower horsepower tractor and pull the equipment and go through the field at the same speed. So it's got so many big advantages.

And now it's starting to float out there at the same time that farmers are getting very conscious of what their cost does. And I think that, in answer to your direct question, it's -- we've been involved and working real hard with the sales staff, so that you've got two different customers.

You have to convince the farmer and show him how much he can make more, and how much he's going to save -- and then for him to place the order. So that's why Paul has moved the grid squad with our salespeople. Because when you walk into a tire dealer, which is -- a farmer who has -- generally replaces tires, he doesn't have to replace the wheels; he just goes, buys tires.

So to catch the wheels, he is going to have to pay more money. So he's going to have to see it. So it really becomes, in the marketing side, of showing what the benefits are.

And when that happens, you are looking at I would say probably everyone you sell, you're from the -- on the margin side, you are from 20 and above. That's pretty decent in this market.

And Paul probably has -- go ahead, Paul. You step in now, and you know the number, because you've been working on it more than I do.

Yes. What we are doing, Brent, is we got these guys who have been training for the last couple of years -- not just understanding LSW, but understanding what the end users want in a product. And they have been doing it from a technical perspective.

And what we're doing is basically saying, look, guys, you've done a great job with that. You have the relationships out there with the end users.

And it's like Morry said: it's a different process selling LSWs. So we are combining the two -- that how we go to market is still the same as what we've been doing, but now we're going into sales mode, you know, going beyond just being these technical advisors, going beyond just working with the test guys.

So in essence, we are basically doubled the size of our sales force. And they are going to be out there just like they have, but they will be working under the direction of the territory managers as well. So if they need to cover off some of the areas where possibly we weren't as good, or even a little bit weaker with making those daily contacts, we now have got an arsenal -- a troop of people that could take care of that. And they are well trained, very knowledgeable, and a good group of guys.

So we are pretty excited about what we can do with that. It's been well received internally. And we're going to get that unleashed there. And basically now and in early 2017, you combine that with what we have been doing on the pricing side -- we're going to be well positioned.

One other thing, to step in, Brent, is that we were at a big tire dealer up in Iowa, and he has probably moved well in excess of 500 LSW tires. That's big. And when we -- Paul and I met with him -- and of course it's a wheel and a tire. And he did not know -- he knew basically about less compaction, about the power hop going away, road load.

He never knew, because he never read the press release that we sent out, about -- when you add 6 bushel of soybeans, and his farmers in Iowa -- between 1,000 -- the average farm, I believe, is between 1,000 and 1,500 acres. So if you've got half of it in soybeans, you are at $60 an acre. You really -- you're up -- that's $42,000.

So -- and then to check it with the corn, it's only $16 at $3 corn. But that is a -- you know, you have paid for the tires, the LSW tires and wheels. And just on that -- forget all the other benefits you get with it. You've done that in three months, four months, max, of what you have done in your pricing to pay the extra. And that is where we are at.

Brent, as you know, you sprinkle in some fuel efficiency savings as well, and that looks pretty good from the farmer's pocketbook perspective.

And I think all of that is helpful. I guess what I'm trying to get at -- and maybe the easiest example would be to go back to the Farm Progress show. I think you guys had them on a 9460 out there.

And what I'm wondering is: can you tell us from pricing perspective or from revenue perspective, if you were to put all LSWs on that 9460, as you had on your test drive model there, versus replacing those with duals, how does that revenue look per tractor? And then are the margins higher than they would be on the dual types?

On an [OE set, that would be] -- I will tell you that it's pretty -- it's because you are dealing with eight wheels and eight tires versus four and four; the revenue is going to be pretty close to the same. The margins are going to be substantially -- and I'm not going to sit down and call what they are, because you know as well as I do that every OE is on my phone call, okay? So let's just say that, yes, they are better. (multiple speakers) better and better.

Yes, and I made a comment about it, and it was kind of vague. We are doing well with our LSW performance. We are satisfied with the growth. I will say it's double digits this year.

Where I was vague is I said we price it as a premium product in the marketplace. And that was my way of saying -- like Morry said, you don't want to come on this call and blab it to everybody. But that was my way of saying we have not discounted this product to generate sales.

The margins are good on LSW. We are keeping it as -- positioned as a premium product in the marketplace while growing sales. So it's -- that's why I would say it's a win-win. The farmers -- the economics look good for the farmers' perspective, and it looks good from our perspective as well.

My final question on that -- just a real quick thought, then: I'm just trying to figure out from a farmer's perspective on a replacement -- so if the tires are comparable in cost, how much extra does the steel cost? So what's the wheel on that 9460 going to hit the farmer?

The wheel -- well, here, now, in your -- if the farmer already has the tires and wheels on a 9620, to go to the super single, that's -- you know, what's he going to do with the old one? If the OE was offering it, then what would happen is that one wheel would probably come in fairly close to the -- he's not going to pay a big premium at an OE level. That's what I'm saying.

But now, on that 9620, what we're doing -- and part of the reason I was in Russia is there is no one who makes a tube. You see, for -- we are going to take a -- like a 9620 out West, and we're going to run that against a quad. Big singles of 1446s.

But because of the amount of the hills out there, which most people on this call don't realize -- they have got rolling hills. That's all grain country, most of it is out there. And then, all of a sudden, you've got big drop-offs.

So for safety, you want to put a tube into it. And you also want to put rims. You've got to make a wheel that is similar like a forestry wheel. So we are not out there yet.

We are running LSWs on sprayers, etc. Those are narrower LSWs, and they are running great. And we actually can make LSWs for the dual application.

But that out there -- we want to put on that 9620 our big 1446. The smaller tractors, you go from a 1250 on down.

So the farmer and the OEs are two different animals that we have to work with. So right now, we figure for OEs, it takes them so long until they trim up and get their bureaucracy down that we're going to concentrate pretty much on equipment dealers, tire dealers, and right to the farmer. That's what we're working on.

And then quick final question. You've got $215 million of cash. You've got the sale of the track business; you've got the potential sale of other assets. You've got the $60 million of debt due.

Clearly, you're going to have a lot more cash on hand if these sales go through. And even without the sales, you may have a little bit too much cash on hand. Can you give us a sense of what you're thinking about the balance sheet over the next, say, couple quarters -- how that might evolve as some of that cash is realized?

There's -- the situation is -- let's just assume you have the -- ITM closes right after the first of the year. Then what happens to you -- you add that count on to where we have. Now, originally we had assumed our shares would be -- that you would be calling those bonds. They are expired.

So two things we expect to happen. Because in that bond agreement on the converts, there's a little extra kicker in shares, whoever owns those bonds. So if the stock continues to stay pretty close to where it is, I would expect those to convert to shares. So then, all of a sudden, that $60 million that you're not pushing out; well, now oh, man, you've had a tremendous amount of cash.

So then I would figure at this point -- and it's all up to the Board and what they wish to do, but we would probably increase our ownership a little bit with -- in Russia. And we would probably look at the 2020 bonds, look at bringing those in, or whatever we do; or restructure that, go for a longer period. All these things are available to us, and that is up to the Board.

It's just like on TTRC, when you look at what's happening up in Canada, we have the opportunity where, if the Province of Alberta decides to put a 10% on -- reclamation to the people selling the tire, at this moment in time, we are the only ones who can honestly say there is zero dilution. And we take it to carbon black, oil, and steel, and it's been running.

And we just -- actually, our friends at Suncor have said we have done such a good job, they want us to look at a bunch of other stuff. So what happens -- if that takes place, you have basically doubled the revenue of that facility. So there are so many things that are in the air right now on that that it's all positive. There is no negative there.

Only -- and then what happens with the election? Okay? That's only five days away. If Trump wins, I think it's a big move for both -- when everybody talks about free trade, there's only one thing people forget. There is no such thing as free trade when it comes to ag. Otherwise, the American farmers would be driving a Rolls Royce, because they would just -- no one can compete with them, even Brazil, who gets two crops a year. They lose too much.

So it's -- what happens? If he takes ethanol, moves it a little bit, Katie, bar the door. So that is the way it is. So I'm an extreme optimist, and I always have been all my life. But I wouldn't -- I couldn't tell you what's going to happen. I don't know about that. All I know is we have a plan, one way or another.

Thanks, guys.

(Operator Instructions) Alex Blanton, Clear Harbor Asset Management.

You mentioned that the Russian plant would be shipping Goodyear tires for the farm sector into Europe starting in the first quarter.

Yes.

Now, in the past call, I would say that was supposed to take place in the fourth quarter. So it looks like there's been some delays. Could you elaborate on that?

Yes. The equipment we shipped through -- we shipped over there, and I was there last week. The first group of equipment arrived.

The market in the radial tires -- big radial tires -- they are producing those, and as the numbers -- and they spoke, they are doing really well. In fact, they are a little behind fulfilling the orders that have been coming in. So the equipment was held up -- I shouldn't call it held up. It's just that you can't land it at the port, grab it, and ship it.

It's like we had a whole team over there. If you are even on your plane -- you've got to have a boarding pass to go on your own plane. It's still a slow process, okay? So -- pardon?

It's understandable.

All right. So that took us -- that's what's doing it. Now, you can't get it done as fast as we get it done here. That's what I'm saying.

You said that you are behind in filling orders. Are those orders for the Russian market?

Russian market.

Yes.

What has happened is Putin has -- there is a couple things going on. Putin has turned around and he has put a push to help farmers and to move the ag business forward over there, and so that's increased demand, which is good for us. It's the same situation -- our Turkish plant has been doing real well; it's profitable. [Our moles] for Goodyear.

We have went and we had two companies. We have decided now to go with one, to make our Goodyear tires, and -- not only for that market in Turkey, which is if -- we have a big demand for Goodyear brand tires in Turkey, as they used to be made at the Goodyear plant before they got out of it. This other company bought all that equipment.

So now it's a very lucrative market, because they slapped a 28% duty on a wheel, tire, anything coming into Turkey to protect their industry. So we are there, and that is what we were excited about.

Second question is: you mentioned making wheels because you can't import them -- or are you importing them?

No, you can import the wheels into Russia.

I am talking Brazil.

(multiple speakers) over in Brazil. Brazil, they just charge a duty. So what we have decided to do to speed everything up is that we are going to do the wheels in Quincy and containership them down, pay the freaking taxes, and pass it on.

The farmers don't like that, the big farmers. But they are so impressed -- I didn't mention this, but when you look at how -- doubling the speed, they go across the field, and then you looked at they don't have any slippage. They are going across those fields now, and when you look at their savings in fuel, it's not because -- our tire is moving that tractor, and they had so much slippage on the ground that their fuel use was way up. They are saving 25% in fuel.

You said you were going to make the wheels, though, at San Paulo tire plant. When will that take place?

We will be into that -- we will be making wheels there probably between the end of the -- now, this is provided the government there gives us approval by the end of December, okay? They have had this paperwork. We have had lawyers, everybody going through it.

The equipment is here in the US, and it will depend -- because we're not placing orders. Paul was down there too. We have to buy the paint system in Brazil. We are not placing the order until the government approves.

When they approve, it's a whole package of all the equipment we can send down there and then place orders.

So through the end of --.

All that has to be between now and the end of December -- that they push it, you will be making wheels down there third quarter of 2017.

That's only about six weeks. That's only about six weeks. You need to get the government approval; then you need to ship the equipment down there; then you have to order the paint system and install it?

Well, the paint system will be ordered. It will take you probably 90 days to start having equipment come in. But now you can put the power in; you can do everything.

The equipment is sitting, so it's not going to take us long to get that going. It's the paint system. The paint system -- you are looking at basically 6 to 8 months. First part of it will come in -- you can install that and everything. So you are looking towards the end of third quarter in Brazil before you are making wheels. (multiple speakers) are not only LSW; they are for everything.

Yes, okay. Okay. So about a year from now, you will be (multiple speakers) you should be making wheels in Brazil. All right. That's the answer.

And then, one more small question. You mentioned the price being the reason sales were down. How much was the price factor? You didn't mention how much it was.

What are you -- Paul, you are closer to that than I am.

What are you referencing there, Alex?

Well, you said that sales were down year-over-year, total sales (multiple speakers)

Yes.

So what I'm asking is how many dollars as opposed to --.

Yes, in our 10-Q, we do talk about price volume and the impact it has on sales. So we do break --.

I don't have your 10-Q right now. What is it?

Jim, I don't know if you have that information in dollar terms in front of you. We talk about it in percent terms in the 10-Q.

Yes --.

We don't have the dollars. We give the percent in the Q and what --.

What's the percent? What I'm trying to get at is: what's the real volume increase? That's what I'm trying to get at.

Yes, I mean, by --.

It's around 5%.

Yes, go ahead, Jim. You've got the Q in front of you.

Yes, it's around 5%.

Oh, so something around $15 million?

Correct.

So if you take that out, your sales would have been up [$9 million].

That was year-to-date number, 5%.

Oh, 5% year to date. What's the quarter?

Well, if you look at -- we are down -- we had a 6% volume reduction in ag. And then price mix hit us for 4%. So looking at our largest segment, Alex, those are the splits for the quarter.

But what you've got to remember when you start talking about price mix is it's driven also by material fluctuations that are passed -- can be passed through the contracts (multiple speakers)

Yes, exactly.

So it's not all pricing pressure within the market that drives that 4% drop in price.

Right. So there's --.

Yes, and if you look at earthmoving and construction, we had an increase in volume for the quarter of 10% that was offset by a reduction of 7% in price mix. So we don't split out price mix, but we do combine -- we do split out volume versus pricing in the 10-Q.

Okay. So ag was minus 6% volume, minus 4% price. And construction was plus 10% volume, minus 7% price. And that was for the quarter, correct?

Actually, you know what? I said that there's a 4% price mix increase in ag. Correct, Jim? So volume was down 6%. So for the quarter, we were about 1% for ag, okay, and then roughly 5%, 6% was from volume reduction, offset by a price mix --.

Oh, that was a price increase.

Price mix improvement of 4%. And then --

In ag.

Okay, and then it does the opposite when you look at earthmoving and construction, where you had a volume increase and a price mix reduction. So they are opposite for ag versus earthmoving construction.

Got you. Okay, that was for the third quarter. And there is no indication that rubber prices are going up?

In talking with our supply chain last week, we kind of see it -- predict it to be relatively flat for visibility going early into this year. Kind of not much --.

I don't think it's going up, Alex, because automotives is dropping. Okay? So automotive is dropping. Then when you look at ag and earthmover, it has no bearing on the natural rubber prices. Automotive does. So if anything, it will have a tendency to drop.

Okay, thank you.

This concludes the question-and-answer session. I would now like to turn the conference over to Mr. Taylor for closing remarks.

Congratulations to all you Cubbie fans, and congratulations to those in Cleveland. We've got a lot -- that was one hell of the team you put together. So enjoy yourself for the holidays, and stay safe. Thank you all. Bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.