Titan International, Inc. (TWI) Q3 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, welcome to the Titan International third quarter 2015 earnings conference call. During this session, all lines will be muted until the question-and-answer portion of the call. [Operator Instructions]. Any statements made in the course of this conference call that states the Company or management's intentions, hopes, beliefs, expectations and/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.

Good morning, everyone. I take it all of you have gotten the press release and everything. So let's just start right in on the third quarter which had some good and some bad. The big bad was that most of Titan's OEs extended their summer shutdowns which caused lower sales which throws off production in our plants and the efficiency gets hit real hard. Their schedules for the rest of the year -- their year, went down on all the big iron, which is not hard when you go out and see what's going on. We expect, though, that the bottom will probably hit within the next six months for all the major OEs, as they try to get where the farmer, where the construction and everything else is going. The one item that most of the analyst are missing is when they talk about the volume of the tractors over a 100 horsepower as big iron. Big iron really is from 200 horsepower and above. This past year, I believe it was [indiscernible] became the number one in North America in the 100 horsepower and under. Now they're moving up their situation to be able to offer I believe up to 150 horsepower. This market grew last year and we believe it will be slightly up next year. This market is what we would called dominated by imports and Titan has a big market share of this and the reason being is of course we make the wheel and the tire and they ship them over without wheels and tires. But we also look to this next year now, we've came up with a new line on our LSWs and we believe that once that gets out to the farmers, especially if they have -- or the nurseries wherever, they'll notice the difference real quick because every LSW, it improves the performance of whatever piece of equipment it's on. The other thing, that's happened is we are also concentrating very heavily in the aftermarket. In fact one of the bright spots is our track business ITM, has seen a tick up, they're doing the same thing. They're moving from OE based mainly going after now into the aftermarket and they have grown this and they're going to grow it in the fourth quarter. And that was a good sign. There is no question that the farming, construction and mining are all down, but -- as I mentioned in my comments sections. But Titan has been making inroads to the farmers, construction companies and mining companies and we've been making these inroads by solving a lot of the problems they have and showing them what we can do with our LSW technology. There is no question that Titan's markets have gotten hit hard, but we have never been in as great a shape as we are today to go and move to newer highs of taking larger market share, and this can be looked at because we finally have the Goodyear brand which adds over 100 countries and it's not only great for Titan but also Goodyear because we will bring that brand up which has been very battered down because they withdrew from those markets. So we will be able to move those up and we're going to also do with the LSW technology. So that is also why we had to postpone this call, is because of the situation in Russia. What happened is now that we have the Goodyear brand, we had two partners in our Russian venture. One is One Equity, the other one is RDIF, The Russian Development Investment Fund and when we originally went in there was a put and a call out at that five years. Those are six month put and calls. We had those because if they wish to get out we would give them the money back plus some interest, and what had taken place is we're looking -- we've done the work to get that facility to where we believe it not only makes money, we've got to redress. So now that we have the Goodyear brand, we wish to turn around and our common stock to increase. So in order to do that, we have been negotiating with them and in this process we're looking to make sure what we do, we do in a tax-friendly to Titan way. And so in this process, this is how, as they're going through and rereading all their documents that this thing came up and accountants looked at things much different than when I look at them. So John will cover all that with you, but it was a big thing to put this baby, reference and other Goodyear and what we've got going and we're really kind of excited about it. And with that I'll let -- John you can -- or Paul you can follow-up on what's going on from the manufacturing side.

Yes, certainly Maury. Good morning everybody. This quarter was a tough quarter when you look at our bottom line financial results. At the end of the day, that's the scorecard we play for, but I want to spend the time this morning and definitely want to say that our third quarter results don't demonstrate the real score of what's going on here at Titan and the positive strides that we're making. I'll talk more about that little bit later, but let's start with the current quarter. During Q3, the significant pullback in large ag -- which has been well publicized by this point and we definitely continue to see it get worse during the period -- really had a strong impact on our efficiency this quarter. But along with that it's the impact of the strong dollar that continues to negatively impact our North American pricing. And for us the fall-off in global large ag volumes combined with the traditional August holiday period in Europe along with our normal U.S. shutdowns in early July, really impacted our operational efficiency this quarter. All of our locations experienced a reduction in operating income on a percentage basis except for our Russian operation that continues to get more efficient and improve their performance. I'll take more about that a little bit later. As a result our plants in Q3 that are more heavily OEM focused were operating at production levels that negatively impacted their results and their efficiency levels. We've taken additional actions to mitigate the lower volume impact including taking numerous days out of our production schedule just like the OEMs have done. However, each day we take out of the plant does cost us approximately $200,000 in a hit to the bottom line. The other difficult aspect of the reduced volumes is the people side of equation. We continue to be diligent, adjusting our headcount levels in relation to the volume declines. Every one of our plant general managers has done a heck of a job managing headcount and making the really necessary difficult decisions, and I'm really proud of what our team has done. We're all committed to continue to find ways to reduce expenses and headcount where applicable. However, we -- in some of our locations, those decisions are really hitting a challenging point that further cuts are hitting into the bone and making rash short term decisions doesn't make good financial sense. So what we've been doing at the same time is looking at more creative ways to reduce our costs that go beyond just headcount. We created the supply chain team that is now challenging our material spending and building a more robust overall supply chain. Our product engineering teams are looking at ways to reduce cost through less material and use of purchase components while not impacting our product quality. Our industrial engineering folks are ratcheting up their efforts to drive process improvements. Our quality teams are continually performing root-cause analysis to drive our cost of quality lower. I mentioned that a number of times over the last few quarters, that our cost of quality has improved by the tune of millions of dollars per quarter, roughly $2 million to $3 million per quarter. We've created a pricing analysis process that has enabled us to examine the outliers in our pricing, those that are costing us either margin or volume. We've created a new marketing team that is building our brand and helping us meet our customers' needs. We're even redoing out website which means that Grizz won't be there when you launch our site. I know you're all disappointed to hear that. The reality is the markets we operate in are extremely challenging and will remain that way. We aren't going to cut-cost our way to victory. Our plan is and has been much deeper than that. You look back at Q1 and Q2 where we saw back-to-back quarters with an increase in gross profit percentage and you saw the benefits of what we've been doing. Those results show a lot of progress, but we know there's more work to be done. We've been moving the organization forward under the One Titan umbrella and built a foundation with One Titan that has enabled us to respond quickly in these rapidly changing, challenging markets that we're in, really throughout 2014 and 2015. When you look at it, it's enabled us to improve our organization in numerous ways, how we make decisions on a daily basis, a lot of little things that are starting to add up and keep us efficient, effective as we go through these times. But it's really enabled us just to also strengthen our Titan brand and build LSW awareness. You heard Morry talk about that earlier as being a foundation of everywhere we go, whether it's in North/South America or now Europe and it really truly positions us, our branding efforts in our LSW as an innovative leader in our space. For example we ran survey recently of large farmers and their recognition of tire technologies and we found that nearly 70% are already familiar with our LSW technology while just over 50% are familiar with the IFVF technologies which have been in the market for over ten years. We're really making great strides obviously -- the end users, customers and even OEMs understand the value of LSW and certainly we all believe the future looks really good there. In 2016, we'll take the One Titan umbrella a step further as we're launch in to EVA to unite our organization around creating shareholder value. At that time what it does is that -- we're going to use its EVA to measure ourselves and how we pay our people, which will be centered around the same goals as our shareholders which is to drive value. You already -- you saw and already heard about the Goodyear Farm deal. And while it's been -- it's been a while in the making and it's great to finally get that deal inked, it really creates an exciting time for our company as we gain access to the Goodyear Farm brand, Europe, Middle East, Africa and the CIS region. We've already been very successful as you know in building the Goodyear Farm brand for nearly a decade into the strong positions we have in North and South America. Now we have a tremendous asset with that Goodyear Farm tire brand throughout most of the world. And we've already proven we know what to do with it. You look at our Brazilian plant, it builds some of the best tires in the world in our space under the Goodyear Farm brand and we've been gaining market share there ever since we acquired that location. In North America, we took over the Goodyear Farm brand around ten years ago and have built and maintained it as the number one farm tire in North America. Then you throw in to the mix our Russian plant -- that can now serve some of the Goodyear Farm markets that we just acquired. We've already restructured that plant and it has more than doubled its output per persons since we acquired it. They've been learning from other Titan plants on how to build quality tires that can be exported in other regions and we're going to be throwing in some equipment and investment their way to give them the tools to be even better at what they do. But the ongoing changes to our Russian plant, along with the Goodyear brand, and you throw in the weak ruble there is a lot of upside to where that business can go. It's been a tough couple of years for us since Goodyear exited the farm business in the EMEA region as we've lost a lot of US tire sales, our new equipment being shipped from North America to Europe, but man it's a big win for us to be back in the game with the Goodyear Farm brand now covering most of the world and we've really look forward to taking full advantage of that value asset. In conclusion, the Titan team is going to keep battling our way through the market down turning keep moving the company forward under the One Titan umbrella. Longer term, as Morry started his comments with, we are confident that Titan would be very well-positioned when the markets improved through the result of our organizational actions, our change initiatives, our investment in new technologies, our strong global brand and ultimately the value we deliver to our customers through our products and our services. So with that, I want to turn the call over to John now.

Thanks, Paul. Good morning everyone. Before I get into the results, I'd like to address the 8-K and subsequent restatements that we're filed today. This past November 2, the Audit Committee of the Board of Directors of Titan International concluded that the previously issued consolidated financial statements for the years ending December 31, 2013 and 2014 and quarters ending March 31, 2014 and 2015, June 30, 2014 and 2015 and September 30, 2014, should no longer be relied upon due to errors in the accounting for the shareholders' agreement and related redeemable non-controlling interest in the company's investment in Voltyre-Prom. Titan did not correctly classify the redeemable non-controlling interest on the balance sheet as mezzanine equity, which is presented below liabilities and above equity. The earnings per share calculation was also affected due to the redeemable non-controlling interest balance exceeding the carrying value of the investment. I want to make this point, the corrections to earnings per share are not operational as they do not effect revenue, operating expenses, net income or cash flows. So with that, let's turn our attention to the operations of the business. Q3 was a challenging quarter for Titan, as has been noted by both Morry and Paul. But despite the difficult quarter we've adapted well by continuing to reduce our headcounts commensurate with volume and as Paul indicated going well beyond headcount reduction in terms of improving profitability of the business. Our profit optimization efforts that materialized in the first half are still hard at work. While we were down significantly in sales to both prior year Q3 and year to date, our gross margin rate performance in Q3 eroded only 120 basis points and for year-to-date has actually improved 100 basis points. So, let's begin talking about revenue. Sales for the quarter were at $309 million. This was down $141 million or 31.3% from prior year. The quarter over quarter decrease was driven mostly by currency and reductions in our ag segment. So there's been lot of discussion around ag, comprising $101 million or 72% of the variance. More specifically, when you separate out currency, the entire ag variance was attributable to North America. I referenced currency. This drove a reduction in sales of $54 million on the quarter versus prior year. This impact was felt across all the international locations -- our undercarriage, Russia, Latin America, Europe and Australia businesses. The most significant movements were represented by the ruble and real. If you adjust for the currency impacts, sales declined 19.3% versus the reported 31.3%. So as we break down our segments, let's start with ag. There isn't anything to say here from a driver perspective that isn't already known or hasn't already been discussed. From our perspective, sales had deteriorated more than we projected. It was back in Q1 that many in our industry were projecting growth in 2016. It was just several months ago that one of our OE customers was saying with confidence that they believe 2016 would be flat. Now many in the industry pointing to another year of potentially lower sales in 2016. The OEM market continues to deteriorate as the two primary forces in lower farm income and high used inventory continue to plague the industry. Specific to Titan, ag in total was down $47 million or 21% when you exclude currency impact. North American ag was down $52 million or 33% -- $42 million or 82% of this erosion was driven by reductions associated with our OE customers and so that was referenced a little bit earlier by both Morry and Paul. From a product perspective, $41 million or 80% of the same North American ag reduction was a result of reduced demand for high-horsepower equipment. In Europe, continued decline in ag still has our large OE customers implementing line speed reductions and layoff days to reduce production volumes. In offset to that, we continue to win new business both in Europe and Turkey. Specifically, we won additional business with our largest Turkey customer, yielding 40,000 units this year. Additional wins in Titan Italy and France will drive 40,000 of additional units into next year. Latin America -- they continue to suffer from a number of negative forces, deep political crisis, weak GDP, increasing unemployment and high inflation. The credit rating of the country was downgraded by both S&P and Fitch. 2015 has been the worst year for OE, ag and construction in the past six years. So, as a consequence and I've said this on previous calls, this has really driven intense competitive pricing pressure, specifically in Brazil. Our Titan team in Brazil has been admirable in terms of their performance and perseverance to drive forward in the face of all these obstacles. They've been very diligent to reduce cost and ensure competitiveness in a very, very difficult market. A quick comment on our undercarriage Russia and Australia businesses -- when you exclude currency impact, each of them actually showed a small growth for both the quarter and year to-date. Let's turn our attention to earthmoving construction. Our sales for earthmoving construction were down $27 million or 17.5% from prior year when adjusting for currency. The currency impact of $15 million for the quarter was attributable to mostly the euro devaluation negatively impacting our undercarriage business. Our North American business experienced the largest volume decline at 29%. Even when adjusting for currency our rest of the world businesses all experienced negative growth, with the lone exception of our Europe Wheel business. The Europe's Wheel business just rolled out a new innovative single piece wheel. Ultimately we fully expect all clean manufactures to convert to this new technology. So, it's like a consumer because the results can be misleading. When adjusting for currency the sales were down $13 million or 19% from prior year. Another view, another way to look at the experience -- $21 million of the gross $28 million miss in consumer is driven by Latin America, where nearly the entire miss comprises either FX or supply agreements. And just to remind everybody we are no longer selling compound to Goodyear to produce treated fabric that we purchased back from them. We brought this activity in-house as a profit initiative. So again kind of building on Paul's comment going well beyond headcount reduction. We're turning over every rock in terms of how we can optimize profit, and this is yet another example of that. But it did eliminate $10 million of sales on the quarter, but improved profitability. When we adjust for FX and these Latin America supply agreement that I just referenced with Goodyear, sales declined only $5 million or 7.4% versus the reported 41%. So quite a contrast in terms of what was reported. So with the first three quarters completed that puts sales just under $1.1 billion year-to-date compared to $1.5 billion last year representing an erosion of 28.1%. As with Q3 the story is fairly consistent, ag currency comprises $359 million or 84% of the total net sales variance year-to-date. If you adjust for the $156 million currency impact, our sales erosion drops to 260 net -- $269 million or 17.8%. Let move on to gross margins where we've been diligent holding our own despite the significant sales decline. Our gross margin dollars were down $17.5 million. Our gross margin rate performance of 8.5% was down 120 basis points to prior year, on a $141 million or 31% plus sales. As I continue to state on these calls while we have battled to overcome the sales decline, we've also had to contend with the weaker mix as most of the ag erosion is related to high horsepower equipment, a higher-margin product category for us. During Q2 we reported an improvement of 200 basis points for Q2 year-to-date against the 27% sales decline and I believe Paul referenced this earlier -- we had very good performance in the first half. So, the logical question would be what happened in Q3, as the sales decline is consistent yet the gross margin rate is lower. I want to remind everybody Q3 and Q4 are historically our lowest sales quarters of the year, they can be as much as 25% less or more on -- against the first half. So while the sales decline Q3 over Q3 is consistent with year-to-date, second-half sales represent a significant decline from first half. To simplify my point and Paul mentioned it earlier we're cutting in the bone relative to fixed cost in our staffing structures at these low sales levels. And I'll talk a little bit more about this later. We've been talking for several quarters regarding our profit optimization framework. We continue to realize the benefits of our efforts. In fact we expect to show slightly improved gross margin rate performance for full-year despite the significant sales decline in this difficult back half. Net material cost reductions are across the board, natural rubbers, synthetic rubber, carbon black, fabric and chemicals. As we've continued to reference on these calls, we have significantly improved our procurement of raw materials through the centralization of purchasing into our new supply chain organization. We've been procuring better than our benchmarks where generally this is not the case historically. We are active in exploring additional initiatives on the steel side as well. So, we continue to demonstrate that we have been proactive in real-time in reducing headcount in our plans commensurate with anticipated lower production levels. Ideation and execution of profit optimization issues have been integral to driving improvement and productivity across all our businesses. But one exception to this is our North America tire business where the sales reductions translate nearly one-to-one in lower production levels in the plants as there's no effect of currency. While they've been equal to the task and attacking cost, this links back to the cutting into the bone comment that both Paul and I've made earlier. But with that being said they've generated at decremental margin of negative 2.2% year-to-date, which means they're actually generating positive margin on lower sales. Quick note on operating expenses -- SG&A, R&D and royalty are down $6 million to prior year and $22 million year-to-date. And while there are a series of puts and takes across these categories, this is primarily a decrease related to profit optimization and FX. And as I've stated in the past couple of quarters, our operating expense structure has historically been lean. It's obviously been climbing as a percent of sales as a function of math against the reduction sales. We continue to pursue investment or redeployment so to speak in areas of strategic nature. We have made and we will continue to make investments in technology and skilled resources. So moving down the P&L, let's talk about foreign exchange loss. We experienced a loss of $15.3 million for the quarter, primarily from our intercompany balances. This is not -- this does not represent a cash impact. This was $2 million unfavorable to prior year. As we have discussed over the past several quarters, we've taken a number of actions to mitigate risk in foreign exchange through balance reductions, reclassification and our new hedging practice. Year to date our hedge is in a positive $3.3 million positioning and $4.5 million inception to date. Unfortunately, Russia and Australia were driving the lion's share of the Q3 loss, are cost-prohibitive to hedge and are not a reclassification consideration at this time. So let's summarize and bring this to bottom line for profit. Our income from operations was a loss of $14.5 million. This is $12 million worse than prior year, resulting in a decrement margin of 8.5%. When you look at year-to-date income from operations, the decrement margin improves to 2.2%, representing only a $9 million flow through on $425 million lower sales. So, this is a testament to the unrelenting effort of our Titan team to reduce costs and optimize profit. Adjusted net income attributable to Titan is a $31.5 million loss or $0.59 per share adjusted loss and EBITDA at $2.7 million. This compares to prior year adjusted net income attributable to Titan at a $7.2 million loss or $0.13 per share adjusted loss and EBITDA at $22.9 million. For nine months ended this year adjusted net income attributable to Titan is $27 million or $0.50 per share adjusted loss and $50.8 million of EBITDA. This compares to adjusted net income attributable to Titan of $3.4 million or $0.06 per share adjusted loss and $80.2 million of EBITDA from prior year. Let's touch on a few balance sheet items real briefly, for the quarter AR is down $41 million from Q2, primarily a function of revenue as DSOs were flat. AR is down $65 million from Q3 of prior year, driven by lower revenue, DSOs have experienced a slight erosion. Inventory is slightly below Q2 levels, but DSIs have climbed slightly as we've been working with some consignment programs to battle for more share. AP is slightly down from Q2 and down $41 million from Q3 prior year due to revenue decline offset in part by a three day improvement DPM. And our EVA framework that Paul mentioned earlier, while the initial focus and emphasis has been on productivity and profitability growth that's seen though our strides with gross margin, working capital will also become an acute focus for value creation. And regards to PP&E, we continue to spend under our depreciation expense generating cash. As stated in previous quarters we have been carefully scrutinizing capital that ensures strategic alignment, positive EVA returns and cash generation. We expect to spend approximately $10 million in Q4, bringing our full year capital to spend to $45 million. This is below our internal plan and anticipated full year depreciation of $65 million, generating $20 million of cash for the year. So speaking of cash, cash ended the quarter up $6 million to Q2 at $194 million and this is down $8 million to 2014 year end. We are well aware that concerns persist over our liquidity and cash flow as we fight through these down markets. We continue to be mindful of our cash position and manage it diligently. I indicated on the last call that it was our goal to be cash neutral at year end. We're projecting this is -- this will not be likely, but expect to use only $9 million of cash in the Q4 and end the year at approximately $185 million. Let's turn our attention to debt. At 5.13 our net debt trailing adjusted EBITDA calculation has deteriorated one year ago from 3.19. Our actual debt level is slightly down from year ago. So this is just a function of math, as this downturn -- through this downturn we've dropped off higher earnings quarter and substitute with lower earning quarters. I want to make a comment, and make everybody aware that our convertible notes are due January 2017, so in in about 15 months. We are proactively managing this, exploring a number of alternatives to address this maturity. So wrapping up, I believe our year to date results are admirable in the face of some very difficult end markets accompanied by significant sales erosion. We've improved our gross margin rate performance by 100 basis points on 27% less sales. Our decremental margin at 2.2% is exceptional and while there has been a lot accomplished by our One Titan team, there's still lot of diligence ahead of us as we persevere through these challenging times. And I know I sound like a broken record when I say this, but I genuinely believe that we will be in a position to couple the ultimate market recovery with the significant improvements in our professional business practices that will result in a very lucrative outcome for our shareholders in the future. So with that, I'd like to turn the call back over to the operator for questions.

Before we turn it over John -- this is Morry. Before we turn it over, I thought I should also mention on this phone call, because it will be coming out in trade rags in the next few weeks. As everybody knows, the currencies in China and the currencies in various countries but also India, have turned and they dropped them to help their exports. Well, a number of years ago, we sued our government under the international trade agreements about dumping and of course no one in the rags gave us much of the chance, but we won that. And so, we have teamed up, I believe they've finished the paper work, with our friends at United Steelworkers and we are going back and we'll be filing the papers against the Chinese and Indians for dumping, and we also have -- going to add to it, the possibility that there has been some fraudulence to evade duties by certain Chinese companies that put a wheel in it and then shipped it in. So, slap a little teeny wheel in it and they had duties of over a 100%. So, the wheel meant nothing because it had a different number and it was coming through, we've tracked that. And a good thing about that is if we can prove that this was a not an accidental situation, but they did it purposely to bypass the customs, we not only get the duties, but that company -- the Chinese company have big problems and the US importer, we can get hit with triple damages. So you will see the trade rags, the moment the final papers, and they've been working on them. We've engaged everybody and they're due to come out at this month and this thing will move fast. And we only did this because we think we have a very strong case and I have an aversion they have to pay all these lawyers and so we wouldn't have done it without that. So you will see that and you will also see as I mentioned in my note all six reactors for our PTRC are up in the oil sands on the concrete slab with the buildings going over and there will be again -- trade rags and various things -- we were also been requested to make sure we send out press releases as that goes and we will be doing that. So with that let's turn it over to questions.

[Operator Instructions]. And our first question comes from Larry DeMaria of William Blair. Please go ahead.

On the Goodyear deal can you just update us, remind us of the financials? What kind of payments you have to make to them, et cetera, first of all? And then secondly, when would you guys start to build inventories, start getting back into the aftermarket distribution in the OE channels with Goodyear?

The first part as you know it's just came down, okay? We made the mention we got the -- we have molds at Goodyear's facilities in Turkey and in Poland, and those will start moving probably this next week. And so it's going to take us probably into the first quarter, we can start up -- we have to figure out, we have people on the road right now to meet with dealers all over. In fact what we're trying to do is negotiate to bring some of the other Goodyear distributors that distributed the Goodyear brand, they do the -- all the other Goodyear. I think our marketing people have been scheduling meetings with them, but in reality we -- I would say first quarter so we see -- we start pushing the tires up until then. It's getting the specs, making sure what we have. There are some OE, that there is no question now with this announcement out, we'll receive orders for them and that will be able to react, but you got a big OE market that's on the down side. So, that's the situation. I don't know if they're building right now for shipment over into Europe or wherever they're going to ship it.

Is the royalty the same? Is the royalty the same, Morry?

Yes, the royalty. What we did is, this royalty -- because your advance payment, it started at $1 million, so they already got their $1 million and next year that gets trued up. In other words, that's on the 2% and then the new agreement it falls under everything because it was separate now because of the year, in three years it just rolls in as an agreement we have right now for North and South America.

Just one last thing, can you remind us of -- you talked about ITM or one of the guys talked about ITM, doing it a little bit better maybe. How are we thinking about divestitures at this point given all the moving parts and your commitment to European ag, obviously with Goodyear. Are we thinking that there is possibility for divestitures and streamlining the business even more from that perspective? And then I'll jump out. Thanks, Morry?

We're always -- that got our non-tire than wheel. We always look at that, there is no question. There have been rumblings out there. We would participate if you were to take x, y, and z, and match them up so they had a bigger animal, I think that would be something that we would and the board of directors would consider. So that's always been on our plate. But meanwhile as you know, I can pick off 50 items that I'd like to buy right now but everybody is in such a panic spree thanks [ph] to all of this and coming to an end. So it'll always be there, but meanwhile while we still have it, we're moving big time into the aftermarket which they were never really into and they put the resources to it and it's been a very positive -- it's starting to show some light. The same happened up in the oil sands. We're looking at that every which way. The only thing we can say Larry straight out, is we're just going to grow it and if turns around that we can combine it then we'll look at that.

Our next question comes from David Tamberrino of Goldman Sachs. Please go ahead. I do apologize, our next question comes from Peter Cross from LM Cohen. Please go ahead.

At the present time, you have two of seven directors who own no stock. I think that's just appalling and I would require them to use of major portion of the director fees to buy stock or if they don't want to do that, I would replace them at the next annual meeting.

I hear you and I think speaking for the board, they probably agree with that. The problem lies is that because of certain stuff, they're precluded until they can get an open session.

I understand that.

And I think you'll see that happen in the open session.

You have had a lot of open windows from the last year and --

No, I understand but there was an open periods since I talked with you. I did what you asked.

Secondly Morry, with the market capital of only -- as of today, this morning of only $330 million, it baffles me that Titan still has three planes, when corporations many times your size are trimming their or eliminating their aircraft fleet. And I would -- surely would hope that possibly, you consider that going forward because I think that promotes indiscriminate use and it also sends a bad message to your employees about cost cutting --

While the first thing, Peter, we use those planes mostly between the factories of moving people and if you want to try to drive, you drive a higher cost. The other ones we have taken out a third of the cost out of that, and it is monitored very, very good. So we've looked at that. If you sold all the planes off, you're -- at the price now, you're better to let them just sit there, since they were paid off and you could never replace them and when you're bringing customers in from places that normally they would have to take two days to get to one of our plants. I hear what you're saying, but I don't think it makes with shareholders, one bit of different of benefit. In fact if anything, you're going to stub it.

Well, I mean obviously there's a lot of corporations --.

[Multiple speakers] -- wait, wait, I understand all that, and I understand there are a lot of corporations that what they did was run out and lease. They spent more money, just they wanted to follow someone else, who thought it was politically correct. So you've stated it Peter --

There are other options also Maurice, such as jet cars, which a lot of people use, a lot of corporations use instead of having a staff and pilots onboard.

See Peter our cost to fly per hour is approximately $1,500.

Okay.

You go rent a jet car, which we did look at that and it's almost $7,500. So, assume think a little bit, okay.

The last thing Maury you mentioned that there's 50 things you want to buy, was your own stock one of them? Especially when below $6?

The problem we have -- we cannot buy, I personally bought stock, we -- when I had one chance to buy and I bought at $10something. The other situation is that we have our bank -- not bank, it's the bond covenants in the basket and we don't have enough room and so that was brought up. And then we -- because it did make sense, I think all the directors would agree with you, take excess cash and buy the stock, but if you have a -- you don't want to trigger covenants by that. So, that did not take effect.

[Operator Instructions]. Our next question and I do apologize, our next question now goes to David Tamberrino of Goldman Sachs. Please go ahead.

I'll stick more to the business side of things, just LSW tire shipments, where are we with that for the third quarter or what was the sequential improvements from the second quarter? And have we seen any additional OEs putting it within their books or having the uptake for the 2016 season?

Yes, we have increased the part numbers at the OEs. We have increased our selection and we are -- in fact one fellow just -- he bought, I believe it was 10 or 15 brand new combines and were running with our LSW. So right now what we're trying to do is as mentioned by Paul and mentioned in my deal -- my note, in Brazil we will be shipping a number of containers down to Brazil for our test farms. And we believe that once they have them on, they will want to add more. So we are already in the process of putting up the specs and over the next six months you will have them tooled to make certain sizes and we'll just going to keep going up. As every LSW tire on every vehicle makes it perform better and that's just a fact. We were out and we have a flier that shows a Deere dealer took a brand new quad truck was a 36 inch, 96/20 and I've mentioned this before. Well now, we actually had less ground compaction than the track and we pulled this implement -- same depth, same implement everything, seven miles an hour, they just want a quarter mile down, quarter mile back and they were just the same. If you get on the road, you can go as fast as that tractor can go. Now you pay $70,000 upfront if you want the track over ours and you don't even need the independent suspension with ours either. I have no idea what that costs, but it's probably at least $15,000. So, there is no question it's coming up, I think we'll see a lot, the harvest has been pretty good, I think we'll be seeing a lot as we go into the first of the year.

Somewhat helpful color, maybe Paul or John could you add something quantitatively just on the level of shipments and what the sequential increase has been if there has been one?

I don't think we've report it.

No, we don't at this time. I mean, we're very happy at where we're at in this point. And it's all qualitative, what we've been disclosing. I shared some figures today to we talk about some market surveys.

David, if you start to report that, put that out, why do I want to give, all this data to my competitors?

Yes, we're not going to put this in the hands of our competitors. We do get the take rates from John Deere. I had a meeting with them last week, they did share with me that they're very happy with the take rates that they're getting from their end customers. And again we're very satisfied with the performance we're seeing in the market of the product, we're very satisfied with the brand awareness we have with LSW and that's been qualitatively disclosed on the call today. So, at this point David, that's probably about all we can share and we continue to give updates in that regard.

That's fair, understood, maybe just moving to the cost cutting actions. Obviously, decremental margins more in line with what historically or normally we would think they should be. You guys gave a little bit of color here, but just trying to think about going forward. Are we at a level where we are now going to be normalized and I think I've just hit the gross margin level, not the operating margin level in the mid-teens with decrementals or do you think there really are more actions that you can take to bring that back down or potentially get that, that negative leverage in seeing some gross profit increasing even on the decreasing sales here?

I guess, I'll talk to this. I absolutely believe there is more actions that we can take I mean, Paul, during his conversation, there is smattering of different areas that he touched upon that we're really just in our infancy, I mean the pricing initiative, building the supply chain team, the marketing team, we are in our infancy. We definitely have a longer road ahead of us in terms of improving profitability and ultimately EVA in terms of touching on the balance sheet as well.

I would tell one other thing out there for you too. It's that the unknown is when you see the filings, the rags will have them out and I'm referring to the trade rags in our business, on the dumping. The last time, what happened is once this is filed, the notice goes out. So everybody that has been an importer, now you are responsible if the board and we win our lawsuit. So automatically they are on the hook. So, generally what happens is once you go through this, they turn around and you're going to see -- and it's going to help my competitor basically, my friends at Firestone as well as us, but you'll see in the uptake in that. And you'll see a point were imports stop because you see, if those continues on the water, your importation liability starts the moment this thing hits and we're trying to get it filed and all the paperwork done in the next week to ten days. So, we don't know what -- if that hits, then it will give us a great Christmas present. But we should know pretty close between now and the end of the year, our success in reference to adding the duty. And when you got a political campaign going, and the Obama administration -- it's going to be difficult for anybody to feel sorry for the Chinese or the Indians, as they're subsidizing with the damn things. So, I think our timing is real good and the results will be good.

Okay.

That must have answered it David, but that's a --.

I mean, I don't know, we're talking about cost cutting actions, I don't know how we moved to filing, anti-dumping. Again it's imports, just last from me, is there any -- what anticipated CapEx are you going to see to get the TTRC up and running in April next year? Is there anything or is that all kind of spoken for at this point already?

That's all spoken for, we're coming underneath most of that. The biggest chunk of that has already been paid. So we've already spent that. I've told everybody we should be up and running full board on April 1. And we're going to look at -- it doesn't fit in long-term with what we're planning to do, so that'll be the biggest one in the world. So I'm thinking we'll sell it.

And this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Taylor for any closing remarks.

I think we might have lost Morry. I thank everybody for your attention this morning and look forward to talking to you next quarter. Thank you.