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Sunday, April 13, 2014

10K FootNote: Wells Fargo Tightens Debt Agreement (again) on Titan Machinery

Friday morning Titan Machinery filed with the Securities & Exchange Commission its annual report (10K) for Fiscal year 2014 for the period ending January 31,2014.
  •  FY 2014 Net Income declined 79% from $42 million in FY 2013 to $8.8 million for FY 2014.
  • Titan's cash position declined to $74 million from $125 million in FY 2013.
    (Total Liabilities are over $1.1 billion)

 In the Footnote Exhibit 10.53 terms of Titan Machinery's $150 million convertible note with Wells Fargo is disclosed with Amendments that were made on April 3,2014.

 (Note Titan's 1st Quarter of FY 2015 ends in less than 3 weeks. Thursday April 10th announced that they would be closing 7 construction sore and 1 agriculture location and the company will be taking a $4.2 million pre-tax charge, or $0.12 per diluted share, associated with the Company’s realignment that it expects to be realized in the first quarter of fiscal 2015.)
  


1.1.6    Effective as of the Third Amendment Effective Date, Section 6.12(a) of the Credit Agreement is hereby deleted in its entirety and the following is substituted therefor:
(a)    Consolidated Net Leverage Ratio. Borrower shall maintain, (a) as at the end of each Fiscal Period ending April 30, 2014 through the Fiscal Period ending October 31, 2014, a Consolidated Net Leverage Ratio not greater than 3.25 : 1.00, and (b) as at the end of each Fiscal Period from and after the Fiscal Period ending January 31, 2015, a Consolidated Net Leverage Ratio not greater than 3.00 : 1.00.
1.1.7    Section 6.12(b) of the Credit Agreement is hereby deleted in its entirety and the following is substituted therefor:

(b)    Consolidated Fixed Charge Coverage Ratio. Borrower shall maintain, as at the end of each Fiscal Period, a Consolidated Fixed Charge Coverage Ratio not less than 1.25 : 1.00.

1.1.8    The following is hereby inserted in the Credit Agreement as Section 6.12(c):

(c)    Consolidated Net Income. Borrower shall maintain, (a) as at the end of each Fiscal Period ending January 31, 2014 through the Fiscal Period ending October 31, 2014, for the period consisting of the four consecutive Fiscal Periods ending on such date, a Consolidated Net Income of not less than $5,000,000.00, and (b) as at the end of each Fiscal Period from and after the Fiscal Period ending January 31, 2015, for the period consisting of the four consecutive Fiscal Periods ending on such date, a Consolidated Net Income of not less than $10,000,000.00. For purposes of this Section 6.12(c) only, (a) for all Fiscal Periods through the Fiscal Period ending October 31, 2014, the One-Time Impairment Charge (net of the tax benefit to the extent already included in the determination of Consolidated Net Income) shall be excluded from the calculation of Consolidated Net Income, and (b) for all Fiscal Periods through the Fiscal Period ending October 31, 2014 for that portion of the One-Time Restructuring Charge incurred in the Fiscal Period ending January 31, 2014, and through the Fiscal Period January 31, 2015 for that portion of the One-Time Restructuring Charge incurred in the Fiscal Period ending April 30, 2014, the One-Time Restructuring Charge (net of the tax benefit to the extent already included in the determination of Consolidated Net Income) shall be excluded from the calculation of Consolidated Net Income.


3rd Quarter 10Q Footnote 10.2 Wells Fargo



1.1.5       Effective as of October 31, 2013, Sections 6.12(a) and (b) of the Credit Agreement are hereby deleted in their entirety and the following are substituted therefor:

(a)           Consolidated Net Leverage Ratio.  Borrower shall maintain, (a) as at the end of the Fiscal Period ending October 31, 2013, a Consolidated Net Leverage Ratio not greater than 3.75 : 1.00, (b) as at the end of each Fiscal Period beginning with the Fiscal Period ending January 31, 2014 through the Fiscal Period ending October 31, 2014, a Consolidated Net Leverage Ratio not greater than 3.50 : 1.00, (c) as at the end of the Fiscal Period ending January 31, 2015, a Consolidated Net Leverage Ratio not greater than 3.25 : 1.00, and (d) as at the end of each Fiscal Period from and after the Fiscal Period ending April 30, 2015, a Consolidated Net Leverage Ratio not greater than 3.00 : 1.00.

(b)           Consolidated Fixed Charge Coverage Ratio.  Borrower shall maintain, (a) as at the end of each Fiscal Period beginning with the Fiscal Period ending October 31, 2013 through the Fiscal Period ending January 31, 2014, a Consolidated Fixed Charge Coverage Ratio not less than 1.15 : 1.00, (b) as at the end of each Fiscal Period beginning with the Fiscal Period ending April 30, 2014 through the Fiscal Period ending October 31, 2014, a Consolidated Fixed Charge Coverage Ratio not less than 1.20 : 1.00, and (c) as at the end of each Fiscal Period from and after the Fiscal Period ending January 31, 2015, a Consolidated Fixed Charge Coverage Ratio not less than 1.25 : 1.00.



  • SECTION 6.12                            FINANCIAL COVENANTS.

    (a)           Consolidated Net Leverage Ratio.  Borrower shall maintain, (a) as at the end of each Fiscal Period beginning with the Fiscal Period ending January 31, 2012 through the Fiscal Period ending January 31, 2014, a Consolidated Net Leverage Ratio not greater than 3.00 : 1.00, and (b) as at the end of each Fiscal Period from and after the Fiscal Period ending April 30, 2014, a Consolidated Net Leverage Ratio not greater than 2.50 : 1.00.

    (b)           Consolidated Fixed Charge Coverage Ratio.  Borrower shall maintain, as at the end of each Fiscal Period ending after the Closing Date, a Consolidated Fixed Charge Coverage Ratio not less than 1.25 : 1.00 for the then trailing twelve month period.

    ******definitions from original indenture:


    Consolidated Fixed Charge Coverage Ratio means, as of the last day of a fiscal quarter, for the period consisting of the four consecutive Fiscal Periods ending on such date, subject to Section 1.02(h), the ratio of:  (a) the sum for such period of (without duplication):  (i) Consolidated EBITDAR; minus (ii) all payments in cash for taxes related to income made by Borrower and its Subsidiaries; minus (iii) Capital Expenditures actually made in cash by Borrower and its Subsidiaries (net of any insurance proceeds, condemnation awards or proceeds relating to any financing with respect to such expenditures); minus (iv) Restricted Payments paid in cash by Borrower; to (b) of:  (i) Consolidated Interest Expense; plus (ii) Consolidated Rent Expense; plus (iii) without duplication, all current maturities of long-term Debt (including with respect to Debt that is a capital lease).

    Consolidated Interest Expense means, for any period, for Borrower and its Subsidiaries on a consolidated basis, the sum of (without duplication):  (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets during such period; plus (b) all payments made under interest rate Swap Contracts during such period to the extent not included in clause (a) of this definition; minus (c) all payments received under interest rate Swap Contracts during such period; plus (d) the portion of rent expense with respect to such period under capital leases that is treated as interest in accordance with GAAP.

    Consolidated Leverage Ratio means, as of any date of determination, the ratio of:  (a)  Consolidated Total Liabilities; to (b) Consolidated Tangible Net Worth.

    Consolidated Net Incomemeans for any period, the sum of net income (or loss) for such period of the Borrower and its Subsidiaries on a consolidated basis determined in accordance with GAAP, but excluding any income of any Person if such Person is not a Subsidiary, except that the Borrower’s direct or indirect equity in the net income of any such person for such period shall be included in such Consolidated Net Income in accordance with GAAP.

    Consolidated Net Leverage Ratio means, as of any date of determination, the ratio of:  (a) the sum of (i) Consolidated Total Liabilities, minus (ii) the amount by which Cash Equivalents held by Borrower and its Subsidiaries as of such date of determination exceed $30,000,000; to (b) Consolidated Tangible Net Worth.

    Consolidated Rent Expense means for such period, total rental expenses attributable to operating leases of the Borrower and its Subsidiaries for real property on a consolidated basis.

Click to Wells Fargo $150 million Indenture disclosure with SEC  "The effective interest rate of the liability component for the period ended January 31,2013 was equal to 7.00%"
Date of Offering : April 18,2012 
Amount of Debt: $150 million Convertible

Friday, April 11, 2014

Warning: Don't Buy Titan Machinery Guidance

Warning: Don't Buy Titan Machinery Guidance


Titan Machinery's guidance yesterday was laughable. Yesterday Titan Machinery shares went flying higher after the company announced they missed revenue guidance for the Q4 FY2014 quarter by 10%. It was just 8 weeks ago in December 2013 when the company lowered their 4th quarter guidance with only 8 weeks before the quarter ended and they still missed by a wide margin.  

 Titan has proven time and time again that their visibility is weak when they've given guidance in the past looking only 8 weeks out. Making a Bold Prediction 52 weeks out that they will generate $60million to $80 million is reckless. (Note the company will have 8 less locations in FY 2015 to accomplish this)

The guidance on sales and EPS for Fiscal year 2015 both have tight ranges, but the operational cash flow range is $20 million!!!! (that's $130 million improvement vs. FY2014 for a comapny that just reported negative operational cash flow 5 consecutive years.)That's Hype! 

* Excluding non-cash items, totaling $7.8 million (or $0.37 per share), adjusted net income attributable to common stockholders for fiscal 2014 was $0.41 per diluted share.
Last April 2013 the company made the following guidance:
Income forecast of $2 to $2.30 per share. It reiterated its revenue forecast of $2.35 billion to $2.55 billion.
The Next month, May 2013 guidance was changed: 
 The company now anticipates earning $1.70 to $2 per share, down from its prior forecast of $2 to $2.30 per share. It reiterated its revenue forecast of $2.35 billion to $2.55 billion. "  
The Next Month, June 2013, guidance:
  For the full year ending January 31, 2014, the Company anticipates revenue in the range of $2.35 billion to $2.55 billion, net income attributable to common stockholders in the range of $36.4 million to $42.8 million, and earnings per diluted share in the range of $1.70 to $2.00
For the full year ending January 31, 2014, the Company now expects revenue to be in the range of $2.25 billion to $2.45 billion compared to the previous range of $2.35 billion to $2.55 billion. The Company expects net income attributable to common stockholders to be in the range of $25.4 million to $31.8 million, and earnings per diluted share to be in the range of $1.20 to $1.50 based on estimated weighted average diluted common shares outstanding of 21.2 million, primarily reflecting the lower expected equipment margins. This compares to previous net income attributable to common stockholders guidance in the range of $36.4 million to $42.8 million, and earnings per diluted share in the range of $1.70 to $2.00 based on estimated weighted average diluted common shares outstanding of 21.4 million. 

December 2013 the following guidance
The Company is adjusting its annual guidance based on increased visibility of market conditions. For the full year ending January 31, 2014, the Company now expects revenue to be in the range of $2.15 billion to $2.35 billion compared to the previous range of $2.25 billion to $2.45 billion. The Company expects net income attributable to common stockholders to be in the range of $11.6 million to $15.8 million, and earnings per diluted share to be in the range of $0.55 to $0.75 based on estimated weighted average diluted common shares outstanding of 21.1 million, primarily reflecting the lower expected equipment sales and margins. This compares to previous net income attributable to common stockholders guidance in the range of $25.4 million to $31.8 million, and earnings per diluted share in the range of $1.20 to $1.50 based on estimated weighted average diluted common shares outstanding of 21.2 million.
The Actual Results for FY2014 that the above guidance refered to 

 In June 2012: After giving a $2.55-$2.75 range guidance company reported $2.00 EPS for year ending January 31,2013. Instead of earning $53.8million to $58  million for year the company only reported $42million. But Management's Mission was accomplished by getting stock up to $30 so they could sell shares @ $30.
The underwriter Cherry Tree (owned by director Tony Christianson, the brother of CEO, was compensated for the $150 million indenture offering in April of 2012. In June 2012 TITAN gave the following guidance in a press release:   

 7/13/2011

On June 9,2011 Chairman David Meyer appeared on Jim Cramer's MAD MONEY  and touted TITAN MACHINERY's future. 30 days later DAVID MEYER SOLD 300,000 shares @ $27.80 and received proceeds of $8,340.00.00 and CEO Peter Christianson sold 200,000 shares $27.80 for proceeds of $5.56 million.
On June 9,2011 Chairman David Meyer appeared on Jim Cramer's MAD MONEY  and touted TITAN MACHINERY's future. 30 days later DAVID MEYER SOLD 300,000 shares @ $27.80 and received proceeds of $8,340.00.00 and CEO Peter Christianson sold 200,000 shares $27.80 for proceeds of $5.56 million.
  INSIDER SELLING:On June 9,2011 Chairman David Meyer appeared on Jim Cramer's MAD MONEY  and touted TITAN MACHINERY's future. 30 days later DAVID MEYER SOLD 300,000 shares @ $27.80 and received proceeds of $8,340.00.00 and CEO Peter Christianson sold 200,000 shares $27.80 for proceeds of $5.56 million. 

TITAN Guides Operational Cash Flow of $60 million to $80 million for Fiscal Year 2015 is HYPE
How do Experts at generating negative cash flow, all of a sudden make such a statement? 
Titan Machinery yesterday announced Negative Operational Cash Flow for the 5th consecutive year. Over the past 5 years the company has generated a total of $431,000,000 in NEGATIVE Operational Cash Flow.  When the company announced yesterday that they were guiding for FISCAL Year 2015 Operational Cash Flow of Positive $60 million to $80 million, $3 to $4.00 per share in OPS, I couldn't believe they said it!!! 

September 2013 they made the following Guidance: 

Fiscal 2014 Full Year Results 
For the full year ended January 31, 2014, revenue increased 1.3% to $2.23 billion from $2.20 billion last year. Gross profit margin for fiscal 2014 was 15.6%, compared to 15.4% last year. Pre-tax income for the fiscal 2014 was $18.4 million. Excluding the aforementioned non-cash impairment charge of $10.0 million, adjusted pre-tax income was $28.4 million, for a pre-tax margin of 1.3%. This compares to pre-tax income of $70.7 million, or a pre-tax margin of 3.2%, last year. GAAP net income attributable to common stockholders for fiscal 2014 was $8.7 million, or $0.41 per diluted share. Adjusted net income attributable to common stockholders for fiscal 2014 was $16.5 million, or $0.78 per diluted share. This compares to $42.0 million, or $2.00 per diluted share, last year. 


"Net income attributable to common stockholders is expected to be in the range of $53.8 million to $58.0 million, resulting in earnings per diluted share range of $2.55 to $2.75". In July 2012 director Tony Christianson and director Irwin James both sold shares of TITAN (TITN) in the market place above $30 per share. 

 7/13/2011

On June 9,2011 Chairman David Meyer appeared on Jim Cramer's MAD MONEY  and touted TITAN MACHINERY's future. 30 days later DAVID MEYER SOLD 300,000 shares @ $27.80 and received proceeds of $8,340.00.00 and CEO Peter Christianson sold 200,000 shares $27.80 for proceeds of $5.56 million. 

Monday, April 7, 2014

A Review of Securities & Exchange Commission's Comments regarding Titan Machinery Disclosure

  • On April 10,2013, Titan Machinery Inc (NASDAQ: TITN) filed its Fiscal 2013 year end financials (10K) for the 12 month period ending January 31,2013 with the SEC. 
  • On April 25,2013, Titan Machinery Inc filed its Proxy Statement for its Annual Shareholder meeting (DEF 14A) with the SEC.
This Thursday, April 10th, before the market opens, Titan will disclose Fiscal Year 2014 financials for the 12 month period ending January 31,2014.


Securities & Exchange Commission Division of Corporate Finance Comments December 9,2013

 Equities Research:
 It will be interesting to see if the new auditor allows the company to recognize revenue in Fiscal 2014 in this same manner as Fiscal 2013: (from Fiscal 2013 10K):
 " However, in certain circumstances, and upon the customer's written request, equipment revenue is recognized before delivery occurs"


I was very critical of the financials disclosed by in both filings and analyzed both documents in my blog post : "The Most Overpriced Stock in the Market Files Proxy Statement".
                                         My reports raised many red flags :
  •  Following key words are what caught my eye, especially since these hats are worn by 4 or 5 execs:
    3 Brothers, A Son, A Brother-In-Law, COO, Chairman, Founder, Commission, Managing Director of Underwriter, Owner of Construction Company, Unsecured loans, LEASE Arrangements with Top 3 Execs outside Entities, Real Estate Sale between TITN and Top two Execs Outside Entity, Private Jet, Consulting fees, underwriting fees....(oh yeah, the time Chairman went on Mad Money and then sold shares ) 
  •  
  •  A. 10 K Highlights of Weak Fundamentals
    B. Roddy Boyd / Herb Greenberg Recognizes my Work
    C.Certain Related Party Transactions
    D.Insider Selling after Making Hyped Up Projections (missed by a mile)
    E.Increase Of Authorized Shares
    F.CNH AMERICA Floor Debt Plan
    G.Property sold to Entity owned by Top 2 Execs.without disclosure
    H.Property Ownership Company owned by Top 2 Execs outside entity.
    I.Brother-in-law Construction Company building multi-million dollars worth of buildings.
    J.OLD INVENTORY list (108 page document), not sure how if its obsolete yet.
    K.History of Negative Operational Cash Flow
    L.Private Jet
    M.$150 million convertible note disclosure. (using best scenario vs. worse scenario in disclosure)
    N.Immediate Family Members: commissions, raises, fees, consulting agreements
    O.Cash Advance Business offering loans to Bad Credit/No Credit borrowers
    P.Variable Interest on Debt
    Q.Interest Expense
    R.disclosure of former CFO, now Treasurer)
    S.Auditor's History
    T. CEO & chairman both increased salaries 48% in cash 

On Titan's last conference call in December 2013 the company lowered their year end guidance: 
For fiscal 2014 revenue range of $2.15billion to $2.35 billion and expect annual net income in the range of $11.6million to$15.8million.  Fiscal Year 2013 net income was $42 million. That is a 65% decline year over year decline. Note with shares trading at $15, the PE ratio is nearly 30.


Complaint