Wednesday, April 15, 2015

Titan Machinery REPORTS FY2015 LOSS ($1.51)


Wells Fargo and AgriCredit reduce credit lines available to Titan Machinery
• "As of January 31, 2015, we had a Credit Agreement with Wells Fargo, which includes a $350.0 million wholesale floorplan payable line of credit, a $225.0 million credit facility with Agricredit Acceptance LLC ("Agricredit"), and the U.S. dollar equivalent of $133.0 million in credit facilities related to its foreign subsidiaries to finance equipment inventory purchases. The Wells Fargo and Agricredit credit facilities were amended effective April 2015, which reduced the available borrowings to $275.0 million and $200.0 million, respectively".

• Effective April 10, 2015, the Company amended its credit facility with Wells Fargo to change certain financial covenants, reduce the available lines of credit and change the interest rate, among other things. The minimum consolidated income before income taxes covenant was eliminated for the fiscal year ended January 31, 2015, and changed to a loss of $11.0 million for the three months ended April 30, 2015, a loss of $9.0 million for the six months ended July 31, 2015, income of $1.0 million for the nine months ended October 31, 2015 and income of $10.0 million for the trailing four quarters for each period thereafter. The previous minimum income before income tax covenant was $5.0 million for the period ended January 31, 2015, $6.0 million for each of the two periods ended April 30, 2015 and July 31, 2015, $10.0 million for each of the two periods ended October 31, 2015 and January 31, 2016, and $15.0 million for each period thereafter. The maximum net leverage ratio was changed from 3.0 : 1.00 for all periods to 3.00 : 1.00 as of January 31, 2015 and April 30, 2015, 2.75 : 1.00 as of July 31, 2015 and October 31, 2015, and 2.50: 1.00 for each period thereafter. The Floorplan Payable Line was reduced from $350.0 million to $275.0 million and the Working Capital Line was reduced from $112.5 million to $87.5 million. The interest rate margin was changed from a range of 1.5% to 2.875% to a range of 1.5% to 3.125% per annum, depending upon results of the Company's consolidated leverage ratio and consolidated income before income taxes.
• Effective April 1, 2015, the Company amended its credit facility with Agricredit, which decreased its available borrowings under the credit facility from $225.0 million to $200.0 million and added an annual renewal fee.


 What a Horrible Business 0.00038% operation income/total revenue
FY2015 total revenue                     $1.9 billion
FY2015 income from operations:     $723,000
Market Capitialization                     $275 million
Price to Earnings Multiple             380 PE
What's wrong with this picture?

From Press Release: "The Company amended its bank syndicate credit facility in April 2015, and as a result of such amendment, was in compliance with all financial covenants of its credit facilities effective for the period ended January 31, 2015."

FY2016 Outlook
•   Agriculture Same Store Sales Down 20% to 25%
•  Construction Same Store Sales Flat 
• International Same Store Sales Flat 
*points below from above report
• *The first issue that they did not address is that there is a strong historical correlation between Titan’s revenue and its Inventories growth rates.
•  * The ratio or multiple of Revenue that Titan has generated has ranged between 2.06 and 2.53 times its inventories since 2010.   

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  WT_?
 "( including equipment inventory classified as held for sale)"

"The Company’s inventory level decreased to $879.4 million as of January 31, 2015, compared to inventory of $1.08 billion as of January 31, 2014, primarily reflecting a reduction in equipment inventory of $167.7 million (including equipment inventory classified as held for sale). The Company had $627.2 million outstanding floorplan payables on $1.2 billion total discretionary floorplan lines of credit as of January 31, 2015, reflecting a decrease of $121.5 million (including floorplan payables classified as held for sale) from the balance of $750.5 million as of January 31, 2014."

Related Party Transactions: (read more here: Most Overpriced Stock Titan Machinery)
• We leased one store property pursuant to an operating lease from C.I. Farm Power, Inc., a company affiliated with Peter Christianson, our President and Director, during each of the years ended January 31, 2015, 2014 and 2013. The lease expires on July 31, 2018, subject to the right of either party to terminate upon 60 days' written notice, We also lease buildings from Dealer Sites, LLC ("Dealer Sites"), an entity in which a minority position is owned by an entity affiliated with David Meyer, the Company's Board Chair and Chief Executive Officer, Peter Christianson, the Company's President and a director, and certain other Christianson family members. An entity affiliated with Tony Christianson, one of the Company's directors, formerly held a minority interest in Dealer Sites, LLC until December, 2012. During the year ended January 31, 2013, Dealer Sites was deemed to be a related party, however, as of January 31, 2013 and through the year ended January 31, 2015, Dealer Sites was not deemed to be a related party as total related party ownership in the entity was less than 10%. The Company leased 48 buildings pursuant to different operating lease agreements with Dealer Sites, LLC ("Dealer Sites") as of January 31, 2013.


◦ Rent expense for operating leases with related parties totaled $0.1 million, $0.1 million and $7.0 million for the years ended January 31, 2015, 2014 and 2013, respectively. The Company has leased one store property pursuant to an operating lease from C.I. Farm Power, Inc., a company affiliated with Peter Christianson, the Company's President and a director, during each of the years ended January 31, 2015, 2014 and 2013. The lease expires on July 31, 2018, subject to the right of either party to terminate upon 60 days' written notice, The Company also leases buildings from Dealer Sites, LLC ("Dealer Sites"), an entity in which a minority position is owned by an entity affiliated with David Meyer, the Company's Board Chair and Chief Executive Officer, Peter Christianson, the Company's President and a director, and certain other Christianson family members. An entity affiliated with Tony Christianson, one of the Company's directors, formerly held a minority interest in Dealer Sites, LLC until December, 2012. During the year ended January 31, 2013, Dealer Sites was deemed to be a related party, however, as of January 31, 2013 and throughout the years ended January 31, 2015 and 2014, Dealer Sites was not deemed to be a related party as total related party ownership in the entity was less than 10%. The Company leased 48 buildings pursuant to different operating lease agreements with Dealer Sites as of January 31, 2013. As of January 31, 2013, the leases expired on various dates through January 2028, contained purchase options based on fair values at the time of purchase, and provided that the lessee pay all property taxes, utilities, insurance and all expenses necessary for the general maintenance of the respective buildings. During the year ended January 31, 2013, the Company also received $1.3 million, pursuant to sale-leaseback agreements with Dealer Sites.

The Company utilizes C.I. Construction, LLC ("C.I. Construction"), an entity owned by the brother-in-law of Peter Christianson and Tony Christianson, to perform construction management services for its building and leasehold improvement projects. Payments to C.I. Construction, which include cost reimbursements of certain building supplies and other construction costs, totaled $1.9 million, $3.9 million and $6.7 million for the years ended January 31, 2015, 2014 and 2013, respectively. The Company also had accounts receivable from C.I. Construction of $0.1 million outstanding as of January 31, 2014; no such amounts were outstanding as of January 31, 2015. During the year ended January 31, 2013, the Company also paid a total of $0.2 million to Cherry Tree & Associates, LLC, an entity affiliated with Tony Christianson, primarily for services related to the Senior Convertible Notes offering.

  
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