Two Years Ago Today, A Warning That Has Been Cut In Half

NAME	TICKER	4/9/2015	4/9/2013	Perform	2/22/2013	Perform
Titan Machinery	TITN	$13.58	$26.12	-48%	$28.67	-53%
Standard & Poors 500 index	GSPC	$2,091	$1,568	33%	$1,502	39%

On April 9,2013, the day before Titan Machinery (NASDAQ: TITN) reported FY2013 annual financials, Equities Research Warned the public that the stock @ $26.12 was overpriced based on fundamental research.

On February 22,2013 Equities Research Newsletter Subscribers were given the Warning the Febrausry Newsletter @ $28.67

Today @ $13.58 I continue to Warn on Titan Machinery as the company prepares to release FY2015 Annual financials next Wednesday April 15th before the market opens.

March 9,2015 Warning preliminary FY2015 annual financials released

TITAN ANNOUNCED THEY EXPECT YEAR END LOSS OF $32 MILLION AND WARNS COMPANY IS IN NON COMPLIANCE WITH COVENANT OF WELLS FARGO NOTE, BUT CHAIRMAN SETTLES INVESTORS BY SAYING HE ANTICIPATES A 6TH AMENDMENT From the lender. 

The bond (2019) fell to an all time low that week to $66.50 yield 14.88% , but after the Chairman stating he anticipates the lender to amend the covenants, which would be for a 6th time and 4th tim in 1 year, BOND IS NOW TRADING UP 12% since the low less than a month ago.

What's very dangerous for stockholders and bondholders is THE RISK of default if Wells Fargo Does NOT Amend Covenant on the terms of the $150 million convertible Note for a 6th Time.
 The public disclosure that is due out in the 10K regarding how Wells Fargo will handle the company which is  expecting to be in noncompliance with the current minimum income before income tax covenant as of the end of its January 31, 2015 fiscal year.

•  Chairman Meyer stated last month in a press release that "The Company anticipates amending this covenant associated with this credit facility effective as of the end of its January 31, 2015 fiscal year and for future periods, and therefore does not anticipate being in violation of any covenants as of January 31, 2015."

INVESTORS LONG THE STOCK AND BONDS NEED TO HOPE THAT WELLS FARGO MAKES A 6th Amendment like Chairman Meyer Anticipates.

Don't Trust Titan Machinery's Guidance

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.)

  

10 K EX 10.53: THIRD AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

dated as of April 3, 2014

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

SECOND AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT

dated as of November 14, 2013

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.

FY 2012 10K Footnote 10.43 Original Convertible Indenture

FY 2012 10K Footnote 10.44 Convertible Indenture

• 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 Income” means 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

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

•  Titan Machinery Inc.
  Form 10-K for the Fiscal Year Ended January
  31, 2013 Filed April 10, 2013
  Definitive Proxy Statement on Schedule 14A
  Filed April 24, 2013
  File No. 001-33866
  
  
  Titan Machinery Responds to SEC Comments December 20,2013

  ◦ Filed with SEC 

  •  

  •  Securities & Exchange Commission Review of Comments on December 30,2013 

  
  

  Auditors

  •  Securities & Exchange Commission Comment Letter to Titan Machinery Regarding Dismissal of Auditor on July 8,2013

  • SEC response to amended 8-K regarding Auditor change 

  
  

  
  

  Prior to the 4th of July holiday (market closing), on July 2,2013 @ 16:56:12 est., Titan Machinery filed an 8-K with Securities & Exchange Commission announcing the dismissal of their auditor Eide Bailly LLP and replacing them with Deloitte & Touche LLP.

  The 8-K stated the dismissal took place on June 27,2013 but the disclosure wasn't made till July 2,2013. 

  The unusual volume on the morning of June 28,2013 looks like somebody saw this 8-K coming in my opinion.  

  
  

  
  

  
  

  This Thursday's 10-K will be 1st audit done by new auditor Deloitte & Touche LLP.

  
  

 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 

Titan Machinery Convertible Bond Nears All Time Low

Titan Machinery (NASDAQ: TITN)
Convertible Bond 3.75%  Maturity:2019.
Currently selling for $85.25 w 7.28% yield.

Bond Market is the true tell on weakness of balance sheet

Date of Offering : April 18,2012 

Amount of Debt: $150 million Convertible

http://www.cherrytree.com/news/releasearchive/titan_0412.htm

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%"

• Archives:

• Most OverPriced Stock Titan Machinery Files Proxy Statement

• Reseller Can't Compete with Manufacturers

• Stockdiagnostics Detects EPS SYNDROME

• Titan Machinery EPS Falls 73%

• Don't Trust Titan Machinery's Guidance 

• Titan Machinery Warning

• TITAN STOCKHOLDERS Did NOT APPROVE PROPOSAL 3

• 13 out 15 February Newsletter Picks "In the Money"

• Stratasys: Hyped Back Up Again!  (Titan Machinery)

• Titan Machinery : The Perfect Short  (April 2014) 

  
  

Titan Machinery EPS Falls 73%

Titan Machinery Lowered Guidance for FY2014 from  $1.70-$2.00 down to $1.20-$1.50
Q2 Operational Cash flow NEGATIVE $42 million

EPS declined 73% 6 months

FY2013 6 months : $0.60
FY2014 6 months : $0.16

EPS declined 28% Q2 vs Q2

FY2013 Q2 : $0.25
FY2014 Q2 : $0.18

CASH declined $22 million
January 31,2013 : $124 million (Accounts Payable $28 million)
July 31,2013 :       $102 million (Accounts Payable $39 million)

Total Current Liabilities
January 31,2013 : $804 million
July 31,2013 :       $969 million

Total Long Term Liabilities 
January 31,2013: $239 million
July 31,2013 :      $264 million

Net Income vs Operational Cash Flow
Trailing 10 quarters ending July 31,2013 Net Income:                 $89 million
Trailing 10 quarters ending July 31,2013 OP. Cash Flow:        -($345 million)

This guy makes a serious case that this company is, umm, furry. (@gfnnstock)newsgrade.blogspot.com/2013/04/titan-…
— Roddy Boyd (@BoydRoddy) April 28, 2013

 




This Morning pre-market Titan Machinery (NASDAQ: TITN) reported 2nd Quarter numbers and shares traded at new 52 week low under $15.88. The high for the day was $17.88 and shares closed @ $17.65 on volume of 1.7 million.

With Shares being down from $30 in February, it appeared the short sellers where buying today to book profits. I don't see any reason for sophisticated institutional buyers to be attracted to these financials.
The next problem for TITAN will be the longs trying to exit on these weak fundamentals.

Click to 10-Q 

Click to Press Release 

Click toWells Fargo Commentary from theflyonthewall.com

"Wells says Titan commnets negative for Deere, Caterpillar
Agricultural machine makers Deere (DE) and Caterpillar (CAT) are falling after Titan Machinery (TITN) stated that it expects its revenue from farm machinery to drop in the second half of the year. WHAT'S NEW: Titan said that its agricultural business is expected to be challenging in the second half of the year, given its outlook for lower commodity prices and reduced crop production. Used farm equipment prices have come under pressure, Titan added. The company, which also manufactures construction equipment, lowered its full-year profit and revenue guidance. ANALYST REACTION: In a note to investors, Wells Fargo analyst Andrew Casey wrote that the news from Titan indicates that North American farm equipment demand is peaking. Titan's statements are negative for Deere and Caterpillar, as well as AGCO (AGCO), another farm equipment maker, Casey stated. He kept Underperform ratings on Deere and AGCO, and a Market Perform rating on Caterpillar. TODAY'S PRICE ACTION: In mid-afternoon trading, Deere fell 1.5% to $83, Caterpillar inched down 0.2% to $83.40, AGCO climbed 1.4% to $57.60 and Titan rose 0.4% to $17.20."published at flyonthewall.com

Somehow the Chairman made the following statement in press release:

• " We remain confident in the long-term profitable growth potential for Titan Machinery due to our proven operating model and healthy balance sheet.”

CNH Global Manufacturer's (NYSE: CNH)  

Risk Rating Increases from Low to Low/Medium

Approximately $755 million securities affected

Moody's assigns definitive ratings to CNH Equipment Trust 2013-C securitization

I would guess some of these analyst will have to bring their price targets lower with the new guidance. 

 (In August 2013 William Blair lowered price target on $TITN to $15,)

Some notes from today’s 10-Q which was filed this afternoon. I always wondered how analyst can sit on those conference calls without 10Q. ;)

• If interest rates go up 1% point over next 12-mo period it would decrease pre-tax earnings + CF approx $4.9 mil

• OPERATING EXPENSES Q2 $70 million up from $54 mil in year ago comp Q2 . 24% increase

• Long-term debt, less current maturities $82.6 million ...up from Q1 $58 million.....Total long-term liabilities increased $23million from Q1

• Q2 operational. Cash flow NEGATIVE $42million. 

• Accounts Payable up $6 million from Q1 to $39 million. (that sure helped net income, cash flow and cash position (cough cough) lol

• Floor Plan Debt up $79 million from Q1 to $851 million

• Plus they added 136,000 more shares outstanding from Q1 to Q2 (although they didn't use the new number of S/O to calculate EPS for quarter.)

• Then the obvious of lowering guidance from $1.70-$2.00 down to $1.2-$1.50

EPS declined 73% 

FY2014 6 months : $0.16

FY2013 6 months : $0.60

(did I mention their accounts payable were $39 million (almost $2.00 a share)

Meanwhile stock traded like they Beat by a quarter and guided up

 Equities Research Archives on Titan Machinery 

• Don't Trust Titan Machinery's Guidance

•  Titan Machinery Warning 

• notes from TITN 10K and Proxy Disclosure including FootNotes

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