Titan Needs Q3 Net Income to Increase 180% To Stay Compliant With Terms of Wells Fargo Bond

Pressure is on Titan Machinery (NASDAQ: TITN $12.31) to report a stellar 3rd quarter financial report for the period ending October 31,2015.

Titan Machinery was on the brink of going out of business in April 2012 when Wells Fargo loaned the company $150 million  (3.75% May 1,2019 maturity) save the day.

Indenture

• 
  
  The Notes were issued pursuant to an indenture, dated as of April 24, 2012 (the “Indenture”), between the Company and Wells Fargo Bank, National Association, as trustee.
  
  
  The Notes are general unsecured and unsubordinated obligations of the Company, and interest will be payable semiannually at a rate of 3.75% per annum. The Notes mature on May 1, 2019, unless earlier converted, redeemed or purchased by the Company in accordance with their terms. The Notes will be convertible at the option of the holders of the Notes under certain conditions described below. Upon conversion, the Company will pay cash up to the aggregate principal amount of converted notes and pay or deliver, as the case may be, cash, shares of Company common stock or a combination thereof, at the Company’s election, for any conversion obligation in excess thereof, subject to certain limitations described below.  The initial conversion rate for the Notes is 23.1626 shares of Company common stock per $1,000 principal amount of notes, and is subject to certain adjustments as set forth in the Indenture.
  
  

On March 9,2015 shares of TITN were halted when the company pronounced  FY2015 numbers and Titan Chairman David Meyer announced earlier this year that the company was non-compliant with the terms of a Wells Fargo covenant on January 31,2015. Titan's corporate bond was at a low of $66.50 with a 14.88% yield.

Suspicious Trading on March 9,2015 during the day. The overall market was up that day and Titan shares traded down 6%. After the close is when the Company pronounced the FY2015 year end warning and announced store closings. I am thinking inside information was leaked to someone who capitalized on the privileged news.

According to the footnotes in the 10K filed on April 15,2015, on April 10,2015 Wells Fargo made a 6th Amendment (4th in 12 months) amending the Bond covenants and revised the terms of the January 31,2015 violation so that Titan would be compliant. Bonds gained 21% by May 17,2015 closing at $80.

Terms of the 6th Amendment states Titan Machinery needs to earn $1 million in net income for the 9 months of FY2016 ending October 31,2015. For the first six months of FY2016 ending July 31,2015, Titan has already reported a loss of -($5.7 million).
TITAN Q3 report is due out anytime within the next three weeks and the company will have to earn a minimum of $6.7 million net income just for the 3rd Quarter alone or else they will be NON-Compliant with the net income covenant terms of the Bond!

A year ago the company reported 3rd quarter net income of $2.4 million. Titan will need to report a net income increase for their most recent Q3, 180% higher than a year ago Q3.

This morning John Deere announce their most recent quarter and NET INCOME declined 46%.

Equities Research Remains Bearish Titan Machinery.

Titan has a $265 million market capitalization @ $12.50.

In an SEC filing On May 7, 2015 the founder of Titan Machinery was not on the ballot for re-election to the board of directors for the June shareholder meeting. No formal announcement or 8K filing was filed announcing his plans to step down from the board. I found out simply by seeing his name was not on the ballot.

On May 11,2015 the founder announced he was resigning as president. 

3 of 8 Titan directors have resigned since May.

 October 28,2015 8K Credit Agreement Amendment 

Exhibit 10.1 of 8k  the term "Bankruptcy" appears 15 times

Titan Bonds Drop After Chairman's Comments

Price of TITAN Bond down 6.1% Wednesday @ $70.43 yield 13.26%

 Titan Machinery Chairman David Meyer stated Monday:

• "The Company is working with the lenders in its bank syndicate with respect to its expected noncompliance with the current minimum income before income tax covenant as of the end of its January 31, 2015 fiscal year. "

Meyer went on to say :

• "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."

The bond Meyer is referring to are the $150 million convertible notes ($43 convertible price) with Wells Fargo in an underwriting completed in April 2012. Since the the underwriting 3 years ago, Titan Machinery balance sheet, income statement and cash flow statement have all deteriorated significantly causing Wells Fargo to amend the covenants on the bond 5 different times. 

• Amendment 5 Wells Fargo $150 million note (Dec 2014)
• Adjustment to $450 million Floor Plan Debt with CNH(Dec 2014)
• Amendment 4 Wells Fargo note September 2014
• Amendment 3 Wells Fargo note April 2014

BIG TROUBLE

THE RISK of default if Wells Fargo Does NOT Amend Covenant for 6th Time.

The Chairman "anticipating" that the lender will amend the Covenant because the company is expected to be in noncompliance.

•  Does the lender, Wells Fargo, feel the same way?
•  Do bond holders and the public deserve to hear what Wells Fargo has to say regarding this non compliance?
•  Will Wells Fargo also comment on this issue?

The boiler plate Forward Looking Statement disclaimer was below Meyer's prepared statements made on Monday afternoon to protect him in case his anticipation does not come to fruition.
Also Included:

•  "The Company’s risks and uncertainties include, among other things, a substantial dependence on a single distributor"
• " the uncertainty and fluctuating conditions in the capital and credit markets,"
• " disruption in receiving ample inventory financing"

Titan Machinery (NASDAQ: TITN) stock closed yesterday at a new year to date low @ $12.21. Shares opened Monday morning @ $14.91 and are now down 18% in last 48 hours.
On Monday after the close the company released preliminary FY2015 annual financials for the year ending January 31,2015. Titan usually reports year end numbers in April, so the early release came as a surprise to Wall Street and shares were halted. Tuesday morning the stock traded at a new year to date low @ $11.19.


I blame The company's poor financial condition on GREED AND RELATED PARTY TRANSACTIONS 

Since the Warning 2 years ago,  the S&P500 Index has advanced over 30% while Titan Machiney Shares have declined 60%

  

Titan Machinery Unusual Volume With No News

 Is it Undetected Insider Trading ............again?

(click images to enlarge)

Titan Machinery (21 million shares outstanding) only averages volume per day of approximately 160,000 shares but yesterday it traded nearly 1 million shares. Titan is a quiet under the radar stock that trades hardly any volume and recently has traded under 100,000 shares per day during the past month. Aside from the 4 days a year that the company reports quarterly results the shares never really trade more than 200,000 shares per day. So let's see what happens today and the rest of the week to find out if there is possibly some news coming out that maybe someone was privileged to yesterday?@#$%^&????

I am suspicious of the trading yesterday because this happen once before and after an unusual spike in volume with no news on a quiet July day prior to a 4th of July trading holiday, but days later the company filed that the company's original auditor for nearly 30 years had resigned.  I raised the red flag back then but because my following is quite small nobody paid any attention.

The resignation of auditor      (the Auditor Carousel)

T.R. says:

July 8, 2013 at 10:49 am

SEC received TITAN 8-K July 2,2013 @ 16:56:12 est.
The unusual volume on the morning of June 28,2013 looks like somebody saw this 8-K coming.

Chart from May through July 2013 (see volume before news

Titan Machinery (NASDAQ : TITN) is a very peculiar stock. The company has a market capitalization of nearly $300 million but the company's underlying fundamentals disclose a business that is on the brink of bankruptcy.  Shares of the stock are being held and practically tied up by a group of major mutual funds that for some reason have added to their positions as the company's future becomes more and more in doubt.

Titan has a history of questionable related party transactions and a family member who has led underwriting from a boutique investment firm.


Questionable Accounting: 
 "in certain circumstances, n upon the customer's written request, equip revenue is recognized before delivery occurs"
 https://twitter.com/stockpicker908/status/366579314147328000


From Morningstar: Institutional Holdings

$TITN LOWERS FULL YEAR EPS GUIDANCE to Loss Per Share ($0.02) to ($0.23).

Titan Machinery Inc. Announces Results for Fiscal Third Quarter Ended October 31, 2014

 

$TITN LOWERS FULL YEAR EPS GUIDANCE to Loss Per Share ($0.02) to ($0.23)...YIKES
— tom renna (@StockPicker908) December 10, 2014

$TITN Q3 2015 AGRICULTURAL SALES declined -25% vs Q3 2014 AG SALES......($95 million decline)
— tom renna (@StockPicker908) December 10, 2014

$TITN Q3 2015 SALES declined -16% vs Q3 2014......($95 million decline)
— tom renna (@StockPicker908) December 10, 2014

CLICK TO Archives

Stockdiagnostics Examines Titan's Q3 Financials

Stockdiagnostics' chief market strategist, Michael Markowski, published the following report Knobias this morning @ 9:56am.

Probability of 2014 Bankruptcy for Titan Increases After it Files Quarterly Report

By Michael Markowski

The probability of Titan Machinery (NASDAQ:TITN:$15.00) having to file for bankruptcy by the end of or sooner than the end of 2014 has increased significantly based on its 3^rd quarter 10/31/13 financials that it filed yesterday.  In a report “Tractor Pull for Titan Machinery May be Over by Tomorrow” which was published on December 4, 2013, I had predicted that Titan would file for bankruptcy by the end of 2014.  

Titan’s Income Statement, Balance Sheet and Cash Flow Statement data deteriorated over the 90 day period.  Titan’s revenue for its 3^rd quarter increased by less than 1% from $582.1 million in the year ago quarter to $588.0 million.  It also reported that its inventory increased by 10% to $1.2 billion from its quarter ended July 31, 2013.  Finally, Titan operating cash flow for the quarter was a negative $59.8 million.  Titan has generated negative quarterly operating cash flow in nine of its last 10 quarters.

Titan is following a similar script that I have seen played out by numerous companies that StockDiagnostics.com has diagnosed as having “The EPS Syndrome”.  Notable companies who were previously diagnosed with this negative operating cash flow anomaly include Bear Stearns, Merrill Lynch and Lehman Brothers.  Here is the typical script:   

1.                  Company utilizes archaic SEC accrual accounting standards to report growing cashless earnings.

  

2.                  Wall Street analysts recommend shares based on earnings growth.

3.                  Wall Street investment bankers who are affiliated with analysts raise capital for company to generate commissions.

4.                  Commercial banks and suppliers provide loans and credit lines based on the increased equity.

5.                  After the company maximizes its ability to raise additional debt and equity capital revenue growth flattens.

6.                  Company sells inventory at losses and creates declining revenue and EPS losses.

7.                  Company loses option to sell or issue equity to raise capital due to both fundamentals and share price momentum turning negative.  Also loses ability to increase borrowings.

8.                  Company’s fundamentals and share price continue in downward spiral as it liquidates inventory at declining prices to raise cash.

9.                  Company has no choice but to file for bankruptcy since it has debt and can not raise cash.

Titan was first diagnosed as having The EPS Syndrome on September 8, 2011 at a price of $26.41.  Its among several institutionally held public companies who have Wall Street analyst Buy Ratings that StockDiagnostics.com has diagnosed with extreme or severe cases of The EPS Syndrome or cashless earnings. 

There have been 93 companies diagnosed with The EPS Syndrome during 2013 and more than 2,500 since 2002.  The share prices of approximately 70% of the companies diagnosed are below their diagnosis price.  Share prices have fallen by at least 50% for half of those companies that have been diagnosed as having the EPS Syndrome.  A four minute video that explains The EPS Syndrome is available.

MF GLOBAL Transparency

A Review of the disclosures made by MF Global Holdings, Inc.(MFGLQ) prior to it's bankruptcy announced on October 31,2011 was not investor friendly enough in my eyes.

On October 22,2011 the firm released these two investor sheets on their home page:

• Company Overview
• Financial Overview

On October 24,2011 , Dow Jones reported Moody's downgrade

On October 25, 2011, MF Global made the following disclosure in an 8K filed with the SEC

Stockdiagnostics Charts of Bankruptcies

Transparency.......?