Our existing debt agreements
contain restrictive covenants that may restrict our ability to adopt
any of these alternatives. Any non-compliance by us under the terms of
our debt agreements could result in an event of
default which, if not cured, could result in the acceleration of our
debt.
CNH Capital
CNH Capital offers floorplan financing to CNH dealers to
finance the purchase of inventory from both CNH and other suppliers. CNH
Capital provides this financing in part to enable dealers to carry
representative inventories of equipment and encourage the purchase of
goods by dealers in advance of seasonal retail demand. CNH
Capital charges variable market rates of interest based on the prime
rate on balances outstanding after any interest-free periods and retains
a security interest in all of our assets,
including inventories, which it inspects periodically. The
interest-free periods, which CNH offers periodically in the form of
additional incentives or special offers, typically average
four months for new and used agriculture equipment and new construction
equipment. CNH Capital also provides financing for used equipment
accepted in trade, repossessed equipment and approved
equipment from other suppliers, and receives a security interest in
such equipment.
Approximately
61% of floorplan notes payable were interest bearing at January 31, 2013.
As of January 31, 2013, approximately 39% of our floorplan notes payable was non-interest bearing.
The
increase in floorplan interest expense of $5.0 million and other
interest expense of $8.1 million, as compared to the prior year, was due
to the increase in floorplan
notes payable balances and our Convertible Notes issued in April 2012.
Debt Facilities
Senior Secured Credit Facility.
We currently have a Credit Agreement with the Wells Fargo Bank
Syndicate that provides for a
$375.0 million
wholesale floorplan line of credit (the "Floorplan Line") and a
$75.0 million working capital line of credit (the "Working Capital
Line"). The amount available under the Floorplan Line is
reduced by adjustments based on borrowing base calculations and various
standby letters of credit denominated in Euros and U.S. dollars used to
guarantee equipment purchases from CNH by our foreign
subsidiaries. The Credit Agreement has a variable interest rate on
outstanding balances of LIBOR plus an applicable margin of 1.5% to
2.625% per annum, depending upon our consolidated leverage ratio,
has a 0.3% to 0.4% non-usage fee on the average monthly unused amount
and requires monthly payments of accrued interest. The Credit Agreement
is
secured by all our assets and contains certain financial covenants that
impose a minimum fixed charge coverage ratio and a maximum debt to
tangible net worth ratio, and requires prior approval of
acquisitions exceeding certain thresholds. The Credit Agreement also
restricts our ability to make certain cash payments without prior
approval, including payments for stock repurchases and cash
dividends, except that it permits paying cash dividends in an amount
not to exceed 50% of consolidated net income for the then trailing four
quarters, so long as no default or event of default exists
prior to or immediately following such action or otherwise results from
such action. The Credit Agreement, as amended, expires March 30, 2016.
CNH Capital Credit Facility.
We currently have a credit facility with CNH Capital that provides
for an aggregate principal balance of
up to
$450.0 million for floorplan financing, the availability of which is
reduced by outstanding floorplan notes payable, rental fleet financing
and other acquisition-related financing arrangements
with CNH Capital, as described below. Interest rates are currently
equal to the prime rate plus 4% on new borrowings, subject to any
interest-free periods offered by CNH Capital. The CNH
Capital term loans and loans for certain purposes also have interest
rates equal to the prime rate plus 4% per annum. Cumulative and unpaid
balance of advances under the CNH Capital credit facility
accrues interest each month and requires monthly payments. The CNH
Capital credit facility automatically renews on August 31 of each year,
unless earlier terminated by
either party. The CNH Capital credit facility is secured by the
financed assets. Repayment terms vary by individual notes, but generally
payments are made from sales proceeds or rental revenue from
the related inventories. As of January 31, 2013, we had approximately
$247.7 million outstanding on the CNH Capital credit facility, of which
approximately $243.9 million related
to floorplan notes payable. The CNH Capital credit facility contains
certain financial covenants that impose maximum levels of adjusted debt
to tangible net worth and debt service ratios. It also
contains various restrictive covenants that require the prior consent
of CNH Capital if we desire to engage in any acquisition of, or
consolidation or merger with, any other business entity in which
we are not the surviving company; create subsidiaries; move any
collateral outside of the U.S.; or sell, rent, lease or otherwise
dispose or transfer any of the collateral, other than in the ordinary
course of business. CNH's consent is also required for the acquisition
of any CNH dealership. In addition, the CNH Capital credit facility
restricts our ability to incur any liens upon any substantial
part of our asset
Agricredit Credit Facility.
We currently have a credit facility with Agricredit Acceptance LLC
("Agricredit") that provides for an
aggregate
principal balance of up to $175.0 million. As of January 31, 2013 we
had $96.8 million outstanding on the Agricredit credit facility. The
Agricredit credit facility may be used to
purchase or refinance new and used equipment inventory. The interest
rate on borrowings under the Agricredit credit facility is equal to the
three-month LIBOR rate plus an applicable margin of 4.75%
to 5.25% per annum, depending upon the our average daily outstanding
balance. The Agricredit credit facility allows for increase, decrease or
termination of the credit facility by Agricredit on
90 days notice. Under covenants of the Agricredit credit facility, we
have agreed, among other things, to maintain various financial ratio
levels, to submit certain financial information, and
to obtain prior consent from Agricredit if we desire to engage in any
acquisition meeting certain financial thresholds. The balances
outstanding with Agricredit are secured by the related inventory.
Repayment terms vary by individual notes, but generally payments are
made from sales proceeds or rental revenue from the related inventories.
New Accounting Pronouncements
In March 2013, the FASB amended authoritative guidance on the
parent's accounting for the cumulative translation adjustment upon
derecognition of certain subsidiaries or groups of assets within a
foreign entity or of an investment in a foreign entity, codified in
ASC 830,
Foreign Currency
Matters
. The amendments require an entity that ceases to have a controlling
financial interest in a subsidiary or group of assets within a foreign
entity to apply the guidance
in ASC 830-30,
Translation of Financial Statements
, to release any related cumulative translation adjustment into net
income.
Accordingly, the cumulative translation adjustment should be released
into net income only if the sale or transfer results in the complete or
substantially complete liquidation of the foreign entity
in which the subsidiary or group of assets had resided. For an equity
method investment that is a foreign entity, the partial sale guidance in
ASC 830-30-40,
Derecognition
, still applies. As such,
a pro rata portion of the cumulative translation adjustment should be
released into net income upon a partial
sale of such an equity method investment. The guidance is effective for
derecognition events occurring in fiscal years beginning after
December 15, 2013, with early adoption permitted. We will
adopt this guidance on February 1, 2014. Its adoption is not expected
to have a material effect on our consolidated financial statements.
52
In
February 2013, the FASB amended authoritative guidance on reporting of
amounts reclassified out of accumulated other comprehensive income,
codified in ASC 220,
Comprehensive Income
. The amended
guidance did not change existing disclosure requirements, but requires
presentation of information about significant
reclassifications out of accumulated other comprehensive income in one
place within the financial statements, or cross-referenced to related
footnote disclosures. The guidance is effective for
reporting periods beginning after December 15, 2012, with early
adoption permitted. We adopted this guidance on February 1, 2013. Its
adoption did not have a material effect on our
consolidated financial statements.
In
January 2013, the FASB amended authoritative guidance on disclosures
about offsetting assets and liabilities, codified in ASC 210,
Balance
Sheet
. The amended guidance clarified that the scope of the
disclosures about offsetting assets and liabilities include derivatives accounted for in accordance with ASC 815,
Derivatives and Hedging
,
including bifurcated embedded derivatives, repurchase agreements and
reverse repurchase agreements, and certain securities borrowing and
securities lending transactions. The guidance is effective for
the interim and annual periods beginning on or after January 1, 2013.
We adopted this guidance on February 1, 2013. Its adoption did not have a
material effect on our consolidated
financial statements.
In
July 2012, the FASB amended authoritative guidance on impairment
testing for indefinite-lived intangible assets, codified in ASC 350,
Intangibles—Goodwill and Other
. The amended guidance
provides an entity the option to first perform a qualitative assessment
to determine
whether it is more likely than not that the fair value of an
indefinite-lived intangible asset is impaired. If an entity determines
that the fair value of the indefinite-lived intangible asset is not
more likely than not impaired, then the entity is not required to
perform a quantitative assessment. However, if an entity concludes that
the fair value of an indefinite-lived intangible asset is more
likely than not impaired, it is required to perform the impairment test
by comparing the fair value with the carrying amount. An entity also
has the option to bypass the qualitative assessment for any
indefinite-lived intangible asset in any period and proceed directly to
performing the quantitative impairment test. The guidance is effective
for the interim and annual periods beginning after
September 15, 2012, with early adoption permitted. We adopted this
guidance on July 31, 2012 and utilized it in our annual indefinite-lived
intangible assets impairment testing as of
January 31, 2013. Its adoption did not have a material effect on our
consolidated financial statements.
Interest Rate Risk:
Exposure to changes in interest rates results from borrowing
activities used to fund operations. For fixed rate debt,
interest
rate changes affect the fair value of financial instruments but do not
impact earnings or cash flows. Conversely, for floating rate debt,
interest rate changes generally do not affect the fair market
value but do impact future earnings and cash flows, assuming other
factors are held constant. We have both fixed and floating rate
financing. Some of our floating rate credit facilities contain
minimum rates of interest to be charged. Based upon balances and
interest rates as of January 31, 2013, holding other variables constant,
a one percentage point increase in interest rates for
the next 12-month period would decrease pre-tax earnings and cash flow
by approximately $4.3 million. Conversely, a one percentage point
decrease in interest rates
for the next 12-month period would result in an increase to pre-tax
earnings and cash flow of approximately $4.3 million. At January 31,
2013, we had variable
rate floorplan notes payable of $689.4 million, of which approximately
$421.1 million was interest-bearing, variable notes payable and
long-term debt of $12.0 million,
and fixed rate notes payable and long-term debt of $79.2 million.
