Titan Machinery (NASDAQ: TITN) closed yesterday at a new 5 year low @ $11.75.
Titan Machinery $150 million convertible note closed at an all time low @ $72.38 w 12.03% yield.
Since the Equities Research Warning on February 1,2013 shares of Titan @ $29.07, the stock has declined 60% while the Standard & Poors 500 Index has advanced 33%. (source: bigchart.com)
Titan filed their
FY2015 3rd Quarter 10Q for the period ending October 31,2014 on Wednesday. Included in the SEC disclosure were two footnotes:
After the close yesterday William Blair Analyst lowered Price target on Titan from $12 to $10.
Pre-market yesterday analyst at Stephens lowered Price Target on Titan.
From 10Q
NOTE 4—LINES OF CREDIT / FLOORPLAN PAYABLE
Floorplan Lines of Credit
Floorplan
payable balances reflect the amount owed for new equipment inventory
purchased from a manufacturer and for used equipment inventory, which is
primarily purchased through trade-in on equipment sales. Certain of the
manufacturers from which the Company purchases new equipment inventory
offer financing on these purchases, either offered directly from the
manufacturer or through the manufacturers’ captive finance subsidiaries.
CNH Industrial America LLC's captive finance subsidiary, CNH Industrial
Capital America LLC ("CNH Industrial Capital"), also provides financing
of used equipment inventory. The Company also has floorplan payable
balances with non-manufacturer lenders for new and used equipment
inventory. Changes in manufacturer floorplan payable are reported as
operating cash flows and changes in non-manufacturer floorplan payable
are reported as financing cash flows in the Company's consolidated
statements of cash flows.
As of October 31, 2014, the Company had discretionary floorplan lines of credit for equipment inventory purchases totaling approximately $1.16 billion, which includes a $350.0 million Floorplan Payable Line with a group of banks led by Wells Fargo Bank, National Association ("Wells Fargo"), a $450.0 million credit facility with CNH Industrial Capital, a $225.0 million credit facility with Agricredit Acceptance LLC and the U.S. dollar equivalent of $135.0 million
in credit facilities related to our foreign subsidiaries. Floorplan
payables relating to these credit facilities totaled approximately $696.9 million of the total floorplan payable balance of $761.2 million outstanding as of October 31, 2014 and $692.8 million of the total floorplan payable balance of $750.5 million outstanding as of January 31, 2014. As of October 31, 2014, the Company had approximately $411.7 million
in available borrowings remaining under these lines of credit (net of
adjustments based on borrowing base calculations and standby letters of
credit under the Wells Fargo credit agreement, and rental fleet
financing and other acquisition-related financing arrangements under the
CNH Industrial Capital credit agreement). The U.S. floorplan payables
carried various interest rates primarily ranging from 2.78% to 4.98%, and the foreign floorplan payables carried various interest rates primarily ranging from 1.59% to 10.50%, as of October 31, 2014.
Effective
October 31, 2014, the Company amended its credit facility with Wells
Fargo. The amendment, among other things, replaced the consolidated net
income financial covenant with a minimum consolidated income before
income taxes
covenant,
calculated as the income before income taxes for the last four
quarters, adjusted for certain impairment charges, realignment charges,
and foreign currency remeasurement losses resulting from a devaluation
of the Ukrainian hryvnia. The minimum income before income tax covenant
is $10.0 million for the four quarter period ended October 31, 2014, $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 amendment also modified certain
borrowing base advance rates and changed the interest rate margin from 1.5% to 2.625% to 1.5% to 2.875% per annum.
Effective
October 31, 2014, the Company also amended its credit facility with CNH
Industrial Capital. The amendment, amongst other things, replaced the
minimum debt service ratio financial covenant with a minimum fixed
charge coverage ratio financial covenant of not less than 1.25:1.00, and added or modified related definitions.
Working Capital Line of Credit
As of October 31, 2014, the Company had a $112.5 million working capital line of credit under the credit facility with Wells Fargo. The Company had $75.6 million and $47.8 million outstanding on its working capital line of credit as of October 31, 2014 and January 31, 2014,
respectively. Amounts outstanding are recorded as long-term debt,
within long-term liabilities on the consolidated balance sheets, as the
Company does not have an obligation to repay amounts borrowed within one
year.
NOTE 5—SENIOR CONVERTIBLE NOTES
The Company’s 3.75% Senior Convertible Notes issued on April 24, 2012 (“Convertible Notes”) consisted of the following:
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October 31, 2014
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January 31, 2014
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(in thousands except conversion
rate and conversion price)
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Principal value
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$
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150,000
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$
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150,000
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Unamortized debt discount
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(18,544
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)
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(21,107
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)
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Carrying value of senior convertible notes
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$
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131,456
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$
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128,893
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Carrying value of equity component, net of deferred taxes
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$
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15,546
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$
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15,546
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Conversion rate (shares of common stock per $1,000 principal amount of notes)
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23.1626
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Conversion price (per share of common stock)
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$
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43.17
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The Company recognized interest expense associated with its Senior Convertible Notes as follows:
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Three Months Ended October 31,
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Nine Months Ended October 31,
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2014
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2013
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2014
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2013
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(in thousands)
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(in thousands)
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Cash Interest Expense
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Coupon interest expense
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$
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1,406
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$
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1,406
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$
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4,219
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$
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4,219
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Noncash Interest Expense
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Amortization of debt discount
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864
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806
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2,563
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2,392
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Amortization of transaction costs
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135
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131
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402
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391
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$
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2,405
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$
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2,343
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$
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7,184
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$
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7,002
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As of October 31, 2014, the unamortized debt discount will be amortized over a remaining period of approximately 4.5 years. As of October 31, 2014 and January 31, 2014,
the if-converted value of the Senior Convertible Notes does not exceed
the principal balance. The effective interest rate of the liability
component was equal to 7.0% for each of the statements of operations periods presented.
