UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 2012
Commission File No. 001-33866
TITAN MACHINERY INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
No. 45-0357838 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(IRS Employer Identification No.) |
644 East Beaton Drive
West Fargo, ND 58078-2648
(Address of Principal Executive Offices)
Registrants telephone number (701) 356-0130
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if smaller reporting company) |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES o NO x
The number of shares outstanding of the registrants common stock as of November 30, 2012 was: Common Stock, $0.00001 par value, 21,047,214 shares.
TITAN MACHINERY INC.
QUARTERLY REPORT ON FORM 10-Q
PART I. FINANCIAL INFORMATION
TITAN MACHINERY INC.
(in thousands, except per share data)
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
|
|
Three Months Ended October 31, |
|
Nine Months Ended October 31, |
|
||||||||
|
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2012 |
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2011 |
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2012 |
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2011 |
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||||
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|
|
|
|
|
|
|
|
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||||
REVENUE |
|
|
|
|
|
|
|
|
|
||||
Equipment |
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$ |
456,168 |
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$ |
312,304 |
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$ |
1,084,866 |
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$ |
786,816 |
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Parts |
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72,101 |
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64,468 |
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188,840 |
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155,670 |
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||||
Service |
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33,365 |
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29,843 |
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93,583 |
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76,202 |
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||||
Rental and other |
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20,478 |
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16,345 |
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46,617 |
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33,286 |
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||||
TOTAL REVENUE |
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582,112 |
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422,960 |
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1,413,906 |
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1,051,974 |
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||||
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COST OF REVENUE |
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||||
Equipment |
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414,028 |
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283,690 |
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985,397 |
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711,421 |
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||||
Parts |
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49,266 |
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44,389 |
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130,276 |
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108,535 |
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||||
Service |
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11,611 |
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10,304 |
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32,448 |
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27,175 |
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||||
Rental and other |
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13,148 |
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10,580 |
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30,953 |
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22,192 |
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||||
TOTAL COST OF REVENUE |
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488,053 |
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348,963 |
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1,179,074 |
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869,323 |
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GROSS PROFIT |
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94,059 |
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73,997 |
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234,832 |
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182,651 |
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|
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OPERATING EXPENSES |
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63,950 |
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50,060 |
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175,313 |
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133,556 |
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||||
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|
|
|
|
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INCOME FROM OPERATIONS |
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30,109 |
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23,937 |
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59,519 |
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49,095 |
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OTHER INCOME (EXPENSE) |
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Interest and other income |
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258 |
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307 |
|
865 |
|
859 |
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||||
Floorplan interest expense |
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(3,704 |
) |
(2,625 |
) |
(9,022 |
) |
(5,121 |
) |
||||
Other interest expense |
|
(2,886 |
) |
(283 |
) |
(6,453 |
) |
(899 |
) |
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|
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INCOME BEFORE INCOME TAXES |
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23,777 |
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21,336 |
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44,909 |
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43,934 |
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|
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PROVISION FOR INCOME TAXES |
|
(9,418 |
) |
(8,536 |
) |
(17,786 |
) |
(17,575 |
) |
||||
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|
|
|
|
|
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NET INCOME INCLUDING NONCONTROLLING INTEREST |
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14,359 |
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12,800 |
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27,123 |
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26,359 |
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LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST |
|
298 |
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|
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256 |
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||||
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NET INCOME ATTRIBUTABLE TO TITAN MACHINERY INC. |
|
$ |
14,061 |
|
$ |
12,800 |
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$ |
26,867 |
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$ |
26,359 |
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EARNINGS PER SHARE - NOTE 1 |
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EARNINGS PER SHARE - BASIC |
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$ |
0.67 |
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$ |
0.62 |
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$ |
1.28 |
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$ |
1.34 |
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EARNINGS PER SHARE - DILUTED |
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$ |
0.66 |
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$ |
0.61 |
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$ |
1.27 |
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$ |
1.31 |
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WEIGHTED AVERAGE SHARES - BASIC |
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20,814 |
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20,572 |
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20,773 |
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19,538 |
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WEIGHTED AVERAGE SHARES - DILUTED |
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20,988 |
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20,890 |
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20,982 |
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19,903 |
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See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
|
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Three Months Ended October 31, |
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Nine Months Ended October 31, |
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||||||||
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2012 |
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2011 |
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2012 |
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2011 |
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NET INCOME INCLUDING NONCONTROLLING INTEREST |
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$ |
14,359 |
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$ |
12,800 |
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$ |
27,123 |
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$ |
26,359 |
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|
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OTHER COMPREHENSIVE INCOME (LOSS) |
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|
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Foreign currency translation adjustments |
|
403 |
|
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(533 |
) |
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Unrealized loss on net investment hedge derivative instruments (net of tax of $82) |
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(129 |
) |
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(129 |
) |
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TOTAL OTHER COMPREHENSIVE INCOME (LOSS) |
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274 |
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(662 |
) |
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|
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COMPREHENSIVE INCOME |
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14,633 |
|
12,800 |
|
26,461 |
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26,359 |
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|
|
|
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COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST |
|
309 |
|
|
|
155 |
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|
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COMPREHENSIVE INCOME ATTRIBUTABLE TO TITAN MACHINERY INC. |
|
$ |
14,324 |
|
$ |
12,800 |
|
$ |
26,306 |
|
$ |
26,359 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY (UNAUDITED)
(in thousands)
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Accumulated |
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Total Titan |
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|||||||
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Common Stock |
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Additional |
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Other |
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Machinery Inc. |
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Total |
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|||||||||
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Shares |
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Paid-In |
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Retained |
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Comprehensive |
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Stockholders |
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Noncontrolling |
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Stockholders |
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|||||||
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Outstanding |
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Amount |
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Capital |
|
Earnings |
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Loss |
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Equity |
|
Interest |
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Equity |
|
|||||||
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|||||||
BALANCE, JANUARY 31, 2012 |
|
20,911 |
|
$ |
|
|
$ |
218,156 |
|
$ |
118,251 |
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$ |
(70 |
) |
$ |
336,337 |
|
$ |
1,002 |
|
$ |
337,339 |
|
Senior convertible notes offering |
|
|
|
|
|
15,501 |
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|
|
|
|
15,501 |
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|
|
15,501 |
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Common stock issued on grant of restricted stock, exercise of stock options and warrants, and tax benefits of equity awards |
|
136 |
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|
|
1,055 |
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|
|
|
|
1,055 |
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|
|
1,055 |
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Issuance of subsidiary shares to noncontrolling interest holders |
|
|
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|
|
|
|
|
|
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|
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2,464 |
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2,464 |
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|||||||
Stock-based compensation expense |
|
|
|
|
|
1,180 |
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|
|
|
|
1,180 |
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|
|
1,180 |
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Comprehensive income (loss): |
|
|
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|
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|
|
|
|
|
|
|
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Net income (loss) |
|
|
|
|
|
|
|
26,867 |
|
|
|
26,867 |
|
256 |
|
27,123 |
|
|||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
(561 |
) |
(561 |
) |
(101 |
) |
(662 |
) |
|||||||
Total comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|
|
26,306 |
|
155 |
|
26,461 |
|
|||||||
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|
|
|
|
|
|
|
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|
|
|
|
|
|
|
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|||||||
BALANCE, OCTOBER 31, 2012 |
|
21,047 |
|
$ |
|
|
$ |
235,892 |
|
$ |
145,118 |
|
$ |
(631 |
) |
$ |
380,379 |
|
$ |
3,621 |
|
$ |
384,000 |
|
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
See Notes to Consolidated Financial Statements
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the Company) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Companys Agriculture and Construction customers. Therefore, operating results for the nine-month period ended October 31, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2013. The information contained in the balance sheet as of January 31, 2012 was derived from the audited financial statements for the Company for the year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Form 10-K for the fiscal year ended January 31, 2012 as filed with the SEC.
Nature of Business
The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through stores in the United States and Europe. The Companys North American stores are located in North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Montana, Wyoming, Wisconsin, Colorado and Arizona, and its European stores are located in Romania and Bulgaria.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, initial valuation and impairment analyses of intangible assets, and income taxes.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.
Derivative Instruments
In the normal course of business, the Company is subject to risk from adverse fluctuations in foreign currency exchange rates. The Company manages its foreign currency exposure through a program that includes the use of derivative instruments, primarily foreign exchange forward contracts. The Companys objective in managing its exposure to foreign currency risk is to minimize the impact on earnings, cash flows and the consolidated balance sheet. The Company does not use derivative instruments for trading or speculative purposes.
All outstanding derivative instruments are recognized in the consolidated balance sheet at fair value. The effect on earnings from recognizing the fair value of the derivative instrument depends on its intended use, the hedge designation, and the effectiveness in offsetting the exposure of the underlying hedged item. Changes in fair values of instruments designated to reduce or eliminate fluctuations in the fair values of recognized assets and liabilities and unrecognized firm commitments are
reported currently in earnings along with the change in the fair value of the hedged items. Changes in the effective portion of the fair values of derivative instruments used to reduce or eliminate fluctuations in cash flows of forecasted transactions are reported in other comprehensive income, a component of stockholders equity. Amounts accumulated in other comprehensive income are reclassified to earnings when the related hedged items affect earnings or the anticipated transactions are no longer probable. Changes in the fair value of derivative instruments designated to reduce or eliminate fluctuations in the net investment of a foreign subsidiary are reported in other comprehensive income. Changes in the fair value of derivative instruments that are not designated as hedging instruments or do not qualify for hedge accounting treatment are reported currently in earnings.
For derivative instruments accounted for as hedging instruments, the Company formally designates and documents, at inception, the instrument as a hedge of a specific underlying exposure, the risk management objective and the manner by which the effectiveness of the hedging instrument will be evaluated. At each reporting period after inception, the Company evaluates the hedging instruments effectiveness in reducing or eliminating the underlying hedged exposure. Any hedge ineffectiveness is recognized in earnings immediately.
Fair Value Measurements
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Three levels of inputs may be used to measure fair value:
Level 1 Values derived from unadjusted quoted prices in active markets for identical assets and liabilities
Level 2 Values derived from observable inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets in markets that are not active.
Level 3 Values derived from unobservable inputs for which there is little or no market data available, thereby requiring the reporting entity to develop its own assumptions.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
As of October 31, 2012, the Company had recognized a derivative liability for outstanding foreign currency forward contracts which are recorded at fair value in an amount equal to $0.2 million. Fair value was determined based on Level 2 inputs, including the use of pricing components (e.g., exchange rates and interest rates) which trade in active markets. No instruments measured at fair value were outstanding as of January 31, 2012.
Fair Value of Financial Instruments
The carrying amount of cash, receivables, payables, short-term debt and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments. The carrying amount of derivative instruments is equal to the fair value. Based upon current borrowing rates with similar maturities of our long-term debt instruments, the carrying value of the long-term debt approximates the fair value as of October 31, 2012 and January 31, 2012. As of October 31, 2012, the fair value of the Companys senior convertible notes was approximately $140.0 million and the carrying value was approximately $124.9 million. Fair value of the senior convertible notes was estimated based on quoted market prices for these instruments.
Recent Accounting Guidance
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. The Company adopted this guidance on July 31, 2012. Its adoption did not have a material effect on the Companys consolidated financial statements.
Earnings Per Share
The Company uses the two-class method to calculate basic and diluted earnings per share. Unvested restricted stock awards are considered participating securities because they entitle holders to non-forfeitable rights to dividends during the vesting term. Under the two-class method, basic earnings per share were computed by dividing net income attributable to Titan Machinery Inc. after allocation of income to participating securities by the weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per share were computed by dividing net income attributable to Titan Machinery Inc. after allocation of income to participating securities by the weighted-average shares of common stock outstanding after adjusting for potential dilution related to the conversion of all dilutive securities into common stock. All potentially dilutive securities were included in the computation of diluted earnings per share. There were approximately 99,000 and 10,000 stock options outstanding that were excluded from the computation of diluted earnings per share for the three and nine months ended October 31, 2012, respectively, because they were anti-dilutive. There were approximately 72,000 and 10,000 stock options outstanding that were excluded from the computation of diluted earnings per share for the three and nine months ended October 31, 2011, respectively, because they were anti-dilutive.
The following table sets forth the calculation of basic and diluted earnings per share:
|
|
Three Months Ended October 31, |
|
Nine Months Ended October 31, |
|
||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
|
|
(in thousands, except per share data) |
|
||||||||||
Numerator |
|
|
|
|
|
|
|
|
|
||||
Net income attributable to Titan Machinery Inc. |
|
$ |
14,061 |
|
$ |
12,800 |
|
$ |
26,867 |
|
$ |
26,359 |
|
Net income allocated to participating securities |
|
(150 |
) |
(113 |
) |
(270 |
) |
(238 |
) |
||||
Net income attributable to Titan Machinery Inc. common stockholders |
|
$ |
13,911 |
|
$ |
12,687 |
|
$ |
26,597 |
|
$ |
26,121 |
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator |
|
|
|
|
|
|
|
|
|
||||
Basic weighted-average common shares outstanding |
|
20,814 |
|
20,572 |
|
20,773 |
|
19,538 |
|
||||
Plus: Incremental shares from assumed conversions |
|
|
|
|
|
|
|
|
|
||||
Warrants |
|
12 |
|
29 |
|
20 |
|
30 |
|
||||
Stock options |
|
162 |
|
289 |
|
189 |
|
335 |
|
||||
Diluted weighted-average common shares outstanding |
|
20,988 |
|
20,890 |
|
20,982 |
|
19,903 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share - basic |
|
$ |
0.67 |
|
$ |
0.62 |
|
$ |
1.28 |
|
$ |
1.34 |
|
|
|
|
|
|
|
|
|
|
|
||||
Earnings per share - diluted |
|
$ |
0.66 |
|
$ |
0.61 |
|
$ |
1.27 |
|
$ |
1.31 |
|
NOTE 2 - INVENTORIES
|
|
October 31, |
|
January 31, |
|
||
|
|
2012 |
|
2012 |
|
||
|
|
(in thousands) |
|
||||
New equipment |
|
$ |
726,865 |
|
$ |
445,513 |
|
Used equipment |
|
218,351 |
|
219,849 |
|
||
Parts and attachments |
|
93,466 |
|
76,073 |
|
||
Work in process |
|
9,322 |
|
6,612 |
|
||
|
|
|
|
|
|
||
|
|
$ |
1,048,004 |
|
$ |
748,047 |
|
In addition to the above amounts, the Company has estimated that a portion of its parts inventory will not be sold in the next year. Accordingly, these balances have been classified as noncurrent assets.
NOTE 3 - PROPERTY AND EQUIPMENT
|
|
October 31, |
|
January 31, |
|
||
|
|
2012 |
|
2012 |
|
||
|
|
(in thousands) |
|
||||
Rental fleet equipment |
|
$ |
105,111 |
|
$ |
62,440 |
|
Machinery and equipment |
|
19,449 |
|
17,562 |
|
||
Vehicles |
|
35,987 |
|
28,277 |
|
||
Furniture and fixtures |
|
25,163 |
|
19,097 |
|
||
Land, buildings, and leasehold improvements |
|
50,875 |
|
34,705 |
|
||
|
|
|
|
|
|
||
|
|
$ |
236,585 |
|
$ |
162,081 |
|
Less accumulated depreciation |
|
(50,929 |
) |
(35,799 |
) |
||
|
|
|
|
|
|
||
|
|
$ |
185,656 |
|
$ |
126,282 |
|
NOTE 4 - LINES OF CREDIT / FLOORPLAN NOTES PAYABLE
Operating Line of Credit
As of October 31, 2012, the Company had a $75.0 million working capital line of credit under a credit agreement with a group of banks led by Wells Fargo Bank, National Association (Wells Fargo). The Company had $20.0 million and $33.9 million outstanding on its working capital line of credit as of October 31, 2012 and January 31, 2012, respectively. Amounts outstanding are recorded as long-term debt, within long-term liabilities on the consolidated balance sheets, as the Company does not have the intention or obligation to repay amounts borrowed within one year.
Floorplan Lines of Credit
As of October 31, 2012, the Company had discretionary floorplan lines of credit for equipment purchases totaling approximately $925.0 million with various lending institutions, including $300.0 million under the aforementioned credit agreement with Wells Fargo, a $450.0 million credit agreement with CNH Capital America LLC (CNH Capital) and a $175.0 million credit agreement with Agricredit Acceptance LLC. Floorplan notes payable relating to these credit agreements totaled approximately $716.5 million of the total floorplan notes payable balance of $782.4 million outstanding as of October 31, 2012 and $505.6 million of the total floorplan notes payable balance of $552.4 million outstanding as of January 31, 2012. As of October 31, 2012, the Company had approximately $188.9 million in available borrowings remaining under these lines of credit (net of standby letters of credit under the aforementioned Wells Fargo credit agreement and rental fleet financing and other acquisition-related financing arrangements under the CNH Capital credit agreement). These floorplan
notes carried various interest rates primarily ranging from 2.46% to 7.25% as of October 31, 2012, subject to interest-free periods offered by CNH Capital. As of October 31, 2012, the Company was in compliance with all floorplan financial covenants. Subsequent to October 31, 2012, the Company amended various terms of the credit agreement with Wells Fargo, including increasing the floorplan line of credit from $300.0 million to $375.0 million, amending the interest rate on outstanding balances from LIBOR plus an applicable margin of 1.5% to 2.25% to LIBOR plus an applicable margin of 1.5% to 2.625%, and changing certain financial covenants.
NOTE 5 - SENIOR CONVERTIBLE NOTES
On April 24, 2012, the Company issued through a private offering $150 million of 3.75% Senior Convertible Notes (the Convertible Notes). The Convertible Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2012. The Convertible Notes mature on May 1, 2019, unless earlier purchased by the Company, redeemed or converted.
The Convertible Notes are unsecured and unsubordinated obligations; rank equal in right of payment to the Companys existing and future unsecured indebtedness that is not subordinated; are effectively subordinated in right of payment to the Companys existing and future secured indebtedness; and are structurally subordinated to all existing and future indebtedness and liabilities of the Companys subsidiaries.
The Convertible Notes are initially convertible into the Companys common stock at a conversion rate of 23.1626 shares of common stock per $1,000 principal amount of convertible notes, representing an initial effective conversion price of $43.17 per share of common stock. The conversion rate may be subject to adjustment upon the occurrence of certain specified events as provided in the indenture governing the Convertible Notes, dated April 24, 2012 between the Company and Wells Fargo Bank, National Association, as trustee (the Indenture), but will not be adjusted for accrued but unpaid interest. Upon conversion of a Convertible Note, the Company will settle the conversion obligation in cash up to the aggregate principal amount of the Convertible Note being converted, and any conversion obligation in excess thereof will be settled in cash, shares of the Companys common stock, or a combination thereof, at the Companys election, subject to certain limitations as defined in the Indenture.
Holders of the Convertible Notes may convert their notes at the applicable conversion rate under the following circumstances:
i. During any fiscal quarter commencing after July 31, 2012, if for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of the Companys common stock on such trading day is greater than or equal to 120% of the applicable conversion price on such trading day.
ii. During the five consecutive business day period immediately following any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of the Convertible Notes is less than 98% of the product of the last reported sale price of the Companys common stock on such trading day and the applicable conversion rate on such trading day.
iii. If the Company calls any or all of the Convertible Notes for redemption at any time prior to the close of business on the business day immediately preceding the redemption date.
iv. Upon the occurrence of corporate transactions specified in the Indenture.
v. At any time on and after February 1, 2019 until the close of business on the business day immediately preceding the maturity date.
Holders of the Convertible Notes who convert their Convertible Notes in connection with a make-whole fundamental change, as defined in the Indenture, may be entitled to a make-whole premium in the form of an increase to the conversion rate. In addition, upon the occurrence of a fundamental change, as defined in the Indenture, holders of the Convertible Notes may require the Company to purchase all or a portion of their Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be purchased plus any accrued but unpaid interest.
The number of shares the Company may deliver upon conversion of the Convertible Notes will be subject to certain limitations, and the Company is subject to certain other obligations and restrictions related to such share caps, as described in the Indenture. On or after May 6, 2015, the Company may redeem for cash all or a portion of the Convertible Notes if the last reported sale price of the Companys common stock has been at least 120% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption.
The Indenture provides for customary events of default, including, but not limited to, cross acceleration to certain other indebtedness of the Company and its subsidiaries. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the trustee or holders of at least 25% in aggregate principal amount of the then outstanding Convertible Notes may declare all of the Convertible Notes to be due and payable immediately.
In accounting for the Convertible Notes, the Company segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Convertible Notes. Fair value was estimated through discounting future interest and principal payments, an income approach, due under the Convertible Notes at a discount rate of 7.00%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the aggregate face value of the Convertible Notes over the estimated fair value of the liability component is recognized as a debt discount which will be amortized over the expected life of the Convertible Notes using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense.
The equity component of the Convertible Notes is measured as the residual difference between the aggregate face value of the Convertible Notes and the estimated aggregate fair value of the liability component. The equity component will not be remeasured in subsequent periods provided that the component continues to meet the conditions necessary for equity classification.
The transaction costs incurred in connection with the issuance of the Convertible Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being amortized using the effective interest rate method and recognized as non-cash interest expense over the expected term of the Convertible Notes. Transaction costs allocated to the equity component reduced the value of the equity component recognized in stockholders equity.
Proceeds upon issuance of the Convertible Notes were as follows:
|
|
April 24, |
|
|
|
|
2012 |
|
|
|
|
(in thousands) |
|
|
Principal value |
|
$ |
150,000 |
|
Less: transaction costs |
|
(4,753 |
) |
|
Net proceeds, senior convertible notes |
|
$ |
145,247 |
|
|
|
|
|
|
Amounts recognized at issuance: |
|
|
|
|
Senior convertible notes, net |
|
$ |
123,319 |
|
Additional paid-in capital |
|
15,501 |
|
|
Transaction costs allocated to the liability component |
|
(3,907 |
) |
|
Long-term deferred tax liability |
|
10,334 |
|
|
Net proceeds, senior convertible notes |
|
$ |
145,247 |
|
As of October 31, 2012, the Convertible Notes consisted of the following:
|
|
October 31, |
|
|
|
|
2012 |
|
|
|
|
(in thousands except |
|
|
|
|
conversion rate |
|
|
|
|
and conversion price) |
|
|
Principal value |
|
$ |
150,000 |
|
Unamortized debt discount |
|
(25,113 |
) |
|
Carrying value of senior convertible notes |
|
$ |
124,887 |
|
|
|
|
|
|
Carrying value of equity component, net of deferred taxes |
|
$ |
15,501 |
|
|
|
|
|
|
Conversion rate (shares of common stock per $1,000 principal amount of notes) |
|
23.1626 |
|
|
Conversion price (per share of common stock) |
|
$ |
43.17 |
|
As of October 31, 2012, the unamortized debt discount will be amortized over a seven-year period. The if-converted value as of October 31, 2012 does not exceed the principal balance of the Convertible Notes. For the period ended October 31, 2012, the Company recognized coupon interest expense of $2.9 million, and non-cash interest expense of $1.6 million related to the amortization of the debt discount and $0.2 million related to the amortization of the liability-allocated transaction costs. The effective interest rate of the liability component for the period ended October 31, 2012 was equal to 7.00%.
NOTE 6 - DERIVATIVE INSTRUMENTS
The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates to which the Company is exposed in the normal course of its operations.
Net Investment Hedges
To protect the value of the Companys investments in its foreign operations against adverse changes in foreign currency exchange rates, the Company may, from time to time, hedge a portion of its net investment in one or more of its foreign subsidiaries. Gains and losses on derivative instruments that are designated and effective as a net investment hedge are included in other comprehensive income and only reclassified into earnings in the period during which the hedged net investment is sold or liquidated.
As of October 31, 2012, the notional amount of outstanding foreign currency forward contracts designated as net investment hedges was approximately $31.8 million. No derivative instruments designated as net investment hedges were outstanding as of January 31, 2012.
Derivative Instruments Not Designated as Hedging Instruments
The Company uses foreign currency forward contracts to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. The Company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loan are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations on net income.
The Companys risk management program allows for short-term hedging of the foreign currency risk exposure associated with outstanding intercompany loans whereby the maturity date of all hedging instruments is equal to the quarterly reporting date. As a result, no derivative instruments not designated as hedging instruments were outstanding as of October 31, 2012. For the three months ended October 31, 2012, the maximum notional amount outstanding at any point during the period was approximately $10.7 million. No derivative instruments not designated as hedging instruments were outstanding as of or during the year ended January 31, 2012.
The following table sets forth the fair value of the Companys derivative instruments outstanding as of October 31, 2012. No derivative instruments were outstanding as of January 31, 2012.
|
|
Balance |
|
Fair Value as of: |
|
|||
|
|
Sheet |
|
October 31, |
|
January 31, |
|
|
|
|
Location |
|
2012 |
|
2012 |
|
|
|
|
|
|
(in thousands) |
|
|||
Liability Derivatives: |
|
|
|
|
|
|
|
|
Derivatives designated as hedging instruments: |
|
|
|
|
|
|
|
|
Foreign exchange contracts |
|
Accrued expenses |
|
$ |
(211 |
) |
|
|
The following table sets forth the gains and losses recognized on the Companys derivative instruments for the three months ended October 31, 2012. No derivative instruments were outstanding during the three-month period ended October 31, 2011.
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
||||||
|
|
Recognized in Other |
|
Amount of Gain (Loss) |
|
|
|
||||||||
|
|
Comprehensive Income |
|
Recognized in Income |
|
|
|
||||||||
|
|
Three Months Ended October 31, |
|
Three Months Ended October 31, |
|
Income Statement |
|
||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Classification |
|
||||
|
|
(in thousands) |
|
(in thousands) |
|
|
|
||||||||
Dervatives Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
$ |
(211 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dervatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
|
|
|
|
(397 |
) |
|
|
Interest and other income |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Derivatives |
|
$ |
(211 |
) |
$ |
|
|
$ |
(397 |
) |
$ |
|
|
|
|
The following table sets forth the gains and losses recognized on the Companys derivative instruments for the nine months ended October 31, 2012. No derivative instruments were outstanding during the nine-month period ended October 31, 2011.
|
|
Amount of Gain (Loss) |
|
|
|
|
|
|
|
||||||
|
|
Recognized in Other |
|
Amount of Gain (Loss) |
|
|
|
||||||||
|
|
Comprehensive Income |
|
Recognized in Income |
|
Income |
|
||||||||
|
|
Nine Months Ended October 31, |
|
Nine Months Ended October 31, |
|
Statement |
|
||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
Classification |
|
||||
|
|
(in thousands) |
|
(in thousands) |
|
|
|
||||||||
Dervatives Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
||||
Net investment hedges: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
$ |
(211 |
) |
$ |
|
|
$ |
|
|
$ |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Dervatives Not Designated as Hedging Instruments: |
|
|
|
|
|
|
|
|
|
|
|
||||
Foreign exchange contracts |
|
$ |
|
|
$ |
|
|
$ |
(380 |
) |
$ |
|
|
Interest and other income |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total Derivatives |
|
$ |
(211 |
) |
$ |
|
|
$ |
(380 |
) |
$ |
|
|
|
|
NOTE 7 - BUSINESS COMBINATIONS
The Company continued to implement its strategy of consolidating dealerships in desired market areas. Below is a summary of the acquisitions completed for the nine months ended October 31, 2012. In certain of the business combination transactions the Company recognized goodwill. Factors contributing to the recognition of goodwill include an evaluation of future and historical financial performance, the value of the workforce acquired and proximity to other existing and future planned Company locations. Pro forma results are not presented as the acquisitions are not considered material, individually
or in aggregate, to the Company. The results of operations have been included in the Companys consolidated statements of operations since the date of each respective business combination.
On February 27, 2012, the Company acquired certain assets of the Colorado division of Adobe Truck & Equipment, LLC. The acquired entity consisted of three construction equipment stores in Denver, Colorado Springs, and Loveland, Colorado. The acquisition establishes the Companys first construction equipment stores in Colorado and allows the Company to have the exclusive Case Construction contract for all of Colorado east of the Rocky Mountains. The acquisition-date fair value of the total consideration transferred for the stores was $3.4 million.
On March 5, 2012, the Company acquired, through its subsidiary, Titan Machinery Bulgaria AD, certain assets of Rimex 1-Holding EAD. The acquired entity consisted of seven agricultural equipment stores in the following cities in Bulgaria: Sofia, Dobrich, Burgas, Pleven, Ruse, Montana, and Stara Zagora. The acquisition expands the Companys operations in Europe and provides a significant opportunity to leverage its domestic operating model and dealership experience into an additional growth platform. The acquisition-date fair value of the total consideration transferred for the stores was $2.6 million. Subsequent to the acquisition, Titan Machinery Bulgaria AD issued a 30% ownership interest to the former owner of the acquired entity for $2.5 million. The 30% ownership interest is included in the consolidated financial statements as a noncontrolling interest.
On March 30, 2012, the Company acquired certain assets of Haberers Implement, Inc. The acquired entity consisted of one agricultural equipment store in Bowdle, South Dakota which is contiguous to the Companys existing locations in Aberdeen, Redfield and Highmore, South Dakota and Wishek, North Dakota. The acquisition-date fair value of the total consideration transferred for the store was $1.2 million.
On April 2, 2012, the Company acquired certain assets of East Helena Rental, LLC. The acquired entity consisted of one construction equipment rental store in Helena, Montana which is contiguous to the Companys existing locations in Missoula, Great Falls, Bozeman and Big Sky, Montana. The acquisition-date fair value of the total consideration transferred for the store was $0.6 million.
On July 2, 2012, the Company acquired certain assets of Curly Olneys, Inc. The acquired entity consisted of two agricultural equipment stores in McCook and Imperial, Nebraska and expands the Companys agriculture presence in Nebraska. The acquisition-date fair value of the total consideration transferred for the stores was $5.5 million.
During the nine months ended October 31, 2012, adjustments were recorded for additional consideration of $3.3 million earned and paid pursuant to a business combination accounted for under the purchase method of accounting which required that additional consideration be recognized once all contingencies have been resolved and that such consideration be included as an additional cost of the entity and therefore recognized as goodwill. This additional consideration resulted in a net increase in goodwill for the Agriculture segment of $3.3 million, and was the final payment under this agreement.
The allocations of the purchase prices in the above business combinations are presented in the following table. The estimated fair values of the intangible assets acquired are provisional estimates which are subject to change upon completion of the final valuation.
|
|
October 31, |
|
|
|
|
2012 |
|
|
|
|
(in thousands) |
|
|
Cash |
|
$ |
1 |
|
Receivables |
|
2,200 |
|
|
Inventories |
|
17,281 |
|
|
Prepaid expenses and other |
|
352 |
|
|
Property and equipment |
|
2,676 |
|
|
Intangible assets |
|
2,255 |
|
|
Goodwill |
|
5,150 |
|
|
|
|
|
|
|
|
|
$ |
29,915 |
|
|
|
|
|
|
Accounts payable |
|
$ |
3,094 |
|
Floorplan notes payable |
|
7,572 |
|
|
Customer deposits |
|
1,473 |
|
|
Accrued expenses |
|
6 |
|
|
|
|
|
|
|
|
|
$ |
12,145 |
|
|
|
|
|
|
Cash consideration |
|
$ |
16,176 |
|
Non-cash consideration: liabilities incurred |
|
1,594 |
|
|
Total consideration |
|
$ |
17,770 |
|
|
|
|
|
|
Goodwill related to the Agriculture operating segment |
|
$ |
3,785 |
|
Goodwill related to the Construction operating segment |
|
$ |
1,365 |
|
|
|
|
|
|
Goodwill expected to be deductible for tax purposes |
|
$ |
5,150 |
|
NOTE 8 - SEGMENT INFORMATION AND OPERATING RESULTS
Revenue, income before income taxes and total assets at the segment level are reported before eliminations. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as Shared Resources in the table below. Shared Resources assets primarily consist of cash and property and equipment. Intersegment revenue is immaterial.
Certain financial information for each of the Companys business segments is set forth below.
|
|
Three Months Ended October 31, |
|
Nine Months Ended October 31, |
|
||||||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
||||
|
|
(in thousands) |
|
(in thousands) |
|
||||||||
Revenue |
|
|
|
|
|
|
|
|
|
||||
Agriculture |
|
$ |
503,518 |
|
$ |
361,601 |
|
$ |
1,200,148 |
|
$ |
914,932 |
|
Construction |
|
94,852 |
|
77,435 |
|
271,728 |
|
181,395 |
|
||||
Segment revenue |
|
598,370 |
|
439,036 |
|
1,471,876 |
|
1,096,327 |
|
||||
Eliminations |
|
(16,258 |
) |
(16,076 |
) |
(57,970 |
) |
(44,353 |
) |
||||
Total |
|
$ |
582,112 |
|
$ |
422,960 |
|
$ |
1,413,906 |
|
$ |
1,051,974 |
|
|
|
|
|
|
|
|
|
|
|
||||
Income Before Income Taxes |
|
|
|
|
|
|
|
|
|
||||
Agriculture |
|
$ |
26,060 |
|
$ |
20,068 |
|
$ |
50,971 |
|
$ |
43,964 |
|
Construction |
|
519 |
|
3,254 |
|
767 |
|
4,482 |
|
||||
Segment income before income taxes |
|
26,579 |
|
23,322 |
|
51,738 |
|
48,446 |
|
||||
Shared Resources |
|
(2,340 |
) |
(1,772 |
) |
(4,843 |
) |
(3,786 |
) |
||||
Eliminations |
|
(462 |
) |
(214 |
) |
(1,986 |
) |
(726 |
) |
||||
Income before income taxes |
|
$ |
23,777 |
|
$ |
21,336 |
|
$ |
44,909 |
|
$ |
43,934 |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
October 31, |
|
January 31, |
|
||||
|
|
|
|
|
|
2012 |
|
2012 |
|
||||
|
|
|
|
|
|
(in thousands) |
|
||||||
Total Assets |
|
|
|
|
|
|
|
|
|
||||
Agriculture |
|
|
|
|
|
$ |
941,883 |
|
$ |
781,098 |
|
||
Construction |
|
|
|
|
|
395,978 |
|
250,474 |
|
||||
Segment assets |
|
|
|
|
|
1,337,861 |
|
1,031,572 |
|
||||
Shared Resources |
|
|
|
|
|
173,955 |
|
57,882 |
|
||||
Eliminations |
|
|
|
|
|
(3,368 |
) |
(1,382 |
) |
||||
Total |
|
|
|
|
|
$ |
1,508,448 |
|
$ |
1,088,072 |
|
NOTE 9 - SUBSEQUENT EVENTS
On November 1, 2012, the Company acquired certain assets of Toners, Inc. The acquired entity consisted of three agricultural equipment stores in Grand Island, Broken Bow and Ord, Nebraska which are contiguous to the Companys existing locations in Kearney, Lexington, North Platte and Hastings, Nebraska. The acquisition-date fair value of the total consideration transferred for the stores was $13.9 million.
On November 1, 2012, the Company acquired certain assets of Falcon Power Inc. The acquired entity consisted of two construction equipment stores in Phoenix and Flagstaff, Arizona and expands the Companys presence into Arizona. The acquisition-date fair value of the total consideration transferred for the stores was $1.4 million.
Subsequent to October 31, 2012, the Company entered into a Purchase Agreement to acquire certain assets of VAIT D.o.o. The acquisition consists of one agricultural equipment store in the Vojvodina region of Serbia, which is contiguous to the Companys existing locations in Romania and Bulgaria, and expands the Companys Eastern European operations into Serbia. The Company expects the closing date to be on or about December 14, 2012.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended January 31, 2012.
Critical Accounting Policies
There have been no material changes in our Critical Accounting Policies, as disclosed in our Annual Report on Form 10-K for the year ended January 31, 2012.
Overview
We own and operate a network of full service agricultural and construction equipment stores in the United States and Europe. Based upon information provided to us by CNH Global N.V. or its U.S. subsidiary CNH America, LLC, we are the largest retail dealer of Case IH Agriculture equipment in the world, the largest retail dealer of Case Construction equipment in North America and a major retail dealer of New Holland Agriculture and New Holland Construction equipment in the U.S. We operate our business through two reportable segments, Agriculture and Construction. Within each segment, we have four principal sources of revenue, new and used equipment sales, parts sales, service, and equipment rental and other activities.
Our net income attributable to Titan Machinery Inc. common stockholders was $14.1 million, or $0.66 per diluted share, for the three months ended October 31, 2012, compared to $12.8 million, or $0.61 per diluted share, for the three months ended October 31, 2011. Significant factors impacting the quarterly comparisons were:
· Increase in revenue due to acquisitions and same-store sales growth in both our Agriculture and Construction segments. The increase in equipment revenue was primarily due to a strong Agriculture equipment market caused by anticipated strong net farm income for calendar year 2012;
· Increase in total gross profit primarily due to an increase in revenue. Decrease in total gross profit margin primarily due to the change in sales mix, in which our equipment business contributed a larger percentage of our total gross profit, as compared to the same period last year; and
· Increase in floorplan interest expense due to an increase in floorplan notes payable and an increase in other interest expense primarily due to the issuance of our Senior Convertible Notes in April 2012.
Results of Operations
Comparative financial data for each of our four sources of revenue are expressed below. The results for these periods include the operating results of the acquisitions made during these periods. The period-to-period comparisons included below are not necessarily indicative of future results. Segment information is provided later in this discussion and analysis of our results of operations.
|
|
Three Months Ended October 31, |
|
Percent |
|
Nine Months Ended October 31, |
|
Percent |
|
||||||||
|
|
2012 |
|
2011 |
|
Change |
|
2012 |
|
2011 |
|
Change |
|
||||
|
|
(dollars in thousands) |
|
|
|
(dollars in thousands) |
|
|
|
||||||||
Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
456,168 |
|
$ |
312,304 |
|
46.1 |
% |
$ |
1,084,866 |
|
$ |
786,816 |
|
37.9 |
% |
Cost of revenue |
|
414,028 |
|
283,690 |
|
45.9 |
% |
985,397 |
|
711,421 |
|
38.5 |
% |
||||
Gross profit |
|
$ |
42,140 |
|
$ |
28,614 |
|
47.3 |
% |
$ |
99,469 |
|
$ |
75,395 |
|
31.9 |
% |
Gross profit margin |
|
9.2 |
% |
9.2 |
% |
0.0 |
% |
9.2 |
% |
9.6 |
% |
(0.4 |
)% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Parts |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
72,101 |
|
$ |
64,468 |
|
11.8 |
% |
$ |
188,840 |
|
$ |
155,670 |
|
21.3 |
% |
Cost of revenue |
|
49,266 |
|
44,389 |
|
11.0 |
% |
130,276 |
|
108,535 |
|
20.0 |
% |
||||
Gross profit |
|
$ |
22,835 |
|
$ |
20,079 |
|
13.7 |
% |
$ |
58,564 |
|
$ |
47,135 |
|
24.2 |
% |
Gross profit margin |
|
31.7 |
% |
31.1 |
% |
0.6 |
% |
31.0 |
% |
30.3 |
% |
0.7 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Service |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
33,365 |
|
$ |
29,843 |
|
11.8 |
% |
$ |
93,583 |
|
$ |
76,202 |
|
22.8 |
% |
Cost of revenue |
|
11,611 |
|
10,304 |
|
12.7 |
% |
32,448 |
|
27,175 |
|
19.4 |
% |
||||
Gross profit |
|
$ |
21,754 |
|
$ |
19,539 |
|
11.3 |
% |
$ |
61,135 |
|
$ |
49,027 |
|
24.7 |
% |
Gross profit margin |
|
65.2 |
% |
65.5 |
% |
(0.3 |
)% |
65.3 |
% |
64.3 |
% |
1.0 |
% |
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Rental and other |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Revenue |
|
$ |
20,478 |
|
$ |
16,345 |
|
25.3 |
% |
$ |
46,617 |
|
$ |
33,286 |
|
40.0 |
% |
Cost of revenue |
|
13,148 |
|
10,580 |
|
24.3 |
% |
30,953 |
|
22,192 |
|
39.5 |
% |
||||
Gross profit |
|
$ |
7,330 |
|
$ |
5,765 |
|
27.1 |
% |
$ |
15,664 |
|
$ |
11,094 |
|
41.2 |
% |
Gross profit margin |
|
35.8 |
% |
35.3 |
% |
0.5 |
% |
33.6 |
% |
33.3 |
% |
0.3 |
% |
The following table sets forth our statements of operations data expressed as a percentage for each of our four sources of total revenue for the periods indicated:
|
|
Three Months Ended October 31, |
|
Nine Months Ended October 31, |
|
||||
|
|
2012 |
|
2011 |
|
2012 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
|
|
|
|
|
|
|
|
Equipment |
|
78.4 |
% |
73.8 |
% |
76.7 |
% |
74.8 |
% |
Parts |
|
12.4 |
% |
15.2 |
% |
13.4 |
% |
14.8 |
% |
Service |
|
5.7 |
% |
7.1 |
% |
6.6 |
% |
7.2 |
% |
Rental and other |
|
3.5 |
% |
3.9 |
% |
3.3 |
% |
3.2 |
% |
Total revenue |
|
100.0 |
% |
100.0 |
% |
100.0 |
% |
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Total cost of revenue |
|
83.8 |
% |
82.5 |
% |
83.4 |
% |
82.6 |
% |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
16.2 |
% |
17.5 |
% |
16.6 |
% |
17.4 |
% |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
11.0 |
% |
11.8 |
% |
12.4 |
% |
12.7 |
% |
|
|
|
|
|
|
|
|
|
|
Income from operations |
|
5.2 |
% |
5.7 |
% |
4.2 |
% |
4.7 |
% |
|
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
(1.1 |
)% |
(0.7 |
)% |
(1.0 |
)% |
(0.5 |
)% |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
4.1 |
% |
5.0 |
% |
3.2 |
% |
4.2 |
% |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
(1.6 |
)% |
(2.0 |
)% |
(1.3 |
)% |
(1.7 |
)% |
|
|
|
|
|
|
|
|
|
|
Net income including noncontrolling interest |
|
2.5 |
% |
3.0 |
% |
1.9 |
% |
2.5 |
% |
|
|
|
|
|
|
|
|
|
|
Less: net income attributable to noncontrolling interest |
|
0.1 |
% |
0.0 |
% |
0.0 |
% |
0.0 |
% |
|
|
|
|
|
|
|
|
|
|
Net income attributable to Titan Machinery Inc. |
|
2.4 |
% |
3.0 |
% |
1.9 |
% |
2.5 |
% |
Three Months Ended October 31, 2012 Compared to Three Months Ended October 31, 2011
Consolidated Results
Revenue
|
|
Three Months Ended October 31, |
|
|
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
Increase |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Equipment |
|
$ |
456,168 |
|
$ |
312,304 |
|
$ |
143,864 |
|
46.1 |
% |
Parts |
|
72,101 |
|
64,468 |
|
7,633 |
|
11.8 |
% |
|||
Service |
|
33,365 |
|
29,843 |
|
3,522 |
|
11.8 |
% |
|||
Rental and other |
|
20,478 |
|
16,345 |
|
4,133 |
|
25.3 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Revenue |
|
$ |
582,112 |
|
$ |
422,960 |
|
$ |
159,152 |
|
37.6 |
% |
The increase in revenue for the third quarter of fiscal 2013, as compared to the same period last year, was due to acquisitions contributing $57.3 million and same-store sales growth contributing $101.9 million to current period revenue. This revenue growth was across all revenue sources and in both our Agriculture and Construction segments. The increase in equipment revenue was primarily due to a strong Agriculture equipment market caused by anticipated strong net farm income for calendar year 2012.
Gross Profit
|
|
Three Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|||
Equipment |
|
$ |
42,140 |
|
$ |
28,614 |
|
$ |
13,526 |
|
47.3 |
% |
Parts |
|
22,835 |
|
20,079 |
|
2,756 |
|
13.7 |
% |
|||
Service |
|
21,754 |
|
19,539 |
|
2,215 |
|
11.3 |
% |
|||
Rental and other |
|
7,330 |
|
5,765 |
|
1,565 |
|
27.1 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Gross Profit |
|
$ |
94,059 |
|
$ |
73,997 |
|
$ |
20,062 |
|
27.1 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Gross Profit Margin |
|
|
|
|
|
|
|
|
|
|||
Equipment |
|
9.2 |
% |
9.2 |
% |
0.0 |
% |
0.0 |
% |
|||
Parts |
|
31.7 |
% |
31.1 |
% |
0.6 |
% |
1.9 |
% |
|||
Service |
|
65.2 |
% |
65.5 |
% |
(0.3 |
)% |
(0.5 |
)% |
|||
Rental and other |
|
35.8 |
% |
35.3 |
% |
0.5 |
% |
1.4 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Gross Profit Margin |
|
16.2 |
% |
17.5 |
% |
(1.3 |
)% |
(7.4 |
)% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Gross Profit Mix |
|
|
|
|
|
|
|
|
|
|||
Equipment |
|
44.8 |
% |
38.7 |
% |
6.1 |
% |
15.8 |
% |
|||
Parts |
|
24.3 |
% |
27.1 |
% |
(2.8 |
)% |
(10.3 |
)% |
|||
Service |
|
23.1 |
% |
26.4 |
% |
(3.3 |
)% |
(12.5 |
)% |
|||
Rental and other |
|
7.8 |
% |
7.8 |
% |
0.0 |
% |
0.0 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Gross Profit Mix |
|
100.0 |
% |
100.0 |
% |
|
|
|
|
The $20.1 million increase in gross profit for the third quarter of fiscal 2013, as compared to the same period last year, was primarily due to increased revenue. Acquisitions contributed $8.2 million to the increase in gross profit for the third quarter of fiscal 2013, while increases in same-store gross profit contributed the remaining $11.9 million. The decrease in gross profit margin from 17.5% for the third quarter of fiscal 2012 to 16.2% for the third quarter of fiscal 2013 was primarily due to the change in sales mix, in which our equipment business contributed a larger percentage of our total gross profit, as compared to the same period last year.
Operating Expenses
|
|
Three Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Operating expenses |
|
$ |
63,950 |
|
$ |
50,060 |
|
$ |
13,890 |
|
27.7 |
% |
Operating expenses as a percentage of revenue |
|
11.0 |
% |
11.8 |
% |
(0.8 |
)% |
(6.8 |
)% |
|||
The $13.9 million increase in operating expenses for the third quarter of fiscal 2013, as compared to the same period last year, was primarily due to the additional costs associated with acquisitions such as compensation, rent, travel and depreciation. As a percentage of total revenue, operating expenses decreased to 11.0% for the third quarter of fiscal 2013 compared to 11.8% for the third quarter of fiscal 2012, primarily due to improved fixed operating cost leverage resulting from higher revenue.
Other Income (Expense)
|
|
Three Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Interest and other income |
|
$ |
258 |
|
$ |
307 |
|
$ |
(49 |
) |
(16.0 |
)% |
Floorplan interest expense |
|
(3,704 |
) |
(2,625 |
) |
1,079 |
|
41.1 |
% |
|||
Other interest expense |
|
(2,886 |
) |
(283 |
) |
2,603 |
|
919.8 |
% |
|||
The increase in floorplan interest expense of $1.1 million and other interest expense of $2.6 million, for the third quarter of fiscal 2013, as compared to the same period in the prior year, was primarily due to the increase in floorplan notes payable and long-term debt balances, including our Senior Convertible Notes issued in April 2012.
Provision for Income Taxes
|
|
Three Months Ended October 31, |
|
|
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
Increase |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Provision for income taxes |
|
$ |
9,418 |
|
$ |
8,536 |
|
$ |
882 |
|
10.3 |
% |
Our effective tax rate decreased slightly from 40.0% for the third quarter of fiscal 2012 to 39.6% for the third quarter of fiscal 2013.
Segment Results
Certain financial information for our Agriculture and Construction business segments is set forth below. Revenue and income (loss) before income taxes at the segment level are reported before eliminations. Shared Resources in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Intersegment revenue is immaterial.
|
|
Three Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
503,518 |
|
$ |
361,601 |
|
$ |
141,917 |
|
39.2 |
% |
Construction |
|
94,852 |
|
77,435 |
|
17,417 |
|
22.5 |
% |
|||
Segment revenue |
|
598,370 |
|
439,036 |
|
159,334 |
|
36.3 |
% |
|||
Eliminations |
|
(16,258 |
) |
(16,076 |
) |
(182 |
) |
(1.1 |
)% |
|||
Total |
|
$ |
582,112 |
|
$ |
422,960 |
|
$ |
159,152 |
|
37.6 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Income Before Income Taxes |
|
|
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
26,060 |
|
$ |
20,068 |
|
$ |
5,992 |
|
29.9 |
% |
Construction |
|
519 |
|
3,254 |
|
(2,735 |
) |
(84.1 |
)% |
|||
Segment income before income taxes |
|
26,579 |
|
23,322 |
|
3,257 |
|
14.0 |
% |
|||
Shared Resources |
|
(2,340 |
) |
(1,772 |
) |
(568 |
) |
(32.1 |
)% |
|||
Eliminations |
|
(462 |
) |
(214 |
) |
(248 |
) |
(115.9 |
)% |
|||
Income before income taxes |
|
$ |
23,777 |
|
$ |
21,336 |
|
$ |
2,441 |
|
11.4 |
% |
Agriculture
Agriculture segment revenue for the third quarter of fiscal 2013 increased 39.2% compared to the same period last year. The revenue increase was due to acquisitions and an Agriculture same-store sales increase of 26.4% over the third quarter
of fiscal 2012. The same-store sales growth was positively impacted by a strong equipment market primarily caused by anticipated strong net farm income for calendar year 2012.
Agriculture segment income before income taxes for the third quarter of fiscal 2013 increased 29.9% compared to the same period last year, primarily due to higher revenue. This increase was partially offset by an increase in floorplan interest expense resulting from higher floorplan notes payable balances, as compared to the same period in the prior year.
Construction
Construction segment revenue for the third quarter of fiscal 2013 increased 22.5% compared to the same period last year. The revenue increase was due to acquisitions and a Construction same-store sales increase of 15.2% over the third quarter of fiscal 2012. The same-store sales growth was positively impacted by a growing construction industry in the region in which we do business and an increase in our rental business, reflecting our initiative to expand this growth platform through strategic acquisitions, new store openings, and an increase in the size of our rental fleet.
Our Construction segment income before income taxes for the third quarter of fiscal 2013 decreased 84.1% compared to the same period last year, primarily due to a lower gross profit margin on equipment, and an increase in floorplan interest expense and other interest expense. The decrease in the gross profit margin on equipment was primarily due to competitive markets in the regions in which we operate, caused by an increase in equipment supply in the construction industry and location of our more recently acquired stores in larger metro areas. The increase in floorplan interest expense and other interest expense resulted from an increase in floorplan notes payable balances and rental fleet long-term debt, respectively, as compared to the prior year.
Shared Resources/Eliminations
We incur centralized expenses/income at our general corporate level, which we refer to as Shared Resources, and then allocate these net expenses to our segments. Since these allocations are set early in the year, unallocated balances may occur.
Eliminations remove any inter-company revenue or income before income taxes residing in our segment results.
Nine months ended October 31, 2012 Compared to Nine Months Ended October 31, 2011
Consolidated Results
Revenue
|
|
Nine Months Ended October 31, |
|
|
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
Increase |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Equipment |
|
$ |
1,084,866 |
|
$ |
786,816 |
|
$ |
298,050 |
|
37.9 |
% |
Parts |
|
188,840 |
|
155,670 |
|
33,170 |
|
21.3 |
% |
|||
Service |
|
93,583 |
|
76,202 |
|
17,381 |
|
22.8 |
% |
|||
Rental and other |
|
46,617 |
|
33,286 |
|
13,331 |
|
40.0 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Revenue |
|
$ |
1,413,906 |
|
$ |
1,051,974 |
|
$ |
361,932 |
|
34.4 |
% |
The increase in revenue for the nine months ended October 31, 2012, as compared to the same period last year, was due to acquisitions contributing $168.9 million and same-store sales growth contributing $193.0 million to current nine-month period revenue. This revenue growth was across all revenue sources and in both our Agriculture and Construction segments and resulted from a strong Agriculture equipment market primarily caused by anticipated strong net farm income for calendar year 2012, a growing construction industry in the region in which we do business, and growth in the rental business in our Construction segment. The increase in our rental business reflects our initiative to expand this growth platform through strategic acquisitions, new store openings, and an increase in the size of our rental fleet.
Gross Profit
|
|
Nine Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Gross Profit |
|
|
|
|
|
|
|
|
|
|||
Equipment |
|
$ |
99,469 |
|
$ |
75,395 |
|
$ |
24,074 |
|
31.9 |
% |
Parts |
|
58,564 |
|
47,135 |
|
11,429 |
|
24.2 |
% |
|||
Service |
|
61,135 |
|
49,027 |
|
12,108 |
|
24.7 |
% |
|||
Rental and other |
|
15,664 |
|
11,094 |
|
4,570 |
|
41.2 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Gross Profit |
|
$ |
234,832 |
|
$ |
182,651 |
|
$ |
52,181 |
|
28.6 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Gross Profit Margin |
|
|
|
|
|
|
|
|
|
|||
Equipment |
|
9.2 |
% |
9.6 |
% |
(0.4 |
)% |
(4.2 |
)% |
|||
Parts |
|
31.0 |
% |
30.3 |
% |
0.7 |
% |
2.3 |
% |
|||
Service |
|
65.3 |
% |
64.3 |
% |
1.0 |
% |
1.6 |
% |
|||
Rental and other |
|
33.6 |
% |
33.3 |
% |
0.3 |
% |
0.9 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Gross Profit Margin |
|
16.6 |
% |
17.4 |
% |
(0.8 |
)% |
(4.6 |
)% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Gross Profit Mix |
|
|
|
|
|
|
|
|
|
|||
Equipment |
|
42.4 |
% |
41.3 |
% |
1.1 |
% |
2.7 |
% |
|||
Parts |
|
24.9 |
% |
25.8 |
% |
(0.9 |
)% |
(3.5 |
)% |
|||
Service |
|
26.0 |
% |
26.8 |
% |
(0.8 |
)% |
(3.0 |
)% |
|||
Rental and other |
|
6.7 |
% |
6.1 |
% |
0.6 |
% |
9.8 |
% |
|||
|
|
|
|
|
|
|
|
|
|
|||
Total Gross Profit Mix |
|
100.0 |
% |
100.0 |
% |
|
|
|
|
The $52.2 million increase in gross profit for the nine months ended October 31, 2012, as compared to the same period last year, was primarily due to increased revenue. Acquisitions contributed $26.7 million to the increase in gross profit for the nine months ended October 31, 2012, while increases in same-store gross profit contributed the remaining $25.5 million. The decrease in gross profit margin from 17.4% for the nine months ended October 31, 2011 to 16.6% for the nine months ended October 31, 2012, was primarily due to the change in sales mix, in which our equipment business contributed a larger percentage of our total gross profit, and a decrease in gross profit margin on equipment, as compared to the same period last year. The gross profit margin on equipment was negatively impacted by competitive Agriculture and Construction equipment retail environments in the regions in which we operate and softening of Agriculture customer demand as a result of regional drought conditions. Due to these factors, we were able to maintain sales activity but experienced a compression in our overall equipment margins and in particular our used equipment margins.
Operating Expenses
|
|
Nine Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Operating expenses |
|
$ |
175,313 |
|
$ |
133,556 |
|
$ |
41,757 |
|
31.3 |
% |
Operating expenses as a percentage of revenue |
|
12.4 |
% |
12.7 |
% |
(0.3 |
)% |
(2.4 |
)% |
|||
The $41.8 million increase in operating expenses for the nine months ended October 31, 2012, as compared to the same period last year, was primarily due to the additional costs associated with acquisitions such as compensation, rent, travel and depreciation. As a percentage of total revenue, operating expenses decreased to 12.4% for the nine months ended October 31, 2012, compared to 12.7% for the same period in the prior year, primarily due to improved fixed operating cost leverage resulting from higher revenue.
Other Income (Expense)
|
|
Nine Months Ended October 31, |
|
|
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
Increase |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Interest and other income |
|
$ |
865 |
|
$ |
859 |
|
$ |
6 |
|
0.7 |
% |
Floorplan interest expense |
|
(9,022 |
) |
(5,121 |
) |
3,901 |
|
76.2 |
% |
|||
Other interest expense |
|
(6,453 |
) |
(899 |
) |
5,554 |
|
617.8 |
% |
|||
The increase in floorplan interest expense of $3.9 million and other interest expense of $5.6 million for the nine months ended October 31, 2012, as compared to the same period in the prior year, was primarily due to the increase in floorplan notes payable and long-term debt balances, including our Senior Convertible Notes issued in April 2012.
Provision for Income Taxes
|
|
Nine Months Ended October 31, |
|
|
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
Increase |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Provision for income taxes |
|
$ |
17,786 |
|
$ |
17,575 |
|
$ |
211 |
|
1.2 |
% |
Our effective tax rate decreased slightly from 40.0% for the nine months ended October 31, 2011 to 39.6% for the nine months ended October 31, 2012.
Segment Results
Certain financial information for our Agriculture and Construction business segments is set forth below. Revenue and income (loss) before income taxes at the segment level are reported before eliminations. Shared Resources in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Intersegment revenue is immaterial.
|
|
Nine Months Ended October 31, |
|
Increase/ |
|
Percent |
|
|||||
|
|
2012 |
|
2011 |
|
(Decrease) |
|
Change |
|
|||
|
|
(dollars in thousands) |
|
|
|
|||||||
Revenue |
|
|
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
1,200,148 |
|
$ |
914,932 |
|
$ |
285,216 |
|
31.2 |
% |
Construction |
|
271,728 |
|
181,395 |
|
90,333 |
|
49.8 |
% |
|||
Segment revenue |
|
1,471,876 |
|
1,096,327 |
|
375,549 |
|
34.3 |
% |
|||
Eliminations |
|
(57,970 |
) |
(44,353 |
) |
(13,617 |
) |
(30.7 |
)% |
|||
Total |
|
$ |
1,413,906 |
|
$ |
1,051,974 |
|
$ |
361,932 |
|
34.4 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Income Before Income Taxes |
|
|
|
|
|
|
|
|
|
|||
Agriculture |
|
$ |
50,971 |
|
$ |
43,964 |
|
$ |
7,007 |
|
15.9 |
% |
Construction |
|
767 |
|
4,482 |
|
(3,715 |
) |
(82.9 |
)% |
|||
Segment income before income taxes |
|
51,738 |
|
48,446 |
|
3,292 |
|
6.8 |
% |
|||
Shared Resources |
|
(4,843 |
) |
(3,786 |
) |
(1,057 |
) |
(27.9 |
)% |
|||
Eliminations |
|
(1,986 |
) |
(726 |
) |
(1,260 |
) |
(173.6 |
)% |
|||
Income before income taxes |
|
$ |
44,909 |
|
$ |
43,934 |
|
$ |
975 |
|
2.2 |
% |
Agriculture
Agriculture segment revenue for the nine months ended October 31, 2012 increased 31.2% compared to the same period last year. The revenue increase was due to acquisitions and an Agriculture same-store sales increase of 17.7%, as
compared to the same period in the prior year. The same-store sales growth was positively impacted by a strong equipment market primarily caused by anticipated strong net farm income for calendar year 2012.
Agriculture segment income before income taxes for the nine months ended October 31, 2012 increased 15.9% compared to the same period last year, primarily due to higher Agriculture segment revenue. This increase was partially offset by a decrease in gross profit margin for equipment, which was negatively impacted by increased equipment availability in the market resulting in a competitive equipment retail environment and softening of Agriculture customer demand as a result of regional drought conditions, and an increase in floorplan interest expense resulting from higher floorplan notes payable balances, as compared to the same period in the prior year.
Construction
Construction segment revenue for the nine months ended October 31, 2012 increased 49.8% compared to the same period last year. The revenue increase was due to acquisitions and a Construction same-store sales increase of 28.4% as compared to the same period in the prior year. The same-store sales growth was positively impacted by a growing construction industry in the region in which we do business and an increase in our rental business, reflecting our initiative to expand this growth platform through strategic acquisitions, new store openings, and an increase in the size of our rental fleet.
Construction segment income before income taxes for the nine months ended October 31, 2012 decreased 82.9% compared to the same period last year, primarily due to a lower gross profit margin on equipment and an increase in floorplan interest expense and other interest expense. The decrease in the gross profit margin on equipment was primarily due to competitive markets in the regions in which we operate, caused by an increase in equipment supply in the construction industry and location of our more recently acquired stores in larger metro areas. The increase in floorplan interest expense and other interest expense resulted from an increase in floorplan notes payable balances and rental fleet long-term debt, respectively, as compared to the prior year.
Shared Resources/Eliminations
We incur centralized expenses/income at our general corporate level, which we refer to as Shared Resources, and then allocate these net expenses to our segments. Since these allocations are set early in the year, unallocated balances may occur.
Eliminations remove any inter-company revenue or income before income taxes residing in our segment results.
Liquidity and Capital Resources
Cash Flow from Operating Activities
For the nine months ended October 31, 2012, cash used for operating activities was $172.7 million. Our cash used for operating activities was primarily the result of an increase in net cash for inventories of $212.9 million, a net decrease in accounts payable, customer deposits, accrued expenses and other long-term liabilities of $19.8 million and a net increase in receivables, prepaid expenses and other assets of $13.8 million. This amount was principally offset by our reported net income including noncontrolling interest of $27.1 million, an add-back of non-cash depreciation and amortization of $17.5 million and a net increase in floorplan notes payable of $18.1 million. The increase in inventories primarily reflects new equipment stocking to support forecasted equipment sales. Given the increased new equipment supply in the agriculture industry, we have adjusted our strategy for new equipment inventory and expect this strategy to result in a decrease of new equipment inventory, excluding acquisitions, during the last quarter of fiscal 2013. We evaluate our cash flow from operating activities net of all floorplan activity. Taking this adjustment into account, our non-GAAP cash flow used for operating activities was $32.9 million and $14.1 million for the nine months ended October 31, 2012 and 2011, respectively. For a reconciliation of this non-GAAP financial measure, please see the Non-GAAP Cash Flow Reconciliation below.
For the nine months ended October 31, 2011, cash used for operating activities was $176.8 million. Our cash used for operating activities was primarily the result of an increase in net cash for inventories of $232.5 million. This amount was principally offset by our reported net income including noncontrolling interest of $26.4 million, an add-back of non-cash depreciation and amortization of $10.2 million, and an increase in accounts payable, customer deposits, accrued expenses and other long-term liabilities of $14.6 million. The increase in inventories primarily reflected new equipment stocking to support forecasted equipment sales.
Cash Flow from Investing Activities
For the nine months ended October 31, 2012, cash used for investing activities was $47.9 million. Our cash used for investing activities primarily consisted of purchases of equipment dealerships (net of cash purchased) of $16.2 million, purchases of rental fleet of $15.0 million and purchases of property and equipment (excluding rental fleet) of $20.7 million.
For the nine months ended October 31, 2011, cash used for investing activities was $47.2 million. Our cash used for investing activities primarily consisted of purchases of equipment dealerships (net of cash purchased) of $38.6 million and purchases of property and equipment (excluding rental fleet) of $10.9 million.
Cash Flow from Financing Activities
For the nine months ended October 31, 2012, cash provided by financing activities was $257.3 million. Our cash provided by financing activities was primarily the result of proceeds from our Senior Convertible Notes offering of $145.2 million and an increase in non-manufacturer floorplan notes payable of $118.7 million, offset by principal payments exceeding proceeds from long-term debt by $8.9 million. We used the proceeds from our Senior Convertible Notes to reduce certain interest-bearing floorplan notes payable and long-term debt balances.
For the nine months ended October 31, 2011, cash provided by financing activities was $245.8 million. Cash provided by financing activities was primarily the result of an increase in non-manufacturer floorplan notes payable of $162.7 million, $74.9 million in net proceeds from our follow-on offering, and proceeds from long-term debt borrowings exceeding principal payments on long-term debt by $7.9 million.
Non-GAAP Cash Flow Reconciliation
We consider our cash flow from operating activities to include all equipment inventory financing activity regardless of whether we obtain the financing from a manufacturer or other source. We consider equipment inventory financing with both manufacturers and other sources to be part of the normal operations of our business and use the adjusted cash flow analysis in the evaluation of our equipment inventory and inventory flooring needs. Non-GAAP cash flow provided by (used for) operating activities is a non-GAAP financial measure which is adjusted for the following:
· Non-manufacturer floorplan notes payable: The adjustment is equal to the net change in non-manufacturer floorplan notes payable, as shown on the consolidated statements of cash flows. GAAP categorizes non-manufacturer floorplan notes payable as financing activities in the consolidated statements of cash flows.
· Impact of senior convertible notes: We issued $150.0 million of Senior Convertible Notes (the Convertible Notes) in April 2012. We used a significant amount of the proceeds from the Convertible Notes to reduce our floorplan notes payable balances, resulting in a higher level of equity in our equipment inventory than we have historically maintained. To analyze the impact of this fluctuation of equity in our equipment inventory, we use this adjustment to maintain a constant level of equipment financing. The adjustment is equal to the difference between our actual equity in inventory at the balance sheet date and our historical average level of equity in inventory of 15%. GAAP categorizes proceeds from our Convertible Notes offering as financing activities in the consolidated statements of cash flows.
We believe that the presentation of non-GAAP cash flow provided by (used for) operating activities is relevant and useful to our investors because it provides information on activities we consider normal operations of our business, regardless of financing source. The following table reconciles net cash provided by (used for) operating activities, a GAAP measure, to non-GAAP cash flow provided by (used for) operating activities and net cash provided by (used for) financing activities, a GAAP measure, to non-GAAP cash flow provided by (used for) financing activities (in thousands):
|
|
|
|
Adjustment |
|
Adjustment |
|
Non-GAAP |
|
||||
|
|
As Reported |
|
(1) |
|
(2) |
|
Measures |
|
||||
|
|
(in thousands) |
|
||||||||||
Nine months ended October 31, 2012 |
|
|
|
|
|
|
|
|
|
||||
Net cash provided by (used for) operating activities |
|
$ |
(172,673 |
) |
$ |
118,655 |
|
$ |
21,077 |
|
$ |
(32,941 |
) |
Net cash provided by (used for) financing activities |
|
257,317 |
|
(118,655 |
) |
(21,077 |
) |
117,585 |
|
||||
|
|
|
|
|
|
|
|
|
|
||||
Nine months ended October 31, 2011 |
|
|
|
|
|
|
|
|
|
||||
Net cash provided by (used for) operating activities |
|
$ |
(176,842 |
) |
$ |
162,698 |
|
$ |
|
|
$ |
(14,144 |
) |
Net cash provided by (used for) financing activities |
|
245,784 |
|
(162,698 |
) |
|
|
83,086 |
|
(1) - Net change in non-manufacturer floorplan notes payable
(2) - Impact of Convertible Notes
Non-GAAP cash flow provided by (used for) operating activities should be evaluated in addition to, and not considered a substitute for, or superior to, other GAAP measures such as net cash provided by (used for) operating activities.
Sources of Liquidity
Our primary sources of liquidity are cash reserves, cash flow from operations, proceeds from the issuance of debt and equity, and borrowings under our credit facilities. We expect that ongoing requirements for debt service and capital expenditures will be funded from these sources.
Adequacy of Capital Resources
Our primary uses of cash have been to fund our strategic acquisitions, finance the purchase of inventory, meet debt service requirements and fund operating activities, working capital, payments due under building space operating leases and manufacturer floorplan notes payable. Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowings under our existing credit facilities will adequately provide our liquidity needs for, at a minimum, the next 12 months.
Certain Information Concerning Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance, special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships. In the normal course of our business activities, we lease rental equipment and buildings under operating leases.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Such forward-looking information is included in this Quarterly Report on Form 10-Q, including in Managements Discussion And Analysis Of Financial Condition And Results Of Operations, as well as in our Annual Report on Form 10-K for the year ended January 31, 2012, and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company).
Forward-looking statements include all statements based on future expectations and specifically include, among other things, all statements relating to our expectations regarding the benefits of certain acquisitions, our expectations regarding the closing of certain acquisitions, equipment inventory expectations, evaluation of the operating effectiveness of key internal controls, obligations under our Senior Convertible Notes and our primary liquidity sources and adequacy of our capital resources. Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements. The words potential, believe, estimate, expect, intend, may, could, will, plan, anticipate, and similar words and expressions are intended to identify forward-looking statements. Such statements are based upon the current beliefs and expectations of our management. Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the
future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company. These risks and uncertainties include, but are not limited to, adverse market conditions in the agricultural and construction equipment industries, the continuation of unfavorable conditions in the credit markets and those matters identified and discussed in our Annual Report on Form 10-K under the section titled Risk Factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices such as interest rates. 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 value but do impact future earnings and cash flows, assuming other factors are held constant. We have both fixed and floating-rate financing.
Based upon balances and interest rates as of October 31, 2012, 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 $4.5 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 $4.5 million. At October 31, 2012, we had variable rate floorplan notes payable of $782.4 million, of which approximately $419.8 million was interest-bearing, variable notes payable and long-term debt of $26.0 million, and fixed rate notes payable and long-term debt of $53.5 million.
Our policy is not to enter into derivatives or other financial instruments for trading or speculative purposes.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures . After evaluating the effectiveness of the Companys disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (the Exchange Act) as of the end of the period covered by this Quarterly Report, the Companys Chief Executive Officer and Chief Financial Officer, with the participation of the Companys management, have concluded that the Companys disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are effective.
(b) Changes in internal controls . There has not been any change in the Companys internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during its most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Companys internal control over financial reporting.
We are currently not a party to any material pending legal proceedings.
In addition to the other information set forth in this report, including the important information in Private Securities Litigation Reform Act, you should carefully consider the Risk Factors discussed in our Form 10-K for the year ended January 31, 2012 and Form 10-Q for the quarter ended April 30, 2012 as filed with the Securities and Exchange Commission. Those factors, if they were to occur, could cause our actual results to differ materially from those expressed in our forward-looking statements in this report, and materially adversely affect our financial condition or future results. Although we are not aware of any other factors, aside from the below and those discussed in our Form 10-K, that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Companys financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.
Our international operations expose us to risks regarding fluctuations in foreign currency exchange rates and our related hedging activities cannot eliminate all risk to which we are exposed.
The functional currency for most of our international subsidiaries is the applicable local currency. When the U.S. dollar strengthens or weakens against a foreign currency, the relative value of revenue recognized and the operating results of our international subsidiaries decreases or increases, respectively. As a result, fluctuations in foreign currency exchange rates, which we cannot predict, may adversely affect the results of our operations, the value of our foreign assets and liabilities and our cash flows.
To protect the value of the our investments in our foreign operations against adverse changes in foreign currency exchange rates, we may, from time to time, hedge a portion of our net investment in one or more of our foreign subsidiaries through the use of derivative instruments. In addition, we may use derivative instruments to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. However, our hedging activities may not fully eliminate all foreign currency risk to which we are exposed.
The use of derivative instruments exposes us to counterparty credit risk whereby our results of operations and cash flows may be negatively impacted if the counterparties to our derivative instruments are not able to satisfy their obligations to us.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
On November 20, 2012, we entered into a letter agreement amendment to our Amended and Restated Wholesale Floorplan Credit Facility and Security Agreement, dated November 13, 2007, as amended, with CNH Capital America LLC. The amendment, dated effective October 31, 2012, increases our wholesale floorplan credit limit by $100.0 million, from $350.0 million to $450.0 million. There were no other changes to the credit facility.
Effective December 4, 2012, the Company entered into a first amendment to its amended and restated credit agreement, dated March 30, 2012, by and among the Company, Wells Fargo Bank, National Association, and the Lenders party thereto. The amendment increased the floorplan line of credit under the agreement from $300.0 million to $375.0 million, amended the interest rate on outstanding balances from LIBOR plus an applicable margin of 1.5% to 2.0% to LIBOR plus an applicable margin of 1.5% to 2.625%, and changed certain financial covenants. The remainder of the agreement remained materially unchanged.
Exhibits - See Exhibit Index on page following signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: December 6, 2012
|
TITAN MACHINERY INC. |
|
|
|
|
|
|
|
|
By |
/s/ Mark P. Kalvoda |
|
|
Mark P. Kalvoda |
|
|
Chief Financial Officer |
|
|
(Principal Financial Officer) |
TITAN MACHINERY INC.
FORM 10-Q
Exhibit No. |
|
Description |
|
|
|
*10.1 |
|
Letter Agreement Amendment, dated November 20, 2012, to Amended and Restated Wholesale Floorplan Credit Facility and Security Agreement with CNH Capital America LLC. |
|
|
|
*10.2 |
|
First Amendment to Amended and Restated Credit Agreement, dated as of December 4, 2012, by and among the Company, Wells Fargo Bank, National Association, and the Lenders party thereto. |
|
|
|
*31.1 |
|
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
*31.2 |
|
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
|
|
*32.1 |
|
Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
*32.2 |
|
Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
|
|
**101 |
|
Financial statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended October 31, 2012, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statement of Stockholders Equity, (iv) the Consolidated Statements of Cash Flows, and (v) the Notes to the Consolidated Financial Statements. |
*Filed herewith
** Furnished herewith
Exhibit 10.1
November 20, 2012
Titan Machinery, Inc.
644 E. Beaton Dr.
West Fargo, ND 58078
Attn: Ted O. Christianson,
Vice President, Finance
via electronic mail
Re: Wholesale Floor Plan Credit Facility
Dear Mr. Christianson:
Titan Machinery, Inc. (Titan) and CNH Capital America LLC (CNH) are parties to an Amended and Restated Wholesale Floor Plan Credit Facility and Security Agreement dated November 13, 2007, as amended from time to time, most recently amended in a letter dated October 27, 2011 ( the Agreement). This letter will confirm that, effective October 31, 2012, the current total wholesale floor plan credit limit for Titan Machinery is $450,000,000.00.
Very truly yours,
CNH Capital America LLC
/s/ Nicholas Mast |
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Nicholas Mast, Director Strategic Accounts |
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Titan Machinery, Inc. agrees to the above described amendment to the Amended and Restated Wholesale Floor Plan Credit Facility and Security Agreement dated November 13, 2007, as amended.
Titan Machinery, Inc. |
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/s/ Ted O. Christianson |
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Ted O. Christianson, VP Finance and Treasurer |
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Exhibit 10.2
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
dated as of December 4, 2012
among
TITAN MACHINERY INC.
a Delaware corporation
,
as Borrower,
THE FINANCIAL INSTITUTIONS PARTY HERETO,
as Lenders,
and
WELLS FARGO BANK, NATIONAL ASSOCIATION ,
as Administrative Agent,
Swing Line Lender and L/C Issuer
BANK OF AMERICA, N.A.
as Syndication Agent
COBANK, ACB
as Documentation Agent
WELLS FARGO SECURITIES, LLC
Sole Lead Arranger and Sole Book Runner
REVISED SCHEDULES
1.01-A |
Applicable Rates |
2.01 |
Lenders; Commitments; Percentage Shares |
FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
This FIRST AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT ( First Amendment ), dated as of December 4, 2012 ( First Amendment Effective Date ), is among TITAN MACHINERY INC. , a Delaware corporation ( Borrower ), the several financial institutions party to this First Amendment as Lenders, and WELLS FARGO BANK, NATIONAL ASSOCIATION , a national banking association, as Administrative Agent, Swing Line Lender and L/C Issuer. Capitalized terms not otherwise defined herein shall have the meaning assigned to them in the Credit Agreement (as hereinafter defined).
RECITALS
WHEREAS Borrower, Administrative Agent, Lenders, Swing Line Lender, and L/C Issuer are parties to that certain Amended and Restated Credit Agreement dated March 30, 2012 (as amended from time to time, the Credit Agreement ) and, as applicable, the other Loan Documents, pursuant to which Lenders have made available to Borrower certain extensions of credit referenced therein on the terms and conditions contained therein; and
WHEREAS Borrower has requested that Administrative Agent and Lenders (a) increase the Aggregate Floorplan Commitments by $75,000,000.00, (b) modify certain financial covenants, and (c) further modify the Credit Agreement on the terms and conditions contained herein; and
WHEREAS the Administrative Agent and Lenders have agreed to modify the Credit Agreement on the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties agree as follows:
AGREEMENT
ARTICLE I MODIFICATIONS & CONSENTS
SECTION 1.1 MODIFICATIONS TO CREDIT AGREEMENT
As of the First Amendment Effective Date, except for Section 1.1.4., the following sections of the Credit Agreement are hereby modified as follows:
1.1.1 The definition of Floorplan Borrowing Base in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and the following is substituted therefor:
Floorplan Borrowing Base means as of any date of calculation, an amount, as set forth on the most current Borrowing Base Certificate delivered to the Administrative Agent, equal to the sum of:
(a) 90% of the net book value of Eligible New Equipment Inventory held by Borrower one year or less; plus
(b) 80% of the net book value of Eligible New Equipment Inventory held by Borrower more than one year but less than or equal to two years; plus
(c) 70% of the net book value of Eligible New Equipment Inventory held by Borrower more than two years but less than or equal to three years; plus
(d) 85% of the net book value of Eligible Used Equipment Inventory held by Borrower one year or less; plus
(e) 75% of the net book value of Eligible Used Equipment Inventory held by Borrower more than one year but less than or equal to two years; plus
(f) 65% of the net book value of Eligible Used Equipment Inventory held by Borrower more than two years but less than or equal to three years; minus
(g) the Floorplan Borrowing Base Reserve.
The Borrower, Administrative Agent and the Lenders acknowledge and agree that (i) the advance rates set forth in this definition are solely to establish the parameters for Availability, and (ii) this definition does not constitute nor shall it be deemed to constitute an express or implied representation or determination by Lenders that the recovery in a forced liquidation scenario would be equal to the advance rates established herein.
1.1.2 The definition of Floorplan L/C Sublimit in Section 1.01 of the Credit Agreement is hereby deleted in its entirety and the following is substituted therefor:
Floorplan L/C Sublimit means an amount equal to $30,000,000.00. The Floorplan L/C Sublimit is part of, and not in addition to, the Aggregate Floorplan Commitments.
1.1.3 Section 2.14(a) of the Credit Agreement is hereby deleted in its entirety and the following is substituted therefor:
(a) Increase in Aggregate Commitments Generally. So long as no Default has occurred and is continuing or would result therefrom and the Aggregate Commitments have not been voluntarily reduced, upon notice to Administrative Agent, at any time after December 15, 2012 but prior to the Working Capital Maturity Date, Borrower may request one or more Additional Working Capital Commitments or one or more Additional Floorplan Commitments; provided that: (i) after giving effect to any such addition, the maximum aggregate amount of Additional Working Capital Commitments and Additional Floorplan Commitments that have been added pursuant to this Section 2.14 from and after December 15, 2012 shall not exceed $50,000,000; (ii) any such addition shall be in an aggregate amount of $15,000,000.00 or any whole multiple of $1,000,000.00 in excess thereof ( provided that such amount may be less than $15,000,000.00 if such amount represents all remaining availability under the aggregate limit in
respect of Additional Working Capital Commitments and Additional Floorplan Commitments set forth in clause (i) of this proviso); (iii) Borrower may request a maximum total of three (3) increases under this section and (iv) no Lender shall be required to participate in the Additional Working Capital Commitments or Additional Floorplan Commitments.
1.1.4 Effective as of October 31, 2012, 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 beginning with the Fiscal Period ending October 31, 2012 through the Fiscal Period ending January 31, 2014, a Consolidated Net Leverage Ratio not greater than 3.50 : 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 3.00 : 1.00.
1.1.5 Schedules 1.01-A and 2.01 to the Credit Agreement are hereby deleted in their entirety and replaced with the corresponding Schedules attached to this First Amendment.
SECTION 1.2 INCREASED COMMITMENTS; ADDITIONAL LENDER
1.2.1 On the First Amendment Effective Date, the Aggregate Floorplan Commitments are increased to $375,000,000.00.
1.2.2 On and after the First Amendment Effective Date, BMO Harris Bank N.A. shall be a Lender with a Floorplan Commitment, corresponding Floorplan Percentage Share equal to that set forth on Schedule 2.01 to this First Amendment and shall have the rights, duties and obligations of such a Lender under the Credit Agreement and the other Loan Documents. The Commitments of each other Lender shall be adjusted as set forth on Schedule 2.01 to this First Amendment. BMO Harris Bank N.A. further agrees as follows:
(a) BMO Harris Bank N.A. confirms that it has received a copy of the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this First Amendment.
(b) BMO Harris Bank N.A. will, independently and without reliance upon the Administrative Agent or any other Lender and based upon such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement and the other Loan Documents.
(c) BMO Harris Bank N.A. appoints and authorizes the Administrative Agent to take such action as the Administrative Agent on its behalf and to exercise such powers under the Credit Agreement and the other Loan Documents as the Administrative Agent is authorized to exercise by the terms thereof, together with such powers as are reasonably incidental thereto, all in accordance with the Credit Agreement.
(d) BMO Harris Bank N.A. agrees that it will perform in accordance with their terms all of the obligations which by the terms of the Credit Agreement and the other Loan Documents are required to be performed by it as a Lender.
ARTICLE II COVENANTS
SECTION 2.1 EXPENSES
Borrower shall pay all reasonable expenses and costs of Administrative Agent (including, without limitation, the reasonable attorney fees and expenses of counsel for Administrative Agent) in connection with the preparation, negotiation, execution and approval of this First Amendment and any and all other documents, instruments and things contemplated hereby, whether or not such transactions are consummated, together with all other reasonable expenses and costs incurred by Administrative Agent chargeable to Borrower pursuant to the terms of the Credit Agreement which are unpaid at such time.
ARTICLE III CONDITIONS TO FIRST AMENDMENT; GENERAL PROVISIONS
SECTION 3.1 CONDITIONS PRECEDENT
3.1.1 This First Amendment and the transactions contemplated herein are expressly conditioned upon the satisfaction by Borrower of the following conditions, all in the sole but reasonable discretion of the Administrative Agent:
(a) Borrower shall have delivered to Administrative Agent the following documents and agreements, each in form and substance reasonably acceptable to Administrative Agent:
(i) a Note executed by Borrower in favor of BMO Harris Bank N.A. evidencing the Floorplan Loan; and
(ii) such certificates of resolutions or other action, incumbency certificates or other certificates of Responsible Officers of Borrower as Administrative Agent may reasonably require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with the Loan Documents to which Borrower is a party;
(b) No Material Adverse Effect shall have occurred since Closing;
(c) No Default or Event of Default shall have occurred and be continuing; and
(d) Borrower shall have paid all amounts owed to Administrative Agent and Lenders in connection with this First Amendment.
3.1.2 Without limiting the foregoing, the effectiveness of this First Amendment shall be conditioned on receipt by Administrative Agent of the consent of all Lenders.
SECTION 3.2 RATIFICATION; ESTOPPEL; REAFFIRMATION
3.2.1 Borrower hereby reaffirms and ratifies the Credit Agreement and other Loan Documents, as amended, modified and supplemented hereby.
3.2.2 Borrower hereby reaffirms to Administrative Agent and to each Lending Party that each of the representations, warranties, covenants and agreements set forth in the Credit Agreement and the other Loan Documents with the same force and effect as if each were separately stated herein and made as of the date hereof except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty shall have been true and correct on and as of such earlier date.
3.2.3 Borrower further represents and warrants that, as of the date hereof, it has no counterclaims, defenses or offsets of any nature whatsoever to the Obligations or any of the Loan Documents and that as of the date hereof no unwaived Default or Event of Default by Borrower, Administrative Agent or any Lending Party has occurred or exists under any of the Loan Documents.
3.2.4 Borrower hereby ratifies, affirms, reaffirms, acknowledges, confirms and agrees that the Credit Agreement and other Loan Documents, as amended, modified and supplemented hereby by this First Amendment, represent the valid, binding, enforceable and collectible obligations of Borrower except to the extent enforceability may be limited by bankruptcy, insolvency, or similar laws affecting the enforcement of creditors rights generally and by equitable principles.
3.2.5 Borrower hereby affirms, acknowledges and confirms that the provisions of this First Amendment shall be a part of the Credit Agreement and Loan Documents for all purposes.
3.2.6 Borrower affirms and acknowledges that the recitals to this First Amendment are true and accurate and are hereby incorporated into this First Amendment.
SECTION 3.3 RELEASE
Borrower does hereby release, remise, acquit and forever discharge Administrative Agent and Lenders and Administrative Agent and Lenders employees, agents, representatives, consultants, attorneys, fiduciaries, servants, officers, directors, partners, predecessors, successors and assigns, subsidiary corporations, parent corporation, and related corporate divisions (all of the foregoing hereinafter called the Released Parties ), from any and all action and causes of action, judgments, executions, suits, debts, claims, demands, liabilities, obligations, damages and expenses of any and every character, known or unknown, direct and/or indirect, at law or in equity, of whatsoever kind or nature, whether heretofore or hereafter arising, for or because of any matter or things done, omitted or suffered to be done by any of the Released Parties prior to and including the date of execution hereof, and in any way directly or indirectly arising out of or in any way connected to this First Amendment, the Credit Agreement and the other Loan Documents, except, in each case, to the extent of the gross negligence or willful misconduct of the Released Parties (all of the foregoing hereinafter called the Released Matters ). Borrower acknowledges that the agreements in this paragraph are intended to be in full satisfaction of all or any alleged injuries or damages arising in connection with the Released Matters. Borrower represents and warrants to Administrative Agent and the Lenders that it has not purported to
transfer, assign or otherwise convey any right, title or interest of Borrower in any Released Matter to any other Person and that the foregoing constitutes a full and complete release of all Released Matters.
SECTION 3.4 TIME OF THE ESSENCE
Time is of the essence of the First Amendment, the Credit Agreement and Loan Documents.
SECTION 3.5 GOVERNING LAW; JURISDICTION; ETC.
3.5.1 GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.
3.5.2 SUBMISSION TO JURISDICTION. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE SUPREME COURT OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY IN THE BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS FIRST AMENDMENT OR ANY OTHER LOAN DOCUMENT TO WHICH EACH IS A PARTY, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURTS OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURTS. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS FIRST AMENDMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ANY PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS FIRST AMENDMENT OR ANY OTHER LOAN DOCUMENT AGAINST ANY OTHER PARTY OR ANY OF ITS PROPERTIES IN THE COURTS OF ANY OTHER JURISDICTION.
3.5.3 WAIVER OF VENUE. EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS FIRST AMENDMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN SECTION 3.5.2. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
3.5.4 SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN S ECTION 10.02 OF THE CREDIT AGREEMENT. NOTHING IN THIS FIRST AMENDMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
SECTION 3.6 COUNTERPARTS; SEVERABILITY
3.6.1 This First Amendment may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same instrument.
3.6.2 If any term or provision of this First Amendment, or the application thereof to any person or circumstances, shall, to any extent, be invalid or unenforceable, the remainder of this First Amendment, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this First Amendment shall be valid and shall be enforced to the fullest extent permitted by law.
SECTION 3.7 WAIVER OF RIGHT TO JURY TRIAL
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY WAIVES ITS RIGHT TO A JURY TRIAL OF ANY CLAIM. EACH OF THE PARTIES HERETO REPRESENTS THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL ON SUCH MATTERS. IN THE EVENT OF LITIGATION, A COPY OF THIS FIRST AMENDMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
SECTION 3.8 FINAL EXPRESSION
THIS WRITTEN AGREEMENT IS THE FINAL EXPRESSION OF THE FIRST AMENDMENT TO THE CREDIT AGREEMENT AMONG THE PARTIES HERETO AS THE SAME EXISTS TODAY AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL AGREEMENT BETWEEN THE PARTIES HERETO.
BY SIGNING BELOW, THE PARTIES HERETO HEREBY AFFIRM THAT THERE IS NO UNWRITTEN ORAL CREDIT AGREEMENT BETWEEN THEMSELVES WITH RESPECT TO THE SUBJECT MATTER OF THIS FIRST AMENDMENT OR OF THE CREDIT AGREEMENT GENERALLY.
[SIGNATURE PAGES FOLLOW]
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be duly executed as of the date first written above.
BORROWER: |
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TITAN MACHINERY INC., |
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a Delaware corporation |
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By: |
/s/ Ted O. Christianson |
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Name: |
Ted O. Christianson |
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Title: |
Vice President of Finance, Treasurer |
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Signature Page to First Amendment to Amended and Restated Credit Agreement
ADMINISTRATIVE AGENT, L/C ISSUER AND SWING LINE LENDER: |
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WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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a national banking association, as Administrative Agent, L/C Issuer and Swing Line Lender |
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By: |
/s/ Mark T. Lundquist |
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Name: |
Mark T. Lundquist |
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Title: |
Vice President |
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WELLS FARGO BANK, NATIONAL ASSOCIATION, |
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a national banking association, as a Lender |
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By: |
/s/ Mark T. Lundquist |
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Name: |
Mark T. Lundquist |
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Title: |
Vice President |
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LENDER: |
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COBANK, ACB |
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By: |
/s/ Kathleen M. Roberts |
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Name: |
Kathleen M. Roberts |
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Title: |
Vice President |
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LENDER: |
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BANK OF AMERICA, N.A. |
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By: |
/s/ Don Stafford |
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Name: |
Don Stafford |
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Title: |
SVP |
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LENDER: |
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U.S. BANK NATIONAL ASSOCIATION |
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By: |
/s/ Magnus McDowell |
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Name: |
Magnus McDowell |
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Title: |
Vice President |
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LENDER: |
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BANK OF THE WEST |
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a California banking corporation |
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By: |
/s/ Ryan Mauser |
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Name: |
Ryan Mauser |
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Title: |
VP |
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LENDER: |
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BREMER BANK, N.A. |
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By: |
/s/ Wesley Well |
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Name: |
Wesley Well |
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Title: |
President |
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LENDER: |
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COMERICA BANK |
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By: |
/s/ Dan Walker |
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Name: |
Dan Walker |
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Title: |
Vice President |
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LENDER: |
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BMO HARRIS BANK N.A. |
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By: |
/s/ Kristin Leuer |
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Name: |
Kristin Leuer |
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Title: |
V.P. |
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SCHEDULE 1.01-A
APPLICABLE RATES
Tier |
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Consolidated Leverage Ratio |
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Applicable
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Applicable
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Applicable L/C
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I |
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Less than 1.50 to 1.00 |
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150.0 |
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50.0 |
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150.0 |
II |
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Greater than or equal to 1.50 to 1.00 but less than 2.00 to 1.00 |
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175.0 |
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75.0 |
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175.0 |
III |
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Greater than or equal to 2.00 to 1.00 but less than 2.50 to 1.00 |
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200.0 |
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100.0 |
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200.0 |
IV |
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Greater than or equal to 2.50 to 1.00 but less than 3.00 to 1.00 |
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225.0 |
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125.0 |
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225.0 |
V |
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Greater than or equal to 3.00 to 1.00 |
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262.5 |
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162.5 |
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262.5 |
SCHEDULE 2.01
LENDERS; COMMITMENTS; PERCENTAGE SHARES
FLOORPLAN LOANS
Lender |
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Commitment Amount |
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Percentage Share |
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Wells Fargo Bank, N.A. |
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$ |
117,000,000.00 |
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31.200000000 |
% |
Bank of America, N.A. |
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$ |
77,500,000.00 |
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20.666666667 |
% |
CoBank, ACB |
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$ |
54,000,000.00 |
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14.400000000 |
% |
U.S. Bank National Association |
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$ |
36,000,000.00 |
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9.600000000 |
% |
Bank of the West |
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$ |
29,000,000.00 |
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7.733333333 |
% |
Comerica Bank |
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$ |
25,000,000.00 |
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6.666666667 |
% |
Bremer Bank, N.A. |
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$ |
16,500,000.00 |
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4.400000000 |
% |
BMO Harris Bank N.A. |
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$ |
20,000,000.00 |
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5.333333333 |
% |
TOTAL |
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$ |
375,000,000.00 |
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100.000000000 |
% |
WORKING CAPITAL LOANS
Lender |
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Commitment Amount |
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Percentage Share |
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Wells Fargo Bank, N.A. |
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$ |
25,500,000.00 |
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34.000000000 |
% |
Bank of America, N.A. |
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$ |
15,000,000.00 |
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20.000000000 |
% |
CoBank, ACB |
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$ |
11,000,000.00 |
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14.666666667 |
% |
U.S. Bank National Association |
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$ |
9,000,000.00 |
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12.000000000 |
% |
Bank of the West |
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$ |
6,000,000.00 |
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8.000000000 |
% |
Comerica Bank |
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$ |
5,000,000.00 |
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6.666666667 |
% |
Bremer Bank, N.A. |
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$ |
3,500,000.00 |
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4.666666667 |
% |
TOTAL |
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$ |
75,000,000.00 |
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100.000000000 |
% |
EXHIBIT 31.1
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, David J. Meyer, certify that:
1. I have reviewed this report on Form 10-Q of Titan Machinery Inc.;
2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: December 6, 2012
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/s/ David J. Meyer |
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David J. Meyer |
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Chairman and Chief Executive Officer |
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Mark P. Kalvoda, certify that:
1. I have reviewed this report on Form 10-Q of Titan Machinery Inc.;
2 Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting.
Date: December 6, 2012 |
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/s/ Mark P. Kalvoda |
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Mark P. Kalvoda |
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Chief Financial Officer |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Titan Machinery Inc. (the Company) on Form 10-Q for the quarter ended October 31, 2012 as filed with the Securities and Exchange Commission (the Report), I, David J. Meyer, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 6, 2012
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/s/ David J. Meyer |
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David J. Meyer |
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Chairman and Chief Executive Officer |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Titan Machinery Inc. (the Company) on Form 10-Q for the quarter ended October 31, 2012 as filed with the Securities and Exchange Commission (the Report), I, Mark P. Kalvoda, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: December 6, 2012
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/s/ Mark P. Kalvoda |
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Mark P. Kalvoda |
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Chief Financial Officer |