NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Titan Machinery Inc. and its subsidiaries (collectively, the "Company") are engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe. The Company's North American stores are located in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, Serbia and Ukraine.
Seasonality
The agricultural and construction equipment businesses are highly seasonal, which causes the Company's quarterly results and cash flows to fluctuate during the year. The Company's customers generally purchase and rent equipment in preparation for, or in conjunction with, their busy seasons, which for farmers are the spring planting and fall harvesting seasons, and for Construction customers is dependent on weather seasons in their respective regions, which is typically the second and third quarters of the Company's fiscal year for much of its Construction footprint. The Company's parts and service revenues are typically highest during its customers' busy seasons as well, due to the increased use of their equipment during this time, which generates the need for more parts and service work. However, weather conditions impact the timing of our customers' busy times, which may cause the Company's quarterly financial results to differ between fiscal years. In addition, the fourth quarter typically is a significant period for equipment sales in the U.S. because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.
The Company's foreign subsidiaries have fiscal years ending on December 31 of each year, consistent with statutory reporting requirements in each of the respective countries. The accounts of the Company's foreign subsidiaries are consolidated as of December 31 of each year. No events or transactions occurred related to these subsidiaries in January 2020 that would have materially affected the consolidated financial position, results of operations or cash flows.
Reclassifications
Concurrent with the adoption of the new lease accounting standard guidance, the Company elected to reclassify finance lease liabilities in the accompanying consolidated balance sheet as of January 31, 2019 to maintain consistency and comparability between periods presented. The amounts reclassified included $1.3 million from current maturities of long-term debt to accrued expenses and other and $5.1 million from long-term debt, less current maturities to other long-term liabilities. Theses reclassifications had no impact on total current liabilities, total long-term liabilities or total liabilities and stockholders' equity within the consolidated balance sheet.
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, impairment of long-lived assets, collectability of receivables, and income taxes.
Concentrations of Credit Risk
The Company's sales are to agricultural and construction equipment customers principally in the U.S. states and European countries in which its stores are located. The Company extends credit to its customers in the ordinary course of business and monitors its customers' financial condition to minimize its risks associated with trade receivables; however, the Company does not generally require collateral on trade receivables.
The Company's cash balances are maintained in bank deposit accounts, which, at times, are in excess of federally insured limits.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Concentrations in Operations
The Company currently purchases new equipment, rental equipment and the related parts from a limited number of manufacturers. Although no change in suppliers is anticipated, the occurrence of such a change could cause a possible loss of sales and adversely affect operating results. The Company is the holder of authorized dealerships granted by CNH Industrial America, LLC and CNHI International SA (collectively referred to "CNH Industrial") whereby it has the right to act as an authorized dealer for the entity's equipment at specified locations. The dealership authorizations and floorplan payable facilities can be canceled by the respective entity if the Company does not observe certain established guidelines and covenants.
In addition, the Company believes that the following factors related to concentrations in suppliers, and in particular CNH Industrial, have a significant impact on its operating results:
•CNH Industrial's product offerings, reputation and market share
•CNH Industrial's product prices and incentive and discount programs
•Supply of inventory from CNH Industrial
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•
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CNH Industrial provides floorplan payable financing for the purchase of a substantial portion of the Company's inventory
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•
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CNH Industrial provides a significant percentage of the financing and lease financing used by the Company's customers to purchase CNH Industrial equipment from the Company
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Revenue Recognition
Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to collect in exchange for those goods or services. Shipping and handling costs are recorded as cost of revenue. Sales, value added and other taxes collected from the Company's customers concurrent with the Company's revenue activities are excluded from revenue.
Equipment Revenue. Equipment revenue transactions include the sale of new and used agricultural and construction equipment. The Company satisfies its performance obligations and recognizes revenue at a point in time, primarily upon the delivery of the product. Once a product is delivered, the customer has physical possession of the asset, can direct the use of the asset, and has the significant risks and rewards of ownership of the asset. Equipment transactions often include both cash and non-cash consideration. Cash consideration is paid directly by the Company's customers or by third-party financial institutions financing the Company's customer transactions. Non-cash consideration is in the form of trade-in equipment assets. The Company assigns a value to trade-in assets by estimating a future selling price, which the Company estimates based on relevant internal and third-party data, less a gross profit amount to be realized at the time the trade-in asset is sold and an estimate of any reconditioning work required to ready the asset for sale. Both cash and non-cash consideration may be received prior to or after the Company's performance obligation is satisfied. Any consideration received prior to the satisfaction of the Company's performance obligation is recognized as deferred revenue. Receivables recognized for amounts not paid at the time our performance obligation is satisfied, including amounts due from third-party financial institutions, generally do not have established payment terms but are collected in relatively short time periods.
For certain equipment sale transactions, the Company provides a residual value guarantee to CNH Industrial Capital in connection with a customer leasing arrangement in which the Company sells the equipment to CNH Industrial Capital, who simultaneously executes a leasing arrangement with the Company's end-user customer. The amount of revenue recognized for the sale of the equipment asset is reduced by, and the Company recognizes a corresponding liability equal to, our estimate of the amount that is probable of being paid under the guarantee discounted at a rate of interest to reflect the risk inherent in the liability.
Also included in equipment revenue are net commissions earned for serving as the agent in facilitating sales of equipment assets the Company holds as consignee on behalf of the consignor, as well as net commissions earned for facilitating the sale of extended warranty protection plans provided by the Company's suppliers or third-party insurance providers.
We have elected, as a practical expedient, to recognize sales commissions earned on the sale of equipment inventory as an expense when incurred; because the amortization period of this cost, if it was otherwise capitalized, would be less than one year. These costs are recorded in operating expenses in our consolidated statements of operations.
Parts Revenue. We sell a broad range of maintenance and replacement parts for both equipment that we sell and other types of equipment. The Company satisfies its performance obligation and recognizes revenue at a point in time, upon delivery
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
of the product to the customer. Once a product is delivered, the Company has a present right to payment, the customer has physical possession of the asset, can direct the use of the asset, and has the significant risks and rewards of ownership of the asset. In many cases, customers tender payment at the time of delivery. Balances not paid at the time of delivery are typically due in full within 30 days. Most parts are sold with a thirty-day right of return or exchange. Historically, parts returns have not been material.
Parts revenue also includes the retail value of parts inventories consumed during the course of customer repair and maintenance services and services provided under manufacturer warranties. As further described below, we recognize revenue from these activities over time.
Service Revenue. We provide repair and maintenance services, including repairs performed under manufacturer warranties, for our customer’s equipment. We recognize service and associated parts revenue of our repair and maintenance services over time as we transfer control of these goods and services over time. The Company recognizes revenue over time in the amount to which we have the right to invoice the customer, as such an amount corresponds to the value of our performance completed to date. Generally, the Company has the right to invoice the customer for labor hours incurred and parts inventories consumed during the performance of the service arrangement. Customer invoicing most often occurs at the conclusion of our repair and maintenance services. Accordingly, we recognize unbilled receivables for the amount of unbilled labor hours incurred and parts inventories consumed under our repair and maintenance arrangements. Upon customer invoicing, unbilled receivables are reclassified to receivables. In many cases, customers tender payment at the completion of our work and the creation of the invoice. Balances not paid at the time of invoicing are typically due in full within 30 days.
Other Revenue. Other revenues primarily consist of fees charged in connection with short-haul equipment delivery and pick-up services, in which revenue is recognized at a point in time when the service is completed, and Global Positioning System ("GPS") signal subscriptions, in which revenue is recognized on a straight-line basis over the subscription period.
Rental Revenue. We rent equipment to our customers on a short-term basis for periods ranging from a few days to a few months. Rental revenue is recognized on a straight-line basis over the period of the related rental agreement. Revenue from rental equipment delivery and pick-up services is recognized when the service is performed.
Manufacturer Incentives and Discounts
The Company receives various manufacturer incentives and discounts, which are based on a variety of factors. Discounts and incentives related to the purchase of inventory are recognized as a reduction of inventory prices and recognized as a reduction of cost of revenue when the related inventory is sold. Other incentives, reflecting reimbursement of qualifying expenses, are recognized as a reduction of the related expense when earned.
Receivables and Credit Policy
Trade accounts receivable due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 to 90 days from the invoice date. Balances unpaid after the due date based on trade terms are considered past due and begin to accrue interest. Payments of trade receivables are allocated to the specific invoices identified on the customer's remittance advice or, if unspecified, are applied to the earliest unpaid invoices. Trade accounts receivable due from manufacturers relate to discount programs and incentive programs. Trade accounts receivable due from finance companies primarily consist of contracts in transit with finance companies and balances due from credit card companies. These receivables do not generally have established payment terms but are collected in relatively short time periods. Unbilled receivables represent unbilled labor hours incurred and parts inventories consumed during the performance of service arrangements for our customers at their retail rates.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management's best estimate of the amounts that will not be collected. Management reviews aged receivable balances and estimates the portion, if any, of the balance that will not be collected. Account balances are charged off after all appropriate means of collection have been exhausted and the potential for recovery is considered remote.
Inventories
New and used equipment are stated at the lower of cost (specific identification) or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. All new and used equipment inventories, including that which has been rented, are subject to periodic lower of cost or net realizable value evaluation that considers various factors including aging of equipment and market conditions. Equipment inventory values are adjusted whenever the carrying amount exceeds the net realizable value. Parts inventories are
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
valued at the lower of average cost or net realizable value. The Company estimates its lower of cost or net realizable value adjustments on its parts inventories based on various factors including aging and sales of each type of parts inventory. Work in process represents costs incurred in the reconditioning and preparation for sale of our equipment inventories.
Property and Equipment
Property and equipment is carried at cost less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful life of each asset, as summarized below:
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Buildings and leasehold improvements
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Lesser of 10 - 40 years or lease term
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Machinery and equipment
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3 - 10 years
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Furniture and fixtures
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3 - 10 years
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Vehicles
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5 - 10 years
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Rental fleet
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3 - 10 years
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Depreciation for income tax reporting purposes is computed using accelerated methods.
Goodwill
Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over the acquisition-date amounts recognized for the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. Impairment testing is performed at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component. After implementing new authoritative guidance regarding goodwill impairment on February 1, 2018, the goodwill impairment analysis is a single-step quantitative assessment that identifies both the existence of impairment and the amount of impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit. The Company performs its annual goodwill impairment test as of December 31st of each year and has identified two reporting units that carry a goodwill balance.
Intangible Assets
Intangible assets with a finite life consist of customer relationships and covenants not to compete, and are carried at cost less accumulated amortization. The Company amortizes the cost of identified intangible assets on a straight-line basis over the expected period of benefit, which is generally three years for customer relationships and the contractual term for covenants not to compete, which range from five to ten years.
Intangible assets with an indefinite life consist of distribution rights with manufacturers. Distribution rights are classified as an indefinite-lived intangible asset because the Company's distribution agreements continue indefinitely by their terms, or are routinely awarded or renewed without substantial cost or material modifications to the underlying agreements. Accordingly, the Company believes that its distribution rights intangible assets will contribute to its cash flows for an indefinite period, therefore the carrying amount of distribution rights is not amortized, but is tested for impairment annually, or more frequently upon the occurrence of certain events or when circumstances indicate that impairment may be present. The impairment test is a single-step assessment that identifies both the existence of impairment and the amount of impairment loss by comparing the estimated fair value of the asset to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss. The Company performs its annual impairment test as of December 31st of each year.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Impairment of Long-Lived Assets
The Company's long-lived assets consist of its intangible assets and property and equipment. These assets are reviewed for potential impairment when events or circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by comparing the estimated future undiscounted cash flows of such assets to their carrying values. If the estimated undiscounted cash flows exceed the carrying value, the carrying value is considered recoverable and no impairment recognition is required. However, if the sum of the undiscounted cash flows is less than the carrying value of the asset, the second step of the impairment analysis must be performed to measure the amount of impairment, if any. The second step of the impairment analysis compares the estimated fair value of the long-lived asset to its carrying value and any amount by which the carrying value exceeds the fair value is recognized as an impairment charge.
When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Long-lived assets deployed and used by individual store locations are reviewed for impairment at the individual store level. Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate.
During the year ended January 31, 2020, the Company determined that certain events or circumstances, including a current period operating loss combined with historical losses and anticipated future operating losses, within certain of its stores was an indication that the long-lived assets of these stores may not be recoverable. The aggregate carrying value of such assets totaled $9.4 million. In light of these circumstances, the Company performed step one of the long-lived asset impairment analysis for these assets and concluded that the carrying value was not recoverable. Accordingly, the Company performed step two of the impairment analysis and estimated the fair value of the assets using an income approach. The Company recognized total impairment charges of $3.1 million, of which $2.3 million related to the Agriculture segment and $0.8 million related to the Construction segment. All impairment charges recognized are included in the Impairment of Long-Lived Assets amount in the consolidated statements of operations.
We performed similar impairment analyses at the end of fiscal 2019 and 2018. The Company recognized impairment charges totaling $2.2 million on long-lived assets during the year ended January 31, 2019, of which $0.9 million related to the Agriculture segment, $1.1 million related to the Construction segment, and $0.2 million related to the International segment. The Company recognized impairment charges totaling $0.7 million on long-lived assets during the year ended January 31, 2018, of which $0.2 million related to the Agriculture segment and $0.5 million related to the Construction segment.
Construction of Leased Assets and Sale-Leaseback Accounting
The Company from time to time performs construction projects on its store locations, which are recorded as property and equipment in the consolidated balance sheet during the construction period. Upon completion, these assets are either placed in service, at which point the depreciation of the asset commences, or are part of a sale-leaseback transaction with a third-party buyer/lessor. In certain other situations the Company enters into build-to-suit construction projects with third-party lessors. Under the applicable lease accounting rules, certain forms of lessee involvement in the construction of the leased asset deem the Company to be the owner of the leased asset during the construction period and requires capitalization of the lessor's total project costs on the consolidated balance sheet with the recognition of a corresponding financing obligation. Upon completion of a project for which the constructed assets are sold to a buyer/lessor or the completion of a capitalized build-to suit construction project, the Company performs a sale-leaseback analysis to determine if the asset and related financing obligation can be derecognized from the consolidated balance sheet. Certain provisions in a number of our lease agreements, primarily provisions regarding repurchase options, are deemed to be continuing involvement in the sold asset which precludes sale recognition. In such cases, the asset remains on the consolidated balance sheet under property and equipment and the proceeds received in the sale-leaseback transaction are recognized as a financing obligation under long-term debt in the consolidated balance sheet. Both the asset and the financing obligation are amortized over the lease term. In instances in which the Company has no continuing involvement in the sold asset, the criteria for sale recognition are met and the asset and any related financing obligation are derecognized from the consolidated balance sheet, and the lease is analyzed for proper accounting treatment as either an operating or finance lease.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Exit and Disposal Costs
Costs related to exit or disposal activities, including store closures, for the Company primarily include lease termination costs, employee termination benefits and other costs associated with moving assets and vacating the stores. The Company records a liability at the net present value of the remaining lease obligations, net of estimated sublease income, as of the date the Company ceases using the property, including removal of any Company assets. Any subsequent adjustments to that liability as a result of changes in estimates are recorded in the period incurred. The Company records a liability for employee termination costs on the date when management, with appropriate approval, has a formal plan, the plan identifies the number of employees by function with the expected date of termination, benefits for the employees have been identified, the plan is unlikely to be changed and the termination benefits have been communicated to the employees. Other related costs are expensed as incurred.
Derivative Instruments
In the normal course of business, the Company is subject to risk from adverse fluctuations in foreign currency exchange rates and benchmark interest rates. The Company may manage its market risk exposures through a program that includes the use of derivative instruments, primarily foreign exchange forward contracts and interest rate derivatives. The Company's objective in managing its exposure to market 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 (loss), a component of stockholders' equity. Amounts accumulated in other comprehensive income (loss) 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. The cash flows related to derivative instruments that are accounted for as cash flow hedges are classified in the same category on the consolidated statements of cash flow as the cash flows from the items being hedged.
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 instrument's effectiveness in reducing or eliminating the underlying hedged exposure. Any hedge ineffectiveness is recognized in earnings immediately.
Income Taxes
The Company uses the asset and liability method to account for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that a portion or all of the deferred tax assets will not be realized. Changes in valuation allowances are included in its provision for income taxes in the period of the change. Deferred tax assets and liabilities are netted by taxing jurisdiction and presented as either a net asset or liability position, as applicable, on the consolidated balance sheets.
The Company recognizes the financial statement benefit of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that has a greater than 50% likelihood of being realized. Changes in the recognition or measurement of such positions are reflected in its provision for income taxes in the period of the change. The Company's policy is to recognize interest and penalties related to income tax matters within its provision for income taxes.
Advertising Costs
Costs incurred for producing and distributing advertising are expensed as incurred. Advertising expense amounted to $2.2 million, $2.1 million and $2.2 million for the years ended January 31, 2020, 2019 and 2018.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Stock-Based Compensation
The Company accounts for stock-based compensation at the fair value of the related equity instrument over the applicable service or performance period.
Comprehensive Income and Foreign Currency Matters
For the Company, comprehensive income (loss) represents net income adjusted for foreign currency translation adjustments and unrealized gains or losses on cash flow hedging derivative instruments. For its foreign subsidiaries in which their local currency is their functional currency, assets and liabilities are translated into U.S. dollars at the balance sheet date exchange rate. Income and expenses are translated at average exchange rates for the year. Foreign currency translation adjustments are recorded directly as other comprehensive income (loss), a component of stockholders' equity. For its foreign subsidiaries in which the local currency is not the functional currency, prior to translation into U.S. dollars, amounts must first be remeasured from the local currency into the functional currency. Nonmonetary assets and liabilities are remeasured at historical exchange rates and monetary assets and liabilities are remeasured at the balance sheet date exchange rate. Income and expenses are remeasured at average exchange rates for the year. Foreign currency remeasurement adjustments are included in the statement of operations.
The Company recognized, in interest income and other income (expense) in its consolidated statements of operations, a net foreign currency transaction gain of $0.4 million and $1.2 million for the years ended January 31, 2020 and 2018, respectively, and a net foreign currency transaction loss of $0.9 million for the year ended January 31, 2019.
Business Combinations
The Company accounts for business combinations by allocating the purchase price amongst the assets acquired, including identifiable intangible assets, and liabilities assumed based on the fair values of the acquired assets and assumed liabilities. The acquisition accounting is finalized during the measurement period, which may not exceed one year from the date of acquisition. During the measurement period the Company's accounting for the business combination transaction may be based on estimates due to various unknown factors present at the date of acquisition.
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.
Segment Reporting
The Company operates its business in three reportable segments, the Agriculture, Construction and International segments.
Recent Accounting Guidance
Accounting guidance adopted
In March 2016, the FASB amended authoritative guidance on stock-based compensation through the issuance of ASU 2016-09 which is codified in ASC 718, Compensation - Stock Compensation. The amended guidance changes the accounting for certain aspects of share-based payments, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statements of cash flows. The Company adopted this guidance on February
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1, 2017. Under the new guidance, the Company elected to account for forfeitures of share based instruments as they occur, as compared to the previous guidance under which the Company estimated the number of forfeitures. The Company applied the accounting change on a modified retrospective basis as a cumulative-effect adjustment to retained earnings as of February 1, 2017. The following table summarizes the impact to the Company’s consolidated balance sheet:
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As of February 1, 2017
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Balance Sheet Classification
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Additional paid-in capital
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Deferred income tax liability
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Retained earnings
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(in thousands)
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|
|
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Increase (Decrease)
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Impact of cumulative-effect adjustment from adoption of ASU 2016-09
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$
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2,087
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|
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$
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(835
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)
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|
$
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(1,252
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)
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In February 2016, the Financial Accounting Standards Board ("FASB") issued a new leasing standard applicable for lessees and lessors and codified in Accounting Standards Codification 842, Leases, ("ASC 842") to increase transparency and comparability among organizations. Most prominent among the changes in the standard is the recognition on the balance sheet by a lessee of right-of-use assets and lease liabilities for most leases. The standard also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from lease activities. This guidance was effective for reporting periods beginning after December 15, 2018.
The Company adopted the leasing guidance on February 1, 2019 using a prospective transition method at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings as a result of adoption. Under this method of adoption, prior period amounts are not adjusted and will continue to be reported under accounting standards in effect for those periods. The Company elected the package of practical expedients afforded under the guidance, which applies to leases that commenced prior to adoption and permits an entity not to: 1) reassess whether existing or expired contracts are or contain a lease, 2) reassess the lease classification, and 3) reassess any initial direct costs for any existing leases. The Company did not elect the use of the hindsight practical expedient to determine the lease term, but rather included the lease term as defined under former leasing guidance to capitalize the right-of-use asset and lease liability upon adoption. The Company identified new, and updated existing, internal controls and processes to ensure compliance with the new standard, but such modifications were not deemed to be material to our overall system of internal controls.
Adoption of the new standard for leasing transactions in which the Company is the lessee had a material impact on our consolidated balance sheet but did not have an impact on our consolidated statement of operations or cash flows. The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while the accounting for financing leases remained substantially unchanged. We recognized a cumulative-effect adjustment to retained earnings as of February 1, 2019 of $5.5 million primarily resulting from impairment of operating lease right-of-use assets present on the date of adoption, net of the deferred tax impact. The adoption of the new standard for leasing transactions in which the Company is the lessor did not impact our consolidated balance sheet, statement of operations or cash flows. The Company has included the additional disclosures required under ASC 842 in Note 16.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Adoption of ASC 842 impacted our consolidated balance sheet as of February 1, 2019 as follows:
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As Previously
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Adoption Impact
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As
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Reported
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of ASC 842
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Adjusted
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(in thousands)
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Increase/(Decrease)
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Assets
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Operating lease assets
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$
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—
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$
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100,469
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(a)
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$
|
100,469
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Liabilities and Stockholders' Equity
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Current maturities of long-term debt
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3,340
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|
(1,273
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)
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(b)
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2,067
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Current operating lease liabilities
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—
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12,266
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|
(c)
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12,266
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Accrued expenses and other
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35,091
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972
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|
(d)
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36,063
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Long-term debt, less current maturities
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25,812
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(5,136
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)
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(b)
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20,676
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Operating lease liabilities
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|
—
|
|
|
98,250
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|
(c)
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|
98,250
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|
Deferred income taxes
|
|
4,955
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|
|
(374
|
)
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(e)
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|
4,581
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|
|
Other long-term liabilities
|
|
5,908
|
|
|
1,228
|
|
(f)
|
|
7,136
|
|
|
Retained earnings
|
|
89,228
|
|
|
(5,464
|
)
|
(g)
|
|
83,764
|
|
(a) Capitalization of operating lease assets, net of straight-line rent accrued liabilities, cease-use liabilities, and right-of-use asset impairment present on the date of adoption.
(b) As described above under Reclassifications, concurrent with the adoption of ASC 842, the Company elected to reclassify current maturities of finance lease liabilities from Current maturities of long-term debt to Accrued expenses and other and the long-term portion of finance lease liabilities from Long-term debt, less current maturities to Other long-term liabilities in the accompanying consolidated balance sheet as of January 31, 2019 to maintain consistency and comparability between periods presented.
(c) Recognition of operating lease liabilities.
(d) As described in (b) above, includes the reclassification of current maturities of finance lease liabilities, net of the reclassification of the current portion of cease-use liabilities to Operating lease assets as part of the adoption of ASC 842.
(e) Deferred tax impact of adoption, primarily resulting from operating lease right-of-use asset impairment recognized upon adoption, net of the valuation allowance recognized for such deferred tax assets.
(f) As described in (b) above, includes the reclassification of finance lease liabilities, net of the ASC 842 adoption impact of reclassifying straight-line rent accrued liabilities and cease-use liabilities, and the cumulative-effect adjustment recognized in retained earnings for gains deferred on previous sale-leaseback transactions.
(g) Cumulative-effect adjustment of $6.6 million for operating lease right-of-use asset impairment present on the date of adoption net of the adjustment for deferred gains on previous sale-leaseback transactions of $0.7 million and the deferred tax impact of these adjustments, net of the valuation allowance recognized on such deferred tax assets.
Accounting guidance not yet adopted
In June 2016, the FASB issued a new standard, codified in ASC 326, that modifies how entities measure credit losses on most financial instruments. The new standard replaces the current "incurred loss" model with an "expected credit loss" model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset. The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard. We adopted this standard on February 1, 2020. While we are currently finalizing our evaluation of the impact to our consolidated financial statements of adopting this guidance, we do not anticipate that the guidance will materially impact our consolidated financial statements.
In February 2018, the FASB issued guidance on the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, codified in ASC 350-40. This guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and may be applied using either a retrospective or prospective transition approach. We adopted this standard on February 1, 2020 and anticipate applying the prospective transition approach.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
While we are currently finalizing our evaluation of the impact of adopting this guidance, we anticipate that it will prospectively impact our consolidated financial statements as we expect to incur approximately $2.8 million of costs in fiscal 2021 related to our ERP conversion which will be capitalized, but would have been expensed as incurred under previous accounting guidance.
NOTE 2 - EARNINGS PER SHARE
Earnings (Loss) Per Share ("EPS")
The Company uses the two-class method to calculate basic and diluted EPS. 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, earnings of the Company are allocated between common stockholders and these participating securities based on the weighted-average number of shares of common stock and participating securities outstanding during the relevant period.
Basic EPS is computed by dividing net income (loss) attributable to Titan Machinery Inc. common stockholders by the weighted-average number of shares of common stock outstanding during the relevant period. Diluted EPS is computed by dividing net income (loss) attributable to Titan Machinery Inc. common stockholders by the weighted-average number of 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 EPS for years with net income. All anti-dilutive securities were excluded from the computation of diluted EPS.
The following table sets forth the calculation of basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands, except per share data)
|
|
Numerator
|
|
|
|
|
|
|
Net income (loss)
|
$
|
13,953
|
|
|
$
|
12,182
|
|
|
$
|
(7,049
|
)
|
|
Allocation to participating securities
|
(221
|
)
|
|
(202
|
)
|
|
141
|
|
|
Net income (loss) attributable to Titan Machinery Inc. common stockholders
|
$
|
13,732
|
|
|
$
|
11,980
|
|
|
$
|
(6,908
|
)
|
|
Denominator
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding
|
21,946
|
|
|
21,809
|
|
|
21,543
|
|
|
Plus: incremental shares from assumed vesting of restricted stock units
|
7
|
|
|
7
|
|
|
—
|
|
|
Diluted weighted-average common shares outstanding
|
21,953
|
|
|
21,816
|
|
|
21,543
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) per Share:
|
|
|
|
|
|
|
Basic
|
$
|
0.63
|
|
|
$
|
0.55
|
|
|
$
|
(0.32
|
)
|
|
Diluted
|
$
|
0.63
|
|
|
$
|
0.55
|
|
|
$
|
(0.32
|
)
|
|
|
|
|
|
|
|
|
Anti-dilutive shares excluded from diluted weighted-average common shares outstanding:
|
|
|
|
|
|
|
Stock options and restricted stock units
|
—
|
|
|
—
|
|
|
95
|
|
|
Shares underlying senior convertible notes (conversion price of $43.17)
|
—
|
|
|
1,057
|
|
|
1,521
|
|
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3 - REVENUE
The following tables present our revenue disaggregated by revenue source and segment for the years ended January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2020
|
|
|
Agriculture
|
|
Construction
|
|
International
|
|
Total
|
|
|
(in thousands)
|
|
Equipment
|
$
|
535,792
|
|
|
$
|
194,675
|
|
|
$
|
186,735
|
|
|
$
|
917,202
|
|
|
Parts
|
141,093
|
|
|
52,160
|
|
|
40,964
|
|
|
234,217
|
|
|
Service
|
66,158
|
|
|
26,189
|
|
|
6,818
|
|
|
99,165
|
|
|
Other
|
2,989
|
|
|
2,895
|
|
|
264
|
|
|
6,148
|
|
|
Revenue from contracts with customers
|
746,032
|
|
|
275,919
|
|
|
234,781
|
|
|
1,256,732
|
|
|
Rental
|
3,010
|
|
|
44,115
|
|
|
1,314
|
|
|
48,439
|
|
|
Total revenues
|
$
|
749,042
|
|
|
$
|
320,034
|
|
|
$
|
236,095
|
|
|
$
|
1,305,171
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2019
|
|
|
Agriculture
|
|
Construction
|
|
International
|
|
Total
|
|
|
(in thousands)
|
|
Equipment
|
$
|
535,034
|
|
|
$
|
185,163
|
|
|
$
|
188,981
|
|
|
$
|
909,178
|
|
|
Parts
|
127,741
|
|
|
47,404
|
|
|
35,651
|
|
|
210,796
|
|
|
Service
|
58,823
|
|
|
23,267
|
|
|
4,750
|
|
|
86,840
|
|
|
Other
|
2,690
|
|
|
3,896
|
|
|
179
|
|
|
6,765
|
|
|
Revenue from contracts with customers
|
724,288
|
|
|
259,730
|
|
|
229,561
|
|
|
1,213,579
|
|
|
Rental
|
2,505
|
|
|
42,259
|
|
|
3,162
|
|
|
47,926
|
|
|
Total revenues
|
$
|
726,793
|
|
|
$
|
301,989
|
|
|
$
|
232,723
|
|
|
$
|
1,261,505
|
|
Deferred revenue from contracts with customers totaled $39.5 million and $44.9 million as of January 31, 2020 and January 31, 2019. Our deferred revenue most often increases in the fourth quarter of each fiscal year, due to a higher level of customer down payments or prepayments. In the fourth quarter of the fiscal year, longer time periods between customer payments and delivery of the equipment occur. The decrease in deferred revenue from January 31, 2019 to January 31, 2020 was primarily due to lower new equipment sales activity during the fourth quarter of fiscal 2020. During the year ended January 31, 2020, the Company recognized substantially all of the revenue that was included in the deferred revenue balance as of January 31, 2019.
No material amount of revenue was recognized during the year ended January 31, 2020 from performance obligations satisfied in previous periods. The Company has elected as a practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of service of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The contracts for which the practical expedient has been applied include (i) equipment revenue transactions, which do not have a stated contractual term, but are short-term in nature, and (ii) service revenue transactions, which also do not have a stated contractual term but are generally completed within 30 days and for such contracts we recognize revenue over time at the amount to which we have the right to invoice for services completed to date.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4 - RECEIVABLES
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
Trade and unbilled receivables from contracts with customers
|
|
|
|
|
Trade receivables due from customers
|
$
|
36,400
|
|
|
$
|
38,827
|
|
|
Trade receivables due from finance companies
|
12,352
|
|
|
10,265
|
|
|
Unbilled receivables
|
13,944
|
|
|
11,222
|
|
|
Trade and unbilled receivables from rental contracts
|
|
|
|
|
Trade receivables
|
7,381
|
|
|
6,386
|
|
|
Unbilled receivables
|
861
|
|
|
828
|
|
|
Other receivables
|
|
|
|
|
Due from manufacturers
|
5,763
|
|
|
12,950
|
|
|
Other
|
1,198
|
|
|
550
|
|
|
Total receivables
|
77,899
|
|
|
81,028
|
|
|
Less allowance for doubtful accounts
|
(5,123
|
)
|
|
(3,528
|
)
|
|
Receivables, net of allowance for doubtful accounts
|
$
|
72,776
|
|
|
$
|
77,500
|
|
The following table presents impairment losses on receivables arising from sales contracts with customers and receivables arising from rental contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31, 2020
|
|
Year Ended January 31, 2019
|
|
|
(in thousands)
|
|
Impairment losses on:
|
|
|
|
|
Receivables from sales contracts
|
$
|
1,373
|
|
|
$
|
492
|
|
|
Receivables from rental contracts
|
1,124
|
|
|
343
|
|
|
|
$
|
2,497
|
|
|
$
|
835
|
|
NOTE 5 - INVENTORIES
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
New equipment
|
$
|
358,339
|
|
|
$
|
258,081
|
|
|
Used equipment
|
157,535
|
|
|
158,951
|
|
|
Parts and attachments
|
79,813
|
|
|
72,760
|
|
|
Work in process
|
1,707
|
|
|
1,299
|
|
|
|
$
|
597,394
|
|
|
$
|
491,091
|
|
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6 - PROPERTY AND EQUIPMENT
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
Rental fleet equipment
|
$
|
104,133
|
|
|
$
|
111,164
|
|
|
Machinery and equipment
|
22,682
|
|
|
21,646
|
|
|
Vehicles
|
51,850
|
|
|
42,330
|
|
|
Furniture and fixtures
|
41,720
|
|
|
40,645
|
|
|
Land, buildings, and leasehold improvements
|
70,408
|
|
|
63,091
|
|
|
|
290,793
|
|
|
278,876
|
|
|
Less accumulated depreciation
|
(145,231
|
)
|
|
(139,926
|
)
|
|
|
$
|
145,562
|
|
|
$
|
138,950
|
|
Depreciation expense totaled $26.5 million, $23.6 million and $25.0 million for the years ended January 31, 2020, 2019 and 2018, respectively. The Company had assets related to sale-leaseback financing obligations and capital leases associated with real estate of store locations, which are included in the land, buildings and leasehold improvements balance above. Such assets had gross carrying values totaling $24.3 million and $25.2 million, and accumulated amortization balances totaling $6.9 million and $5.8 million, as of January 31, 2020 and 2019.
In March 2019, the Company completed an assessment of its Enterprise Resource Planning ("ERP") application and concluded that the Company would begin the process to prepare for conversion to a new ERP application. The initial anticipated start date for the new ERP application was the first-half of the fiscal year ending January 31, 2021, which has been postponed to the first-half of the fiscal year ending January 31, 2022. The Company has prospectively adjusted the useful life of its current ERP application such that it will be fully amortized upon its estimated replacement date. The net book value of the ERP asset of $8.7 million, as of March 2019, is being amortized on a straight-line basis over the estimated remaining period of use. For the year ended January 31, 2020, the Company recognized an additional $4.7 million of amortization expense, which decreased operating income accordingly and decreased net income by approximately $3.6 million.
NOTE 7 - INTANGIBLE ASSETS AND GOODWILL
Definite-Lived Intangible Assets
The following is a summary of definite-lived intangible assets as of January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Covenants not to compete
|
$
|
100
|
|
|
$
|
(7
|
)
|
|
$
|
93
|
|
|
$
|
200
|
|
|
$
|
(138
|
)
|
|
$
|
62
|
|
|
Customer relationships
|
345
|
|
|
(83
|
)
|
|
262
|
|
|
112
|
|
|
(19
|
)
|
|
93
|
|
|
|
$
|
445
|
|
|
$
|
(90
|
)
|
|
$
|
355
|
|
|
$
|
312
|
|
|
$
|
(157
|
)
|
|
$
|
155
|
|
Intangible asset amortization expense was $0.1 million for each of the three years ended January 31, 2020, 2019 and 2018. The increase in net, definite-lived intangible assets for fiscal 2020, as compared to fiscal 2019, was primarily the result of the Northwood acquisition, offset by impairments. As of January 31, 2020, future amortization expense is expected to be as
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
follows:
|
|
|
|
|
|
|
|
Fiscal years ending January 31,
|
Amount
|
|
|
(in thousands)
|
|
2021
|
$
|
110
|
|
|
2022
|
91
|
|
|
2023
|
58
|
|
|
2024
|
58
|
|
|
2025
|
38
|
|
|
Thereafter
|
—
|
|
|
|
$
|
355
|
|
Indefinite-Lived Intangible Assets
The Company's indefinite-lived intangible assets consist of distribution rights assets. The following is a summary of distribution rights assets by segment as of January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Segment
|
|
|
|
|
Agriculture
|
$
|
6,070
|
|
|
$
|
5,050
|
|
|
Construction
|
72
|
|
|
237
|
|
|
International
|
1,870
|
|
|
1,805
|
|
|
|
$
|
8,012
|
|
|
$
|
7,092
|
|
The results of the Company's annual distribution rights impairment test for the year ended January 31, 2020 indicated impairment of $0.7 million, which was appropriately recorded in fiscal 2020. In the prior years ended January 31, 2019 and 2018, the annual distribution rights impairment tests indicated no impairment.
Goodwill
Changes in the carrying amount of goodwill during the years ended January 31, 2020, 2019 and 2018 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agriculture
|
|
Construction
|
|
International
|
|
Total
|
|
|
(in thousands)
|
|
Balance, January 31, 2018
|
$
|
250
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
250
|
|
|
Arising from business combinations
|
—
|
|
|
—
|
|
|
924
|
|
|
924
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
(13
|
)
|
|
(13
|
)
|
|
Balance, January 31, 2019
|
250
|
|
|
—
|
|
|
911
|
|
|
1,161
|
|
|
Arising from business combinations
|
699
|
|
|
—
|
|
|
499
|
|
|
1,198
|
|
|
Foreign currency translation
|
—
|
|
|
—
|
|
|
(32
|
)
|
|
(33
|
)
|
|
Balance, January 31, 2020
|
$
|
949
|
|
|
$
|
—
|
|
|
$
|
1,378
|
|
|
$
|
2,327
|
|
The results of the Company's annual goodwill impairment tests for the fiscal years ended January 31, 2020 and 2019 indicated that no goodwill impairment existed as of the test date.
NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT
Floorplan payable balances reflect amounts owed to manufacturers for equipment inventory purchases and amounts outstanding under our various floorplan line of credit facilities. In the consolidated statements of cash flows, the Company
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reports cash flows associated with manufacturer floorplan financing as operating cash flows and cash flows associated with non-manufacturer floorplan financing as financing cash flows.
As of January 31, 2020, the Company had floorplan lines of credit totaling $717.0 million, which is primarily comprised of three significant floorplan lines of credit: (i) a $450.0 million credit facility with CNH Industrial, (ii) a $140.0 million line of credit with a group of banks led by Wells Fargo Bank, National Association (“Wells Fargo”), and (iii) a $60.0 million credit facility with DLL Finance LLC (“DLL Finance”).
CNH Industrial Floorplan Payable Line of Credit
As of January 31, 2020, the Company had a $450.0 million credit facility with CNH Industrial, of which $360.0 million is available for domestic financing and $90.0 million is available for European financing.
The domestic financing facility offers financing for new and used equipment inventories. Available borrowings under the credit facility are reduced by outstanding floorplan payable balances and other acquisition-related financing arrangements with CNH Industrial. The credit facility charges interest at a rate equal to the prime rate plus 3.25% for the financing of new and used equipment inventories and rental fleet assets. CNH Industrial offers periods of reduced interest rates and interest-free periods. Repayment terms vary, but generally payments are made from sales proceeds or rental revenue generated from the related inventories or rental fleet assets. Balances under the outstanding with CNH Industrial credit facility are secured by the inventory or rental fleet purchased with the floorplan proceeds. The European financing facility offers financing for new equipment inventories. Available borrowings under the credit facility are reduced by outstanding floorplan payable balances. Amounts outstanding are generally due approximately 75 days after the date of invoice by CNH Industrial. Generally, no interest is charged on outstanding balances. Amounts outstanding are secured by the inventory purchased with the floorplan proceeds.
The CNH Industrial credit facility contains financial covenants that impose a maximum level of adjusted debt to tangible net worth of 3.50:1.00 and minimum fixed charge coverage ratio of 1.10:1.00. It also contains various restrictive covenants that require prior consent of CNH Industrial if the Company desires to engage in any acquisition of, consolidation or merger with, any other business entity in which the Company is not the surviving company; create subsidiaries; move any collateral outside of the U.S.; or sell, rent, lease or otherwise dispose or transfer any of the collateral, other than in the ordinary course of business. CNH Industrial’s consent is also required for the acquisition of any CNH Industrial dealership. In addition, the CNH Industrial credit facility restricts the Company's ability to incur any liens upon any substantial part of the assets. The credit facility automatically renews on August 31st of each year unless earlier terminated by either party. As of January 31, 2020, the Company was in compliance with the adjusted debt to tangible net worth and fixed charge coverage ratio financial covenants under this credit facility.
During the year ended January 31, 2020, the CNH Industrial credit facility was amended to increase the available borrowings under the credit facility, from a combined capacity of $400.0 million to the current combined capacity of $450.0 million.
Wells Fargo Credit Agreement - Floorplan Payable and Working Capital Lines of Credit
As of January 31, 2020, the Company had a second amended and restated credit agreement with Wells Fargo (the "Wells Fargo Credit Agreement"), which provides for a $140.0 million wholesale floorplan line of credit (the "Floorplan Payable Line") and a $60.0 million working capital line of credit (the "Working Capital Line"). The amount available for borrowing under the Floorplan Payable Line is reduced by amounts outstanding thereunder, borrowing base calculations and outstanding standby letters of credit. The Wells Fargo Credit Agreement has a variable interest rate on outstanding balances and has a 0.25% to 0.375% non-usage fee on the average monthly unused amount and requires monthly payments of accrued interest. The Company elects at the time of any advance to choose a Base Rate Loan or a LIBOR Rate Loan. The LIBOR Rate is for the duration of one-month, two-month, or three-month LIBOR rate at the time of the loan, as chosen by the Company. The Base Rate is the greatest of (a) the Federal Funds Rate plus 0.5%, (b) the one-month LIBOR Rate plus 1%, and (c) the prime rate of interest announced, from time to time, within Wells Fargo. The applicable margin rate is determined based on excess availability under the Wells Fargo Credit Agreement and ranges from 0.75% to 1.5% for Base Rate Loans and 1.75% to 2.50% for LIBOR Rate Loans.
The Wells Fargo Credit Agreement is secured by substantially all our assets and requires the Company to maintain a fixed charge coverage ratio of at least 1.10:1.00 if adjusted excess availability plus eligible cash collateral is less than 15% of the total amount of the credit facility. Based on our adjusted excess availability and cash collateral, we were not subject to the fixed charge coverage ratio as of January 31, 2020. The Wells Fargo Credit Agreement also includes various non-financial
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
covenants, including, under certain conditions, restricting the Company’s ability to make certain cash payments, including for cash dividends and stock repurchases, restricting the Company’s ability to issue equity instruments, restricting the Company’s ability to complete acquisitions or divestitures, and limiting the Company's ability to incur new indebtedness. The provisions in the Wells Fargo Credit Agreement restricting the Company from making certain cash payments, including for cash dividends and stock repurchases, provide that no such payments may be made unless, (i) as of the date of such payment there is no default or event of default occurring and continuing, (ii) the amount remaining available to be borrowed by the Company under the Wells Fargo Credit Agreement is greater than twenty percent of the total borrowing capacity under the Wells Fargo Credit Agreement and (iii) the Company's fixed charge coverage ratio for the 12 month period most recently ended, on a pro-forma basis assuming that such proposed cash payment has been made, is at least 1.10 to 1.00. As of January 31, 2020, under these provisions of the Wells Fargo Credit Agreement, the Company had an unrestricted dividend availability of approximately $31.2 million.
The maturity date of the Wells Fargo Credit Agreement was contingent upon the results of a maturity test that was performed on February 1, 2019, a date that was three months prior to the scheduled maturity date of the Company's outstanding Senior Convertible Notes. Pursuant to this test, the maturity date for the Wells Fargo Credit Agreement would be October 28, 2020 so long as (i) the Company's fixed charge coverage ratio for the 12 month period ended December 31, 2018 was at least 1.10 to 1.00 and (ii) a liquidity test, requiring that the Company have unrestricted cash on hand plus excess borrowing availability under the Wells Fargo Credit Agreement (on a pro-forma basis reflecting the Company’s repayment in full of its outstanding Senior Convertible Notes) in an amount that is greater than 20% of maximum credit amount under the facility, was met on February 1, 2019. If both financial tests were not satisfied on February 1, 2019, the Wells Fargo Credit Agreement would immediately mature and all amounts outstanding would become immediately due and payable in full. The Company satisfied the maturity test requirements on February 1, 2019, and therefore the maturity date of the Wells Fargo Credit Agreement is October 28, 2020.
The Floorplan Payable Line is used to finance equipment inventory purchases. Amounts outstanding are recorded as floorplan payable, within current liabilities on the consolidated balance sheets, as the Company intends to repay amounts borrowed within one year.
The Working Capital Line is used to finance rental fleet equipment and for general working capital requirements of the Company. At the end of fiscal 2020, the amount outstanding on the Working Capital Line is recorded as current maturities of long-term debt and within current liabilities on the consolidated balance sheets, because the Wells Fargo Credit Agreement is due to mature on October 28, 2020. The balances outstanding on the Working Capital Line as of January 31, 2020 and 2019 are disclosed in Note 12.
DLL Finance Floorplan Payable Line of Credit
As of January 31, 2020, the Company had a $60.0 million credit facility with DLL Finance, of which $46.5 million is available for domestic financing and $13.5 million is available for financing in certain of our European markets. The DLL Finance credit facility may be used to purchase or refinance new and used equipment inventory. Amounts outstanding for domestic financing bear interest on outstanding balances of three-month LIBOR plus an applicable margin of 2.85%. Amounts outstanding for European financing bear interest on outstanding balances of three-month EURIBOR plus an applicable margin of 2.10% to 2.50%. The credit facility allows for increase, decrease or termination of the facility by DLL Finance upon 90 days notice. The credit facility contains financial covenants that impose a maximum net leverage ratio of 3.50:1.00 and a minimum fixed charge coverage ratio of 1.10:1.00. The credit facility also requires the Company to obtain prior consent from DLL Finance if the Company desired to engage in any acquisition meeting certain financial thresholds. The balances outstanding with DLL Finance are secured by the inventory or rental fleet purchased with the floorplan proceeds. Repayment terms vary by individual notes, but generally payments are made from sales proceeds or rental revenue from the related inventories or rental fleet assets. As of January 31, 2020, the Company was in compliance with the net leverage ratio and fixed charge coverage ratio financial covenants under this credit facility.
During the year ended January 31, 2020, the DLL Finance credit facility was amended to, among other things, increase the available borrowing capacity from $45.0 million to the current level of $60.0 million.
Other Lines of Credit
The Company’s other lines of credit include various floorplan and working capital lines of credit primarily offered by non-manufacturer financing entities. Interest charged on outstanding borrowings are generally variable rates of interest most often based on LIBOR or EURIBOR and include interest margins primarily ranging from 1.50% to 6.00%. Outstanding balances are generally secured by inventory and other current assets. In most cases these lines of credit have a one-year
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
maturity, with an annual review process to extend the maturity date for an additional one-year period. As of January 31, 2020, the Company had a compensating balance arrangement under one of its European floorplan credit facilities which requires a minimum cash deposit to be maintained with the lender in the amount of $5.0 million for the term of the credit facility.
Summary of Outstanding Amounts
As of January 31, 2020 and 2019, the Company’s outstanding balance of floorplan payables and lines of credit consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
CNH Industrial
|
$
|
187,690
|
|
|
$
|
120,319
|
|
|
Wells Fargo Floorplan Payable Line
|
82,700
|
|
|
49,100
|
|
|
DLL Finance
|
30,657
|
|
|
13,432
|
|
|
Other outstanding balances with manufacturers and non-manufacturers
|
70,725
|
|
|
90,905
|
|
|
|
$
|
371,772
|
|
|
$
|
273,756
|
|
As of January 31, 2020, the interest-bearing U.S floorplan payables carried various interest rates ranging from 4.05% to 4.81%, compared to a range of 4.77% and 6.30% as of January 31, 2019. As of January 31, 2020, foreign floorplan payables carried various interest rates primarily ranging from 0.86% to 7.66%, compared to a range of 0.94% to 8.51% as of January 31, 2019. As of January 31, 2020 and 2019, $205.2 million and $151.7 million of outstanding floorplan payables were non-interest bearing.
NOTE 9 - DEFERRED REVENUE
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
Deferred revenue from contracts with customers
|
$
|
39,512
|
|
|
$
|
44,893
|
|
|
Deferred revenue from rental and other contracts
|
1,456
|
|
|
1,516
|
|
|
|
$
|
40,968
|
|
|
$
|
46,409
|
|
NOTE 10 - ACCRUED EXPENSES & OTHER
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
Compensation
|
$
|
19,732
|
|
|
$
|
19,661
|
|
|
Sales, payroll, real estate and value added taxes
|
5,947
|
|
|
4,698
|
|
|
Insurance
|
3,336
|
|
|
2,083
|
|
|
Lease residual value guarantees
|
2,054
|
|
|
2,089
|
|
|
Finance lease liabilities
|
1,708
|
|
|
—
|
|
|
Interest
|
608
|
|
|
905
|
|
|
Income taxes payable
|
49
|
|
|
1,574
|
|
|
Other
|
4,975
|
|
|
4,081
|
|
|
|
$
|
38,409
|
|
|
$
|
35,091
|
|
NOTE 11 - SENIOR CONVERTIBLE NOTES
On April 24, 2012, the Company issued through a private offering $150 million of 3.75% Senior Convertible Notes (the "Senior Convertible Notes"). The Senior Convertible Notes bore interest at a rate of 3.75% per year, payable semi-annually
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in arrears on May 1 and November 1 of each year. The Senior Convertible Notes matured on May 1, 2019, and the Company repaid the outstanding principal balance of $45.6 million on the maturity date.
In accounting for the Senior 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 was similar in its terms to the Senior Convertible Notes. The excess of the aggregate face value of the Senior Convertible Notes over the estimated fair value of the liability component was recognized as a debt discount that was amortized over the expected life of the Senior Convertible Notes using the effective interest rate method. Amortization of the debt discount was recognized as non-cash interest expense. The equity component of the Senior Convertible Notes was measured as the residual difference between the aggregate face value of the Senior Convertible Notes and the estimated aggregate fair value of the liability component. Transaction costs incurred in connection with the issuance of the Senior Convertible Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component were amortized using the effective interest rate method and recognized as non-cash interest expense. Transaction costs allocated to the equity component reduced the value of the equity component recognized in stockholders' equity.
As of January 31, 2019, the Senior Convertible Notes consisted of the following:
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
|
|
|
Principal value
|
$
|
45,644
|
|
|
Unamortized debt discount
|
(350
|
)
|
|
Unamortized debt issuance costs
|
(45
|
)
|
|
Carrying value of senior convertible notes
|
$
|
45,249
|
|
|
|
|
|
Carrying value of equity component, net of deferred taxes
|
$
|
14,923
|
|
|
|
|
|
Conversion rate (shares of common stock per $1,000 principal amount of notes)
|
23.1626
|
|
|
Conversion price (per share of common stock)
|
$
|
43.17
|
|
During fiscal 2020, the Company repaid the remaining $45.6 million face value ($45.6 million carrying value) of Senior Convertible Notes with $45.6 million in cash on the maturity date of May 1, 2019. During fiscal 2019, the Company repurchased an aggregate of $20.0 million face value ($19.4 million carrying value) of its Senior Convertible Notes with $20.0 million in cash. All consideration was attributed to the extinguishment of the liability and the Company recognized a pre-tax loss of $0.6 million on the repurchase. During fiscal 2018, the Company repurchased an aggregate of $30.1 million face value ($28.1 million carrying value) of its Senior Convertible Notes with $29.1 million in cash. Of the $29.1 million in total cash consideration, $28.1 million was attributed to the extinguishment of the liability and $1.0 million was attributed to the reacquisition of a portion of the equity component of the instrument. The Company recognized an immaterial net pre-tax gain on the extinguishment of the liability and recognized a $0.6 million after-tax reduction in additional paid-in capital from the reacquisition of the equity component. Gains and losses on repurchases are included in other interest expense in the Consolidated Statements of Operations.
The Company recognized interest expense associated with its Senior Convertible Notes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Cash Interest Expense
|
|
|
|
|
|
|
Coupon interest expense
|
$
|
421
|
|
|
$
|
2,014
|
|
|
$
|
2,782
|
|
|
Noncash Interest Expense
|
|
|
|
|
|
|
Amortization of debt discount
|
350
|
|
|
1,626
|
|
|
2,104
|
|
|
Amortization of transaction costs
|
45
|
|
|
216
|
|
|
290
|
|
|
|
$
|
816
|
|
|
$
|
3,856
|
|
|
$
|
5,176
|
|
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The effective interest rate of the liability component was equal to 7.3% for each of the statements of operations periods presented.
NOTE 12 - LONG-TERM DEBT
The following is a summary of long-term debt as of January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
(in thousands)
|
|
Sale-leaseback financing obligations, interest rates ranging from 3.4% to 10.3% with various maturity dates through December 2030
|
$
|
17,781
|
|
|
$
|
19,010
|
|
|
Wells Fargo Credit Agreement - Working Capital Line, interest accrues at a variable rate, ranging from 3.9% to 4.7%, on outstanding balances, requires monthly payments of accrued interest, matures on October 28, 2020
|
10,000
|
|
|
—
|
|
|
Real estate mortgage bearing interest at 5.11%, payable in annual installments of $0.3 million, maturing on May 15, 2039, secured by real estate assets
|
6,827
|
|
|
—
|
|
|
Real estate mortgage bearing interest at 4.62%, payment in monthly installments of $0.04 million with a final payment at maturity of $3.4 million, maturing on June 10, 2024, secured by real estate assets
|
4,416
|
|
|
—
|
|
|
Real estate mortgage bearing interest at 4.40%, payment in monthly installments of $0.01 million with a final payment at maturity of $1.0 million, maturing on January 1, 2027, secured by real estate assets
|
1,489
|
|
|
—
|
|
|
Equipment financing loan, payable in monthly installments over a 72-month term for each funded tranche, bearing interest at 3.89%, secured by vehicle assets
|
7,468
|
|
|
—
|
|
|
Real estate mortgage bearing interest at 2.09%, payable in monthly installments, maturing on June 30, 2026, secured by real estate assets
|
2,520
|
|
|
2,978
|
|
|
Other long-term debt primarily bearing interest at three-month EURIBOR plus 2.6%, payable in quarterly installments, maturing on January 31, 2021
|
1,067
|
|
|
755
|
|
|
|
51,568
|
|
|
22,743
|
|
|
Less current maturities
|
(13,779
|
)
|
|
(2,067
|
)
|
|
|
$
|
37,789
|
|
|
$
|
20,676
|
|
Long-term debt maturities are as follows:
|
|
|
|
|
|
|
|
Years Ending January 31,
|
Amounts
|
|
|
(in thousands)
|
|
2021
|
$
|
13,779
|
|
|
2022
|
3,695
|
|
|
2023
|
3,781
|
|
|
2024
|
3,946
|
|
|
2025
|
7,398
|
|
|
Thereafter
|
18,969
|
|
|
|
$
|
51,568
|
|
NOTE 13 - RESTRUCTURING COSTS
In February 2017, to better align the Company's cost structure and business in certain markets, the Company announced a dealership restructuring plan (the "Fiscal 2018 Restructuring Plan"), which resulted in the closure of one Construction location and 14 Agriculture locations. The Fiscal 2018 Restructuring Plan resulted in a reduction of expenses while allowing the Company to continue to provide a leading level of service to its customers. In total, over the term of the Fiscal 2018 Restructuring Plan, the Company recognized $13.9 million of restructuring charges consisting primarily of lease termination costs, termination benefits and fixed asset impairment charges. Such costs are included in the restructuring costs line in the consolidated statements of operations. As of January 31, 2018, the Company had closed and fully exited all of these locations and had completed its Fiscal 2018 Restructuring Plan. For fiscal year ended January 31, 2020, there were no costs
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
incurred related to the Fiscal 2018 Restructuring Plan.
Restructuring costs (credits) associated with the Company's Fiscal 2018 Restructuring Plan are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
Cumulative Amount
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Lease accrual and termination costs
|
$
|
6,095
|
|
|
$
|
414
|
|
|
$
|
5,681
|
|
|
Termination benefits
|
5,053
|
|
|
—
|
|
|
5,053
|
|
|
Impairment of fixed assets, net of gains on asset disposition
|
2,206
|
|
|
—
|
|
|
(751
|
)
|
|
Asset relocation and other costs
|
516
|
|
|
—
|
|
|
516
|
|
|
|
$
|
13,870
|
|
|
$
|
414
|
|
|
$
|
10,499
|
|
Restructuring charges (credits) are summarized by segment in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Segment
|
|
|
|
|
Agriculture
|
$
|
441
|
|
|
$
|
6,886
|
|
|
Construction
|
(27
|
)
|
|
2,093
|
|
|
International
|
—
|
|
|
62
|
|
|
Shared Resources
|
—
|
|
|
1,458
|
|
|
Total
|
$
|
414
|
|
|
$
|
10,499
|
|
A reconciliation of the beginning and ending exit cost liability balance associated with our Fiscal 2018 Restructuring Plan is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease Accrual & Termination Costs
|
|
Termination Benefits
|
|
Total
|
|
|
(in thousands)
|
|
Balance, January 31, 2018
|
$
|
5,393
|
|
|
$
|
404
|
|
|
$
|
5,797
|
|
|
Exit costs incurred and charged to expense
|
414
|
|
|
—
|
|
|
414
|
|
|
Exit costs paid
|
(3,428
|
)
|
|
(404
|
)
|
|
(3,832
|
)
|
|
Balance, January 31, 2019
|
2,379
|
|
|
—
|
|
|
2,379
|
|
|
Reclassified as a reduction of right-of-use lease assets upon adopting ASC 842, Leases
|
(2,379
|
)
|
|
—
|
|
|
(2,379
|
)
|
|
Balance, January 31, 2020
|
$
|
—
|
|
|
—
|
|
|
$
|
—
|
|
As of January 31, 2019, $2.2 million of the exit cost liability was included in other long-term liabilities and $0.2 million was included in accrued expenses and other in the consolidated balance sheets.
During the year ended January 31, 2019, the Company paid $3.0 million to terminate the real estate lease agreement for one of the Company's previously closed stores. The termination payment approximated the recorded lease accrual liability and therefore the impact to the consolidated statement of operations was not material.
NOTE 14 - DERIVATIVE INSTRUMENTS
The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates and benchmark interest rates to which the Company is exposed in the normal course of its operations.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Cash Flow Hedge
The Company previously was party to an interest rate swap instrument which had a notional amount of $100.0 million, an effective date of September 30, 2014 and a maturity date of September 30, 2018. The objective of the instrument was to protect the Company from changes in benchmark interest rates to which the Company is exposed through certain of its variable interest rate credit facilities. The instrument provided for a fixed interest rate of 1.901% through the instrument's maturity date. The interest rate swap instrument was designated as a cash flow hedging instrument and accordingly changes in the effective portion of the fair value of the instrument had been recorded in other comprehensive income and only reclassified into earnings in the period(s) in which the related hedged item affects earnings or the anticipated underlying hedged transactions were no longer probable of occurring. In April 2017, the Company elected to terminate its outstanding interest rate swap instrument. The Company paid $0.9 million to terminate the instrument. This cash payment is presented as a financing cash outflow in the consolidated statements of cash flows.
Derivative Instruments Not Designated as Hedging Instruments
The Company periodically 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 Company's foreign currency forward contracts generally have three-month maturities, maturing on the last day of each fiscal quarter. The notional value of outstanding foreign currency contracts as of January 31, 2019 was $14.1 million. There were no outstanding foreign currency contracts as of January 31, 2020.
As of January 31, 2020, the Company had no derivative instruments and as of January 31, 2019 the fair value of the Company's outstanding derivative instruments was not material. Derivative instruments recognized as assets are recorded in prepaid expenses and other in the consolidated balance sheets, and derivative instruments recognized as liabilities are recorded in accrued expenses and other in the consolidated balance sheets.
The following table sets forth the gains and losses recognized in other comprehensive income (loss) ("OCI") and income (loss) related to the Company’s derivative instruments for the years ended January 31, 2020, 2019 and 2018. All amounts included in income (loss) in the table below from derivatives designated as hedging instruments relate to reclassifications from accumulated other comprehensive income.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
OCI
|
|
Income
|
|
OCI
|
|
Income
|
|
OCI
|
|
Income
|
|
|
(in thousands)
|
|
(in thousands)
|
|
(in thousands)
|
|
Derivatives Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap (a)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
48
|
|
|
$
|
(1,091
|
)
|
|
Derivatives Not Designated as Hedging Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts (b)
|
—
|
|
|
365
|
|
|
—
|
|
|
1,696
|
|
|
—
|
|
|
(1,510
|
)
|
|
Total Derivatives
|
$
|
—
|
|
|
$
|
365
|
|
|
$
|
—
|
|
|
$
|
1,696
|
|
|
$
|
48
|
|
|
$
|
(2,601
|
)
|
(a) No material hedge ineffectiveness has been recognized. The amounts show in income (loss) above are reclassification amounts from accumulated other comprehensive income (loss) and are recorded in Floorplan interest expense in the consolidated statements of operations
(b) Amounts are included in Interest income and other income (expense) in the consolidated statements of operations
During the year ended January 31, 2018, the Company reclassified $0.6 million of pre-tax accumulated losses on its interest rate swap instrument from accumulated other comprehensive income (loss) to income as the original forecasted interest payments, which served as the hedged item underlying the interest rate swap instrument, were no longer probable of occurring during the time period over which such transactions were previously anticipated to occur. As of January 31, 2018, the Company had no remaining pre-tax net unrealized losses associated with its interest rate swap cash flow hedging instrument.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 - CONTINGENCIES AND GUARANTEES
Guarantees
The Company has provided residual value guarantees to CNH Industrial Capital in connection with certain customer leasing arrangements with CNH Industrial Capital. The Company, as guarantor, may be required to provide payment to CNH Industrial Capital at the termination of the lease agreement if the customer fails to exercise the purchase option under the leasing agreement and the proceeds CNH Industrial Capital receives upon disposition of the leased asset are less than the purchase option price as stipulated in the lease agreement. As of January 31, 2020, the maximum amount of residual value guarantees was approximately $3.4 million and the lease agreements have termination dates ranging from 2020 to 2025. As of January 31, 2020, the Company has recognized a liability of approximately $3.2 million based on its estimates of the likelihood and amount of residual value guarantees that will become payable at the termination dates of the underlying leasing agreements discounted at a rate of interest to reflect the risk inherent in the liability. As of January 31, 2020, the Company has recorded a current liability, recognized in accrued expenses and other in the consolidated balance sheets, of $2.1 million, and a long-term liability, recognized in other long-term liabilities in the consolidated balance sheets, of $1.1 million.
As of January 31, 2020, the Company had $1.6 million of guarantees on customer financing with CNH Industrial Capital. In the event that the customer defaulted on the payments owed to CNH Industrial Capital, the Company as the guarantor would be required to make those payments and any accelerated indebtedness to CNH Industrial Capital. Upon such payment, the Company would be entitled to enforce normal creditor rights against the customer including collection action for monetary damages or re-possession of the collateral if CNH Industrial Capital has a perfected security interest. No liabilities associated with these guarantees are included in the consolidated balance sheets as of January 31, 2020 as the Company deems the probability of being required to make such payments to be remote.
Litigation
On October 11, 2017, the Romania Competition Council (“RCC”) initiated an administrative investigation of the Romanian Association of Manufacturers and Importers of Agricultural Machinery (“APIMAR”) and all its members, including Titan Machinery Romania. The RCC's investigation involves whether the APIMAR members engaged in anti-competitive practices in their sales of agricultural machinery not involving European Union ("EU") subvention funding programs, by referring to the published sales prices governing EU subvention funded transactions, which prices are mandatorily disclosed to and published by AFIR, a Romanian government agency that oversees the EU subvention funding programs in Romania. The investigation is in a preliminary stage and the Company is currently unable to predict its outcome or reasonably estimate any potential loss that may result from the investigation.
The Company is engaged in proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention. Based upon the information available to the Company and discussions with legal counsel, it is the Company's opinion that the outcome of the various legal actions and claims that are incidental to its business will not have a material impact on the financial position, results of operations or cash flows. Such matters, however, are subject to many uncertainties, and the outcome of any matter is not predictable with assurance.
Insurance
The Company has insurance policies with varying deductibility levels for property and casualty losses and is insured for losses in excess of these deductibles on a per claim and aggregate basis. The Company is primarily self-insured for health care claims for eligible participating employees. The Company has stop-loss coverage to limit its exposure to significant claims on a per claim and annual aggregate basis. The Company determines its liabilities for claims, including incurred but not reported losses, based on all relevant information, including actuarial estimates of claim liabilities.
Other Matters
The Company is the lessee under many real estate leases, in which it agrees to indemnify the lessor from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee. Additionally, from time to time, the Company enters into agreements with third parties in connection with the sale of assets in which it agrees to indemnify the purchaser from certain liabilities or costs arising in connection with the assets. Also, in the ordinary course of business in connection with purchases or sales of goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, the Company's liability would be limited by the terms of the applicable agreement. See additional information on operating lease commitments in Note 16.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16 - LEASES
As Lessee
The Company, as lessee, leases certain of its dealership locations, office space, equipment and vehicles under operating and financing classified leasing arrangements. The Company has elected to not record leases with a lease term at commencement of 12 months or less on the consolidated balance sheet; such leases are expensed on a straight-line basis over the lease term. Many real estate lease agreements require the Company to pay the real estate taxes on the properties during the lease term and require that the Company maintains property insurance on each of the leased premises. Such payments are deemed to be variable lease payments, as the amounts may change during the term of the lease. Certain leases include renewal options that can extend the lease term for periods of one to ten years. Most real estate leases grant the Company a right of first refusal or other options to purchase the real estate, generally at fair market value, either during the lease term or at its conclusion. In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use asset and lease liability. Most often the Company cannot readily determine the interest rate implicit in the lease and thus applies its incremental borrowing rate to capitalize the right-of-use asset and lease liability. We estimate our incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market. Our lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants.
The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which we have ceased operations. All sublease arrangements are classified as operating leases.
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
Twelve Months Ended January 31, 2020
|
|
|
|
|
|
(in thousands)
|
|
Finance lease cost:
|
|
|
|
|
|
Amortization of leased assets
|
|
Operating expenses
|
|
$
|
1,457
|
|
|
Interest on lease liabilities
|
|
Other interest expense
|
|
554
|
|
|
Operating lease cost
|
|
Operating expenses & rental and other cost of revenue
|
|
21,225
|
|
|
Short-term lease cost
|
|
Operating expenses
|
|
242
|
|
|
Variable lease cost
|
|
Operating expenses
|
|
2,665
|
|
|
Sublease income
|
|
Interest income and other income (expense)
|
|
(620
|
)
|
|
|
|
|
|
$
|
25,523
|
|
Right-of-use lease assets and lease liabilities consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
Classification
|
|
January 31, 2020
|
|
|
|
|
|
(in thousands)
|
|
Assets
|
|
|
|
|
|
Operating lease assets
|
|
Operating lease assets
|
|
$
|
88,281
|
|
|
Financing lease assets(a)
|
|
Property and equipment, net of accumulated depreciation
|
|
6,297
|
|
|
Total leases assets
|
|
|
|
$
|
94,578
|
|
|
Liabilities
|
|
|
|
|
|
Current
|
|
|
|
|
|
Operating
|
|
Current operating lease liabilities
|
|
$
|
12,259
|
|
|
Financing
|
|
Accrued expenses and other
|
|
1,708
|
|
|
Noncurrent
|
|
|
|
|
|
Operating
|
|
Operating lease liabilities
|
|
88,387
|
|
|
Financing
|
|
Other long-term liabilities
|
|
4,103
|
|
|
Total lease liabilities
|
|
|
|
$
|
106,457
|
|
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(a)Finance lease assets are recorded net of accumulated amortization of $1.5 million as of January 31, 2020.
Maturities of lease liabilities as of January 31, 2020 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
|
|
Finance
|
|
|
|
|
|
Leases
|
|
Leases
|
|
Total
|
|
Fiscal Year Ending January 31,
|
|
(in thousands)
|
|
2021
|
|
$
|
18,714
|
|
|
$
|
2,157
|
|
|
$
|
20,871
|
|
|
2022
|
|
16,841
|
|
|
1,838
|
|
|
18,679
|
|
|
2023
|
|
15,737
|
|
|
1,188
|
|
|
16,925
|
|
|
2024
|
|
14,830
|
|
|
448
|
|
|
15,278
|
|
|
2025
|
|
13,700
|
|
|
387
|
|
|
14,087
|
|
|
2026
|
|
14,013
|
|
|
309
|
|
|
14,322
|
|
|
Thereafter
|
|
33,163
|
|
|
1,083
|
|
|
34,246
|
|
|
Total lease payments
|
|
126,998
|
|
|
7,410
|
|
|
134,408
|
|
|
Less: Interest
|
|
26,352
|
|
|
1,599
|
|
|
27,951
|
|
|
Present value of lease liabilities
|
|
$
|
100,646
|
|
|
$
|
5,811
|
|
|
$
|
106,457
|
|
The weighted-average lease term and discount rate as of January 31, 2020 are as follows:
|
|
|
|
|
|
|
Weighted-average remaining lease term (years):
|
|
|
|
Operating leases
|
|
7.9
|
|
Financing leases
|
|
5.4
|
|
Weighted-average discount rate:
|
|
|
|
Operating leases
|
|
6.1%
|
|
Financing leases
|
|
8.5%
|
Other lease information is as follows:
|
|
|
|
|
|
|
|
|
|
|
Twelve Months Ended January 31, 2020
|
|
|
|
(in thousands)
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
18,176
|
|
|
Operating cash flow from finance leases
|
|
553
|
|
|
Financing cash flows from finance leases
|
|
1,812
|
|
|
Operating lease assets obtained in exchange for new operating lease liabilities
|
|
1,316
|
|
|
Finance lease assets obtained in exchange for new finance lease liabilities
|
|
1,333
|
|
As Lessor
The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, may also provide short-term rentals of certain equipment inventory assets. Certain rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force.
Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets of our Construction segment as of January 31, 2020 and 2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
|
|
(in thousands)
|
|
(in thousands)
|
|
Rental fleet equipment
|
|
$
|
104,133
|
|
|
$
|
111,164
|
|
|
Less accumulated depreciation
|
|
42,076
|
|
|
50,399
|
|
|
|
|
$
|
62,057
|
|
|
$
|
60,765
|
|
NOTE 17 - RELATED PARTY TRANSACTIONS
Effective February 1, 2017, the Company and Peter Christianson (our former President and former member of our Board of Directors), who is a brother of Tony Christianson (a member of our Board of Directors), agreed to terminate a consulting arrangement between the parties. In connection with the termination, the Company agreed to pay Mr. Peter Christianson the sum of $0.7 million, payable in two equal installments in fiscal 2018 and fiscal 2019. All unvested stock options and shares of restricted stock held by Mr. Peter Christianson were allowed to vest as scheduled. As a result of the termination agreement, the Company recognized for fiscal 2018, a total of $0.8 million in termination costs, consisting of $0.7 million for future cash payments owed to Mr. Peter Christianson and $0.1 million for unvested shares of restricted stock. These termination costs are included in restructuring costs in the consolidated statements of operations. As of January 31, 2019, all amounts owed to Mr. Peter Christianson had been paid in full.
Effective September 8, 2017, the Company sold a real estate asset that was primarily used for field training purposes to Stiklestad LLC for $1.8 million. All consideration related to the transaction was exchanged at closing on September 8, 2017, and there are no amounts owed to either party following that date. Stiklestad LLC is owned by members of the family of David Meyer, the Company's Chief Executive Officer. No gain or loss was recognized on the transaction and the Company believes that the selling price approximated fair value.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18 - INCOME TAXES
The components of income (loss) before income taxes for the years ended January 31, 2020, 2019 and 2018 consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
U.S.
|
$
|
14,148
|
|
|
$
|
10,994
|
|
|
$
|
(16,644
|
)
|
|
Foreign
|
504
|
|
|
5,160
|
|
|
2,205
|
|
|
Total
|
$
|
14,652
|
|
|
$
|
16,154
|
|
|
$
|
(14,439
|
)
|
The provision for (benefit from) income taxes charged to income for the years ended January 31, 2020, 2019 and 2018 consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Current
|
|
|
|
|
|
|
Federal
|
$
|
897
|
|
|
$
|
(110
|
)
|
|
$
|
130
|
|
|
State
|
116
|
|
|
(189
|
)
|
|
50
|
|
|
Foreign
|
1,349
|
|
|
1,760
|
|
|
1,350
|
|
|
Total current taxes
|
2,362
|
|
|
1,461
|
|
|
1,530
|
|
|
Deferred
|
|
|
|
|
|
|
Federal
|
(375
|
)
|
|
2,071
|
|
|
(6,247
|
)
|
|
State
|
(1,929
|
)
|
|
(45
|
)
|
|
270
|
|
|
Foreign
|
641
|
|
|
485
|
|
|
(2,943
|
)
|
|
Total deferred taxes
|
(1,663
|
)
|
|
2,511
|
|
|
(8,920
|
)
|
|
|
$
|
699
|
|
|
$
|
3,972
|
|
|
$
|
(7,390
|
)
|
The reconciliation of the statutory federal income tax rate to the Company's effective rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
U.S. statutory rate
|
21.0
|
%
|
|
21.0
|
%
|
|
(33.8
|
)%
|
|
Foreign statutory rates
|
1.0
|
%
|
|
0.6
|
%
|
|
1.4
|
%
|
|
State taxes on income net of federal tax benefit
|
5.8
|
%
|
|
5.6
|
%
|
|
(4.3
|
)%
|
|
Valuation allowances
|
(36.6
|
)%
|
|
(5.2
|
)%
|
|
(4.4
|
)%
|
|
Impact of Ukraine currency gains or losses
|
10.5
|
%
|
|
2.0
|
%
|
|
1.0
|
%
|
|
U.S. statutory rate reduction
|
—
|
%
|
|
—
|
%
|
|
(13.9
|
)%
|
|
All other, net
|
3.1
|
%
|
|
0.6
|
%
|
|
2.8
|
%
|
|
|
4.8
|
%
|
|
24.6
|
%
|
|
(51.2
|
)%
|
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred tax assets and liabilities consist of the following as of January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Deferred tax assets:
|
|
|
|
|
Inventory allowances
|
$
|
3,037
|
|
|
$
|
3,598
|
|
|
Intangible assets
|
2,192
|
|
|
2,670
|
|
|
Net operating losses
|
4,291
|
|
|
6,266
|
|
|
Accrued liabilities and other
|
3,533
|
|
|
4,120
|
|
|
Receivables
|
1,137
|
|
|
740
|
|
|
Stock-based compensation
|
1,095
|
|
|
1,103
|
|
|
Right of use lease liability
|
25,325
|
|
|
—
|
|
|
Other
|
452
|
|
|
806
|
|
|
Total deferred tax assets
|
41,062
|
|
|
19,303
|
|
|
Valuation allowances
|
(2,180
|
)
|
|
(6,727
|
)
|
|
Deferred tax assets, net of valuation allowances
|
$
|
38,882
|
|
|
$
|
12,576
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Property and equipment
|
$
|
(16,752
|
)
|
|
$
|
(14,433
|
)
|
|
Right of use lease asset
|
(22,038
|
)
|
|
—
|
|
|
Senior convertible notes
|
—
|
|
|
(88
|
)
|
|
Total deferred tax liabilities
|
$
|
(38,790
|
)
|
|
$
|
(14,521
|
)
|
|
|
|
|
|
|
Net deferred tax asset (liability)
|
$
|
92
|
|
|
$
|
(1,945
|
)
|
On December 22, 2017, the U.S. government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act"). The Tax Act made broad changes to the U.S. tax code, including, among other things, to 1) reduce the U.S. federal corporate tax rate from 35% to 21%; 2) generally eliminate U.S. federal income taxes on dividends from foreign subsidiaries; 3) institute a one-time transaction tax on certain unrepatriated earnings of an entity's foreign subsidiaries; 4) create a new provision designed to tax global intangible low-taxed income ("GILTI"); 5) creates a new limitation on deductible interest expense; and 6) modify the rules related to uses and limitations of net operating losses.
The enactment of the Tax Act lowered the U.S. federal corporate tax rate from 35% to 21%, accordingly, for the fiscal year ended January 31, 2018, the Company had a blended corporate statutory tax rate of 33.8%, which is based on the number of days in the fiscal year before and after the enactment date. The Company recorded a net tax benefit of $1.8 million for the fiscal year ended January 31, 2018 as a result of remeasuring its domestic deferred tax assets, deferred tax liabilities and any valuation allowances based on the 21% corporate tax rate at which these deferred tax amounts are expected to reverse in the future. The Tax Act instituted a one-time transaction tax on previously untaxed accumulated and current earnings and profits of our foreign subsidiaries. The Company did not record a liability for the transaction tax because of a lack of accumulated earnings and profits, on a combined basis, of our foreign subsidiaries. The Tax Act requires that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in gross income of the U.S. shareholder. The Company has elected to treat future GILTI inclusions as a current period expense when incurred.
As of January 31, 2020, the Company has recorded $47.0 million of net operating loss carryforwards within certain of its U.S. state and foreign jurisdictions; $8.5 million of net operating loss carryforwards are within foreign jurisdictions with unlimited carryforward periods, $9.0 million are within foreign jurisdictions that expire at various dates between the Company's fiscal years 2021 and 2025, and $29.4 million are within U.S. states that expire at various dates between the Company's fiscal years 2032 and 2038.
At the end of fiscal year ended January 31, 2020, the Company concluded, based upon all available evidence, it was more likely than not that it would have sufficient future taxable income to realize the Company’s U.S. federal and state deferred tax assets. As a result, the Company released the $4.6 million valuation allowance associated with these deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statement of operations for the year ended
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
January 31, 2020. The Company's conclusion regarding the realizability of such deferred tax assets was based on recent profitable domestic operations resulting in a cumulative profit over the three-year period ended January 31, 2020 and our projections of future profitability in the U.S.
In reviewing our foreign deferred tax assets as of January 31, 2020, we concluded that a full valuation allowance continued to be warranted in certain jurisdiction locations. In total, valuation allowances of $2.2 million exist for our international entities as of January 31, 2020.
At the end of fiscal year 2019, we concluded that a partial valuation allowance continued to be warranted for U.S. federal and state deferred tax assets, including state net operating losses, and a full valuation allowance for certain of our foreign deferred tax assets, including net operating losses. In total, the valuation allowances of $6.7 million existed as of January 31, 2019. The recognition of the valuation allowances for our U.S. and foreign deferred tax assets was based on the presence of historical losses and our expected future sources of taxable income, including the anticipated future reversal of our existing deferred tax assets and liabilities.
During the fiscal year ended January 31, 2018, the Company concluded, based upon all available evidence, it was more likely than not that it would have sufficient future taxable income to realize the deferred tax assets of its Ukrainian subsidiary. As a result, the Company released the $3.5 million valuation allowance associated with these deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statement of operations for the year ended January 31, 2018. The Company's conclusion regarding the realizability of such deferred tax assets was based on recent profitable operations in Ukraine resulting in a cumulative profit over the three-year period ending January 31, 2018, our projections of future profitability in Ukraine, the relative economic and political stability in Ukraine and the unlimited carryforward period of net operating losses in Ukraine.
The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign countries. It is no longer subject to income tax examinations by U.S. federal tax authorities for fiscal years ended prior to January 31, 2017 and state tax authorities for fiscal years ended prior to January 31, 2016. Certain foreign jurisdictions are no longer subject to income tax examinations for the calendar year periods ranging between 2012 and 2015, depending on the jurisdiction of the entity.
As of January 31, 2020, the Company had accumulated undistributed earnings in non-U.S. subsidiaries of approximately $17.0 million. Upon repatriation of such earnings the Company could be subject to additional U.S. or foreign taxes. The Company has not recorded a deferred tax liability associated with these undistributed earnings as such earnings are to be reinvested outside of the U.S. indefinitely. It is not practicable to estimate the amount of additional tax that might be payable if such earnings were repatriated.
NOTE 19 - CAPITAL STRUCTURE
The Company's certificate of incorporation provides it with the authority to issue 50,000,000 shares of $0.00001 par value stock, consisting of 45,000,000 shares of common stock and 5,000,000 shares classified as undesignated.
NOTE 20 - STOCK-BASED COMPENSATION
Stock-Based Compensation Plans
The Company has two stock-based compensation plans, the 2014 Equity Incentive Plan and the 2005 Equity Incentive Plan (collectively the "Plans"), to provide incentive compensation to participants for services that have been or will be performed for continuing as employees or members of the Board of Directors of the Company. Under these plans, which are approved by the stockholders of the Company, the Company may grant incentive stock options, non-qualified stock options and restricted stock for up to a maximum number of shares of common stock set forth in the Plans under all forms of awards. Shares issued for stock-based awards consist of authorized but unissued shares. The Plans authorize and make available 1,650,000 shares for equity awards. As of January 31, 2020, the Company has 482,789 shares authorized and available for future equity awards.
Compensation cost arising from stock-based compensation and charged to operations was $2.7 million, $2.7 million and $3.1 million for the years ended January 31, 2020, 2019 and 2018. The related income tax benefit (net) was $0.6 million, $0.8 million and $1.2 million for the years ended January 31, 2020, 2019 and 2018.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Restricted Stock Awards ("RSAs")
The Company grants RSAs as part of its long-term incentive compensation to employees and members of the Board of Directors of the Company. The fair value of these awards is determined based on the closing market price of the Company's stock on the date of grant. The RSAs primarily vest over a period of three to six years for employees and over one year for members of the Board of Directors. The Company recognizes compensation expense ratably over the vesting period of the award. The restricted common stock underlying these awards are deemed issued and outstanding upon grant, and carry the same voting and dividend rights of unrestricted outstanding common stock.
The following table summarizes RSA activity for the year ended January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
|
(in thousands)
|
|
|
|
Nonvested at January 31, 2019
|
380
|
|
|
$
|
15.88
|
|
|
Granted
|
174
|
|
|
16.48
|
|
|
Forfeited
|
(26
|
)
|
|
15.89
|
|
|
Vested
|
(167
|
)
|
|
16.12
|
|
|
Nonvested at January 31, 2020
|
361
|
|
|
16.14
|
|
The weighted-average grant date fair value of RSAs granted was $16.48, $17.22 and $17.47 during the years ended January 31, 2020, 2019 and 2018. The total fair value of RSAs vested was $3.8 million, $3.6 million and $3.6 million during the years ended January 31, 2020, 2019 and 2018. As of January 31, 2020, there was $2.7 million of unrecognized compensation cost related to nonvested RSAs that is expected to be recognized over a weighted-average period of 1.9 years.
Restricted Stock Units ("RSUs")
The Company grants RSUs as part of its long-term incentive compensation to certain employees of the Company in our European operations. The fair value of these awards is determined based on the closing market price of the Company's stock on the date of grant. The RSUs primarily vest over a period of three to six years. The Company recognizes compensation expense ratably over the vesting period of the award. The restricted common stock underlying these awards are not deemed issued or outstanding upon grant, and do not carry any voting or dividend rights.
The following table summarizes RSU activity for the year ended January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
|
(in thousands)
|
|
|
|
Nonvested at January 31, 2019
|
5
|
|
|
$
|
14.19
|
|
|
Granted
|
11
|
|
|
17.79
|
|
|
Vested
|
(2
|
)
|
|
13.53
|
|
|
Nonvested at January 31, 2020
|
14
|
|
|
$
|
17.06
|
|
The weighted-average grant date fair value of RSUs granted was $17.79 and $17.58 for the fiscal years ended January 31, 2020 and 2019. There were no RSUs granted during fiscal 2019. As of January 31, 2020, there was $0.2 million of unrecognized compensation cost related to nonvested RSUs that is expected to be recognized over a weighted-average period of 2.2 years.
During the year ended January 31, 2019, the Company modified certain of its RSU agreements to require the settlement of all future vested awards to be paid in cash in an amount equal to the number of vested awards multiplied by the stock price of the Company on the date of vesting. Due to the cash settlement provision, these awards became liability-classified share-based payments on the modification date. The accounting for this modification did not have a material impact on the Company's consolidated statement of operations or financial position.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-Term Cash Incentive Awards
The Company grants long-term cash incentive awards as part of its long-term incentive compensation to certain international employees of the Company. The awards vest over a period of approximately four years and entitle the award recipient to a cash payment on the vesting date equal to the number of vested shares multiplied by the stock price of the Company on the date of vesting. These awards are liability-classified share-based payment awards in which fair value of the award is remeasured at each period until the liability is settled. Fair value of these awards is determined based on the closing price of the Company's stock as of the end of each reporting period. Changes in the fair value of the liability are recognized as compensation cost over the requisite service period. The percentage of the fair value that is accrued as compensation cost at the end of each period is equal to the percentage of the requisite service that has been rendered at that date.
The following table summarizes activity for long-term cash incentive awards for the year ended January 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
|
(in thousands)
|
|
|
|
Nonvested at January 31, 2019
|
24
|
|
|
$
|
16.22
|
|
|
Granted
|
17
|
|
|
16.63
|
|
|
Forfeited
|
(3
|
)
|
|
16.07
|
|
|
Vested
|
(11
|
)
|
|
16.65
|
|
|
Nonvested at January 31, 2020
|
27
|
|
|
$
|
16.48
|
|
The weighted-average grant date fair value of long-term cash incentive awards granted was $16.63 during the year ended January 31, 2020. As of January 31, 2020, based on the Company's stock price on that day, there was $0.2 million of unrecognized compensation cost related to nonvested awards that is expected to be recognized over a weighted-average period of 1.3 years.
NOTE 21 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the fiscal years ended January 31, 2020, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Currency Translation Adjustment
|
|
Net Investment Hedging Instruments, Unrealized Gain
|
|
Cash Flow Hedging Instruments, Unrealized Gain (Loss)
|
|
Total Accumulated Other Comprehensive Income (Loss)
|
|
|
(in thousands)
|
|
Balance, January 31, 2017
|
$
|
(6,810
|
)
|
|
$
|
2,711
|
|
|
$
|
(684
|
)
|
|
$
|
(4,783
|
)
|
|
Other comprehensive income (loss) before reclassifications
|
2,399
|
|
|
—
|
|
|
48
|
|
|
2,447
|
|
|
Amounts reclassified from accumulated other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
1,091
|
|
|
1,091
|
|
|
Total other comprehensive income (loss), before tax
|
2,399
|
|
|
—
|
|
|
1,139
|
|
|
3,538
|
|
|
Tax effect
|
—
|
|
|
—
|
|
|
(455
|
)
|
|
(455
|
)
|
|
Total other comprehensive income (loss), net of tax
|
2,399
|
|
|
—
|
|
|
684
|
|
|
3,083
|
|
|
Balance, January 31, 2018
|
(4,411
|
)
|
|
2,711
|
|
|
—
|
|
|
(1,700
|
)
|
|
Total other comprehensive loss
|
(640
|
)
|
|
—
|
|
|
—
|
|
|
(640
|
)
|
|
Balance, January 31, 2019
|
(5,051
|
)
|
|
2,711
|
|
|
—
|
|
|
(2,340
|
)
|
|
Total other comprehensive loss
|
(880
|
)
|
|
—
|
|
|
—
|
|
|
(880
|
)
|
|
Balance, January 31, 2020
|
$
|
(5,931
|
)
|
|
$
|
2,711
|
|
|
$
|
—
|
|
|
$
|
(3,220
|
)
|
Income taxes are not provided for foreign currency translation adjustments arising from permanent investments in international subsidiaries. Reclassifications are made to avoid double counting in comprehensive income (loss) items that are also recorded as part of net income (loss). Reclassification amounts from cash flow hedging instruments for the year ended January 31, 2018 are recorded in floorplan interest expense in the consolidated statements of operations. The tax effect of these reclassifications, recognized as a tax benefit in the amount of $0.4 million for the year ended January 31, 2018, are recorded in provision for (benefit from) income taxes in the consolidated statements of operations.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 22 - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit-sharing plan ("401(k) Plan") for full-time employees at least 19 years of age. The Company matches 50% of the first 6% of participating employees' contributions. In addition, the Company may make a discretionary contribution to the 401(k) Plan as determined by the Board of Directors, with a maximum amount equal to the amount allowed under the IRS regulations. The Company recognized expense for contributions made to the 401(k) Plan totaling $3.0 million, $2.7 million and $2.5 million for the years ended January 31, 2020, 2019 and 2018. All amounts contributed during these years reflected matching contributions, as no discretionary contributions were made by the Company to the 401(k) Plan.
NOTE 23 - BUSINESS COMBINATIONS
Fiscal 2020
On January 1, 2019, the Company, through its German subsidiary, acquired certain assets of ESB Agrartechnik GmbH ("ESB"). ESB is a full-service agriculture equipment dealership in Eastern Germany. The Company's acquisition of ESB further expands its presence in the German market. The total consideration transferred for the acquired business was $3.0 million paid in cash. This acquisition was recognized in the fiscal year ended January 31, 2020 as the acquisition occurred within the Company's International segment in which all entities maintain a calendar year reporting period.
On October 1, 2019, the Company acquired certain assets of Uglem-Ness Co. The acquired business consists of one Case IH agriculture equipment store in Northwood, North Dakota. The service area is contiguous to the Company's existing locations in Grand Forks and Casselton, North Dakota and Ada, Minnesota. The total consideration transferred for the acquired business was $10.9 million paid in cash, including the acquired real estate, which was finalized in January 2020 for $2.1 million.
In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Uglem-Ness Co. Upon acquiring such inventories, the Company has been offered floorplan financing by the respective manufacturers. In total, the Company acquired inventory and recognized a corresponding financing liability of $7.4 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination.
Fiscal 2019
On July 2, 2018, the Company acquired all interests of two commonly-controlled companies, AGRAM Landtechnikvertrieb GmbH and AGRAM Landtechnik Rollwitz GmbH (collectively "AGRAM"), for $19.2 million in cash consideration. Founded in 1990, AGRAM is a CaseIH and Steyr dealership complex consisting of four agriculture dealership locations in the following cities of Germany: Altranft, Burkau, Gutzkow, and Rollwitz. Our acquisition of these entities provided the Company the opportunity to expand its international presence into the large, well-established German market.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Purchase Price Allocation
Each of the above acquisitions has been accounted for under the acquisition method of accounting, which requires the Company to estimate the acquisition date fair value of the assets acquired and liabilities assumed. The accounting for all business combinations is complete as of January 31, 2020. The following table presents the aggregate purchase price allocations for all acquisitions completed during the fiscal years ended January 31, 2020 and 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2020
|
|
2019
|
|
|
(in thousands)
|
|
Assets acquired:
|
|
|
|
|
Cash
|
$
|
—
|
|
|
$
|
3,857
|
|
|
Receivables
|
440
|
|
|
5,340
|
|
|
Inventories
|
6,466
|
|
|
21,725
|
|
|
Prepaid expenses and other
|
—
|
|
|
887
|
|
|
Property and equipment
|
3,810
|
|
|
3,512
|
|
|
Intangible assets
|
1,973
|
|
|
1,944
|
|
|
Goodwill
|
1,198
|
|
|
924
|
|
|
Other
|
—
|
|
|
61
|
|
|
|
13,887
|
|
|
38,250
|
|
|
Liabilities Assumed:
|
|
|
|
|
Accounts payable
|
—
|
|
|
1,553
|
|
|
Floorplan payable
|
—
|
|
|
13,820
|
|
|
Deferred revenue
|
—
|
|
|
85
|
|
|
Accrued expenses and other
|
—
|
|
|
1,279
|
|
|
Long-term debt
|
—
|
|
|
1,725
|
|
|
Deferred income taxes
|
—
|
|
|
632
|
|
|
|
—
|
|
|
19,094
|
|
|
Net assets acquired
|
$
|
13,887
|
|
|
$
|
19,156
|
|
|
|
|
|
|
|
Goodwill recognized by segment:
|
|
|
|
|
Agriculture
|
$
|
699
|
|
|
$
|
—
|
|
|
Construction
|
—
|
|
|
—
|
|
|
International
|
499
|
|
|
924
|
|
|
Goodwill expected to be deductible for tax purposes
|
1,198
|
|
|
—
|
|
The recognition of goodwill in the above business combinations arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized. For business combinations occurring during the year ended January 31, 2020, the Company recognized, in the aggregate, a customer relationship intangible asset of $0.2 million, a non-competition intangible asset of $0.1 million, and a distribution rights intangible asset of $1.6 million. For business combinations occurring during the year ended January 31, 2019, the Company recognized a customer relationship intangible asset of $0.1 million and a distribution right intangible asset of $1.8 million. The acquired non-competition and customer relationship intangible assets are being amortized over periods ranging from three to five years. The distribution rights assets are indefinite-lived intangible assets not subject to amortization, but are tested for impairment annually, or more frequently upon the occurrence of certain events or when circumstances indicate that impairment may be present. The Company estimated the fair value of these intangible assets using a multi-period excess earnings model, an income approach. Acquisition related costs were not material for the fiscal years ended January 31, 2020 and 2019, and have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations.
NOTE 24 - FAIR VALUE OF FINANCIAL INSTRUMENTS
As of January 31, 2020 and 2019, the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material. These foreign currency contracts were valued using a discounted cash flow analysis, an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2020, April 30, 2019 and January 31, 2019 as part of its long-lived asset impairment testing. The estimated fair value of such assets as of January 31, 2020, and January 31, 2019 was $2.8 million and $0.9 million. Fair value was determined by utilizing an income approach incorporating both observable and unobservable inputs, and are deemed to be Level 3 fair value inputs. The most significant unobservable inputs include forecasted net cash generated from the use of the assets and the discount rate applied to such cash flows to arrive at a fair value estimate. In addition, in certain instances, the Company estimated the fair value of long-lived assets to be approximately zero, as no future cash flows were assumed to be generated from the use of such assets and the expected sales values were deemed to be nominal. All such fair value measurements were based on unobservable inputs and thus are Level 3 fair value inputs.
The Company also has financial instruments that are not recorded at fair value in its consolidated financial statements. 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, which are Level 2 fair value inputs. Based upon current borrowing rates with similar maturities, which are Level 2 fair value inputs, the carrying value of long-term debt approximates the fair value as of January 31, 2020 and 2019. The following table provides details on the Senior Convertible Notes as of January 31, 2019. During fiscal 2020, the Company paid off the remaining Senior Convertible Notes. The difference between the face value and the carrying value of these notes is the result of the allocation between the debt and equity components, and unamortized debt issuance costs (see Note 11). Fair value of the Senior Convertible Notes was estimated based on Level 2 fair value inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
|
Estimated Fair Value
|
|
Carrying Value
|
|
Face Value
|
|
|
(in thousands)
|
|
Senior convertible notes
|
$
|
45,644
|
|
|
$
|
45,249
|
|
|
$
|
45,644
|
|
NOTE 25 - SEGMENT INFORMATION AND OPERATING RESULTS
The Company has three reportable segments: Agriculture, Construction and International. The Company's segments are determined based on management structure, which is organized based on types of products sold and geographic areas, as described in the following paragraphs. The operating results for each segment are reported separately to the Company's Chief Executive Officer to make decisions regarding the allocation of resources, to assess the Company's operating performance and to make strategic decisions.
The Company's Agriculture segment sells, services, and rents machinery, and related parts and attachments, for uses ranging from large-scale farming to home and garden use in North America. This segment also includes ancillary sales and services related to agricultural activities and products such as equipment transportation, Global Positioning System ("GPS") signal subscriptions and finance and insurance products.
The Company's Construction segment sells, services, and rents machinery, and related parts and attachments, for uses ranging from heavy construction to light industrial machinery use to customers in North America. This segment also includes ancillary sales and services related to construction activities such as equipment transportation, GPS signal subscriptions and finance and insurance products.
The Company’s International segment sells, services, and rents machinery, and related parts and attachments, for uses ranging from large-scale farming and construction to home and garden use to customers in Eastern Europe.
Revenue generated from sales to customers outside of the United States was $236.1 million, $232.7 million and $208.9 million for the years ended January 31, 2020, 2019 and 2018. As of January 31, 2020 and 2019, $11.4 million and $12.3 million of the Company's long-lived assets were held in its European subsidiaries.
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 Resource assets primarily consist of cash and property and equipment. Revenue between segments is immaterial.
Certain financial information for each of the Company's business segments is set forth below.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Revenue
|
|
|
|
|
|
|
Agriculture
|
$
|
749,042
|
|
|
$
|
726,793
|
|
|
$
|
689,854
|
|
|
Construction
|
320,034
|
|
|
301,989
|
|
|
293,860
|
|
|
International
|
236,095
|
|
|
232,723
|
|
|
208,892
|
|
|
Total
|
$
|
1,305,171
|
|
|
$
|
1,261,505
|
|
|
$
|
1,192,606
|
|
|
Income (Loss) Before Income Taxes
|
|
|
|
|
|
|
Agriculture
|
$
|
18,036
|
|
|
$
|
16,799
|
|
|
$
|
(3,678
|
)
|
|
Construction
|
(2,290
|
)
|
|
(4,400
|
)
|
|
(7,278
|
)
|
|
International
|
504
|
|
|
5,160
|
|
|
2,205
|
|
|
Segment income (loss) before income taxes
|
16,250
|
|
|
17,559
|
|
|
(8,751
|
)
|
|
Shared Resources
|
(1,598
|
)
|
|
(1,405
|
)
|
|
(5,688
|
)
|
|
Total
|
$
|
14,652
|
|
|
$
|
16,154
|
|
|
$
|
(14,439
|
)
|
|
Total Impairment
|
|
|
|
|
|
|
Agriculture
|
$
|
2,807
|
|
|
$
|
886
|
|
|
$
|
175
|
|
|
Construction
|
957
|
|
|
1,114
|
|
|
498
|
|
|
International
|
—
|
|
|
156
|
|
|
—
|
|
|
Total
|
$
|
3,764
|
|
|
$
|
2,156
|
|
|
$
|
673
|
|
|
Restructuring Costs
|
|
|
|
|
|
|
Agriculture
|
$
|
—
|
|
|
$
|
441
|
|
|
$
|
6,886
|
|
|
Construction
|
—
|
|
|
(27
|
)
|
|
2,093
|
|
|
International
|
—
|
|
|
—
|
|
|
62
|
|
|
Segment impairment
|
—
|
|
|
414
|
|
|
9,041
|
|
|
Shared Resources
|
—
|
|
|
—
|
|
|
1,458
|
|
|
Total
|
$
|
—
|
|
|
$
|
414
|
|
|
$
|
10,499
|
|
|
Interest Income
|
|
|
|
|
|
|
Agriculture
|
$
|
54
|
|
|
$
|
84
|
|
|
$
|
164
|
|
|
Construction
|
217
|
|
|
234
|
|
|
314
|
|
|
International
|
44
|
|
|
81
|
|
|
9
|
|
|
Segment interest income
|
315
|
|
|
399
|
|
|
487
|
|
|
Shared Resources
|
16
|
|
|
(73
|
)
|
|
9
|
|
|
Total
|
$
|
331
|
|
|
$
|
326
|
|
|
$
|
496
|
|
|
Interest Expense
|
|
|
|
|
|
|
Agriculture
|
$
|
5,142
|
|
|
$
|
4,272
|
|
|
$
|
5,781
|
|
|
Construction
|
7,221
|
|
|
6,308
|
|
|
7,750
|
|
|
International
|
3,504
|
|
|
3,313
|
|
|
2,510
|
|
|
Segment interest expense
|
15,867
|
|
|
13,893
|
|
|
16,041
|
|
|
Shared Resources
|
(6,061
|
)
|
|
(19
|
)
|
|
958
|
|
|
Total
|
$
|
9,806
|
|
|
$
|
13,874
|
|
|
$
|
16,999
|
|
|
|
|
|
|
|
|
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2020
|
|
2019
|
|
2018
|
|
|
(in thousands)
|
|
Depreciation and Amortization
|
|
|
|
|
|
|
Agriculture
|
$
|
5,095
|
|
|
$
|
4,997
|
|
|
$
|
5,411
|
|
|
Construction
|
12,537
|
|
|
13,652
|
|
|
14,297
|
|
|
International
|
2,402
|
|
|
1,804
|
|
|
1,366
|
|
|
Segment depreciation and amortization
|
20,034
|
|
|
20,453
|
|
|
21,074
|
|
|
Shared Resources
|
8,033
|
|
|
3,152
|
|
|
4,031
|
|
|
Total
|
$
|
28,067
|
|
|
$
|
23,605
|
|
|
$
|
25,105
|
|
|
Capital Expenditures
|
|
|
|
|
|
|
Agriculture
|
$
|
4,699
|
|
|
$
|
2,473
|
|
|
$
|
2,950
|
|
|
Construction
|
15,713
|
|
|
7,012
|
|
|
20,080
|
|
|
International
|
1,768
|
|
|
1,944
|
|
|
1,332
|
|
|
Segment capital expenditures
|
22,180
|
|
|
11,429
|
|
|
24,362
|
|
|
Shared Resources
|
2,836
|
|
|
522
|
|
|
1,753
|
|
|
Total
|
$
|
25,016
|
|
|
$
|
11,951
|
|
|
$
|
26,115
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2020
|
|
January 31, 2019
|
|
Total Assets
|
|
|
(in thousands)
|
|
Agriculture
|
|
|
$
|
444,942
|
|
|
$
|
316,224
|
|
|
Construction
|
|
|
275,645
|
|
|
227,261
|
|
|
International
|
|
|
191,513
|
|
|
170,187
|
|
|
Segment assets
|
|
|
912,100
|
|
|
713,672
|
|
|
Shared Resources
|
|
|
63,243
|
|
|
78,766
|
|
|
Total
|
|
|
$
|
975,343
|
|
|
$
|
792,438
|
|
NOTE 26 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
The following reflects selected quarterly financial information for fiscal years 2020 and 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
|
First quarter
|
|
Second quarter
|
|
Third quarter
|
|
Fourth quarter
|
|
|
(in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
278,292
|
|
|
$
|
314,981
|
|
|
$
|
360,936
|
|
|
$
|
350,964
|
|
|
$
|
243,714
|
|
|
$
|
297,231
|
|
|
$
|
360,913
|
|
|
$
|
359,647
|
|
|
Gross Profit
|
53,900
|
|
|
64,027
|
|
|
71,774
|
|
|
61,118
|
|
|
47,558
|
|
|
58,901
|
|
|
69,542
|
|
|
55,585
|
|
|
Net Income (Loss)
|
(445
|
)
|
|
5,511
|
|
|
8,214
|
|
|
673
|
|
|
(1,588
|
)
|
|
5,180
|
|
|
10,776
|
|
|
(2,160
|
)
|
|
Earnings (Loss) per Share-Basic
|
(0.02
|
)
|
|
0.25
|
|
|
0.37
|
|
|
0.03
|
|
|
(0.07
|
)
|
|
0.23
|
|
|
0.49
|
|
|
(0.10
|
)
|
|
Earnings (Loss) per Share-Diluted
|
(0.02
|
)
|
|
0.25
|
|
|
0.37
|
|
|
0.03
|
|
|
(0.07
|
)
|
|
0.23
|
|
|
0.48
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In the fourth quarter of fiscal 2020, the Company recognized an income tax benefit of $4.6 million from the release of the U.S. valuation allowance previously recognized for deferred tax assets. Further details of these tax matters are discussed in Note 18.
TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 27 - SUBSEQUENT EVENTS
On January 31, 2020, the Company entered into a definitive purchase agreement to acquire HorizonWest Inc., which owns a three store CaseIH agriculture dealership complex in Scottsbluff and Sidney, Nebraska and Torrington, Wyoming. In its most recent fiscal year, HorizonWest generated revenue of approximately $26 million. The Company expects to close the acquisition in May 2020.
Effective March 23, 2020, the Company announced it would temporarily prevent public access to its stores in response to the increased impact from novel coronavirus (COVID-19). While customers temporarily do not have access to our facilities, we are fully staffed; and we are using technology, mobile service fleets and alternative delivery solutions to provide equipment, parts, service and rental to our customers. While this is expected to be temporary, the current circumstances are dynamic. The impacts of COVID-19 on our business operations, financial results, and on customer demand cannot be reasonably estimated at this time.
On April 3, 2020, the Company entered into a Third Amended and Restated Credit Agreement, arranged by Bank of America, with a syndicate of lenders consisting of Wells Fargo, Regions, BBVA, Sterling National Bank and AgCountry Farm Credit. The new credit agreement provides for an aggregate $250 million financing commitment by the lenders, consisting of an aggregate floorplan financing commitment of $185 million and an aggregate working capital commitment of $65 million. Loans under the new credit facility will carry an initial effective interest rate equal to LIBOR plus an applicable margin of 1.5% per annum, based on the Company’s liquidity position. The terms of the new agreement are similar to those in the previous credit facility, but favorably impacted by the increased advanced rates adding to the Company's excess availability. In conjunction with entering into the new credit agreement, the Company repaid in full all debt outstanding under its previous Wells Fargo Credit Agreement, which was to mature in October, 2020.