Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended April 30, 2009

 

Commission File No. 000-33866

 

TITAN MACHINERY INC.

(Exact name of registrant as specified in its charter)

 

 

4876 Rocking Horse Circle
Fargo, ND 58104-6049

(Address of Principal Executive Offices)

 

Registrant’s telephone number (701) 356-0130

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x  NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  YES o  NO  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  YES o NO x

 

The number of shares outstanding of the registrant’s common stock as of June 1, 2009 was: Common Stock, $0.00001 par value, 17,729,021 shares.

 

 

Table of Contents

 

TITAN MACHINERY INC.

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

			Page No.
PART I.	FINANCIAL INFORMATION		1
ITEM 1.		FINANCIAL STATEMENTS	1
		Consolidated Balance Sheets as of April 30, 2009 and January 31, 2009	1
		Consolidated Statements of Operations for the three months ended April 30, 2009 and 2008	2
		Consolidated Statements of Cash Flows for the three months ended April 30, 2009 and 2008	3
		Notes to Consolidated Financial Statements	5
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	10
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	15
ITEM 4.		CONTROLS AND PROCEDURES	16
PART II.	OTHER INFORMATION		16
ITEM 1.		LEGAL PROCEEDINGS	16
ITEM 1A.		RISK FACTORS	16
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	16
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	16
ITEM 4.		SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	17
ITEM 5.		OTHER INFORMATION	17
ITEM 6.		EXHIBITS	17
Signatures			18
Exhibit Index			19

 

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PART I. — FINANCIAL INFORMATION

 

ITEM 1.          FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		April 30,			January 31,
		2009			2009
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	78,714		$	41,047
U.S. treasury bills		—			44,994
Total cash, cash equivalents and U.S. treasury bills		78,714			86,041
Receivables, net		21,695			19,627
Inventories		290,832			241,094
Prepaid expenses		485			532
Income taxes receivable		900			1,433
Deferred income taxes		1,753			1,426
Total current assets		394,379			350,153
INTANGIBLES AND OTHER ASSETS
Parts inventory in excess of amounts expected to be sold currently		1,609			1,509
Goodwill		12,253			12,464
Intangible assets, net of accumulated amortization		346			366
Other		498			487
		14,706			14,826
PROPERTY AND EQUIPMENT, net of accumulated depreciation		44,072			45,269
		$	453,157		$	410,248
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	15,887		$	18,652
Floorplan notes payable		203,593			166,481
Current maturities of long-term debt		7,620			7,623
Customer deposits		15,483			15,158
Accrued expenses		7,397			8,308
Total current liabilities		249,980			216,222
LONG-TERM LIABILITIES
Long-term debt, less current maturities		19,403			14,810
Deferred income taxes		3,837			3,503
Other long-term liabilities		4,186			1,946
		27,426			20,259
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 17,688 at April 30, 2009 and 17,657 at January 31, 2009		—			—
Additional paid-in-capital		137,949			137,755
Retained earnings		37,802			36,012
		175,751			173,767
		$	453,157		$	410,248

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

		Three Months Ended
		April 30,
		2009			2008
REVENUE
Equipment		$	124,865		$	120,914
Parts		26,398			21,504
Service		12,542			8,944
Other, including trucking and rental		2,496			1,220
TOTAL REVENUE		166,301			152,582
COST OF REVENUE
Equipment		112,300			107,918
Parts		18,537			15,794
Service		4,600			3,418
Other, including trucking and rental		2,348			853
TOTAL COST OF REVENUE		137,785			127,983
GROSS PROFIT		28,516			24,599
OPERATING EXPENSES		24,705			18,182
INCOME FROM OPERATIONS		3,811			6,417
OTHER INCOME (EXPENSE)
Interest and other income		211			311
Floorplan interest expense		(731		)	(722		)
Interest expense other		(263		)	(313		)
INCOME BEFORE INCOME TAXES		3,028			5,693
PROVISION FOR INCOME TAXES		(1,238		)	(2,306		)
NET INCOME		$	1,790		$	3,387
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.10		$	0.25
EARNINGS PER SHARE - DILUTED		$	0.10		$	0.24
WEIGHTED AVERAGE SHARES - BASIC		17,571			13,449
WEIGHTED AVERAGE SHARES - DILUTED		17,860			13,855

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

		Three Months Ended April 30,
		2009			2008
OPERATING ACTIVITIES
Net income		$	1,790		$	3,387
Adjustments to reconcile net income to net cash from operations
Depreciation and amortization		1,910			854
Deferred income taxes		55			(9		)
Stock based compensation expense		194			137
Other		(10		)	(35		)
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables and prepaid expenses		(2,079		)	(6,235		)
Inventories		(24,246		)	(1,532		)
Floorplan notes payable		1,330			783
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		(827		)	10,799
Income taxes		533			2,314
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		(21,350		)	10,463
INVESTING ACTIVITIES
Sales of U.S. treasury bills, net of purchases		44,994			—
Property and equipment purchases		(2,880		)	(1,384		)
Net proceeds from sale of equipment		291			157
Purchase of equipment dealerships, net of cash purchased		—			(3,940		)
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES		42,405			(5,167		)
FINANCING ACTIVITIES
Net change in non-manufacturer floorplan payable		13,447			(79		)
Proceeds from long-term debt borrowings		4,629			58
Principal payments on long-term debt and subordinated debentures		(1,464		)	(6,109		)
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		16,612			(6,130		)
NET CHANGE IN CASH AND CASH EQUIVALENTS		37,667			(834		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		41,047			42,803
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	78,714		$	41,969
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	646		$	—
Interest		$	996		$	1,054

 

See Notes to Consolidated Financial Statements

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) – Page 2

(in thousands)

 

		Three Months Ended April 30,
		2009			2008
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased with long-term debt		$	1,425		$	—
Transfer of equipment from fixed assets to inventories		$	3,355		$	—
Acquisition of equipment dealership assets in exchange for cash and assumption of liabilities including purchase accounting adjustments on prior acquisitions
Receivables		$	58		$	—
Inventories		98			(3,433		)
Property and equipment		—			(473		)
Goodwill		211			(207		)
Accounts payable, customer deposits and accrued expenses		(319		)	173
Income taxes payable		(48		)	—
Cash paid for dealerships and adjustments on prior acquisitions		$	—		$	(3,940	)

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 -       BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The unaudited financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month period ended April 30, 2009 are not necessarily indicative of the results that may be expected for the year ending January 31, 2010. The information contained in the balance sheet as of January 31, 2009 was derived from the Company’s audited financial statements for the year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the fiscal year ended January 31, 2009 as filed with the SEC.

 

Nature of Business

 

Titan Machinery Inc. (the “Company”) is engaged in the retail sale, service and rental of agricultural and industrial machinery through stores in North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Montana and Wyoming.

 

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 financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Transportation Solutions, LLC. All significant accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.

 

Recently Issued Accounting Pronouncements

 

In May 2009, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 165, Subsequent Events. SFAS 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Company will adopt SFAS 165 for the interim period ending July 30, 2009. Its adoption is not expected to have a material effect on the Company’s consolidated financial statements.

 

In February 2008, the FASB issued FSP FAS 157-2, Effective Date of FASB Statement No. 157 (“FSP FAS 157-2”), which permits a one year deferral of the application of SFAS 157 for all non-financial assets and non-financial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The Company adopted SFAS 157 for non-financial assets and non-financial liabilities on February 1, 2009. Its adoption did not have a material effect on the Company’s results of operations, financial position or cash flows.

 

In December 2007, the FASB issued SFAS No. 141 (Revised 2007), Business Combinations (“SFAS 141R”). SFAS 141R provides additional guidance on improving the relevance, representational faithfulness, and comparability of the financial information that a reporting entity provides in its financial reports about a business combination and its effects. SFAS 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted SFAS 141R effective February 1, 2009. Its adoption did not have a material effect on the Company’s consolidated financial statements.

 

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In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements (“SFAS 160”). SFAS 160 applies to all entities that prepare consolidated financial statements and have an outstanding noncontrolling interest in one or more subsidiaries. SFAS 160 amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company adopted SFAS 160 effective as of February 1, 2009. Its adoption did not have a material effect on the Company’s consolidated financial statements.

 

Earnings Per Share

 

The following table sets forth the denominator for the computation of basic and diluted earnings per share:

 

		Three Months Ended April 30,
(in thousands)		2009		2008
Basic weighted-average shares outstanding		17,571		13,449
Plus: Incremental shares from assumed conversions
Restricted Stock		97		85
Warrants		80		110
Stock Options		112		211
Diluted weighted-average shares outstanding		17,860		13,855

 

There were 191,000 stock options outstanding as of April 30, 2009 that were available to be included in the computation of diluted earnings per share because they were anti-dilutive. All stock options outstanding as of April 30, 2008 were used in the computation of diluted earnings per share.

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NOTE 2 -       INVENTORIES

 

		April 30,			January 31,
		2009			2009
		(in thousands)
New equipment		$	171,265		$	132,502
Used equipment		77,009			68,333
Parts, tires and attachments		39,227			37,314
Work in process		3,331			2,945
		$	290,832		$	241,094

 

In addition to the above amounts, the Company has estimated that a portion of its parts inventory will not be sold in the next operating cycle. Accordingly, these balances have been classified as noncurrent assets.

 

NOTE 3 -       LINES OF CREDIT/FLOORPLAN NOTES PAYABLE

 

Operating Line of Credit

 

The Company had no amount outstanding on the line of credit with Bremer Bank National Association (“Bremer Bank”) at April 30, 2009 and January 31, 2009. The agreement provides for available borrowings of $25,000,000 and carries a variable interest rate of prime minus .25%, and has a maturity date of August 1, 2009. The agreement contains certain financial covenants which impose minimum levels of current ratio, debt service coverage, and inventory turnover ratio and a maximum level of debt to tangible net worth ratio. As of April 30, 2009, the Company was in compliance with all of these financial covenants and had $24,750,000 in available borrowings under this line of credit. The line is secured by substantially all assets of the Company.

 

On August 1, 2008, Bremer Bank issued the Company a standby letter of credit in the amount of $250,000 to our insurance carrier for deductible retention. This reduced the amount of borrowings available on its line of credit by $250,000. This agreement expires on August 1, 2009.

 

Floorplan Lines of Credit

 

The Company has floorplan lines of credit for equipment purchases totaling approximately $321,000,000 with various manufacturers and a bank, including a $300,000,000 Wholesale Floorplan Credit Facility with CNH Capital America LLC (“CNH”). The available borrowings under the CNH credit facility are reduced by outstanding floorplan notes payable, rental fleet financing and other acquisition-related financing arrangements with CNH. The interest rate for new borrowings under the CNH Capital floorplan line of credit is equal to the prime rate plus 0.3% per annum for most purposes, subject to any interest-free periods offered by CNH. The CNH Capital credit facility automatically renews on August 31 of each year through August 31, 2012, unless earlier terminated by either party. Under covenants of the CNH credit facility, the Company has agreed, among other things, to maintain various financial ratio levels and to submit certain financial information. As of April 30, 2009, the Company was in compliance with all floorplan financial covenants.

 

Floorplan notes payable relating to these credit facilities totaled approximately $180,207,000 of the total floorplan notes payable balance of $203,593,000 outstanding as of April 30, 2009 and $153,782,000 of the total floorplan notes payable balance of $166,481,000 outstanding as of January 31, 2009. As of April 30, 2009, the Company had approximately $115,320,000 in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 3.25 to 9.25% as of April 30, 2009 and January 31, 2009, and are secured by the related inventory. Repayment terms vary by individual notes, but generally payments are made from sales proceeds or rental revenue from the related inventories.

 

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NOTE 4 -       STOCK WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK

 

Common Stock Warrants

 

The following table summarizes stock warrant activity for the three months ended April 30, 2009:

 

(number of warrants and aggregate intrinsic value in thousands)

 

										Weighted
				Weighted						Average
				Average			Aggregate			Remaining
		Number of		Exercise			Intrinsic			Contractual
		Warrants		Price			Value			Life (Years)
Outstanding and exercisable at January 31, 2009		123		$	3.45
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding and exercisable at April 30, 2009		123		$	3.45		$	822		3.0

 

Stock Options

 

The following table summarizes stock option activity for the three months ended April 30, 2009:

 

(number of options and aggregate intrinsic value in thousands)

 

										Weighted
				Weighted						Average
				Average			Aggregate			Remaining
		Number of		Exercise			Intrinsic			Contractual
		Options		Price			Value			Life (Years)
Outstanding at January 31, 2009		646		$	10.91
Granted		5		11.16
Exercised		—		—
Forfeited		—		—
Outstanding at April 30, 2009		651		$	10.91		$	1,234		7.8
Options exercisable at April 30, 2009		146		$	6.66		$	516		7.0

 

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Restricted Stock

 

The following table summarizes restricted stock activity for the three months ended April 30, 2009:

 

(number of restricted shares in thousands)

 

							Weighted
				Weighted			Average
				Average			Remaining
				Grant Date			Contractual
		Shares		Fair Value			Term
Nonvested at January 31, 2009		92		$	10.18		2.1
Granted		13		10.05
Forfeited		(1	)	11.93
Vested		(7	)	15.99
Nonvested at April 30, 2009		97		9.75			2.1

 

The weighted average grant date fair value of restricted stock granted was $10.05 and $17.48 for the three months ended April 30, 2009 and 2008, respectively. The total fair value of restricted stock vested was $103,434 for the three months ended April 30, 2009. No restricted stock vested during the three months ended April 30, 2008. As of April 30, 2009, there was approximately $606,000 of unrecognized compensation cost on non-vested restricted stock that is expected to be recognized over a weighted-average period of 2.1 years.

 

NOTE 5 -      SUBSEQUENT EVENTS

 

On May 1, 2009, the Company acquired 100% of the outstanding stock of Winger Implement, Inc. for approximately $1.5 million. The dealership is located in Winger, Minnesota.  The acquisition expands the Company’s presence in the Red River Valley.

 

On May 1, 2009, the Company opened a new Case Construction Equipment dealership in Minot, North Dakota. The new location expands the Company’s presence into the Bakken Formation area of North Dakota.

 

On May 28, 2009, the Company acquired certain assets of Arthur Mercantile, Co. for approximately $0.8 million. The dealership is located in Arthur, North Dakota. The acquisition expands the Company’s presence in the Red River Valley. James L. Williams, Arthur Mercantile, Co.’s President and Treasurer, is a Titan Machinery director.

 

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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended January 31, 2009.

 

Critical Accounting Policies

 

There have been no material changes in our Critical Accounting Policies, as disclosed in our Annual Report on Form 10-K for the year ended January 31, 2009.

 

Overview

 

We own and operate one of the largest networks of full service agricultural and construction equipment stores in North America. We are the world’s largest retail dealer of Case IH Agriculture equipment and a major retail dealer of New Holland Agriculture, Case Construction and New Holland Construction equipment in the U.S. We sell and rent agricultural and construction equipment, sell parts, and service the equipment operating in the areas surrounding our stores.

 

Our net income was $1.8 million, or $0.10 per diluted share, in the quarter ended April 30, 2009, compared to $3.4 million, or $0.24 per diluted share, in the quarter ended April 30, 2008. Significant factors impacting the quarter were:

 

·                  Revenue growth due to acquisitions, offset by declines in same-store sales;

 

·                  Increase in gross profits primarily due to a change in sales mix to higher-margin parts and service after-product sales support;

 

·                  Increase in operating expenses primarily due to acquisitions; and

 

·                  Significantly higher diluted weighted average shares resulting from our follow-on offering in May 2008, which negatively impacts earnings per share comparisons to the prior year.

 

Results of Operations

 

Comparative financial data for each of our four sources of revenue are expressed below. The results for these periods include the operating results of the acquisitions made during these periods. The period-to-period comparisons included below are not necessarily indicative of future results:

 

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		Three Months Ended April 30,
								Percent
		2009			2008			Change
		(dollars in thousands)
Equipment
Revenue		$	124,865		$	120,914		3.3	%
Cost of revenue		112,300			107,918			4.1	%
Gross profit		$	12,565		$	12,996		(3.3	)%
Parts
Revenue		$	26,398		$	21,504		22.8	%
Cost of revenue		18,537			15,794			17.4	%
Gross profit		$	7,861		$	5,710		37.7	%
Service
Revenue		$	12,542		$	8,944		40.2	%
Cost of revenue		4,600			3,418			34.6	%
Gross profit		$	7,942		$	5,526		43.7	%
Other, including trucking and rental
Revenue		$	2,496		$	1,220		104.6	%
Cost of revenue		2,348			853			175.3	%
Gross profit		$	148		$	367		(59.7	)%

 

The following table sets forth our statements of operations data expressed as a percentage of net revenue for the periods indicated:

 

		Three Months Ended April 30,
		2009		2008
Revenue
Equipment		75.1	%	79.2	%
Parts		15.9	%	14.1	%
Service		7.5	%	5.9	%
Other, including trucking and rental		1.5	%	0.8	%
Total revenue		100.0	%	100.0	%
Cost of revenue
Equipment		67.5	%	70.7	%
Parts		11.1	%	10.4	%
Service		2.8	%	2.2	%
Other, including trucking and rental		1.5	%	0.6	%
Total cost of revenue		82.9	%	83.9	%
Gross profit		17.1	%	16.1	%
Operating expenses		14.8	%	11.9	%
Income from operations		2.3	%	4.2	%

 

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Three Months Ended April 30, 2009 Compared to Three Months Ended April 30, 2008

 

Revenue

 

		Three Months Ended			Three Months Ended						Percent
		April 30, 2009			April 30, 2008			Increase			Change
		(dollars in thousands)
Equipment		$	124,865		$	120,914		$	3,951		3.3	%
Parts		26,398			21,504			4,894			22.8	%
Service		12,542			8,944			3,598			40.2	%
Other, including trucking and rental		2,496			1,220			1,276			104.6	%
Total Revenue		$	166,301		$	152,582		$	13,719		9.0	%

 

The increase in revenue for the three months ended April 30, 2009 was due to acquisitions contributing to current period revenue, offset by a decline in same-store sales. Acquisitions contributed $27.7 million in total revenue, while same-store sales declined by $14.0 million. Same-store sales decreased 9.2% over the same period of the prior year, resulting from a particularly strong agricultural market in fiscal 2009 that did not recur in the first quarter of fiscal 2010 and the significant flooding that occurred in the Red River Valley during the first quarter of fiscal 2010.

 

Cost of Revenue

 

		Three Months Ended			Three Months Ended						Percent
		April 30, 2009			April 30, 2008			Increase			Change
		(dollars in thousands)
Equipment		$	112,300		$	107,918		$	4,382		4.1	%
Parts		18,537			15,794			2,743			17.4	%
Service		4,600			3,418			1,182			34.6	%
Other, including trucking and rental		2,348			853			1,495			175.3	%
Total cost of revenue		$	137,785		$	127,983		$	9,802		7.7	%

 

The increase in cost of revenue for the three months ended April 30, 2009 was primarily due to increased revenue. Acquisitions contributed $22.5 million in total cost of revenue, while the decline in same-store sales resulted in a decrease in cost of revenue of $12.7 million. As a percentage of revenue, cost of revenue was 82.9%, compared to 83.9% for the first quarter of fiscal 2009.

 

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Table of Contents

 

Gross Profit

 

		Three Months Ended			Three Months Ended			Increase/			Percent
		April 30, 2009			April 30, 2008			(Decrease)			Change
		(dollars in thousands)
Equipment		$	12,565		$	12,996		$	(431	)	(3.3	)%
Parts		7,861			5,710			2,151			37.7	%
Service		7,942			5,526			2,416			43.7	%
Other, including trucking and rental		148			367			(219		)	(59.7	)%
Total Gross Profit		$	28,516		$	24,599		$	3,917		15.9	%

 

The $3.9 million increase in gross profit for the three months ended April 30, 2009 was primarily due to increased revenue as well as stronger margins on parts and service revenues. Acquisitions contributed $5.2 million to gross profit for the three months ended April 30, 2009, offset by a decrease in same-store sale gross profits of $1.3 million, or 5.3% from the first quarter of fiscal 2009. Gross profit margins were 17.1% for the first quarter of fiscal 2010, compared to 16.1% for the first quarter of fiscal 2009. Improvement in gross profit margins resulted from an increase in parts and service revenues as a percentage of net revenue, which are higher-margin revenue sources. The decrease in gross profit margins on other, including trucking and rental, was due to an increase in depreciation expense resulting from significant additions to our capitalized rental fleet since April 30, 2008, and the lower off-season utilization of rental fleet in the regions in which we operate. We believe that our gross profit on other, including trucking and rental, will increase as rental fleet utilization increases in the remaining quarters of fiscal 2010.

 

Operating Expenses

 

		Three Months Ended			Three Months Ended						Percent
		April 30, 2009			April 30, 2008			Increase			Change
		(dollars in thousands)
Operating Expenses		$	24,705		$	18,182		$	6,523		35.9	%

 

The $6.5 million increase in operating expenses was primarily due to the additional costs associated with acquisitions such as compensation, rent and depreciation. As a percentage of total revenue, operating expenses increased to 14.8% for the first quarter of fiscal 2010 compared to 11.9% for the first quarter of fiscal 2009. The strong prior year sales resulted in improved fixed operating expense utilization as a percentage of sales in the first quarter of fiscal 2009.

 

Other Income (Expense)

 

		Three Months Ended			Three Months Ended			Increase/			Percent
		April 30, 2009			April 30, 2008			(Decrease)			Change
		(dollars in thousands)
Interest and other income		$	211		$	311		$	(100	)	(32.2	)%
Floorplan interest expense		(731		)	(722		)	9			1.2	%
Interest expense		(263		)	(313		)	(50		)	(16.0	)%

 

While we had higher levels of cash and cash equivalents during the first quarter of fiscal 2010 compared to the first quarter of fiscal 2009, interest and other income decreased in the current quarter as we invested our cash balances in highly secure investments that carried lower interest rates than those earned in the first quarter of fiscal 2009. Floorplan interest expense remained relatively flat as the higher floorplan notes payable balances were offset by lower borrowing rates compared

 

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