Titan Machinery Inc. - Quarter Report: 2010 October (Form 10-Q)

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 October 31, 2010

 

Commission File No. 001-33866

 

TITAN MACHINERY INC.

(Exact name of registrant as specified in its charter)

 

 

644 East Beaton Drive

West Fargo, ND 58078-2648

(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 November 30, 2010 was: Common Stock, $0.00001 par value, 17,900,491 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 October 31, 2010 and January 31, 2010		1
		Consolidated Statements of Operations for the three and nine months ended October 31, 2010 and 2009		2
		Consolidated Statements of Cash Flows for the nine months ended October 31, 2010 and 2009		3
		Notes to Consolidated Financial Statements		5
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		11
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		23
ITEM 4.		CONTROLS AND PROCEDURES		24
PART II.	OTHER INFORMATION			24
ITEM 1.		LEGAL PROCEEDINGS		24
ITEM 1A.		RISK FACTORS		24
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		24
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES		24
ITEM 4.		(REMOVED AND RESERVED)		24
ITEM 5.		OTHER INFORMATION		24
ITEM 6.		EXHIBITS		25
Signatures				26
Exhibit Index				27

 

Table of Contents

 

PART I. – FINANCIAL INFORMATION

 

ITEM 1.          FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		October 31,			January 31,
		2010			2010
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	66,002		$	76,185
Receivables, net		34,976			22,254
Inventories		428,830			347,580
Prepaid expenses		867			1,009
Income taxes receivable		—			1,595
Deferred income taxes		2,923			2,266
Total current assets		533,598			450,889
INTANGIBLES AND OTHER ASSETS
Noncurrent parts inventories		2,344			1,642
Goodwill		16,247			14,762
Intangible assets, net of accumulated amortization		387			295
Other		869			620
		19,847			17,319
PROPERTY AND EQUIPMENT, net of accumulated depreciation		55,915			46,604
		$	609,360		$	514,812
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	16,307		$	12,352
Floorplan notes payable		322,328			249,872
Current maturities of long-term debt and short-term advances		9,248			7,218
Customer deposits		9,280			12,974
Accrued expenses		13,123			9,870
Income taxes payable		3,112			—
Total current liabilities		373,398			292,286
LONG-TERM LIABILITIES
Long-term debt, less current maturities		22,970			21,852
Deferred income taxes		6,994			6,356
Other long-term liabilities		2,498			3,794
		32,462			32,002
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 17,861 at October 31, 2010 and 17,777 at January 31, 2010		—			—
Additional paid-in-capital		139,772			138,775
Retained earnings		63,728			51,749
		203,500			190,524
		$	609,360		$	514,812

 

See Notes to Consolidated Financial Statements

 

1

Table of Contents

 

TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

		Three Months Ended						Nine Months Ended
		October 31,						October 31,
		2010			2009			2010			2009
REVENUE
Equipment		$	241,096		$	173,367		$	544,587		$	439,374
Parts		42,028			32,961			111,038			91,813
Service		20,832			15,854			54,885			44,036
Other, including trucking and rental		7,351			4,836			15,920			11,288
TOTAL REVENUE		311,307			227,018			726,430			586,511
COST OF REVENUE
Equipment		221,163			155,653			496,306			393,405
Parts		29,296			22,291			78,666			63,767
Service		7,435			5,658			20,376			15,844
Other, including trucking and rental		5,435			3,833			12,613			9,388
TOTAL COST OF REVENUE		263,329			187,435			607,961			482,404
GROSS PROFIT		47,978			39,583			118,469			104,107
OPERATING EXPENSES		32,849			27,792			91,857			79,159
INCOME FROM OPERATIONS		15,129			11,791			26,612			24,948
OTHER INCOME (EXPENSE)
Interest and other income		207			180			414			531
Floorplan interest expense		(2,138		)	(1,798		)	(5,850		)	(3,461		)
Interest expense other		(394		)	(454		)	(1,129		)	(1,045		)
INCOME BEFORE INCOME TAXES		12,804			9,719			20,047			20,973
PROVISION FOR INCOME TAXES		(5,098		)	(3,986		)	(8,068		)	(8,599		)
NET INCOME		$	7,706		$	5,733		$	11,979		$	12,374
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.44		$	0.33		$	0.68		$	0.70
EARNINGS PER SHARE - DILUTED		$	0.42		$	0.32		$	0.66		$	0.69
WEIGHTED AVERAGE SHARES - BASIC		17,661			17,604			17,638			17,586
WEIGHTED AVERAGE SHARES - DILUTED		18,161			18,013			18,100			17,958

 

See Notes to Consolidated Financial Statements

 

2

Table of Contents

 

TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

		Nine Months Ended October 31,
		2010			2009
OPERATING ACTIVITIES
Net income		$	11,979		$	12,374
Adjustments to reconcile net income to net cash used for operations
Depreciation and amortization		6,443			5,888
Deferred income taxes		(19		)	680
Stock-based compensation expense		860			720
Other		(199		)	(28		)
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables, prepaid expenses and other assets		(12,580		)	(4,122		)
Inventories		(57,119		)	(49,981		)
Floorplan notes payable		2,893			5,144
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		1,724			(6,764		)
Income taxes		4,707			3,017
NET CASH USED FOR OPERATING ACTIVITIES		(41,311		)	(33,072		)
INVESTING ACTIVITIES
Net change in U.S. treasury bills		—			44,994
Property and equipment purchases		(11,210		)	(11,066		)
Net proceeds from sale of equipment		719			338
Purchase of equipment dealerships, net of cash purchased		(2,423		)	(3,737		)
Other, net		(293		)	—
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES		(13,207		)	30,529
FINANCING ACTIVITIES
Net change in non-manufacturer floorplan notes payable		45,179			33,664
Short-term advances related to customer contracts in transit, net		(104		)	1,329
Proceeds from long-term debt borrowings		6,441			20,570
Principal payments on long-term debt		(7,318		)	(11,734		)
Other		137			43
NET CASH PROVIDED BY FINANCING ACTIVITIES		44,335			43,872
NET CHANGE IN CASH AND CASH EQUIVALENTS		(10,183		)	41,329
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		76,185			41,047
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	66,002		$	82,376

 

See Notes to Consolidated Financial Statements

 

3

Table of Contents

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

		Nine Months Ended October 31,
		2010			2009
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	3,388		$	5,710
Interest		$	6,965		$	3,763
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased with long-term debt		$	2,504		$	1,772
Net transfer of equipment from (to) fixed assets to (from) inventories		$	(2,357	)	$	7,684
Net transfer of financing from (to) long-term debt to (from) floorplan notes payable		$	(1,625	)	$	3,180
Acquisition of equipment dealership assets in exchange for cash and assumption of liabilities including purchase accounting adjustments on prior acquisitions
Receivables		$	—		$	(239	)
Inventories		(2,000		)	(6,391		)
Deferred income taxes, net		—			133
Property and equipment		(231		)	(851		)
Goodwill		(1,485		)	(1,215		)
Accounts payable, customer deposits and accrued expenses		17			146
Floorplan notes payable		819			2,443
Income taxes payable		—			(127		)
Long-term debt		—			1,867
Non-cash consideration: other long-term liabilities		457			497
Cash paid for dealerships, net of cash purchased and adjustments on prior acquisitions		$	(2,423	)	$	(3,737	)

 

See Notes to Consolidated Financial Statements

 

4

Table of Contents

 

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 -       BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America 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 nine-month period ended October 31, 2010 are not necessarily indicative of the results that may be expected for the year ending January 31, 2011. The information contained in the balance sheet as of January 31, 2010 was derived from the audited financial statements for Titan Machinery Inc. (the “Company”) for the year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended January 31, 2010 as filed with the SEC.

 

Nature of Business

 

Titan Machinery Inc. is engaged in the retail sale, service and rental of agricultural and construction 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.

 

Fair Value of Financial Instruments

 

The carrying amount of cash, receivables, payables, short-term debt and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments. Based upon current borrowing rates with similar maturities, the carrying value of the long-term debt approximates the fair value as of October 31, 2010 and January 31, 2010.

 

Exit and Disposal Costs

 

The Company accounts for exit or disposal activities, including store closures, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 420, Exit or Disposal Cost Obligations. Such costs mainly include lease termination costs and employee termination costs. The Company records a liability for any remaining lease obligations, net of estimated sublease income or estimated loss on disposal if the Company buys and subsequently sells the leased property, as of the date the Company ceases using the property. 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 at the date the termination benefits were communicated to the employees.

 

5

Table of Contents

 

As part of the Company’s Construction business action plan, in April 2010, the Company decided to close its Construction store in Columbia Falls, Montana. The primary exit costs relate to estimated lease termination costs of $306,000 and employee termination costs of $27,000. These exit costs are included in operating expenses on the consolidated statements of operations for the nine months ended October 31, 2010. The Company transferred the majority of the assets and related floorplan notes payable and long-term debt to other stores. A reconciliation of the beginning and ending liability balance follows:

 

		(in thousands)
Balance at January 31, 2010		$	—
Exit costs incurred and charged to expense		333
Exit costs paid		(93		)
Balance at October 31, 2010		$	240

 

Recent Accounting Guidance

 

In July 2010, the FASB issued authoritative guidance on financing receivables and the allowance for credit losses, codified in ASC 310, Receivables. This guidance amends the current disclosure requirements to provide a greater level of disaggregated information about the credit quality of an entity’s financing receivables and its allowance for credit losses. The guidance also requires an entity to disclose credit quality indicators, past due information, and modifications of its financing receivables. The guidance is effective for interim and annual reporting periods ending after December 15, 2010. The Company is in the process of determining the impact that this guidance will have 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 October 31,				Nine Months Ended October 31,
		2010		2009		2010		2009
		(in thousands)				(in thousands)
Basic weighted-average shares outstanding		17,661		17,604		17,638		17,586
Plus: Incremental shares from assumed conversions
Restricted Stock		197		161		184		132
Warrants		53		62		57		74
Stock Options		250		186		221		166
Diluted weighted-average shares outstanding		18,161		18,013		18,100		17,958

 

There were 139,000 and 149,000 stock options outstanding as of October 31, 2010 and 2009, respectively, that were not included in the computation of diluted earnings per share because they were anti-dilutive.

 

6

Table of Contents

 

NOTE 2 -       INVENTORIES

 

		October 31,			January 31,
		2010			2010
		(in thousands)
New equipment		$	237,681		$	174,193
Used equipment		141,665			127,884
Parts and attachments		44,650			42,611
Work in process		4,834			2,892
		$	428,830		$	347,580

 

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

 

NOTE 3 -       LINES OF CREDIT / FLOORPLAN NOTES PAYABLE

 

Senior Secured Credit Facility — Operating and Floorplan Lines of Credit

 

On October 31, 2010, the Company entered into a Senior Secured Credit Facility (“Credit Agreement”) with a group of banks led by Wells Fargo Bank, National Association (“Wells Fargo Bank Syndicate”). The Credit Agreement provides for a $175.0 million wholesale floorplan line of credit (“Floorplan Line”) and a $50.0 million working capital line of credit (“Working Capital Line”) which expires October 31, 2014. The Credit Agreement has a variable interest rate on outstanding balances of LIBOR plus an applicable margin of 1.5% to 2.0% per annum, depending upon the Company’s consolidated leverage ratio, has a 0.2% to 0.4% non-usage fee on the average monthly unused amount and requires monthly payments of accrued interest. The Credit Agreement is secured by all assets of the Company and contains certain financial covenants which impose a minimum level of fixed charge coverage ratio and a maximum level of debt to tangible net worth ratio and include annual thresholds for acquisitions and capital expenditures. This agreement became effective on November 2, 2010.

 

The Floorplan Line will be used to finance equipment inventory purchases. Amounts outstanding will be recorded as floorplan notes payable, within current liabilities on the consolidated balance sheets as the Company intends to repay amounts borrowed within one year.

 

The Working Capital Line will be used to finance working capital requirements of the Company and will replace the Company’s previous $25.0 million operating line and Term Loan (as defined below) with Bremer Bank and certain notes payable to CNH Capital America LLC (“CNH Capital”) for rental fleet equipment. Amounts outstanding will be recorded as long-term debt, within long-term liabilities on the consolidated balance sheets as the Company does not have the intention or obligation to repay amounts borrowed within one year.

 

Operating Line of Credit

 

Prior to November 2010, the Company was party to a Loan Agreement (the “Loan Agreement”) with Bremer Bank National Association (“Bremer Bank”) dated July 15, 2009, as amended on July 13, 2010, which provided for a $25.0 million revolving operating line of credit (“Revolving Loan”) and a $12.9 million term loan (“Term Loan”). The Loan Agreement was terminated in November 2010 and replaced with the aforementioned Working Capital Line. The Revolving Loan was used to fund short term working capital requirements of the Company. The Revolving Loan had a variable interest rate of 0.25% per annum below a Bremer Bank reference rate (subject to a minimum interest rate floor of 4.5%) on outstanding balances, had a 0.5% non-usage fee on the average monthly unused amount, required monthly payments of accrued interest, and had a maturity date of July 12, 2011. Advances under the Loan Agreement were secured by substantially all of the Company’s assets. See details of the Term Loan in the long-term debt schedule in the Company’s Form 10-K for the fiscal year ended January 31, 2010 as filed with the SEC.

 

7

Table of Contents

 

The Company had no amount outstanding on the Revolving Loan at October 31, 2010. The Loan 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 October 31, 2010, the Company was in compliance with all of these financial covenants.

 

Floorplan Lines of Credit

 

As of October 31, 2010, the Company had discretionary floorplan lines of credit for equipment purchases totaling approximately $475.0 million with various lending institutions, including a $300.0 million Wholesale Floorplan Credit Facility with CNH Capital and $75.0 million credit facility with GE Commercial Distribution Finance Corporation (“GE”). The available borrowings under the CNH Capital credit facility are reduced by outstanding floorplan notes payable, rental fleet financing and other acquisition-related financing arrangements with CNH Capital. During fiscal 2010, interest rates for new borrowings under the CNH Capital floorplan line of credit ranged from the prime rate plus 0.3% to the prime rate plus 6% per annum, subject to any interest-free periods offered by CNH Capital. Beginning in February 2010, interest rates are equal to the prime rate plus 4% on new borrowings, subject to any interest-free periods offered by CNH Capital. 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 Capital credit facility, the Company has agreed, among other things, to maintain various financial ratio levels and to submit certain financial information. It also contains various restrictive covenants that require prior consent of CNH Capital 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 Capital’s consent is also required for the acquisition of any CNH dealership. In addition, the CNH Capital credit facility restricts the Company’s ability to incur any liens upon any substantial part of its assets.

 

The GE credit facility was terminated in November 2010 and was replaced with the aforementioned Floorplan Line. The GE credit facility had been used to purchase new and used inventory from vendors approved by GE, or to finance or refinance new or used inventory. The interest rate on borrowings under the GE floorplan line of credit was equal to the three-month LIBOR rate plus 4.95%. The GE credit facility allowed for termination by either party on 60 days notice. Under covenants of the GE credit facility, the Company had agreed, among other things, to maintain various financial ratio levels and to submit certain financial information. It also contained various restrictive covenants regarding related party transactions outside of the ordinary course of business and required GE’s prior consent if the Company desired to engage in any acquisition meeting certain financial thresholds; made any investments outside of the ordinary course of business; or had a change in control, as defined by the agreement.

 

Floorplan notes payable relating to these credit facilities totaled approximately $305.4 million of the total floorplan notes payable balance of $322.3 million outstanding as of October 31, 2010 and $245.3 million of the total floorplan notes payable balance of $249.9 million outstanding as of January 31, 2010. As of October 31, 2010, the Company had approximately $155.2 million in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 3.25 to 7.25% as of October 31, 2010, subject to interest-free periods offered by CNH Capital, 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. As of October 31, 2010, the Company was in compliance with all floorplan financial covenants. Due to changes in November 2010 resulting from entering into the new Credit Agreement, the Company had discretionary floorplan lines of credit for equipment purchases totaling approximately $550.0 million with various lending institutions, including a $300.0 million line with CNH Capital and $175.0 million Floorplan Line with the Wells Fargo Bank Syndicate.

 

NOTE 4 -       BUSINESS COMBINATIONS

 

On June 1, 2010, the Company acquired certain assets of Hubbard Implement, Inc. The acquired entity consisted of one agricultural equipment store located in Iowa Falls, Iowa which is contiguous to the Company’s existing locations in Grundy Center and Waverly, Iowa. The acquisition-date fair value of the total consideration transferred for the dealership was $1,496,000.

 

During the nine months ended October 31, 2010 adjustments were recorded for additional consideration of $1,384,000 earned and paid under agreements disclosed in the Company’s Form 10-K for the fiscal year ended January 31, 2010 as filed with the SEC. This additional consideration resulted in a net increase in goodwill of $1,384,000.

 

8

Table of Contents

 

The results of operations have been included in the Company’s consolidated results of operations since the date of the business combination. The fair value of assets acquired and liabilities assumed in the above business combinations and adjustments on prior acquisitions are presented in the following table:

 

		October 31,
		2010
		(in thousands)
Cash		$	1
Inventories		2,000
Property and equipment		231
Goodwill		1,485
		$	3,717
Floorplan notes payable		$	819
Customer deposits		17
		$	836
Cash consideration		2,424
Non-cash consideration: other long-term liabilities		457
Total consideration		$	2,881
Goodwill related to the Agriculture operating segment		$	1,485
Goodwill related to the Construction operating segment		$	—

 

Goodwill of $1,485,000 recorded in the acquisition transactions during the nine months ended October 31, 2010 is expected to be deductible for tax purposes.

 

9

Table of Contents

 

NOTE 5 -       SEGMENT INFORMATION AND OPERATING RESULTS

 

Certain financial information for each of the Company’s business segments is set forth below. Revenues, income before income tax and total assets at the segment level are reported before eliminations. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as “Shared Resources” in the table below. Shared Resource assets primarily consist of cash and property and equipment. Intersegment revenues are immaterial.

 

		Three Months Ended October 31,						Nine Months Ended October 31,
		2010			2009			2010			2009
		(in thousands)						(in thousands)
Revenues
Agriculture		$	282,365		$	205,635		$	645,269		$	524,330
Construction		39,827			29,276			108,140			84,425
Segment revenues		322,192			234,911			753,409			608,755
Eliminations		(10,885		)	(7,893		)	(26,979		)	(22,244		)
Total		$	311,307		$	227,018		$	726,430		$	586,511
Income (Loss) Before Income Taxes
Agriculture		$	14,420		$	12,224		$	25,458		$	27,942
Construction		(169		)	(1,816		)	(2,936		)	(4,551		)
Segment income (loss) before income taxes		14,251			10,408			22,522			23,391
Shared Resources		(1,343		)	(749		)	(1,977		)	(1,971		)
Eliminations		(104		)	60			(498		)	(447		)
Income before income taxes		$	12,804		$	9,719		$	20,047		$	20,973

 

		October 31,			January 31,
		2010			2010
		(in thousands)
Total Assets
Agriculture		$	454,068		$	350,086
Construction		97,164			87,910
Segment assets		551,232			437,996
Shared Resources		59,442			77,631
Eliminations		(1,314		)	(815		)
Total		$	609,360		$	514,812

 

NOTE 6 -       SUBSEQUENT EVENTS

 

On December 6, 2010, the Company entered into a Purchase Agreement to acquire certain assets of Fairbanks International, Inc. (“Fairbanks”), Fairbanks’s wholly-owned subsidiary, Fairbanks Leasing, Inc., and an affiliated entity of Fairbanks, GuideNet Systems, LLC. The acquisition consists of six agricultural equipment stores in Grand Island, Kearney, Lexington, Holdrege, Hastings, and North Platte, Nebraska and expands the Company’s agricultural presence in the Midwest. We expect the closing date to be on or around December 31, 2010.

 

10

Table of Contents

 

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 unaudited consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and 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, 2010.

 

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, 2010.

 

Overview

 

We own and operate a network of full service agricultural and construction equipment stores in the United States. Based upon information provided to us by CNH Global N.V. or its U.S. subsidiary CNH America LLC, collectively referred to as CNH, 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 have two primary business segments, Agriculture and Construction, within each of which we sell and rent new and used equipment, sell parts, and service the equipment in the markets surrounding our stores.

 

Our net income was $7.7 million, or $0.42 per diluted share, for the three months ended October 31, 2010, compared to $5.7 million, or $0.32 per diluted share, for the three months ended October 31, 2009. Significant factors impacting the quarterly comparisons were:

 

·                  Increase in revenue primarily due to same-store sales growth in both our Agriculture and Construction segments caused by projected increased farm cash receipts, favorable harvest conditions and crop yield reports across our Agriculture footprint and execution of our fiscal 2011 Construction business plan (described in Segment Results), and Agriculture acquisitions;

 

·                  Decrease in equipment gross profit margins compared to our third quarter of last year, which primarily resulted from market pricing pressure and timing of a manufacturer incentive program; and

 

·                  Decrease in operating expenses as a percentage of revenue primarily due to improved fixed operating cost leverage resulting from higher revenues.

 

11

Table of Contents

 

Results of Operations

 

Comparative financial data for each of our four sources of revenue are expressed below. The results for these periods include the operating results of the acquisitions made during these periods. The period-to-period comparisons included below are not necessarily indicative of future results. Segment information is provided later in this discussion and analysis of our results of operations.

 

		Three Months Ended October 31,								Nine Months Ended October 31,
								Percent								Percent
		2010			2009			Change		2010			2009			Change
		(dollars in thousands)								(dollars in thousands)
Equipment
Revenue		$	241,096		$	173,367		39.1	%	$	544,587		$	439,374		23.9	%
Cost of revenue		221,163			155,653			42.1	%	496,306			393,405			26.2	%
Gross profit		$	19,933		$	17,714		12.5	%	$	48,281		$	45,969		5.0	%
Gross profit margin		8.3		%	10.2		%	(1.9	)%	8.9		%	10.5		%	(1.6	)%
Parts
Revenue		$	42,028		$	32,961		27.5	%	$	111,038		$	91,813		20.9	%
Cost of revenue		29,296			22,291			31.4	%	78,666			63,767			23.4	%
Gross profit		$	12,732		$	10,670		19.3	%	$	32,372		$	28,046		15.4	%
Gross profit margin		30.3		%	32.4		%	(2.1	)%	29.2		%	30.5		%	(1.3	)%
Service
Revenue		$	20,832		$	15,854		31.4	%	$	54,885		$	44,036		24.6	%
Cost of revenue		7,435			5,658			31.4	%	20,376			15,844			28.6	%
Gross profit		$	13,397		$	10,196		31.4	%	$	34,509		$	28,192		22.4	%
Gross profit margin		64.3		%	64.3		%	0.0	%	62.9		%	64.0		%	(1.1	)%
Other, including trucking and rental
Revenue		$	7,351		$	4,836		52.0	%	$	15,920		$	11,288		41.0	%
Cost of revenue		5,435			3,833			41.8	%	12,613			9,388			34.4	%
Gross profit		$	1,916		$	1,003		91.0	%	$	3,307		$	1,900		74.1	%
Gross profit margin		26.1		%	20.7		%	5.4	%	20.8		%	16.8		%	4.0	%

 

12