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, 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 May 31, 2010 was: Common Stock, $0.00001 par value, 17,782,127 shares.

 

 

Table of Contents

 

TITAN MACHINERY INC.

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

				Page No.
PART I.		FINANCIAL INFORMATION
	ITEM 1.		FINANCIAL STATEMENTS	1
			Consolidated Balance Sheets as of April 30, 2010 and January 31, 2010	1
			Consolidated Statements of Operations for the three months ended April 30, 2010 and 2009	2
			Consolidated Statements of Cash Flows for the three months ended April 30, 2010 and 2009	3
			Notes to Consolidated Financial Statements	5
	ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
	ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	19
	ITEM 4.		CONTROLS AND PROCEDURES	19
PART II.		OTHER INFORMATION
	ITEM 1.		LEGAL PROCEEDINGS	20
	ITEM 1A.		RISK FACTORS	20
	ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	20
	ITEM 3.		DEFAULTS UPON SENIOR SECURITIES	20
	ITEM 4.		(REMOVED AND RESERVED)	20
	ITEM 5.		OTHER INFORMATION	20
	ITEM 6.		EXHIBITS	20
	Signatures			21
	Exhibit Index			22

 

Table of Contents

 

PART I. — FINANCIAL INFORMATION

 

ITEM 1.             FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		April 30,			January 31,
		2010			2010
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	81,334		$	76,185
Receivables, net		24,239			22,254
Inventories		352,682			347,580
Prepaid expenses		924			1,009
Income taxes receivable		991			1,595
Deferred income taxes		2,645			2,266
Total current assets		462,815			450,889
INTANGIBLES AND OTHER ASSETS
Noncurrent parts inventories		1,803			1,642
Goodwill		14,762			14,762
Intangible assets, net of accumulated amortization		429			295
Other		651			620
		17,645			17,319
PROPERTY AND EQUIPMENT, net of accumulated depreciation		48,526			46,604
		$	528,986		$	514,812
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	17,402		$	12,352
Floorplan notes payable		262,809			249,872
Current maturities of long-term debt and short-term advances		6,725			7,218
Customer deposits		8,517			12,974
Accrued expenses		9,789			9,870
Total current liabilities		305,242			292,286
LONG-TERM LIABILITIES
Long-term debt, less current maturities		21,456			21,852
Deferred income taxes		6,359			6,356
Other long-term liabilities		3,562			3,794
		31,377			32,002
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 17,785 at April 30, 2010 and 17,777 at January 31, 2010		—			—
Additional paid-in-capital		139,059			138,775
Retained earnings		53,308			51,749
		192,367			190,524
		$	528,986		$	514,812

 

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,
		2010			2009
REVENUE
Equipment		$	150,360		$	124,865
Parts		35,063			26,398
Service		16,551			12,542
Other, including trucking and rental		3,483			2,496
TOTAL REVENUE		205,457			166,301
COST OF REVENUE
Equipment		136,801			112,300
Parts		25,186			18,537
Service		5,971			4,600
Other, including trucking and rental		3,056			2,348
TOTAL COST OF REVENUE		171,014			137,785
GROSS PROFIT		34,443			28,516
OPERATING EXPENSES		29,796			24,705
INCOME FROM OPERATIONS		4,647			3,811
OTHER INCOME (EXPENSE)
Interest and other income		173			211
Floorplan interest expense		(1,801		)	(731		)
Interest expense other		(377		)	(263		)
INCOME BEFORE INCOME TAXES		2,642			3,028
PROVISION FOR INCOME TAXES		(1,083		)	(1,238		)
NET INCOME		$	1,559		$	1,790
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.09		$	0.10
EARNINGS PER SHARE - DILUTED		$	0.09		$	0.10
WEIGHTED AVERAGE SHARES - BASIC		17,617			17,571
WEIGHTED AVERAGE SHARES - DILUTED		18,040			17,860

 

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,
		2010			2009
OPERATING ACTIVITIES
Net income		$	1,559		$	1,790
Adjustments to reconcile net income to net cash from operations
Depreciation and amortization		2,078			1,910
Deferred income taxes		(376		)	55
Stock-based compensation expense		275			194
Other		24			(10		)
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables, prepaid expenses and other assets		(1,900		)	(2,079		)
Inventories		6,771			(24,246		)
Floorplan notes payable		(905		)	1,330
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		190			(827		)
Income taxes		604			533
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		8,320			(21,350		)
INVESTING ACTIVITIES
Net change in U.S. treasury bills		—			44,994
Property and equipment purchases		(2,166		)	(2,880		)
Net proceeds from sale of equipment		119			291
Payment for intangible asset		(150		)	—
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES		(2,197		)	42,405
FINANCING ACTIVITIES
Net change in non-manufacturer floorplan notes payable		704			13,447
Short-term advances related to customer contracts in transit, net		(598		)	—
Proceeds from long-term debt borrowings		257			4,629
Principal payments on long-term debt		(1,346		)	(1,464		)
Other		9			—
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		(974		)	16,612
NET CHANGE IN CASH AND CASH EQUIVALENTS		5,149			37,667
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		76,185			41,047
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	81,334		$	78,714

 

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,
		2010			2009
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	863		$	646
Interest		$	2,166		$	996
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased with long-term debt		$	798		$	1,425
Net transfer of equipment from (to) fixed assets to (from) inventories		$	(1,104	)	$	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
Goodwill		—			211
Accounts payable, customer deposits and accrued expenses		—			(319		)
Income taxes payable		—			(48		)
Non-cash consideration: other long-term liabilities		—			—
Cash paid for dealerships, net of cash purchased and adjustments on prior acquisitions		$	—		$	—

 

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 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 three-month period ended April 30, 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 April 30, 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 the net present value of any remaining lease obligations, net of estimated sublease income, at the date the Company ceases using the property. Any subsequent adjustments to that liability as a result of lease termination or changes in estimates of sublease income 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.

 

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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 $93,000 and employee termination costs of $27,000. The Company is transferring the majority of the assets and related floorplan notes payable and long-term debt to other stores. Exit costs are included in the operating expenses line item on the consolidated statements of operations for the three months ended April 30, 2010. A reconciliation of the beginning and ending liability balance follows:

 

		(in thousands)
Balance at January 31, 2010		$	—
Exit costs incurred and charged to expense		120
Exit costs paid		(16		)
Balance at April 30, 2010		$	104

 

Recent Accounting Guidance

 

In January 2010, the FASB updated authoritative guidance on fair value measurements, codified in ASC 820, Fair Value Measurements and Disclosures. This guidance required additional disclosure of significant transfers in and out of Level 1 and Level 2 fair value measurements and activity in Level 3 fair value measurements. It also clarified existing disclosure requirements regarding level of disaggregation and valuation inputs and techniques. The guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure of the Level 3 activity, which is effective for interim and fiscal years beginning after December 15, 2010. The Company adopted these provisions on February 1, 2010, except for the Level 3 activity disclosures, which will be effective for the Company on February 1, 2011. The provisions of this guidance have not, and are not expected to, have a material effect on the Company’s results of operations, financial position or cash flows.

 

In October 2009, the FASB issued authoritative guidance on revenue recognition, codified in ASC 605-25, Revenue Recognition. This guidance modifies the fair value requirements of revenue recognition on multiple element arrangements by allowing the use of the “best estimate of selling price” in addition to vendor specific objective evidence and third-party evidence for determining the selling price of a deliverable. This guidance establishes a selling price hierarchy for determining the selling price of a deliverable, which is based on: (a) vendor-specific objective evidence, (b) third-party evidence, or (c) estimates. In addition, the guidance eliminates the residual method of allocation and significantly expands the disclosure requirements for such arrangements. This guidance is effective for fiscal years beginning on or after June 15, 2010, with early adoption permitted. The Company is in the process of determining the impact that this guidance will have on the Company’s consolidated financial statements.

 

In June 2009, the FASB issued authoritative guidance on the consolidation of variable interest entities (“VIE”), codified in ASC 810, Consolidation. This guidance eliminates the exemption for qualifying special-purpose entities, amends the approach companies use to identify the VIEs for which they are deemed to be the primary beneficiary and are required to consolidate, and requires additional disclosure of a company’s involvement with a VIE. The guidance requires companies to perform ongoing reassessments of whether it is the primary beneficiary of a VIE. This assessment no longer includes the quantitative-based assessment, and instead requires a qualitative assessment of whether a company has the power to direct the VIE’s activities that most significantly impact the VIE’s economic performance and whether the company has the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. The Company adopted this guidance on February 1, 2010. Its adoption did not have a material impact on the Company’s consolidated financial statements.

 

In April 2009, the FASB issued authoritative guidance on the accounting and disclosure of assets acquired and liabilities assumed in a business combination that arise from contingencies, and subsequent accounting for these contingencies. This guidance was codified in ASC 805, Business Combinations. The Company adopted this guidance on February 1, 2010. Its adoption did not have a material impact on the Company’s consolidated financial statements.

 

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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,
		2010		2009
		(in thousands)
Basic weighted-average shares outstanding		17,617		17,571
Plus: Incremental shares from assumed conversions
Restricted Stock		167		97
Warrants		59		80
Stock Options		197		112
Diluted weighted-average shares outstanding		18,040		17,860

 

There were 138,500 and 191,000 stock options outstanding as of April 30, 2010 and 2009, respectively, that were not included in the computation of diluted earnings per share because they were anti-dilutive.

 

NOTE 2 -       INVENTORIES

 

		April 30,			January 31,
		2010			2010
		(in thousands)
New equipment		$	186,268		$	174,193
Used equipment		118,081			127,884
Parts and attachments		44,387			42,611
Work in process		3,946			2,892
		$	352,682		$	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

 

Operating Line of Credit

 

On July 15, 2009, the Company entered into a Loan Agreement (the “Loan Agreement”) with Bremer Bank National Association (“Bremer Bank”) which provides for a $25.0 million revolving operating line of credit (“Revolving Loan”) and a $15.0 million term loan (“Term Loan”). The Revolving Loan may be used to fund short term working capital requirements of the Company, and replaces the Company’s previous $25.0 million operating line of credit with Bremer Bank. The Revolving Loan has 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, has a 0.5% non-usage fee on the average monthly unused amount, requires monthly payments of accrued interest commencing August 1, 2009, and has a maturity date of July 14, 2010. Advances under the Loan Agreement are 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.

 

The Company had no amount outstanding on the Revolving Loan at April 30, 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 April 30, 2010, the Company was in compliance with all of these financial covenants.

 

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Floorplan Lines of Credit

 

The Company has discretionary floorplan lines of credit for equipment purchases totaling approximately $365.0 million with various lending institutions, including a $300.0 million Wholesale Floorplan Credit Facility with CNH Capital America LLC (“CNH Capital”) and $50.0 million 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 may be 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 is equal to the three-month LIBOR rate plus 5.5%. The GE credit facility may be terminated by either party on 60 days notice. Under covenants of the GE 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 regarding related party transactions outside of the ordinary course of business and requires GE’s prior consent if the Company desires to engage in any acquisition meeting certain financial thresholds; make any investments outside of the ordinary course of business; or have a change in control, as defined by the agreement.

 

Floorplan notes payable relating to these credit facilities totaled approximately $246.0 million of the total floorplan notes payable balance of $262.8 million outstanding as of April 30, 2010 and $245.3 million of the total floorplan notes payable balance of $249.9 million outstanding as of January 31, 2010. As of April 30, 2010, the Company had approximately $108.0 million in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 3.35 to 7.25% as of April 30, 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 April 30, 2010, the Company was in compliance with all floorplan financial covenants.

 

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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, 2010:

 

										Weighted
				Weighted						Average
				Average			Aggregate			Remaining
		Number of		Exercise			Intrinsic			Contractual
		Warrants		Price			Value			Life (Years)
		(in thousands)					(in thousands)
Outstanding and exercisable at January 31, 2010		83		$	3.43
Granted		—		—
Exercised		(3	)	3.50
Forfeited		—		—
Outstanding and exercisable at April 30, 2010		80		$	3.43		$	878		2.9

 

Stock Options

 

The following table summarizes stock option activity for the three months ended April 30, 2010:

 

										Weighted
				Weighted						Average
				Average			Aggregate			Remaining
		Number of		Exercise			Intrinsic			Contractual
		Options		Price			Value			Life (Years)
		(in thousands)					(in thousands)
Outstanding at January 31, 2010		631		$	10.90
Granted		—		—
Exercised		—		—
Forfeited		—		—
Outstanding at April 30, 2010		631		$	10.90		$	3,248		6.7
Exercisable at April 30, 2010		253		$	8.58		$	1,641		6.2

 

As of April 30, 2010, there was approximately $1,447,000 of unrecognized compensation cost on non-vested stock options that is expected to be recognized over a weighted-average period of 3.2 years.

 

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Restricted Stock

 

The following table summarizes restricted stock activity for the three months ended April 30, 2010:

 

							Weighted
				Weighted			Average
				Average			Remaining
				Grant Date			Contractual
		Shares		Fair Value			Term
		(in thousands)
Nonvested at January 31, 2010		163		$	11.45		2.5
Granted		7		11.06
Forfeited		(2	)	10.94
Vested		(2	)	10.61
Nonvested at April 30, 2010		166		$	11.45		2.3

 

The weighted average grant date fair value of restricted stock granted was $11.06 and $10.50 per share for the three months ended April 30, 2010 and 2009, respectively. The total fair value of restricted stock vested was $18,000 and $103,000 for the three months ended April 30, 2010 and 2009, respectively. As of April 30, 2010, there was approximately $1,125,000 of unrecognized compensation cost on non-vested restricted stock that is expected to be recognized over a weighted-average period of 2.3 years.

 

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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 April 30,
		2010			2009
		(in thousands)
Revenues
Agriculture		$	181,382		$	148,329
Construction		32,104			24,698
Segment revenues		213,486			173,027
Eliminations		(8,029		)	(6,726		)
Total		$	205,457		$	166,301
Income (Loss) Before Income Taxes
Agriculture		$	4,792		$	5,716
Construction		(1,915		)	(1,950		)
Segment income (loss) before income taxes		2,877			3,766
Shared Resources		9			(471		)
Eliminations		(244		)	(267		)
Income before income taxes		$	2,642		$	3,028

 

		April 30,			January 31,
		2010			2010
		(in thousands)
Total Assets
Agriculture		$	362,201		$	350,086
Construction		86,107			87,910
Segment assets		448,308			437,996
Shared Resources		81,738			77,631
Eliminations		(1,060		)	(815		)
Total		$	528,986		$	514,812

 

NOTE 6 -       SUBSEQUENT EVENTS

 

On June 1, 2010, the Company closed on the acquisition of certain assets of Hubbard Implement, Inc., for consideration totaling approximately $1,496,000. The acquired entity consisted of one agricultural equipment store located in Iowa Falls, Iowa which is contiguous to Titan Machinery’s existing locations in Grundy Center and Waverly, Iowa.

 

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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 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 in this Form 10-K 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 areas surrounding our stores.

 

Our net income was $1.6 million, or $0.09 per diluted share, for the three months ended April 30, 2010, compared to $1.8 million, or $0.10 per diluted share, for the three months ended April 30, 2009. Significant factors impacting the quarterly comparisons were:

 

·                  Increase in revenue due to acquisitions and same-store sales growth in both our Agriculture and Construction segments resulting from the continuation of a strong agriculture equipment market and execution of our fiscal 2011 Construction business action plan, which included right-sizing our rental fleet, changing key Construction personnel, closing the Columbia Falls store and implementing the Titan strong-store operating model into the fiscal 2009 Construction acquisition stores;

 

·                  Increase in gross profits primarily due to increased revenues, offset by decreases in equipment gross profit percent;

 

·                  Increase in floorplan interest expense due to higher floorplan notes payable balances and higher interest rates.

 

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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 April 30,						Percent
		2010			2009			Change
		(dollars in thousands)
Equipment
Revenue		$	150,360		$	124,865		20.4	%
Cost of revenue		136,801			112,300			21.8	%
Gross profit		$	13,559		$	12,565		7.9	%
Gross profit margin		9.0		%	10.1		%	(1.1	)%
Parts
Revenue		$	35,063		$	26,398		32.8	%
Cost of revenue		25,186			18,537			35.9	%
Gross profit		$	9,877		$	7,861		25.6	%
Gross profit margin		28.2		%	29.8		%	(1.6	)%
Service
Revenue		$	16,551		$	12,542		32.0	%
Cost of revenue		5,971			4,600			29.8	%
Gross profit		$	10,580		$	7,942		33.2	%
Gross profit margin		63.9		%	63.3		%	0.6	%
Other, including trucking and rental
Revenue		$	3,483		$	2,496		39.5	%
Cost of revenue		3,056			2,348			30.2	%
Gross profit		$	427		$	148		188.5	%
Gross profit margin		12.3		%	5.9		%	6.4	%

 

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Table of Contents

 

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

 

		Three Months Ended April 30,
		2010		2009
Revenue
Equipment		73.2	%	75.1	%
Parts		17.1	%	15.9	%
Service		8.0	%	7.5	%
Other, including trucking and rental		1.7	%	1.5	%
Total revenue		100.0	%	100.0	%
Cost of revenue
Equipment		66.5	%	67.5	%
Parts		12.3	%	11.1	%
Service		2.9	%	2.8	%
Other, including trucking and rental		1.5	%	1.5	%
Total cost of revenue		83.2	%	82.9	%
Gross profit		16.8	%	17.1	%
Operating expenses		14.5	%	14.8	%
Income from operations		2.3	%	2.3	%

 

Three Months Ended April 30, 2010 Compared to Three Months Ended April 30, 2009

 

Consolidated Results

 

Revenue

 

		Three Months Ended April 30,									Percent
		2010			2009			Increase			Change
		(dollars in thousands)
Equipment		$	150,360		$	124,865		$	25,495		20.4	%
Parts		35,063			26,398			8,665			32.8	%
Service		16,551			12,542			4,009			32.0	%
Other, including trucking and rental		3,483			2,496			987			39.5	%
Total Revenue		$	205,457		$	166,301		$	39,156		23.5	%

 

The increase in revenue for the three months ended April 30, 2010, as compared to the same period last year, was due to acquisitions contributing $16.1 million and same-store sales growth contributing $23.1 million to current period revenue. This revenue growth was in both our Agriculture and Construction segments and resulted from the continuation of a strong agriculture equipment market and execution of our fiscal 2011 Construction business action plan in the first quarter of fiscal 2011.

 

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