Titan Machinery Inc. - Quarter Report: 2011 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, 2011

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 Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES  x    NO  o

 

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

 

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

 

 

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, 2011 was: Common Stock, $0.00001 par value, 20,785,215 shares.

 

 

Table of Contents

 

TITAN MACHINERY INC.

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

				Page No.
PART I.	FINANCIAL INFORMATION			3
ITEM 1.			FINANCIAL STATEMENTS	3
			Consolidated Balance Sheets as of October 31, 2011 and January 31, 2011	3
			Consolidated Statements of Operations for the three and nine months ended October 31, 2011 and 2010	4
			Consolidated Statement of Stockholders’ Equity for the nine months ended October 31, 2011	5
			Consolidated Statements of Cash Flows for the nine months ended October 31, 2011 and 2010	6
			Notes to Consolidated Financial Statements	8
ITEM 2.			MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	15
ITEM 3.			QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	27
ITEM 4.			CONTROLS AND PROCEDURES	27
PART II.	OTHER INFORMATION			27
ITEM 1.			LEGAL PROCEEDINGS	27
ITEM 1A.			RISK FACTORS	27
ITEM 2.			UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	28
ITEM 3.			DEFAULTS UPON SENIOR SECURITIES	28
ITEM 4.			(REMOVED AND RESERVED)	28
ITEM 5.			OTHER INFORMATION	28
ITEM 6.			EXHIBITS	28
Signatures				29
Exhibit Index				30

 

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PART I. — FINANCIAL INFORMATION

 

ITEM 1.                  FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		October 31,			January 31,
		2011			2011
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	97,890		$	76,112
Receivables, net		52,952			44,945
Inventories		738,345			429,844
Prepaid expenses and other current assets		2,176			1,003
Deferred income taxes		2,880			3,247
Total current assets		894,243			555,151
INTANGIBLES AND OTHER ASSETS
Noncurrent parts inventories		3,136			2,405
Goodwill		23,164			18,391
Intangible assets, net of accumulated amortization		9,758			4,734
Other		2,787			2,793
		38,845			28,323
PROPERTY AND EQUIPMENT, net of accumulated depreciation		118,329			65,372
		$	1,051,417		$	648,846
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	39,091		$	15,957
Floorplan notes payable		576,763			320,801
Current maturities of long-term debt and short-term advances		1,925			4,207
Customer deposits		19,237			28,180
Accrued expenses		22,387			16,816
Income taxes payable		1,471			2,093
Total current liabilities		660,874			388,054
LONG-TERM LIABILITIES
Long-term debt, less current maturities		59,544			33,409
Deferred income taxes		10,249			9,012
Other long-term liabilities		3,419			3,814
		73,212			46,235
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 20,756 at October 31, 2011 and 17,917 at January 31, 2011		—			—
Additional paid-in-capital		216,881			140,466
Retained earnings		100,450			74,091
		317,331			214,557
		$	1,051,417		$	648,846

 

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 October 31,						Nine Months Ended October 31,
		2011			2010			2011			2010
REVENUE
Equipment		$	312,304		$	241,096		$	786,816		$	544,587
Parts		64,468			42,028			155,670			111,038
Service		29,843			20,832			76,202			54,885
Rental and other		16,345			7,351			33,286			15,920
TOTAL REVENUE		422,960			311,307			1,051,974			726,430
COST OF REVENUE
Equipment		283,690			221,163			711,421			496,306
Parts		44,389			29,296			108,535			78,666
Service		10,304			7,435			27,175			20,376
Rental and other		10,580			5,435			22,192			12,613
TOTAL COST OF REVENUE		348,963			263,329			869,323			607,961
GROSS PROFIT		73,997			47,978			182,651			118,469
OPERATING EXPENSES		50,060			32,849			133,556			91,857
INCOME FROM OPERATIONS		23,937			15,129			49,095			26,612
OTHER INCOME (EXPENSE)
Interest and other income		307			207			859			414
Floorplan interest expense		(2,625		)	(2,138		)	(5,121		)	(5,850		)
Interest expense other		(283		)	(394		)	(899		)	(1,129		)
INCOME BEFORE INCOME TAXES		21,336			12,804			43,934			20,047
PROVISION FOR INCOME TAXES		(8,536		)	(5,098		)	(17,575		)	(8,068		)
NET INCOME		$	12,800		$	7,706		$	26,359		$	11,979
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.62		$	0.44		$	1.35		$	0.68
EARNINGS PER SHARE - DILUTED		$	0.61		$	0.42		$	1.31		$	0.66
WEIGHTED AVERAGE SHARES - BASIC		20,572			17,661			19,538			17,638
WEIGHTED AVERAGE SHARES - DILUTED		21,073			18,161			20,081			18,100

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

 

		Common Stock					Additional
		Shares					Paid-In			Retained
		Outstanding		Amount			Capital			Earnings			Total
BALANCE, JANUARY 31, 2011		17,917		$	—		$	140,466		$	74,091		$	214,557
Common stock issued in follow-on offering		2,760		—			74,898			—			74,898
Common stock issued on grant of restricted stock and exercise of stock options and warrants and tax benefits of equity awards		79		—			530			—			530
Stock-based compensation expense		—		—			987			—			987
Net income		—		—			—			26,359			26,359
BALANCE, OCTOBER 31, 2011		20,756		$	—		$	216,881		$	100,450		$	317,331

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

		Nine Months Ended October 31,
		2011			2010
OPERATING ACTIVITIES
Net income		$	26,359		$	11,979
Adjustments to reconcile net income to net cash used for operating activities
Depreciation and amortization		10,172			6,443
Deferred income taxes		184			(19		)
Stock-based compensation expense		987			860
Other		249			(199		)
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables, prepaid expenses and other assets		(4,117		)	(12,580		)
Inventories		(232,519		)	(57,119		)
Floorplan notes payable		8,217			2,893
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		14,638			1,724
Income taxes		(1,012		)	4,707
NET CASH USED FOR OPERATING ACTIVITIES		(176,842		)	(41,311		)
INVESTING ACTIVITIES
Property and equipment purchases		(11,702		)	(11,210		)
Net proceeds from sale of equipment		3,244			719
Purchase of equipment dealerships, net of cash purchased		(38,607		)	(2,423		)
Other, net		(99		)	(293		)
NET CASH USED FOR INVESTING ACTIVITIES		(47,164		)	(13,207		)
FINANCING ACTIVITIES
Proceeds from follow-on offering of common stock, net of underwriting discount of $4,166 and other direct costs of $286		74,898			—
Net change in non-manufacturer floorplan notes payable		162,698			45,179
Short-term advances related to customer contracts in transit, net		(388		)	(104		)
Proceeds from long-term debt borrowings		20,000			6,441
Principal payments on long-term debt		(11,751		)	(7,318		)
Debt issuance costs		(203		)	—
Other		530			137
NET CASH PROVIDED BY FINANCING ACTIVITIES		245,784			44,335
NET CHANGE IN CASH AND CASH EQUIVALENTS		21,778			(10,183		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		76,112			76,185
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	97,890		$	66,002

 

See Notes to Consolidated Financial Statements

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Page — 2

(in thousands)

 

		Nine Months Ended October 31,
		2011			2010
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	18,191		$	3,388
Interest		$	5,390		$	6,965
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment financed with long-term debt		$	8,720		$	2,504
Net transfer of equipment to fixed assets from inventories		$	35,721		$	2,357
Net transfer of financing to long-term debt from floorplan notes payable		$	1,696		$	1,625

 

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 (“GAAP”) for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s Agriculture and Construction customers. Therefore, operating results for the nine-month period ended October 31, 2011 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2012. The information contained in the balance sheet as of January 31, 2011 was derived from the audited financial statements for the Company for the year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended January 31, 2011 as filed with the SEC.

 

Nature of Business

 

Titan Machinery Inc. is engaged in the retail sale, service and rental of agricultural and construction equipment through stores in North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Montana, Wyoming and Wisconsin.

 

Estimates

 

The preparation of financial statements in conformity with GAAP 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, 2011 and January 31, 2011.

 

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 it 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 first communicated to the employees.

 

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Upon acquiring ABC Rental & Equipment Sales in the first quarter of fiscal 2012, the Company combined its existing location in Belgrade, Montana into its newly-acquired store in nearby Bozeman, Montana. This was completed in July 2011, with all of the Belgrade operations and employees moving to the Bozeman store location. Thus, the Belgrade store was closed as of July 31, 2011. The exit costs relate to lease termination. Estimated lease termination costs totaling $0.4 million for the Belgrade store and adjustments for a previously closed store are included in operating expenses on the consolidated statements of operations for the nine months ended October 31, 2011.

 

A reconciliation of the beginning and ending liability balance follows:

 

		(in thousands)
Balance at January 31, 2011		$	207
Exit costs incurred and charged to expense		386
Exit costs paid		(105		)
Balance at October 31, 2011		$	488

 

Recent Accounting Guidance

 

In May 2011, the FASB amended authoritative guidance on fair value measurements, codified in ASC 820, Fair Value Measurements and Disclosures. The amended guidance results in common fair value measurements and disclosure requirements for financial statements reported under GAAP or International Financial Reporting Standards. These amendments clarify the FASB’s intent about the application of existing fair value measurement requirements and change particular principles or requirements for measuring fair value and disclosing information about fair value measurements. The guidance is effective for interim and annual periods beginning after December 15, 2011, and is applied prospectively. The Company is in the process of determining the impact that this guidance will have on the Company’s consolidated financial statements.

 

In June 2011, the FASB amended authoritative guidance on the presentation of comprehensive income, codified in ASC 220, Comprehensive Income. The amended guidance requires the presentation of total comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The guidance is applied retrospectively and is effective for interim and annual periods beginning after December 15, 2011, 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 September 2011, the FASB amended authoritative guidance on goodwill impairment testing, codified in ASC 350, Intangibles - Goodwill and Other. The amended guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that the fair value of the reporting unit is more likely than not greater than the carrying amount, then the entity is not required to perform a quantitative assessment. However, if an entity concludes that the fair value of a reporting unit is more likely than not less than its carrying amount, it is required to perform the two-step impairment test. The guidance is effective for the interim and annual periods beginning after December 15, 2011, 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.

 

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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 October 31,				Nine Months Ended October 31,
		2011		2010		2011		2010
		(in thousands)				(in thousands)
Basic weighted-average shares outstanding		20,572		17,661		19,538		17,638
Plus: Incremental shares from assumed conversions
Restricted Stock		183		197		178		184
Warrants		29		53		30		57
Stock Options		289		250		335		221
Diluted weighted-average shares outstanding		21,073		18,161		20,081		18,100

 

There were 72,000 and 10,000 stock options outstanding that were excluded from the computation of diluted earnings per share for the three and nine months ended October 31, 2011, respectively, and 134,000 and 139,000 stock options outstanding that were excluded from the computation of diluted earnings per share for the three and nine months ended October 31, 2010, respectively, because they were anti-dilutive.

 

NOTE 2 -                     INVENTORIES

 

		October 31,			January 31,
		2011			2011
		(in thousands)
New equipment		$	499,916		$	209,871
Used equipment		159,288			162,254
Parts and attachments		70,756			52,694
Work in process		8,385			5,025
		$	738,345		$	429,844

 

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

 

As of October 31, 2011, the Company had a $75.0 million working capital line of credit under a Senior Secured Credit Facility (the “Credit Agreement”) with a group of banks led by Wells Fargo Bank, National Association. The Company had $50.8 million and $26.4 million outstanding on its operating line of credit as of October 31, 2011 and January 31, 2011, respectively. Amounts outstanding are recorded as long-term debt, within long-term liabilities on the consolidated balance sheets, as the Company does not have the intention or obligation to repay amounts borrowed within one year.

 

Floorplan Lines of Credit

 

As of October 31, 2011, the Company had discretionary floorplan lines of credit for equipment purchases totaling approximately $650.0 million with various lending institutions, including $200.0 million under the aforementioned Credit Agreement, a $350.0 million Wholesale Floorplan Credit Facility with CNH Capital America LLC (“CNH Capital”) and a $100.0 million Wholesale Financing Plan with Rental Agreement with Agricredit Acceptance LLC. Floorplan notes payable relating to these credit facilities totaled approximately $537.6 million of the total floorplan notes payable balance of $576.8 million outstanding as of October 31, 2011 and $300.6 million of the total floorplan notes payable balance of

 

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$320.8 million outstanding as of January 31, 2011. As of October 31, 2011, the Company had approximately $106.3 million in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 2.24% to 7.25% as of October 31, 2011, subject to interest-free periods offered by CNH Capital. As of October 31, 2011, the Company was in compliance with all floorplan financial covenants.

 

NOTE 4 -                     BUSINESS COMBINATIONS

 

The Company continued to implement its strategy of consolidating dealerships in desired market areas. Below is a summary of the acquisitions completed for the nine months ended October 31, 2011. In certain of the business combination transactions the Company recognized goodwill and separately identifiable intangible assets. Factors contributing to the recognition of goodwill and intangible assets include an evaluation of future and historical financial performance, proximity to other existing and future planned Company locations, customer relationships and distribution territory. Pro forma results are not presented as the acquisitions are not considered material, individually or in aggregate, to the Company. The results of operations have been included in the Company’s consolidated statements of operations since the date of each respective business combination.

 

On February 28, 2011, the Company acquired certain assets of Tri-State Implement, Inc. The acquisition consisted of one agricultural equipment store located in Sioux Falls, South Dakota which is contiguous to the Company’s existing construction equipment location in Sioux Falls. The acquisition-date fair value of the total consideration transferred for the store was $1.0 million.

 

On March 31, 2011, the Company acquired 100% of the outstanding stock of Schoffman’s Inc., which included the real estate of this entity, and subsequently merged the acquired entity into the Company. The acquisition consisted of one agricultural equipment store in Redwood Falls, Minnesota which is contiguous to the Company’s existing location in Marshall, Minnesota. The acquisition-date fair value of the total consideration transferred for the store was $5.8 million.

 

On April 1, 2011, the Company acquired certain assets of ABC Rental & Equipment Sales. The acquisition consisted of four construction equipment rental stores located in Williston, North Dakota, and Bozeman, Missoula, and Big Sky, Montana. This acquisition expands the Company’s opportunity to capitalize on increased rental activity of the surrounding oil, coal and natural gas exploration and extraction areas in North Dakota and Montana. The acquisition-date fair value of the total consideration transferred for the stores was $5.4 million.

 

On May 13, 2011, the Company acquired certain assets of Carlson Tractor & Equipment, Inc. The acquisition consisted of two construction equipment stores in Rogers and Rosemount, Minnesota and expands the Company’s construction presence in Minnesota. The acquisition-date fair value of the total consideration transferred for the stores was $2.9 million.

 

On May 31, 2011, the Company acquired certain assets of St. Joseph Equipment Inc. The acquisition consisted of four construction equipment stores in Shakopee, Hermantown and Elk River, Minnesota, and La Crosse, Wisconsin. The acquisition establishes the Company’s first construction equipment store in Wisconsin and allows the Company to have the exclusive Case Construction contract for the entire state of Minnesota and 11 counties in western Wisconsin. The acquisition-date fair value of the total consideration transferred for the stores was $17.0 million.

 

On September 2, 2011, the Company acquired certain assets of Virgl Implement Inc. The acquisition consisted of one agricultural equipment store in Wahoo, Nebraska. The acquisition expands the Company’s agriculture presence in Nebraska. The acquisition-date fair value of the total consideration transferred for the store was approximately $5.7 million.

 

On September 2, 2011, the Company acquired certain assets of Victors Inc. The acquisition consisted of one agricultural equipment store in Fremont, Nebraska. The acquisition expands the Company’s agriculture presence in Nebraska. The acquisition-date fair value of the total consideration transferred for the store was approximately $7.5 million.

 

During the nine months ended October 31, 2011, adjustments were recorded for additional consideration of $1.9 million 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 for the Agriculture segment of $1.9 million.

 

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The allocations of the purchase prices in the above business combinations are presented in the following table.

 

		October 31,
		2011
		(in thousands)
Cash		$	98
Receivables		4,435
Inventories		39,898
Prepaid expenses		688
Deferred income taxes		13
Property and equipment		9,735
Intangible assets		5,400
Goodwill		4,773
		$	65,040
Accounts payable		$	224
Floorplan notes payable		14,207
Customer deposits		1,048
Accrued expenses		37
Income taxes payable		390
Long-term debt		442
Deferred income taxes		1,433
		$	17,781
Cash consideration		38,705
Non-cash consideration: liabilities incurred		8,554
Total consideration		$	47,259
Goodwill related to the Agriculture operating segment		$	3,883
Goodwill related to the Construction operating segment		$	890
Goodwill expected to be deductible for tax purposes		$	3,482

 

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NOTE 5 -                     SEGMENT INFORMATION AND OPERATING RESULTS

 

Revenue, income before income taxes and total assets at the segment level are reported before eliminations. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as “Shared Resources” in the table below. Shared Resources assets primarily consist of cash and property and equipment. Intersegment revenue is immaterial.

 

Certain financial information for each of the Company’s business segments is set forth below.

 

		Three Months Ended October 31,						Nine Months Ended October 31,
		2011			2010			2011			2010
		(in thousands)						(in thousands)
Revenue
Agriculture		$	361,601		$	282,365		$	914,932		$	645,269
Construction		77,435			39,827			181,395			108,140
Segment revenue		439,036			322,192			1,096,327			753,409
Eliminations		(16,076		)	(10,885		)	(44,353		)	(26,979		)
Total		$	422,960		$	311,307		$	1,051,974		$	726,430
Income (Loss) Before Income Taxes
Agriculture		$	20,068		$	14,420		$	43,964		$	25,458
Construction		3,254			(169		)	4,482			(2,936		)
Segment income (loss) before income taxes		23,322			14,251			48,446			22,522
Shared Resources		(1,772		)	(1,343		)	(3,786		)	(1,977		)
Eliminations		(214		)	(104		)	(726		)	(498		)
Total		$	21,336		$	12,804		$	43,934		$	20,047

 

		October 31,			January 31,
		2011			2011
		(in thousands)
Total Assets
Agriculture		$	730,680		$	514,049
Construction		198,680			98,535
Segment assets		929,360			612,584
Shared Resources (1)		123,861			37,340
Eliminations		(1,804		)	(1,078		)
Total		$	1,051,417		$	648,846

 

(1)          The balance as of October 31, 2011 includes the cash proceeds from the Company’s follow-on offering completed in May 2011.

 

NOTE 6 -                     SUBSEQUENT EVENTS

 

On November 1, 2011, the Company acquired certain assets of Van Der Werff Implement, Inc., an agriculture equipment store located in Platte, South Dakota. The store is contiguous to the Company’s existing locations in Sioux Falls, Huron, Miller, Highmore and Pierre, South Dakota. Due to the recent nature of this acquisition, the initial business combination accounting will be performed in the three months ending January 31, 2012. The acquisition-date fair value of the total consideration transferred for the store was approximately $3.9 million.

 

On December 1, 2011, the Company acquired certain assets of Jewell Implement Company, Inc., an agriculture equipment store located in Jewell, Iowa. The store is contiguous to the Company’s existing location in Iowa Falls, Iowa. Due to the recent nature of this acquisition, the initial business combination accounting will be performed in the three months ending January 31, 2012. The acquisition-date fair value of the total consideration transferred for the store was approximately $1.3 million.

 

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On November 11, 2011, the Company entered into a definitive agreement to acquire the business of AgroExpert, S.R.L., which consists of two agriculture equipment dealerships, located in Bucharest and Timisoara, Romania. The entity’s existing management will retain a minority interest in the entity. The acquisition establishes the Company’s first international operations and is expected to close on or around December 31, 2011.

 

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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, 2011.

 

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, 2011.

 

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 Quarterly Report 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 $12.8 million, or $0.61 per diluted share, for the three months ended October 31, 2011, compared to $7.7 million, or $0.42 per diluted share, for the three months ended October 31, 2010. 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 primarily resulting from the continuation of a strong agriculture equipment market, improved construction equipment market in the region in which we do business, and growth in the rental business in our Construction segment, reflecting our initiative to expand this growth platform;

 

·                  Increase in gross profit primarily due to increased revenue and improvement in gross profit margin on equipment and rental and other; and

 

·                  Operating expenses as a percentage of total revenue increased to 11.8% for the three months ended October 31, 2011, compared to 10.5% for the three months ended October 31, 2010, primarily reflecting higher operating expenses related to our Construction segment, which includes additional expenses associated with growing the rental business, and an increase in the Company’s compensation expenses such as sales commissions.

 

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Results of Operations

 

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

 

		Three Months Ended October 31,						Percent		Nine Months Ended October 31,						Percent
		2011			2010			Change		2011			2010			Change
		(dollars in thousands)								(dollars in thousands)
Equipment
Revenue		$	312,304		$	241,096		29.5	%	$	786,816		$	544,587		44.5	%
Cost of revenue		283,690			221,163			28.3	%	711,421			496,306			43.3	%
Gross profit		$	28,614		$	19,933		43.6	%	$	75,395		$	48,281		56.2	%
Gross profit margin		9.2		%	8.3		%	0.9	%	9.6		%	8.9		%	0.7	%
Parts
Revenue		$	64,468		$	42,028		53.4	%	$	155,670		$	111,038		40.2	%
Cost of revenue		44,389			29,296			51.5	%	108,535			78,666			38.0	%
Gross profit		$	20,079		$	12,732		57.7	%	$	47,135		$	32,372		45.6	%
Gross profit margin		31.1		%	30.3		%	0.8	%	30.3		%	29.2		%	1.1	%
Service
Revenue		$	29,843		$	20,832		43.3	%	$	76,202		$	54,885		38.8	%
Cost of revenue		10,304			7,435			38.6	%	27,175			20,376			33.4	%
Gross profit		$	19,539		$	13,397		45.8	%	$	49,027		$	34,509		42.1	%
Gross profit margin		65.5		%	64.3		%	1.2	%	64.3		%	62.9		%	1.4	%
Rental and other
Revenue		$	16,345		$	7,351		122.4	%	$	33,286		$	15,920		109.1	%
Cost of revenue		10,580			5,435			94.7	%	22,192			12,613			75.9	%
Gross profit		$	5,765		$	1,916		200.9	%	$	11,094		$	3,307		235.5	%
Gross profit margin		35.3		%	26.1		%	9.2	%	33.3		%	20.8		%	12.5	%

 

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