Titan Machinery Inc. - Quarter Report: 2011 July (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 July 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 August 31, 2011 was: Common Stock, $0.00001 par value, 20,753,333 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 July 31, 2011 and January 31, 2011		3
			Consolidated Statements of Operations for the three and six months ended July 31, 2011 and 2010		4
			Consolidated Statement of Stockholders’ Equity for the six months ended July 31, 2011		5
			Consolidated Statements of Cash Flows for the six months ended July 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			14
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			25
ITEM 4.		CONTROLS AND PROCEDURES			26
PART II.	OTHER INFORMATION				26
ITEM 1.		LEGAL PROCEEDINGS			26
ITEM 1A.		RISK FACTORS			26
ITEM 2.		UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			26
ITEM 3.		DEFAULTS UPON SENIOR SECURITIES			26
ITEM 4.		(REMOVED AND RESERVED)			26
ITEM 5.		OTHER INFORMATION			26
ITEM 6.		EXHIBITS			26
Signatures					27
Exhibit Index					28

 

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PART I. — FINANCIAL INFORMATION

 

ITEM 1.                  FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		July 31,			January 31,
		2011			2011
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	102,194		$	76,112
Receivables, net		53,496			44,945
Inventories		622,471			429,844
Prepaid expenses and other current assets		2,291			1,003
Deferred income taxes		3,110			3,247
Total current assets		783,562			555,151
INTANGIBLES AND OTHER ASSETS
Noncurrent parts inventories		2,850			2,405
Goodwill		21,931			18,391
Intangible assets, net of accumulated amortization		8,153			4,734
Other		2,614			2,793
		35,548			28,323
PROPERTY AND EQUIPMENT, net of accumulated depreciation		98,545			65,372
		$	917,655		$	648,846
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	24,712		$	15,957
Floorplan notes payable		494,886			320,801
Current maturities of long-term debt and short-term advances		3,761			4,207
Customer deposits		30,506			28,180
Accrued expenses		14,699			16,816
Income taxes payable		374			2,093
Total current liabilities		568,938			388,054
LONG-TERM LIABILITIES
Long-term debt, less current maturities		31,933			33,409
Deferred income taxes		9,663			9,012
Other long-term liabilities		3,010			3,814
		44,606			46,235
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 20,754 at July 31, 2011 and 17,917 at January 31, 2011		—			—
Additional paid-in-capital		216,461			140,466
Retained earnings		87,650			74,091
		304,111			214,557
		$	917,655		$	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 July 31,						Six Months Ended July 31,
		2011			2010			2011			2010
REVENUE
Equipment		$	225,283		$	153,131		$	474,512		$	303,491
Parts		49,292			33,947			91,202			69,010
Service		25,395			17,502			46,359			34,053
Rental and other		10,879			5,086			16,941			8,569
TOTAL REVENUE		310,849			209,666			629,014			415,123
COST OF REVENUE
Equipment		204,430			138,342			427,731			275,143
Parts		34,426			24,184			64,146			49,370
Service		8,963			6,970			16,871			12,941
Rental and other		7,179			4,122			11,612			7,178
TOTAL COST OF REVENUE		254,998			173,618			520,360			344,632
GROSS PROFIT		55,851			36,048			108,654			70,491
OPERATING EXPENSES		44,060			29,212			83,496			59,008
INCOME FROM OPERATIONS		11,791			6,836			25,158			11,483
OTHER INCOME (EXPENSE)
Interest and other income		267			34			552			207
Floorplan interest expense		(1,334		)	(1,911		)	(2,496		)	(3,712		)
Interest expense other		(341		)	(358		)	(616		)	(735		)
INCOME BEFORE INCOME TAXES		10,383			4,601			22,598			7,243
PROVISION FOR INCOME TAXES		(4,092		)	(1,887		)	(9,039		)	(2,970		)
NET INCOME		$	6,291		$	2,714		$	13,559		$	4,273
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.31		$	0.15		$	0.71		$	0.24
EARNINGS PER SHARE - DILUTED		$	0.30		$	0.15		$	0.69		$	0.24
WEIGHTED AVERAGE SHARES - BASIC		20,237			17,635			19,009			17,626
WEIGHTED AVERAGE SHARES - DILUTED		20,799			18,080			19,567			18,060

 

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		77		—			457			—			457
Stock-based compensation expense		—		—			640			—			640
Net income		—		—			—			13,559			13,559
BALANCE, JULY 31, 2011		20,754		$	—		$	216,461		$	87,650		$	304,111

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

		Six Months Ended July 31,
		2011			2010
OPERATING ACTIVITIES
Net income		$	13,559		$	4,273
Adjustments to reconcile net income to net cash used for operating activities
Depreciation and amortization		6,053			4,204
Deferred income taxes		148			(353		)
Stock-based compensation expense		640			564
Other		168			(87		)
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables, prepaid expenses and other assets		(5,325		)	(6,848		)
Inventories		(99,638		)	(28,261		)
Floorplan notes payable		3,718			(818		)
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		5,979			(4,918		)
Income taxes		(2,167		)	2,084
NET CASH USED FOR OPERATING ACTIVITIES		(76,865		)	(30,160		)
INVESTING ACTIVITIES
Property and equipment purchases		(8,524		)	(6,250		)
Net proceeds from sale of equipment		642			434
Purchase of equipment dealerships, net of cash purchased		(27,121		)	(2,423		)
Other, net		6			(293		)
NET CASH USED FOR INVESTING ACTIVITIES		(34,997		)	(8,532		)
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		74,217			23,444
Short-term advances related to customer contracts in transit, net		(390		)	(358		)
Proceeds from long-term debt borrowings		—			4,671
Principal payments on long-term debt		(11,238		)	(3,878		)
Other		457			89
NET CASH PROVIDED BY FINANCING ACTIVITIES		137,944			23,968
NET CHANGE IN CASH AND CASH EQUIVALENTS		26,082			(14,724		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		76,112			76,185
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	102,194		$	61,461

 

See Notes to Consolidated Financial Statements

 

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Page — 2

(in thousands)

 

		Six Months Ended July 31,
		2011			2010
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	10,883		$	1,247
Interest		$	2,850		$	4,460
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment financed with long-term debt		$	2,434		$	3,647
Net transfer of equipment to fixed assets from inventories		$	20,335		$	1,744
Net transfer of financing to long-term debt from floorplan notes payable		$	1,696		$	2,423

 

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 our Agriculture and Construction customers. Therefore, operating results for the six-month period ended July 31, 2011 are not necessarily indicative of the results that may be expected for the 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 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 July 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. We record a liability for the net present value of any remaining lease obligations, net of estimated sublease income, at the date we cease 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. We record a liability for employee termination costs at the date the termination benefits were communicated to the employees.

 

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Upon acquiring ABC Rental & Equipment Sales in the first quarter of fiscal 2012, the Company decided that it would combine its existing location in Belgrade, Montana into its newly-acquired store in nearby Bozeman, Montana. This merger 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 three and six months ended July 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		(66		)
Balance at July 31, 2011		$	527

 

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 U.S. GAAP or International Financial Reporting Standards (“IFRS”). 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 the 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 effective for the interim and annual periods beginning after December 15, 2011, and is applied retrospectively. 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 July 31,				Six Months Ended July 31,
		2011		2010		2011		2010
		(in thousands)				(in thousands)
Basic weighted-average shares outstanding		20,237		17,635		19,009		17,626
Plus: Incremental shares from assumed conversions
Restricted Stock		182		187		175		177
Warrants		30		56		30		58
Stock Options		350		202		353		199
Diluted weighted-average shares outstanding		20,799		18,080		19,567		18,060

 

There were zero and 139,000 stock options outstanding as of July 31, 2011 and 2010, respectively, that were not included in the computation of diluted earnings per share because they were anti-dilutive.

 

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NOTE 2 -    INVENTORIES

 

		July 31,			January 31,
		2011			2011
		(in thousands)
New equipment		$	396,887		$	209,871
Used equipment		153,379			162,254
Parts and attachments		65,405			52,694
Work in process		6,800			5,025
		$	622,471		$	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 July 31, 2011, the Company had a $50.0 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 $26.4 million outstanding on its operating lines of credit as of July 31, 2011 and January 31, 2011. 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 July 31, 2011, the Company had discretionary floorplan lines of credit for equipment purchases totaling approximately $550.0 million with various lending institutions, including $175.0 million under the aforementioned Credit Agreement, a $300.0 million Wholesale Floorplan Credit Facility with CNH Capital America LLC (“CNH Capital”) and a $75.0 million Wholesale Financing Plan with Rental Agreement with Agricredit Acceptance LLC. Floorplan notes payable relating to these credit facilities totaled approximately $454.3 million of the total floorplan notes payable balance of $494.9 million outstanding as of July 31, 2011 and $300.6 million of the total floorplan notes payable balance of $320.8 million outstanding as of January 31, 2011. As of July 31, 2011, the Company had approximately $90.0 million in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 2.19% to 7.25% as of July 31, 2011, subject to interest-free periods offered by CNH Capital. As of July 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 six months ended July 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 the 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 results 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 acquired entity 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 dealership was $1.0 million.

 

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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 and is contiguous to the Company’s existing location in Marshall, Minnesota. The acquisition-date fair value of the total consideration transferred for the dealership was $5.8 million.

 

On April 1, 2011, the Company acquired certain assets of ABC Rental & Equipment Sales. The acquired entity 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 dealerships was $5.4 million.

 

On May 13, 2011, the Company acquired certain assets of Carlson Tractor & Equipment, Inc. The acquired entity 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 dealerships was $2.9 million.

 

On May 31, 2011, the Company acquired certain assets of St. Joseph Equipment Inc. The acquired entity consisted of four construction equipment locations 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 dealerships was $17.0 million.

 

During the six months ended July 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.

 

		July 31,
		2011
		(in thousands)
Cash		$	96
Receivables		3,775
Inventories		29,525
Prepaid expenses		799
Deferred income taxes		11
Property and equipment		8,291
Intangible assets		3,638
Goodwill		3,540
		$	49,675
Accounts payable		$	224
Floorplan notes payable		13,602
Customer deposits		223
Accrued expenses		37
Income taxes payable		448
Long-term debt		442
Deferred income taxes		651
		$	15,627
Cash consideration		27,217
Non-cash consideration: liabilities incurred		6,831
Total consideration		$	34,048
Goodwill related to the Agriculture operating segment		$	2,789
Goodwill related to the Construction operating segment		$	751
Goodwill expected to be deductible for tax purposes		$	2,690

 

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NOTE 5 -    SEGMENT INFORMATION AND OPERATING RESULTS

 

Revenue, 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 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 July 31,						Six Months Ended July 31,
		2011			2010			2011			2010
		(in thousands)						(in thousands)
Revenue
Agriculture		$	266,353		$	181,522		$	553,331		$	362,904
Construction		59,821			36,209			103,960			68,313
Segment revenue		326,174			217,731			657,291			431,217
Eliminations		(15,325		)	(8,065		)	(28,277		)	(16,094		)
Total		$	310,849		$	209,666		$	629,014		$	415,123
Income (Loss) Before Income Taxes
Agriculture		$	10,937		$	6,246		$	23,896		$	11,038
Construction		576			(852		)	1,228			(2,767		)
Segment income (loss) before income taxes		11,513			5,394			25,124			8,271
Shared Resources		(887		)	(643		)	(2,014		)	(634		)
Eliminations		(243		)	(150		)	(512		)	(394		)
Income before income taxes		$	10,383		$	4,601		$	22,598		$	7,243

 

		July 31,			January 31,
		2011			2011
		(in thousands)
Total Assets
Agriculture		$	619,322		$	514,049
Construction		178,537			98,535
Segment assets		797,859			612,584
Shared Resources (1)		121,386			37,340
Eliminations		(1,590		)	(1,078		)
Total		$	917,655		$	648,846

 

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

 

NOTE 6 -    SUBSEQUENT EVENTS

 

On September 2, 2011, the Company acquired certain assets of Virgl Implement Inc. and Victor’s Inc., expanding the Company’s agriculture presence in Nebraska. The acquired entities consisted of two agricultural equipment stores in Wahoo and Fremont, Nebraska. Due to the recent acquisition of these entities, the initial business combination accounting will be performed in the three months ending October 31, 2011. The acquisition-date fair value of the total consideration transferred for the dealerships was approximately $13.2 million.

 

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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 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 $6.3 million, or $0.30 per diluted share, for the three months ended July 31, 2011, compared to $2.7 million, or $0.15 per diluted share, for the three months ended July 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 and improved construction equipment market in the region in which we do business;

 

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

 

·                  Decrease in floorplan interest expense due to our new Credit Agreement entered into on October 31, 2010.

 

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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 July 31,						Percent		Six Months Ended July 31,						Percent
		2011			2010			Change		2011			2010			Change
		(dollars in thousands)								(dollars in thousands)
Equipment
Revenue		$	225,283		$	153,131		47.1	%	$	474,512		$	303,491		56.4	%
Cost of revenue		204,430			138,342			47.8	%	427,731			275,143			55.5	%
Gross profit		$	20,853		$	14,789		41.0	%	$	46,781		$	28,348		65.0	%
Gross profit margin		9.3		%	9.7		%	(0.4	)%	9.9		%	9.3		%	0.6	%
Parts
Revenue		$	49,292		$	33,947		45.2	%	$	91,202		$	69,010		32.2	%
Cost of revenue		34,426			24,184			42.4	%	64,146			49,370			29.9	%
Gross profit		$	14,866		$	9,763		52.3	%	$	27,056		$	19,640		37.8	%
Gross profit margin		30.2		%	28.8		%	1.4	%	29.7		%	28.5		%	1.2	%
Service
Revenue		$	25,395		$	17,502		45.1	%	$	46,359		$	34,053		36.1	%
Cost of revenue		8,963			6,970			28.6	%	16,871			12,941			30.4	%
Gross profit		$	16,432		$	10,532		56.0	%	$	29,488		$	21,112		39.7	%
Gross profit margin		64.7		%	60.2		%	4.5	%	63.6		%	62.0		%	1.6	%
Rental and other
Revenue		$	10,879		$	5,086		113.9	%	$	16,941		$	8,569		97.7	%
Cost of revenue		7,179			4,122			74.2	%	11,612			7,178			61.8	%
Gross profit		$	3,700		$	964		283.8	%	$	5,329		$	1,391		283.1	%
Gross profit margin		34.0		%	19.0		%	15.0	%	31.5		%	16.2		%	15.3	%

 

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