Titan Machinery Inc. - Quarter Report: 2011 April (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 April 30, 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  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, 2011 was: Common Stock, $0.00001 par value, 20,681,468 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 April 30, 2011 and January 31, 2011	3
		Consolidated Statements of Operations for the three months ended April 30, 2011 and 2010	4
		Consolidated Statements of Cash Flows for the three months ended April 30, 2011 and 2010	5
		Notes to Consolidated Financial Statements	7
	ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	12
	ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	20
	ITEM 4.	CONTROLS AND PROCEDURES	20
PART II.	OTHER INFORMATION		21
	ITEM 1.	LEGAL PROCEEDINGS	21
	ITEM 1A.	RISK FACTORS	21
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	21
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	21
	ITEM 4.	(REMOVED AND RESERVED)	21
	ITEM 5.	OTHER INFORMATION	21
	ITEM 6.	EXHIBITS	21
	Signatures		22
	Exhibit Index		23

 

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PART I. — FINANCIAL INFORMATION

 

ITEM 1.          FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		April 30,			January 31,
		2011			2011
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	81,607		$	76,112
Receivables, net		51,474			44,945
Inventories		463,506			429,844
Prepaid expenses		939			1,003
Deferred income taxes		3,238			3,247
Total current assets		600,764			555,151
INTANGIBLES AND OTHER ASSETS
Noncurrent parts inventories		2,606			2,405
Goodwill		19,285			18,391
Intangible assets, net of accumulated amortization		6,676			4,734
Other		2,691			2,793
		31,258			28,323
PROPERTY AND EQUIPMENT, net of accumulated depreciation		79,434			65,372
		$	711,456		$	648,846
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	26,731		$	15,957
Floorplan notes payable		354,396			320,801
Current maturities of long-term debt and short-term advances		8,088			4,207
Customer deposits		37,072			28,180
Accrued expenses		15,460			16,816
Income taxes payable		2,292			2,093
Total current liabilities		444,039			388,054
LONG-TERM LIABILITIES
Long-term debt, less current maturities		33,092			33,409
Deferred income taxes		9,663			9,012
Other long-term liabilities		2,530			3,814
		45,285			46,235
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 17,922 at April 30, 2011 and 17,917 at January 31, 2011		—			—
Additional paid-in-capital		140,773			140,466
Retained earnings		81,359			74,091
		222,132			214,557
		$	711,456		$	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
		April 30,
		2011			2010
REVENUE
Equipment		$	249,229		$	150,360
Parts		41,910			35,063
Service		20,964			16,551
Other, including trucking and rental		6,062			3,483
TOTAL REVENUE		318,165			205,457
COST OF REVENUE
Equipment		223,301			136,801
Parts		29,720			25,186
Service		7,908			5,971
Other, including trucking and rental		4,433			3,056
TOTAL COST OF REVENUE		265,362			171,014
GROSS PROFIT		52,803			34,443
OPERATING EXPENSES		39,436			29,796
INCOME FROM OPERATIONS		13,367			4,647
OTHER INCOME (EXPENSE)
Interest and other income		285			173
Floorplan interest expense		(1,162		)	(1,801		)
Interest expense other		(275		)	(377		)
INCOME BEFORE INCOME TAXES		12,215			2,642
PROVISION FOR INCOME TAXES		(4,947		)	(1,083		)
NET INCOME		$	7,268		$	1,559
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.41		$	0.09
EARNINGS PER SHARE - DILUTED		$	0.40		$	0.09
WEIGHTED AVERAGE SHARES - BASIC		17,754			17,617
WEIGHTED AVERAGE SHARES - DILUTED		18,309			18,040

 

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,
		2011			2010
OPERATING ACTIVITIES
Net income		$	7,268		$	1,559
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Depreciation and amortization		2,642			2,078
Deferred income taxes		20			(376		)
Stock-based compensation expense		301			275
Other		4			24
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables, prepaid expenses and other assets		(6,011		)	(1,900		)
Inventories		(29,542		)	6,771
Floorplan notes payable		4,253			(905		)
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		16,383			190
Income taxes		(249		)	604
NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES		(4,931		)	8,320
INVESTING ACTIVITIES
Property and equipment purchases		(2,286		)	(2,166		)
Net proceeds from sale of equipment		647			119
Purchase of equipment dealerships, net of cash purchased		(7,039		)	—
Other, net		4			(150		)
NET CASH USED FOR INVESTING ACTIVITIES		(8,674		)	(2,197		)
FINANCING ACTIVITIES
Net change in non-manufacturer floorplan notes payable		22,731			704
Short-term advances related to customer contracts in transit, net		356			(598		)
Proceeds from long-term debt borrowings		—			257
Principal payments on long-term debt		(3,993		)	(1,346		)
Other		6			9
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES		19,100			(974		)
NET CHANGE IN CASH AND CASH EQUIVALENTS		5,495			5,149
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		76,112			76,185
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	81,607		$	81,334

 

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,
		2011			2010
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	5,171		$	863
Interest		$	1,252		$	2,166
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment purchased with long-term debt		$	251		$	798
Net transfer of equipment from (to) fixed assets to (from) inventories		$	(8,097	)	$	(1,104	)
Net transfer of financing from (to) long-term debt to (from) floorplan notes payable		$	(1,696	)	$	—

 

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. Operating results for the three-month period ended April 30, 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 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, 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 April 30, 2011 and January 31, 2011.

 

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.

 

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In December 2010, the FASB amended authoritative guidance on business combinations, codified in ASC 805, Business Combinations. This guidance clarifies that, when presenting comparative financial statements, registrants should disclose revenue and earnings of the combined entity as though the current period business combinations had occurred as of the beginning of the comparable prior annual reporting period. The guidance also expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance is effective prospectively for material (either on an individual or aggregate basis) business combinations entered into in fiscal years beginning on or after December 15, 2010 with early adoption permitted. The Company adopted this guidance on February 1, 2011. Its adoption did not have a material effect on the Company’s consolidated financial statements.

 

In December 2010, the FASB amended authoritative guidance on goodwill impairment testing, codified in ASC 305, Intangibles — Goodwill and Other. This guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts, and requires performance of Step 2 of the goodwill impairment test for such reporting units if it is more likely than not that, when considering qualitative factors, an impairment exists. The Company adopted this guidance on February 1, 2011. Its adoption did not have a material effect on the Company’s consolidated financial statements.

 

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 the Company adopted on February 1, 2011. Its adoption did not have a material effect on the Company’s consolidated financial statements.

 

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. The Company adopted this guidance on February 1, 2011. Its adoption did not have a material effect on the Company’s consolidated financial statements.

 

Earnings Per Share

 

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

 

		Three Months Ended April 30,
		2011		2010
		(in thousands)
Basic weighted-average shares outstanding		17,754		17,617
Plus: Incremental shares from assumed conversions
Restricted Stock		168		167
Warrants		30		59
Stock Options		357		197
Diluted weighted-average shares outstanding		18,309		18,040

 

There were 138,500 stock options outstanding as of April 30, 2010, that were not included in the computation of diluted earnings per share because they were anti-dilutive. There were no stock options outstanding as of April 30, 2011 that were anti-dilutive.

 

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NOTE 2 -  INVENTORIES

 

		April 30,			January 31,
		2011			2011
		(in thousands)
New equipment		$	247,350		$	209,871
Used equipment		149,929			162,254
Parts and attachments		60,564			52,694
Work in process		5,663			5,025
		$	463,506		$	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 April 30, 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 April 30, 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 April 30, 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 $329.1 million of the total floorplan notes payable balance of $354.4 million outstanding as of April 30, 2011 and $300.6 million of the total floorplan notes payable balance of $320.8 million outstanding as of January 31, 2011. As of April 30, 2011, the Company had approximately $213.8 million in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 2.21% to 7.25% as of April 30, 2011, subject to interest-free periods offered by CNH Capital. As of April 30, 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 three months ended April 30, 2011. In certain of the business combination transactions the Company recognized goodwill. Factors contributing to the recognition of goodwill include an evaluation of enterprise value, historical financial performance, and proximity to other existing and future planned Company locations. 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.

 

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

 

		April 30,
		2011
		(in thousands)
Cash		$	94
Receivables		199
Inventories		5,883
Prepaid expenses		255
Deferred income taxes		11
Property and equipment		6,534
Intangible assets		2,031
Goodwill		894
		$	15,901
Accounts payable		$	224
Floorplan notes payable		1,772
Customer deposits		131
Accrued expenses		15
Income taxes payable		448
Long-term debt		442
Deferred income taxes		651
		$	3,683
Cash consideration		7,133
Non-cash consideration: liabilities incurred		5,085
Total consideration		$	12,218
Goodwill related to the Agriculture operating segment		$	894
Goodwill related to the Construction operating segment		$	—
Goodwill expected to be deductible for tax purposes		$	16

 

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.

 

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

 

		Three Months Ended April 30,
		2011			2010
		(in thousands)
Revenue
Agriculture		$	286,978		$	181,382
Construction		44,139			32,104
Segment revenues		331,117			213,486
Eliminations		(12,952		)	(8,029		)
Total		$	318,165		$	205,457
Income (Loss) Before Income Taxes
Agriculture		$	12,959		$	4,792
Construction		652			(1,915		)
Segment income (loss) before income taxes		13,611			2,877
Shared Resources		(1,127		)	9
Eliminations		(269		)	(244		)
Income before income taxes		$	12,215		$	2,642
		April 30,			January 31,
		2011			2011
		(in thousands)
Total Assets
Agriculture		$	526,517		$	514,049
Construction		119,507			98,535
Segment assets		646,024			612,584
Shared Resources		66,778			37,340
Eliminations		(1,346		)	(1,078		)
Total		$	711,456		$	648,846

 

NOTE 6 -  SUBSEQUENT EVENTS

 

On May 11, 2011, the Company received approximately $75.0 million (net of underwriter fees of $4.2 million and estimated offering expenses of approximately $0.2 million) as a result of its public offering of 2.76 million shares of common stock, priced at $28.75 per share.

 

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 $3.0 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 $1.0 million.

 

During the second quarter of fiscal year 2012, the Company established plans to consolidate the operations of its Belgrade, Montana store with the recently acquired store in Bozeman, Montana. The Company expects to close the Belgrade store by July 31, 2011, and will account for all exit costs related to this closure in accordance with ASC 420, Exit or Disposal Cost Obligations. The Company expects the primary costs to relate to terminating our lease agreement, which has average monthly minimum lease payments of approximately $7,500 and expires on December 31, 2018. The Company will record 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, in accordance with ASC 420. The Company expects the closing costs of the Belgrade store to be approximately $0.01 per diluted share and will be realized in the second quarter of fiscal 2012.

 

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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 $7.3 million, or $0.40 per diluted share, for the three months ended April 30, 2011, compared to $1.6 million, or $0.09 per diluted share, for the three months ended April 30, 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;

 

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

 

·                  Operating expenses as a percentage of total revenue decreased to 12.4% for the three months ended April 30, 2011 compared to 14.5% for the three months ended April 30, 2010, due to improved fixed operating cost leverage resulting from higher revenue; and

 

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

 

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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 April 30,						Percent
		2011			2010			Change
		(dollars in thousands)
Equipment
Revenue		$	249,229		$	150,360		65.8	%
Cost of revenue		223,301			136,801			63.2	%
Gross profit		$	25,928		$	13,559		91.2	%
Gross profit margin		10.4		%	9.0		%	1.4	%
Parts
Revenue		$	41,910		$	35,063		19.5	%
Cost of revenue		29,720			25,186			18.0	%
Gross profit		$	12,190		$	9,877		23.4	%
Gross profit margin		29.1		%	28.2		%	0.9	%
Service
Revenue		$	20,964		$	16,551		26.7	%
Cost of revenue		7,908			5,971			32.4	%
Gross profit		$	13,056		$	10,580		23.4	%
Gross profit margin		62.3		%	63.9		%	(1.6	)%
Other, including trucking and rental
Revenue		$	6,062		$	3,483		74.0	%
Cost of revenue		4,433			3,056			45.1	%
Gross profit		$	1,629		$	427		281.5	%
Gross profit margin		26.9		%	12.3		%	14.6	%

 

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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,
		2011		2010
Revenue
Equipment		78.3	%	73.2	%
Parts		13.2	%	17.1	%
Service		6.6	%	8.0	%
Other, including trucking and rental		1.9	%	1.7	%
Total revenue		100.0	%	100.0	%
Total cost of revenue		83.4	%	83.2	%
Gross profit		16.6	%	16.8	%
Operating expenses		12.4	%	14.5	%
Income from operations		4.2	%	2.3	%
Other income (expense)		(0.4	)%	(1.0	)%
Income before income taxes		3.8	%	1.3	%
Provision for income taxes		(1.5	)%	(0.5	)%
Net income		2.3	%	0.8	%

 

Three Months Ended April 30, 2011 Compared to Three Months Ended April 30, 2010

 

Consolidated Results

 

Revenue

 

		Three Months Ended April 30,									Percent
		2011			2010			Increase			Change
		(dollars in thousands)
Equipment		$	249,229		$	150,360		$	98,869		65.8	%
Parts		41,910			35,063			6,847			19.5	%
Service		20,964			16,551			4,413			26.7	%
Other, including trucking and rental		6,062			3,483			2,579			74.0	%
Total Revenue		$	318,165		$	205,457		$	112,708		54.9	%

 

The increase in revenue for the three months ended April 30, 2011, as compared to the same period last year, was due to acquisitions contributing $37.0 million and same-store sales growth contributing $75.7 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 improved construction equipment market.

 

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Cost of Revenue

 

		Three Months Ended April 30,									Percent
		2011			2010			Increase			Change
		(dollars in thousands)
Equipment		$	223,301		$	136,801		$	86,500		63.2	%
Parts		29,720			25,186			4,534			18.0	%
Service		7,908			5,971			1,937			32.4	%
Other, including trucking and rental		4,433			3,056			1,377			45.1	%
Total cost of revenue		$	265,362		$	171,014		$	94,348		55.2	%

 

The increase in cost of revenue for the three months ended April 30, 2011, as compared to the same period last year, was primarily due to increased revenue. Acquisitions contributed $29.3 million of the increase in total cost of revenue, while same-store sales growth contributed $65.0 million of the increase. As a percentage of revenue, cost of revenue was 83.4% compared to 83.2% for the first quarter of fiscal 2011.

 

Gross Profit

 

		Three Months Ended April 30,						Increase/			Percent
		2011			2010			(Decrease)			Change
		(dollars in thousands)
Gross Profit
Equipment		$	25,928		$	13,559		$	12,369		91.2	%
Parts		12,190			9,877			2,313			23.4	%
Service		13,056			10,580			2,476			23.4	%
Other, including trucking and rental		1,629			427			1,202			281.5	%
Total Gross Profit		$	52,803		$	34,443		$	18,360		53.3	%
Gross Profit Margin
Equipment		10.4		%	9.0		%	1.4		%	15.6	%
Parts		29.1		%	28.2		%	0.9		%	3.2	%
Service		62.3		%	63.9		%	(1.6		)%	(2.5	)%
Other, including trucking and rental		26.9		%	12.3		%	14.6		%	118.7	%
Total Gross Profit Margin		16.6		%	16.8		%	(0.2		)%	(1.2	)%
Gross Profit Mix
Equipment		49.1		%	39.4		%	9.7		%	24.6	%
Parts		23.1		%	28.7		%	(5.6		)%	(19.5	)%
Service		24.7		%	30.7		%	(6.0		)%	(19.5	)%
Other, including trucking and rental		3.1		%	1.2		%	1.9		%	158.3	%
Total Gross Profit Mix		100.0		%	100.0		%	0.0		%	0.0	%

 

The $18.4 million increase in gross profit for the three months ended April 30, 2011, as compared to the same period last year, was primarily due to increased revenue. Acquisitions contributed $7.8 million to the increase in gross profit for the three months ended April 30, 2011, while increases in same-store gross profits contributed the remaining $10.6 million. Gross profit margin was 16.6% for the first quarter of fiscal 2012, compared to 16.8% for the first quarter of fiscal 2011. The increase in equipment gross profit margin from 9.0% for the first quarter of fiscal 2011 to 10.4% for the first quarter of fiscal 2012 is reflective of increased market demand compared to the same period last year.  The increase in gross profit margin on other, including trucking and rental, is due to an increase in utilization of our rental fleet. The decrease in our overall gross profit margin is due to the change in the gross profit mix, in which our equipment business made up a larger percentage of our total gross profit for the three months ended April 30, 2011, as compared to the same period last year.

 

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