Titan Machinery Inc. - Quarter Report: 2012 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, 2012

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 May 31, 2012 was: Common Stock, $0.00001 par value, 20,948,420 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, 2012 and January 31, 2012		3
			Consolidated Statements of Operations for the three months ended April 30, 2012 and 2011		4
			Consolidated Statements of Comprehensive Income for the three months ended April 30, 2012 and 2011		5
			Consolidated Statement of Stockholders’ Equity for the three months ended April 30, 2012		6
			Consolidated Statements of Cash Flows for the three months ended April 30, 2012 and 2011		7
			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			23
	ITEM 4.	CONTROLS AND PROCEDURES			23
PART II.          OTHER INFORMATION					24
	ITEM 1.	LEGAL PROCEEDINGS			24
	ITEM 1A.	RISK FACTORS			24
	ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			24
	ITEM 3.	DEFAULTS UPON SENIOR SECURITIES			24
	ITEM 4.	MINE SAFETY DISCLOSURES			24
	ITEM 5.	OTHER INFORMATION			24
	ITEM 6.	EXHIBITS			25
	Signatures				26
	Exhibit Index				27

 

Table of Contents

 

PART I. — FINANCIAL INFORMATION

 

ITEM 1.                FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

		April 30,			January 31,
		2012			2012
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	106,717		$	79,842
Receivables, net		53,679			82,518
Inventories		823,195			748,047
Prepaid expenses and other		5,128			2,108
Income taxes receivable		—			3,140
Deferred income taxes		5,256			5,370
Total current assets		993,975			921,025
INTANGIBLES AND OTHER ASSETS
Noncurrent parts inventories		3,147			2,792
Goodwill		26,255			24,404
Intangible assets, net of accumulated amortization		11,459			10,793
Other		7,850			2,776
Total intangibles and other assets		48,711			40,765
PROPERTY AND EQUIPMENT, net of accumulated depreciation		167,759			126,282
TOTAL ASSETS		$	1,210,445		$	1,088,072
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable		$	37,322		$	28,424
Floorplan notes payable		571,170			552,428
Current maturities of long-term debt		4,566			4,755
Customer deposits		25,247			49,540
Accrued expenses		21,903			26,735
Income taxes payable		233			—
Total current liabilities		660,441			661,882
LONG-TERM LIABILITIES
Senior convertible notes		123,378			—
Long-term debt, less current maturities		21,607			57,405
Deferred income taxes		38,926			28,592
Other long-term liabilities		2,087			2,854
Total long-term liabilities		185,998			88,851
STOCKHOLDERS’ EQUITY
Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 20,939 at April 30, 2012 and 20,911 at January 31, 2012		—			—
Additional paid-in-capital		234,651			218,156
Retained earnings		125,848			118,251
Accumulated other comprehensive income (loss)		112			(70		)
Total Titan Machinery Inc. stockholders’ equity		360,611			336,337
Noncontrolling interest		3,395			1,002
Total stockholders’ equity		364,006			337,339
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	1,210,445		$	1,088,072

 

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,
		2012			2011
REVENUE
Equipment		$	322,528		$	249,229
Parts		58,844			41,910
Service		29,752			20,964
Rental and other		10,599			6,062
TOTAL REVENUE		421,723			318,165
COST OF REVENUE
Equipment		292,085			223,301
Parts		40,653			29,720
Service		10,363			7,908
Rental and other		8,213			4,433
TOTAL COST OF REVENUE		351,314			265,362
GROSS PROFIT		70,409			52,803
OPERATING EXPENSES		54,856			39,436
INCOME FROM OPERATIONS		15,553			13,367
OTHER INCOME (EXPENSE)
Interest and other income		488			285
Floorplan interest expense		(2,898		)	(1,162		)
Interest expense other		(793		)	(275		)
INCOME BEFORE INCOME TAXES		12,350			12,215
PROVISION FOR INCOME TAXES		(4,891		)	(4,947		)
NET INCOME INCLUDING NONCONTROLLING INTEREST		7,459			7,268
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST		138			—
NET INCOME ATTRIBUTABLE TO TITAN MACHINERY INC.		$	7,597		$	7,268
EARNINGS PER SHARE - NOTE 1
EARNINGS PER SHARE - BASIC		$	0.36		$	0.41
EARNINGS PER SHARE - DILUTED		$	0.36		$	0.40
WEIGHTED AVERAGE SHARES - BASIC		20,723			17,754
WEIGHTED AVERAGE SHARES - DILUTED		20,962			18,141

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(in thousands)

 

		Three Months Ended April 30,
		2012			2011
NET INCOME INCLUDING NONCONTROLLING INTEREST		$	7,459		$	7,268
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustments		249			—
TOTAL OTHER COMPREHENSIVE INCOME		249			—
COMPREHENSIVE INCOME		7,708			7,268
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST		(71		)	—
COMPREHENSIVE INCOME ATTRIBUTABLE TO TITAN MACHINERY INC.		$	7,779		$	7,268

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERY INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

(in thousands)

 

													Accumulated			Total Titan
		Common Stock					Additional						Other			Machinery Inc.						Total
		Shares					Paid-In			Retained			Comprehensive			Stockholders’			Noncontrolling			Stockholders’
		Outstanding		Amount			Capital			Earnings			Income (Loss)			Equity			Interest			Equity
BALANCE, JANUARY 31, 2012		20,911		$	—		$	218,156		$	118,251		$	(70	)	$	336,337		$	1,002		$	337,339
Senior convertible notes offering		—		—			15,501			—			—			15,501			—			15,501
Common stock issued on grant of restricted stock, exercise of stock options and warrants, and tax benefits of equity awards		28		—			636			—			—			636			—			636
Issuance of subsidiary shares to noncontrolling interest holders		—		—			—			—			—			—			2,464			2,464
Stock-based compensation expense		—		—			358			—			—			358			—			358
Comprehensive income:
Net income (loss)		—		—			—			7,597			—			7,597			(138		)	7,459
Other comprehensive income		—		—			—			—			182			182			67			249
Total comprehensive income (loss)		—		—			—			—			—			7,779			(71		)	7,708
BALANCE, APRIL 30, 2012		20,939		$	—		$	234,651		$	125,848		$	112		$	360,611		$	3,395		$	364,006

 

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,
		2012			2011
OPERATING ACTIVITIES
Net income including noncontrolling interest		$	7,459		$	7,268
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Depreciation and amortization		4,927			2,642
Deferred income taxes		114			20
Stock-based compensation expense		358			301
Other, net		73			4
Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities
Receivables, prepaid expenses and other assets		27,590			(6,011		)
Inventories		(40,396		)	(29,542		)
Floorplan notes payable		(2,111		)	4,253
Accounts payable, customer deposits, accrued expenses and other long-term liabilities		(26,240		)	16,383
Income taxes		3,373			(249		)
NET CASH USED FOR OPERATING ACTIVITIES		(24,853		)	(4,931		)
INVESTING ACTIVITIES
Rental fleet purchases		(16,233		)	(463		)
Property and equipment purchases (excluding rental fleet)		(1,725		)	(1,823		)
Net proceeds from sale of property and equipment		61			647
Purchase of equipment dealerships, net of cash acquired		(8,396		)	(7,039		)
Other, net		11			4
NET CASH USED FOR INVESTING ACTIVITIES		(26,282		)	(8,674		)
FINANCING ACTIVITIES
Proceeds from senior convertible notes offering, net of direct issuance costs of $4,753		145,247			—
Net change in non-manufacturer floorplan notes payable		(22,669		)	22,731
Proceeds from long-term debt borrowings		1,300			—
Principal payments on long-term debt		(47,806		)	(3,993		)
Proceeds from sale of subsidiary shares to noncontrolling interest holders		2,464			—
Other, net		(612		)	362
NET CASH PROVIDED BY FINANCING ACTIVITIES		77,924			19,100
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS		86			—
NET CHANGE IN CASH AND CASH EQUIVALENTS		26,875			5,495
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		79,842			76,112
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	106,717		$	81,607
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period
Income taxes, net of refunds		$	1,165		$	5,171
Interest		$	3,556		$	1,252
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Property and equipment financed with long-term debt		$	10,514		$	251
Net transfer of assets to property and equipment from inventories		$	15,966		$	8,097
Net transfer of financing to long-term debt 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. 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 three-month period ended April 30, 2012 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2013. The information contained in the balance sheet as of January 31, 2012 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, 2012 as filed with the SEC.

 

Nature of Business

 

The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through stores in the United States and Europe. The Company’s North American stores are located in North Dakota, South Dakota, Minnesota, Iowa, Nebraska, Montana, Wyoming, Wisconsin and Colorado, and its European stores are located in Romania and Bulgaria.

 

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 consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, initial valuation and impairment analyses of intangible assets, and income taxes.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. 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 of our long-term debt instruments, the carrying value of the long-term debt approximates the fair value as of April 30, 2012 and January 31, 2012. As of April 30, 2012, the fair value of our senior convertible notes was approximately $161.8 million versus a carrying value of approximately $123.4 million. Fair value of the senior convertible notes was estimated based on quoted market prices for these instruments.

 

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Earnings Per Share

 

The Company uses the two-class method to calculate basic and diluted earnings per share. Unvested restricted stock awards are considered participating securities because they entitle holders to non-forfeitable rights to dividends during the vesting term. Under the two-class method, basic earnings per share were computed by dividing net income attributable to Titan Machinery Inc. after allocation of income to participating securities by the weighted-average number of shares of common stock outstanding during the year.

 

Diluted earnings per share were computed by dividing net income attributable to Titan Machinery Inc. after allocation of income to participating securities by the weighted-average shares of common stock outstanding after adjusting for potential dilution related to the conversion of all dilutive securities into common stock. All potentially dilutive securities were included in the computation of diluted earnings per share. There were 10,000 options outstanding as of April 30, 2012 which 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.

 

The following table sets forth the calculation of basic and diluted earnings per share:

 

		Three Months Ended April 30,
		2012			2011
		(in thousands, except per share data)
Numerator
Net income attributable to Titan Machinery Inc.		$	7,597		$	7,268
Net income allocated to participating securities		(70		)	(68		)
Net income attributable to Titan Machinery Inc. common stockholders		$	7,527		$	7,200
Denominator
Basic weighted-average common shares outstanding		20,723			17,754
Plus: Incremental shares from assumed conversions
Warrants		30			30
Stock options		209			357
Diluted weighted-average common shares outstanding		20,962			18,141
Earnings per share - basic		$	0.36		$	0.41
Earnings per share - diluted		$	0.36		$	0.40

 

NOTE 2 -                  INVENTORIES

 

		April 30,			January 31,
		2012			2012
		(in thousands)
New equipment		$	528,983		$	445,513
Used equipment		200,906			219,849
Parts and attachments		85,235			76,073
Work in process		8,071			6,612
		$	823,195		$	748,047

 

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.

 

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NOTE 3 -                  PROPERTY AND EQUIPMENT

 

		April 30,			January 31,
		2012			2012
		(in thousands)
Rental fleet equipment		$	97,888		$	62,440
Machinery and equipment		18,335			17,562
Vehicles		29,057			28,277
Furniture and fixtures		20,888			19,097
Land, buildings, and leasehold improvements		41,934			34,705
		$	208,102		$	162,081
Less accumulated depreciation		(40,343		)	(35,799		)
		$	167,759		$	126,282

 

NOTE 4 -                  LINES OF CREDIT / FLOORPLAN NOTES PAYABLE

 

Operating Line of Credit

 

As of April 30, 2012, the Company had a $75.0 million working capital line of credit under an Amended and Restated Credit Agreement (the “Credit Agreement”) with a group of banks led by Wells Fargo Bank, National Association. The Company had $1.1 million and $33.9 million outstanding on its operating lines of credit as of April 30, 2012 and January 31, 2012, 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 April 30, 2012, the Company had discretionary floorplan lines of credit for equipment purchases totaling approximately $800.0 million with various lending institutions, including $300.0 million under the aforementioned Credit Agreement, a $350.0 million Wholesale Floorplan Credit Facility with CNH Capital America LLC (“CNH Capital”) and a $150.0 million Wholesale Financing Plan with Rental Agreement with Agricredit Acceptance LLC. Floorplan notes payable relating to these credit facilities totaled approximately $514.8 million of the total floorplan notes payable balance of $571.2 million outstanding as of April 30, 2012 and $505.6 million of the total floorplan notes payable balance of $552.4 million outstanding as of January 31, 2012. As of April 30, 2012, the Company had approximately $274.2 million in available borrowings remaining under these lines of credit (net of standby letters of credit under the aforementioned Credit Agreement and rental fleet financing and other acquisition-related financing arrangements under the CNH Capital credit facility). These floorplan notes carried various interest rates primarily ranging from 2.24% to 7.25% as of April 30, 2012, subject to interest-free periods offered by CNH Capital. As of April 30, 2012, the Company was in compliance with all floorplan financial covenants.

 

NOTE 5 -                  SENIOR CONVERTIBLE NOTES

 

On April 24, 2012, the Company issued through a private offering of $150 million of 3.75% Senior Convertible Notes (the “Convertible Notes”). The Convertible Notes bear interest at a rate of 3.75% per year, payable semi-annually in arrears on May 1 and November 1 of each year, commencing on November 1, 2012. The Convertible Notes mature on May 1, 2019, unless earlier purchased by the Company, redeemed or converted.

 

The Convertible Notes are unsecured and unsubordinated obligations; rank equal in right of payment to our existing and future unsecured indebtedness that is not subordinated; are effectively subordinated in right of payment to our existing and future secured indebtedness; and are structurally subordinated to all existing and future indebtedness and liabilities of our subsidiaries.

 

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The Convertible Notes are initially convertible into our common stock at a conversion rate of 23.1626 shares of common stock per $1,000 principal amount of convertible notes, representing an initial effective conversion price of $43.17 per share of common stock. The conversion rate may be subject to adjustment upon the occurrence of certain specified events as defined in the indenture governing the Convertible Notes, dated April 24, 2012 between the Company and Wells Fargo Bank, National Association, as trustee (the “Indenture”), but will not be adjusted for accrued but unpaid interest. Upon conversion of a note, the Company will settle the conversion obligation in cash up to the aggregate principal amount of the notes being converted, and any conversion obligation in excess thereof will be settled in cash, shares of our common stock, or a combination thereof, at our election, subject to certain limitations as defined in the Indenture.

 

Holders of the Convertible Notes may convert their notes at the applicable conversion rate under the following circumstances:

 

i.                                          During any fiscal quarter commencing after July 31, 2012, if for at least 20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on the last trading day of the immediately preceding fiscal quarter, the last reported sale price of our common stock on such trading day is greater than or equal to 120% of the applicable conversion price on such trading day.

 

ii.                                       During the five consecutive business day period immediately following any five consecutive trading day period in which, for each trading day of that period, the trading price per $1,000 principal amount of the Convertible Notes is less than 98% of the product of the last reported sale price of our common stock on such trading day and the applicable conversion rate on such trading day.

 

iii.                                    If we call any or all of the Convertible Notes for redemption at any time prior to the close of business on the business day immediately preceding the redemption date.

 

iv.                                   Upon the occurrence of corporate transactions specified in the Indenture.

 

v.                                      At any time on and after February 1, 2019 until the close of business on the business day immediately preceding the maturity date.

 

Holders of the Convertible Notes who convert their Convertible Notes in connection with a make-whole fundamental change, as defined in the Indenture, may be entitled to a make-whole premium in the form of an increase to the conversion rate. In addition, upon the occurrence of a fundamental change, as defined, holders of the Convertible Notes may require us to purchase all or a portion of their notes for cash at a price equal to 100% of the principal amount of the Convertible Notes to be purchased plus any accrued but unpaid interest.

 

The number of shares we may deliver upon conversion of the Convertible Notes will be subject to certain limitations, and we are subject to certain other obligations and restrictions related to such share caps, as described in the Indenture. On or after May 6, 2015, we may redeem for cash all or a portion of the Convertible Notes if the last reported sale price of our common stock has been at least 120% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period ending on, and including, the trading day immediately preceding the date on which we provide notice of redemption.

 

The Indenture provides for customary events of default, including, but not limited to, cross acceleration to certain other indebtedness of the Company and its subsidiaries. In the case of an event of default arising from specified events of bankruptcy or insolvency, all outstanding Convertible Notes will become due and payable immediately without further action or notice. If any other event of default under the Indenture occurs or is continuing, the trustee or holders of at least 25% in aggregate principal amount of the then outstanding Convertible Notes may declare all of the Convertible Notes to be due and payable immediately.

 

In accounting for the Convertible Notes, we segregated the liability component of the instrument from the equity component. The liability component was measured by estimating the fair value of a non-convertible debt instrument that is similar in its terms to the Convertible Notes. Fair value was estimated through discounting future interest and principal payments, an income approach, due under the Convertible Notes at a discount rate of 7.00%, an interest rate equal to the estimated borrowing rate for similar non-convertible debt. The excess of the aggregate face value of the Convertible Notes over the estimated fair value of the liability component is recognized as a debt discount which will be amortized over the expected life of the Convertible Notes using the effective interest rate method. Amortization of the debt discount is recognized as non-cash interest expense.

 

The equity component of the Convertible Notes is measured as the residual difference between the aggregate face value of the Convertible Notes and the estimated aggregate fair value of the liability component. The equity component will not be remeasured in subsequent periods provided that the component continues to meet the conditions necessary for equity classification.

 

The transaction costs incurred in connection with the issuance of the Convertible Notes were allocated to the liability and equity components based on their relative values. Transaction costs allocated to the liability component are being

 

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amortized using the effective interest rate method and recognized as non-cash interest expense over the expected term of the Convertible Notes. Transaction costs allocated to the equity component reduced the value of the equity component recognized in stockholders’ equity.

 

Proceeds upon issuance of the Convertible Notes were as follows:

 

		April 24,
		2012
		(in thousands)
Principal value		$	150,000
Less: transaction costs		(4,753		)
Net proceeds, senior convertible notes		$	145,247
Amounts recognized at issuance:
Senior convertible notes, net		$	123,319
Additional paid-in capital		15,501
Transaction costs allocated to the liability component		(3,907		)
Long-term deferred tax liability		10,334
Net proceeds, senior convertible notes		$	145,247

 

As of April 30, 2012, the Convertible Notes consisted of the following:

 

		April 30,
		2012
		(in thousands except
		conversion rate
		and conversion price)
Principal value		$	150,000
Unamortized debt discount		(26,622		)
Carrying value of senior convertible notes		$	123,378
Carrying value of equity component, net of deferred taxes		$	15,501
Conversion rate (shares of common stock per $1,000 principal amount of notes)		23.1626
Conversion price (per share of common stock)		$	43.17

 

As of April 30, 2012, the unamortized debt discount will be amortized over a seven-year period. The if-converted value as of April 30, 2012 does not exceed the principal balance of the Convertible Notes. For the period ended April 30, 2012, the Company recognized $59,000 of non-cash interest expense related to the amortization of the debt discount and the liability-allocated transaction costs. The effective interest rate of the liability component for the period ended April 30, 2012 was equal to 7.00%. Prior to April 30, 2012, the Company used the proceeds from the Convertible Notes to reduce certain interest-bearing floorplan notes payable and long-term debt balances.

 

NOTE 6 -                     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, 2012. In certain of the business combination transactions the Company recognized goodwill. Factors contributing to the recognition of goodwill include an evaluation of future and historical financial performance, the value of the workforce acquired 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 27, 2012, the Company acquired certain assets of the Colorado division of Adobe Truck & Equipment, LLC. The acquired entity consisted of three construction equipment stores in Denver, Colorado Springs, and Loveland, Colorado. The acquisition establishes the Company’s first construction equipment stores in Colorado and allows the Company

 

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to have the exclusive Case Construction contract for all of Colorado east of the Rocky Mountains. The acquisition-date fair value of the total consideration transferred for the stores was $3.4 million.

 

On March 5, 2012, the Company acquired certain assets of Rimex 1-Holding EAD. The acquired entity consisted of seven agricultural equipment stores in the following cities in Bulgaria: Sofia, Dobrich, Burgas, Pleven, Ruse, Montana, and Stara Zagora. The acquisition expands the Company’s operations in Europe and provides a significant opportunity to leverage its domestic operating model and dealership experience into an additional growth platform. The acquisition-date fair value of the total consideration transferred for the stores was $2.6 million. Subsequent to the acquisition, Titan Machinery Bulgaria EAD issued a 30% ownership interest to the former owner of the acquired entity for $2.5 million. The 30% ownership interest in Titan Machinery Bulgaria EAD is included in the consolidated financial statements as a noncontrolling interest.

 

On March 30, 2012, the Company acquired certain assets of Haberer’s Implement, Inc. The acquired entity consisted of one agricultural equipment store in Bowdle, South Dakota which is contiguous to the Company’s existing locations in Aberdeen, Redfield and Highmore, South Dakota and Wishek, North Dakota. The acquisition-date fair value of the total consideration transferred for the store was $1.2 million.

 

On April 2, 2012, the Company acquired certain assets of East Helena Rental, LLC. The acquired entity consisted of one construction equipment rental store in Helena, Montana which is contiguous to the Company’s existing locations in Missoula, Great Falls, Bozeman and Big Sky, Montana. The acquisition-date fair value of the total consideration transferred for the store was $0.6 million.

 

The allocations of the purchase prices in the above business combinations are presented in the following table. The estimated fair values of the intangible assets acquired are provisional estimates which are subject to change upon completion of the final valuation.

 

		April 30,
		2012
		(in thousands)
Receivables		$		1,337
Inventories		10,198
Prepaid expenses and other		352
Property and equipment		1,833
Intangible assets		802
Goodwill		1,820
		$	16,342
Accounts payable		$	3,094
Floorplan notes payable		2,839
Customer deposits		1,440
Accrued expenses		6
		$	7,379
Cash consideration		8,396
Non-cash consideration: liabilities incurred		567
Total consideration		$	8,963
Goodwill related to the Agriculture operating segment		$	761
Goodwill related to the Construction operating segment		$	1,059
Goodwill expected to be deductible for tax purposes		$	1,820

 

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NOTE 7 -                     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 April 30,
		2012			2011
		(in thousands)
Revenue
Agriculture		$	360,135		$	286,978
Construction		81,608			44,139
Segment revenue		441,743			331,117
Eliminations		(20,020		)	(12,952		)
Total		$	421,723		$	318,165
Income (Loss) Before Income Taxes
Agriculture		$	14,338		$	12,959
Construction		(380		)	652
Segment income (loss) before income taxes		13,958			13,611
Shared Resources		(752		)	(1,127		)
Eliminations		(856		)	(269		)
Income before income taxes		$	12,350		$	12,215

 

		April 30,			January 31,
		2012			2012
		(in thousands)
Total Assets
Agriculture		$	747,808		$	781,098
Construction		323,388			250,474
Segment assets		1,071,196			1,031,572
Shared Resources		141,468			57,882
Eliminations		(2,219		)	(1,382		)
Total		$	1,210,445		$	1,088,072

 

NOTE 8 -                     SUBSEQUENT EVENTS

 

Subsequent to April 30, 2012, the Company entered into a Purchase Agreement to acquire certain assets of Curly Olney’s, Inc. The acquisition consists of two agricultural equipment stores in McCook and Imperial, Nebraska and expands the Company’s agriculture presence in Nebraska. The Company expects the closing date to be on or around July 2, 2012.

 

On June 1, 2012, at the Annual Meeting of Stockholders, the stockholders approved an amendment to the Company’s Certificate of Incorporation to increase the number of authorized shares of common stock to 45,000,000.

 

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