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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, 2010

 

Commission File No. 001-33866

 

TITAN MACHINERY INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

No. 45-0357838

(State or Other Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

644 East Beaton Drive

West Fargo, ND 58078-2648

(Address of Principal Executive Offices)

 

Registrant’s telephone number (701) 356-0130

 


 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x  NO o

 

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

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if smaller reporting company)

 

 

 

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, 2010 was: Common Stock, $0.00001 par value, 17,852,784 shares.

 

 

 



Table of Contents

 

TITAN MACHINERY INC.

QUARTERLY REPORT ON FORM 10-Q

 

Table of Contents

 

 

Page No.

PART I.

FINANCIAL INFORMATION

1

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

1

 

 

 

 

Consolidated Balance Sheets as of July 31, 2010 and January 31, 2010

1

 

 

 

 

Consolidated Statements of Operations for the three and six months ended July 31, 2010 and 2009

2

 

 

 

 

Consolidated Statements of Cash Flows for the six months ended July 31, 2010 and 2009

3

 

 

 

 

Notes to Consolidated Financial Statements

5

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

12

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

23

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

24

 

 

 

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.

(REMOVED AND RESERVED)

24

 

 

 

ITEM 5.

OTHER INFORMATION

24

 

 

 

ITEM 6.

EXHIBITS

24

 

 

 

Signatures

25

 

 

Exhibit Index

26

 



Table of Contents

 

PART I. — FINANCIAL INFORMATION

 

ITEM 1.                  FINANCIAL STATEMENTS

 

TITAN MACHINERY INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except per share data)

 

 

 

July 31,

 

January 31,

 

 

 

2010

 

2010

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

61,461

 

$

76,185

 

Receivables, net

 

29,478

 

22,254

 

Inventories

 

419,945

 

347,580

 

Prepaid expenses

 

633

 

1,009

 

Income taxes receivable

 

 

1,595

 

Deferred income taxes

 

2,867

 

2,266

 

 

 

 

 

 

 

Total current assets

 

514,384

 

450,889

 

 

 

 

 

 

 

INTANGIBLES AND OTHER ASSETS

 

 

 

 

 

Noncurrent parts inventories

 

1,983

 

1,642

 

Goodwill

 

16,247

 

14,762

 

Intangible assets, net of accumulated amortization

 

408

 

295

 

Other

 

845

 

620

 

 

 

19,483

 

17,319

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net of accumulated depreciation

 

53,938

 

46,604

 

 

 

 

 

 

 

 

 

$

587,805

 

$

514,812

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Accounts payable

 

$

15,312

 

$

12,352

 

Floorplan notes payable

 

317,506

 

249,872

 

Current maturities of long-term debt and short-term advances

 

8,801

 

7,218

 

Customer deposits

 

6,928

 

12,974

 

Accrued expenses

 

9,780

 

9,870

 

Income taxes payable

 

489

 

 

 

 

 

 

 

 

Total current liabilities

 

358,816

 

292,286

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

Long-term debt, less current maturities

 

24,351

 

21,852

 

Deferred income taxes

 

6,604

 

6,356

 

Other long-term liabilities

 

2,584

 

3,794

 

 

 

33,539

 

32,002

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

Common stock, par value $.00001 per share, authorized - 25,000 shares; issued and outstanding - 17,851 at July 31, 2010 and 17,777 at January 31, 2010

 

 

 

Additional paid-in-capital

 

139,428

 

138,775

 

Retained earnings

 

56,022

 

51,749

 

 

 

195,450

 

190,524

 

 

 

 

 

 

 

 

 

$

587,805

 

$

514,812

 

 

See Notes to Consolidated Financial Statements

 

1



Table of Contents

 

TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

July 31,

 

July 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

REVENUE

 

 

 

 

 

 

 

 

 

Equipment

 

$

153,131

 

$

141,142

 

$

303,491

 

$

266,007

 

Parts

 

33,947

 

32,454

 

69,010

 

58,852

 

Service

 

17,502

 

15,640

 

34,053

 

28,182

 

Other, including trucking and rental

 

5,086

 

3,956

 

8,569

 

6,452

 

TOTAL REVENUE

 

209,666

 

193,192

 

415,123

 

359,493

 

 

 

 

 

 

 

 

 

 

 

COST OF REVENUE

 

 

 

 

 

 

 

 

 

Equipment

 

138,342

 

125,452

 

275,143

 

237,752

 

Parts

 

24,184

 

22,939

 

49,370

 

41,476

 

Service

 

6,970

 

5,586

 

12,941

 

10,186

 

Other, including trucking and rental

 

4,122

 

3,207

 

7,178

 

5,555

 

TOTAL COST OF REVENUE

 

173,618

 

157,184

 

344,632

 

294,969

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

36,048

 

36,008

 

70,491

 

64,524

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

29,212

 

26,662

 

59,008

 

51,367

 

 

 

 

 

 

 

 

 

 

 

INCOME FROM OPERATIONS

 

6,836

 

9,346

 

11,483

 

13,157

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

Interest and other income

 

34

 

140

 

207

 

351

 

Floorplan interest expense

 

(1,911

)

(932

)

(3,712

)

(1,663

)

Interest expense other

 

(358

)

(328

)

(735

)

(591

)

 

 

 

 

 

 

 

 

 

 

INCOME BEFORE INCOME TAXES

 

4,601

 

8,226

 

7,243

 

11,254

 

 

 

 

 

 

 

 

 

 

 

PROVISION FOR INCOME TAXES

 

(1,887

)

(3,375

)

(2,970

)

(4,613

)

 

 

 

 

 

 

 

 

 

 

NET INCOME

 

$

2,714

 

$

4,851

 

$

4,273

 

$

6,641

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE - NOTE 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE - BASIC

 

$

0.15

 

$

0.28

 

$

0.24

 

$

0.38

 

EARNINGS PER SHARE - DILUTED

 

$

0.15

 

$

0.27

 

$

0.24

 

$

0.37

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES - BASIC

 

17,635

 

17,589

 

17,626

 

17,577

 

WEIGHTED AVERAGE SHARES - DILUTED

 

18,080

 

17,998

 

18,060

 

17,930

 

 

See Notes to Consolidated Financial Statements

 

2



Table of Contents

 

TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

Six Months Ended July 31,

 

 

 

2010

 

2009

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

4,273

 

$

6,641

 

Adjustments to reconcile net income to net cash from operations

 

 

 

 

 

Depreciation and amortization

 

4,204

 

3,962

 

Deferred income taxes

 

(353

)

329

 

Stock-based compensation expense

 

564

 

432

 

Other

 

(87

)

(22

)

Changes in assets and liabilities, net of purchase of equipment dealerships assets and assumption of liabilities

 

 

 

 

 

Receivables, prepaid expenses and other assets

 

(6,848

)

(755

)

Inventories

 

(28,261

)

(35,238

)

Floorplan notes payable

 

(818

)

2,989

 

Accounts payable, customer deposits, accrued expenses and other long-term liabilities

 

(4,918

)

(8,785

)

Income taxes

 

2,084

 

3,042

 

 

 

 

 

 

 

NET CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES

 

(30,160

)

(27,405

)

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

Net change in U.S. treasury bills

 

 

44,994

 

Property and equipment purchases

 

(6,250

)

(7,635

)

Net proceeds from sale of equipment

 

434

 

190

 

Purchase of equipment dealerships, net of cash purchased

 

(2,423

)

(4,025

)

Other, net

 

(293

)

 

 

 

 

 

 

 

NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES

 

(8,532

)

33,524

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

Net change in non-manufacturer floorplan notes payable

 

23,444

 

25,185

 

Short-term advances related to customer contracts in transit, net

 

(358

)

2,700

 

Proceeds from long-term debt borrowings

 

4,671

 

20,388

 

Principal payments on long-term debt

 

(3,878

)

(9,458

)

Other

 

89

 

 

 

 

 

 

 

 

NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES

 

23,968

 

38,815

 

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(14,724

)

44,934

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

76,185

 

41,047

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

61,461

 

$

85,981

 

 

See Notes to Consolidated Financial Statements

 

3



Table of Contents

 

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)

 

 

 

Six Months Ended July 31,

 

 

 

2010

 

2009

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

Cash paid during the period

 

 

 

 

 

Income taxes, net of refunds

 

$

1,247

 

$

1,688

 

 

 

 

 

 

 

Interest

 

$

4,460

 

$

2,206

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

Property and equipment purchased with long-term debt

 

$

3,647

 

$

1,688

 

 

 

 

 

 

 

Net transfer of equipment from (to) fixed assets to (from) inventories

 

$

(1,744

)

$

4,292

 

 

 

 

 

 

 

Acquisition of equipment dealership assets in exchange for cash and assumption of liabilities including purchase accounting adjustments on prior acquisitions

 

 

 

 

 

Receivables

 

$

 

$

(305

)

Inventories

 

(2,000

)

(6,203

)

Deferred income taxes, net

 

 

133

 

Property and equipment

 

(231

)

(786

)

Goodwill

 

(1,485

)

(1,238

)

Accounts payable, customer deposits and accrued expenses

 

17

 

182

 

Floorplan notes payable

 

819

 

2,398

 

Income taxes payable

 

 

(73

)

Long-term debt

 

 

1,867

 

 

 

 

 

 

 

Non-cash consideration: other long-term liabilities

 

457

 

 

Cash paid for dealerships, net of cash purchased and adjustments on prior acquisitions

 

$

(2,423

)

$

(4,025

)

 

See Notes to Consolidated Financial Statements

 

4



Table of Contents

 

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

NOTE 1 -                     BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six-month period ended July 31, 2010 are not necessarily indicative of the results that may be expected for the year ending January 31, 2011. The information contained in the balance sheet as of January 31, 2010 was derived from the audited financial statements for Titan Machinery Inc. (the “Company”) for the year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended January 31, 2010 as filed with the SEC.

 

Nature of Business

 

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

 

Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Transportation Solutions LLC. All significant accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.

 

Fair Value of Financial Instruments

 

The carrying amount of cash, receivables, payables, short-term debt and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments. Based upon current borrowing rates with similar maturities, the carrying value of the long-term debt approximates the fair value as of July 31, 2010 and January 31, 2010.

 

Exit and Disposal Costs

 

The Company accounts for exit or disposal activities, including store closures, in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 420, Exit or Disposal Cost Obligations. Such costs mainly include lease termination costs and employee termination costs. The Company records a liability for any remaining lease obligations, net of estimated sublease income or estimated loss on disposal if the Company buys and subsequently sells the leased property, as of the date the Company ceases using the property. Any subsequent adjustments to that liability as a result of changes in estimates are recorded in the period incurred. The Company records a liability for employee termination costs at the date the termination benefits were communicated to the employees.

 

5



Table of Contents

 

As part of the Company’s Construction business action plan, in April 2010, the Company decided to close its Construction store in Columbia Falls, Montana. The primary exit costs relate to estimated lease termination costs of $185,000 and employee termination costs of $27,000. The Company is transferring the majority of the assets and related floorplan notes payable and long-term debt to other stores. Exit costs of $110,000 and $75,000 are included in the line items of operating expenses and interest and other income, respectively, on the consolidated statements of operations for the three and six months ended July 31, 2010. A reconciliation of the beginning and ending liability balance follows:

 

 

 

(in thousands)

 

Balance at January 31, 2010

 

$

 

Exit costs incurred and charged to expense

 

212

 

Exit costs paid

 

(60

)

Balance at July 31, 2010

 

$

152

 

 

Recent Accounting Guidance

 

In July 2010, the FASB issued authoritative guidance on financing receivables and the allowance for credit losses, codified in ASC 310, Receivables. This guidance amends the current disclosure requirements to provide a greater level of disaggregated information about the credit quality of its financing receivables and its allowance for credit losses. The guidance also requires an entity to disclose credit quality indicators, past due information, and modifications of its financing receivables. The guidance is effective for interim and annual reporting periods ending after December 15, 2010. The Company is in the process of determining the impact that this guidance will have on the Company’s consolidated financial statements.

 

6



Table of Contents

 

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,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in thousands)

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average shares outstanding

 

17,635

 

17,589

 

17,626

 

17,577

 

Plus: Incremental shares from assumed conversions

 

 

 

 

 

 

 

 

 

Restricted Stock

 

187

 

137

 

177

 

117

 

Warrants

 

56

 

79

 

58

 

80

 

Stock Options

 

202

 

193

 

199

 

156

 

Diluted weighted-average shares outstanding

 

18,080

 

17,998

 

18,060

 

17,930

 

 

There were 139,000 and 164,000 stock options outstanding as of July 31, 2010 and 2009, respectively, that were not included in the computation of diluted earnings per share because they were anti-dilutive.

 

NOTE 2 -                     INVENTORIES

 

 

 

July 31,

 

January 31,

 

 

 

2010

 

2010

 

 

 

(in thousands)

 

New equipment

 

$

237,463

 

$

174,193

 

Used equipment

 

132,930

 

127,884

 

Parts and attachments

 

45,356

 

42,611

 

Work in process

 

4,196

 

2,892

 

 

 

 

 

 

 

 

 

$

419,945

 

$

347,580

 

 

In addition to the above amounts, the Company has estimated that a portion of its parts inventory will not be sold in the next year. Accordingly, these balances have been classified as noncurrent assets.

 

NOTE 3 -                     LINES OF CREDIT / FLOORPLAN NOTES PAYABLE

 

Operating Line of Credit

 

The Company entered into a Loan Agreement (the “Loan Agreement”) with Bremer Bank National Association (“Bremer Bank”) on July 15, 2009, as amended on July 13, 2010, which provides for a $25.0 million revolving operating line of credit (“Revolving Loan”) and a $12.9 million term loan (“Term Loan”). The Revolving Loan may be used to fund short term working capital requirements of the Company, and replaces the Company’s previous $25.0 million operating line of credit with Bremer Bank. The Revolving Loan has a variable interest rate of 0.25% per annum below a Bremer Bank reference rate (subject to a minimum interest rate floor of 4.5%) on outstanding balances, has a 0.5% non-usage fee on the average monthly unused amount, requires monthly payments of accrued interest, and has a maturity date of July 12, 2011. Advances under the Loan Agreement are secured by substantially all of the Company’s assets. See details of the Term Loan in the long-term debt schedule in the Company’s Form 10-K for the fiscal year ended January 31, 2010 as filed with the SEC.

 

The Company had no amount outstanding on the Revolving Loan at July 31, 2010. The Loan Agreement contains certain financial covenants which impose minimum levels of current ratio, debt service coverage, and inventory turnover ratio

 

7



Table of Contents

 

and a maximum level of debt to tangible net worth ratio. As of July 31, 2010, the Company was in compliance with all of these financial covenants.

 

Floorplan Lines of Credit

 

The Company has discretionary floorplan lines of credit for equipment purchases totaling approximately $400.0 million with various lending institutions, including a $300.0 million Wholesale Floorplan Credit Facility with CNH Capital America LLC (“CNH Capital”) and $50.0 million with GE Commercial Distribution Finance Corporation (“GE”). The available borrowings under the CNH Capital credit facility are reduced by outstanding floorplan notes payable, rental fleet financing and other acquisition-related financing arrangements with CNH Capital. During fiscal 2010, interest rates for new borrowings under the CNH Capital floorplan line of credit ranged from the prime rate plus 0.3% to the prime rate plus 6% per annum, subject to any interest-free periods offered by CNH Capital. Beginning in February 2010, interest rates are equal to the prime rate plus 4% on new borrowings, subject to any interest-free periods offered by CNH Capital. The CNH Capital credit facility automatically renews on August 31 of each year through August 31, 2012, unless earlier terminated by either party. Under covenants of the CNH Capital credit facility, the Company has agreed, among other things, to maintain various financial ratio levels and to submit certain financial information. It also contains various restrictive covenants that require prior consent of CNH Capital if the Company desires to engage in any acquisition of, consolidation or merger with any other business entity in which the Company is not the surviving company; create subsidiaries; move any collateral outside of the U.S.; or sell, rent, lease or otherwise dispose or transfer any of the collateral, other than in the ordinary course of business. CNH Capital’s consent is also required for the acquisition of any CNH dealership. In addition, the CNH Capital credit facility restricts the Company’s ability to incur any liens upon any substantial part of its assets.

 

The GE credit facility may be used to purchase new and used inventory from vendors approved by GE, or to finance or refinance new or used inventory. The interest rate on borrowings under the GE floorplan line of credit is equal to the three-month LIBOR rate plus 5.5%. The GE credit facility may be terminated by either party on 60 days notice. Under covenants of the GE credit facility, the Company has agreed, among other things, to maintain various financial ratio levels and to submit certain financial information. It also contains various restrictive covenants regarding related party transactions outside of the ordinary course of business and requires GE’s prior consent if the Company desires to engage in any acquisition meeting certain financial thresholds; make any investments outside of the ordinary course of business; or have a change in control, as defined by the agreement.

 

Floorplan notes payable relating to these credit facilities totaled approximately $303.2 million of the total floorplan notes payable balance of $317.5 million outstanding as of July 31, 2010 and $245.3 million of the total floorplan notes payable balance of $249.9 million outstanding as of January 31, 2010. As of July 31, 2010, the Company had approximately $82.2 million in available borrowings remaining under these lines of credit. These floorplan notes carried various interest rates primarily ranging from 3.25 to 7.25% as of July 31, 2010, subject to interest-free periods offered by CNH Capital, and are secured by the related inventory. Repayment terms vary by individual notes, but generally payments are made from sales proceeds or rental revenue from the related inventories. As of July 31, 2010, the Company was in compliance with all floorplan financial covenants.

 

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Table of Contents

 

NOTE 4 -                     BUSINESS COMBINATIONS

 

On June 1, 2010, the Company acquired certain assets of Hubbard Implement, Inc. The acquired entity consisted of one agricultural equipment store located in Iowa Falls, Iowa which is contiguous to the Company’s existing locations in Grundy Center and Waverly, Iowa. The acquisition-date fair value of the total consideration transferred for the dealership was $1,496,000.

 

During the six months ended July 31, 2010 adjustments were recorded for additional consideration of $1,384,000 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 of $1,384,000.

 

The results of operations have been included in the Company’s consolidated results of operations since the date of the business combination. The fair value of assets acquired and liabilities assumed in the above business combinations and adjustments on prior acquisitions are presented in the following table:

 

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Table of Contents

 

 

 

July 31,

 

 

 

2010

 

 

 

(in thousands)

 

Cash

 

$

1

 

Inventories

 

2,000

 

Property and equipment

 

231

 

Goodwill

 

1,485

 

 

 

 

 

 

 

$

 3,717

 

 

 

 

 

Floorplan notes payable

 

$

819

 

Customer deposits

 

17

 

 

 

 

 

 

 

$

 836

 

 

 

 

 

Cash consideration

 

2,424

 

Non-cash consideration: other long-term liabilities

 

457

 

Total consideration

 

$

2,881

 

 

 

 

 

Goodwill related to the Agriculture operating segment

 

$

1,485

 

Goodwill related to the Construction operating segment

 

$

 

 

NOTE 5 -                     SEGMENT INFORMATION AND OPERATING RESULTS

 

Certain financial information for each of the Company’s business segments is set forth below. Revenues, income before income tax and total assets at the segment level are reported before eliminations. The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as “Shared Resources” in the table below. Shared Resource assets primarily consist of cash and property and equipment. Intersegment revenues are immaterial.

 

10



Table of Contents

 

 

 

Three Months Ended July 31,

 

Six Months Ended July 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

(in thousands)

 

(in thousands)

 

Revenues

 

 

 

 

 

 

 

 

 

Agriculture

 

$

181,522

 

$

170,366

 

$

362,904

 

$

318,695

 

Construction

 

36,209

 

30,451

 

68,313

 

55,149

 

Segment revenues

 

217,731

 

200,817

 

431,217

 

373,844

 

Eliminations

 

(8,065

)

(7,625

)

(16,094

)

(14,351

)

Total

 

$

209,666

 

$

193,192

 

$

415,123

 

$

359,493

 

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

 

 

 

 

 

 

 

 

Agriculture

 

$

6,246

 

$

10,002

 

$

11,038

 

$

15,718

 

Construction

 

(852

)

(785

)

(2,767

)

(2,735

)

Segment income (loss) before income taxes

 

5,394

 

9,217

 

8,271

 

12,983

 

Shared Resources

 

(643

)

(751

)

(634

)

(1,222

)

Eliminations

 

(150

)

(240

)

(394

)

(507

)

Income before income taxes

 

$

4,601

 

$

8,226

 

$

7,243

 

$

11,254

 

 

 

 

July 31,

 

January 31,

 

 

 

2010

 

2010

 

 

 

(in thousands)

 

Total Assets

 

 

 

 

 

Agriculture

 

$

433,970

 

$

350,086

 

Construction

 

91,486

 

87,910

 

Segment assets

 

525,456

 

437,996

 

Shared Resources

 

63,559

 

77,631

 

Eliminations

 

(1,210

)

(815

)

Total

 

$

587,805

 

$

514,812

 

 

11



Table of Contents

 

ITEM 2.                 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim unaudited consolidated financial statements and related notes included in Item 1 of Part 1 of this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended January 31, 2010.

 

Critical Accounting Policies

 

There have been no material changes in our Critical Accounting Policies, as disclosed in our Annual Report on Form 10-K for the year ended January 31, 2010.

 

Overview

 

We own and operate a network of full service agricultural and construction equipment stores in the United States. Based upon information provided to us by CNH Global N.V. or its U.S. subsidiary CNH America LLC, collectively referred to in our Form 10-K for the year ended January 31, 2010 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 markets surrounding our stores.

 

Our net income was $2.7 million, or $0.15 per diluted share, for the three months ended July 31, 2010, compared to $4.9 million, or $0.27 per diluted share, for the three months ended July 31, 2009. Significant factors impacting the quarterly comparisons were:

 

·                  Increase in revenue primarily due to Agriculture acquisitions and same-store sales growth in our Construction segment;

 

·                  Comparable gross profits to our second quarter of last year, which resulted from lower margins (primarily on equipment and service) on higher overall revenues in the three months ending July 31, 2010; and

 

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

 

12



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,

 

Six Months Ended July 31,

 

 

 

 

 

 

 

Percent

 

 

 

 

 

Percent

 

 

 

2010

 

2009

 

Change

 

2010

 

2009

 

Change

 

 

 

(dollars in thousands)

 

 

 

(dollars in thousands)

 

 

 

Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

153,131

 

$

141,142

 

8.5

%

$

303,491

 

$

266,007

 

14.1

%

Cost of revenue

 

138,342

 

125,452

 

10.3

%

275,143

 

237,752

 

15.7

%

Gross profit

 

$

14,789

 

$

15,690

 

(5.7

)%

$

28,348

 

$

28,255

 

0.3

%

Gross profit margin

 

9.7

%

11.1

%

(1.4

)%

9.3

%

10.6

%

(1.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parts

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

33,947

 

$

32,454

 

4.6

%

$

69,010

 

$

58,852

 

17.3

%

Cost of revenue

 

24,184

 

22,939

 

5.4

%

49,370

 

41,476

 

19.0

%

Gross profit

 

$

9,763

 

$

9,515

 

2.6

%

$

19,640

 

$

17,376

 

13.0

%

Gross profit margin

 

28.8

%

29.3

%

(0.5

)%

28.5

%

29.5

%

(1.0

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Service

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

17,502

 

$

15,640

 

11.9

%

$

34,053

 

$

28,182

 

20.8

%

Cost of revenue

 

6,970

 

5,586

 

24.8

%

12,941

 

10,186

 

27.0

%

Gross profit

 

$

10,532

 

$

10,054

 

4.8

%

$

21,112

 

$

17,996

 

17.3

%

Gross profit margin

 

60.2

%

64.3

%

(4.1

)%

62.0

%

63.9

%

(1.9

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other, including trucking and rental

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

5,086

 

$

3,956

 

28.6

%

$

8,569

 

$

6,452

 

32.8

%

Cost of revenue

 

4,122

 

3,207

 

28.5

%

7,178

 

5,555

 

29.2

%

Gross profit

 

$

964

 

$

749

 

28.7

%

$

1,391

 

$

897

 

55.1

%

Gross profit margin

 

19.0

%

18.9

%

0.1

%

16.2

%

13.9

%

2.3

%

 

13



Table of Contents

 

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

 

 

 

Three Months Ended July 31,

 

Six Months Ended July 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

 

 

Equipment

 

73.0

%

73.1

%

73.1

%

74.0

%

Parts

 

16.2

%

16.8

%

16.6

%

16.4

%

Service

 

8.4

%

8.1

%

8.2

%

7.8

%

Other, including trucking and rental

 

2.4

%

2.0

%

2.1

%

1.8

%

Total revenue

 

100.0

%

100.0

%

100.0

%

100.0

%

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

82.8

%

81.4

%

83.0

%

82.1

%

 

 

 

 

 

 

 

 

 

 

Gross profit

 

17.2

%

18.6

%

17.0

%

17.9

%

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

13.9

%

13.8

%

14.2

%

14.2

%

 

 

 

 

 

 

 

 

 

 

Income from operations

 

3.3

%

4.8

%

2.8

%

3.7

%

 

 

 

 

 

 

 

 

 

 

Other income (expense)

 

(1.1

)%

(0.5

)%

(1.1

)%

(0.6

)%

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

2.2

%

4.3

%

1.7

%

3.1

%

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

(0.9

)%

(1.8

)%

(0.7

)%

(1.3

)%

 

 

 

 

 

 

 

 

 

 

Net income

 

1.3

%

2.5

%

1.0

%

1.8

%

 

Three Months Ended July 31, 2010 Compared to Three Months Ended July 31, 2009

 

Consolidated Results

 

Revenue

 

 

 

Three months ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Increase

 

Change

 

 

 

(dollars in thousands)

 

 

 

Equipment

 

$

153,131

 

$

141,142

 

$

11,989

 

8.5

%

Parts

 

33,947

 

32,454

 

1,493

 

4.6

%

Service

 

17,502

 

15,640

 

1,862

 

11.9

%

Other, including trucking and rental

 

5,086

 

3,956

 

1,130

 

28.6

%

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

$

209,666

 

$

193,192

 

$

16,474

 

8.5

%

 

The increase in revenue for the three months ended July 31, 2010, as compared to the same period last year, was due to acquisitions contributing $10.0 million and same-store sales growth contributing $6.5 million, representing a same-store sale growth of 3.4% over the prior year quarter. The revenue growth from acquisitions occurred in our Agriculture segment and the same-store sales growth primarily came from our Construction segment.  The sales increases in the Construction segment are due in part to the execution of our fiscal 2011 Construction business action plan in the first half of fiscal 2011, which included right-sizing our rental fleet, changing key Construction personnel and implementing the Titan strong-store operating model into the fiscal 2009 Construction acquisition stores.

 

14



Table of Contents

 

Cost of Revenue

 

 

 

Three months ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Increase

 

Change

 

 

 

(dollars in thousands)

 

 

 

Equipment

 

$

138,342

 

$

125,452

 

$

12,890

 

10.3

%

Parts

 

24,184

 

22,939

 

1,245

 

5.4

%

Service

 

6,970

 

5,586

 

1,384

 

24.8

%

Other, including trucking and rental

 

4,122

 

3,207

 

915

 

28.5

%

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

$

173,618

 

$

157,184

 

$

16,434

 

10.5

%

 

The increase in cost of revenue for the three months ended July 31, 2010, as compared to the same period last year, was due to increased sales primarily in our equipment business. Acquisitions contributed $8.4 million of the increase in total cost of revenue, while same-store sales growth contributed $8.0 million of the increase. As a percentage of revenue, cost of revenue was 82.8% compared to 81.4% for the second quarter of fiscal 2010.

 

Gross Profit

 

 

 

Three months ended July 31,

 

Increase/

 

Percent

 

 

 

2010

 

2009

 

(Decrease)

 

Change

 

 

 

(dollars in thousands)

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

 

 

 

Equipment

 

$

14,789

 

$

15,690

 

$

(901

)

(5.7

)%

Parts

 

9,763

 

9,515

 

248

 

2.6

%

Service

 

10,532

 

10,054

 

478

 

4.8

%

Other, including trucking and rental

 

964

 

749

 

215

 

28.7

%

 

 

 

 

 

 

 

 

 

 

Total Gross Profit

 

$

36,048

 

$

36,008

 

$

40

 

0.1

%

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

 

 

 

 

 

 

 

Equipment

 

9.7

%

11.1

%

(1.4

)%

(12.6

)%

Parts

 

28.8

%

29.3

%

(0.5

)%

(1.7

)%

Service

 

60.2

%

64.3

%

(4.1

)%

(6.4

)%

Other, including trucking and rental

 

19.0

%

18.9

%

0.1

%

0.5

%

 

 

 

 

 

 

 

 

 

 

Total Gross Profit Margin

 

17.2

%

18.6

%

(1.4

)%

(7.5

)%

 

 

 

 

 

 

 

 

 

 

Gross Profit Mix

 

 

 

 

 

 

 

 

 

Equipment

 

73.0

%

73.1

%

(0.1

)%

(0.1

)%

Parts

 

16.2

%

16.8

%

(0.6

)%

(3.6

)%

Service

 

8.4

%

8.1

%

0.3

%

3.7

%

Other, including trucking and rental

 

2.4

%

2.0

%

0.4

%

20.0

%

 

 

 

 

 

 

 

 

 

 

Total Gross Profit Mix

 

100.0

%

100.0

%

0.0

%

0.0

%

 

Gross profits were flat for the three months ended July 31, 2010, as compared to the same period last year. Acquisitions contributed $1.6 million to the increase in gross profit for the three months ended July 31, 2010, while same-store gross profits decreased $1.5 million.  Contributing to the quarter over quarter comparable gross profits were increased revenues offset by lower margins primarily in the equipment (down 1.4% to 9.7%) and service (down 4.1% to 60.2%) areas of our business.  Pricing pressure from our competition continues to compress equipment margins quarter over quarter.  We anticipate this trend to moderate in the second half of the year as a result of increased equipment demand.  Although our service margins were down we experienced a revenue increase of 11.9% in our service area resulting in a positive gross profit contribution from service of $0.5 million over the prior year quarter.  The lower service margins can partially be attributed to higher labor cost of sales related to the investment in new technicians through headcount additions, internship programs and service training as well as comparing to strong second quarter service margins in fiscal 2010.

 

Total gross profit margins were down 1.4% to 17.2% in the second quarter of fiscal 2011, compared to 18.6% in the second quarter of fiscal 2010. The decrease in total gross profit margins was primarily due to the lower equipment and service margins discussed above.

 

15


 


Table of Contents

 

Operating Expenses

 

 

 

Three months ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Increase

 

Change

 

 

 

(dollars in thousands)

 

 

 

Operating Expenses

 

$

29,212

 

$

26,662

 

$

2,550

 

9.6

%

 

The $2.6 million increase in operating expenses, as compared to the same period last year, was primarily due to the additional costs associated with acquisitions such as compensation, rent and depreciation. As a percentage of total revenue, operating expenses remained relatively flat at 13.9% for the second quarter of fiscal 2011 compared to 13.8% for the second quarter of fiscal 2010.

 

Other Income (Expense)

 

 

 

Three months ended July 31,

 

Increase/

 

Percent

 

 

 

2010

 

2009

 

(Decrease)

 

Change

 

 

 

(dollars in thousands)

 

 

 

Interest and other income

 

$

34

 

$

140

 

$

(106

)

(75.7

)%

Floorplan interest expense

 

(1,911

)

(932

)

979

 

105.0

%

Interest expense

 

(358

)

(328

)

30

 

9.1

%

 

Floorplan interest expense increased $1.0 million for the three months ended July 31, 2010, as compared to the same period in the prior year. Increases in floorplan notes payable balances accounted for 51% of this increase while higher interest rates generated the remaining 49% increase, as compared to the prior year quarter.

 

Provision for Income Taxes

 

 

 

Three months ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Decrease

 

Change

 

 

 

(dollars in thousands)

 

 

 

Provision for income taxes

 

$

1,887

 

$

3,375

 

$

(1,488

)

(44.1

)%

 

The effective tax rate was 41.0% for the three months ended July 31, 2010 and 2009.

 

Segment Results

 

Certain financial information for our Agriculture and Construction business segments is set forth below. Revenues and income (loss) before income taxes at the segment level are reported before eliminations.  “Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level. Intersegment revenues are immaterial.

 

16



Table of Contents

 

 

 

Three months ended July 31,

 

Increase/

 

Percent

 

 

 

2010

 

2009

 

(Decrease)

 

Change

 

 

 

(dollars in thousands)

 

 

 

Revenues

 

 

 

 

 

 

 

 

 

Agriculture

 

$

181,522

 

$

170,366

 

$

11,156

 

6.5

%

Construction

 

36,209

 

30,451

 

5,758

 

18.9

%

Segment revenues

 

217,731

 

200,817

 

16,914

 

8.4

%

Eliminations

 

(8,065

)

(7,625

)

(440

)

(5.8

)%

Total

 

$

209,666

 

$

193,192

 

$

16,474

 

8.5

%

 

 

 

 

 

 

 

 

 

 

Income (Loss) Before Income Taxes

 

 

 

 

 

 

 

 

 

Agriculture

 

$

6,246

 

$

10,002

 

$

(3,756

)

(37.6

)%

Construction

 

(852

)

(785

)

(67

)

(8.5

)%

Segment income (loss) before income taxes

 

5,394

 

9,217

 

(3,823

)

(41.5

)%

Shared Resources

 

(643

)

(751

)

108

 

14.4

%

Eliminations

 

(150

)

(240

)

90

 

37.5

%

Income before income taxes

 

$

4,601

 

$

8,226

 

$

(3,625

)

(44.1

)%

 

Agriculture

 

Agriculture revenues for the three months ended July 31, 2010 increased 6.5% compared to the same period last year. The revenue increase was primarily due to Agriculture segment acquisitions occurring over the past year, which consisted of eight stores.  Same-store-sales for the Agriculture segment remained relatively flat, reflecting an increase of 0.6% over the second quarter of fiscal 2010.

 

Income before income taxes decreased 37.6% primarily due to lower Agriculture gross profit margins on equipment revenues, which is reflective of increased pricing pressures from our competition, as well as higher floorplan interest expense resulting from increased floorplan notes payable balances and increased interest rates in the second quarter of fiscal 2011 compared to the same period last year.

 

Construction

 

Construction revenues for the three months ended July 31, 2010 increased 18.9% compared to the same period last year. The revenue increase was primarily due to a Construction same-store sales increase of 18.7% over the second quarter of fiscal 2010.

 

Loss before income taxes increased 8.5% primarily due to higher floorplan interest expense resulting from increased floorplan notes payable balances and increased interest rates in the second quarter of fiscal 2011 compared to the same period last year. Also contributing to the loss were additional second quarter exit costs of $92,000 related to the closing of our store in Columbia Falls, Montana. Partially offsetting these additional expenses was higher Construction segment gross profits due to increased revenues over the prior year second quarter.

 

Shared Resources/Eliminations

 

Shared Resources allocations to each of our segments are set early in the year and therefore unallocated balances may occur.  The Shared Resource amount decreased $0.1 million in the second quarter of fiscal 2011 compared to the prior year.

 

Eliminations remove any inter-company revenues or income before income taxes residing in our segment results.

 

17



Table of Contents

 

Six Months Ended July 31, 2010 Compared to Six Months Ended July 31, 2009

 

Consolidated Results

 

Revenue

 

 

 

Six Months Ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Increase

 

Change

 

 

 

(dollars in thousands)

 

 

 

Equipment

 

$

303,491

 

$

266,007

 

$

37,484

 

14.1

%

Parts

 

69,010

 

58,852

 

10,158

 

17.3

%

Service

 

34,053

 

28,182

 

5,871

 

20.8

%

Other, including trucking and rental

 

8,569

 

6,452

 

2,117

 

32.8

%

 

 

 

 

 

 

 

 

 

 

Total Revenue

 

$

415,123

 

$

359,493

 

$

55,630

 

15.5

%

 

The increase in revenue for the six months ended July 31, 2010, as compared to the same period last year, was due to acquisitions contributing $27.7 million and same-store sales growth contributing $27.9 million, representing a same-store sales growth of 7.9% over the prior year six months. This revenue growth was achieved in both our Agriculture and Construction segments.

 

Cost of Revenue

 

 

 

Six Months Ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Increase

 

Change

 

 

 

(dollars in thousands)

 

 

 

Equipment

 

$

275,143

 

$

237,752

 

$

37,391

 

15.7

%

Parts

 

49,370

 

41,476

 

7,894

 

19.0

%

Service

 

12,941

 

10,186

 

2,755

 

27.0

%

Other, including trucking and rental

 

7,178

 

5,555

 

1,623

 

29.2

%

 

 

 

 

 

 

 

 

 

 

Total cost of revenue

 

$

344,632

 

$

294,969

 

$

49,663

 

16.8

%

 

The increase in cost of revenue for the six months ended July 31, 2010, as compared to the same period last year, was primarily due to increased revenue. Acquisitions contributed $23.6 million of the increase in total cost of revenue, while same-store sales growth contributed $26.1 million of the increase. As a percentage of revenue, cost of revenue was 83.0% compared to 82.1% for the first six months of fiscal 2010.

 

18



Table of Contents

 

Gross Profit

 

 

 

Six Months Ended July 31,

 

Increase/

 

Percent

 

 

 

2010

 

2009

 

(Decrease)

 

Change

 

 

 

(dollars in thousands)

 

 

 

Gross Profit

 

 

 

 

 

 

 

 

 

Equipment

 

$

28,348

 

$

28,255

 

$

93

 

0.3

%

Parts

 

19,640

 

17,376

 

2,264

 

13.0

%

Service

 

21,112

 

17,996

 

3,116

 

17.3

%

Other, including trucking and rental

 

1,391

 

897

 

494

 

55.1

%

 

 

 

 

 

 

 

 

 

 

Total Gross Profit

 

$

70,491

 

$

64,524

 

$

5,967

 

9.2

%

 

 

 

 

 

 

 

 

 

 

Gross Profit Margin

 

 

 

 

 

 

 

 

 

Equipment

 

9.3

%

10.6

%

(1.3

)%

(12.3

)%

Parts

 

28.5

%

29.5

%

(1.0

)%

(3.4

)%

Service

 

62.0

%

63.9

%

(1.9

)%

(3.0

)%

Other, including trucking and rental

 

16.2

%

13.9

%

2.3

%

16.5

%

 

 

 

 

 

 

 

 

 

 

Total Gross Profit Margin

 

17.0

%

17.9

%

(0.9

)%

(5.0

)%

 

 

 

 

 

 

 

 

 

 

Gross Profit Mix

 

 

 

 

 

 

 

 

 

Equipment

 

73.1

%

74.0

%

(0.9

)%

(1.2

)%

Parts

 

16.6

%

16.4

%

0.2

%

1.2

%

Service

 

8.2

%

7.8

%

0.4

%

5.1

%

Other, including trucking and rental

 

2.1

%

1.8

%

0.3

%

16.7

%

 

 

 

 

 

 

 

 

 

 

Total Gross Profit Mix

 

100.0

%

100.0

%

0.0

%

0.0

%

 

The $6.0 million increase in gross profit for the six months ended July 31, 2010, as compared to the same period last year, was primarily due to increased revenue. Acquisitions contributed $4.2 million to the increase in gross profit for the six months ended July 31, 2010, while increases in same-store gross profits contributed the remaining $1.8 million. Offsetting the positive effect to gross profits of higher revenue were lower margins primarily on equipment, which decreased 1.3% from 10.6% to 9.3% in the six months ended July 31, 2010.  The equipment margin compression is due to pricing pressure from our competitors.  We anticipate this trend to moderate in the second half of the year as a result of increased equipment demand. Parts margins were down 1.0% to 28.5% and service margins were down 1.9% to 62.0%; however, we are still realizing increased same-store gross profits in both of these areas.  The decrease in equipment, parts and service margins were the primary factors in decreasing total gross profit margins to 17.0% for the six months ended July 31, 2010 from 17.9% in the prior year six month period.

 

Operating Expenses

 

 

 

Six Months Ended July 31,

 

 

 

Percent

 

 

 

2010

 

2009

 

Increase

 

Change

 

 

 

(dollars in thousands)

 

 

 

Operating Expenses

 

$

59,008

 

$

51,367

 

$

7,641

 

14.9

%