UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1997
0
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________
COMMISSION FILE NO. 1-12641
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
DELAWARE 45-0306084
(State of incorporation) (I.R.S. Employer Identification No.)
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58103
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (701) 237-7363
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 ___
The number of shares outstanding of Class A Common Stock of the registrant
as of November 30, 1997: 5,731,008.
<PAGE>
CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of RDO Equipment Co. (the "Company"), including
results reflected in any forward-looking statement made by or on behalf of the
Company, will be impacted by a number of important factors. The factors
identified below in Item 2 under the subsection entitled "Safe Harbor Statement"
are important factors (but not necessarily all important factors) that could
cause the Company's actual future results to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
Words such as "may," "will," "expect," "believe," "anticipate," "estimate," or
"continue" or comparable terminology are intended to identify forward-looking
statements. Forward-looking statements, by their nature, involve substantial
risks and uncertainties.
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------------- ------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Wholegoods sales $ 73,935 $ 53,175 $ 223,236 $ 170,036
Parts and service 33,239 21,612 86,889 57,322
Rental 4,327 700 10,444 1,902
------------- ------------- ------------- -------------
Total revenues 111,501 75,487 320,569 229,260
Cost of revenues 86,652 59,782 255,106 186,451
------------- ------------- ------------- -------------
Gross profit 24,849 15,705 65,463 42,809
Selling, general and
administrative expenses 15,827 10,969 43,961 29,492
------------- ------------- ------------- -------------
Operating income 9,022 4,736 21,502 13,317
Interest expense (2,017) (1,509) (4,612) (4,116)
Interest income 390 176 930 633
------------- ------------- ------------- -------------
Income before income taxes
and minority interest 7,395 3,403 17,820 9,834
Provision for income taxes (2,959) (1,362) (7,128) (3,934)
------------- ------------- ------------- -------------
Income before minority interest 4,436 2,041 10,692 5,900
Minority interest (39) --- (100) ---
------------- ------------- ------------- -------------
Net income $ 4,397 $ 2,041 $ 10,592 $ 5,900
============= ============= ============= =============
Net income per share $ 0.33 $ 0.22 $ 0.80 $ 0.63
============= ============= ============= =============
Weighted average shares outstanding 13,355 9,409 13,293 9,414
============= ============= ============= =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1997 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 100 $ 459
Accounts receivable (less allowance) 42,830 24,982
Receivables from affiliates 1,395 ---
Inventories 200,420 130,955
Prepaid expense 551 499
Deferred income tax benefit 540 540
-------------- --------------
Total current assets 245,836 157,435
Property and equipment, net 35,093 15,642
Other assets:
Deposits 1,699 1,360
Goodwill and other, net of accumulated amortization 19,046 7,114
-------------- --------------
Total Assets $ 301,674 $ 181,551
============== ==============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1997 1997
- ---------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Floor plan payables $ 145,635 $ 64,331
Notes payable and current maturities of long-term debt:
Banks and others 6,788 4,933
Affiliates 690 651
Accounts payable 12,308 5,153
Accrued liabilities 10,311 5,652
Customer advance deposits 2,272 3,141
Dividends payable 734 830
--------------- --------------
Total current liabilities 178,738 84,691
Long-term debt, net of current maturities:
Banks and others 18,908 3,522
Affiliates 4,677 5,303
Deferred income taxes 240 240
--------------- --------------
Total liabilities 202,563 93,756
Minority interest 700 ---
Stockholders equity:
Preferred stock --- ---
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,471 84,447
Retained earnings 13,808 3,216
--------------- --------------
Total stockholders' equity 98,411 87,795
--------------- --------------
Total liabilities and stockholders' equity $ 301,674 $ 181,551
=============== ==============
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
</TABLE>
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended October 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 10,592 $ 9,834
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 3,883 1,930
Minority interest 100 ---
Change in operating assets and liabilities:
Accounts receivable (17,254) (10,257)
Inventories (53,902) 4,259
Prepaid expenses 24 2
Deposits (338) 146
Floor plan payables 79,142 (912)
Accounts payable and accrued liabilities 11,539 3,586
Customer advance deposits (885) (2,597)
------------- --------------
Net cash provided by operating activities 32,901 5,991
------------- --------------
Investing activities:
Net purchases of rental equipment (11,793) (1,867)
Net purchase of property and equipment (2,578) (1,315)
Purchase of net assets of dealerships (24,983) (10,100)
Other, net 54 (860)
------------- --------------
Net cash used for investing activities (39,300) (14,142)
------------- --------------
Financing activities:
Proceeds from issuance of long-term debt 12,926 3,397
Payments on long-term debt (7,284) (1,383)
Proceeds from issuance of common stock 24 ---
Purchase of common stock --- (68)
Payment of dividends (96) (7,520)
Net payments of bank lines and short-term notes payable 470 12,956
------------- --------------
Net cash provided by financing activities 6,040 7,382
------------- --------------
Decrease in cash (359) (769)
Cash and cash equivalents, beginning of period 459 787
------------- --------------
Cash and cash equivalents, ending of period $ 100 $ 18
============= ==============
Supplemental disclosures:
Cash payments for interest $ 4,059 $ 4,015
============= =============
Cash payments for income taxes $ 5,557 $ ---
============= =============
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships through
issuance and assumption of debt $ 13,594 $ 11,325
============= =============
Dividends declared, accrued and unpaid $ --- $ 2,262
============= =============
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
<PAGE>
RDO EQUIPMENT CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION:
The condensed consolidated financial statements for the three and nine
months ended October 31, 1997 and October 31, 1996 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, contained in the Company's
Annual Report to Stockholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 1997. The results of
operations for the three and nine months ended October 31, 1997 are not
necessarily indicative of the results to be expected for the full year.
2. BUSINESS COMBINATIONS:
Effective February 1, 1997, the Company purchased certain assets and
assumed certain liabilities of Sun Valley Equipment Corp., a construction
equipment rental company with five stores located in Cottonwood, Flagstaff,
Bullhead City, Prescott, and Kingman, Arizona. Total assets purchased were $11.5
million which were offset by assumed liabilities of $8.8 million resulting in
net cash paid of approximately $2.7 million. The Company assigned these assets
and liabilities to a newly formed subsidiary, RDO Rental Co., of which the
Company owns 80% of the outstanding stock. The purchase agreement also calls for
future contingent consideration of up to $1.0 million in the event certain
performance criteria are met over a five-year period. The Company anticipates
accounting for the contingent consideration paid, if any, as compensation
expense. The acquisition has been accounted for under the purchase method of
accounting and resulted in goodwill which is being amortized over 30 years.
Effective March 3, 1997, the Company's wholly owned subsidiary, RDO
Mack Sales and Service, Inc., purchased certain assets of Midwest Mack, Inc., a
full-service Mack Truck dealership located in Fargo, North Dakota, for cash of
approximately $2.1 million. The acquisition has been accounted for under the
purchase method of accounting and resulted in goodwill which is being amortized
over 30 years.
Effective May 1, 1997, the Company purchased certain assets and assumed
certain liabilities of Imperial Machinery, a division of Empire Southwest.
Imperial Machinery is a full-service agricultural equipment dealership with four
locations in Yuma, Ehrenberg, and Wellton, Arizona, and Imperial, California.
Total assets purchased were $7.9 million which were offset by assumed
liabilities of $1.1 million resulting in net cash paid of approximately $6.8
million. The acquisition has been accounted for under the purchase method of
accounting and resulted in goodwill which is being amortized over 30 years. The
Company also acquired certain new equipment and parts inventory from Deere &
Company (Deere) to stock these locations of approximately $6.3 million which was
financed through Deere floor plan arrangements.
Effective June 1, 1997, the Company purchased certain assets and
assumed certain liabilities of Kuenstler Machinery LP, which consists of three
full-service construction equipment stores located in Austin, Laredo, and San
Antonio, Texas. Total assets purchased were $13.4 million which were offset by
assumed liabilities of $0.6 million resulting in net cash paid of approximately
$12.8 million. The acquisition has been accounted for under the purchase method
of accounting and resulted in goodwill
<PAGE>
which is being amortized over 30 years. The Company also acquired certain new
equipment and parts inventory from Deere to stock these locations of
approximately $4.2 million which was financed through Deere floor plan
arrangements.
Effective June 1, 1997, the Company purchased certain assets and
assumed certain liabilities of Bergstedt Implement, Inc. a full service Deere
agricultural equipment dealership located in Hazen, North Dakota. Total assets
purchased were $0.6 million which were offset by assumed liabilities of $0.1
million resulting in net cash paid of approximately $0.5 million. The
acquisition has been accounted for under the purchase method of accounting. The
Company also acquired certain new equipment and parts inventory from Deere to
stock the dealership of approximately $0.4 million which was financed through
Deere floor plan arrangements.
Results of operations for the above acquisitions plus acquisitions in
fiscal 1997, Mega Equipment Company on July 1, 1996 and Liberty Agricultural,
Inc. on October 1, 1996, have been included in the accompanying condensed
consolidated financial statements since their respective acquisition dates. The
following unaudited consolidated pro forma results of operations for the three
and nine months ended October 31, 1997 and 1996, give effect to all of the above
mentioned acquisitions as if they were completed at the beginning of fiscal
1997. The weighted average shares outstanding for the three and nine months
ended October 31, 1997 include the 4.83 million shares from the Company's
initial public offering in January 1997. The unaudited pro forma financial
information does not purport to represent what the Company's results of
operations would actually have been if such transactions in fact had occurred at
such a date or to project the Company's results of future operations (in
thousands, except for per share data):
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 111,501 $ 96,532 $ 338,113 $ 307,132
Net income $ 4,397 $ 2,143 $ 10,963 $ 7,311
Weighted average shares outstanding 13,355 9,409 13,293 9,414
Net income per common and
common share equivalent shares $ .33 $ .23 $ .83 $ .78
</TABLE>
3. INVENTORIES:
All inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method for new equipment and parts
inventory. The specific identification method is used to determine cost for used
equipment.
Inventories consisted of the following at (in thousands):
October 31, January 31,
1997 1997
---- ----
New equipment $138,204 $75,233
Used equipment 37,267 40,094
Parts and other 24,949 15,628
-------- --------
$200,420 $130,955
======== ========
<PAGE>
4. NEW FINANCING ARRANGEMENTS:
In April of 1997, the Company's 80% owned subsidiary, RDO Rental Co.,
entered into a $40.0 million revolving credit agreement with Deutsche Financial
Services to finance purchases of rental equipment. The credit agreement provides
for variable interest based on the prime rate minus 0.50%. As of October 31,
1997 the Company had advances relating to this credit agreement of approximately
$19.2 million. Subsequent to the third quarter, the Company entered into a $30.0
million revolving credit agreement with NationsBank for financing inventory and
rental fleets. The credit agreement provides for variable interest based on
LIBOR plus 1.75%.
5. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT:
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which changes the way companies calculate their earnings per share (EPS).
SFAS 128 replaces primary EPS with basic EPS. Basic EPS is computed by dividing
reported earnings by weighted average shares outstanding, excluding potentially
dilutive securities. Fully diluted EPS, termed diluted EPS under SFAS 128, is
also to be disclosed. The Company is required to adopt SFAS 128 at the end of
fiscal 1998 at which time all prior year EPS are to be restated in accordance
with SFAS 128. If the Company had adopted the pronouncement in the third quarter
of fiscal 1998, there would have been no material effect on the reported
earnings per share.
6. INCOME TAXES:
Prior to January 20, 1997, the Company was an S corporation and,
therefore, was not subject to corporate income taxes. A pro forma income tax
provision has been computed for the three and nine months ended October 31, 1996
as if the Company were subject to corporate income taxes.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The results of operations of the following acquisitions made after the
first quarter of fiscal 1997 have been included with the Company's results of
operations only for the periods specified:
Effective July 1, 1996, the Company purchased certain assets and
assumed certain liabilities of a Deere construction equipment dealership in
North Central Texas, with three stores located in the Dallas-Fort Worth and
Waco, Texas metropolitan areas with a Deere area of responsibility covering the
35 surrounding counties. Total assets purchased were $9.2 million which were
offset by assumed liabilities of $0.8 million resulting in net cash paid of
approximately $8.4 million, which was financed through a note payable to Ag
Capital Company (Ag Capital). The note payable was repaid out of the net
proceeds of the Company's initial public offering in January 1997 (Offering).
The acquisition was accounted for under the purchase method of accounting and
the results of operations of the North Central Texas stores are included in the
Company's results of operations beginning July 1, 1996. The Company also
acquired certain new equipment and parts inventory from Deere & Company (Deere)
to stock these locations of approximately $7.7 million which was financed
through Deere floor plan arrangements.
Effective October 1, 1996, the Company purchased certain assets and
assumed certain liabilities of a Deere agricultural equipment dealership with
two stores located in Pasco and Sunnyside, Washington. Total assets purchased
were $4.9 million which were offset by assumed liabilities of $2.2 million
resulting in net cash paid of approximately $2.7 million, which was financed in
part by a $1.0 million note payable to the seller, with the remainder financed
through a note payable to Ag Capital. The Ag Capital note payable was repaid out
of the net proceeds of the Offering. This acquisition was accounted for under
the purchase method of accounting and the results of operations of the
Washington stores are included in the Company's results of operations beginning
October 1, 1996. The Company also acquired certain new equipment and parts
inventory from Deere to stock these locations of approximately $3.5 million
which was financed through Deere floor plan arrangements.
Effective February 1, 1997, the Company purchased certain assets and
assumed certain liabilities of a construction equipment rental company with 5
stores located in Cottonwood, Flagstaff, Bullhead City, Prescott and Kingman,
Arizona. Total assets purchased were $11.5 million which were offset by assumed
liabilities of $8.8 million resulting in net cash paid of approximately $2.7
million. The Company assigned these assets to a newly formed subsidiary, RDO
Rental Co., of which the Company owns 80% of the outstanding stock. The
acquisition was
<PAGE>
accounted for under the purchase method of accounting and the results of
operations of RDO Rental Co. are included in the Company's results of operations
beginning February 1, 1997.
Effective March 3, 1997, the Company's wholly owned subsidiary RDO Mack
Sales and Service, Inc. purchased certain assets of a Mack Truck dealership
located in Fargo, North Dakota, for approximately $2.1 million cash. The
acquisition was accounted for under the purchase method of accounting and the
results of operations of RDO Mack Sales and Service, Inc. are included in the
Company's operations beginning March 3, 1997.
Effective May 1, 1997, the Company purchased certain assets and assumed
certain liabilities of a Deere agricultural equipment dealership with four
stores located in Yuma, Ehrenberg, and Wellton, Arizona, and Imperial,
California. Total assets purchased were $7.9 million which were offset by
assumed liabilities of $1.1 million resulting in net cash paid of approximately
$6.8 million. The acquisition was accounted for under the purchase method of
accounting and the results of operations of the southwest agricultural stores
are included in the Company's results of operations beginning May 1, 1997. The
Company also acquired certain new equipment and parts inventory from Deere to
stock these locations of approximately $6.3 million which was financed through
Deere floor plan arrangements.
Effective June 1, 1997, the Company purchased certain assets and
assumed certain liabilities of a Deere construction equipment dealership in
south central Texas, with three stores located in Austin, Laredo, and San
Antonio, Texas. Total assets purchased were $13.4 million which were offset by
assumed liabilities of $0.6 million resulting in net cash paid of approximately
$12.8 million. The acquisition was accounted for under the purchase method of
accounting and the results of operations of the south central Texas stores are
included in the Company's results of operations beginning June 1, 1997. The
Company also acquired certain new equipment and parts inventory from Deere to
stock these locations of approximately $4.2 million which was financed through
Deere floor plan arrangements.
Effective June 1, 1997, the Company purchased certain assets and
assumed certain liabilities of a Deere agricultural equipment dealership with
one store located in Hazen, North Dakota. Total assets purchased were $0.6
million which were offset by assumed liabilities of $0.1 million resulting in
net cash paid of approximately $0.5 million. The acquisition was accounted for
under the purchase method of accounting and the results of operations of the
Hazen store are included in the Company's results of operations beginning June
1, 1997. The Company also acquired certain new equipment and parts inventory
from Deere to stock these locations of approximately $0.4 million which was
financed through Deere floor plan arrangements.
During the second quarter of fiscal 1998, the Company purchased the
operating assets of a Valmont irrigation system dealership in Central North
Dakota for approximately $0.2 million. The operations of the Valmont irrigation
system dealership are being consolidated into the Company's existing store in
Bismarck, North Dakota.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of total revenues:
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1997 1996 1997 1996
---- ---- ---- ----
Revenues
<S> <C> <C> <C> <C>
Wholegoods sales 66.3% 70.4% 69.6% 74.2%
Parts and service 29.8 28.6 27.1 25.0
Rental 3.9 1.0 3.3 0.8
------ ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Gross profit 22.3% 20.8% 20.4% 18.7%
Selling, general and
administrative expenses 14.2 14.5 13.7 12.9
------ ------- ------- -------
Operating income 8.1 6.3 6.7 5.8
Interest expense, net 1.5 1.8 1.2 1.5
Provision for taxes 2.7 1.8 2.2 1.7
------- -------- -------- --------
Net income 3.9% 2.7% 3.3% 2.6%
======= ======== ======== ========
</TABLE>
THREE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO THREE MONTHS ENDED
OCTOBER 31, 1996
REVENUES
Revenues increased approximately $36.0 million, or 47.7%, from $75.5
million for the third quarter of fiscal 1997 to $111.5 million for the third
quarter of fiscal 1998. Construction operations contributed approximately $20.6
million of this increase, with revenues increasing 41.6% to $70.1 million for
the third quarter of fiscal 1998. Construction revenues increased approximately
$13.5 million due to the Company's acquisitions discussed above. Agricultural
operations contributed the remaining increase in revenues of approximately $15.4
million, with revenues for the third quarter of fiscal 1998 increasing 59.2% to
$41.4 million. Agricultural revenues increased approximately $12.6 million due
to the Company's acquisitions discussed above.
Total wholegoods sales increased approximately $20.7 million, or 38.9%,
from $53.2 million for the third quarter of fiscal 1997 to $73.9 million for the
third quarter of fiscal 1998. Construction operations contributed approximately
$12.5 million of this increase, with sales increasing 36.0% to $47.2 million. Of
this increase, $6.4 million was due to the Company's acquisitions. Agricultural
operations contributed the remaining increase of approximately $8.2 million,
with sales increasing 44.3% to $26.7 million. The majority of this increase,
$7.3 million, was due to the Company's acquisitions. In many areas of the
Company's Midwestern agricultural operations, the severe winter and spring
flooding were followed by extremely variable weather conditions resulting in
poor small grain crop production, significantly affecting the planning and
buying patterns of the Company's customers.
Parts and service revenues increased approximately $11.6 million, or
53.7%, from $21.6 million for the third quarter of fiscal 1997 to $33.2 million
for the third quarter of fiscal 1998. Of this increase, $8.1 million was due to
the Company's acquisitions. The Company's acquisitions were a primary factor in
parts and service revenues growing at a higher rate than wholegoods sales. Parts
and service revenues from acquisitions have provided for a greater portion of
the revenue mix compared to the Company's
<PAGE>
historical revenue mix. The Company also continues to add service bay facilities
and personnel to its stores to expand its service capacity.
Rental revenues of $4.3 million were generated in the third quarter of
fiscal 1998 compared to $0.7 million in the third quarter of fiscal 1997. The
Company's acquisitions contributed approximately $3.6 million of the total
rental revenues.
GROSS PROFIT
Gross profit increased approximately $9.1 million, or 57.9%, from $15.7
million for the third quarter of fiscal 1997 to $24.8 million for the third
quarter of fiscal 1998. Gross profit as a percentage of total revenues for the
third quarter of fiscal 1998 and 1997 was 22.3% and 20.8%, respectively. The
Company's highest gross margins are derived from its parts and service and
rental revenues. The increase in gross margin as a percent of total revenues is
primarily due to parts and service and rental revenues representing an increased
portion of the revenue mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percent of total
revenues decreased from 14.5% for the third quarter of fiscal 1997 to 14.2% for
the third quarter of fiscal 1998. Total selling, general and administrative
expenses increased approximately $4.8 million, from $11.0 million for the third
quarter of fiscal 1997 to $15.8 million for the third quarter of fiscal 1998.
Approximately $4.0 million of the increase was due to the operations of the
Company's acquisitions.
INTEREST EXPENSE
Interest expense increased approximately $0.5 million, or 33.3%, from
$1.5 million for the third quarter of fiscal 1997 to $2.0 million for the third
quarter of fiscal 1998. The increase was due primarily to the increase in floor
plan financing associated with the inventories and assets of the Company's
acquisitions.
INCOME TAXES
The provision for taxes as a percentage of pretax income was consistent
between these two periods at an estimated rate of 40%. During the third quarter
of fiscal 1997, the Company was an S corporation and, therefore, was not subject
to corporate income taxes. Therefore, a pro forma income tax provision has been
computed as if the Company were subject to corporate income taxes.
NET INCOME
Net income increased approximately $2.4 million, or 115.4%, to $4.4
million, or $0.33 per share, for the third quarter of fiscal 1998, compared to
pro forma $2.0 million, or pro forma $0.22 per share, for the third quarter of
fiscal 1997. On a per share basis, the growth in net income was partially offset
by the greater number of shares outstanding resulting from the Company's initial
public offering in January 1997.
<PAGE>
NINE MONTHS ENDED OCTOBER 31, 1997 COMPARED TO NINE MONTHS ENDED
OCTOBER 31, 1996
REVENUES
Revenues increased approximately $91.3 million, or 39.8%, from $229.3
million for the first nine months of fiscal 1997 to $320.6 million for the first
nine months of fiscal 1998. Construction operations contributed approximately
$51.5 million of this increase, with revenues increasing 35.7% to $195.7 million
for the first nine months of fiscal 1998. Construction revenues increased
approximately $40.4 million due to the Company's acquisitions discussed above.
Agricultural operations contributed the remaining increase in revenues of
approximately $39.8 million, with revenues for the first nine months of fiscal
1998 increasing 46.8% to $124.9 million. Agricultural revenues increased
approximately $30.9 million due to the acquisitions discussed above.
Total wholegoods sales increased approximately $53.2 million, or 31.3%,
from $170.0 million for the first nine months of fiscal 1997 to $223.2 million
for the first nine months of fiscal 1998. Construction operations contributed
approximately $28.7 million of this increase, with sales increasing 27.4% to
$133.3 million. Of this increase, $22.4 million was due to the Company's
acquisitions. Agricultural operations contributed the remaining increase of
approximately $24.5 million, with sales increasing 37.5% to $89.9 million.
Of this increase, $17.9 million was due to the Company's acquisitions.
Parts and service revenues increased approximately $29.6 million, or
51.7%, from $57.3 million for the first nine months of fiscal 1997 to $86.9
million for the first nine months of fiscal 1998. Of this increase, $22.0
million was due to the Company's acquisitions. The Company's acquisitions were a
primary factor in parts and service revenues growing at a higher rate than
wholegoods sales. Parts and service revenues from acquisitions have provided for
a greater portion of the revenue mix compared to the Company's historical
revenue mix. The Company also continues to add service bay facilities and
personnel to its stores to expand its service capacity.
Rental revenues of $10.4 million were generated in the first nine
months of fiscal 1998 compared to $1.9 million in the first nine months of
fiscal 1997. The Company's acquisitions contributed approximately $8.4 million
of the total rental revenues.
GROSS PROFIT
Gross profit increased approximately $22.7 million, or 53.0%, from
$42.8 million for the first nine months of fiscal 1997 to $65.5 million for the
first nine months of fiscal 1998. Gross profit as a percentage of total revenues
for the third quarter of fiscal 1998 and 1997 was 20.4% and 18.7%, respectively.
The Company's highest gross margins are derived from its parts and service and
rental revenues. The increase in gross margin as a percent of total revenues is
primarily due to parts and service and rental revenues representing an increased
portion of the revenue mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percent of total
revenues increased from 12.9% for the first nine months of fiscal 1997 to 13.7%
for the first nine months of fiscal 1998. Total selling, general and
administrative expenses increased approximately $14.5 million, from $29.5
million for the first nine months of fiscal 1997 to $44.0 million for the first
nine months of fiscal 1998. Approximately $10.7 million of the increase was due
to the operations of the Company's acquisitions. These expenses, as a percentage
of total revenues, increased primarily as a result of the parts and service
revenues
<PAGE>
representing an increased portion of the Company's revenue mix. Selling, general
and administrative expenses as a percentage of revenues is greater for parts and
service revenues than for wholegoods sales.
INTEREST EXPENSE
Interest expense increased approximately $0.5 million or 12.2%, from
$4.1 million for the first nine months of fiscal 1997 to $4.6 million for the
first nine months of fiscal 1998. Interest expense was affected by both the
timing of paying down floor plan financing with a portion of the proceeds from
the Company's initial public offering in January 1997 and the subsequent
increase in floor plan financing during the second quarter of fiscal 1998 that
was associated with the inventories and assets of the Company's acquisitions.
INCOME TAXES
The provision for taxes as a percentage of pretax income was consistent
between these two periods at an estimated rate of 40%. During the first nine
months of fiscal 1997, the Company was an S corporation and, therefore, was not
subject to corporate income taxes. Therefore, a pro forma income tax provision
has been computed as if the Company were subject to corporate income taxes.
NET INCOME
Net income increased approximately $4.7 million, or 79.5%, to $10.6
million, or $0.80 per share, for the first nine months of fiscal 1998, compared
to pro forma $5.9 million, or pro forma $0.63 per share, for the first nine
months of fiscal 1997. On a per share basis, the growth in net income was
partially offset by the greater number of shares outstanding resulting from the
Company's initial public offering in January 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of
wholegoods and replacement parts, acquisitions of additional dealerships and
capital expenditures. Historically, the Company has met these liquidity
requirements primarily through cash flow generated from operating activities,
floor plan financing, and borrowings under credit agreements with Deere, Deere
Credit Services, Inc. (Deere Credit), Ag Capital, and commercial banks. In
January 1997, the Company completed its initial public offering raising net
proceeds of $68.3 million which was used to fund the distribution of accumulated
S corporation dividends, repay notes issued in connection with acquisitions and
pay down inventory floor plan financing. During the first quarter of fiscal
1998, the Company's 80% owned subsidiary, RDO Rental Co., entered into a $40.0
million revolving credit agreement with Deutsche Financial Services for
financing purchases of rental equipment. Subsequent to the end of the third
quarter, the Company entered into a $30.0 million revolving credit agreement
with NationsBank for financing inventory.
Floor plan financing from Deere and Deere Credit represents the primary
source of financing for wholegoods inventories, particularly for equipment
supplied by Deere. All lenders receive a security interest in the inventory
financed. Deere and Deere Credit offer floor plan financing to Deere dealers for
extended periods and with varying interest-free periods, depending on the type
of equipment and to encourage the purchase of wholegoods by dealers in advance
of seasonal retail demand. Down payments are not required and interest may not
be charged for a portion of the period for which inventories are financed.
Variable market rates of interest, based on the prime rate, are charged on
balances outstanding following any interest-free periods, which range from six
to twelve months for agricultural equipment and one to five months for
construction equipment. Deere also provides financing to dealers on used
<PAGE>
equipment accepted in trade and approved equipment from other manufacturers.
Deutsche Financial Services provides rental equipment financing using variable
market rates of interest based on the prime rate. NationsBank provides equipment
financing using variable market rates of interest based on the LIBOR rate.
The Company annually reviews the terms of its financing arrangements
with its lenders, including the interest rate. For the first nine months of
fiscal 1998, the average interest rate was approximately 8.31% and for fiscal
year 1997 was 8.25%. The increase in the average interest rate from the first
nine months of fiscal 1997 was primarily due to the increase in the prime rate
from 8.25% to 8.50% effective March 26, 1997. As of October 31, 1997, the
Company had outstanding floor plan payables of approximately $145.6 million, of
which $67.7 million was then interest bearing.
During the first nine months of fiscal 1998, operating activities
generated cash of approximately $32.9 million. The cash generated from
operations resulted primarily from net income and from increases in floor plan
financing, accounts payable and accrued liabilities. Partially offsetting the
increase in cash from these operating activities were increases in trade
receivables from customers and increases in the Company's inventories to stock
current year dealership acquisitions.
Cash used for investing activities during the first nine months of
fiscal 1998 was $39.3 million, which was primarily due to dealership
acquisitions and purchases of rental equipment.
The Company believes cash from operations, available cash and borrowing
capacity will be sufficient to fund its planned capital expenditures for fiscal
1998.
SEASONALITY
The Company generally experiences a higher volume of wholegoods sales
in the second and third fiscal quarters of each fiscal year due to the crop
growing season and winter weather conditions in the Midwest. Typically, farmers
purchase agricultural equipment immediately prior to planting or harvesting
crops, which occurs during the Company's second and third fiscal quarters. As a
result, sales of agricultural equipment generally are lower in the first and
fourth fiscal quarters. Winter weather in the Midwest also limits construction
to some degree and, therefore, also typically results in lower sales of
construction equipment in the first and fourth fiscal quarters. If the Company
acquires operations in geographical areas other than where it currently has
operations, it may be affected by other seasonal or equipment buying trends.
SAFE HARBOR STATEMENT
This Report contains forward-looking statements that involve a number
of risks and uncertainties. Important factors that could cause actual results to
differ materially from those indicated by such forward-looking statements
include, but may not be limited to, those set forth under the caption "Certain
Important Factors" in Item 1 of the Company's Form 10-K dated April 28, 1997, in
the Company's Form 8-K dated April 28, 1997, and in other Company filings with
the Securities and Exchange Commission. These factors, which are subject to
change, include: general economic conditions and interest rates; housing starts;
the many interrelated factors that affect farmers' confidence, including
worldwide demand for agricultural products, world grain stocks, commodities
prices, weather conditions such as El Nino, animal diseases, crop pests, harvest
yields, real estate values and government farm programs; legislation, primarily
legislation relating to agriculture, the environment, commerce and government
spending on infrastructure; actions of competitors in the various industries in
which the Company competes, including equipment manufacturers and retailers; the
Company's relationships with its suppliers; production difficulties, including
capacity and supply constraints experienced by the Company's suppliers;
practices
<PAGE>
by the Company's suppliers; employee relations; currency exchange rates;
accounting standards; dependence upon Deere; termination rights and other
provisions which the Company's suppliers have under dealer and other agreements;
risks associated with growth, expansion and acquisitions; the positions of Deere
and other equipment manufacturers with respect to publicly traded dealers,
dealer consolidation and specific acquisition opportunities; integration and
successful operation of acquired businesses; operating and financial systems to
manage rapidly growing operations; dependence upon key personnel; and other
risks and uncertainties. Any forward-looking statement of the Company is based
upon assumptions relating to these factors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not currently applicable to the Company.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
The exhibits are listed in the Exhibit Index on page 15 of
this Report.
(b) REPORTS ON FORM 8-K.
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RDO EQUIPMENT CO.
(Registrant)
Date: December 10, 1997 By: /s/ Allan F. Knoll
------------------
Allan F. Knoll
Chief Financial Officer and Secretary
(principal financial officer)
EXHIBIT INDEX
ITEM NO. ITEM PAGE OF THIS REPORT
- -------- ---- -------------------
11 Statement re: Computation of Per Share Earnings 16
27 Financial Data Schedule 17
Exhibit 11
RDO EQUIPMENT CO.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts) Three Months Ended Nine Months Ended
October 31, October 31,
(Unaudited) 1997 1996 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 4,397 $ 2,041 $ 10,592 $ 5,900
=========== =========== =========== ===========
Weighted average number of shares outstanding 13,181 8,350 13,181 8,355
Dilutive effect of shares for which proceeds were
necessary to fund $15 million distribution of
accumulated S corporation earnings --- 1,059 --- 1,059
Dilutive effect of stock options outstanding 174 --- 112 ---
----------- ----------- ----------- -----------
Weighted average shares outstanding 13,355 9,409 13,293 9,414
=========== =========== =========== ===========
Net income per common share $ 0.33 $ 0.22 $ 0.80 $ 0.63
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CONDENSED CONSOLIDATED BALANCE SHEET AS OF OCTOBER 31, 1997 AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 45,031
<ALLOWANCES> 806
<INVENTORY> 200,420
<CURRENT-ASSETS> 245,836
<PP&E> 42,477
<DEPRECIATION> 7,384
<TOTAL-ASSETS> 301,674
<CURRENT-LIABILITIES> 178,738
<BONDS> 23,585
0
0
<COMMON> 132
<OTHER-SE> 98,279
<TOTAL-LIABILITY-AND-EQUITY> 301,674
<SALES> 320,569
<TOTAL-REVENUES> 320,569
<CGS> 255,106
<TOTAL-COSTS> 255,106
<OTHER-EXPENSES> 43,981
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,612
<INCOME-PRETAX> 17,820
<INCOME-TAX> 7,128
<INCOME-CONTINUING> 10,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,592
<EPS-PRIMARY> .80
<EPS-DILUTED> 0
</TABLE>
