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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 July 31, 1997
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 August 31, 1997: 5,721,508.
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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 INFORMATON
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
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Three Months Ended Six Months Ended
July 31, July 31,
---------------------- ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Wholegoods sales $ 89,213 $ 61,900 $ 149,301 $ 116,861
Parts and service 31,338 20,248 53,650 35,710
Rental 3,719 739 6,117 1,202
-------- -------- --------- ---------
Total revenues 124,270 82,887 209,068 153,773
Cost of revenues 100,695 67,951 168,454 126,669
-------- -------- --------- ---------
Gross profit 23,575 14,936 40,614 27,104
Selling, general and
administrative expenses 15,796 9,928 28,134 18,523
-------- -------- --------- ---------
Operating income 7,779 5,008 12,480 8,581
Interest expense (1,636) (1,347) (2,595) (2,607)
Interest income 287 108 540 457
-------- -------- --------- ---------
Income before income taxes
and minority interest 6,430 3,769 10,425 6,431
Provision for income taxes (2,571) (1,507) (4,169) (2,572)
Income before minority interest 3,859 2,262 6,256 3,859
Minority interest (43) --- (61) ---
-------- -------- --------- ---------
Net income $ 3,816 $ 2,262 $ 6,195 $ 3,859
-------- -------- --------- ---------
-------- -------- --------- ---------
Net income per share $ 0.29 $ 0.24 $ 0.47 $ 0.41
-------- -------- --------- ---------
-------- -------- --------- ---------
Weighted average shares outstanding 13,298 9,429 13,264 9,429
-------- -------- --------- ---------
-------- -------- --------- ---------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
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RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 128 $ 459
Accounts receivable (less allowance) 42,169 24,982
Receivables from affiliates 2,982 ---
Inventories 169,366 130,955
Prepaid expense 798 499
Deferred income tax benefit 540 540
--------- ---------
Total current assets 215,983 157,435
Property and equipment, net 32,849 15,642
Other assets:
Deposits 1,644 1,360
Goodwill and other, net of accumulated amortization 19,165 7,114
--------- ---------
Total Assets $ 269,641 $ 181,551
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
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RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1997 1997
- ----------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $ 124,744 $ 64,331
Notes payable and current maturities of long-term debt
Banks and others 5,088 4,933
Affiliates 677 651
Accounts payable 10,525 5,153
Accrued liabilities 9,467 5,652
Customer advance deposits 1,666 3,141
Dividends payable 734 830
--------- ---------
Total current liabilities 152,901 84,691
Long-term debt, net of current maturities:
Banks and others 16,963 3,522
Affiliates 4,885 5,303
Deferred income taxes 240 240
--------- ---------
Total liabilities 174,989 93,756
Minority interest 661 ---
Stockholders equity:
Preferred Stock --- ---
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,447 84,447
Retained earnings 9,412 3,216
--------- ---------
Total stockholders' equity 93,991 87,795
--------- ---------
Total liabilities and stockholders' equity $ 269,641 $ 181,551
--------- ---------
--------- ---------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
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RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended July 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) 1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 6,195 $ 6,431
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Depreciation and amortization 2,565 1,136
Minority interest 61 ---
Change in operating assets and liabilities:
Accounts receivable (18,180) (10,279)
Inventories (28,294) (1,061)
Prepaid expenses (222) (254)
Deposits (283) (68)
Floor plan payables 58,251 5,036
Accounts payable and accrued liabilities 8,912 6,911
Customer advance deposits (1,491) (2,045)
------- -------
Net cash provided by operating activities 27,514 5,807
Investing activities:
Net purchases of rental equipment (4,537) (584)
Net purchase of property and equipment (1,005) (523)
Purchase of net assets of dealerships (24,983) (8,400)
Other, net 114 34
------- -------
Net cash used for investing activities (30,411) (9,473)
Financing activities:
Proceeds from issuance of long-term debt 5,396 ---
Payments on long-term debt (1,529) (1,297)
Payment of dividends (96) (1,756)
Net payments of bank lines and short-term notes payable (1,205) 6,420
------- -------
Net cash provided by financing activities 2,566 3,367
------- -------
Decrease in cash (331) (299)
Cash and cash equivalents, beginning of period 459 787
------- -------
Cash and cash equivalents, ending of period $ 128 $ 488
------- -------
------- -------
Supplemental disclosures:
Cash payments for interest $ 2,236 $ 2,530
------- -------
------- -------
Cash payments for income taxes $ 2,759 $ ---
------- -------
------- -------
Noncash investing and financing activities:
Increase in assets related to acquisitions of
dealerships through issuance and assumption of debt $ 13,594 $ 8,108
------- -------
------- -------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
5
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RDO EQUIPMENT CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PREPARATION:
The condensed consolidated financial statements for the three and six
months ended July 31, 1997 and July 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 six months ended July 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
6
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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 made
after the first quarter of 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 six months ended July 31, 1997 and
1996, give effect to all of the above mentioned acquisitions as if they were
completed at the beginning of fiscal 1997 (February 1, 1996). The weighted
average shares outstanding for the three and six months ended July 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 July 31, Six Months Ended July 31,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $125,835 $111,263 $226,612 $210,600
Net income $ 3,865 $ 3,244 $ 6,566 $ 5,168
Weighted average shares outstanding 13,298 9,429 13,264 9,429
Net income per common and common
share equivalent shares $ .30 $ .35 $ .50 $ .55
-------- -------- -------- --------
-------- -------- -------- --------
</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):
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
<S> <C> <C>
New equipment $104,126 $ 75,233
Used equipment 41,201 40,094
Parts and other 24,039 15,628
-------- --------
$169,366 $130,955
-------- --------
-------- --------
</TABLE>
7
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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 .5% below the prime rate.
As of July 31, 1997 the Company had advances relating to this credit
agreement of approximately $12.8 million.
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 second quarter of fiscal 1998, there would have been no 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 six months ended July 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
8
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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
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 to a newly
formed subsidiary, RDO Rental Co., of which the Company owns 80% of the
outstanding stock. The acquisition was 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.
9
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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 July 31, Six Months Ended July 31,
--------------------------- -------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Wholegoods sales 71.8% 74.7% 71.4% 76.0%
Parts and service 25.2 24.4 25.7 23.2
Rental 3.0 0.9 2.9 0.8
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Gross profit 19.0% 18.0% 19.4% 17.6%
Selling, general and
administrative expenses 12.7 12.0 13.5 12.0
----- ----- ----- -----
Operating income 6.3 6.0 5.9 5.6
Interest expense, net 1.1 1.5 1.0 1.4
Provision for taxes 2.1 1.8 2.0 1.7
----- ----- ----- -----
Net income 3.1% 2.7% 2.9% 2.5%
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED JULY 31, 1997 COMPARED TO THREE MONTHS ENDED JULY 31, 1996
REVENUES
Revenues increased approximately $41.4 million, or 49.9%, from $82.9
million for the second quarter of fiscal 1997 to $124.3 million for the
second quarter of fiscal 1998. Construction operations contributed
approximately $21.7 million of this increase, with revenues increasing 42.6%
to $72.6 million for the second quarter of fiscal 1998. Construction
revenues increased approximately $15.9 million due to the Company's
acquisitions discussed above. Agricultural operations contributed the
remaining increase in revenues of approximately $19.7 million, with revenues
for the second quarter of fiscal 1998 increasing 61.6% to $51.7 million.
Agricultural revenues increased approximately $12.0 million due to the
Company's acquisitions discussed above.
Total wholegoods sales increased approximately $27.3 million, or 44.1%,
from $61.9 million for the second quarter of fiscal 1997 to $89.2 million for
the second quarter of fiscal 1998. Construction operations contributed
approximately $14.0 million of this increase, with sales increasing 37.8% to
$51.0 million. Of this increase, $9.4 million was due to the Company's
acquisitions. Agricultural operations contributed the remaining increase of
approximately $13.3 million, with sales increasing 53.4% to $38.2 million. Of
this increase, $6.0 million was due to the Company's acquisitions.
Comparable store sales, therefore, accounted for $11.9 million of this
overall increase which was primarily due to the Midwest rebounding from the
severe winter weather and spring flooding that delayed first quarter
wholegoods sales.
Parts and service revenues increased approximately $11.1 million, or
55.0%, from $20.2 million for the second quarter of fiscal 1997 to $31.3
million for the second quarter of fiscal 1998. Of this increase, $9.4 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
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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 $3.7 million were generated in the second quarter of
fiscal 1998 compared to $0.7 million in the second quarter of fiscal 1997.
The Company's acquisitions contributed approximately $3.1 million of the
total rental revenues.
GROSS PROFIT
Gross profit increased approximately $8.6 million, or 58.4%, from $14.9
million for the second quarter of fiscal 1997 to $23.6 million for the
second quarter of fiscal 1998. Gross profit as a percentage of total
revenues for the second quarter of fiscal 1998 and 1997 was 19.0% and 18.0%,
respectively. The Company's highest gross margins are derived from its parts
and service revenues. The increase in gross margin as a percent of total
revenues is primarily due to parts and service 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 12.0% for the second quarter of fiscal 1997 to 12.7%
for the second quarter of fiscal 1998. Total selling, general and
administrative expenses increased approximately $5.9 million, from $9.9
million for the second quarter of fiscal 1997 to $15.8 million for the second
quarter of fiscal 1998. Approximately $4.2 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 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 $0.3 million, or 23.1%, from
$1.3 million for the second quarter of fiscal 1997 to $1.6 million for the
second 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 second
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 $1.5 million, or 68.7%, to $3.8
million, or $.29 per share, for the second quarter of fiscal 1998, compared
to pro forma $2.3 million, or pro forma $.24 per share, for the second
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.
11
<PAGE>
SIX MONTHS ENDED JULY 31, 1997 COMPARED TO SIX MONTHS ENDED JULY 31, 1996
REVENUES
Revenues increased approximately $55.3 million, or 36.0%, from $153.8
million for the first six months of fiscal 1997 to $209.1 million for the
first six months of fiscal 1998. Construction operations contributed
approximately $30.9 million of this increase, with revenues increasing 32.6%
to $125.6 million for the first six months of fiscal 1998. Construction
revenues increased approximately $27.0 million due to the Company's
acquisitions discussed above. Agricultural operations contributed the
remaining increase in revenues of approximately $24.4 million, with revenues
for the first six months of fiscal 1998 increasing 41.3% to $83.5 million.
Agricultural revenues increased approximately $18.3 million due to the
Company's acquisitions discussed above.
Total wholegoods sales increased approximately $32.4 million, or 27.7%,
from $116.9 million for the first six months of fiscal 1997 to $149.3 million
for the first six months of fiscal 1998. Construction operations contributed
approximately $16.2 million of this increase, with sales increasing 23.1% to
$86.2 million. Of this increase, $16.0 million was due to the Company's
acquisitions. Agricultural operations contributed the remaining increase of
approximately $16.2 million, with sales increasing 34.5% to $63.1 million. Of
this increase, $10.6 million was due to the Company's acquisitions.
Parts and service revenues increased approximately $17.9 million, or
50.1%, from $35.7 million for the first six months of fiscal 1997 to $53.6
million for the first six months of fiscal 1998. Of this increase, $13.9
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 $6.1 million were generated in the first six months
of fiscal 1998 compared to $1.2 million in the first six months of fiscal
1997. The Company's acquisitions contributed approximately $4.9 million of
the total rental revenues.
GROSS PROFIT
Gross profit increased approximately $13.5 million, or 49.8%, from
$27.1 million for the first six months of fiscal 1997 to $40.6 million for
the first six months of fiscal 1998. Gross profit as a percentage of total
revenues for the second quarter of fiscal 1998 and 1997 was 19.4% and 17.6%,
respectively. The Company's highest gross margins are derived from its parts
and service revenues. The increase in gross margin as a percent of total
revenues is primarily due to parts and service 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 12.0% for the first six months of fiscal 1997 to 13.5% for the
first six months of fiscal 1998. Total selling, general and administrative
expenses increased approximately $9.6 million, from $18.5 million for the first
six months of fiscal 1997 to $28.1 million for the first six months of fiscal
1998. Approximately $6.9 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 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.
12
<PAGE>
INTEREST EXPENSE
Interest expense was $2.6 million for the first six months of fiscal
1998 and 1997. Interest expense did not change from last year due to 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 six
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 $2.3 million, or 60.5%, to $6.2
million, or $.47 per share, for the first six months of fiscal 1998, compared
to pro forma $3.9 million, or pro forma $.41 per share, for the first six
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.
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 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.
13
<PAGE>
The Company annually reviews the terms of its financing arrangements
with its lenders, including the interest rate. For the six months of fiscal
1998, the average interest rate was approximately 8.42% and for fiscal year
1997 was 8.25%. The increase in the average interest rate from fiscal 1997
was primarily due to the increase in the Prime Rate from 8.25% to 8.50%
effective March 26, 1997. As of July 31, 1997, the Company had outstanding
floor plan payables of approximately $124.7 million, of which $58.3 million
was then interest bearing.
During the first six months of fiscal 1998, operating activities
generated cash of approximately $27.5 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 in preparation for seasonal increased sales levels for the second
and third fiscal quarters and to stock current year dealership acquisitions.
Cash used for investing activities during the first six months of fiscal
1998 was $30.4 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
filings with the Securities and Exchange Commission. These factors, which
are subject to change, include: general economic conditions and housing
starts; the many interrelated factors that affect farmers' confidence,
including worldwide demand for agricultural products, world grain stocks,
commodities prices, weather, 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; production difficulties, including capacity and supply constraints
experienced by the Company's suppliers; practices by the Company's suppliers;
employee relations; interest and currency exchange rates; accounting
standards; dependence upon Deere & Company; termination rights and other
provisions which the Company's suppliers have under dealer and other
agreements; risks associated with growth, expansion and acquisitions;
dependence upon key personnel; and other risks and uncertainties. Any
forward-looking statement of the Company is based upon assumptions relating
to these factors.
14
<PAGE>
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: September 11, 1997 By: /s/ Allan F. Knoll
-------------------------------------
Allan F. Knoll
Chief Financial Officer and Secretary
(principal financial officer)
EXHIBIT INDEX
<TABLE>
<CAPTION>
ITEM NO. ITEM PAGE OF THIS REPORT
<S> <C> <C>
11 Statement re: Computation of Per Share Earnings 16
27 Financial Data Schedule 17
</TABLE>
15
<PAGE>
Exhibit 11
RDO EQUIPMENT CO.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Amounts) Three Months Ended July 31, Six Months Ended July 31,
(Unaudited) 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income $ 3,816 $ 2,262 $ 6,195 $ 3,859
------- ------- ------- -------
------- ------- ------- -------
Weighted average number of shares
outstanding 13,180 8,370 13,180 8,370
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 118 --- 84 ---
------- ------- ------- -------
Weighted average shares outstanding 13,298 9,429 13,264 9,429
------- ------- ------- -------
------- ------- ------- -------
Net income per common share $ 0.29 $ 0.24 $ 0.47 $ 0.41
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONDENSED
CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE SIX 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> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> JUL-31-1997
<CASH> 128
<SECURITIES> 0
<RECEIVABLES> 45,970
<ALLOWANCES> 819
<INVENTORY> 169,366
<CURRENT-ASSETS> 215,983
<PP&E> 40,490
<DEPRECIATION> 7,641
<TOTAL-ASSETS> 269,641
<CURRENT-LIABILITIES> 152,901
<BONDS> 21,848
0
0
<COMMON> 132
<OTHER-SE> 93,991
<TOTAL-LIABILITY-AND-EQUITY> 269,641
<SALES> 209,068
<TOTAL-REVENUES> 209,068
<CGS> 168,454
<TOTAL-COSTS> 168,454
<OTHER-EXPENSES> 28,134
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,595
<INCOME-PRETAX> 10,425
<INCOME-TAX> 4,169
<INCOME-CONTINUING> 6,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,195
<EPS-PRIMARY> .47
<EPS-DILUTED> 0
</TABLE>
