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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 APRIL 30, 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 May 30, 1997: 5,721,508.
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1
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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 STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended April 30
(In Thousands, Except Per Share Amounts)(Unaudited) 1997 1996
------------------------------------------------------------------------------------
<S> <C> <C>
Revenues:
Wholegoods sales $ 60,088 $ 54,961
Parts and service 22,312 15,462
Rental 2,398 463
---------- ----------
Total revenues 84,798 70,886
Cost of revenues 67,759 58,718
---------- ----------
Gross profit 17,039 12,168
Selling, general and administrative expenses 12,338 8,595
---------- ----------
Operating income 4,701 3,573
Interest expense (959) (1,259)
Interest income 253 349
---------- ----------
Income before income taxes
and minority interest 3,995 2,663
Provision for income taxes (1,598) (1,065)
---------- ----------
Income before minority interest 2,397 1,598
Minority interest (18) ---
---------- ----------
Net income $ 2,379 $ 1,598
---------- ----------
---------- ----------
Net income per share $ 0.18 $ 0.17
---------- ----------
---------- ----------
Weighted average shares outstanding 13,226 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 SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 1997 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 31 $ 459
Accounts receivable (less allowance) 32,931 24,982
Inventories 150,448 130,955
Prepaid expenses 912 499
Deferred income tax benefit 540 540
----------- -----------
Total current assets 184,862 157,435
Property and equipment, net 29,522 15,642
Other assets:
Deposits 1,495 1,360
Goodwill and other, net of accumulated
amortization 9,100 7,114
----------- -----------
Total assets $ 224,979 $ 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 SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 1997 1997
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $ 86,135 $ 64,331
Notes payable and current maturities of long-term debt
Banks and others 4,572 4,933
Affiliates 665 651
Accounts payable 11,638 5,153
Accrued liabilities 7,447 5,652
Customer advance deposits 3,461 3,141
Dividends payable 734 830
----------- -----------
Total current liabilities 114,652 84,691
Long-term debt, net of current maturities:
Banks and others 14,044 3,522
Affiliates 5,251 5,303
Deferred income taxes 240 240
----------- -----------
Total liabilities 134,187 93,756
Minority interest 618 ---
Stockholders equity:
Preferred stock --- ---
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,447 84,447
Retained earnings 5,595 3,216
----------- -----------
Total stockholders' equity 90,174 87,795
----------- -----------
Total liabilities and stockholders' equity $ 224,979 $ 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 STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended April 30
(IN THOUSANDS) (UNAUDITED) 1997 1996
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<S> <C> <C>
Operating activities:
Net income $ 2,379 $ 2,663
Adjustments to reconcile net income to net
cash provided by (used in) operating activities -
Depreciation and amortization 1,164 433
Minority interest 18 ---
Change in operating assets and liabilities:
Accounts receivable (7,949) (5,507)
Inventories (18,457) (7,248)
Prepaid expenses (337) (99)
Deposits (134) 198
Floor plan payables 21,804 6,675
Accounts payable and accrued liabilities 8,160 5,485
Customer advance deposits 310 479
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Net cash provided by operating activities 6,958 3,079
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Investing activities:
Net purchases of rental equipment (1,738) (76)
Net purchase of property and equipment (603) (289)
Purchase of net assets of dealerships (4,842) ---
Other, net 312 20
---------- ----------
Net cash used for investing activities (6,871) (345)
---------- ----------
Financing activities:
Proceeds from issuance of long-term debt 910 ---
Payments on long-term debt (659) (1,282)
Payment of dividends (96) (957)
Net payments of bank lines and short-term notes payable (670) (1,245)
---------- ----------
Net cash used for financing activities (515) (3,484)
---------- ----------
Decrease in cash (428) (750)
Cash and cash equivalents, beginning of period 459 787
---------- ----------
Cash and cash equivalents, end of period $ 31 $ 37
---------- ----------
---------- ----------
Supplemental disclosures:
Cash payments for interest $ 812 $ 1,257
---------- ----------
---------- ----------
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships
through issuance and assumption of debt $ 11,272 $ ---
---------- ----------
---------- ----------
</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 months ended
April 30, 1997 and April 30, 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 months ended April 30, 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.
Subsequent to the quarter ended April 30, 1997, the Company also made the
following acquisitions:
Effective May 1, 1997, the Company purchased certain assets and assumed
certain liabilities of Imperial Machinery, a division of Empire Southwest Co.
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 will be accounted for under the purchase method of
accounting and resulting goodwill will be 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
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assumed liabilities of $0.6 million resulting in net cash paid of approximately
$12.8 million. The acquisition will be accounted for under the purchase method
of accounting and resulting goodwill will be 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 will be 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 months ended April 30, 1997 and 1996, give effect to
all of the above mentioned acquisitions as if they were completed at the
beginning of fiscal 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 APRIL 30,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues $100,777 $ 99,337
Net income $ 2,701 $ 1,924
Weighted average shares outstanding 13,226 9,429
Net income per common and common equivalent shares $ .20 $ .20
-------- --------
-------- --------
</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):
April 30, January 31,
1997 1997
-------- ---------
New equipment $86,474 $75,233
Used equipment 44,605 40,094
Parts and other 19,369 15,628
------ ------
$150,448 $130,955
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-------- --------
4. NEW FINANCING ARRANGEMENTS:
During the first three months 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 to finance purchases of rental
equipment. The credit agreement provides for variable interest based on .5%
below the
7
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prime rate. As of April 30, 1997, the Company had advances relating to this
credit agreement of approximately $8.3 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 first quarter of fiscal
1998, there would have been no effect on the reported net income 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 first three months of fiscal 1997 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), with an interest rate at the prime rate (which was
8.25%), which note 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 with an interest rate at the prime rate (which was
8.25%), which note was repaid out of the net proceeds of the Offering. The
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 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
8
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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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data as a percentage of total revenues:
THREE MONTHS ENDED APRIL 30
---------------------------
1997 1996
---- ----
Revenues
Wholegoods sales 70.9% 77.5%
Parts and service 26.3 21.8
Rental 2.8 0.7
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Total revenues 100.0% 100.0%
Gross profit 20.1% 17.2%
Selling, general and administrative expenses 14.6 12.1
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Operating income 5.5 5.1
Interest expense, net 0.8 1.3
Provision for taxes 1.9 1.5
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Net income 2.8% 2.3%
------- -------
------- -------
THREE MONTHS ENDED APRIL 30, 1997 COMPARED TO THREE MONTHS ENDED APRIL 30, 1996
REVENUES
Revenues increased approximately $13.9 million, or 19.6%, from $70.9
million for the first three months of fiscal 1997 to $84.8 million for the first
three months of fiscal 1998. Construction operations contributed approximately
$9.3 million of this increase, with revenues increasing 21.3% to $53.0 million.
Construction revenues increased approximately $11.1 million due to the Company's
acquisitions since the first quarter of fiscal 1997. This increase was
partially offset by a reduction in comparable store sales of wholegoods which
were delayed by the late spring in the upper Midwest and the resulting delay in
the construction season.
Agricultural operations contributed the remaining increase in revenues of
approximately $4.6 million, with revenues for the first three months of fiscal
1998 increasing 16.9% to $31.8 million. Agricultural revenues increased
approximately $6.3 million due to the Company's acquisitions since the first
quarter of fiscal 1997. This increase was partially offset by a reduction in
comparable store sales of wholegoods which were delayed by the late spring and
record floods in the upper Midwest and the resulting delay in the Red River
Valley's planting season.
9
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Total wholegoods sales increased approximately $5.1 million, or 9.3%, from
$55.0 million for the first three months of fiscal 1997 to $60.1 million for the
first three months of fiscal 1998. Construction operations contributed
approximately $2.2 million of this increase, with sales increasing 6.7% to $35.1
million. The Company's construction acquisitions since the first quarter of
fiscal 1997 resulted in wholegoods sales of $6.5 million in the first quarter of
fiscal 1998. Agricultural operations contributed the remaining increase of
approximately $2.9 million, with sales increasing 13.1% to $25.0 million. The
Company's agricultural acquisitions since the first quarter of fiscal 1997
resulted in wholegoods sales of $4.6 million in the first quarter of fiscal
1998. Due to the factors previously mentioned, the construction and planting
seasons in the upper Midwest were delayed resulting in a delay in wholegoods
sales. Therefore, the Company's acquisitions in the construction and
agricultural divisions provided for the increase in wholegoods sales for the
first three months of fiscal 1998 compared to the first three months of fiscal
1997.
Parts and service revenues increased approximately $6.9 million, or 44.8%,
from $15.4 million for the first three months of fiscal 1997 to $22.3 million
for the first three months of fiscal 1998. Of this increase, $4.5 million was
due to the Company's acquisitions since the first quarter of fiscal 1997. Parts
and service revenues grew at a higher rate than wholegoods sales due to delayed
wholegoods sales mentioned above. The Company also continues to add service bay
facilities and personnel to its stores to expand its service capacity.
Rental revenues of $2.4 million was generated in the first three months of
fiscal 1998 compared to $0.5 million in the first three months of fiscal 1997.
The Company's acquisition of a construction equipment rental company in the
Southwest effective February 1, 1997 contributed approximately $1.8 million of
the increase.
GROSS PROFIT
Gross profit increased approximately $4.9 million, or 40.5% , from $12.1
million for the first three months of fiscal 1997 to $17.0 million for the first
three months of fiscal 1998. Gross profit as a percentage of total revenues for
the first three months of fiscal 1998 and 1997 was 20.1% and 17.2%,
respectively. The Company's highest gross margins are derived from its parts
and service revenues. Due to the extreme weather conditions discussed above,
there was a change in the product mix as wholegoods sales grew at a lesser rate
than did parts and service revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percent of total revenues
increased from 12.1% for the first three months of fiscal 1997 to 14.6% for the
first three months of fiscal 1998. Total selling, general and administrative
expenses increased approximately $3.7 million, from $8.6 million for the first
three months of fiscal 1997 to $12.3 million for the first three months of
fiscal 1998. Approximately $2.7 million of the increase was due to the
operations of the Company's acquisitions since the first quarter of fiscal 1997.
These expenses, as a percentage of total revenues, increased primarily as a
result of the aforementioned delay in wholegoods sales caused by adverse weather
conditions. Parts and service, which incurs a greater level of expenses than do
wholegoods sales, represented an increased portion of the Company's revenue mix
due to the delay in wholegoods sales.
10
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INTEREST EXPENSE
Interest expense decreased approximately $0.3 million, or 23.1%, from $1.3
million for the first three months of fiscal 1997 to $1.0 million for the first
three months of fiscal 1998. The decrease in interest expense was due to paying
down floor plan payables with a portion of the proceeds from the Company's
initial public offering in January 1997.
INCOME TAXES
The provision for taxes as a percentage of pretax income was consistent
between these two periods at an estimated rate of 40%. Until January 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 first three
months of fiscal 1997 as if the Company were subject to corporate income taxes.
NET INCOME
Net income increased approximately $0.8 million, or 50.0%, to $2.4 million,
or $.18 per share, for the first three months of fiscal 1998, compared to pro
forma $1.6 million, or pro forma $.17 per share, for the first three 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 financings. During the first quarter of fiscal
1998, the Company's 80% owned subsidiary, RDO Rental Co., entered into a new
$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 substantial part of the period for which inventories
are financed. Variable market rates of interest based on the prime rate are
charged on balances outstanding after any interest-free periods, which are
currently 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.
11
<PAGE>
The Company annually reviews the terms of its financing arrangements with
its lenders, including the interest rate. For the first three months of fiscal
1998, the average interest rate was approximately 8.41% and for fiscal year 1997
was 8.25%. As of April 30, 1997, the Company had outstanding floor plan
payables of approximately $86.1 million, of which $28.1 million was then
interest bearing.
During the first three months of fiscal 1998, operating activities
generated cash of approximately $7.0 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 operations were increases in trade receivables from customers and
increases in the Company's inventories in preparation for seasonal increased
sales levels for the next two fiscal quarters. The increase in cash from
operating activities was offset by cash used to purchase net assets of
dealerships of approximately $4.8 million and purchases of rental equipment of
approximately $1.7 million.
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.
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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 13 of this
Report.
(b) REPORTS ON FORM 8-K.
During the fiscal quarter ended April 30, 1997, the Company filed
a Current Report on Form 8-K dated April 28, 1997 under Item 5
relating to a Cautionary Statement Regarding Future Results,
Forward-Looking Information and Certain Important Factors.
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: June 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 14
27 Financial Data Schedule 15
</TABLE>
13
<PAGE>
Exhibit 11
RDO EQUIPMENT CO.
COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended April 30
(In Thousands, Except Per Share Amounts) (Unaudited) 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 2,379 $ 1,598
--------- ---------
--------- ---------
Weighted average number of shares outstanding 13,180 8,370
Dilutive effect of shares for which proceeds were
necessary to fund the $15 million distribution of
accumulated S corporation earnings --- 1,059
Dilutive effect of stock options outstanding 46 ---
--------- ---------
Weighted average number of shares outstanding 13,226 9,429
--------- ---------
--------- ---------
Net income per share $ 0.18 $ 0.17
--------- ---------
--------- ---------
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF APRIL 30, 1997 AND THE RELATED
CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS THEN ENDED AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 31
<SECURITIES> 0
<RECEIVABLES> 33,836
<ALLOWANCES> 905
<INVENTORY> 150,448
<CURRENT-ASSETS> 184,862
<PP&E> 36,388
<DEPRECIATION> 6,866
<TOTAL-ASSETS> 224,979
<CURRENT-LIABILITIES> 114,652
<BONDS> 19,295
0
0
<COMMON> 132
<OTHER-SE> 90,042
<TOTAL-LIABILITY-AND-EQUITY> 224,979
<SALES> 84,798
<TOTAL-REVENUES> 84,798
<CGS> 67,759
<TOTAL-COSTS> 67,759
<OTHER-EXPENSES> 12,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 959
<INCOME-PRETAX> 3,995
<INCOME-TAX> 1,598
<INCOME-CONTINUING> 2,379
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,379
<EPS-PRIMARY> .18
<EPS-DILUTED> 0
</TABLE>
