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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, 1998
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) 297-4288
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 the registrant as of August 31, 1998:
Class A Common Stock 5,731,008
Class B Common Stock 7,450,492
----------
Total 13,181,500
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1
<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 STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
- ----------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 31, July 31,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Wholegoods sales $ 108,666 $ 89,213 $ 200,627 $ 149,301
Parts and service 38,202 31,338 68,159 53,650
Rental 5,272 3,719 9,148 6,117
--------- --------- --------- ---------
Total revenues 152,140 124,270 277,934 209,068
Cost of revenues 121,269 100,695 223,292 168,454
--------- --------- --------- ---------
Gross profit 30,871 23,575 54,642 40,614
Selling, general and
administrative expenses 20,083 15,796 37,369 28,134
--------- --------- --------- ---------
Operating income 10,788 7,779 17,273 12,480
Interest expense (3,189) (1,636) (5,798) (2,595)
Interest income 110 287 331 540
--------- --------- --------- ---------
Income before income taxes
and minority interest 7,709 6,430 11,806 10,425
Provision for income taxes (3,137) (2,571) (4,805) (4,169)
--------- --------- --------- ---------
Income before minority interest 4,572 3,859 7,001 6,256
Minority interest (53) (43) (26) (61)
--------- --------- --------- ---------
Net income $ 4,519 $ 3,816 $ 6,975 $ 6,195
========= ========= ========= =========
Net income per share - basic and diluted $ 0.34 $ 0.29 $ 0.53 $ 0.47
========= ========= ========= =========
Weighted average shares outstanding-basic 13,182 13,180 13,182 13,180
========= ========= ========= =========
Weighted average shares outstanding-diluted 13,217 13,298 13,222 13,264
========= ========= ========= =========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
2
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1998 1998
- -----------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 383 $ 37
Accounts receivable (less allowance) 51,779 36,204
Receivables from affiliates 1,611 1,361
Inventories 258,287 220,841
Prepaid expense 1,582 704
Deferred income tax benefit 2,635 1,450
---------- ----------
Total current assets 316,277 260,597
Property and equipment, net 49,059 37,469
Other assets:
Deposits 1,229 1,765
Goodwill and other, net of accumulated amortization 29,096 19,601
---------- ----------
Total assets $ 395,661 $ 319,432
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
3
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 1998 1998
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $ 212,316 $ 163,988
Notes payable and current maturities of long-term debt:
Banks and others 8,777 4,423
Affiliates 10,664 2,149
Accounts payable 8,943 7,376
Accrued liabilities 12,930 9,619
Customer advance deposits 1,625 3,043
Dividends payable 734 734
---------- ----------
Total current liabilities 255,989 191,332
Long-term debt, net of current maturities:
Banks and others 23,269 20,410
Affiliates 3,981 4,371
Deferred income taxes 3,175 1,560
---------- ----------
Total liabilities 286,414 217,673
Minority interest 1,202 689
Stockholders equity:
Preferred stock -- --
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,471 84,471
Retained earnings 23,442 16,467
---------- ----------
Total stockholders' equity 108,045 101,070
---------- ----------
Total liabilities and stockholders' equity $ 395,661 $ 319,432
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
4
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended July 31,
(IN THOUSANDS) (UNAUDITED) 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 6,975 $ 6,195
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization 3,537 2,565
Deferred income taxes 430 --
Minority interest 26 61
Change in operating assets and liabilities:
Accounts receivable (11,300) (18,180)
Inventories (25,501) (28,294)
Prepaid expenses (674) (222)
Deposits 638 (283)
Floor plan payables 38,132 58,251
Accounts payable and accrued liabilities 2,210 8,912
Customer advance deposits (1,450) (1,491)
---------- ----------
Net cash provided by operating activities 13,023 27,514
Investing activities:
Net purchases of rental equipment (10,835) (4,537)
Net purchase of property and equipment (2,391) (1,005)
Net assets of acquisitions (11,801) (24,983)
Other, net (2,570) 114
---------- ----------
Net cash used for investing activities (27,597) (30,411)
Financing activities:
Proceeds from issuance of long-term debt 10,048 5,396
Payments on long-term debt (3,641) (1,529)
Payment of dividends -- (96)
Net payments of bank lines and short-term notes payable 8,513 (1,205)
---------- ----------
Net cash provided by financing activities 14,920 2,566
---------- ----------
Increase (decrease) in cash 346 (331)
Cash and cash equivalents, beginning of period 37 459
---------- ----------
Cash and cash equivalents, end of period $ 383 $ 128
========== ==========
Supplemental disclosures:
Cash payments for interest $ 5,479 $ 2,236
========== ==========
Cash payments for income taxes $ 3,765 $ 2,759
========== ==========
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships through
issuance and assumption of debt $ 13,801 $ 13,594
========== ==========
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.
5
<PAGE>
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, 1998 and July 31, 1997 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, 1998. The results of
operations for the three and six months ended July 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
2. BUSINESS COMBINATIONS:
During the first two quarters of fiscal 1999 and 1998, the Company made
several acquisitions. These acquisitions have been accounted for using the
purchase method of accounting and, accordingly, the assets acquired and
liabilities assumed have been recorded at their estimated fair values as of the
dates of acquisition. The excess purchase price over the fair value of the
assets acquired and liabilities assumed has been recorded as goodwill.
The following summarizes the net assets acquired, liabilities assumed
and cash purchase price of the acquisitions made during the periods indicated
(in thousands):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Assets acquired $ 23,535 $ 22,463 $ 25,602 $ 38,577
Less: liabilities assumed 12,866 2,322 13,801 13,594
-------- -------- -------- --------
Cash purchase price $ 10,669 $ 20,141 $ 11,801 $ 24,983
======== ======== ======== ========
Number of acquisitions 2 3 3 5
======== ======== ======== ========
</TABLE>
Subsequent to July 31, 1998, the Company completed the acquisition of
89 percent of the outstanding capital stock of an agricultural equipment rental
company. Total assets acquired were approximately $13.9 million which were
offset by assumed liabilities of $3.2 million and minority interest of $1.2
million resulting in a net purchase price of approximately $9.5 million. The
acquisition will be accounted for under the purchase method of accounting.
Results of operations for the acquisitions made prior to July 31, 1998
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, 1998 and 1997, give effect to these acquisitions as if they were
completed at the beginning of fiscal 1998, including the acquisition completed
subsequent to July 31, 1998. 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):
6
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 158,607 $ 150,510 $ 307,364 $ 275,963
========== ========== ========== ==========
Net income $ 4,826 $ 4,102 $ 7,483 $ 6,993
========== ========== ========== ==========
Weighted average shares outstanding-basic 13,182 13,180 13,182 13,180
========== ========== ========== ==========
Weighted average shares outstanding-diluted 13,217 13,298 13,222 13,264
========== ========== ========== ==========
Net income per share - basic and diluted $ 0.37 $ 0.31 $ 0.57 $ 0.53
========== ========== ========== ==========
</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,
1998 1998
---- ----
<S> <C> <C>
New equipment $184,404 $156,732
Used equipment 44,926 39,392
Parts and other 28,957 24,717
-------- --------
$258,287 $220,841
======== ========
</TABLE>
4. FLOOR PLAN PAYABLES:
Floor plan payables are interest and noninterest-bearing financing
arrangements for inventory. The terms of these arrangements generally include a
one to twelve-month interest-free term followed by a term during which interest
is charged. Floor plan payables consist of the following at (in thousands):
<TABLE>
<CAPTION>
July 31, January 31,
1998 1998
---- ----
<S> <C> <C>
Interest-bearing $136,750 $ 79,189
Noninterest-bearing 75,566 84,799
-------- --------
$212,316 $163,988
======== ========
</TABLE>
7
<PAGE>
5. EARNINGS PER SHARE:
The following summarizes the computation of weighted average shares
outstanding and net income per share for the periods indicated (in thousands,
except per share data):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common shareholders $ 4,519 $ 3,816 $ 6,975 $ 6,195
======= ======= ======= =======
Weighted average number
of shares outstanding - basic 13,182 13,180 13,182 13,180
Dilutive effect of stock options outstanding 35 118 40 84
------- ------- ------- -------
Common and potential common
shares outstanding - diluted 13,217 13,298 13,222 13,264
======= ======= ======= =======
Basic and dilutive net income per share $ 0.34 $ 0.29 $ 0.53 $ 0.47
======= ======= ======= =======
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company's strategic plan of internal growth along with growth
through acquisitions resulted in the Company completing several acquisitions of
heavy-duty truck dealerships during the first two quarters of fiscal 1999. Two
dealerships are located in Minneapolis/St. Paul, Minnesota. One primarily
supplied by Volvo and GMC, and the other by Mack. These two dealerships were
consolidated into one Minneapolis/St. Paul location during the second quarter of
fiscal 1999. In addition, two dealerships located in Fargo and Grand Forks,
North Dakota primarily supplied by Volvo, GMC and Isuzu were acquired during the
second quarter of fiscal 1999. Total assets acquired relating to these
acquisitions were approximately $25.6 million with unaudited annual revenues of
approximately $78.0 million.
In addition to growth through acquisitions, the Company opened
additional locations - four construction equipment rental locations in Tucson
and Show Low, Arizona and Riverside and Temecula, California, and a Vermeer
construction equipment store in Minneapolis, Minnesota. The Company also
commenced new construction equipment operations in Lake Havasu, Arizona. The
results of operations of these acquisitions and openings are included in the
Company's results of operations only for the periods after their applicable
acquisition and opening dates.
Subsequent to the end of the second quarter of fiscal 1999, the Company
completed the acquisition of 89 percent of an agricultural equipment rental
business located in Salinas, California. Total assets of the acquired business
were approximately $13.9 million with unaudited annual revenues of approximately
$10.0 million.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE DATA (IN MILLIONS):
Total revenues $ 152.1 $ 124.3 $ 277.9 $ 209.1
Construction 56.9% 54.6% 59.6% 56.5%
Agricultural 27.0% 43.7% 30.7% 42.1%
Truck 16.1% 1.7% 9.7% 1.4%
Construction revenues $ 86.6 $ 67.8 $ 165.6 $ 118.2
Wholegoods sales 71.9% 70.2% 72.1% 68.5%
Parts and service 22.1% 25.1% 22.5% 26.8%
Rental 6.0% 4.7% 5.4% 4.7%
Agricultural revenues $ 41.0 $ 54.4 $ 85.4 $ 87.9
Wholegoods sales 66.6% 74.3% 71.0% 76.0%
Parts and service 33.2% 24.8% 28.8% 23.4%
Rental 0.2% 0.9% 0.2% 0.6%
Truck Revenues $ 24.5 $ 2.1 $ 26.9 $ 3.0
Wholegoods sales 77.7% 60.0% 76.3% 53.8%
Parts and service 22.3% 40.0% 23.7% 46.2%
INCOME STATEMENT DATA (AS A PERCENTAGE OF TOTAL REVENUES):
Revenues
Wholegoods sales 71.4% 71.8% 72.2% 71.4%
Parts and service 25.1 25.2 24.5 25.7
Rental 3.5 3.0 3.3 2.9
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Gross profit 20.3% 19.0% 19.7% 19.4%
Selling, general and
administrative expenses 13.2 12.7 13.4 13.5
------- ------- ------- -------
Operating income 7.1 6.3 6.3 5.9
Interest expense, net 2.0 1.1 2.0 1.0
Provision for taxes 2.1 2.1 1.8 2.0
------- ------- ------- -------
Net income 3.0% 3.1% 2.5% 2.9%
======= ======= ======= =======
</TABLE>
THREE MONTHS ENDED JULY 31, 1998 COMPARED TO THREE MONTHS ENDED JULY 31, 1997
REVENUES
Revenues increased approximately $27.8 million, or 22.4%, from $124.3
million for the second quarter of fiscal 1998 to $152.1 million for the second
quarter of fiscal 1999. Construction operations contributed approximately $18.8
million of this increase, with revenues increasing 27.7% to $86.6 million for
the second quarter of fiscal 1999. Construction revenues increased approximately
$4.6 million due to the Company's acquisitions and store openings since the
second quarter of fiscal 1998. Agricultural
9
<PAGE>
revenues decreased approximately $13.4 million, with revenues for the second
quarter of fiscal 1999 decreasing 24.6% to $41.0 million. The decrease in
agricultural revenues was a result of the Midwest farm economy causing the
Midwest agricultural operations to report lower than anticipated results. Truck
operations contributed approximately $22.4 million of the overall increase in
revenues, with revenues increasing 1,066.7% to $24.5 million for the second
quarter of fiscal 1999. The increase in truck revenues was attributable to the
Company's acquisitions since the second quarter of fiscal 1998.
Total wholegoods sales increased approximately $19.5 million, or 21.9%,
from $89.2 million for the second quarter of fiscal 1998 to $108.7 million for
the second quarter of fiscal 1999. Construction operations contributed
approximately $14.8 million of this increase, with sales increasing 31.2% to
$62.3 million. The Company's construction acquisitions and new store openings
since the second quarter of fiscal 1998 resulted in wholegoods sales of $1.4
million in the second quarter of fiscal 1999. Agricultural wholegoods sales
decreased approximately $13.1 million, with sales decreasing 32.4% to $27.3
million primarily as a result of the Midwest farm economy. Truck operations
contributed approximately $17.8 million of the increase in wholegoods sales,
with sales increasing 1,369.2% to $19.1 million. The increase in truck
wholegoods sales was attributable to the Company's acquisitions since the second
quarter of fiscal 1998.
Parts and service revenues increased approximately $6.9 million, or
22.0%, from $31.3 million for the second quarter of fiscal 1998 to $38.2 million
for the second quarter of fiscal 1999. Of this increase, $5.4 million was due to
the Company's acquisitions and new store openings since the second quarter of
fiscal 1998.
Rental revenues of $5.3 million were generated in the second quarter of
fiscal 1999 compared to $3.7 million in the second quarter of fiscal 1998, an
increase of 43.2%. The Company's increase in rental revenues was primarily
attributable to the Company's new store openings since the second quarter of
fiscal 1998.
GROSS PROFIT
Gross profit increased approximately $7.3 million, or 30.9%, from $23.6
million for the second quarter of fiscal 1998 to $30.9 million for the second
quarter of fiscal 1999. Gross profit as a percentage of total revenues for the
second quarter of fiscal 1999 and 1998 was 20.3% and 19.0%, respectively. Gross
profit is affected by the contribution of revenues by business line and by the
mix of revenues within each business line. Revenues from construction operations
provide the Company with higher gross margins than do agricultural and truck
operations. Wholegoods sales provide the Company with lower gross margins than
do parts and service and rental revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percent of total
revenues increased from 12.7% for the second quarter of fiscal 1998 to 13.2% for
the second quarter of fiscal 1999. Total SG&A expenses increased approximately
$4.3 million, from $15.8 million for the second quarter of fiscal 1998 to $20.1
million for the second quarter of fiscal 1999. Approximately $2.6 million of the
increase was due to the operations of the Company's acquisitions and new store
openings since the second quarter of fiscal 1998. SG&A expenses are affected by
the contribution of revenues by business line and by the mix of revenues within
each business line. As a percentage of revenues, SG&A expenses are higher for
construction operations than for agricultural and truck operations. As a
percentage of revenues, SG&A expenses are lower for wholegoods sales than for
parts and service and rental revenues.
10
<PAGE>
INTEREST EXPENSE
Interest expense increased approximately $1.6 million, or 100.0%, from
$1.6 million for the second quarter of fiscal 1998 to $3.2 million for the
second quarter of fiscal 1999. The increase in interest expense was due to
increased borrowings to fund the Company's continued growth through
acquisitions, new store openings, expanding its inventories and enlarging its
rental fleets. The Company's interest-bearing borrowings for the second quarter
of fiscal 1998 were reduced by using 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 for the second
quarter of fiscal 1999 and 1998 was an estimated rate of 40.7% and 40.0%,
respectively.
NET INCOME
Net income increased approximately $0.7 million, or 18.4%, to $4.5
million, or $0.34 per share, for the second quarter of fiscal 1999, compared to
$3.8 million, or $0.29 per share, for the second quarter of fiscal 1998.
SIX MONTHS ENDED JULY 31, 1998 COMPARED TO SIX MONTHS ENDED JULY 31, 1997
REVENUES
Revenues increased approximately $68.8 million, or 32.9%, from $209.1
million for the first six months of fiscal 1998 to $277.9 million for the first
six months of fiscal 1999. Construction operations contributed approximately
$47.4 million of this increase, with revenues increasing 40.1% to $165.6 million
for the first six months of fiscal 1999. Construction revenues increased
approximately $8.4 million due to the Company's acquisitions and new store
openings since the second quarter of fiscal 1998. Agricultural revenues
decreased approximately $2.5 million, with revenues for the first six months of
fiscal 1999 decreasing 2.8% to $85.4 million. The decrease in agricultural
revenues was a result of the Midwest farm economy causing the Midwest
agricultural operations to report lower than anticipated results. Truck
operations contributed approximately $23.9 million of the overall increase, with
revenues increasing 796.7% to $26.9 million for the first six months of fiscal
1999. Truck revenues increased approximately $22.6 million due to the Company's
acquisitions since the second quarter of fiscal 1998.
Total wholegoods sales increased approximately $51.3 million, or 34.4%,
from $149.3 million for the first six months of fiscal 1998 to $200.6 million
for the first six months of fiscal 1999. Construction operations contributed
approximately $38.6 million of this increase, with sales increasing 47.7% to
$119.5 million. Of this increase, $2.8 million was due to the Company's
acquisitions and new store openings since the second quarter of fiscal 1998.
Agricultural wholegoods sales decreased approximately $6.2 million, with sales
decreasing 9.3% to $60.6 million primarily as a result of the Midwest farm
economy. Truck operations contributed approximately $18.9 million of the overall
increase, with sales increasing 1,181.3% to $20.5 million. Of this increase,
$17.9 million was due to the Company's acquisitions since the second quarter of
fiscal 1998.
Parts and service revenues increased approximately $14.5 million, or
27.0%, from $53.7 million for the first six months of fiscal 1998 to $68.2
million for the first six months of fiscal 1999. Of this increase, $6.0 million
was due to the Company's acquisitions and new store openings since the second
quarter of fiscal 1998.
11
<PAGE>
Rental revenues of $9.1 million were generated in the first six months
of fiscal 1999 compared to $6.1 million in the first six months of fiscal 1998.
The increase in rental revenues for the first six months of fiscal 1999 was
primarily attributable to the Company's new store openings since the second
quarter of fiscal 1998.
GROSS PROFIT
Gross profit increased approximately $14.0 million, or 34.5%, from
$40.6 million for the first six months of fiscal 1998 to $54.6 million for the
first six months of fiscal 1999. Gross profit as a percentage of total revenues
for the first six months of fiscal 1999 and 1998 was 19.7% and 19.4%,
respectively. Gross profit is affected by the contribution of revenues by
business line and by the mix of revenues within each business line. Revenues
from construction operations provide the Company with higher gross margins than
do agricultural and truck operations. Wholegoods sales provide the Company with
lower gross margins than do parts and service and rental revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses as a percent of total
revenues decreased from 13.5% for the first six months of fiscal 1998 to 13.4%
for the first six months of fiscal 1999. Total SG&A expenses increased
approximately $9.3 million, from $28.1 million for the first six months of
fiscal 1998 to $37.4 million for the first six months of fiscal 1999.
Approximately $3.2 million of the increase was due to the operations of the
Company's acquisitions and new store openings since the second quarter of fiscal
1998. SG&A expenses are affected by the contribution of revenues by business
line and by the mix of revenues within each business line. As a percentage of
revenues, SG&A expenses are higher for construction operations than for
agricultural and truck operations. As a percentage of revenues, SG&A expenses
are lower for wholegoods sales than for parts and service and rental revenues.
INTEREST EXPENSE
Interest expense increased approximately $3.2 million, or 123.1%, from
$2.6 million for the first six months of fiscal 1998 to $5.8 million for the
first six months of fiscal 1999. The increase in interest expense was due to
increased borrowings to fund the Company's continued growth through
acquisitions, new store openings, expanding its inventories and enlarging its
rental fleets. The Company's interest-bearing borrowings for the first six
months of fiscal 1998 were reduced by using 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 for the first
six months of fiscal 1999 and 1998 was an estimated rate of 40.7% and 40.0%,
respectively.
NET INCOME
Net income increased approximately $0.8 million, or 12.6%, to $7.0
million, or $0.53 per share, for the first six months of fiscal 1999, compared
to $6.2 million, or $0.47 per share, for the first six months of fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of
wholegoods and replacement parts, acquisitions of additional locations and
capital expenditures. Historically, the Company has met these liquidity
requirements primarily through cash flow generated from operating
12
<PAGE>
activities, floor plan financing, and borrowings under credit agreements with
Deere & Company (Deere), Deere Credit Services, Inc. (Deere Credit), Ag Capital
Company (Ag Capital), and commercial banks. In addition, in January 1997, the
Company completed its initial public offering raising net proceeds of $68.3
million which were used in part to satisfy the Company's working capital needs.
Floor plan financing from Deere and Deere Credit represents the primary
source of financing for wholegoods inventories, particularly for equipment
supplied by Deere. Revolving credit agreements with Deutsche Financial Services
and NationsBanc Leasing Corporation provide financing for rental equipment and
inventory, respectively. The truck inventory is primarily financed with
Associates Commercial Corporation and GMAC Financial Services. 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 and NationsBanc Leasing Corporation provide
financing using variable market rates of interest based on LIBOR. Associates
Commercial Corporation and GMAC Financial Services provide financing using
variable market rates of interest based on the prime rate.
The Company periodically reviews the terms of its financing
arrangements with its lenders, including the interest rate. For the first six
months of fiscal 1999, the average interest rate was approximately 7.67% and for
the first six months of fiscal 1998 was 8.42%. As of July 31, 1998, the Company
had outstanding floor plan payables of approximately $212.3 million, of which
$136.7 million was then interest-bearing.
During the first six months of fiscal 1999, operating activities
generated cash of approximately $13.0 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 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 third fiscal quarter.
Cash used for investing activities during the first six months of
fiscal 1999 was $27.6 million, which was primarily due to purchases of net
assets of acquisitions and purchases of rental equipment. Cash provided by
financing activities provided approximately $14.9 million. The primary source of
cash from financing activities was issuance of long-term debt and increases in
the Company's operating lines primarily to fund 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
1999.
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
13
<PAGE>
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.
YEAR 2000 COMPLIANCE
The Company uses software and related technologies throughout its business that
will be affected by the date change in the year 2000. A study is well underway
with both internal and third party resources to ensure that the Company's
systems continue to meet its needs and those of its customers. The Company
believes that any necessary modification, maintenance or replacement of existing
computer systems or software will permit the Company to address this issue
without significant operational problems. It is anticipated that these efforts
will be complete by the summer of 1999, allowing time for testing. The Company
is also requiring all of its major software and data service suppliers to be
Year 2000 compliant, as well as requiring all of its major equipment suppliers,
lending institutions and other vendors to inform the Company as to the status of
their efforts to be Year 2000 compliant. Although the Company has not yet fully
assessed the expense and related potential effect on the Company, the Company
does not anticipate that compliance with year 2000 needs will have a material
effect on the Company's financial position or results of operations.
SAFE HARBOR STATEMENT
The future results of the Company, including results related to
forward-looking statements in this Report, involve a number of risks and
uncertainties. Important factors that will affect future results of the Company,
including factors that could cause actual results to differ materially from
those indicated by 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 24, 1998, in the Company's Form 8-K dated
April 24, 1998, and in other filings with the Securities and Exchange
Commission. These factors, which are subject to change, include: general
economic conditions worldwide and locally; interest rates; housing starts; fuel
prices; the many interrelated factors that affect farmers' confidence, including
worldwide demand for agricultural products, world grain stocks, commodities
prices, weather, animal and plant 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; climatic phenomena such as La Nina and El Nino; actions of
competitors in the various industries in which the Company competes, including
manufacturers and retailers; the level of inventories in such industries; the
Company's relationships with its suppliers; production difficulties, including
capacity and supply constraints experienced by the Company's suppliers;
practices by the Company's suppliers; changes in governmental regulations;
employee relations; currency exchange rates; availability, sufficiency and cost
of insurance; securitization transactions and other financing arrangements
relating to the Company's financial services operations, including credit
availability and customer credit risks; dependence upon the Company's suppliers;
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 the Company's suppliers and other manufacturers
with respect to publicly-traded dealers, dealer consolidation and specific
acquisition opportunities; the Company's acquisition strategies and the
integration and successful operation of acquired businesses; operating and
financial systems to manage rapidly growing operations; dependence upon key
personnel; accounting standards; potential impact of the year 2000 on processing
date-sensitive information; and other risks and uncertainties. The Company's
forward-looking statements are based upon assumptions relating to these factors.
These assumptions are sometimes based upon estimates, data, communications and
other information from suppliers, government agencies and other sources which
may be subject to revision. The Company makes no commitment to revise
forward-looking statements, or to disclose subsequent facts, events or
circumstances that may bear upon forward-looking statements.
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: August 31, 1998 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
- -------- ---- -------------------
27 Financial Data Schedule 16
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
2ND QUARTER ENDED JULY 31, 1998
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 383
<SECURITIES> 0
<RECEIVABLES> 54,127
<ALLOWANCES> 737
<INVENTORY> 258,287
<CURRENT-ASSETS> 316,277
<PP&E> 60,882
<DEPRECIATION> 11,823
<TOTAL-ASSETS> 395,661
<CURRENT-LIABILITIES> 255,989
<BONDS> 27,515
0
0
<COMMON> 132
<OTHER-SE> 107,913
<TOTAL-LIABILITY-AND-EQUITY> 395,661
<SALES> 277,934
<TOTAL-REVENUES> 277,934
<CGS> 223,292
<TOTAL-COSTS> 223,292
<OTHER-EXPENSES> 37,369
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,798
<INCOME-PRETAX> 11,806
<INCOME-TAX> 4,805
<INCOME-CONTINUING> 7,001
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,975
<EPS-PRIMARY> .53
<EPS-DILUTED> .53
</TABLE>
