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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 2000
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
Securities registered pursuant to Section 12(b) of the Act:
CLASS A COMMON STOCK, $.01 PAR VALUE
Securities registered pursuant to Section 12(g) of the Act: NONE
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. _X_ YES ___ NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of common equity held by persons other than
directors and officers was approximately $28 million as of March 31, 2000. At
that date, 5,731,008 shares of Class A Common Stock and 7,450,492 shares of
Class B Common Stock were outstanding for a total of 13,181,500 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended January
31, 2000 ("Annual Report") are incorporated by reference in Part II. Portions of
the proxy statement for the annual meeting to be held on May 31, 2000 ("Proxy
Statement") are incorporated by reference in Part III.
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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 the section entitled "Certain Important Factors" 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. Any
statements contained or incorporated by reference in this Form 10-K that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, 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
ITEM 1. BUSINESS.
GENERAL
The Company specializes in the distribution, sale, service, rental
and finance of equipment and trucks to the agricultural, construction,
manufacturing, transportation and warehousing industries, as well as to public
service entities, government agencies and utilities. At the end of fiscal 2000,
the Company operated 56 retail stores in nine states - Arizona, California,
Minnesota, Montana, Nebraska, North Dakota, South Dakota, Texas and Washington.
Its stores include the largest network of Deere & Company ("Deere") construction
equipment dealerships and agricultural equipment dealerships in North America.
The Company believes that its network of stores enables it to achieve benefits
by increasing operational synergies. The Company expects to continue to expand
through future acquisitions and openings of agricultural, construction, material
handling and truck dealerships.
New products sold by the Company are supplied primarily by Deere, a
leading manufacturer and supplier of construction and agricultural equipment,
and by Volvo AB ("Volvo"), a leading manufacturer and supplier of heavy-duty
trucks. Sales of new Deere products and new Volvo products by the Company
accounted for approximately 35% and 10%, respectively, of the Company's sales in
fiscal 2000. No other supplier accounted for more than 10% of the Company's new
product sales in fiscal 2000. The Company's stores also offer complementary
products from other suppliers, used products, new and used parts, product
servicing, product rental, loans, leases and other related products and
services.
For the fiscal year ended January 31, 2000, the Company's revenues
were generated from the following areas of business:
New equipment and truck sales........................ 54%
Used equipment and truck sales....................... 15%
Product support (parts and service revenues)......... 25%
Equipment rental..................................... 5%
Financial services................................... 1%
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During fiscal 2000, the Company acquired Volvo truck dealerships with
full-service truck centers located in Dallas and Ft. Worth, Texas, and in Long
Beach and Riverside, California. In addition, the Company acquired a used truck
operation in Fontana, California, and commenced truck operations at its Waco,
Texas location. The Company also closed one construction equipment rental store
and sold its 80 percent interest in RDO Rental Co., a construction equipment
rental operation located in the southwestern United States.
The Company is a Delaware corporation with its executive offices
located at 2829 South University Drive, Fargo, North Dakota 58103. The Company's
phone number is (701) 297-4288. References to the Company in this Form 10-K
include its subsidiaries.
GROWTH STRATEGY
The key elements of the Company's growth strategy are:
INCREASING MARKET SHARE. The Company seeks to increase its market
share by enhancing customer service and generating customer loyalty. To
accomplish this objective, the Company offers a broad range of products,
utilizes aggressive marketing programs, trains its employees to have a strong
customer orientation, employs state-of-the-art service equipment, and maintains
a computerized real-time inventory system. Each store offers a broad array of
products based on the nature of that store's customer base. As the installed
base of equipment and trucks expands, the Company has the opportunity to
generate additional parts and service business and trade-ins. The Company's
finance subsidiary also assists in structuring transactions to meet the needs of
its customers. The Company believes that each customer's experience with the
Company's parts and service departments and other value-added services can
positively influence such customer's overall satisfaction. Parts and service,
rental and finance revenues currently have higher profit margins than equipment
and truck sales. The Company also has diversified its business into
complementary fields to serve its customers' needs, expand its customer base,
and enhance its revenues.
PURSUING ADDITIONAL ACQUISITIONS. Acquisitions are expected to
continue to be an important element of the Company's growth strategy,
particularly given the consolidation trends among equipment and truck retailers.
Due to the Company's leadership position, access to capital and track record in
completing and integrating acquisitions, the Company believes that attractive
acquisition candidates will continue to become available to the Company. The
Company believes that its management team has substantial experience in
evaluating potential acquisition candidates and determining whether a particular
retailer can be successfully integrated into the Company's existing operations,
i.e., whether the operations of an acquisition candidate can be enhanced by
utilizing the Company's operating model and being part of the Company's network
of stores. Upon consummation of each acquisition, the Company integrates the
retailer into its operations by implementing the Company's operating model and
seeks to enhance the acquired retailer's performance within its target market.
Integration of an acquisition generally is completed within the first six to 12
months, although it can take several years before the benefits of the Company's
operating model, store network, strategies and systems are fully realized.
Generally, manufacturers require that their prior approval be given to
prospective acquisitions of their dealerships.
IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a
proven operating model designed to improve the performance and profitability of
each of its stores. Components of this operating model include (i) pursuing
aggressive marketing programs, (ii) allowing store employees to focus on
customers by managing administrative functions, training and purchasing at the
corporate level, (iii) providing a full complement of parts and state-of-the-art
service functions, including a computerized
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real-time inventory system and quick response, on-site repair service, (iv)
motivating store level management in accordance with corporate goals, and (v)
focusing on cost structures at the store level. The Company implements its
operating model in a variety of areas. For example, the Company is proactive in
attracting new customers by sending targeted direct mailings, hosting open
houses and service clinics and participating in trade shows. Additionally, the
Company centralizes certain functions such as accounting, marketing, purchasing
and employee recruitment, allowing its store managers and personnel more time to
focus on making sales and providing product support to customers.
CAPITALIZING ON DIVERSITY OF OPERATIONS. A major focus of the
Company's strategy has been to expand its stores into geographic areas that have
a large base of activity and that provide the Company with opportunities to
continue to develop its store network. The Company has also focused on expanding
into industries in which product distribution is highly fragmented and the
Company's operating model can be implemented. The Company believes that its
business diversification has significantly increased its customer base, while
also mitigating the effects of industry-specific economic cycles. Similarly, the
Company's geographic diversification into regions outside its initial base in
the Midwest helps to diminish the effects of seasonality and weather, as well as
local and regional economic fluctuations.
CONSTRUCTION EQUIPMENT OPERATIONS
The Company estimates that North American retail sales of new
construction equipment in its target product market in calendar 1999 totaled
over $8 billion. Deere is one of the leading suppliers of construction equipment
in North America for light to medium applications and offers a broad array of
products. The Company believes Deere has approximately 90 construction dealers
who operate approximately 424 main stores and sales and service centers in North
America. Each dealer within the Deere construction dealer system is assigned
designated geographic areas of responsibility within which it has the right to
sell new Deere construction products.
The Company believes it is the largest Deere construction equipment
dealer in North America, both in number of stores and total purchases,
accounting for approximately six percent of Deere's North American construction
equipment sales in calendar 1999. As of the end of fiscal 2000, the Company
operated 25 Deere construction equipment stores located in metropolitan areas in
Arizona, Southern California, Minnesota, Montana, North Dakota, South Dakota and
Central Texas.
Customers of the Company's construction equipment stores are diverse
and include contractors, for both residential and commercial construction,
utility companies, and federal, state and local government agencies. The
Company's stores provide a full line of equipment for light to medium size
applications and related product support to their customers. Primary products
include John Deere backhoes, excavators, crawler dozers and four-wheel-drive
loaders. More recently, the Company began handling new products being introduced
into the market by Deere including ADTs, large excavators and compact
excavators. The Company's construction equipment stores also offer complementary
equipment from other suppliers, as well as used equipment primarily taken as
trade-ins.
The Company's construction equipment stores are located in areas with
significant construction activity, including Austin, Dallas/Fort Worth,
southeastern Los Angeles, Minneapolis/St. Paul, Phoenix, San Antonio and San
Diego. Each construction equipment store displays a broad array of new and used
equipment and has a series of fully equipped service bays to provide on-site
service and maintenance of construction equipment. The Company believes it has a
competitive advantage over other construction equipment dealers given its
ability to draw on its network of construction stores for equipment and parts,
the focus on used equipment and the economies of scale inherent in its
centralized administrative, purchasing and inventory management functions.
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In addition to selling and servicing new and used construction
equipment, the Company engages in rent-to-purchase and rent-to-rent transactions
as part of its dealership activities. In connection with the sale to United
Rentals, Inc. of its 80 percent interest in RDO Rental Co., the Company agreed
to limit its construction equipment rental activities in certain portions of the
southwestern United States until February 1, 2002. In general, these limitations
do not impact activities historically conducted by the Company (other than RDO
Rental Co.) or activities consistent with dealership operations.
TRUCK OPERATIONS
The Company estimates that North American retail sales of heavy-duty
trucks in calendar 1999 exceeded $10 billion. Mack Trucks, Inc. ("Mack") and
Volvo are leading suppliers of heavy-duty trucks in North America. The Company
believes Mack has approximately 132 dealers that operate approximately 256
locations in North America, while Volvo has approximately 128 dealers that
operate approximately 204 locations in the United States. Each Mack or Volvo
truck dealer is assigned designated geographical areas of responsibility within
which it has the right to sell new trucks made by the truck manufacturer.
The Company operates Mack truck centers in Minneapolis/St. Paul,
Minnesota and in Fargo and Grand Forks, North Dakota. Its Volvo truck centers
are located in Long Beach and Riverside, California; Minneapolis/St. Paul,
Minnesota; Fargo and Grand Forks, North Dakota; and Dallas, Ft. Worth and Waco,
Texas. The Company's truck centers in Fargo, Grand Forks, Dallas and Riverside
also sell and service GMC trucks; and its stores in Fargo, Grand Forks and
Fontana handle Isuzu trucks. The Company also conducts a used truck operation in
Fontana, California. The Company's truck centers are located in high truck
traffic areas on or near major highways.
Trucks sold by the Company are generally classified as Class 4
through Class 8 by the American Automobile Manufacturers Association. Class 8
trucks have a minimum gross vehicle weight rating above 33,000 pounds, and are
primarily used for over-the-road and off-highway transportation of general
freight and various vocational applications including the hauling of
construction materials, logging, mining, petroleum, refuse, waste and other
specialty uses. Customers generally purchase these trucks for commercial
purposes that are outfitted to perform according to the user's specifications.
The Company's truck centers display a broad array of new and used
trucks and have fully-equipped service bays to provide on-site service and
maintenance of trucks, including body shops. The Company believes its operating
model gives it a competitive advantage over other truck dealers. In addition,
its truck operations and construction equipment operations have common
customers, which presents opportunities for marketing, selling and operating
synergies.
AGRICULTURAL EQUIPMENT OPERATIONS
The Company estimates that North American retail sales of new
agricultural equipment in its target product market in calendar 1999 totaled
over $10 billion. Deere is the leading supplier of agricultural equipment in
North America. Within the Deere agricultural dealer system, dealers are not
assigned exclusive territories, but are authorized to operate at specific store
locations. The Company believes Deere has approximately 1,200 agricultural
dealers that operate approximately 1,600 stores and parts and service centers in
North America.
The Company believes it is the largest Deere agricultural equipment
dealer in North America, both in number of stores and total purchases,
accounting for approximately 1.25 percent of Deere's North
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American sales of agricultural equipment, parts and attachments in calendar
1999. As of the end of fiscal 2000, the Company operated 15 Deere agricultural
equipment stores located in Arizona, Southern California, Minnesota, North
Dakota, South Dakota and Washington.
The Company's agricultural equipment stores are a full-service
supplier to farmers, offering a broad range of farm equipment and related
products for the crops grown in each of their areas. As a result of the customer
mix and Deere's product offering, the core products include combines, tractors,
planting equipment and tillage equipment. The Company's agricultural equipment
stores also carry other harvesting and crop handling machinery, as well as lawn
and grounds care equipment. The sale of new Deere agricultural equipment is the
primary focus of the Company's agricultural equipment sales and accounts for a
majority of new equipment sales. A wide variety of additional agricultural
equipment lines, which complement the Deere products, are also offered according
to local market demand. The agricultural stores also sell used equipment,
generally acquired as trade-ins.
The agricultural equipment stores are located in areas with
significant concentrations of farmers and typically serve customers within a 25
to 50 mile radius. Each store displays a broad array of new and used equipment
and has fully-equipped service bays to provide on-site service and maintenance
of agricultural equipment. The Company believes it has a competitive advantage
over other agricultural dealers given its ability to draw on its network of
agricultural stores for equipment and parts, the focus on used equipment and the
economies of scale inherent in its centralized administrative, purchasing and
inventory management functions.
The Company also conducts an agricultural equipment rental business
in California that it acquired during fiscal 1999. The Company believes that the
agricultural equipment rental business is a growing trend being driven primarily
by agricultural customers that are increasingly outsourcing their equipment
needs to reduce their investment in non-core assets and to convert equipment
costs from fixed to variable, especially in the western, southwestern and south
central regions of the United States. The Company believes that its dealerships
and rental operations complement and support each other.
MATERIAL HANDLING EQUIPMENT OPERATIONS
The Company estimates that North American retail sales of lift trucks
and other material handling equipment in its target product market in calendar
1999 exceeded $7 billion. Hyster Company (part of the material-handling group of
NACCO Industries, Inc.) ("Hyster") is a leading supplier of lift trucks in North
America. The Company believes Hyster has approximately 50 dealers that operate
approximately 100 stores in North America. Each Hyster dealer is assigned
designated geographical areas of responsibility within which it has the right to
sell new Hyster lift trucks and parts. The Company is the designated Hyster lift
truck dealer for the upper Midwest - Minnesota, Nebraska, North Dakota, South
Dakota, western Iowa and northwestern Wisconsin.
Hyster lift trucks (also referred to as forklift trucks or forklifts)
are used in a wide variety of business applications, including manufacturing and
warehousing. The principal categories of lift trucks include electric rider,
electric narrow-aisle and electric-motorized hand forklift trucks primarily for
indoor use and internal combustion engine forklift trucks for indoor or outdoor
use.
Shortly after its appointment as a Hyster dealer in fiscal 1999, the
Company acquired the operating assets of two companies engaged in the
distribution, sale, service and rental of material handling
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equipment with stores located in Grand Island, Lincoln and Omaha, Nebraska and
North Sioux City, South Dakota. This acquisition provided the Company with an
established platform which complemented its Hyster operations, including aerial
and high-reach man lifts manufactured by Genie, Grove, Skyjack and Upright and
other equipment used to move, protect, store or control products and materials
in manufacturing and distribution.
The Company conducts its material handling operations from 11
locations in the upper Midwest of which five locations are dedicated solely to
material handling equipment. The other locations consist of several of the
Company's agricultural and construction equipment stores in Minnesota and North
Dakota. Each store displays a variety of equipment for sale or rent, and has
fully-equipped service bays to provide on-site service and maintenance.
Customers include commercial, manufacturing, trucking and warehousing
businesses, some of which have fleets of material handling equipment to be
maintained. The Company believes its operating model gives it a competitive
advantage over other material handling equipment retailers, and that its other
operations have common customers with its material handling operations which
presents opportunities for marketing, selling and operating synergies.
USED EQUIPMENT AND TRUCKS
The Company believes that an integral part of its operations is the
handling of used equipment and trucks. Accordingly, each of the Company's
divisions has established a management team to assist in the valuation of used
products which the Company receives in trade-ins, assist in the purchase of used
products for sale or rent by its dealerships, and support the sale of used
products received as trade-ins. These activities include the purchase and
remarket on the open market of used equipment manufactured by companies other
than Deere such as Caterpillar Inc. ("Caterpillar"), Komatsu Corporation
("Komatsu") and Volvo.
PARTS AND SERVICE
The Company's stores offer a broad range of replacement parts and
fully equipped service and repair facilities for their respective product lines.
The Company believes that product support through parts and service will be
increasingly important to its ability to attract and retain customers for its
operations. Each store includes service bays staffed by highly trained service
technicians. Technicians are also available to make on-site repairs of equipment
that cannot be brought in for service. The Company's service technicians receive
training from Deere and certain other suppliers, as well as additional on-site
training conducted by the Company. The construction equipment stores located in
Dallas, Texas; Minneapolis, Minnesota; and Riverside, California also operate
undercarriage shops for all makes and sizes of crawler equipment.
FINANCIAL SERVICES
The Company's finance subsidiary, RDO Financial Services Co.,
provides equipment and truck loans and leases to the customers of the Company's
retail network. This subsidiary has developed strategic partnerships with
vendors of financial products, as well as additional services such as revolving
credit, farm land financing, extended warranties, credit life insurance and
casualty insurance, which are sold to the Company's customers.
The Company believes that there is a growing trend in the equipment
and truck distribution business toward selling new and used products with
financing and service contracts. In addition, financing incentives are becoming
an important element in the Company's selling efforts. Customers increasingly
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want to purchase products from retailers who can also provide financing and
other products and services of the types being offered by the Company.
INVENTORY AND ASSET MANAGEMENT
The Company maintains substantial inventories of equipment, trucks
and parts in order to facilitate sales to customers on a timely basis. The
Company also is required to build its inventory of agricultural equipment and
parts in advance of its second and third fiscal quarters, which historically
have higher sales, to ensure that it will have sufficient inventory available to
meet the needs of its agricultural customers and to avoid shortages or delays.
The Company maintains a database on sales and inventory, and has a
centralized real-time inventory control system. This system enables each store
to access the available inventory of the Company's other stores before ordering
additional items from the supplier. As a result, the Company minimizes its
investment in inventory while effectively and promptly satisfying its customers'
needs. Using this system, the Company also monitors inventory levels and mix in
its network and at each store and makes adjustments as needed in accordance with
its operating plan.
INVENTORY FINANCING
Having adequate equipment, trucks and parts inventories at each of
the Company's stores is important to meeting its customer needs and to its
sales. Accordingly, the Company attempts to maintain at each store, or have
readily available at other stores in its network, sufficient inventory to
satisfy anticipated customer needs. Inventory levels fluctuate throughout the
year and tend to increase before the primary sales seasons for agricultural
equipment. The cost of financing its inventory is an important factor affecting
the Company's results of operations. In its truck segment, the cost of floor
plan financing of truck inventories has a direct relationship to the volume of
retail loans and leases originated on behalf of the floor plan supplier.
Floor plan financing from Deere, Deere Credit Services, Inc. ("Deere
Credit") and Banc of America Leasing & Capital, LLC ("Banc of America")
represents the primary source of financing for equipment inventories,
particularly for equipment supplied by Deere. Floor plan financing of truck
inventories is primarily supplied by Associates Commercial Corporation
("Associates"), General Motors Acceptance Corporation ("GMAC") and Volvo
Commercial Finance LLC The Americas. Rental equipment on- and off-balance sheet
financing is primarily provided by Deutsche Financial Services Corporation
("Deutsche") and Deere Credit. All lenders generally receive a security interest
in the inventory or rental equipment being financed.
CUSTOMER FINANCING OPTIONS
Financing options for customer purchases support the sales activities
of the Company. Financing for purchases by the Company's customers are available
through programs offered by the Company's finance subsidiary, by
manufacturer-sponsored sources (such as Deere Credit) and by major finance
companies (such as Associates). The Company's finance subsidiary coordinates
arrangements for most of the Company's customers who request financing. The
Company does not grant extended payment terms.
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PRODUCT WARRANTIES
The manufacturer generally provides warranties for new products and
parts. The term and scope of these warranties vary greatly by manufacturer and
by product. The Company does not provide additional warranties to retail
purchasers of new products. The manufacturer (such as Deere) pays the Company
for repairs to equipment under warranty. The Company generally sells used
products "as is" and without manufacturer's warranty, although manufacturers
sometimes provide limited warranties if the manufacturer's original warranty is
transferable and has not yet expired. The Company also sells a warranty product
offered by Deere on new and used equipment. The Company itself has not generally
provided additional warranties.
COMPETITION
The Company's construction equipment stores compete with distributors
of equipment produced by manufacturers other than Deere, including Caterpillar,
CNH Global N.V. ("CNH") and Komatsu. The Company also faces competition from
distributors of manufacturers of specific types of construction equipment,
including JCB backhoes, Kobelco excavators, Komatsu wheel loaders and crawler
dozers, and Bobcat skid loaders. The Company's agricultural equipment stores
compete with distributors of equipment from suppliers other than Deere,
including Agco Corporation, Caterpillar and CNH. The Company's agricultural
equipment stores also compete with other Deere agricultural dealerships.
Competing Deere agricultural stores may be located in close proximity to one of
the Company's agricultural equipment stores.
The Company's equipment rental operations compete with equipment
rental companies and dealers. Equipment rental businesses generally make
available for short-term rent used equipment manufactured by the foregoing
manufacturers, including those who are suppliers to the Company.
The Company's truck centers compete with distributors of trucks
produced by manufacturers other than Mack and Volvo, including DaimlerChrysler
AG (Freightliner and Sterling), Ford Motor Co., Navistar International Corp. and
Paccar Inc. (Peterbilt and Kenworth). The Company's material handling stores
compete with distributors of lift trucks produced by manufacturers other than
Hyster, including Clark Material Handling Company, Crown Equipment Corporation,
Nissan Motor Co., Toyota Motor Corp., another division of the NACCO material
handling group (Yale), and with other equipment rental companies that rent
aerial and high-reach man lifts, lift trucks and other material handling
equipment.
Competition among equipment and truck retailers is primarily based on
price, value, reputation, quality, design and performance of the products
offered by the retailer, the customer service and product servicing provided by
the retailer, and the accessibility of the retailer's stores. The Company
believes that its store locations, broad product lines, quality products,
product support and other customer and financial services enable it to compete
effectively.
BACKLOG
The Company's truck operations sell approximately two-thirds of
their new heavy-duty trucks by customer order, with the remainder sold out of
inventory. The general time period from order placement to delivery is currently
three to eight months. At January 31, 2000, the Company's backlog of confirmed
truck orders (including orders from fleet customers who typically place orders
up to one year in advance of scheduled delivery dates) was approximately $22.1
million. The Company expects to fill all of
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these orders during fiscal 2001. The Company's backlog of confirmed truck orders
at January 31, 1999 was approximately $41.4 million.
AGREEMENTS WITH MANUFACTURERS
DEERE CONSTRUCTION DEALER AGREEMENTS. The Company has agreements with
Deere which authorize the Company to act as a dealer of Deere construction,
utility and forestry equipment (the "Construction Dealer Agreements"). The
Company's areas of responsibility for the sale of Deere construction equipment
are: (i) in the Midwest: almost all of Minnesota, Montana, North Dakota and
South Dakota, and small portions of Iowa and Wyoming; (ii) in the Southwest:
Arizona and part of Southern California; and (iii) in the South Central: Central
Texas, including the Austin, Dallas-Fort Worth and San Antonio metropolitan
areas.
Pursuant to the Construction Dealer Agreements, the Company is
required, among other things, to maintain suitable facilities, provide competent
management, actively promote the sale of construction equipment in the
designated areas of responsibility, fulfill the warranty obligations of Deere,
maintain inventory in proportion to the sales potential in each area of
responsibility, provide service and maintain sufficient parts inventory to
service the needs of its customers, maintain adequate working capital, and
maintain stores only in authorized locations. Deere is obligated to make
available to the Company any finance plans, lease plans, floor plans, parts
return programs, sales or incentive programs or similar plans or programs it
offers to other dealers. Deere also provides the Company with promotional items
and marketing materials prepared by Deere for its construction equipment
dealers. The Construction Dealer Agreements also entitle the Company to use John
Deere trademarks and tradenames, with certain restrictions.
DEERE AGRICULTURAL DEALER AGREEMENTS. The Company has non-exclusive
dealership agreements with Deere for each of its Deere agricultural equipment
stores, each of which authorizes the Company to act as a dealer in Deere
agricultural equipment (the "Agricultural Dealer Agreements") at a specific
authorized store location. The terms of the Agricultural Dealer Agreements are
substantially the same as the Construction Dealer Agreements. The Deere
agricultural equipment stores also offer John Deere lawn and grounds equipment,
for which the Company has entered into non-exclusive Lawn and Garden Dealer
Agreements containing substantially the same terms as the Agricultural Dealer
Agreements.
DEERE DEALERSHIP AGREEMENTS - OTHER PROVISIONS. Under an agreement
with Deere, the Company cannot engage in discussions to acquire other Deere
dealerships without Deere's prior written consent, which Deere may withhold in
its sole discretion. In addition, Deere has the right to have input into the
selection of Company's management personnel, including managers of the Company's
Deere equipment stores, and to have input with respect to the selection of
nominees to the Company's Board of Directors and the removal of directors. The
prior consent of Deere is required for the opening of any Deere equipment store
within the Company's designated areas of responsibility and for the acquisition
of any other Deere dealership. In addition, without the consent of Deere, the
Company is prohibited from making acquisitions, initiating new business
activity, paying dividends, repurchasing its capital stock, or making any other
distributions to stockholders if the equity-to-assets ratio of the Company's
Deere dealerships is below 30%, as calculated by Deere under the agreement, or
if such ratio would fall below 30% as a result of such action. As of the end of
fiscal 2000, the Company has calculated the equity-to-assets ratio of the
Company's Deere dealerships to be 37%. In the event of Mr. Offutt's death, Deere
has the right to terminate the Company's dealer appointments upon the occurrence
of a "change of control."
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The Company's Deere dealer appointments are not exclusive. Deere
could appoint other dealers in close proximity to the Company's existing stores.
Deere can reduce the areas of responsibility assigned to the Company's
construction equipment dealerships upon 120 days prior written notice. In
addition, the dealer agreements can be amended at any time without the Company's
consent, so long as the same amendment is made to the dealer agreements of all
other Deere dealers. Deere also has the right to sell directly to federal, state
or local governments, as well as national accounts. To the extent Deere appoints
other dealers in the Company's markets, reduces the areas of responsibility
relating to the Company's construction equipment stores, or amends the dealer
agreements or directly sells substantial amounts of equipment to government
entities and national accounts, the Company's results of operations and
financial condition could be adversely affected
DEERE INDEMNIFICATION AGREEMENT. Some time after the Offering, Deere
advised the Company that it was requiring Deere dealerships to sign an
indemnification agreement before "going public". Deere also informed the Company
that it would not be willing to consider possible future acquisitions of Deere
dealerships by the Company unless and until the Company signed such an
agreement. After prolonged discussions and negotiations, the Company signed an
indemnification agreement in March 2000. In general, this agreement provides
that the Company will indemnify Deere (and its directors, officers, employees
and agents) from and against lawsuits and other proceedings commenced by
shareholders of the Company and by governmental agencies arising from (a) the
registration, listing, offer, sale, distribution or resale of any security of
the Company, (b) an untrue statement or omission, whether actual or alleged, in
connection with any security of the Company, or (c) an allegation that Deere is
a "controlling person" of the Company within the meaning of federal securities
laws. The Company will pay, or reimburse Deere for, any judgments, penalties,
expenses and other losses resulting from any such lawsuit or other proceeding.
The Company has no obligation to indemnify Deere with respect to any judgment
rendered against Deere as a result of Deere's own intentional or reckless
misconduct or as a result of an untrue written statement of fact signed by an
officer of Deere.
VOLVO AGREEMENTS. Pursuant to a framework arrangement with Volvo, the
Company is expanding its presence in Volvo's truck distribution system by
acquiring additional dealer locations as well as being awarded franchises for
locations where no Volvo dealer exists. This arrangement includes financing and
other assistance from Volvo to assist in acquiring, opening and operating Volvo
truck dealership locations. Financing from Volvo is repaid based upon the
performance of a dealership after the Company acquires or opens it.
Under its dealer agreements with Volvo, the Company is an authorized,
exclusive retail dealer of new Volvo trucks and parts in the territories around
its Volvo truck centers. The Company is required, among other things, to meet
sales, service and facilities criteria established by Volvo and to maintain
appropriate inventories of trucks and parts. The Company must also provide Volvo
with financial and planning documents on a regular basis and provide warranty
repairs on covered Volvo trucks. The Company is granted the right to use various
Volvo trademarks in the conduct of its business and the benefit of Volvo
materials and training.
Volvo dealer agreements generally provide for an initial term of up
to five years, and are extended annually. It is Volvo's stated objective that
dealer agreements continue in effect indefinitely so long as the Company
satisfies its obligations and meets its objectives. Volvo may terminate a dealer
agreement upon the occurrence of a material breach enumerated in the agreement
which are typical of dealership agreements generally. Volvo also can reduce or
change the scope of the territories associated with the Company's Volvo truck
dealerships.
11
<PAGE>
OTHER SUPPLIERS. The Company is an authorized dealer at various
stores for suppliers of other products. The terms of such arrangements vary, but
most of the dealership agreements contain termination provisions allowing the
supplier to terminate the agreement after a specified notice period (usually 180
days), upon a change of control, and in the event of Mr. Offutt's death.
INTELLECTUAL PROPERTY RIGHTS
RDO Equipment Co. is a registered service mark owned by the Company.
John Deere is a registered trademark of Deere & Company, the Company's use of
which is authorized under the Deere dealership agreements. Trademarks and
tradenames with respect to new equipment and trucks obtained from manufacturers
other than Deere are licensed from their respective owners. The Company
historically has operated each of its dealerships under either the RDO Equipment
Co. service mark and tradename or, for purposes of continuity at a particular
store if there was strong local name recognition and customer loyalty, the name
historically used by the dealership in that location. Each dealership store is
generally identified as an authorized dealer or representative of the
manufacturer or manufacturers of the equipment, trucks or other products sold at
the store, and may also display signs of other suppliers.
ENVIRONMENTAL AND GOVERNMENTAL REGULATIONS
The Company's operations are subject to numerous federal, state and
local rules and regulations, including laws and regulations designed to regulate
workplace health and safety, to protect the environment and to regulate the
discharge of materials into the environment, primarily relating to its service
operations. Based on current laws and regulations, the Company believes that it
is in compliance with such laws and regulations and that its policies, practices
and procedures are designed to prevent unreasonable risk of environmental damage
or violation of environmental laws and regulations and any resulting material
financial liability to the Company. The Company is not aware of any federal,
state or local laws or regulations that have been enacted or adopted, the
compliance with which would have a material adverse effect on the Company's
results of operations or would require the Company to make any material capital
expenditures. No assurance can be given that future changes in such laws or
regulations or changes in the nature of the Company's operations or the effects
of activities of prior occupants or activities at neighboring facilities will
not have an adverse impact on the Company's operations.
The Company's truck operations are subject to the National Traffic
and Motor Vehicle Safety Act, Federal Motor Vehicle Safety standards promulgated
by the U.S. Department of Transportation and various state motor vehicle
regulatory agencies. State and local laws and regulations require each truck
dealership to obtain licenses to operate as a dealer in heavy-duty vehicles. The
Company believes that its truck operations are in compliance with all federal,
state and local laws and regulations and that it has obtained all necessary
licenses and permits.
The Company's financial services operations are subject to laws and
regulations with respect to financing, commercial finance regulations that may
be similar to consumer finance regulations in some states, including those
governing interest rates and charges, maximum amounts and maturities of credit
and customer disclosure of transaction terms. The Company's insurance products
and services are subject to laws and regulations with respect to insurance,
licensing, insurance premiums, financing rates and insurance agencies. The
Company believes that it is in compliance with these laws and regulations.
12
<PAGE>
EMPLOYEES
As of January 31, 2000, the Company employed 1,602 full-time
employees. Of this number, 29 employees were located at the Company's corporate
offices and employed in corporate administration. The remaining employees were
involved in the Company's operations: 799 in construction operations, 371 in
truck operations, 340 in agriculture operations, 19 in rental operations and 44
in financing and related services. None of the Company's employees are covered
by a collective bargaining agreement.
CERTAIN IMPORTANT FACTORS
In addition to the matters discussed above, there are important
factors that could cause the Company's future results to differ materially from
those anticipated by the Company or which are reflected in any forward-looking
statement which may be made by or on behalf of the Company. Many of these
important factors are identified and discussed in greater detail in the
Company's Form 8-K dated April 21, 2000, and in other filings with the
Securities and Exchange Commission (the "SEC"). Some of these important factors
(but not necessarily all important factors) include the following:
a. General economic conditions worldwide and locally, including
agricultural industry cycles, construction spending, federal,
state and local government spending on highways and other
construction projects, housing starts, interest rates, fuel
prices, currency exchange rates, customer business cycles,
climatic phenomena such as La Nina and El Nino, and customer
confidence in the economy;
b. The length of the crop growing season, farm cash income, farmer
debt levels, adverse weather, animal and plant diseases, crop
pests, harvest yields, world grain stocks, commodity prices, real
estate values, government farm programs, and the confidence of
the Company's agricultural customers in the farm economy;
c. Changes in governmental regulations, and legislation primarily
relating to agriculture, the environment, commerce and government
spending on infrastructure;
d. The positions of Deere and other manufacturers with respect to
publicly traded dealers, dealer consolidations and specific
acquisition opportunities;
e. The overall success of Deere and the Company's other suppliers;
f. The manufacture and delivery of competitively-priced, high
quality equipment, trucks and parts by the Company's suppliers in
quantities sufficient to meet the requirements of the Company's
customers on a timely basis;
g. The incentive and discount programs provided by Deere and the
Company's other suppliers, and their promotional and marketing
efforts for the Company's products;
h. The introduction of new and innovative products by the Company's
suppliers;
i. Capital needs of the Company and the status of markets for equity
and debt financing;
j. The availability and terms of floor plan, customer and other
financing;
13
<PAGE>
k. Risks associated with growth, expansion and acquisitions,
including the management of growth;
l. Integration and successful operation of acquired businesses;
m. Financing arrangements relating to the Company's financial
services operations, including credit availability and customer
credit risks;
n. Availability, sufficiency and cost of insurance;
o. Operating and financial systems to manage rapidly growing
operations; and
p. Continued availability of key personnel.
ITEM 2. PROPERTIES.
As of the end of fiscal 2000, the Company owned the real estate for
eight of its stores, leased its executive offices, real estate for a potential
dealership site and 22 stores from an Offutt Entity (as defined in Item 4A
below) and leased three administrative offices and 26 stores from unrelated
third parties. Lease terms range from one to ten years and some leases include
an option to purchase the leased property. The Company believes that all of its
facilities are in good operating condition.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal, governmental, administrative or
other proceedings to which the Company is a party or of which any of its
property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
The executive officers of the Company, their ages and offices held
are as follows:
NAME AGE OFFICE
- ---- --- ------
Ronald D. Offutt 57 Chairman of the Board and Chief Executive
Officer
Paul T. Horn 57 President
Allan F. Knoll 56 Secretary
Gary L. Weihs 44 Chief Operating Officer
14
<PAGE>
Thomas K. Espel 41 Chief Financial Officer and Treasurer
Charles Calhoun 47 Executive Vice President - Global Sales
Steven B. Dewald 39 Senior Vice President - RDO Financial Services
Co.
Mark A. Doda 37 Senior Vice President and Controller
Kenneth J. Horner, Jr. 37 Executive Vice President - Construction
Equipment
Larry B. Kerkhoff 47 Executive Vice President - West Agriculture
Christi J. Offutt 31 Senior Vice President - Midwest Agriculture
- -----------------
RONALD D. OFFUTT is the Company's founder, Chairman, Chief Executive
Officer and principal stockholder. He has served as a member of the Company's
Office of the Chairman since December 1998, and served as President of the
Company from its formation in 1968 until August 1996. Mr. Offutt also serves as
Chief Executive Officer and Chairman of the Board of R.D. Offutt Company
("Offutt Co.") and other entities he owns, controls or manages (collectively,
the "Offutt Entities") which are engaged in a variety of businesses such as
farming, food processing, auto dealerships and agricultural financing
activities, some of which transact business with the Company. Mr. Offutt spent
approximately one-fourth of his time on business of the Company during fiscal
2000. He is Former Chairman of the Board of Regents of Concordia College of
Moorhead and is a graduate of Concordia College of Moorhead with a degree in
Economics. Mr. Offutt is the brother-in-law of Larry E. Scott, Senior Vice
President - Special Projects, and the father of Christi J. Offutt, Senior Vice
President - Midwest Agriculture.
PAUL T. HORN has served as a member of the Company's Office of the
Chairman since December 1998, as President of the Company since August 1996, and
as a director of the Company since 1986. Mr. Horn also served as Chief Operating
Officer of the Company from 1986 through 1999. Prior to October 1996, he was an
employee of Offutt Co. and spent approximately one-fourth of his time on the
business of the Company. Since such date, he has been an employee of the Company
and has spent substantially all of his time on the business of the Company. Mr.
Horn serves as a director and officer and is a beneficial stockholder of many of
the Offutt Entities. Mr. Horn currently serves as Vice Chairman of the Board of
Directors of Northern Grain Company, a regional grain elevator. Mr. Horn is a
graduate of Michigan State University with degrees in Business Administration
and Agronomy.
ALLAN F. KNOLL has served as a member of the Company's Office of the
Chairman since December 1998 and as Secretary and a director of the Company
since 1974. He served as Chief Financial Officer of the Company from 1974
through January 1999. Mr. Knoll also serves as Chief Financial Officer and
Secretary of Offutt Co., and serves as a director and officer and is a
beneficial stockholder of many of the Offutt Entities. Mr. Knoll spent
approximately one-third of his time on the business of the Company during fiscal
2000. Mr. Knoll is a graduate of Moorhead State University with degrees in
Business Administration and Accounting.
GARY L. WEIHS has served as Chief Operating Officer since January
2000. Prior to joining the Company, he served as Vice President/General Manager
of Industrial Products at Solutia Incorporated since September 1997. From 1994
to August 1997, Mr. Weihs was Director, Supply Chain - Crop Chemicals, The
Americas, for the Monsanto Agricultural Group. Before joining Monsanto, he
received an MBA degree from the Harvard Graduate School of Business
Administration. Prior to his MBA studies, he served in various management
positions with PepsiCo Inc. and Procter & Gamble Company. In addition to
15
<PAGE>
holding an MBA, Mr. Weihs is a graduate of Colorado School of Mines with a
bachelor's degree in mineral engineering.
THOMAS K. ESPEL has served as Chief Financial Officer since February
1999 and as Treasurer since March 2000. He previously served as Executive Vice
President - Finance from August 1998 until February 1999. Prior to joining the
Company, he served as manager of Ag Capital Company since its inception in 1989
and continues to serve as a member of its Board of Directors. Under his
direction, Ag Capital, an Offutt entity, grew to more than $450 million in
assets managed. RDO Financial Services Co., a subsidiary of the Company, was
formed from the retail credit activities of Ag Capital. From 1981 through 1988,
Mr. Espel held various lending positions at St. Paul Bank for Cooperatives, a $4
billion institution located in St. Paul, Minnesota. He has a bachelor's degree
from the University of Illinois and a master's degree from Michigan State
University, both in Agricultural Economics - Finance.
CHARLES CALHOUN served as Executive Vice President - Used Equipment
Division from December 1998 until April 2000 when he was appointed Executive
Vice President - Global Sales. He previously served as Senior Vice President -
Used Construction Equipment Division since March 1997. Prior to joining the
Company, he was Vice President and an owner of the construction dealership in
Texas that was acquired by the Company in July 1996. Subsequent to this
acquisition and prior to his appointment as Senior Vice President, Mr. Calhoun
managed the acquired Texas construction dealership and started the Used
Construction Equipment Division. He has over 20 years of experience in the
construction equipment business, and is a graduate of Texas Tech University with
a degree in Marketing.
STEVEN B. DEWALD has served as Senior Vice President - RDO Financial
Services Co. since December 1997. From September 1996 through November 1997, he
served as Director of Finance of Ag Capital Company, an Offutt Entity. Prior to
joining Ag Capital, from February 1995 to August 1996, Mr. Dewald managed
personal investments, including real estate development and fast food
restaurants. From 1989 until February 1995, he held increasingly responsible
positions as a financial officer of Metropolitan Financial Corporation, a
regional thrift holding company acquired in 1995 by U.S. Bancorp (formerly First
Bank System, Inc.) at which time he was serving as Executive Vice President and
Chief Financial Officer. Mr. Dewald worked for Ernst & Young from 1983 to 1989.
He is a graduate of Concordia College of Moorhead with a degree in Accounting
and Healthcare Finance.
MARK A. DODA has served as Senior Vice President and Controller since
December 1998. He previously served as Controller since September 1992. Prior to
joining the Company, Mr. Doda served as a division controller for Graco, Inc., a
manufacturer of fluid handling systems, from January 1992 to September 1992.
From 1985 through 1991, Mr. Doda worked for Deloitte & Touche LLP. Mr. Doda is a
graduate of the University of North Dakota with a degree in Accounting.
KENNETH J. HORNER, JR. has served as Executive Vice President -
Construction Equipment since June 1999. He previously served as Vice President -
Business Practices from July 1998 until June 1999. Prior to joining the Company,
Mr. Horner was Vice President and General Counsel for Prairieland Foods
Corporation, a restaurant management company, and Executive Vice President of
CrossCountry Courier, Inc., a regional freight carrier. He is a graduate of
University of Mary with a degree in accounting, and received his law degree from
the University of North Dakota.
LARRY B. KERKHOFF has served as Executive Vice President - West
Agriculture since June 1999. He previously served as Senior Vice President -
Midwest Agriculture since 1996. From 1990 until 1996, he was manager of the
Company's agricultural equipment store in Breckenridge, Minnesota. Prior to
joining the Company, Mr. Kerkhoff was with Kibble Equipment, a Deere
agricultural dealership in Montevideo, Minnesota. He has over 20 years of
experience in agri-business. Mr. Kerkhoff is a graduate of Mankato Area
Vocational Institute - Diesel Mechanics Program and Mankato State University
with a degree in Business Administration.
CHRISTI J. OFFUTT has served as Senior Vice President - Midwest
Agriculture since June 1999. She previously served as Vice President - Strategic
Planning from December 1998 until June 1999, and as Legal Counsel of Offutt Co.
from January 1997 until December 1998. Ms. Offutt is a graduate of University of
Puget Sound with degrees in politics and government and in business
administration, and
16
<PAGE>
received her law degree in May 1996 from Boston University. She is the daughter
of Ronald D. Offutt, Chairman and Chief Executive Officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The information under the captions "Common Stock Information" and
"Dividend Policy" on page 38 of the Annual Report is incorporated herein by
reference. The Company did not have any unregistered sales of equity securities
during fiscal 2000.
ITEM 6. SELECTED FINANCIAL DATA.
The information under the caption "Selected Financial Data" on page
17 of the Annual Report is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 18 through
23 of the Annual Report is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates.
Market risk is the potential loss arising from adverse changes in market rates
and prices such as interest rates. For fixed rate debt, interest rate changes
affect the fair value of financial instruments but do not impact earnings or
cash flows. Conversely for floating rate debt, interest rate changes generally
do not affect the fair market value but do impact future earnings and cash
flows, assuming other factors are held constant. A one percentage point increase
in interest rates would result in a net increase to the unrealized fair market
value of the fixed rate debt by approximately $6,000. At January 31, 2000, the
Company had variable rate floor plan payables, notes payable and long term debt
of $180.8 million and fixed rate notes payable and long term debt of $840,000.
Holding other variables constant, the pre-tax earnings and cash flow impact for
the next year resulting from a one percentage point increase in interest rates
would be approximately $1.8 million.
The Company's policy is not to enter into derivatives or other
financial instruments for trading or speculative purposes. Consistent with this
policy, the Company's finance subsidiary RDO Financial Services Co. originates
fixed rate loan and fixed payment leases. On a daily basis, these loans and
leases are sold, thus eliminating interest risk.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Consolidated Financial Statements and the report of its
independent public accountants, Arthur Andersen LLP, on pages 24 through 37 of
the Annual Report are incorporated herein by reference and are listed in Item
14(a)(1) on page 19 of this Form 10-K. The supplementary data required by this
Item 8 appear as Note 15 entitled "Unaudited Quarterly Financial Data" on page
36 of the Annual Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information regarding directors under the captions "Election of
Directors--Information About Nominees" and "Election of Directors--Other
Information about Nominees" in the Proxy Statement is incorporated herein by
reference. Information regarding executive officers is presented in Part I of
this Form 10-K as Item 4A.
The information under the caption "Beneficial Ownership of Management
- - Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy
Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information under the captions "Election of
Directors--Compensation of Directors" and "Executive Compensation and Other
Benefits" in the Proxy Statement is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Principal Stockholders" and
"Beneficial Ownership of Management" in the Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Election of Directors - Certain
Relationships and Related Transactions" in the Proxy Statement is incorporated
herein by reference.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) FINANCIAL STATEMENTS.
The following are incorporated herein by reference from the
pages indicated in the Annual Report, copies of which are included
as Exhibit 13.1 to this Form 10-K:
Report of Independent Public Accountants--Arthur Andersen
LLP--page 37.
Consolidated Statements of Operations for the Years Ended
January 31, 2000, 1999 and 1998--page 24.
Consolidated Balance Sheets as of January 31, 2000 and
1999--page 25.
Consolidated Statements of Stockholders' Equity for the
Years Ended January 31, 2000, 1999 and 1998--page 26.
Consolidated Statements of Cash Flows for the Years Ended
January 31, 2000, 1999 and 1998--page 27.
Notes to Consolidated Financial Statements--pages 28 to 36.
(a)(2) FINANCIAL STATEMENT SCHEDULES.
Schedule II, Valuation and Qualifying Accounts for the Year
Ended January 31, 2000, is included in this Form 10-K at page 21,
including Report of Independent Public Accountants.
All other financial statement schedules are omitted because
of the absence of the conditions under which they are required or
because the information required is included in the consolidated
financial statements or notes thereto.
(a)(3) EXHIBITS.
--------
The exhibits to this Form 10-K are listed in the Exhibit
Index on pages 22 and 23 below. Copies of these exhibits are
available upon request to RDO Equipment Co., Stockholder Relations,
P. O. Box 7160, Fargo, North Dakota 58106-7160 or to
[email protected].
(b) REPORTS ON FORM 8-K.
None.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 21, 2000
RDO EQUIPMENT CO.
By: /s/ Ronald D. Offutt
-------------------------------------
Ronald D. Offutt
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on April 21, 2000 by the following persons on
behalf of the registrant and in the capacities indicated.
Signature Title
- --------- -----
/s/ Ronald D. Offutt Chairman of the Board, Chief Executive
- ----------------------------------- Officer and Director (principal executive
Ronald D. Offutt officer)
/s/ Thomas K. Espel Chief Financial Officer and Treasurer
- ----------------------------------- (principal financial officer)
Thomas K. Espel
/s/ Mark A. Doda Senior Vice President and Controller
- ----------------------------------- (principal accounting officer)
Mark A. Doda
/s/ Paul T. Horn President and Director
- -----------------------------------
Paul T. Horn
/s/ Allan F. Knoll Secretary and Director
- -----------------------------------
Allan F. Knoll
/s/ Bradford M. Freeman Director
- -----------------------------------
Bradford M. Freeman
/s/ Ray A. Goldberg Director
- -----------------------------------
Ray A. Goldberg
/s/ Norman M. Jones Director
- -----------------------------------
Norman M. Jones
/s/ James D. Watkins Director
- -----------------------------------
James D. Watkins
20
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEAR ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
Balance at Additions Balance at
Beginning Charged to Costs End of
of Period and Expenses Deductions(1) Period
----------- ---------------- ------------- ----------
<S> <C> <C> <C> <C>
Accrued Liabilities:
Restructuring Reserve........ $285,000 -- $285,000 --
</TABLE>
- -------------------------
(1) Utilization of previously recorded balances.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To RDO Equipment Co:
We have audited, in accordance with auditing standards generally accepted in the
United States, the financial statements included in RDO Equipment Co. and
Subsidiaries' Annual Report on Shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated March 10, 2000. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in Item 14(a)(2) is the responsibility of the
Company's management, is presented for purposes of complying with Securities and
Exchange Commission's rules and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 10, 2000
21
<PAGE>
EXHIBIT INDEX FOR FISCAL YEAR ENDED JANUARY 31, 2000
<TABLE>
<CAPTION>
ITEM NO. ITEM METHOD OF FILING
- -------- ---- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation Incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
3.2 Bylaws Incorporated by reference to Exhibit 3.2 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
4.1 Specimen Form of the Company's Class A Common Incorporated by reference to Exhibit 4.2 to the
Stock Certificate Company's Registration Statement on Form S-1
(File No. 333-13267).
4.2 Specimen Form of the Company's Class B Common Incorporated by reference to Exhibit 4.3 to the
Stock Certificate Company's Registration Statement on Form S-1
(File No. 333-13267).
10.1 Agreement between Ronald D. Offutt, RDO Incorporated by reference to Exhibit 10.1 to the
Equipment Co., John Deere Company and John Company's Registration Statement on Form S-1
Deere Construction Equipment Co. (File No. 333-13267).
10.2 Form of Deere Agricultural Dealer Agreement Incorporated by reference to Exhibit 10.2 to the
Package Company's Registration Statement on Form S-1
(File No. 333-13267).
10.3 Form of Deere Construction Dealer Agreement Incorporated by reference to Exhibit 10.3 to the
Package Company's Registration Statement on Form S-1
(File No. 333-13267).
10.4 Deere Agricultural Dealer Finance Agreement Incorporated by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.5 Deere Construction Dealer Finance Agreement Incorporated by reference to Exhibit 10.7 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.6 Agreement between RDO Equipment Co., John Deere Incorporated by reference to Exhibit 10.15 to the
Company and John Deere Construction Equipment Company's Registration Statement on Form S-1
Company (File No. 333-13267).
10.7 Corporate Service Agreement between RDO Incorporated by reference to Exhibit 10.10 to the
Equipment Co. and R.D. Offutt Company, dated as Company's Registration Statement on Form S-1
of November 1, 1996 (File No. 333-13267).
10.8 Tax Agreement Relating to S Corporation Incorporated by reference to Exhibit 10.14 to the
Distribution, with Supplement Company's Registration Statement on Form S-1
(File No. 333-13267).
</TABLE>
22
<PAGE>
<TABLE>
<S> <C> <C>
10.9 RDO Equipment Co. 1996 Stock Incentive Plan, Incorporated by reference to Exhibit 10.8 to the
including forms of option agreements* Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1997.
10.10 Form of Agreement re: Confidentiality, Assignment Incorporated by reference to Exhibit 10.15 to the
of Inventions and Non-Competition* Company's Annual Report on Form 10-K for the
fiscal year ended January 31, 1997.
10.11 Form of Indemnification Agreement* Incorporated by reference to Exhibit 10.9 to the
Company's Registration Statement on Form S-1
(File No. 333-13267).
10.12 Credit Agreement between RDO Equipment Co. and Incorporated by reference to Exhibit 10.1 to the
Ag Capital Company Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended April 30, 1999.
10.13 Credit Agreement between RDO Material Handling Incorporated by reference to Exhibit 10.2 to the
Co. and Ag Capital Company Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 1999.
10.14 Credit Agreement between RDO Financial Services Incorporated by reference to Exhibit 10.1 to the
Co. and Norwest Bank North Dakota, N.A. and Ag Company's Quarterly Report on Form 10-Q for the
Capital Company fiscal quarter ended July 31, 1999.
10.15 Promissory Note between RDO Financial Services Incorporated by reference to Exhibit 10.2 to the
Co. and Ag Capital Company Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended July 31, 1999.
10.16 Indemnification Agreement between RDO Equipment Filed herewith.
Co. and Deere & Company
10.17 Form of Deere Construction Equipment Dealer Filed herewith.
Agreement for Special Products
10.18 Modifications of Credit Agreement between RDO Filed herewith.
Financial Services Co. and Norwest Bank North
Dakota, N.A. and Ag Capital Company
13.1 Excerpts from Annual Report Filed herewith.
21.1 Subsidiaries Filed herewith.
23.1 Consent of Independent Public Accountants Filed herewith.
27.1 Financial Data Schedule Filed herewith.
</TABLE>
- --------------------------------
* Management contract or compensatory plan or arrangement filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
23
EXHIBIT 10.16
INDEMNIFICATION AGREEMENT
INDEMNIFICATION AGREEMENT ("Agreement"), made this 6th day of March,
2000 between RDO Equipment Co. ("Indemnitor") and Deere & Company ("Deere").
WHEREAS, Indemnitor is a Deere dealer; and
WHEREAS, in January 1997 Indemnitor completed its initial public
offering of its Class A Common Stock; and
WHEREAS, Deere is willing to consider Indemnitor's possible future
acquisitions of John Deere dealerships or distributors on certain conditions,
including a condition that Deere and certain others be indemnified as set forth
herein; and
WHEREAS, Indemnitor is willing to provide such indemnity as provided
herein;
NOW, THEREFORE, in consideration of the promises made herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereby agree as follows:
1. INDEMNITY
Indemnitor hereby agrees to indemnify and hold harmless Deere, its subsidiary
and affiliated corporations, and their respective directors, officers, employees
and agents (collectively, "Indemnitees") from and against any and all losses,
liabilities, judgments, penalties, amounts paid in settlement, claims, damages
and expenses whatsoever, including but not limited to any and all reasonable
expenses whatsoever (excluding the time and costs of Indemnitee employees and
other internal costs of Indemnitees) incurred in investigating, preparing or
defending against any litigation or any investigation or proceeding by any
governmental body or agency, whether commenced or threatened, to which an
Indemnitee may become subject under the Securities Act of 1933 as amended (the
"Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
the securities laws of any state, any other statute, or at common law or
otherwise, or under the laws of any foreign country, arising in connection with,
arising out of, or resulting from:
<PAGE>
(a) the registration, listing, offer, sale, distribution or resale
of any Indemnitor security,
(b) an untrue statement or omission, whether actual or alleged, in
connection with any Indemnitor security, or
(c) an allegation that an Indemnitee is a "controlling person" of
Indemnitor within the meaning of the Act or the Exchange Act.
The foregoing are hereafter referred to as "Losses." The indemnity provided for
herein shall be enforceable without regard to the negligence of the Indemnitee;
provided that Indemnitor shall have no obligation to defend or indemnify
hereunder with respect to a particular Loss if and to the limited extent such
Loss results directly from an untrue statement or omission by Indemnitor based
upon, and in reasonable reliance upon, a written statement of fact (not
prediction or opinion) directed to Indemnitor and signed by an officer of Deere
or one of Deere's equipment divisions, but only if such statement was false when
so signed.
In the event that the foregoing indemnity is unavailable to an Indemnitee other
than in accordance with this Agreement, the Indemnitor shall contribute to the
Losses paid or payable by such Indemnitee in such proportion as is appropriate
to reflect (i) the relative benefits to the Indemnitor, on the one hand, and to
the Indemnitee, on the other hand, of the matters contemplated by this Agreement
or (ii) if the allocation provided by the immediately preceding clause is not
permitted by applicable law, not only such relative benefits but also the
relative fault of the Indemnitor, on the one hand, and the Indemnitee, on the
other hand, in connection with the matters as to which such Losses relate, as
well as any other relevant equitable considerations.
2. NOTIFICATION AND DEFENSE OF CLAIM
(a) If any litigation is commenced against an Indemnitee in
respect of which indemnity may be sought pursuant to this
Agreement, Deere shall promptly notify Indemnitor in writing
of the commencement of litigation, and Indemnitor shall then
assume the defense of such litigation, including but not
limited to the employment and fees of counsel (reasonably
satisfactory to Deere) and the payment of all expenses of the
litigation.
2
<PAGE>
If, with respect to litigation commenced against one or more
Indemnitees for the recovery of damages and defended by
Indemnitor pursuant hereto, a court or arbitrator (in binding
arbitration) of competent jurisdiction finally (including all
rights of appeal) determines that an Indemnitee is liable to
the claimant for such damages as a result of that Indemnitee's
own intentional or reckless misconduct, then Indemnitor shall
have no obligation hereunder to indemnify the Indemnitees with
respect to any judgement rendered against the Indemnitees in
such litigation, and Deere shall promptly reimburse Indemnitor
for the reasonable expenses Indemnitor actually incurred
(excluding the time and costs of Indemnitor employees and
other internal costs of Indemnitor) in defending the
Indemnitee(s) in such litigation.
(b) Deere shall have the right to employ its own counsel, at its
own expense, in connection with any claim, litigation,
investigation, or proceeding covered by Section 1 to oversee
the matter on behalf of Deere, to consult with the attorneys
engaged by Indemnitor as to the proper handling of the matter
and to take such actions in connection with the matter as are
reasonably necessary to protect Deere's interests. Employment
of such counsel by Deere shall not affect Indemnitor's duty
hereunder to defend the matter, at Indemnitor's own expense,
on behalf of the Indemnitees.
(c) Indemnitor shall promptly notify Deere of the commencement of
any litigation covered by Section 1. Indemnitor and Deere
agree to cooperate with each other in the defense of any such
litigation. Indemnitor shall not be obligated to indemnify, or
provide further defense for, an Indemnitee other than Deere
who does not cooperate with Indemnitor, Deere, and their
respective counsel as may be reasonably requested in the
defense of any such litigation provided such failure to
cooperate presents a real and substantial risk to the
interests of Indemnitor or an Indemnitee in connection with
the litigation. The preceding sentence shall not relieve
Indemnitor of any obligation hereunder unless the failure to
cooperate involved continues after both Deere and the
non-cooperating Indemnitee receive written notice of, and a
reasonable opportunity to cure, the failure to cooperate.
3
<PAGE>
(d) Indemnitor shall not be obligated to indemnify an Indemnitee
under this Agreement for any amounts paid by the Indemnitee in
settlement of any claim or litigation covered by Section 1 if
such settlement is effected by the Indemnitee without
Indemnitor's prior written consent. Indemnitor shall not, in
the defense of any claim, litigation, investigation or
proceeding covered by Section 1, except with Deere's prior
written consent, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional
term thereof a release of all the Indemnitiees from all
liability in respect to such matter.
3. ENFORCEMENT
(a) Indemnitor expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it
hereunder in order to induce Deere to consider Indemnitor as a
candidate for future dealerships or distributorships.
Indemnitor acknowledges that Deere is relying upon this
Agreement, and other promises.
(b) In the event an Indemnitee is required to bring any action to
enforce rights or to collect moneys due under this Agreement
and is successful in such action, Indemnitor shall reimburse
such Indemnitee for all of such Indemnitee's reasonable fees
and expenses in bringing and pursuing such action (excluding
the time and costs of Indemnitee employees and other internal
costs of Indemnitees); provided that if the Indemnitee is not
successful in such action, the Indemnitee shall reimburse
Indemnitor for all of Indemnitor's reasonable fees and
expenses incurred in defending such action (excluding the time
and costs of Indemnitor employees and other internal costs of
Indemnitor).
4. MISCELLANEOUS
(a) The obligations of Indemnitor under this Agreement shall be in
addition to any liability that Indemnitor may otherwise have
and shall extend, upon
4
<PAGE>
the same terms and conditions, to each person, if any, who
controls and Indemnitee within the meaning of Section 15 of
the Act.
(b) This Agreement shall be binding upon and inure to the benefit
of Indemnitor and the Indemnitees and their respective legal
representatives, successors and assigns. This Agreement shall
not be assignable by Indemnitor without Deere's prior written
consent.
(c) This Agreement shall be enforceable regardless of whether
Indemnitor acquires any additional John Deere dealerships or
distributorships.
(d) No amendment, modification or termination of this Agreement
shall be effective unless in writing and signed by both
Indemnitor and Deere.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
RDO Equipment Co.
By: /s/ Paul T. Horn
Title: President
Deere & Company
By: /s/ Robert W. Porter
Title: Sr. V.P .N.A. Marketing
5
EXHIBIT 10.17
JOHN DEERE CONSTRUCTION
EQUIPMENT COMPANY
SPECIAL PRODUCTS
DEALER AGREEMENT
<PAGE>
JOHN DEERE
CONSTRUCTION EQUIPMENT COMPANY
SPECIAL PRODUCTS
DEALER AGREEMENT
The Dealer identified below hereby applies to JDCEC for appointment as an
authorized dealer for certain JDCEC special products for the area of
responsibility designated in Exhibit 1. The relationship between Dealer and
JDCEC will be governed by the Terms of Appointment set forth in this Agreement.
This Agreement shall be effective upon execution by JDCEC.
Dealer (Firm Name): ___________________________________________________________
Address: _____________________________________________________________________
__ Corporation __ Partnership
__ C __ General
__ S __ Limited
__ Limited Liability Company __ Proprietorship
__ Other: ____________________________________
By: __________________________________________
Title: _______________________________________
(Authorized officer, owner, or partner)
Date: _____________________
Signatures of Other Partners, Owners, or Shareholders:
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
Signatures of Guarantors:
____________________________________ ____________________________________
____________________________________ ____________________________________
____________________________________ ____________________________________
Accepted:
John Deere Construction Equipment Company
Moline, IL 61265
By: ________________________________________
Title: _____________________________________
Date: _____________________
<PAGE>
DEFINED TERMS
For purposes of this Agreement, the following terms shall be defined as follows:
Agreement This agreement.
Conditions of Sale JDCEC's published U.S. Special Products
Dealer Conditions of Sale, as in effect from
time to time.
Customer Satisfaction The extent to which Dealer fulfills the
needs and expectations of customers in
Dealer's Special Products AOR. JDCEC will
specify the method used to measure Customer
Satisfaction in bulletins issued from time
to time to Special Products Dealers.
Dealer The dealer identified in this Agreement.
Dealer's Special Products AOR The area of responsibility assigned to
Dealer under this Agreement.
Dispute Any dispute, controversy, or claim between
Dealer or any of Dealer's owners, partners,
shareholders, or guarantors and JDCEC, Deere
Credit, Inc., or ERS, whether based on
contract, tort, statute, or other legal
theory.
Equity The Dealer's equity to assets percentage,
determined by JDCEC based on the Terms
Schedule.
Equity Performance Standard The equity to assets percentage Performance
Standard specified by JDCEC in bulletins
issued from time to time to Special Products
Dealers.
ERS Equipment Remarketing Services, a division
of Deere Marketing Services, Inc.
Goods Whole Goods and Parts, as well as those JDM
products that JDCEC may offer for sale to
Dealer.
JDCEC John Deere Construction Equipment Company.
JDCEC Warranties The JDCEC warranties applicable to the sale
or to the lease or rental of various types
of Goods.
JDCEC's Affiliates Deere & Company, its divisions, and its
subsidiaries, whether direct or indirect.
JDM John Deere Merchandise.
John Deere Network The network of computers, communications
equipment, computer networking equipment,
computer software, application software, and
data used by JDCEC for the purpose of
gathering and communicating information and
conducting business.
Key Persons The persons and entities listed in
Exhibit 4.
Manual JDCEC's published Special Products Service
Administration Manual, as in effect from
time to time.
Market Share The market penetration achieved for Goods,
or a subset thereof, in Dealer's Special
Products AOR during a specified time period.
JDCEC will specify the method used to
measure Market Share in bulletins issued
from time to time to Special Products
Dealers.
Defined Terms/1
<PAGE>
Meaningful Progress A level of performance for each Performance
Criterion for the period covered by the
Dealer's annual JDCEC-approved business
plan, which shall be as agreed upon between
Dealer and JDCEC each year. If in any year
Dealer and JDCEC do not reach agreement upon
Meaningful Progress with respect to a
particular Performance Criterion, JDCEC will
determine in its sole discretion what will
constitute Meaningful Progress for that
Performance Criterion for the year.
Minimum Equity Level The minimum equity to assets percentage
level specified by JDCEC in bulletins issued
from time to time to Special Products
Dealers.
Parts (1) the products indicated by a check mark
in Section B of Exhibit 2 and (2)
attachments and parts available from JDCEC
for the Whole Goods.
Performance Criteria Market Share, Customer Satisfaction, and
Equity, as well as other criteria specified
by JDCEC in bulletins issued from time to
time to Special Products Dealers.
Performance Standard A level of performance (for a particular
Performance Criterion) specified by JDCEC in
bulletins issued from time to time to
Special Products Dealers.
Service Information System JDCEC's Service Information (or successor)
System.
Special Products Products distributed by JDCEC and designated
by JDCEC as "Special Products."
Special Products AOR An area of responsibility assigned by JDCEC
to a Special Products Dealer.
Special Products Dealer An authorized dealer of one or more Special
Products pursuant to a Special Products
Dealer Agreement with JDCEC.
Terms Schedule JDCEC's published U.S. Special Products
Dealer Terms Schedule, as in effect from
time to time.
Trademarks Those trademarks owned by JDCEC or any of
JDCEC's Affiliates.
Used Goods Whole Goods that do not have JDCEC Standard
Warranty remaining.
Whole Goods (1) the products indicated by a check mark
in Section A of Exhibit 2, (2) their
predecessors, and (3) their JDCEC-designated
successors or added by addendum signed by
Dealer and an authorized person from JDCEC
Defined Terms/2
<PAGE>
TERMS OF APPOINTMENT
1. PROVISIONS OF APPOINTMENT
During the period of Dealer's appointment hereunder, the following
provisions shall apply:
a) Dealer's Special Products AOR
i) Dealer is assigned Dealer's Special Products AOR for the
purpose of marketing, servicing, and supporting Goods.
Dealer's Special Products AOR is not an exclusive territory.
JDCEC and others may market, service, and support Goods in
Dealer's Special Products AOR. Without limiting the foregoing,
JDCEC may sell, loan, lease, or rent Goods, without
restriction or limitation, to any person or entity, including
without limitation:
a) federal, state, and local governments;
b) accounts classified by JDCEC as direct or national
accounts;
c) purchasers for export;
d) educational institutions;
e) competitors of JDCEC;
f) equipment manufacturers; and
g) employees of JDCEC.
ii) JDCEC may assign all or any portion of Dealer's Special
Products AOR to other persons or entities for the purpose of
marketing, servicing, and supporting products other than
Goods, including without limitation products listed but not
included by a check mark in Exhibit 2. Such an assignment may
include Parts and JDM products.
iii) Dealer will concentrate its efforts in Dealer's Special
Products AOR.
iv) JDCEC shall have no obligation to support, through its
programs or other forms of dealer support, activities of
Dealer outside Dealer's Special Products AOR, and JDCEC may
exclude activities of Dealer outside Dealer's Special Products
AOR from JDCEC's programs and other forms of dealer support.
v) Whenever a sale, lease, or rental of Whole Goods by Dealer is
subject to JDCEC's service fee policy, as in effect from time
to time, Dealer will pay a service fee in accordance with the
terms of JDCEC's service fee bulletin in effect when the sale,
lease, or rental occurs.
b) Locations; Other Product Lines
i) Dealer will maintain dealership operations at each location
listed in Exhibit 3 for the purposes specified in Exhibit 3.
Dealer will not open any new location, relocate or discontinue
a location, or change the purposes of a location without
obtaining JDCEC's prior written approval. Dealer will not,
either directly or indirectly, establish, maintain, or operate
at any other location a place of business of any kind where
(or from which) any Goods are displayed, sold, leased, rented,
or serviced.
ii) Dealer will not sell, lease, or rent parts or whole goods that
compete with any of the Goods. Dealer will separate, in a
manner acceptable to JDCEC, other business activities and/or
products from Dealer's JDCEC dealership operations if, in
JDCEC's sole discretion, such activities and/or product lines
are likely to detract from Dealer's representation of JDCEC's
products.
Terms of Appointment/1
<PAGE>
iii) To ensure compliance with this Section 1.b.,Dealer will permit
JDCEC to inspect during normal business hours, all locations
of Dealer engaged in the sale, lese, rental, or servicing of
equipment or vehicles (or parts for equipment or vehicles), or
in a related business.
c) Dealer's Business Plans and Promotional Efforts; Achievement of
Meaningful Progress and the Performance Standards
i) Each year, by the date specified by JDCEC, Dealer will secure
JDCEC's approval of a business plan containing:
a) an objective for each Performance Criterion that
represents Meaningful Progress for the Performance
Criterion;
b) action plans designed to achieve the Performance
Criteria objectives specified in the plan;
c) with respect to particular types of Goods, such other
elements as JDCEC may request generally of Special
Products Dealers authorized by JDCEC to market such
Goods; and
d) such other elements as JDCEC may request generally of
Special Products Dealers.
e) Dealer may base its business plan on the calendar year
or on its fiscal year.
ii) Dealer will actively and aggressively promote the sale, lease,
and rental of Goods. Dealer's compliance with this commitment
will be evaluated based on performance in Dealer's Special
Products AOR and not on performance outside Dealer's Special
Products AOR.
Dealer will maintain:
a) highly qualified management, sales, parts, and service
personnel;
b) sales, parts, service, and personnel development
programs;
c) inventories of Whole Goods and related attachments
available for demonstration, sale, lease, and rental;
d) inventories of Parts, service equipment, field service
vehicles, and tools; and
e) facilities
that in each case are sufficient to achieve the
Performance Criteria objectives contained in Dealer's
JDCEC-approved business plans and, within a reasonable
period of time, performance at or above the Performance
Standards.
iii) Dealer will achieve Meaningful Progress with respect to each
Performance Criterion in each fiscal or calendar year
(whichever is used as the basis for Dealer's JDCEC-approved
business plans). Dealer's compliance with this commitment will
be evaluated based on performance in Dealer's Special Products
AOR and not on performance outside Dealer's Special Products
AOR.
d) Preparation of Goods, Warranty, and Post-Delivery Service
i) The Manual and/or bulletins issued from time to time by JDCEC
designate the JDCEC Warranties. Dealer will follow
instructions contained in the Manual and JDCEC's bulletins and
will complete with true and accurate information the retail
purchase orders, delivery receipts, lease agreements, and
other forms specified therein. Dealer will be solely
responsible for any warranties given by Dealer that exceed the
applicable JDCEC Warranty, if any, and for any liability where
Dealer has failed to use the forms prescribed by JDCEC as
specified by JDCEC.
ii) To ensure proper operation of Goods, Dealer will properly
assemble and prepare all Goods sold, leased, or rented by
Dealer and will perform such inspections, adjustments, and
service prior to delivery to users as are required in the
Manual. Dealer will instruct users in the proper use and
maintenance of Goods and will furnish each user with the
appropriate operator's manuals furnished by JDCEC. Dealer will
perform post-delivery inspections and adjustments prescribed
for Goods in the Manual
Terms of Appointment/2
<PAGE>
iii) Dealer is authorized to and will perform prompt and effective
warranty service on Goods in Dealer's Special Products AOR for
which JDCEC becomes obligated pursuant to a JDCEC Warranty,
including without limitation Goods not sold, leased, or rented
by Dealer, if presented with proper evidence that the Goods
are entitled to warranty service under a JDCEC Warranty.
Dealer will perform prompt and effective non-warranty service
on Goods in Dealer's Special Products AOR, including without
limitation Goods not sold, leased, or rented by Dealer.
iv) Dealer will perform product improvement programs that JDCEC
may from time to time require for Goods in Dealer's Special
Products AOR, including without limitation Goods not sold,
leased, or rented by Dealer. Dealer will complete such
programs expeditiously and within the time frame specified by
JDCEC.
v) Should any Goods sold, leased, or rented by Dealer require
warranty service, non-warranty service, or product improvement
at a time when such Goods are not within the Special Products
AOR of a Special Products Dealer authorized by JDCEC to market
such Goods, Dealer is authorized to and will perform the
required service or product improvement.
vi) Dealer will perform warranty service and product improvement
programs in the manner and for the compensation specified in
the Manual in effect at the time the service or program is
performed. Dealer will notify JDCEC of all warranty and
product improvement program claims in accordance with the
Manual.
e) Sales to Re-sellers
Dealer will not sell Goods to any person or entity that re-sells or
intends to re-sell such Goods, provided, however, that this Section
1.e. shall not prevent Dealer from:
i) selling Parts to a person or entity in Dealer's Special
Products AOR that uses such Parts in providing repair or
maintenance services in Dealer's Special Products AOR for
products owned by others;
ii) selling Used Goods to a person or entity engaged in the
business of selling used equipment;
iii) selling Goods to ERS;
iv) selling Goods to a Special Products Dealer authorized by JDCEC
to market such Goods; or
v) selling Goods to a person or entity that is primarily engaged
in the business of renting equipment to end-users.
f) Equity
Dealer will maintain its Equity at a level sufficient to achieve
Dealer's commitments under this Agreement, which shall be not less
than the Minimum Equity Level.
g) JDCEC's Acceptance of Orders
JDCEC will accept orders placed by Dealer for Goods in JDCEC's
then-current product line, provided the Goods will be shipped during
the period of Dealer's appointment hereunder. JDCEC shall have no
liability for delay, failure, or refusal to accept Dealer's orders
or to ship Goods to Dealer if the delay, failure, or refusal results
from:
i) capacity constraints, demand in excess of available supply,
labor strikes or lockouts;
ii) a default under a security agreement between Dealer and JDCEC;
iii) termination of Dealer's appointment;
iv) any cause beyond JDCEC's control; or
v) JDCEC's determination, in its sole discretion, that
a) Dealer's financial condition does not justify the
extension of additional credit or the addition of
inventory
Terms of Appointment/3
<PAGE>
b) Limitations in Dealer's market potential, marketing
capabilities, or product support capabilities for the
particular Goods involved are likely to lead to customer
dissatisfaction with the Goods or excessive warranty
expense.
c) Dealer has consistently failed to perform its obligation
under this Agreement; or
d) Dealer has failed to make timely submission of
legitimate forecasts of Dealer's anticipated inventory
needs and retail sales when requested by JDCEC.
All orders, sales, and shipments will be governed by the Conditions
of Sale in effect at the time the order is placed.
h) Availability of JDCEC Programs
i) With respect to particular types of Goods, JDCEC will make
available to Dealer finance plans, lease plans, floor plans,
and parts return programs (and other similar financing or
inventory management plans or programs) comparable to such
plans and programs that JDCEC makes available generally to
Special Products Dealers authorized by JDCEC to market such
Goods. Such plans and programs may contain conditions for
eligibility and are subject to credit approval. Such plans and
programs also may have varying terms depending on certain
dealer financial or performance criteria or market conditions.
ii) JDCEC may make available to any Special Products Dealer
marketing programs that JDCEC deems necessary to compete in
the Special Products AOR assigned to that Special Products
Dealer without obligating JDCEC to make similar programs
available to any other Special Products Dealer or to Special
Products Dealers generally.
i) Changes in Dealer Ownership or Business Structure
i) No change in the ownership or business structure of Dealer or
any Key Person will occur unless JDCEC has given prior written
approval of such change.
ii) Dealer will execute such agreements and documents as JDCEC may
deem necessary to preserve JDCEC's rights under this Agreement
or any other agreement between Dealer and JDCEC in light of a
change or proposed change in Dealer's ownership, management,
or business structure.
iii) If Dealer wishes to sell its business or substantially all of
the assets of its business (excluding Dealer's Special
Products Dealer appointment and this Agreement, which are not
transferable by Dealer), Dealer will notify JDCEC before the
beginning of any discussions or negotiations pertaining to the
proposed sale. JDCEC retains at all times the right to decide,
in its sole discretion, whether to appoint any third party as
a Special Products Dealer for Dealer's Special Products AOR,
for any portion thereof, or for any other area.
For purposes of this Agreement, a change in business structure shall
include, without limitation, a change in the legal form of Dealer
(e.g. from partnership to corporation); a change in the legal form
of any Key Person or of any entity that holds, directly or
indirectly, a 10% or greater ownership interest in Dealer; a merger
or consolidation involving Dealer; the creation of a subsidiary,
partnership, or other legal entity by Dealer; and any other change
that may affect any right or obligation under this Agreement or any
other agreement between Dealer and JDCEC.
j) Financial Statements
Dealer will submit to JDCEC's Finance Department offices in Moline,
Illinois, annual financial statements for Dealer within 100 days
after Dealer's fiscal year-end. Such financial statements shall have
been prepared in accordance with generally accepted accounting
principles and shall be in a form aproved by JDCEC, which approval
shall not be unreasonably withheld. Dealer also will provide such
other financial data of Dealer as JDCEC may from time to time
request.
Terms of Appointment/4
<PAGE>
2. TERMINATION OF DEALER'S APPOINTMENT
a) Termination by Mutual Consent
Dealer's appointment may be terminated by the mutual consent of
Dealer and JDCEC, evidenced by a writing signed by Dealer and JDCEC,
with the effective date of such termination to be as mutually agreed
upon in writing.
b) Termination by Dealer
Dealer may terminate its appointment for any reason upon at least
180 days' prior written notice to JDCEC.
c) Termination by JDCEC
i) JDCEC may terminate Dealer's appointment, upon 180 days' prior
written notice to Dealer, in the event:
a) Dealer fails to achieve Meaningful Progress with respect
to a Performance Criterion in any fiscal or calendar
year (whichever is used as the basis for Dealer's
JDCEC-approved business plans); or
b) Dealer fails to comply with any material provision of
this Agreement.
JDCEC may exercise its termination right under this
Section 2.c.i. with respect to all or any portion of
Dealer's Special Products AOR, as JDCEC may determine in
its sole discretion.
JDCEC may exercise its termination right under this
Section 2.c.i. without regard to the performance of
other Special Products Dealers or to the circumstances
under which JDCEC has terminated or refrained from
terminating the appointment of other Special Products
Dealers.
ii) JDCEC may terminate Dealer's appointment, upon at least 120
days' prior written Notice to Dealer, if JDCEC determines that
Dealer's Equity is less than the Minimum Equity Level. JDCEC
will give Dealer written notice of termination under this
Section 2.c.ii. within 45 days after the financial statements
on which JDCEC's determination is based are received at
JDCEC's Finance Department offices in Moline, Illinois.
iii) JDCEC may terminate Dealer's appointment for any reason upon
at least 360 days' prior written notice to Dealer.
iv) JDCEC may terminate Dealer's appointment, effective
immediately, by giving written notice of termination to Dealer
at any time after the happening of any of the following:
a) the death, incapacity, or dissolution of any Key Person;
b) a default under any security agreement between Dealer
and JDCEC;
c) any noncompliance with Section 1.b., Section 1.c.i.,
Section 1.i.i., or Section 1.j.;
d) Dealer defrauds anyone, including without limitation
JDCEC, or misrepresents any material fact in any
communication with or submission to JDCEC;
e) the cancellation, discontinuance, or revocation of a
guaranty or letter of credit applicable to Dealer
indebtedness, or a failure to provide, or modify the
amount of, a guaranty or letter of credit when and as
requested by JDCEC or Deere Credit, Inc.;
f) Dealer substantially closes the dealership business;
g) Dealer intentionally fails to comply with any applicable
federal, state, or local law, regulation, or ordinance
relating to the operation of the dealership; or
Terms of Appointment/5
<PAGE>
h) Dealer attempts to assign its rights or obligations
under this Agreement. Dealer's appointment hereunder
shall terminate automatically upon, and effective with,
the termination of any other dealership appointment with
JDCEC or any of JDCEC's Affiliates.
3. EFFECT OF TERMINATION OF APPOINTMENT
Termination of Dealer's appointment hereunder means that the obligations
and duties of the parties under Section 1 no longer apply, and that JDCEC
may decline to fill accepted orders placed before such termination. Orders
from Dealer that JDCEC contemplates will be shipped after the effective
date of termination may be accepted in JDCEC's sole discretion. Such
orders will be subject to the Conditions of Sale in effect at the time the
order is placed or to such other conditions that JDCEC may prescribe.
Submission or acceptance of orders and shipment or acceptance of Goods
does not have the effect of renewing or reinstating the obligations of
Section 1 and shall not be construed as an extension or renewal of
Dealer's appointment or as a rescission of any notice of termination. If
Dealer's appointment is terminated, neither Dealer nor JDCEC shall be
entitled to any compensation or reimbursement for loss of prospective
profits, anticipated sales, or other losses occasioned by the termination,
except as provided in this Agreement.
4. REPURCHASE OF GOODS ON TERMINATION
Upon termination of Dealer's appointment, JDCEC will buy and Dealer will
sell (or, with respect to JDM products, may sell subject to Section 4.c.),
free and clear of all liens and encumbrances, the following Goods in
Dealer's possession, provided they were originally purchased by Dealer
from JDCEC and are listed in JDCEC's published price list in effect on the
effective date of termination of Dealer's appointment, according to the
following terms:
a) All unsold current Whole Goods and attachments that are new, unused,
complete, and in good condition. Prices to be paid for such items
will be the invoice prices (but not more than current Special
Products Dealer prices) plus freight from the factory to Dealer's
location, less any discounts from invoice price that have been
allowed, and less any reduction in value that may be required due to
deterioration.
b) All unsold current Parts that are new, unused, complete, in good
condition, and re-salable as new without repackaging or
reconditioning. Prices to be paid for such Parts will be JDCEC's
then-current wholesale price, as listed in JDCEC's wholesale price
list for such Parts in effect on the effective date of termination,
less a discount of:
i) 15% on items listed as returnable under JDCEC's then-current
parts return policy; and
ii) 50% on all other items.
c) Such unsold current JDM products that Dealer may elect to sell to
JDCEC and that are new, unused, complete, in good condition, and
re-salable as new without repackaging or reconditioning. JDCEC shall
have no obligation to repurchase such products unless Dealer
furnishes JDCEC with a list of the products that it wishes to sell
to JDCEC within thirty days after the effective date of the
termination of Dealer's appointment. Price to be paid for such
products will be the then-current wholesale price, as listed in the
JDM Price List in effect on the effective date of termination, less
a discount of:
i) 50% on products indentified by an asterisk in the JDM Price
List;
ii) 15% on items listed as returnable under JDCEC's then-current
parts return policy; and
iii) 25% on all other JDM products.
At the written request of JDCEC, Dealer will, at Dealer's expense, list,
tag, pack, load, and transport all repurchased Goods to the nearest
location regularly maintained by JDCEC for the storage of such Goods (or
to such closer location as may be designated by JDCEC) or pay for the cost
of transportation to such location. The risk of loss shall be on Dealer
until the vehicle transporting such Goods reaches the designated
destination.
Terms of Appointment/6
<PAGE>
Should Dealer fail to fulfill the above obligation within 60 days after
JDCEC has requested that it do so, JDCEC or its designee may enter
Dealer's premises, perform these duties, and charge Dealer's account for
any expenses incurred in so doing.
Amounts payable to Dealer under this Section 4 will not be paid until
Dealer has complied with all applicable laws governing bulk transfers of
inventory.
JDCEC shall be relieved of its obligations under this Section 4 if a
default occurs or has occurred under any security agreement between Dealer
and JDCEC, and JDCEC elects to exercise its rights under such security
agreement to take possession of the Goods.
JDCEC shall be relieved of its obligations under this Section 4 if Dealer
has defrauded JDCEC or if Dealer misrepresents a material fact pertaining
to the repurchase of Goods in any communication with or submission to
JDCEC.
5. RESOLUTION OF DISPUTES
Although Dealer and JDCEC are entering into this Agreement in a spirit of
cooperation and mutual respect, it is possible that Disputes may arise.
Dealer, Dealer's owners, partners, shareholders, and guarantors, JDCEC,
Deere Credit, Inc., and ERS agree that any Dispute shall be finally
resolved by binding arbitration pursuant to the terms set forth in Exhibit
5. The duty to arbitrate shall extend to any officer, employee,
shareholder, principal, agent, partner, trustee (in bankruptcy or
otherwise), or subsidiary of Dealer as to any Dispute that is subject to
this Section 5.
6. COMPUTER SYSTEM
a) During the period of Dealer's appointment, Dealer will, at Dealer's
expense:
i) install and maintain in good working order a computerized
business system that is compatible with, and in communication
with, the John Deere Network;
ii) maintain the hardware and software necessary to supply
electronically to JDCEC (a) product delivery and warranty
claim information in accordance with the Service Information
System; and (b) such other information as JDCEC may from time
to time request Dealer to submit electronically;
iii) conform to any modifications made to the John Deere Network
(provided JDCEC gives Dealer at least 60 days' prior notice of
the modification);
iv) input into the John Deere Network, in accordance with JDCEC's
instructions, such information as JDCEC may from time to time
request, and furnish such computer files and reports as JDCEC
may from time to time request; and
v) pay all costs associated with Dealer's use of the John Deere
Network, as well as all costs incurred in obtaining and
maintaining Dealer's computerized business system and in
communicating with the John Deere Network.
b) Dealer will keep confidential any information contained in the John
Deere Network and not use such information for purposes unrelated to
Dealer's dealership appointment hereunder.
c) JDCEC shall not be liable for any losses incurred by Dealer in
connection with Dealer's computerized business system or the John
Deere Network.
Terms of Appointment/7
<PAGE>
7. AMENDMENT OF AGREEMENT
This Agreement cannot be altered or amended, or any of its provisions
waived, on behalf of JDCEC except in a writing signed by a duly authorized
officer of JDCEC. Dealer and JDCEC recognize that this Agreement does not
have an expiration date. Because market and business practices and
conditions are likely to change with the passage of time and such changes
or other circumstances could necessitate a change in this Agreement, JDCEC
may amend these Terms of Appointment at any time, without the consent of
Dealer, if the same amendment is made to the Terms of Appointment of all
other Special Products Dealers whose dealer agreements are in the form of
this Agreement and may be amended in this manner pursuant to applicable
law. Any such amendment shall be made by issuance by JDCEC of a bulletin
or other written notice to such Special Products Dealers and shall be
effective on the date specified in the bulletin or other written notice,
which date shall be at least 120 days following the date of such bulletin
or other written notice.
8. USE OF TRADEMARKS, NAMES, AND SIGNS
JDCEC grants Dealer the non-exclusive right to use the Trademarks, during
the period of Dealer's appointment, in connection with the advertising and
sale of Goods bearing one or more of the Trademarks, and in connection
with the providing of services by Dealer relating to the sale or servicing
of Goods identified by the Trademarks. Such use of the Trademarks shall be
in a manner and form approved by JDCEC. Dealer agrees not to use any of
the Trademarks as part of Dealer's corporate or business name and to cease
all use of the Trademarks if Dealer ceases to be a Special Products
Dealer, including without limitation the removal from Dealer's premises
and vehicles of all signs and distinctive identification that might
associate Dealer with JDCEC. Dealer also agrees not to sell or distribute
any goods bearing any of the Trademarks, unless the goods originated from
or were distributed by JDCEC, JDCEC's Affiliates, or licensees authorized
to use the Trademarks on the goods. Dealer also agrees not to use the
Trademarks to promote goods not originating from or distributed by JDCEC,
JDCEC's Affiliates, or their licensees.
9. ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of JDCEC and, to the extent the terms hereof bind
or benefit Deere Credit, Inc. or ERS, their respective successors and
assigns. Dealer's rights and obligations under this Agreement may not be
assigned or transferred. Any attempt by Dealer to assign its rights or
obligations under this Agreement shall be null and void.
10. CHANGES IN OR DISCONTINUANCE OF GOODS
a) JDCEC may, at any time and without notice, make changes in or
discontinue any Goods without incurring any liability.
b) This Agreement extends only to Goods. JDCEC reserves the right to
offer any other products to selected Special Products Dealers or
others under existing or separate new agreements. As new products,
other than those designated by JDCEC as direct successors of Goods,
are developed, acquired, or marketed by JDCEC, they may or may not
be added to the Goods covered under this Agreement.
11. DEALER GUARANTY
To the extent requested by JDCEC, Key Persons and other partners in, or
owners of, Dealer have executed or concurrently herewith will execute in
favor of JDCEC one or more guaranties of Dealer's indebtedness to JDCEC.
Dealer will obtain, and Key Persons and other partners in, or owners of,
Dealer will execute, such additional guaranties and amendments and
additions to guaranties as JDCEC may from time to time request.
For purposes of this Section 11 and Section 12, JDCEC shall include Deere
Credit, Inc. in addition to John Deere Construction Equipment Company.
Terms of Appointment/8
<PAGE>
12. SECURITY IN GOODS
Dealer has executed or concurrently herewith will execute in favor of
JDCEC one or more security agreements covering Dealer's inventory of Goods
and certain other items. Dealer will execute such additional security
agreements and financing statements, and amendments and additions thereto
or to existing instruments, as JDCEC may from time to time request, in
order that JDCEC may have at all times a first lien on Goods and other
collateral securing Dealer's indebtedness to JDCEC.
13. RELATIONSHIP OF THE PARTIES
a) Dealer acknowledges that it is an independent retail merchant which
purchases Goods for resale for the principal benefit of Dealer.
Dealer further acknowledges and agrees that it is an independent
contractor. In performing service work Dealer assumes full
responsibility for such work. Dealer also acknowledges and agrees
that it is not an employee, agent, representative, franchisee,
partner, or joint venturer of or with JDCEC, has not paid and will
not pay a franchise fee to JDCEC, and is free to operate its
business in accordance with its independent business judgment,
provided that such operation is in accordance with this Agreement
and any other agreement between Dealer and JDCEC. Dealer has no
authority to bind JDCEC by representations, statements, agreements,
conduct, or in any manner whatsoever. JDCEC shall not be liable for
any debts, accounts, obligations, or other liabilities of Dealer,
its agents, employees, or representatives. It is expressly
recognized that no fiduciary relationship exists between the
parties.
b) Except as provided in Sections 5, 9, and 17, this Agreement is not
enforceable by any third party and is not intended to benefit, or
convey any rights to, anyone other than Dealer and JDCEC.
c) Dealer obtains no rights by virtue of this Agreement or its
dealership appointment to acquire additional dealerships or to
obtain additional dealership appointments or area of responsibility
assignments from JDCEC.
14. USE OF PRICE LISTS, CATALOGS, AND MANUALS
The Manual and any bulletins, price lists, catalogs, and service manual
pages furnished to Dealer by JDCEC must be kept in good condition and
returned to JDCEC upon termination of Dealer's appointment. If such items
have been purchased by Dealer, JDCEC will repurchase them for the price
paid. Dealer will not disclose, directly or indirectly, the contents of
such Manual, bulletins, price lists, catalogs, and service manual pages to
a person or entity that is a competitor of JDCEC or of a Special Products
Dealer.
15. ADVERTISING MATERIAL; MAILING LISTS
During the period of Dealer's appointment:
a) with respect to particular types of Goods, JDCEC will furnish to
Dealer promotional materials and printed advertising matter that
JDCEC prepares for use by other Special Products Dealers in
connection with the sale, lease, rental, or servicing of such Goods
and that JDCEC deems appropriate for Dealer's Special Products AOR;
and
b) Dealer will create, maintain, and keep current a list of the names
and addresses of all purchasers and prospective purchasers of Goods
in Dealer's Special Products AOR, provide JDCEC with the current
list, and promptly notify JDCEC of all changes to the list.
The list contemplated by Section 15.b. shall be the sole property of
JDCEC. JDCEC may use the list at any time for any purpose it deems
appropriate, provided, however, that JDCEC will advise Dealer in advance
of any use it makes of the list (other than for the purpose of sending
Dealer's direct mail solicitations to
Terms of Appointment/9
<PAGE>
purchasers and prospective purchasers on the list) during the period of
Dealer's appointment. Dealer will reimburse JDCEC for handling and postage
expenses for all direct mailings made at Dealer's request to prospective
purchasers in Dealer's Special Products AOR.
16. NO WAIVER
The failure of JDCEC to take any action or require full and strict
compliance with any provision of this Agreement or any provision of any
agreement with other Special Products Dealers shall not affect JDCEC's
right to take any action or require full and strict compliance at any time
prior or subsequent thereto and shall not constitute a waiver of a breach
of the provision or nullify the effectiveness of such provision.
17. LIMITATION ON DAMAGES; JURY WAIVER; TIME TO INITIATE PROCEEDINGS
a) No party to a Dispute shall be entitled to an award of multiple,
punitive, or exemplary damages, or any damages excluded by, or in
excess of any damage limitation expressed in, this Agreement.
b) Dealer, Dealer's owners, partners, shareholders, and guarantors,
JDCEC, Deere Credit, Inc., and ERS each hereby knowingly,
voluntarily, and intentionally waive any right he, she, or it may
have to a trial by jury in respect of any litigation pertaining to
any Dispute, and each agrees not to request a jury in any such
litigation.
c) No party to a Dispute may commence litigation or arbitration
proceedings with respect to such Dispute more than one year after
that party's cause of action accrues.
18. NOTICES
In addition to other available means of giving notice, notices required or
permitted under this Agreement (including without limitation notices in
connection with any arbitration under Section 5) may be given to the
person indicated on Exhibit 6, by personal delivery or by certified U.S.
mail, Federal Express or other reputable overnight delivery service, or
facsimile to the address or facsimile number indicated on Exhibit 6.
Notices given by personal delivery shall be deemed given when delivered.
Notices given by certified U.S. mail, reputable overnight delivery
service, or facsimile shall be deemed given when sent.
19. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the
substantive laws of the State of Illinois without regard to Illinois'
conflict of laws rules.
20. SEVERABILITY
Any provision of this Agreement or portion thereof that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or unenforceability
without invalidating the remainder of the provision or the remaining
provisions of this Agreement and without affecting the validity or
enforceability of such provision in any other jurisdiction. Any provision
herein found to be prohibited or unenforceable in a jurisdiction shall, by
agreement of the parties hereto, be replaced for such jurisdiction by a
provision that ensures that the economic and/or business objectives of the
prohibited or unenforceable provision are preserved insofar as it is
possible to do so under the applicable law in such jurisdiction.
Terms of Appointment/10
<PAGE>
21. PAYMENTS ON TERMINATION
If Dealer's appointment hereunder is terminated, all indebtedness of
Dealer to JDCEC which does not become due prior to the effective date of
the termination will be due and payable as of the effective date of the
termination. JDCEC may pay any sums owing to Dealer on termination
(including without limitation any sums owing to Dealer for repurchased
Goods) in cash or by giving Dealer credit to be applied to any
indebtedness then owed by Dealer to JDCEC or to any of JDCEC's Affiliates,
regardless of whether such indebtedness is then due and payable.
22. SURVIVAL
The termination of Dealer's appointment shall not affect any rights or
obligations that have accrued hereunder as of the effective date of such
termination. Such termination also shall not affect any rights or
obligations, except those expressly limited to the period of Dealer's
appointment, under Sections 3, 4, 5, 6.b., 6.c., 7, 8, 9, 10, 11, 12, 13,
14, 15, 16, 17, 18, 19, 20, 21, 22, and 23, which rights and obligations,
except those expressly limited to the period of Dealer's appointment,
shall survive termination of Dealer's appointment.
23. ENTIRE AGREEMENT
This Agreement is and shall be deemed to be the complete and final
expression of the agreement between the parties as to the subject matters
contained herein. This Agreement supersedes all previous dealer agreements
and representations between the parties made with respect to the Dealer's
appointment hereunder as a Special Product Dealer. It is acknowledged and
agreed by Dealer and JDCEC that no promise or representation not contained
herein (including without limitation Exhibit 7) was an inducement to
either party or was relied on by either party in entering into this
Agreement. Any prior or contemporaneous promises, agreements, or
representations, whether oral, written, or created through custom, usage,
or course of dealing, except for those listed on Exhibit 7, are also
superseded by this Agreement. Dealer understands that, except as provided
in Section 7, no agent or employee of JDCEC has authority to vary or add
to the provisions of this Agreement, or to make any representation
altering or going beyond the terms of this Agreement.
Terms of Appointment/11
<PAGE>
EXHIBIT 1
DEALER'S SPECIAL PRODUCTS AOR
Dealer's Special Products AOR shall consist of the following counties:
State of ________
Counties:
Exhibits/1
<PAGE>
EXHIBIT 2
A. WHOLE GOODS
[ ] Deere brand ADT models [ ] Bell brand ADT models
[ ] Compact Excavators
B. PARTS
[ ] Engine Parts for Whole Goods and for competitive products
[ ] Filters for Whole Goods and for competitive products
[ ] Oil
[ ] Remanufactured Components for Whole Goods and for competitive products
Exhibits/2
<PAGE>
EXHIBIT 3
LOCATIONS
Address Purpose
- ------- -------
[ ] Whole Goods Sales
- ------------------------------------------------
[ ] Service of Goods
[ ] Parts Sales
[ ] Other ___________________
[ ] Whole Goods Sales
- ------------------------------------------------
[ ] Service of Goods
[ ] Parts Sales
[ ] Other ___________________
[ ] Whole Goods Sales
- ------------------------------------------------
[ ] Service of Goods
[ ] Parts Sales
[ ] Other ___________________
[ ] Whole Goods Sales
- ------------------------------------------------
[ ] Service of Goods
[ ] Parts Sales
[ ] Other ___________________
[ ] Whole Goods Sales
- ------------------------------------------------
[ ] Service of Goods
[ ] Parts Sales
[ ] Other ___________________
Exhibits/3
<PAGE>
EXHIBIT 4
KEY PERSONS
Name Ownership Interest Relationship to Dealer / Role in Dealer's Affairs
- ---- ------------------ -------------------------------------------------
Exhibits/4
<PAGE>
EXHIBIT 5
DISPUTE RESOLUTION
1. If the parties to a Dispute agree, the Dispute will be submitted to
non-binding mediation.
2. If the parties to a Dispute do not agree to mediation of the Dispute, or
if mediation does not resolve the Dispute, the Dispute shall be finally
resolved by binding arbitration in accordance with the arbitration rules
of JAMS/Endispute, as amended by this Exhibit. The party seeking
arbitration shall submit a written notice of arbitration to the other
party and to JAMS/Endispute. The arbitration shall be held at such
location as required by applicable law or, if no location is required by
applicable law, at Chicago, Illinois or such other city as the parties to
the Dispute may agree in writing. The arbitration shall be held before a
panel of three arbitrators each of whom is affiliated with JAMS/Endispute
and is part of the pool of arbitrators selected by JAMS/Endispute as
available to arbitrate Disputes. Each arbitrator in the pool shall:
a) be a current or former practicing attorney or former judge;
b) have at least fifteen years experience in litigation, arbitration,
and/or mediation of commercial disputes;
c) have prior experience as an arbitrator (through award) of at least
three manufacturer/dealer or franchisor/franchisee disputes; and
d) be recommended as a commercial arbitrator by at least two major
manufacturers or franchisors and at least two dealers or
franchisees.
The arbitration panel shall consist of one arbitrator from the pool
designated by Dealer, one arbitrator from the pool designated by JDCEC,
and a third arbitrator from the pool designated by the two other
arbitrators, which person shall be the Chairperson of the arbitration
panel. A decision and award joined by at least two members of the
arbitration panel shall constitute the award and shall be binding on the
parties. The arbitration panel shall provide written reasons for their
decision and award, which shall be final and binding and may be entered by
any court having jurisdiction thereof.
3. Except as provided herein, any action or decision joined by two
arbitrators from the arbitration panel shall constitute the action of the
arbitration panel. The arbitration panel may consider and grant
dispositive motions, including without limitation motions to dismiss or
for summary judgment. In order to prevent irreparable harm, the
arbitration panel may consider and grant requests for temporary or
permanent injunctive relief or other equitable relief.
4. Unless contrary to applicable law, this Agreement shall be interpreted in
accordance with and the arbitration panel shall apply and be bound to
follow the substantive laws of the State of Illinois. Where there is a
conflict between the terms of this Agreement and the laws of the State of
Illinois, the terms of this Agreement shall control.
5. Each party shall bear its costs associated with the arbitration, including
its attorneys' fees, and the parties shall share equally the fees and
expenses of JAMS/Endispute and the arbitrators, provided, however, that if
court proceedings to stay litigation, compel arbitration, or enforce the
award are necessary, the party who unsuccessfully opposes such proceedings
shall pay all associated costs, expenses, and attorneys' fees that are
reasonably incurred by the other party.
6. The Chairperson of the arbitration panel shall decide all matters relating
to discovery as well as all procedural or non-dispositive matters that
shall come before the arbitration panel. Subject to privileges recognized
under applicable law, the Chairperson shall require such discovery as is
necessary for the parties to be adequately prepared for the arbitration.
Discovery may include the exchange of documents, depositions,
interrogatories, and the exchange of exhibits, expert reports, and witness
lists.
Exhibits/5
<PAGE>
7. The parties, witnesses, and arbitrators shall not disclose the contents or
results of the arbitration without the prior written consent of all
parties to the Dispute, except to the extent necessary to enforce the
award or as necessary for financial and tax reporting purposes.
8. Notwithstanding anything to the contrary in this Exhibit 5 or section 5,
in the event of an alleged violation of a party's intellectual property
rights, that party may seek temporary injunctive relief from any court of
competent jurisdiction pending appointment of the arbitration panel. The
party requesting such relief shall also promptly file a notice of
arbitration and a request that the arbitration panel provide temporary
relief. Such actions shall not constitute a waiver of the party's rights
or a breach of the party's obligations under this Exhibit 5 and Section 5.
Any temporary injunctive relief entered by a court shall continue in
effect only until the arbitration panel has issued a decision on temporary
relief.
9. Notwithstanding anything to the contrary in this Exhibit 5 or section 5,
JDCEC and Deere Credit, Inc. may seek judicial remedies, such as (but not
limited to) attachment, replevin, and garnishment, deemed necessary by
JDCEC or Deere Credit, Inc. in its sole discretion for the enforcement of
JDCEC's or Deere Credit, Inc's rights regarding any security for
indebtedness of Dealer , and such action by JDCEC or Deere Credit, Inc.
shall not constitute a waiver of JDCEC's or Deere Credit, Inc's rights or
a breach of JDCEC's or Deere Credit, Inc.'s obligations under this Exhibit
5 and Section 5.
Exhibits/6
<PAGE>
EXHIBIT 6
NOTICES
To Dealer or its owners, partners, shareholders, or guarantors:
- --------------------------------------
- --------------------------------------
- --------------------------------------
facsimile:
----------------------------
To JDCEC, Deere Credit, Inc., or ERS:
- --------------------------------------
- --------------------------------------
- --------------------------------------
facsimile:
----------------------------
Dealer or JDCEC may amend the addressee, address, or facsimile number indicated
for its group on this Exhibit 6 by giving written notice of such amendment to
the other party, provided, however, that no more than one addressee, address,
and facsimile number may be indicated at any given time.
Exhibits/7
<PAGE>
EXHIBIT 7
PROMISES AND REPRESENTATIONS
Dealer and JDCEC agree that the following are the only promises, agreements, or
representations, oral, written, or created through custom, usage, or course of
dealing, not contained elsewhere in this Agreement and that were an inducement
to or relied upon by any party hereto in entering into this Agreement or that
were made prior to or contemporaneous with this Agreement and are not superseded
by this Agreement:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
____ No promises, agreements or representations
- ------------------------------ --------------------------------------
Dealer Signature JDCEC Signature
Exhibits/8
EXHIBIT 10.18
ID NO. 221
AG CAPITAL COMPANY
CREDIT AGREEMENT MODIFICATION
FARGO, NORTH DAKOTA
JANUARY 15, 2000
The Credit Agreement made and entered into as of July 15, 1999, and
Credit Agreement Modification dated October 11, 1999, by and among RDO FINANCIAL
SERVICES CO. ("BORROWER"), NORWEST BANK NORTH DAKOTA, N.A. ("Norwest"), and AG
CAPITAL COMPANY ("Agent"), is hereby modified as follows:
Section one (1), DEFINITIONS, page 3, of the Credit Agreement, shall be
modified as follows:
"MATURITY" OF THE SUBJECT NOTES MEANS THE EARLIER OF (a) THE DATE ON
WHICH THE SUBJECT NOTES BECOMES DUE AND PAYABLE UPON THE OCCURRENCE OF
AN EVENT OF DEFAULT; OR (b)(i) MARCH 1, 2000, UNLESS EXTENDED IN
WRITING BY ALL THE PARTIES HERETO IN THEIR SOLE DISCRETION.
Except as expressly modified by the terms of this Credit Agreement
Modification, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this agreement this ____
day of January, 2000.
RDO FINANCIAL SERVICES
A North Dakota corporation
By:
-----------------------------------
Steven B. Dewald
Its: Senior Vice President
AG CAPITAL COMPANY
A Delaware corporation
By:
-----------------------------------
Peter Nutz
Its: Director of Finance
NORWEST BANK NORTH DAKOTA
A national banking association
By:
-----------------------------------
David Johnson
Its: Assistant Vice President
1
<PAGE>
ID NO. 221
AG CAPITAL COMPANY
CREDIT AGREEMENT MODIFICATION
FARGO, NORTH DAKOTA
APRIL 1, 2000
The Credit Agreement made and entered into as of July 15, 1999, and
Credit Agreement Modification dated October 11, 1999, and Credit Agreement
Modification dated January 15, 2000, by and among RDO FINANCIAL SERVICES CO.
("BORROWER"), NORWEST BANK NORTH DAKOTA, N.A. ("Norwest"), and AG CAPITAL
COMPANY ("Agent"), is hereby modified as follows:
Section one (1), DEFINITIONS, page 3, of the Credit Agreement, shall be
modified as follows:
"MATURITY" OF THE SUBJECT NOTES MEANS THE EARLIER OF (a) THE DATE ON
WHICH THE SUBJECT NOTES BECOMES DUE AND PAYABLE UPON THE OCCURRENCE OF
AN EVENT OF DEFAULT; OR (b)(i) MAY 15, 2000, UNLESS EXTENDED IN WRITING
BY ALL THE PARTIES HERETO IN THEIR SOLE DISCRETION.
Except as expressly modified by the terms of this Credit Agreement
Modification, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this agreement this ____
day of April, 2000.
RDO FINANCIAL SERVICES
A North Dakota corporation
By:
-----------------------------------
Steven B. Dewald
Its: Senior Vice President
AG CAPITAL COMPANY
A Delaware corporation
By:
-----------------------------------
Peter Nutz
Its: Director of Finance
NORWEST BANK NORTH DAKOTA
A national banking association
By:
-----------------------------------
David Johnson
Its: Assistant Vice President
2
EXHIBIT 13.1
RDO EQUIPMENT CO. AND SUBSIDIARIES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY 31,
- ------------------------------------------------------------------------------------------------------------------------------------
[in thousands, except store and per
share data] 2000 1999 1998 1997 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Revenues:
Equipment and truck sales $476,773 $404,093 $301,684 $224,094 $164,054 $135,704 $106,600 $ 73,516 $49,097
Parts and service 173,336 143,335 113,268 75,820 58,998 48,206 37,512 31,862 22,129
Rental 32,178 26,208 14,451 2,499 505 -- -- -- --
Financial services 6,683 4,988 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total revenues 688,970 578,624 429,403 302,413 223,557 183,910 144,112 105,378 71,226
Cost of revenues (1) 566,877 479,275 340,987 245,287 180,839 148,111 116,369 83,548 56,422
- ------------------------------------------------------------------------------------------------------------------------------------
Gross profit 122,093 99,349 88,416 57,126 42,718 35,799 27,743 21,830 14,804
Selling, general and administrative
expenses 97,431 81,682 60,382 41,275 31,655 24,893 20,577 16,737 11,929
Restructuring charges -- 2,200 -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income 24,662 15,467 28,034 15,851 11,063 10,906 7,166 5,093 2,875
Gain on sale of RDO Rental Co. 786 -- -- -- -- -- -- -- --
Interest expense, net (13,719) (12,427) (5,538) (5,046) (2,994) (1,093) (1,334) (908) (1,126)
- ------------------------------------------------------------------------------------------------------------------------------------
Income before taxes 11,729 3,040 22,496 10,805 8,069 9,813 5,832 4,185 1,749
Provision for income taxes (2) 5,252 1,237 9,156 4,322 3,228 3,925 2,332 1,674 700
Minority interest (60) 135 89 -- -- -- -- -- --
====================================================================================================================================
Net income $ 6,537 $ 1,668 $ 13,251 $ 6,483 $ 4,841 $ 5,888 $ 3,500 $ 2,511 $ 1,049
====================================================================================================================================
Net income per share - basic and
diluted $ 0.50 $ 0.13 $ 1.00 $ 0.77 $ 0.58 -- -- -- --
====================================================================================================================================
SELECTED OPERATING DATA
Comparable store revenues increase
(decrease) (2)% 5% 11% 26% 11% 25% 32% 12% --
Stores open at beginning of year 64 50 32 26 22 22 21 17 15
Stores opened -- 6 3 1 2 -- -- -- 1
Stores acquired 5 10 16 5 2 -- 1 4 1
Stores consolidated/closed/sold (13) (2) (1) -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Stores open at end of year 56 64 50 32 26 22 22 21 17
- ------------------------------------------------------------------------------------------------------------------------------------
Net purchases of rental equipment $ 485 $ 19,769 $ 14,185 $ 1,519 $ 6,342 $ -- $ -- $ -- $ --
Net purchases of property and
equipment 3,409 5,132 3,766 2,137 3,651 1,208 627 681 561
Depreciation and amortization 12,950 10,506 5,308 2,606 1,326 690 668 584 504
As of January 31,
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET
Working capital $ 64,225 $ 36,739 $ 69,265 $ 72,744 $ 26,596 $ 26,700 $ 22,019 $ 15,284 $ 9,846
Inventories 217,556 208,368 220,841 130,955 115,616 77,204 64,768 55,582 40,175
Total assets 361,997 379,220 319,432 181,551 148,093 98,315 83,341 68,660 46,129
Floor plan payables (3) 190,242 191,030 163,988 64,331 91,614 53,581 46,644 45,149 28,067
Total debt 26,604 55,533 31,353 14,409 10,638 3,277 2,946 6,698 6,283
Stockholders' equity 109,275 102,738 101,070 87,795 34,284 30,467 24,503 11,105 7,006
</TABLE>
(1) Fiscal 1999 Included a non-recurring $15 million inventory charge.
(2) Prior to January 20, 1997, the Company elected to be treated as an S
corporation under the Internal Revenue Code. A pro forma provision for
income taxes was computed as if the Company were subject to corporate
income taxes based on the tax laws in effect during these fiscal years.
(3) Includes interest-bearing and noninterest-bearing liabilities incurred in
connection with inventory financing.
1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company specializes in the distribution, sale, service, rental and finance
of equipment and trucks to the agricultural, construction, manufacturing,
transportation and warehousing industries, including units of state, local and
federal government and utility companies. The Company's largest supplier is
Deere & Company (Deere). The Company operates the largest network of John Deere
construction and agricultural equipment stores in North America.
The Company's growth has been due primarily to acquisitions of equipment and
truck retailers, opening additional retail locations, and implementation of the
Company's operating model. The acquisitions are primarily the result of
consolidation trends among equipment and truck retailers and the ability of the
Company to leverage its expertise in acquisitions, consolidation and retail
sales, service and marketing. The Company's stores are located in Arizona,
California, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Texas and
Washington.
In January 1997, the Company completed an initial public offering of Class A
Common Stock, issuing 4,830,000 shares (Offering). The proceeds of the Offering,
$68.3 million after offering costs, were used to repay indebtedness incurred to
finance acquisitions in the aggregate amount of approximately $10.1 million, to
make an S corporation distribution of approximately $15.0 million in connection
with the termination of the Company's S corporation tax status, and to finance
acquisitions, new stores, internal growth and working capital needs.
The Company generates its revenues from sales of new and used equipment and
trucks, sales of parts and service, rental of equipment and customer financing
and related products and services. In addition to sales of new and used
equipment, sales include equipment purchased under rent-to-purchase agreements.
Generally under such agreements, the customer is given a period of up to six
months to exercise the option to purchase the rented equipment and is allowed to
apply a portion of the rental payments to the purchase price. This
rent-to-purchase equipment is included in the Company's inventory until the
option is exercised and the equipment is purchased.
The Company's finance subsidiary, RDO Financial Services Co., provides equipment
and truck loans and leases to the customers of the Company's retail network.
This subsidiary also provides additional products and services and acts as an
agent to extend warranties, credit life insurance and casualty insurance.
The Company's highest gross margins have historically been generated from its
parts and service and rental revenues. One of the Company's operating strategies
is to increase the demand for parts and service by establishing, and then
increasing, the base of equipment and trucks held by its customers. Due to
product warranty time frames and usage patterns by customers, there generally is
a time lag between equipment and truck sales and the generation of significant
parts and service revenues from such sales. As a result of this time lag,
increases in parts and service revenues do not necessarily coincide with
increases in equipment and truck sales. In addition, due to differences in gross
margins between equipment and truck sales and parts and service and rental
revenues, gross margin percentages may decline as the Company builds market
share.
2
<PAGE>
The Company believes its construction equipment and truck operations have
benefited from favorable economic conditions during recent years, including low
interest rates, low fuel prices and moderate economic growth. However, during
the fourth quarter of fiscal 2000, interest rates and fuel prices have risen
above prior year levels and may adversely affect the sales of equipment and
trucks in the future. The Company believes its agricultural equipment operations
have been adversely affected by successive years of adverse weather and
recurrent plant diseases in the Midwest and by low commodity prices. These
conditions have resulted in lower than normal farmer confidence, income and
capital spending plans.
During the third quarter of fiscal 1999, primarily as a result of adverse
conditions in the Midwest farm economy, the Company initiated a number of
corporate actions designed to generate cash, fund growth opportunities,
discontinue non-strategic operations and achieve more cost efficient operations.
These initiatives were undertaken after the Company assessed industry and
financial market conditions, primarily of the agricultural economy, that were
projected to impact the Company's business. The Company also reviewed industry
outlooks from manufacturers, forecasts and surveys by economists, investment
analysts and governmental units, and the status of capital markets for raising
equity and debt. The initiatives included one-time, non-recurring charges
related to inventory and asset writedowns, reserves and severance costs. A $15.0
million inventory charge enabled the Company to initiate a new, more aggressive
pricing strategy with respect to equipment sales in the agricultural equipment
business segment. This charge is included in cost of revenues. In addition, the
Company recorded a restructuring charge of $2.2 million in connection with asset
writedowns and severance costs, which included exiting the agricultural
irrigation equipment business.
The Company generally experiences lower revenue levels during its first and
fourth quarters primarily due to the crop-growing season, winter weather
conditions in the Midwest and a general slowdown in construction activity at the
end of the calendar year. See "Seasonality" below.
Price increases by suppliers of the Company's products have not historically had
a significant impact on the Company's results of operations. See "Effects of
Inflation" below.
The Company requires cash primarily for financing its inventories of equipment,
trucks and replacement parts, acquisitions and openings of additional retail
locations, rental equipment 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. See "Liquidity and Capital Resources" below.
In fiscal 2000, the Company purchased five heavy-duty truck retail stores and
commenced truck operations in its Waco, Texas location. The Company also closed
one construction equipment rental store and sold its 80 percent interest in a
construction equipment rental operation located in the southwestern United
States. In fiscal 1999, the Company purchased four heavy-duty truck retail
stores, four material handling equipment retail stores, an agricultural
equipment rental store and a construction equipment rental store. Four
construction equipment rental stores, a construction equipment retail store and
a material handling equipment retail store were opened in fiscal 1999. The
results of operations from acquisitions are included in the Company's results
only for the periods after their applicable acquisition dates.
3
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data:
Fiscal Years Ended January 31, 2000 1999 1998
- ----------------------------------------------------------------------------
REVENUE DATA (IN MILLIONS):
Total revenues $ 689.0 $ 578.6 $ 429.4
Construction 48.9% 53.9% 55.8%
Agricultural 18.5% 27.3% 39.7%
Truck 25.9% 13.0% 1.5%
Rental 5.7% 4.9% 3.0%
Financial 1.0% 0.9% --
Construction revenues $ 337.0 $ 312.2 $ 239.3
Equipment sales 70.8% 74.0% 72.5%
Parts and service 28.1% 25.3% 27.0%
Rental 1.1% 0.7% 0.5%
Agricultural revenues $ 127.6 $ 157.8 $ 170.6
Equipment sales 67.4% 70.8% 72.7%
Parts and service 32.6% 29.0% 26.5%
Rental -- 0.2% 0.8%
Truck revenues $ 178.8 $ 75.1 $ 6.6
Truck sales 80.1% 76.1% 52.7%
Parts and service 19.9% 23.9% 47.3%
Rental revenues $ 38.9 $ 28.5 $ 12.8
Equipment sales 23.2% 14.8% 5.1%
Parts and service 4.0% 2.0% 2.2%
Rental 72.8% 83.2% 92.7%
STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF REVENUES):
Revenues
Equipment and truck sales 69.2% 69.8% 70.3%
Parts and service 25.1 24.8 26.4
Rental 4.7 4.5 3.3
Financial services 1.0 0.9 --
- ----------------------------------------------------------------------------
Total revenues 100.0% 100.0% 100.0%
- ----------------------------------------------------------------------------
Gross profit 17.7% 17.2% 20.6%
Selling, general and
administrative expenses 14.1 14.1 14.1
Restructuring charges -- 0.4 --
- ----------------------------------------------------------------------------
Operating income 3.6 2.7 6.5
Gain on sale of RDO Rental Co. 0.1 -- --
Interest expense, net 2.0 2.2 1.3
Provision for taxes 0.8 0.2 2.1
- ----------------------------------------------------------------------------
Net income 0.9% 0.3% 3.1%
- ----------------------------------------------------------------------------
(1) After non-recurring $15 million inventory charge in fiscal 1999.
4
<PAGE>
FISCAL YEAR ENDED JANUARY 31, 2000 COMPARED
TO FISCAL YEAR ENDED JANUARY 31, 1999
REVENUES
Revenues increased approximately $110.4 million, or 19.1%, from $578.6 million
for fiscal 1999, to $689.0 million for fiscal 2000. Construction, agricultural,
truck, rental and financial services operations represented approximately $337.0
million, $127.6 million, $178.8 million, $38.9 million and $6.7 million,
respectively. $70.2 million, or 63.6%, of the increase in revenues was due to
the acquisition of five truck locations in California and Texas. In addition,
the Company commenced truck operations in its construction equipment store in
Waco, Texas. The balance of the increase, net of a 2% decrease in comparable
store revenues, is attributable to acquisitions and new store openings in fiscal
1999.
Equipment and truck sales increased approximately $72.7 million in fiscal 2000,
or 18.0%, from $404.1 million for fiscal 1999 to $476.8 million for fiscal 2000.
Construction operations contributed approximately $7.5 million of this increase,
with equipment sales increasing 3.3% to $238.5 million. Truck operations
contributed approximately $86.1 million to the total sales increase, with truck
sales increasing from $57.2 million to $143.3 million. Acquisitions completed
during fiscal 2000 accounted for approximately $57.0 million of the increase in
truck sales. Rental operations contributed approximately $4.8 million of the
increase, with sales increasing from $4.2 million to $9.0 million. Offsetting
the increase in equipment and truck sales, agricultural operations decreased
approximately $25.7 million, or 23.0%, to $86.0 million. The decrease in
agricultural revenues was primarily attributable to continuing unfavorable
conditions in the agricultural economy and the Company's exit from the
agricultural irrigation equipment business in fiscal 1999.
Parts and service revenues increased approximately $30.0 million, or 20.9%, from
$143.3 million for fiscal 1999 to $173.3 million for fiscal 2000. Construction
operations contributed approximately $15.7 million of the increase as sales grew
19.9% to $94.7 million. Truck operations contributed approximately $17.6 million
of the increase as sales grew from $17.9 million to $35.5 million. Of this
increase, $13.2 million was due to acquisitions completed during fiscal 2000.
Rental operations contributed approximately $900,000 of the increase as sales
grew from $600,000 to $1.5 million. Parts and service revenues from agricultural
operations decreased approximately $4.2 million, or 9.2%, to $41.6 million,
primarily attributable to continuing unfavorable conditions in the agricultural
economy.
Rental revenues increased approximately $6.0 million, or 22.9%, from $26.2
million for fiscal 1999 to $32.2 million for fiscal 2000. Construction and
rental operations contributed substantially all of this increase.
Financial services revenues of approximately $6.7 million were generated in
fiscal 2000 compared to $5.0 million in fiscal 1999, an increase of 34.0%.
Financial services revenues are comprised primarily of earnings from interest
rate additions on retail installment contracts, gains and service fee income
from securitized loans and leases receivable, and finance charges from a
revolving credit facility available to a portion of the Company's customers. In
December 1999, the Company replaced its securitization financing structure in
favor of new financing arrangements.
5
<PAGE>
GROSS PROFIT
Gross profit increased approximately $22.8 million, or 23.0%, from $99.3 million
in fiscal 1999 to $122.1 million in fiscal 2000. Gross profit as a percentage of
total revenues for fiscal 2000 and 1999 was 17.7% and 17.2%, respectively. Gross
profit for fiscal 1999 before the $15.0 million non-recurring inventory charge
was 19.8%. Gross profit is affected by the contribution of revenues by business
segment and by the mix of revenues within each business segment. Revenues from
construction, rental and financial services operations provide the Company with
higher gross margins than do agricultural and truck operations. The Company's
highest gross margins are derived from its parts and service, rental and
financial services revenues. Gross margins were adversely affected by the
ongoing conditions in agriculture and a more competitive and price sensitive
marketplace affecting the sale and rental of new and used construction
equipment. The expansion of truck revenues, which generally have lower gross
margins, also resulted in lower gross profit as a percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percent of total
revenues were 14.1% for fiscal 2000 and 1999. Total SG&A expenses increased
approximately $15.7 million, from $81.7 million for fiscal 1999 to $97.4 million
for fiscal 2000. Approximately $7.3 million of the increase was due to the
operations of the Company's acquisitions completed during fiscal 2000. SG&A
expenses are affected by the contribution of revenues within each business
segment. As a percentage of revenues, SG&A expenses are generally higher for
construction and financial services operations than for agricultural, truck and
rental operations and lower for equipment and truck sales than for parts and
service and rental revenues. The expansion of truck revenues, which generally
have lower levels of SG&A expenses as a percentage of total revenues, was offset
by lower sales of agricultural equipment resulting in comparable levels of SG&A
expenses as a percentage of total revenues.
INTEREST EXPENSE
Interest expense increased approximately $1.4 million, or 10.7%, from $13.1
million for fiscal 1999 to $14.5 million for fiscal 2000. Interest expense as a
percent of total revenues decreased from 2.3% for fiscal 1999 to 2.1% for fiscal
2000. Interest expense as a percentage of total revenues declined due to the
planned reduction of construction and agricultural inventories.
INTEREST INCOME
Interest income increased approximately $100,000, or 14.3%, from fiscal 1999 to
fiscal 2000. Interest income is primarily comprised of finance charges from
trade receivables excluding those related to the financial services revolving
credit facility which are included in financial services revenues.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax income was
44.8% and 40.7% for fiscal 2000 and 1999, respectively. The increase in fiscal
2000 provision for income taxes percentage is related to the Company's sale of
its 80% owned subsidiary, RDO Rental Co.
6
<PAGE>
NET INCOME
The Company reported net income of $6.5 million, or $0.50 per share for fiscal
2000 compared to net income of $1.7 million, or $0.13 per share for fiscal 1999.
Net income and net income per share for fiscal 1999 includes a $15.0 million
inventory charge and a $2.2 million restructuring charge.
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED
TO FISCAL YEAR ENDED JANUARY 31, 1998
REVENUES
Revenues increased approximately $149.2 million, or 34.8%, from $429.4 million
for fiscal 1998, to $578.6 million for fiscal 1999. Construction, agricultural,
truck, rental and financial services operations represented approximately $312.2
million, $157.8 million, $75.1 million, $28.5 million and $5.0 million,
respectively. 57.1% of the increase in revenues, or $85.2 million, was due to
acquisitions and openings completed during fiscal 1999. Of those revenues, $10.4
million came from acquisitions and openings in construction operations, as the
number of retail locations increased from 25 to 31. There were acquisitions and
openings of material handling and construction retail stores in Iowa, Minnesota
and Nebraska. Acquisitions of truck operations added $66.2 million in revenues,
as the number of retail locations increased from one to four in Minnesota and
North Dakota. The acquisitions and openings of equipment rental operations
contributed $8.6 million in revenues as the number of rental locations increased
from eight to 14. One agricultural equipment rental store was acquired in
California while five construction equipment rental stores were opened or
acquired in Arizona, California and Nevada. In all, retail locations increased
from 50 to 64 during fiscal 1999. Comparable store revenues grew 5.2%. The
balance of the increase in revenues is attributable to acquisitions and openings
in fiscal 1998.
Equipment and truck sales increased approximately $102.4 million, or 33.9%, from
$301.7 million for fiscal 1998 to $404.1 million for fiscal 1999. Construction
operations contributed approximately $57.6 million of this increase, with
equipment sales increasing 33.2% to $231.0 million. Acquisitions and openings
completed during fiscal 1999 accounted for approximately $4.6 million of the
increase in construction equipment sales. Truck operations contributed
approximately $53.7 million of the total sales increase, with truck sales
increasing from $3.5 million to $57.2 million. Acquisitions completed during
fiscal 1999 accounted for approximately $51.9 million of the increase in truck
sales. Rental operations contributed approximately $3.5 million of the equipment
sales increase, with sales increasing from $700,000 to $4.2 million.
Acquisitions and openings completed during fiscal 1999 accounted for $2.2
million of the increase. Offsetting the increase in equipment and truck sales,
agricultural operations decreased approximately $12.4 million, or 10.0%, to
$111.7 million. The decrease in equipment sales was primarily attributable to
the depressed Midwest farm economy.
Parts and service revenues increased approximately $30.1 million, or 26.6%, from
$113.2 million for fiscal 1998 to $143.3 million for fiscal 1999. Construction
operations contributed approximately $14.4 million of the increase as sales grew
22.3% to $79.0 million. Of this increase, $4.0 million was due to acquisitions
and openings completed during fiscal 1999. Truck operations contributed
approximately $14.8 million of the increase as sales grew from $3.1 million to
$17.9 million. Of this increase, $14.4 million was due to acquisitions completed
during fiscal 1999. Rental operations contributed approximately $300,000 of the
increase as sales grew from $300,000 to $600,000. Of this increase, $100,000 was
due to acquisitions and openings completed during fiscal 1999. Parts and service
revenues from agricultural operations increased only slightly, 1.3%, or
$600,000, to $45.8 million primarily attributable to adverse conditions in the
Midwest farm economy.
7
<PAGE>
Rental revenues increased approximately $11.7 million, or 80.7%, from $14.5
million for fiscal 1998 to $26.2 million for fiscal 1999. Construction and
rental operations contributed substantially all of this increase. Acquisitions
and openings completed during fiscal 1999 represented approximately $8.2 million
of the increase.
Financial services revenues of approximately $5.0 million were generated in
fiscal 1999. Financial services revenues are comprised primarily of earnings
from interest rate additions on retail installment contracts, gains and service
fee income from securitized loans and leases receivable, and finance charges
from a revolving credit facility available to a portion of the Company's
customers.
GROSS PROFIT
Gross profit increased approximately $10.9 million, or 12.3%, from $88.4 million
in fiscal 1998 to $99.3 million in fiscal 1999. Gross profit for fiscal 1999 was
affected by the $15.0 million inventory charge discussed above. Gross profit as
a percentage of total revenues for fiscal 1999 and 1998 was 17.2% and 20.6%,
respectively. Gross profit, as a percentage of total revenues before the $15.0
million inventory charge, for fiscal 1999 was 19.8%. Gross profit has been
primarily affected by a more competitive and price sensitive marketplace
affecting the agricultural economy and construction equipment rental industry.
Gross profit is affected by the contribution of revenues by business segment and
by the mix of revenues within each business segment. Revenues from construction,
rental and financial services operations provide the Company with higher gross
margins than do agricultural and truck operations. The Company's highest gross
margins are derived from its parts and service, rental and financial services
revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percent of total
revenues were 14.1% for fiscal 1999 and 1998. Total SG&A expenses increased
approximately $21.3 million, from $60.4 million for fiscal 1998 to $81.7 million
for fiscal 1999. Approximately $10.2 million of the increase was due to the
operations of the Company's acquisitions and openings completed during fiscal
1999. SG&A expenses are affected by the contribution of revenues within each
business segment. As a percentage of revenues, SG&A expenses are generally
higher for construction and financial services operations than for agricultural,
truck and rental operations and lower for equipment and truck sales than for
parts and service and rental revenues.
INTEREST EXPENSE
Interest expense increased approximately $6.2 million, or 89.9%, from $6.9
million for fiscal 1998 to $13.1 million for fiscal 1999. The higher level of
interest expense is due to the Company operating at normalized debt levels after
having paid down debt following the Offering, the increased number of stores
which expanded inventory levels, and the need to maintain a larger equipment
rental fleet to support expanded rental operations.
8
<PAGE>
INTEREST INCOME
The decline in interest income of $600,000, or 46.2%, from fiscal 1998 is
attributable to reflecting interest rate additions on retail installment
contracts and finance charges relating to its revolving credit facility in the
financial services subsidiary formed in late fiscal 1998. During fiscal 1999,
interest income is comprised of finance charges from trade receivables excluding
those related to the financial services revolving credit facility.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax income for
fiscal 1999 and 1998 was 40.7%.
NET INCOME
The Company reported net income of $1.7 million, or $0.13 per share for fiscal
1999, which includes a $15.0 million inventory charge and a $2.2 million
restructuring charge, compared to net income of $13.3 million, or $1.00 per
share for fiscal 1998. Net income and net income per share before one-time,
non-recurring inventory and restructuring charges for fiscal 1999 were $11.9
million and $0.90 per share, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventories of equipment,
trucks and replacement parts, acquisitions and openings of additional retail
locations, rental equipment 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 & Company (Deere), Deere Credit Services, Inc. (Deere
Credit), Ag Capital Company (Ag Capital), Banc of America Leasing & Capital, LLC
(Banc of America), Deutsche Financial Services Corporation (Deutsche),
Associates Commercial Corporation (Associates), General Motors Acceptance
Corporation (GMAC), Volvo Commercial Finance LLC The Americas (Volvo) and
commercial banks.
Floor plan financing from Deere, Deere Credit and Banc of America represents the
primary source of financing for equipment inventories, particularly for
equipment supplied by Deere. Floor plan financing of truck inventories is
primarily supplied by Associates, GMAC and Volvo. On- and off-balance sheet
financing of rental equipment is primarily provided by Deutsche and Deere
Credit. Most lenders receive a security interest in the inventory financed. In
addition to floor plan financing supplied by manufacturers, the Company had
unused credit commitments related to floor plan financing and on- and
off-balance sheet financing of rental equipment of approximately $60.1 million
at January 31, 2000.
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, to enable dealers to carry representative inventories of equipment
and to encourage the purchase of goods 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. Occasionally
additional discounts may be available in lieu of interest-free periods. 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 suppliers. Deere Credit and Banc of
America provide equipment floor plan financing with variable market rates of
interest based on the prime rate and LIBOR, respectively. Associates, GMAC and
Volvo provide truck floor plan financing with variable market rates of interest
based on the prime rate. Deutsche provides rental equipment financing using
variable market rates of interest based on LIBOR.
9
<PAGE>
The Company has available operating lines of credit totaling $25.0 million with
varying maturity dates through July 1, 2000 with variable interest rates based
on LIBOR and prime. The Company had approximately $12.7 million of unused
availability relating to these lines of credit at January 31, 2000.
The Company periodically reviews the terms of its financing with its lenders,
including the interest rate. In fiscal 2000, 1999 and 1998 the average interest
rate under interest-bearing floor plan financing was approximately 7.37%, 7.48%,
and 8.20%, respectively. As of January 31, 2000 the Company had outstanding
floor plan payables of approximately $190.2 million, of which $157.4 million was
then interest-bearing. The average interest rates on the Company's lines of
credit during the years ended January 31, 2000, 1999 and 1998 were 7.92%, 8.13%
and 8.46%, respectively
The Company's financing agreements contain various restrictive covenants which,
among other matters, require the Company to maintain minimum financial ratios,
as defined, and place limits on certain activities. The Company was in
compliance with or obtained waiver letters for all debt covenants at January 31,
2000.
Operating activities, including changes in inventories and related floor-plan
payables, provided net cash of $20.2 million, $37.7 million and $38.2 million
for fiscal 2000, 1999 and 1998, respectively. The net cash provided by operating
activities for fiscal 1999 was after the inventory and restructuring charges.
Contributing to cash from operations for fiscal 1999 and 1998 was the financing
of inventory via floor plan lines previously paid down by the proceeds from its
Offering in January 1997. The financing proceeds were used to make acquisitions.
Cash used for investing activities in fiscal 2000, 1999 and 1998 was $4.9
million, $55.4 million and $44.9 million, respectively. The cash used in fiscal
2000 was primarily related to acquisitions and the purchase of property and
equipment for the Company's operations. The cash used in fiscal 1999 and 1998
was primarily related to acquisitions and the purchase of construction equipment
for the Company's rental operations. With fewer acquisitions and less purchases
of rental equipment in anticipation of the sale of RDO Rental Co., less funds
were expended during fiscal 2000. In fiscal 1999, there was an additional use of
cash related to the retained interest of loans and leases securitized. In
December 1999, the Company replaced the securitization finance structure with a
more favorable financing agreement which generated a source of cash for fiscal
2000.
Cash used for financing activities amounted to $11.1 million for fiscal 2000,
versus net cash provided by financing activities of $17.7 million and $6.3
million for fiscal 1999 and 1998, respectively. Cash used for financing
activities in fiscal 2000 was primarily attributable to payment of long-term
debt associated with the construction equipment rental company. Cash provided by
financing activities in fiscal 1999 was primarily attributable to financing of
rental equipment for the Company's rental operations and net additional
borrowings on the Company's bank lines. Cash provided by financing activities in
fiscal 1998 was primarily attributable to financing of rental equipment for the
Company's rental operations.
The Company believes cash from operations, available cash and borrowing capacity
will be sufficient to fund its planned internal capital expenditures for fiscal
2001.
10
<PAGE>
EFFECTS OF INFLATION
Inflation has not had a material impact upon operating results and the Company
does not expect it to have such an impact in the future. To date, in those
instances in which the Company has experienced cost increases, it has been able
to increase selling prices to offset such increases in cost. There can be no
assurance, however, that the Company's business will not be affected by
inflation or that it can continue to increase its selling prices to offset
increased costs and remain competitive.
CYCLICALITY
Sales of equipment and trucks, particularly new units, historically have been
cyclical, fluctuating with general economic cycles. During economic downturns,
equipment and truck retailers tend to experience similar periods of decline and
recession as the general economy. The impact of an economic downturn on
retailers is generally less than the impact on manufacturers due to the sale of
parts and service by retailers to maintain used equipment and trucks. The
Company believes that its businesses are influenced by worldwide and local
economic conditions (see "Safe Harbor Statement") and that its geographic and
business diversification will generally reduce the overall impact of economic
cycles on the Company's operations.
SEASONALITY
The Company's agricultural operations generally experience a higher volume of
equipment sales in the second and third fiscal quarters due to the crop growing
season. Typically, farmers purchase equipment prior to planting or harvesting
crops. Winter weather conditions in the Midwest limit equipment purchases during
the Company's first and fourth fiscal quarters. This seasonal effect is
diminished during periods of significant and sustained weakness in the
agricultural economy during which farmers generally purchase less equipment.
The Company's construction operations also generally experience a higher volume
of equipment sales in the second and third fiscal quarters due to favorable
weather patterns, particularly in the Midwest. The general slowdown in
construction activity at the end of the calendar year influences the fourth
fiscal quarter. Further, winter weather conditions in the Midwest and parts of
the Southwest and South Central also limit construction activity to some degree,
typically resulting in lower sales and rentals of construction equipment.
Since the Company's truck operations do not generally have any significant
seasonality, the Company's overall seasonality has tended to decline as truck
revenues have become a greater percentage of total revenues. If the Company
acquires businesses in geographical areas other than where it currently has
operations, it may be affected by other seasonal or equipment buying trends.
YEAR 2000
The Company experienced no application software or hardware problems, no
disruptions of products or services from any vendors and manufacturers and no
problems with any financial institutions during the rollover to the year 2000.
The total cost of the modifications and upgrades to date has been approximately
$56,000 and no future costs are expected to be significant. These costs were
expensed as incurred.
11
<PAGE>
SAFE HARBOR STATEMENT
This statement is made under the Private Securities Litigation Reform Act of
1995. 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 21, 2000, in the Company's Form 8-K dated
April 21, 2000, 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
farm cash income, farmer debt levels, credit availability, worldwide demand for
agricultural products, world grain stocks, commodity 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, transportation and government spending on infrastructure;
climatic phenomena such as La Nina and El Nino; pricing, product initiatives and
other actions of competitors in the various industries in which the Company
competes, including manufacturers and retailers; the levels of new and used
inventories in these 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; labor shortages; 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; capital needs and capital market conditions; operating and
financial systems to manage rapidly growing operations; dependence upon key
personnel; accounting standards; technological difficulties, especially
involving the Company's suppliers and other third parties, including the
processing of date-sensitive information, which could cause the Company to be
unable to process customer orders, deliver products or services, or perform
other essential functions; 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
are often revised. 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.
12
<PAGE>
RDO EQUIPMENT CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
- -------------------------------------------------------------------------------------------------
[in thousands, except per share amounts] 2000 1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Equipment and truck sales $ 476,773 $ 404,093 $ 301,684
Parts and service 173,336 143,335 113,268
Rental 32,178 26,208 14,451
Financial services 6,683 4,988 --
- -------------------------------------------------------------------------------------------------
Total revenues 688,970 578,624 429,403
COST OF REVENUES (Note 3) 566,877 479,275 340,987
- -------------------------------------------------------------------------------------------------
GROSS PROFIT 122,093 99,349 88,416
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 97,431 81,682 60,382
RESTRUCTURING CHARGES (Note 3) -- 2,200 --
- -------------------------------------------------------------------------------------------------
Operating income 24,662 15,467 28,034
INTEREST EXPENSE (14,536) (13,138) (6,864)
INTEREST INCOME 817 711 1,326
GAIN ON SALE OF RDO RENTAL CO. 786 -- --
- -------------------------------------------------------------------------------------------------
Income before income taxes and minority interest 11,729 3,040 22,496
INCOME TAX PROVISION 5,252 1,237 9,156
- -------------------------------------------------------------------------------------------------
Income before minority interest 6,477 1,803 13,340
MINORITY INTEREST (60) 135 89
- -------------------------------------------------------------------------------------------------
NET INCOME $ 6,537 $ 1,668 $ 13,251
=================================================================================================
Basic and diluted net income per share $ 0.50 $ 0.13 $ 1.00
=================================================================================================
Weighted average shares outstanding - basic 13,182 13,182 13,181
Weighted average shares outstanding - diluted 13,184 13,201 13,287
=================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS
13
<PAGE>
RDO EQUIPMENT CO. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AS OF JANUARY 31,
- -------------------------------------------------------------------------------------------------------------------
[in thousands] 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 4,207 $ 51
Accounts receivable (less allowance for doubtful accounts of $1,874 and $1,616) 75,536 59,233
Receivables from affiliates 31 3,197
Inventories 217,556 208,368
Prepaid expense 573 1,588
Deferred income tax benefit 4,910 5,680
- -------------------------------------------------------------------------------------------------------------------
Total current assets 302,813 278,117
PROPERTY AND EQUIPMENT, NET 21,944 63,702
OTHER ASSETS:
Goodwill and other, net of accumulated amortization of $3,246 and $1,888 36,205 36,326
Deposits 1,035 1,075
- -------------------------------------------------------------------------------------------------------------------
Total assets $361,997 $379,220
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan payables $190,242 $191,030
Notes payable 12,330 15,395
Current maturities of long-term debt 2,791 12,083
Accounts payable 6,169 8,373
Accrued liabilities 23,490 11,649
Customer advance deposits 2,824 2,114
Dividends payable (Note 10) 742 734
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 238,588 241,378
LONG-TERM DEBT, net of current maturities 11,483 28,055
DEFERRED INCOME TAXES 1,460 5,210
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 251,531 274,643
- -------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 11)
MINORITY INTEREST 1,191 1,839
STOCKHOLDERS' EQUITY (Note 10):
Preferred stock -- --
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,471 84,471
Retained earnings 24,672 18,135
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 109,275 102,738
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $361,997 $379,220
===================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
14
<PAGE>
RDO EQUIPMENT CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31, 2000, 1999 AND 1998
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
--------------------- TOTAL ADDITIONAL
CLASS A CLASS B COMMON PAID-IN RETAINED
[in thousands, except share amounts] SHARES SHARES STOCK CAPITAL EARNINGS TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 31, 1997 5,721,508 7,458,492 $ 132 $ 84,447 $ 3,216 $ 87,795
Class B common stock converted to Class A common stock 8,000 (8,000) -- -- -- --
Issuance of common stock 1,500 -- -- 24 -- 24
Net income -- -- -- -- 13,251 13,251
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1998 5,731,008 7,450,492 132 84,471 16,467 101,070
Net income -- -- -- -- 1,668 1,668
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 1999 5,731,008 7,450,492 132 84,471 18,135 102,738
Net income -- -- -- -- 6,537 6,537
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 31, 2000 5,731,008 7,450,492 $ 132 $ 84,471 $ 24,672 $ 109,275
================================================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
15
<PAGE>
RDO EQUIPMENT CO. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JANUARY 31,
- ------------------------------------------------------------------------------------------------------------
[in thousands] 2000 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 6,537 $ 1,668 $ 13,251
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 12,950 10,506 5,308
Deferred taxes (2,980) (428) 410
Minority interest (60) 135 89
Loss on sale of irrigation division assets -- 1,360 --
Gain on sale of RDO Rental Co. (786) -- --
Change in operating assets and liabilities:
Accounts receivable (972) (14,519) (10,594)
Inventories 8,098 25,719 (72,874)
Prepaid expenses 524 (667) (118)
Deposits 57 792 (404)
Floor plan payables (11,987) 14,056 97,495
Accounts payable and accrued liabilities 8,093 (188) 5,712
Customer advance deposits 702 (747) (115)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 20,176 37,687 38,160
- ------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net purchases of rental equipment (485) (19,769) (14,185)
Net purchase of property and equipment (3,409) (5,132) (3,766)
Net assets of acquisitions (4,404) (25,455) (26,478)
Retained investment and service fee on securitized receivables 3,813 (3,813) --
Other, net (389) (1,240) (483)
- ------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (4,874) (55,409) (44,912)
- ------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 7,322 15,505 15,777
Payments on long-term debt (15,403) (9,330) (9,308)
Net proceeds (payments) of bank lines and short-term notes payable (3,065) 11,561 (67)
Issuance of common stock, net of issuance costs -- -- 24
Payment of dividends -- -- (96)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (11,146) 17,736 6,330
- ------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH 4,156 14 (422)
CASH AND CASH EQUIVALENTS, beginning of year 51 37 459
- ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 4,207 $ 51 $ 37
============================================================================================================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the results of RDO Equipment Co.,
a C corporation (RDO) and its wholly-owned subsidiaries, RDO Truck Center Co.,
RDO Financial Services Co., RDO Material Handling Co., Minnesota Valley
Irrigation, Inc. (MVI), and its majority-owned subsidiaries Hall GMC, Inc.
(85%), Hall Truck Center, Inc. (85%), Salinas Equipment Distributors, Inc. (89%)
and RDO Rental Co. (80%). In November 1998, the assets of MVI were sold to a
related party (see Notes 3 and 12). In January 2000, RDO sold all of its shares
of RDO Rental Co. (see Note 4). RDO and its consolidated subsidiaries are
referred to herein as the Company.
BUSINESS
As a specialty retailer, the Company distributes, sells, services, rents and
finances equipment and trucks to the agricultural, construction, manufacturing,
transportation and warehousing industries, including units of state, local and
federal government and utility companies. Accordingly, the Company's results of
operations can be significantly impacted by the general economic health of these
industries. The Company's stores are located in Arizona, California, Minnesota,
Montana, Nebraska, North Dakota, South Dakota, Texas and Washington.
The Company's major suppliers of new equipment, trucks and parts for sale are
Deere & Company (Deere) and Volvo AB. Revenues from these major suppliers are as
follows:
2000 1999 1998
- --------------------------------------------------------------------------------
Deere & Company 35% 43% 48%
Volvo AB 10% 2% --
================================================================================
No other suppliers accounted for more than 10% of total revenues.
As discussed in Note 12, the Company has significant transactions with related
parties, primarily related to financing arrangements.
DEERE DEALERSHIP AGREEMENTS
The Company has entered into agreements with Deere which authorize the Company
to act as an authorized dealer of Deere construction and agricultural equipment.
The dealer agreements continue until terminated by Deere or the Company in
accordance with the specified provisions.
The Company is required to meet certain performance criteria and equity ratios,
maintain suitable facilities, actively promote the sale of Deere equipment,
fulfill warranty obligations and maintain stores only in the authorized
locations. Ronald D. Offutt is also required to maintain certain voting control
and ownership interests. The agreements also contain certain provisions that
must be complied with in order to retain the Company's dealership agreements in
the event of the death of Ronald D. Offutt and a subsequent change in control,
as defined. The Company was in compliance with the terms of the Deere agreements
at January 31, 2000.
17
<PAGE>
Deere is obligated to make floor plan and other financing programs available to
the Company that it offers to other dealers, provide promotional and marketing
materials, and authorize the Company to use Deere trademarks and trade names.
2. SIGNIFICANT ACCOUNTING POLICIES:
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses during
the reporting period and disclosure of contingent assets and liabilities. The
ultimate results could differ from those estimates. Estimates are used for such
items as valuation of used equipment and truck inventory, depreciable lives of
property and equipment, allowance for uncollectible accounts, cash flows on
securitized transactions, guarantees, inventory and self-insurance reserves. As
better information becomes available or as actual amounts are determinable, the
recorded estimates are revised.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with original
maturities of three months or less to be cash equivalents.
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, trucks and parts
inventory. The specific identification method is used to determine cost for used
equipment and trucks.
Inventories consisted of the following as of January 31:
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
New equipment and trucks $ 149,018 $ 152,707
Used equipment and trucks 39,159 28,865
Parts and other 29,379 26,796
- --------------------------------------------------------------------------------
Total $ 217,556 $ 208,368
================================================================================
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Maintenance and repairs are charged
to expense as incurred. Improvements which extend the useful life of the related
item are capitalized and depreciated. Depreciation is provided for over the
estimated useful lives of the individual assets using accelerated and
straight-line methods.
Property and equipment consisted of the following as of January 31:
(in thousands) 2000 1999 Lives
- --------------------------------------------------------------------------------
Land $ 501 $ 614 --
Buildings and improvements 7,141 7,194 5-31.5
Equipment, furniture and fixtures 20,546 18,044 3-7
Rental equipment 8,828 58,781 3-7
Construction in progress 368 184 --
- --------------------------------------------------------------------------------
Total 37,384 84,817
Accumulated depreciation (15,440) (21,115)
- --------------------------------------------------------------------
Property and equipment, net $ 21,944 $ 63,702
====================================================================
18
<PAGE>
REVENUE RECOGNITION
Revenue on equipment, truck and parts sales is recognized upon delivery of
product to customers. Rental and service revenue is recognized at the time such
services are provided.
SECURITIZED RECEIVABLES
During fiscal 2000 and 1999, certain loan and lease receivables were securitized
wherein they were sold to a special-purpose corporation which is a related
party. The Company retained a minimum investment in sold receivables, limited to
10%. Upon sale, a gain was recognized on the receivables for the difference
between carrying values and the sales proceeds based on estimates of future
expected cash flows including adjustments for prepayments and credit losses. The
Company serviced the underlying receivables on behalf of the special-purpose
corporation in return for a fee. The Company sold approximately $29.4 million
and $57.1 million of loan and lease receivables during fiscal 2000 and 1999,
respectively. Approximately $1.6 million and $2.2 million of gains on sales and
servicing fee income were recognized as financial service revenues in the
accompanying statement of operations during fiscal 2000 and 1999, respectively.
In December 1999, the Company replaced its securitization financing structure in
favor of new financing arrangements and incurred a one-time loss of $399,000
which has been reflected as a reduction of financial service revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Unless otherwise disclosed, the carrying amounts of financial instruments,
including cash and cash equivalents, receivables, accounts payable, floor plan
payables, and notes payable approximate fair value because of relatively short
or variable rates on these instruments.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board released Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." SFAS No. 133 established accounting and reporting standards
requiring that every derivative instrument (including certain derivative
instruments embedded in other contracts) be recorded in the balance sheet as
either an asset or liability measured at its fair value. SFAS No. 133 also
required that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Special accounting
for qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires that a company
must formally document, designate and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 (as amended) is effective for all
quarters of fiscal years beginning after June 15, 2000. The Company does not
expect the adoption to materially impact its results of operations or financial
position.
19
<PAGE>
3. INVENTORY AND RESTRUCTURING CHARGES:
During the third quarter of fiscal 1999, the Company initiated corporate actions
designed to generate cash, fund growth opportunities, discontinue non-strategic
operations and achieve more cost efficient operations. These initiatives were
undertaken as the Company assessed current industry and financial market
conditions, primarily the financial problems in the agricultural economy, that
were projected to impact the Company's future business. These initiatives
included one-time, non-recurring charges relating to inventory and asset
writedowns, reserves and severance costs. The Company took a $15.0 million
inventory charge which is included in cost of revenues and a $2.2 million
restructuring charge in connection with asset writedowns and severance costs,
which included exiting the agricultural irrigation equipment business.
4. BUSINESS COMBINATIONS:
During fiscal 2000 and 1999, the Company made several acquisitions of
construction equipment, equipment rental and heavy-duty truck operations. 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, which is amortized over 30 years.
The following summarizes the assets acquired, liabilities assumed and cash
purchase price of the acquisitions made during the fiscal years ended January
31:
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
Assets acquired $ 25,247 $ 51,032
Less: liabilities assumed 20,843 25,577
- --------------------------------------------------------------------------------
Cash purchase price $ 4,404 $ 25,455
================================================================================
Number of acquisitions 2 6
================================================================================
The accompanying unaudited pro forma results of operations for the fiscal years
ended January 31, 2000 and 1999 give effect to the above acquisitions as if they
were completed at the beginning of fiscal 1999. 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 date or to project the Company's results of future operations as of
January 31:
(in thousands, except per share data) 2000 1999
- --------------------------------------------------------------------------------
Revenues $ 717,183 $ 702,137
================================================================================
Net income $ 6,312 $ 1,935
================================================================================
Weighted average shares outstanding - basic 13,182 13,182
================================================================================
Weighted average shares outstanding - diluted 13,184 13,201
================================================================================
Basic and diluted net income per share $ 0.48 $ 0.15
================================================================================
On January 31, 2000, the Company sold its interest in its 80% owned subsidiary
RDO Rental Co. The gross proceeds, net of inter-company debt, were approximately
$6.2 million. The Company recognized a $786,000 gain on the sale.
20
<PAGE>
5. FLOOR PLAN PAYABLES:
Floor plan payables are financing arrangements for inventory. The terms of these
arrangements may include a one- to twelve-month interest-free term followed by a
term during which interest is charged. Payoff of the floor plan generally occurs
at the earlier of sale of the inventory or in accordance with the terms of the
financing arrangements. All amounts owed to Deere & Company are guaranteed by
Ronald D. Offutt and are collateralized by inventory. Floor plan payables
consist of the following as of January 31:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest-bearing:
Deere Credit Services, Inc., inventory notes, due as inventory is sold, interest at
various rates, 7.63% to 8.5% at January 31, 2000, based on prime $ 57,501 $ 66,145
Banc of America Leasing & Capital, LLC, 7.81% at January 31, 2000,
based on LIBOR 32,500 33,900
Volvo Commercial Finance LLC The Americas, 8.25% at January 31, 2000,
based on prime 31,539 --
Ag Capital Company (affiliate), 8.33% at January 31, 2000, based on LIBOR 13,509 23,333
Associates Commercial Corporation, 8.5% at January 31, 2000, based on prime 9,441 6,968
General Motors Acceptance Corporation, 8.0% at January 31, 1999, based
on prime 7,358 6,457
Deere & Company, due as inventory is sold, 9.0% at January 31, 2000,
based on prime 4,197 8,514
Other 1,359 810
- -------------------------------------------------------------------------------------------------------------------
157,404 146,127
===================================================================================================================
Noninterest-bearing:
Deere & Company 27,104 41,839
Deere Credit Services, Inc. 4,813 2,866
Other 921 198
- -------------------------------------------------------------------------------------------------------------------
32,838 44,903
- -------------------------------------------------------------------------------------------------------------------
Total $190,242 $191,030
===================================================================================================================
</TABLE>
The Company has certain floor plan financing agreements containing various
restrictive covenants which, among other matters, require the Company to
maintain minimum net worth levels, as defined, and place limits on additional
indebtedness. The Company was in compliance with or obtained waiver letters for
all floor plan covenants at January 31, 2000.
21
<PAGE>
6. NOTES PAYABLE AND LONG-TERM DEBT:
NOTES PAYABLE
Notes payable consisted of the following as of January 31:
(in thousands) 2000 1999
- --------------------------------------------------------------------------------
Ag Capital Company (affiliate), operating lines $12,330 $12,735
Bank operating lines -- 2,660
- --------------------------------------------------------------------------------
Total notes payable $12,330 $15,395
================================================================================
The Company has operating lines of credit which provide maximum borrowings
totaling $25.0 million with varying maturity dates through July 1, 2000 with
variable interest rates based on LIBOR and prime. The highest balances
outstanding under these lines were $23.0 million and $21.1 million for fiscal
years ended January 31, 2000 and 1999, respectively. The weighted average
interest rates on these lines during such periods were 7.92% and 8.13%,
respectively.
LONG-TERM DEBT
Long-term debt consisted of the following as of January 31:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deutsche Financial Services Corporation, a revolving equipment facility,
7.93% at January 31, 2000, based on LIBOR, $ -- $ 27,551
collateralized by rental equipment
Ag Capital Company (affiliate), interest (fixed and variable 8.5% to 8.58%)
collateralized by various receivables and fixed assets of the Company 8,151 4,291
Volvo Trucks North America, Inc., due in various amounts through
September 2004, 8.5% at January 31, 2000, based on prime, unsecured 2,640 --
Volvo Trucks North America, Inc., due in various amounts through
September 2002, interest free, unsecured 2,400 --
Other 1,083 2,263
Others paid off during the year -- 6,033
- ---------------------------------------------------------------------------------------------------------------
Total 14,274 40,138
Less current maturities of long-term debt (2,791) (12,083)
- ---------------------------------------------------------------------------------------------------------------
Total long-term debt, net of current maturities $ 11,483 $ 28,055
===============================================================================================================
</TABLE>
Future long-term debt maturities as of January 31, 2000 are as follows:
(in thousands)
---------------------------------------------------
2001 $ 2,791
2002 2,609
2003 6,966
2004 675
2005 1,233
Thereafter --
---------------------------------------------------
Total $ 14,274
===================================================
The Company has notes payable and long-term debt agreements containing various
restrictive covenants which, among other matters, require the Company to
maintain minimum net worth levels, as defined, and place limits on additional
indebtedness. The Company was in compliance with all debt covenants at January
31, 2000.
22
<PAGE>
7. EARNINGS PER SHARE:
The following summarizes the computation of weighted average shares outstanding
and the net income per share for the fiscal years ended January 31:
<TABLE>
<CAPTION>
(in thousands, except for per share data) 2000 1999 1998
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income available to common shareholders $ 6,537 $ 1,668 $ 13,251
==================================================================================================
Weighted average number of common shares outstanding - basic 13,182 13,182 13,181
Dilutive effect of option plan 2 19 106
- --------------------------------------------------------------------------------------------------
Common and potential common shares outstanding - diluted 13,184 13,201 13,287
==================================================================================================
Basic and dilutive net income per share $ 0.50 $ 0.13 $ 1.00
==================================================================================================
</TABLE>
8. EMPLOYEE BENEFIT PLANS:
401(k) EMPLOYEE SAVINGS PLAN
The Company's employees participate in a 401(k) employee savings plan which
covers substantially all employees. The Company matches a portion of employee
contributions up to an annual maximum of $900 per employee. Contributions to the
plan by the Company were $643,000, $580,000 and $409,000 for the fiscal years
ended January 31, 2000, 1999 and 1998, respectively.
EMPLOYEE HEALTH BENEFIT TRUST
The Company participates in a tax-exempt voluntary employee benefit trust
sponsored by an affiliate which provides health and dental benefits for
full-time employees. In the event of a deficiency in the trust, additional
monthly premiums could be assessed to the Company; however, management
anticipates no substantial increases in premiums at the present time. The
maximum liability to the Company is limited by stop-loss insurance to the lesser
of $35,000 per employee or 120% of expected claims for the year.
STOCK-BASED COMPENSATION PLAN
The Company's 1996 Stock Incentive Plan (the Plan) provides incentives to key
employees, directors, advisors and consultants of the Company. The Plan, which
is administered by the Compensation Committee of the Board of Directors (the
Committee), provides for an authorization of shares of Class A common stock for
issuance thereunder limited to 10% of the total number of shares of common stock
issued and outstanding. Under the Plan, the Company may grant eligible
recipients incentive stock options, nonqualified stock options, restricted
stock, stock appreciation rights, stock awards, or any combination thereof. The
Committee establishes the exercise price, vesting schedule and expiration date
of any stock options granted under the Plan. Options outstanding at January 31,
2000 generally vest over a four to five year schedule and expire ten years after
the date of grant.
23
<PAGE>
During fiscal 1999, the board of directors approved a repricing of all
outstanding stock options held by the Company's employees. Under the repricing,
its employees were given the option to exchange their current stock options for
35% fewer options with an exercise price of $10, which was slightly greater than
the fair market value ($9.0625) of the Company's common stock on that date. A
total of 468,500 options formerly priced at $15.50 to $17.25 were exchanged for
304,525 options priced at $10. The new options vest 20% per year starting on the
new date of grant.
Information regarding the Plan as of January 31, is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of the year 696,525 $ 15.50 578,500 $ 15.50 560,000 $ 15.50
Granted 220,000 5.95 629,025 11.75 35,000 15.50
Canceled (87,275) 10.30 (511,000) 16.01 (15,000) 15.50
Exercised -- -- -- -- (1,500) 15.50
- ------------------------------------------------------------------------------------------------------------------
Outstanding, end of year 829,250 $ 10.35 696,525 $ 11.74 578,500 $ 15.50
==================================================================================================================
Exercisable, end of year 406,010 $ 9.68 169,905 $ 13.23 144,500 $ 15.50
==================================================================================================================
Weighted average fair value of
options granted $ 2.81 $ 4.99 $ 6.71
==================================================================================================================
</TABLE>
Options outstanding at January 31, 2000 have exercise prices ranging from $5.875
to $15.50 and a weighted average remaining contractual life of 8.60 years.
The Company accounts for the Plan under APB Opinion No. 25, under which no
compensation cost has been recognized for options granted to employees. Had
compensation cost for the Plan been determined consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123), the Company's pro forma net income and pro forma net
income per common share would have been as follows at January 31:
<TABLE>
<CAPTION>
(in thousands, except per share data) 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $ 6,537 $ 1,668 $ 13,251
=================================================================================================================
Pro forma $ 5,680 $ 823 $ 12,445
=================================================================================================================
Basic and diluted net income per share:
As reported $ 0.50 $ 0.13 $ 1.00
=================================================================================================================
Pro forma $ 0.43 $ 0.06 $ 0.94
=================================================================================================================
</TABLE>
In determining the pro forma compensation cost of the options granted during
fiscal 2000 and 1999, as specified by SFAS 123, the fair value of each option
grant was estimated on the date of grant using the Black-Scholes option pricing
model. The weighted average assumptions used in these calculations are
summarized below:
24
<PAGE>
<TABLE>
<CAPTION>
2000 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk free interest rate 6.24% 4.99% 5.95%
Expected life of options granted 4.60 years 4.90 years 4.94 years
Expected volatility of options granted 46.29% 44.93% 31.71%
</TABLE>
9. INCOME TAXES:
The components of the income tax provision are summarized as follows as of
January 31:
<TABLE>
<CAPTION>
(in thousands) 2000 1999 1998
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal $ 7,080 $ 1,425 $ 7,528
State 1,152 240 1,218
Deferred income tax provision (benefit) (2,980) (428) 410
- -------------------------------------------------------------------------------------
Provision for income taxes $ 5,252 $ 1,237 $ 9,156
=====================================================================================
</TABLE>
The difference between the federal statutory rate of 35%, 34% and 35% for the
fiscal years ended January 31, 2000, 1999 and 1998, respectively, and the
provision for income taxes represents the impact of state income taxes, net of
the federal benefit. In addition, the fiscal 2000 tax rate was affected by
additional taxes relating to the structure of the sale of RDO Rental Co.
The current deferred tax asset and the long-term deferred tax liability
consisted of the following temporary differences between the financial statement
carrying amounts and the tax basis of assets and liabilities at January 31:
<TABLE>
<CAPTION>
(in thousands) 2000 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Accruals and other reserves $ 2,230 $ 1,010
Inventory 2,120 4,190
Compensation accruals 560 480
- -------------------------------------------------------------------------------------
Net current deferred tax asset 4,910 5,680
- -------------------------------------------------------------------------------------
Property and equipment (850) (4,720)
Goodwill (880) (490)
Other 270 --
- -------------------------------------------------------------------------------------
Net long-term deferred tax liability (1,460) (5,210)
- -------------------------------------------------------------------------------------
Total $ 3,450 $ 470
=====================================================================================
</TABLE>
25
<PAGE>
10. CAPITAL STOCK AND DIVIDENDS PAYABLE:
CAPITAL STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Class A common stock, 7,500,000 shares of Class B common stock and 500,000
shares of preferred stock, each with a par value of $0.01 per share. The
economic rights of each class of common stock are the same, but the voting
rights differ. Each share of Class A common stock is entitled to one vote per
share and each share of Class B common stock is entitled to four votes per
share. In addition, the shares of Class B common stock contain restrictions as
to transferability and are convertible into shares of Class A common stock on a
one-for-one basis.
The following is a summary of the Company's issued and outstanding shares of
common stock as of January 31:
2000 1999
- --------------------------------------------------------------------------------
Class A shares 5,731,008 5,731,008
Class B shares 7,450,492 7,450,492
- --------------------------------------------------------------------------------
Total shares 13,181,500 13,181,500
================================================================================
DIVIDENDS PAYABLE
Prior to the Company's initial public offering in January 1997, an S corporation
distribution was made in connection with the termination of the Company's S
corporation tax status. A portion of this distribution was retained by the
Company for any potential tax liabilities related to the previously filed
federal and state S corporation tax returns. The balance remaining to be
distributed as of January 31, 2000 is $742,000.
11. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
The Company leases retail space, vehicles and rental equipment under various
noncancelable operating leases. The leases have varying terms and expire at
various dates through 2010. Generally, the leases require the Company to pay
taxes, insurance and maintenance costs. Lease expense was $13.7 million, $11.3
million and $6.2 million for fiscal 2000, 1999 and 1998, respectively.
Future minimum lease payments, by year, required under leases with initial or
remaining terms of one year or more consist of the following:
(in thousands)
----------------------------------------------
2001 $12,227
2002 11,083
2003 9,198
2004 6,782
2005 4,282
Thereafter 10,486
----------------------------------------------
Total $54,058
==============================================
GUARANTEES
Certain credit companies provide financing to the Company's customers. A portion
of this financing is with recourse to the Company. The contingent liability
relating to affiliate contracts is capped at 10% of the amount of the aggregate
outstanding contracts. Certain construction contracts with Deere Credit
Services, Inc. are full recourse while agricultural contracts are limited to a
cash deposit amounting to 3% of the aggregate outstanding contracts. The Company
also factors certain accounts receivable to Deere Credit Services, Inc. with
recourse which, therefore may be charged back to the Company. The contingent
liability relating to Associates Commercial Corporation range from 5% to 10% of
the individual contract's outstanding balance. These customer notes are
collateralized by the customer-owned equipment. As of January 31, 2000, the
contingent liability and off-setting deposits are as follows:
26
<PAGE>
Finance
Guaranteed Deposits
(in thousands) Amounts Receivable
- --------------------------------------------------------------------------------
Deere Credit Services, Inc. $ 7,322 $ 692
Associates Commercial Corporation 5,623 --
ACL Company, LLC (affiliate) 938 --
Ag Capital Company (affiliate) 442 --
Farmers Equipment Rental, Inc. (affiliate) 23 --
- --------------------------------------------------------------------------------
Total $14,348 $ 692
================================================================================
MINIMUM REPURCHASE GUARANTEES
The Company has entered into sales agreements with certain customers which are
subject to repurchase agreements. Pursuant to these agreements, the Company, at
the discretion of the customer, may be required to repurchase equipment at
specified future dates at specified repurchase prices. With respect to these
agreements, the Company believes the estimated future retail values of the
equipment equals or exceeds the guaranteed repurchase prices. The Company
accounts for significant transactions which have a guaranteed repurchase feature
as leases.
The Company's existing repurchase agreements as of January 31, 2000 expire as
follows:
(in thousands)
----------------------------------------------
2001 $ 4,834
2002 2,710
2003 2,454
2004 1,422
2005 1,473
Thereafter 72
----------------------------------------------
Total $12,965
==============================================
LITIGATION
In the normal course of business, the Company is subject to various claims,
legal actions, contract negotiations and disputes. Although the ultimate outcome
of such claims cannot be ascertained at this time, it is the opinion of
management, after consultation with counsel, that the resolution of such claims
will not have a material adverse effect on the results of operations and cash
flows of the Company.
12. RELATED-PARTY TRANSACTIONS:
The Company's summary of significant related-party transactions is as follows:
a. Ag Capital Company, ACL Company, LLC and Farmers Equipment Rental, Inc.
provide financing to customers purchasing equipment, parts and repair
service from the Company. The Company is contingently liable to these
related parties on a portion of this customer financing as summarized in
Note 11.
27
<PAGE>
b. In addition, the Company has floor plan payables, notes payable and
long-term debt owed to Ag Capital Company to finance inventory, various
receivables and fixed assets as summarized in Notes 5 and 6. Interest
expense paid to related parties totaled $3.6 million, $2.1 million and $1.1
million in fiscal 2000, 1999 and 1998, respectively.
c. The Company had sales to related parties totaling $2.2 million, $7.1
million and $10.4 in fiscal 2000, 1999 and 1998, respectively. The Company
also leases certain retail space and vehicles from related parties. Total
lease expense for these leases totaled $6.2 million, $5.9 million and $2.9
million in fiscal 2000, 1999 and 1998, respectively.
d. In November 1998, the Company sold the assets of MVI, its agricultural
irrigation equipment business, to a related party. The sales price was
approximately $5.0 million resulting in a loss of approximately $1.4
million.
13. SUPPLEMENTAL CASH FLOW DISCLOSURES:
Supplemental cash flow disclosures for the Company as of January 31 are as
follows:
<TABLE>
<CAPTION>
(in thousands) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash payments for interest $13,744 $13,692 $ 6,610
==============================================================================================================
Cash payments for income taxes $ 2,444 $ 6,730 $ 7,725
==============================================================================================================
Supplemental disclosures of noncash investing and financing activities:
Increase in assets related to acquisitions through issuance
and assumption of debt $20,843 $25,577 $13,798
Decrease in assets related to sale of RDO Rental Co. stock $39,217 -- --
Increase in long-term debt related to refinancing
of short-term debt $ 5,000 -- --
Sale of rental assets for purchaser's assumption of debt $ 2,526 -- --
Decrease in assets related to sale of irrigation division assets
through issuance of a receivable and purchaser's
assumption of debt -- $ 5,000 --
==============================================================================================================
</TABLE>
14. SEGMENT INFORMATION:
The Company's operations are classified into five business segments:
construction, agricultural, truck, rental and financial services. The
construction operations include the sale, service and rental of construction
equipment to customers primarily in the construction and utility industries and
to units of government. Agricultural operations include the sale, service and
rental of agricultural equipment primarily to customers in the agricultural
industry. The truck operations include the sale and service of heavy-duty trucks
to customers primarily in the transportation and construction industries. The
rental operations provide rental of construction and agricultural equipment to
customers primarily in construction and agricultural industries. The financial
services operations primarily provide financing arrangements to customers of the
Company's other business segments. Prior to fiscal 1999, similar income was
included in other segments.
28
<PAGE>
Identifiable assets are those used exclusively in the operations of each
business segment or which are allocated when used jointly. Corporate assets are
principally comprised of cash, short-term investments, certain property and
equipment, and deferred income taxes. Financial services includes interest
income and interest expense in revenues and cost of revenues, respectively.
The following table shows the Company's business segments and related financial
information for fiscal 2000, 1999 and 1998:
<TABLE>
<CAPTION>
Financial
Services and
(in thousands) Construction Agricultural Truck Rental Corporate Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000:
Revenues from (1) (1)
external customers $ 336,964 $ 127,605 $ 178,774 $ 38,944 $ 6,683 $ 688,970
Interest income 53 422 167 175 -- 817
Interest expense 6,594 2,691 2,416 2,835 -- 14,536
Depreciation and
amortization 2,509 894 909 7,420 1,218 12,950
Income (loss) before income
taxes and minority interest 9,687 876 (223) (1,029) 2,418 11,729
Identifiable assets 153,790 66,533 89,363 9,991 42,320 361,997
Capital expenditures (383) 46 918 1,844 1,469 3,894
1999:
Revenues from
external customers $ 312,194 $ 157,776 $ 75,119 $ 28,547 $ 4,988 $ 578,624
Interest income 11 499 65 136 -- 711
Interest expense 6,304 3,169 819 2,846 -- 13,138
Depreciation and
amortization 2,205 959 414 5,813 1,115 10,506
Income (loss) before income
taxes and minority interest 6,346 (7,223) 1,457 555 1,905 3,040
Identifiable assets 173,441 90,951 33,638 53,924 27,266 379,220
Capital expenditures 6,211 516 511 15,942 1,721 24,901
1998:
Revenues from
external customers $ 239,327 $ 170,625 $ 6,604 $ 12,847 $ -- $ 429,403
Interest income 648 551 21 106 -- 1,326
Interest expense 3,521 1,757 141 1,445 -- 6,864
Depreciation and
amortization 1,875 774 51 2,456 152 5,308
Income before income taxes
and minority interest 12,483 8,801 464 748 -- 22,496
Identifiable assets 178,203 99,234 3,222 30,316 8,457 319,432
Capital expenditures 106 1,294 68 15,493 990 17,951
</TABLE>
(1) The Company sold RDO Rental Co. January 31, 2000. The rental segment
includes the operations for RDO Rental Co. for a full year and identifiable
assets are net of the sale. The financial services and corporate segment
includes the receivable and gain on the sale.
29
<PAGE>
15. UNAUDITED QUARTERLY FINANCIAL DATA:
<TABLE>
<CAPTION>
(in thousands, except per share data) First Second Third Fourth Total Year
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fiscal 2000:
Total revenues $180,542 $177,211 $165,522 $165,695 $688,970
Gross profit 30,731 33,195 32,204 25,963 122,093
Net income (loss) 2,130 3,842 2,313 (1,748) 6,537
Net income (loss) per share -
basic and diluted 0.16 0.29 0.18 (0.13) 0.50
Fiscal 1999:
Total revenues $125,945 $152,337 $150,764 $149,578 $578,624
Gross profit 23,733 30,794 15,864 28,958 99,349
Net income (loss) 2,456 4,519 (7,264) 1,957 1,668
Net income (loss) per share -
basic and diluted 0.19 0.34 (0.55) 0.15 0.13
</TABLE>
As discussed in Note 3, the Company incurred one-time, non-recurring inventory
and restructuring charges during the third quarter of fiscal 1999. Net income
and net income per share before the inventory and restructuring charges were
$2.9 million and $0.22 per share, respectively, for the third quarter and $11.9
million and $0.90 per share, respectively, for fiscal 1999.
30
<PAGE>
Report of Independent Public Accountants
To RDO Equipment Co.:
We have audited the accompanying consolidated balance sheets of RDO Equipment
Co. (a Delaware corporation) and Subsidiaries as of January 31, 2000 and 1999,
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the three years in the period ended January 31, 2000.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of RDO Equipment Co. and
Subsidiaries as of January 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
January 31, 2000 in conformity with accounting principles generally accepted in
the United States.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
March 10, 2000
31
<PAGE>
DIVIDEND POLICY
The Company intends to retain the earnings of the Company to support the
Company's operations and to finance expansion and growth, and it does not intend
to pay cash dividends in the foreseeable future. Payment of dividends rests
within the discretion of the Board of Directors and will depend upon, among
other factors, the Company's earnings, capital requirements, financial
condition, and any dividend restrictions under its dealership and credit
agreements.
COMMON STOCK INFORMATION
The Class A Common Stock of RDO Equipment Co. is traded on the New York Stock
Exchange under the symbol "RDO." The quarterly high and low reported sales
prices on the New York Stock Exchange during the Company's two most recent
fiscal years were:
First Second Third Fourth
Quarter Quarter Quarter Quarter
Fiscal 2000
High $ 9.19 $ 10.38 $ 9.00 $ 6.69
Low $ 5.50 $ 8.63 $ 5.88 $ 5.50
Fiscal 1999
High $ 19.38 $ 17.63 $ 13.88 $ 9.56
Low $ 14.63 $ 13.75 $ 7.63 $ 7.13
As of April 7, 2000, the Company had 233 record holders and
approximately 3,300 beneficial holders of its Class A Common Stock, and one
holder of its Class B Common Stock.
32
Exhibit 21.1
SUBSIDIARIES
<TABLE>
<CAPTION>
Name Under Which
Subsidiary State of Incorporation Subsidiary Does Business
- ---------- ---------------------- ------------------------
<S> <C> <C>
Hall GMC, Inc. North Dakota Corporate Name
(100% owned)
Hall Truck Center, Inc North Dakota Corporate Name
(100% owned)
Minnesota Valley Irrigation, Inc. Minnesota Corporate Name
(100% owned) (inactive)
RDO Agriculture Equipment Co. North Dakota RDO Equipment Co.
(100% owned)
RDO Construction Equipment Co. North Dakota RDO Equipment Co.
(100% owned)
RDO Financial Services Co. North Dakota Corporate Name
(100% owned)
RDO Material Handling Co. Minnesota Corporate Name
(100% owned)
RDO Truck Center Co. North Dakota Corporate Name
(100% owned)
RDO Truck Riverside Co. North Dakota RDO Truck Center Co.
(100% owned by RDO Truck
Center Co.)
Salinas Equipment Distributors, Inc. California Corporate Name
(89% owned)
</TABLE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statement No. 333-31615.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
April 24, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
YEAR ENDED JANUARY 31, 2000
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-31-2000
<PERIOD-START> FEB-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 4,207
<SECURITIES> 0
<RECEIVABLES> 77,441
<ALLOWANCES> 1,874
<INVENTORY> 217,556
<CURRENT-ASSETS> 302,813
<PP&E> 37,384
<DEPRECIATION> 15,440
<TOTAL-ASSETS> 361,997
<CURRENT-LIABILITIES> 238,588
<BONDS> 11,483
0
0
<COMMON> 132
<OTHER-SE> 109,143
<TOTAL-LIABILITY-AND-EQUITY> 361,997
<SALES> 688,970
<TOTAL-REVENUES> 523,275
<CGS> 566,877
<TOTAL-COSTS> 566,877
<OTHER-EXPENSES> 97,431
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,536
<INCOME-PRETAX> 11,729
<INCOME-TAX> 5,252
<INCOME-CONTINUING> 6,507
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,537
<EPS-BASIC> 0.50
<EPS-DILUTED> 0.50
</TABLE>
