================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 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
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES _X_ NO ___
The number of shares outstanding of the registrant as of May 31, 2000:
Class A Common Stock 5,731,008
Class B Common Stock 7,450,492
----------
Total 13,181,500
================================================================================
1
<PAGE>
CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of RDO Equipment Co. (the "Company"), including
results reflected in any forward-looking statement made by or on behalf of the
Company, will be impacted by a number of important factors. The factors
identified below in Item 2 under the subsection entitled "Safe Harbor Statement"
are important factors (but not necessarily all important factors) that could
cause the Company's actual future results to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
Words such as "may," "will," "expect," "believe," "anticipate," "estimate," or
"continue" or comparable terminology are intended to identify forward-looking
statements. Forward-looking statements, by their nature, involve substantial
risks and uncertainties.
PART I - FINANCIAL INFORMATON
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended April 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)(UNAUDITED) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Revenues
Equipment and truck sales $ 138,237 $ 128,717
Parts and service 44,634 42,390
Rental 1,526 7,687
Financial services 1,538 1,748
--------- ---------
Total revenues 185,935 180,542
Cost of revenues 156,967 149,811
--------- ---------
Gross profit 28,968 30,731
Selling, general and administrative expenses 24,693 24,104
--------- ---------
Operating income 4,275 6,627
Interest expense (2,960) (3,284)
Interest income 162 185
--------- ---------
Income before income taxes
and minority interest 1,477 3,528
Income tax provision (601) (1,435)
--------- ---------
Income before minority interest 876 2,093
Minority interest (5) 37
--------- ---------
Net income $ 871 $ 2,130
========= =========
Net income per share - basic and diluted $ 0.07 $ 0.16
========= =========
Weighted average shares outstanding - basic and diluted 13,182 13,182
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 2000 2000
-------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 38 $ 4,207
Accounts receivable (less allowance for doubtful accounts) 70,672 75,536
Receivables from affiliates 23 31
Inventories 239,814 217,556
Prepaid expenses 717 573
Deferred income tax benefit 5,420 4,910
-------- --------
Total current assets 316,684 302,813
Property and equipment, net 23,474 21,944
Other assets:
Goodwill and other, net of accumulated amortization 36,366 36,205
Deposits 1,047 1,035
-------- --------
Total assets $377,571 $361,997
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
</TABLE>
3
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, January 31,
(IN THOUSANDS) (UNAUDITED) 2000 2000
----------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $205,140 $190,242
Notes payable 12,175 12,330
Current maturities of long-term debt 2,853 2,791
Accounts payable 12,776 6,169
Accrued liabilities 17,729 23,490
Customer advance deposits 3,450 2,824
Dividends payable 731 742
-------- --------
Total current liabilities 254,854 238,588
Long-term debt, net of current maturities 10,370 11,483
Deferred income taxes 1,620 1,460
-------- --------
Total liabilities 266,844 251,531
Minority interest 581 1,191
Stockholders equity:
Preferred stock -- --
Common stocks-
Class A 57 57
Class B 75 75
Additional paid-in-capital 84,471 84,471
Retained earnings 25,543 24,672
-------- --------
Total stockholders' equity 110,146 109,275
-------- --------
Total liabilities and stockholders' equity $377,571 $361,997
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended April 30,
(IN THOUSANDS) (UNAUDITED) 2000 1999
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 871 $ 2,130
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,704 3,290
Deferred taxes (350) 1,410
Minority interest 5 (37)
Change in operating assets and liabilities:
Accounts receivable (9,551) (8,858)
Inventories (22,258) (15,950)
Prepaid expenses (144) 507
Deposits (12) (62)
Floor plan payables 29,321 16,676
Accounts payable and accrued liabilities 835 5,891
Customer advance deposits 626 (339)
-------- --------
Net cash provided by operating activities 1,047 4,658
-------- --------
Investing activities:
Net purchases of rental equipment (1,658) (916)
Net purchases of property and equipment (1,204) (250)
Net assets of acquisitions (1,167) (1,765)
Retained investment and service fee on securitized receivables -- (647)
Other, net 19 (1,412)
-------- --------
Net cash used for investing activities (4,010) (4,990)
-------- --------
Financing activities:
Proceeds from issuance of long-term debt -- 1,513
Payments on long-term debt (1,051) (2,837)
Net proceeds (payments) of bank lines and short-term notes payable (151) 1,653
-------- --------
Net cash provided by (used for) financing activities (1,206) 329
-------- --------
Decrease in cash (4,169) (3)
Cash and cash equivalents, beginning of period 4,207 51
-------- --------
Cash and cash equivalents, end of period $ 38 $ 48
======== ========
Supplemental disclosures:
Cash payments for interest $ 2,757 $ 3,456
======== ========
Cash payments for income taxes $ 3,620 $ 12
======== ========
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships
through issuance and assumption of debt $ -- $ 11,880
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
RDO EQUIPMENT CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PREPARATION:
The condensed consolidated financial statements for the three months
ended April 30, 2000 and April 30, 1999 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
position and operating results for the interim periods. The condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, contained in the Company's
Annual Report to Stockholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended January 31, 2000. The results of
operations for the three months ended April 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
2. BUSINESS COMBINATIONS:
The Company's 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.
During the first quarter of fiscal 2001, the Company purchased the
remaining 15% minority interest in Hall GMC, Inc. and Hall Truck Center, Inc.
for a total purchase price of approximately $1.2 million. In the same period of
the prior fiscal year, the Company had one acquisition with a cash purchase
price of approximately $1.8 million. The total assets acquired and liabilities
assumed in this acquisition were approximately $13.7 million and $11.9 million,
respectively.
Results of operations for the acquisitions made prior to April 30, 2000
have been included in the accompanying condensed consolidated financial
statements since their respective acquisition dates. The following unaudited
consolidated pro forma results of operations give effect to these acquisitions
as if they were completed at the beginning of fiscal 2000. The unaudited pro
forma financial information does not purport to represent what the Company's
results of operations would actually have been if such transactions in fact had
occurred at such a date or to project the Company's results of future operations
(in thousands, except for per share data):
<TABLE>
<CAPTION>
Three Months Ended April 30,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Revenues $185,935 $193,105
======== ========
Net income $ 871 $ 2,095
======== ========
Weighted average shares outstanding - basic and diluted 13,182 13,182
======== ========
Net income per share - basic and diluted $ .07 $ .16
======== ========
</TABLE>
6
<PAGE>
3. INVENTORIES:
All inventories are valued at the lower of cost or market. Cost is
determined using the first-in, first-out method for new equipment, trucks and
parts inventory. The specific identification method is used to determine cost
for used equipment and trucks.
Inventories consisted of the following at (in thousands):
April 30, January 31,
2000 2000
---- ----
New equipment & trucks $ 164,415 $ 149,018
Used equipment & trucks 43,785 39,159
Parts and other 31,614 29,379
--------- ---------
$ 239,814 $ 217,556
========= =========
4. FLOOR PLAN PAYABLES:
Floor plan payables include both interest and noninterest-bearing
financing arrangements for inventory. The terms of certain arrangements may
include an interest-free term followed by a term during which interest is
charged. Floor plan payables consisted of the following at (in thousands):
April 30, January 31,
2000 2000
---- ----
Interest-bearing $ 150,796 $ 157,404
Noninterest-bearing 54,344 32,838
--------- ---------
$ 205,140 $ 190,242
========= =========
5. EARNINGS PER SHARE:
The following summarizes the computation of weighted average shares
outstanding and net income per share for the periods indicated (in thousands,
except per share data):
Three Months Ended April 30,
----------------------------
2000 1999
---- ----
Net income available to common shareholders $ 871 $ 2,130
========== ==========
Weighted average number of shares outstanding - basic 13,182 13,182
Dilutive effect of option plan -- --
---------- ----------
Common and potential common shares outstanding - diluted 13,182 13,182
========== ==========
Basic and dilutive net income per share $ 0.07 $ 0.16
========== ==========
6. SEGMENT INFORMATION:
The Company's operations are currently classified into four business
segments: construction, truck, agricultural and financial services and
corporate. In past reporting, a fifth business segment, rental, was designated
which included both construction equipment rental operations and agricultural
equipment rental operations. At the end of fiscal 2000, the construction
equipment rental operations were sold. To coincide with how management currently
views the Company's operations, current and future segment reporting will
include the agricultural equipment rental operations in the agricultural segment
and only
7
<PAGE>
the construction equipment rental operations in the rental segment. Construction
operations include the sale, service and rental of construction and material
handling equipment to customers primarily in the construction, manufacturing,
warehousing and utility industries and to units of government. Truck operations
include the sale and service of heavy-duty and medium-duty trucks to customers
primarily in the transportation and construction 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
rental operations provide rental of construction equipment to customers
primarily in the construction industry and to units of government. The financial
services operations primarily provide financing arrangements to customers of the
Company's other business segments, and these operations are therefore combined
with corporate activities.
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, certain property and equipment, and deferred
income taxes. Interest income and interest expense are included in revenues and
cost of revenues, respectively, for the financial services segment.
The following table shows the Company's business segments and related
financial information for the three months ended April 30, 2000 and 1999 (in
thousands):
<TABLE>
<CAPTION>
Financial
Services and
Construction Truck Agricultural Rental Corporate Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000:
Revenues from
external customers $ 84,827 $ 54,365 $ 45,205 $ -- $ 1,538 $ 185,935
Interest income (32) 61 133 -- -- 162
Interest expense 1,314 1,065 581 -- -- 2,960
Depreciation and
amortization 598 304 579 -- 223 1,704
Income (loss) before income
taxes and minority interest 674 (781) 1,131 -- 453 1,477
Identifiable assets 179,180 86,409 79,400 -- 32,582 377,571
Capital expenditures 550 121 1,313 -- 878 2,862
1999:
Revenues from
external customers $ 88,437 $ 40,261 $ 43,806 $ 6,290 $ 1,748 $ 180,542
Interest income 13 43 125 4 -- 185
Interest expense 1,568 382 637 697 -- 3,284
Depreciation and
amortization 674 193 898 1,252 273 3,290
Income (loss) before income
taxes and minority interest 2,599 382 876 (902) 573 3,528
Identifiable assets 192,697 52,783 98,367 41,761 30,646 416,254
Capital expenditures 698 137 (321) 714 (62) 1,166
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
During the first quarter of fiscal 2001, the Company purchased the
remaining 15% minority interest in Hall GMC, Inc. and Hall Truck Center, Inc.
for a total purchase price of approximately $1.2 million. Also during the first
quarter of fiscal 2001, the Barnesville, MN agricultural retail store was closed
with the intention of consolidating this location with the Fargo, ND
agricultural operations in a new combined location.
Subsequent to April 30, 2000, the Company made the decision and
received approval to close the Volvo dealership location in Long Beach, CA. This
location will be closed during the second quarter of fiscal 2001. The Long
Beach, CA market will continue to be serviced through the Company's Riverside,
CA truck center.
9
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data:
Three Months Ended April 30,
----------------------------
2000 1999
---- ----
REVENUE DATA (IN MILLIONS):
Total revenues $185.9 $180.5
Construction 45.6% 49.0%
Truck 29.3% 22.3%
Agricultural 24.3% 24.2%
Rental --% 3.5%
Financial services 0.8% 1.0%
Construction revenues $ 84.8 $ 88.4
Equipment sales 71.8% 71.9%
Parts and service 27.3% 27.2%
Rental 0.9% 0.9%
Truck revenues $ 54.4 $ 40.3
Truck sales 81.1% 80.8%
Parts and service 18.9% 19.2%
Agricultural revenues $ 45.2 $ 43.8
Equipment sales 73.5% 73.3%
Parts and service 24.8% 23.8%
Rental 1.7% 2.9%
Rental revenues $ -- $ 6.3
Equipment sales --% 8.1%
Parts and service --% 3.1%
Rental --% 88.8%
STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF TOTAL REVENUES):
Revenues
Equipment and truck sales 74.4% 71.3%
Parts and service 24.0 23.4
Rental 0.8 4.3
Financial services 0.8 1.0
------ ------
Total revenues 100.0 100.0
Gross profit 15.6% 17.0%
Selling, general and administrative expenses 13.3 13.3
------ ------
Operating income 2.3 3.7
Interest expense, net 1.5 1.7
Provision for taxes 0.3 0.8
------ ------
Net income 0.5% 1.2%
====== ======
10
<PAGE>
THREE MONTHS ENDED APRIL 30, 2000 COMPARED TO THREE MONTHS ENDED APRIL 30, 1999
REVENUES
Total revenues increased approximately $5.4 million, or 3.0%, from
$180.5 million for the first three months of fiscal 2000 to $185.9 million for
the same period of fiscal 2001. Truck operations contributed approximately $14.1
million of this increase, with revenues increasing 35.0% from $40.3 million to
$54.4 million. Truck revenues increased approximately $12.8 million due to the
Company's acquisitions since the first quarter of fiscal 2000. Agricultural
operations contributed approximately $1.4 million of the overall increase in
revenues, with revenues increasing 3.2% to $45.2 million in the first three
months of fiscal 2001. These increases were partially offset by a decrease in
construction revenues, including material handling revenues, and by the sale of
the Company's construction equipment rental operations at the end of fiscal
2000. Construction revenues decreased approximately $3.6 million, or 4.1%, from
$88.4 million to $84.8 million due to continuing competitive pressures. The
construction equipment rental operations had revenues of $6.3 million during the
first quarter of fiscal 2000. Financial services revenues also decreased to $1.5
million, a decrease of 11.8%. Lower loan and lease originations due to lower
construction and material handling revenues, along with increasing interest
rates and a tightening credit environment contributed to the change.
Equipment and truck sales increased approximately $9.5 million, or
7.4%, from $128.7 million for the first three months of fiscal 2000 to $138.2
million for the first three months of fiscal 2001. Truck sales increased
approximately $11.6 million, or 35.7%, from $32.5 million to $44.1 million.
Truck acquisitions since the first quarter of fiscal 2000 provided truck sales
of $10.3 million in the first quarter of fiscal 2001. Agricultural operations
contributed approximately $1.1 million of increased equipment sales, increasing
3.4% to $33.2 million. Construction operations sales decreased approximately
$2.7 million, or 4.3% to $60.9 million. In addition, equipment sales decreased
approximately $500,000 as a result of the sale of the Company's construction
equipment rental operations at the end of fiscal 2000.
Parts and service revenues increased approximately $2.3 million, or
5.4%, from $42.4 million for the first three months of fiscal 2000 to $44.7
million for the first three months of fiscal 2001. Truck operations contributed
approximately $2.6 million of the increase as sales grew 33.8% from $7.7 million
to $10.3 million. Of this increase, $2.5 million was due to acquisitions since
the first quarter of fiscal 2000. Agricultural operations contributed an
increase of $700,000, or 6.7%, as sales increased from $10.5 million to $11.2
million. Parts and service revenues from construction operations decreased 3.3%,
or $800,000, to $23.2 million. In addition, parts and service revenues decreased
approximately $200,000 for the quarter as a result of the sale of the Company's
construction equipment rental operations at the end of fiscal 2000.
Rental revenues were $1.5 million in the first quarter of fiscal 2001
compared to $7.7 million for the first quarter of fiscal 2000, a decrease of
$6.2 million, or 80.5%, primarily attributable to the sale of the Company's
construction equipment rental operations at the end of fiscal 2000.
GROSS PROFIT
Gross profit for the first quarter of fiscal 2001 was $29.0 million, or
15.6% of total revenues, compared to $30.7 million, or 17.0% of total revenues,
for the first quarter of fiscal 2000, a decrease of $1.7 million, or 5.5%. Gross
profit is affected by the contribution of revenues by business segment, by the
mix of revenues within each business segment and by competition. Revenues from
construction, rental and financial services operations generally provide the
Company with higher gross margins than do agricultural and truck operations. The
Company's highest gross margins are generally derived from its parts and
service, rental and financial services revenues. As truck revenues expand as a
percentage of the total revenues, gross margins tend to decline as a percentage
of sales. Construction and truck
11
<PAGE>
operations continued to experience competitive pressures due to higher inventory
levels throughout the industry which affect margins. Financial services also
experienced margin tightening due to interest rate increases and a tightening
credit environment. Another contributing factor to the decrease in gross profit
was that construction equipment rental operations, which generally provided
higher gross margins, were sold at the end of fiscal 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percent of
total revenues for the first three months of fiscal 2001 and 2000 were 13.3%.
Total selling, general and administrative expenses increased approximately
$600,000, from $24.1 million for the first three months of fiscal 2000 to $24.7
million for the first three months of fiscal 2001. Approximately $1.5 million of
the increase was due to the operations of the Company's acquisitions since the
first quarter of fiscal 2000. SG&A expenses are affected by the contribution of
revenues by business segment and by the mix 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 as a percent of total revenues decreased from 1.8% for
the first three months of fiscal 2000 to 1.6% for the first three months of
fiscal 2001. Interest expense decreased approximately $300,000, or 9.1%, from
$3.3 million for the first three months of fiscal 2000 to $3.0 million for the
first three months of fiscal 2001. Interest expense as a percentage of total
revenues decreased, despite rising interest rates, primarily due to a decrease
in the level of interest-bearing floorplan payables along with the reduction of
long-term debt. This debt related to the Company's construction equipment rental
operations which were sold at the end of fiscal 2000.
INCOME TAXES
The estimated provision for income taxes as a percentage of pretax
income for the first three months of fiscal 2001 and 2000 was 40.7%.
NET INCOME
The Company reported net income of $871,000, or $.07 per share, for the
first three months of fiscal 2001, compared to $2.1 million, or $.16 per share,
for the first three months of fiscal 2000.
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 (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-
12
<PAGE>
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 $76.9
million at April 30, 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.
The Company has available bank lines of credit totaling $25.0 million
with varying maturity dates through July 1, 2000 and with variable interest
rates based on LIBOR and the prime rate. The Company had approximately $12.8
million of unused availability relating to these lines of credit at April 30,
2000.
The Company periodically reviews the terms of its financing with its
lenders, including the interest rate. For the first three months of fiscal 2001
and 2000 the average interest rate under interest-bearing floor plan financing
was approximately 8.12% and 7.08%, respectively. As of April 30, 2000 the
Company had outstanding floor plan payables of approximately $205.1 million, of
which $150.8 million was then interest-bearing. The average interest rates on
the Company's lines of credit during the three months ended April 30, 2000 and
1999 were 8.62% and 7.61%, 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 April 30, 2000.
Operating activities provided net cash of approximately $1.0 million
for the first three months of fiscal 2001, compared to $4.7 million for the
first three months of fiscal 2000. Lower net income, as well as reduced
depreciation expense after the sale of the construction equipment rental
operations, were the primary factors in the decrease of net cash provided by
operating activities. Changes in inventories and receivables net of associated
payables were not materially different in the two periods.
Cash used for investing activities during the first three months of
fiscal 2001 was $4.0 million, which was primarily related to purchases of
agricultural rental equipment, purchases of property and equipment and the
purchase of the remaining 15% minority interest in Hall GMC, Inc. and Hall Truck
Center, Inc. Cash used for investing activities during the first three months of
fiscal 2000 was $5.0 million, which was primarily related to acquisitions and
the purchase of rental equipment.
Cash used for financing activities during the first three months of
fiscal 2001 was $1.2 million, comprised primarily of payments of long-term debt.
Cash provided by financing activities was $300,000 during the first three months
of fiscal 2000. The primary source of cash from financing activities was
increases in the Company's operating lines, offset by net payments of long-term
debt.
13
<PAGE>
The Company believes cash from operations, available cash and borrowing
capacity will be sufficient to fund its planned internal capital expenditures
for fiscal 2001.
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" below) 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 are not generally affected by any
significant seasonality, the overall impact of seasonality has tended to decline
as truck revenues have become a greater percentage of total revenues. If the
Company acquires businesses in geographic areas other than where it currently
has operations, it may be affected by other seasonal or equipment buying trends.
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
14
<PAGE>
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
There has been no material change in the information set forth in
Item 7A of the Company's Annual Report on Form 10-K for the Fiscal year ended
January 31, 2000.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is the subject of a demand for arbitration that was filed
by John Deere Company, a division of Deere & Company ("Deere") in Chicago,
Illinois under the Commercial Rules of the American Arbitration Association. The
arbitration demand was originally served in February 2000, and the Company
obtained an extension of time to respond to the demand through May 3, 2000, when
the Company filed its response. The demand for arbitration concerns the proper
interpretation of the Company's agricultural dealership agreements with Deere,
under which the Company's dealerships sell and lease Deere agricultural
equipment. In the arbitration, Deere has alleged that the Company breached its
dealership agreements when it acquired a majority interest in Salinas Equipment
Distributors, Inc. ("SED"), an agricultural equipment rental company located in
Salinas, California, which transaction closed in August 1998. SED, both before
and after the acquisition by the Company, rented a variety of agricultural
equipment, including Deere equipment. Deere is taking the position that when SED
rents Deere equipment, such activity is a violation of the authorization
location clauses contained in the agricultural dealership agreements, which sets
forth the authorized locations in which the Company is authorized to sell and
lease Deere equipment. It is the Company's position that SED is not a Deere
dealership and its activities do not fall within the scope of the Deere
dealership agreements. The demand for arbitration, which does not request money
damages, requests a declaration that sales, rentals and leases of Deere
equipment from SED constitute a breach of the authorized location clauses in the
Company's dealership agreements and an order enjoining the Company from selling,
renting, or leasing Deere equipment from SED. The Company denies that it has
breached any such agreements and believes that these allegations do not have
merit. The Company intends to vigorously defend the arbitration demand. No
hearing or other scheduling matters have yet been set.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibits filed with this report are listed in the Exhibit
Index on page 16.
(b) REPORTS ON FORM 8-K.
During the first quarter ended April 30, 2000, the Company
filed a Current Report on Form 8-K dated April 21, 2000 under Item 5
relating to a Cautionary Statement Regarding Future Results,
Forward-Looking Information and Certain Important Factors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RDO EQUIPMENT CO.
(Registrant)
Date: June 9, 2000 By: /s/ Thomas K. Espel
-----------------------------------
Thomas K. Espel
Chief Financial Officer
(principal financial officer)
EXHIBIT INDEX
ITEM NO. ITEM PAGE OF THIS REPORT
-------- ---- -------------------
10.1 RDO Equipment Co. credit agreement modification 17
with Ag Capital Company
10.2 RDO Material Handling Co. credit agreement 18
modification with Ag Capital Company
10.3 Form of Volvo Trucks North America, Inc. Dealer 20
Sales and Service Agreement
27.1 Financial Data Schedule 71
16
