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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 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 August 31, 2000:
Class A Common Stock 5,731,008
Class B Common Stock 7,450,492
----------
Total 13,181,500
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1
<PAGE>
CAUTIONARY STATEMENT REGARDING
FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS
The future results of RDO Equipment Co. (the "Company"), including
results reflected in any forward-looking statement made by or on behalf of the
Company, will be impacted by a number of important factors. The factors
identified below in Item 2 under the subsection entitled "Safe Harbor Statement"
are important factors (but not necessarily all important factors) that could
cause the Company's actual future results to differ materially from those
expressed in any forward-looking statement made by or on behalf of the Company.
Words such as "may," "will," "expect," "believe," "anticipate," "estimate,"
"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>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
--------------------------------------------------------------------------------------------------------------
Three Months Ended Six Months Ended
July 31, July 31,
----------------------------- -----------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Equipment and truck sales $ 132,212 $ 123,793 $ 270,449 $ 252,510
Parts and service 47,436 42,863 92,070 85,253
Rental 2,269 8,486 3,795 16,173
Financial services 1,535 2,069 3,073 3,817
------------ ------------ ------------ ------------
Total revenues 183,452 177,211 369,387 357,753
Cost of revenues 155,497 144,016 312,464 293,827
------------ ------------ ------------ ------------
Gross profit 27,955 33,195 56,923 63,926
Selling, general and
administrative expenses 26,900 23,097 51,593 47,201
------------ ------------ ------------ ------------
Operating income 1,055 10,098 5,330 16,725
Interest expense (3,438) (3,834) (6,398) (7,118)
Interest income 184 213 346 398
------------ ------------ ------------ ------------
Income (loss) before income taxes
and minority interest (2,199) 6,477 (722) 10,005
Income tax benefit (provision) 895 (2,637) 294 (4,072)
------------ ------------ ------------ ------------
Income (loss) before minority interest (1,304) 3,840 (428) 5,933
Minority interest 7 2 2 39
------------ ------------ ------------ ------------
Net income (loss) $ (1,297) $ 3,842 $ (426) $ 5,972
============ ============ ============ ============
Net income (loss) per share -
Basic and diluted $ (0.10) $ 0.29 $ (0.03) $ 0.45
============ ============ ============ ============
Weighted average shares outstanding-basic 13,182 13,182 13,182 13,182
============ ============ ============ ============
Weighted average shares outstanding-diluted 13,182 13,188 13,182 13,185
============ ============ ============ ============
</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>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 2000 2000
---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 53 $ 4,207
Accounts receivable (less allowance for doubtful accounts) 66,493 75,536
Receivables from affiliates 68 31
Inventories 236,535 217,556
Prepaid expenses 953 573
Deferred income tax benefit 4,480 4,910
------------ ------------
Total current assets 308,582 302,813
Property and equipment, net 23,728 21,944
Other assets:
Goodwill and other, net of accumulated amortization 35,903 36,205
Deposits 1,115 1,035
------------ ------------
Total assets $ 369,328 $ 361,997
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
RDO EQUIPMENT CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
(IN THOUSANDS)(UNAUDITED) 2000 2000
-------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan payables $ 202,522 $ 190,242
Notes payable 15,835 12,330
Current maturities of long-term debt 2,745 2,791
Accounts payable 8,684 6,169
Accrued liabilities 16,363 23,490
Customer advance deposits 1,274 2,824
Dividends payable 731 742
------------ ------------
Total current liabilities 248,154 238,588
Long-term debt, net of current maturities 9,961 11,483
Deferred income taxes 1,790 1,460
------------ ------------
Total liabilities 259,905 251,531
Minority interest 574 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 24,246 24,672
------------ ------------
Total stockholders' equity 108,849 109,275
------------ ------------
Total liabilities and stockholders' equity $ 369,328 $ 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>
Six Months Ended July 31,
(IN THOUSANDS) (UNAUDITED) 2000 1999
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income (loss) $ (426) $ 5,972
Adjustments to reconcile net income (loss) to net
cash provided by (used for) operating activities:
Depreciation and amortization 3,570 6,755
Deferred taxes 760 2,670
Minority interest (2) (39)
Change in operating assets and liabilities:
Accounts receivable (5,417) (5,130)
Inventories (18,979) (10,742)
Prepaid expenses (380) 440
Deposits (80) (15)
Floor plan payables 26,703 10,385
Accounts payable and accrued liabilities (4,623) 848
Customer advance deposits (1,550) (838)
------------ ------------
Net cash provided by (used for) operating activities (424) 10,306
Investing activities:
Net purchases of rental equipment (2,921) (2,807)
Net purchases of property and equipment (1,692) (1,072)
Net assets of acquisitions (1,167) (1,765)
Retained investment and service fee on securitized receivables -- (1,472)
Other, net 113 (1,793)
------------ ------------
Net cash used for investing activities (5,667) (8,909)
Financing activities:
Proceeds from issuance of long-term debt 89 2,895
Payments on long-term debt (1,657) (6,383)
Net proceeds of bank lines and short-term notes payable 3,505 3,502
------------ ------------
Net cash provided by financing activities 1,937 14
------------ ------------
Increase (decrease) in cash (4,154) 1,411
Cash and cash equivalents, beginning of period 4,207 51
------------ ------------
Cash and cash equivalents, end of period $ 53 $ 1,462
============ ============
Supplemental disclosures:
Cash payments for interest $ 6,214 $ 6,725
============ ============
Cash payments for income taxes $ 4,657 $ 2,444
============ ============
Noncash investing and financing activities:
Increase in assets related to acquisitions of dealerships
through issuance and assumption of debt $ -- $ 11,880
============ ============
Increase in long-term debt related to refinancing of short-term debt $ -- $ 5,000
============ ============
</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 and six
months ended July 31, 2000 and July 31, 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 and six months ended July 31, 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 six months 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 an acquisition of two heavy-duty truck
dealerships in Dallas and Fort Worth, Texas 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 July 31, 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 July 31, Six Months Ended July 31,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 183,452 $ 189,774 $ 369,387 $ 382,880
========= ========= ========= =========
Net income $ (1,297) $ 3,807 $ (426) $ 5,902
========= ========= ========= =========
Weighted average shares outstanding-basic 13,182 13,182 13,182 13,182
========= ========= ========= =========
Weighted average shares outstanding-diluted 13,182 13,188 13,182 13,185
========= ========= ========= =========
Net income per share - basic and diluted $ (0.10) $ 0.29 $ (0.03) $ 0.45
========= ========= ========= =========
</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):
July 31, January 31,
2000 2000
---- ----
New equipment & trucks $164,389 $149,018
Used equipment & trucks 40,838 39,159
Parts and other 31,308 29,379
--------- --------
$236,535 $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):
July 31, January 31,
2000 2000
---- ----
Interest-bearing $148,875 $157,404
Noninterest-bearing 53,647 32,838
-------- --------
$202,522 $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):
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common shareholders $ (1,297) $ 3,842 $ (426) $ 5,972
========== ========== ========== ==========
Weighted average number
of shares outstanding - basic 13,182 13,182 13,182 13,182
Dilutive effect of stock options outstanding -- 6 -- 3
---------- ---------- ---------- ----------
Common and potential common
shares outstanding - diluted 13,182 13,188 13,182 13,185
========== ========== ========== ==========
Basic and dilutive net income per share $ (0.10) $ 0.29 $ (0.03) $ 0.45
========== ========== ========== ==========
</TABLE>
7
<PAGE>
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. For historical comparisons only, the construction equipment rental
operations are included 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 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.
8
<PAGE>
The following tables show the Company's business segments and related
financial information for the three and six months ended July 31, 2000 and 1999
(in thousands):
<TABLE>
<CAPTION>
Financial
Services and
Three Months Ended July 31, Construction Truck Agricultural Rental Corporate Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2000:
Revenues from
external customers $ 85,215 $ 47,358 $ 49,344 $ -- $ 1,535 $ 183,452
Interest income (8) 26 166 -- -- 184
Interest expense 1,750 1,069 619 -- -- 3,438
Depreciation and
amortization 646 302 694 -- 224 1,866
Income (loss) before income
taxes and minority interest (445) (2,933) 846 -- 333 (2,199)
Capital expenditures, net 543 (97) 823 -- 482 1,751
1999:
Revenues from
external customers $ 88,008 $ 45,228 $ 34,802 $ 7,104 $ 2,069 $ 177,211
Interest income 29 63 114 7 -- 213
Interest expense 1,873 482 795 684 -- 3,834
Depreciation and
amortization 715 189 901 1,269 391 3,465
Income (loss) before income
taxes and minority interest 4,733 584 677 (285) 768 6,477
Capital expenditures, net 922 318 31 991 451 2,713
<CAPTION>
Financial
Services and
Six Months Ended July 31, Construction Truck Agricultural Rental Corporate Total
-------------------------------------------------------------------------------------------------------------------------
2000:
Revenues from
external customers $ 170,042 $ 101,723 $ 94,549 $ -- $ 3,073 $ 369,387
Interest income (40) 87 299 -- -- 346
Interest expense 3,064 2,134 1,200 -- -- 6,398
Depreciation and
amortization 1,244 606 1,273 -- 447 3,570
Income (loss) before income
taxes and minority interest 229 (3,714) 1,977 -- 786 (722)
Identifiable assets 181,262 85,914 77,071 -- 25,081 369,328
Capital expenditures, net 1,093 24 2,136 -- 1,360 4,613
1999:
Revenues from
external customers $ 176,445 $ 85,489 $ 78,608 $ 13,394 $ 3,817 $ 357,753
Interest income 42 107 239 10 -- 398
Interest expense 3,469 849 1,426 1,374 -- 7,118
Depreciation and
amortization 1,389 382 1,799 2,521 664 6,755
Income (loss) before income
taxes and minority interest 7,387 923 1,124 (803) 1,374 10,005
Identifiable assets 185,380 60,177 89,904 41,351 32,650 409,462
Capital expenditures, net 1,620 455 (290) 1,705 389 3,879
</TABLE>
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
During the first six months of fiscal 2001, the Company made the
decision and received approval to consolidate the Volvo dealership location in
Long Beach, CA into the Company's Riverside, CA location. The Long Beach, CA
market will continue to be serviced through the Company's Riverside, CA truck
center. Also during the first six months 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. The Barnesville,
MN agricultural retail store was also closed during the first six months of
fiscal 2001, and will be consolidated with the Fargo, ND agricultural operations
in a new combined location.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
financial data:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
--------------------------- -------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE DATA (IN MILLIONS):
Total revenues $ 183.5 $ 177.2 $ 369.4 $ 357.8
Construction 46.5% 49.7% 46.0% 49.3%
Truck 25.8% 25.5% 27.6% 23.9%
Agricultural 26.9% 19.6% 25.6% 22.0%
Rental --% 4.0% --% 3.7%
Financial services 0.8% 1.2% 0.8% 1.1%
Construction revenues $ 85.2 $ 88.0 $ 170.0 $ 176.5
Equipment sales 69.5% 72.0% 70.7% 71.9%
Parts and service 29.4% 26.9% 28.3% 27.1%
Rental 1.1% 1.1% 1.0% 1.0%
Truck revenues $ 47.4 $ 45.2 $ 101.7 $ 85.5
Truck sales 77.7% 82.0% 79.5% 81.5%
Parts and service 22.3% 18.0% 20.5% 18.5%
Agricultural revenues $ 49.4 $ 34.8 $ 94.6 $ 78.6
Equipment sales 73.3% 65.3% 73.4% 69.7%
Parts and service 24.0% 31.0% 24.4% 27.0%
Rental 2.7% 3.7% 2.2% 3.3%
Rental revenues $ -- $ 7.1 $ -- $ 13.4
Equipment sales --% 8.9% --% 8.5%
Parts and service --% 3.6% --% 3.4%
Rental --% 87.5% --% 88.1%
STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF TOTAL REVENUES):
Revenues
Equipment and truck sales 72.1% 69.8% 73.2% 70.6%
Parts and service 25.9 24.2 24.9 23.8
Rental 1.2 4.8 1.1 4.5
Financial services 0.8 1.2 0.8 1.1
------- ------- ------- -------
Total revenues 100.0 100.0 100.0 100.0
Gross profit 15.2% 18.7% 15.4% 17.9%
Selling, general and
administrative expenses 14.7 13.0 14.0 13.2
------- ------- ------- -------
Operating income 0.5 5.7 1.4 4.7
Interest expense, net 1.8 2.0 1.6 1.9
Provision for (benefit from) taxes (0.6) 1.5 (0.1) 1.1
------- ------- ------- -------
Net income (loss) (0.7)% 2.2% (0.1)% 1.7%
======= ======= ======= =======
</TABLE>
11
<PAGE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
REVENUES
Total revenues increased approximately $6.3 million, or 3.5%, from
$177.2 million for the second quarter of fiscal 2000 to $183.5 million for the
second quarter of fiscal 2001. Truck operations contributed approximately $2.2
million of this increase, with revenues increasing 4.9% from $45.2 million to
$47.4 million. Truck acquisitions since the second quarter of fiscal 2000
provided truck revenues of $12.5 million in the second quarter of fiscal 2001.
Agricultural operations contributed approximately $14.6 million of the overall
increase in revenues, with revenues increasing 42.0% to $49.4 million in the
second quarter 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 $2.8 million, or
3.2%, from $88.0 million to $85.2 million due to continuing competitive
pressures and a current decline in market potential. The construction equipment
rental operations had revenues of $7.1 million during the second quarter of
fiscal 2000. Financial services revenues decreased approximately 25.0% to $1.5
million. Fewer 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 $8.4 million, or
6.8%, from $123.8 million for the second quarter of fiscal 2000 to $132.2
million for the second quarter of fiscal 2001. Agricultural equipment sales
increased approximately $13.5 million, or 59.5%, from $22.7 million to $36.2
million. Truck sales decreased slightly by approximately $300,000, or 0.8%, to
$36.8 million, as a result of decreased demand due to higher fuel prices, driver
shortages, and excessive levels of used trucks in the market. Truck acquisitions
since the second quarter of fiscal 2000 provided truck sales of $9.9 million in
the second quarter of fiscal 2001. Construction equipment sales decreased
approximately $4.1 million, or 6.5% to $59.2 million. In addition, equipment
sales decreased approximately $700,000 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 $4.6 million, or
10.7%, from $42.9 million for the second quarter of fiscal 2000 to $47.5 million
for the second quarter of fiscal 2001. Truck operations contributed
approximately $2.5 million of the increase as sales grew 30.9% to $10.6 million,
primarily as a result of acquisitions since the second quarter of fiscal 2000.
Agricultural operations contributed an increase of $1.1 million, or 10.2%, as
sales increased to $11.9 million. Parts and service revenues from construction
operations increased approximately $1.3 million, or 5.5%, to $25.0 million. The
sale of the Company's construction equipment rental operations at the end of
fiscal 2000 reduced parts and service revenues by approximately $300,000.
Rental revenues were $2.3 million in the second quarter of fiscal 2001
compared to $8.5 million for the second quarter of fiscal 2000, a decrease of
$6.2 million, or 72.9%, attributable to the sale of the Company's construction
equipment rental operations at the end of fiscal 2000.
GROSS PROFIT
Gross profit for the second quarter of fiscal 2001 was $27.9 million,
or 15.2% of total revenues, compared to $33.2 million, or 18.7% of total
revenues, for the second quarter of fiscal 2000, a decrease of $5.3 million, or
16.0%. 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
12
<PAGE>
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 operations continued to experience
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 second quarter of fiscal 2001 and 2000 were 14.7% and
13.0%, respectively. Total SG&A expenses increased approximately $3.8 million,
from $23.1 million for the second quarter of fiscal 2000 to $26.9 million for
the second quarter of fiscal 2001. Approximately $1.6 million of the increase
was due to the operations of the Company's acquisitions since the second 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. However, the Company has been experiencing higher than
normal levels of SG&A expenses related to the consolidation and integration of
the Company's acquired truck dealerships.
INTEREST EXPENSE
Interest expense as a percentage of total revenues decreased from 2.1%
for the second quarter of fiscal 2000 to 1.9% for the second quarter of fiscal
2001. Interest expense decreased approximately $400,000, or 10.5%, from $3.8
million for the second quarter of fiscal 2000 to $3.4 million for the second
quarter 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 a lower level of
long-term debt. This debt reduction resulted from the sale of the Company's
construction equipment rental operations.
INCOME TAXES
The estimated provision for (benefit from) income taxes as a percentage
of pretax income (loss) for the second quarter of fiscal 2001 and 2000 was
40.7%.
NET INCOME
The Company reported a net loss of $(1.3) million, or $(0.10) per
share, for the second quarter of fiscal 2001, compared to net income of $3.8
million, or $0.29 per share, for the second quarter of fiscal 2000.
SIX MONTHS ENDED JULY 31, 2000 COMPARED TO SIX MONTHS ENDED JULY 31, 1999
REVENUES
Total revenues increased approximately $11.6 million, or 3.2%, from
$357.8 million for the first six months of fiscal 2000 to $369.4 million for the
same period of fiscal 2001. Truck operations contributed approximately $16.2
million of this increase, with revenues increasing 19.0% to $101.7 million.
Truck acquisitions since the second quarter of fiscal 2000 provided truck
revenues of $25.4 million in the first six months of fiscal 2001. Agricultural
operations contributed approximately $16.0
13
<PAGE>
million of the overall increase in revenues, with revenues increasing 20.4% to
$94.6 million in the first six 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 $6.5 million, or 3.7%, from $176.5 million to $170.0 million due
to continuing competitive pressures and overall declining market potential in
the Company's areas of responsibility. The construction equipment rental
operations had revenues of $13.4 million during the first six months of fiscal
2000. Financial services revenues decreased approximately 18.4% to $3.1 million.
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 decrease.
Equipment and truck sales increased approximately $17.9 million, or
7.1%, from $252.5 million for the first six months of fiscal 2000 to $270.4
million for the first six months of fiscal 2001. Truck sales increased
approximately $11.3 million, or 16.2%, to $80.9 million. Truck acquisitions
since the second quarter of fiscal 2000 provided truck sales of $20.2 million in
the first six months of fiscal 2001. Agricultural operations contributed
approximately $14.6 million of increased equipment sales, increasing 26.6% to
$69.4 million. Construction equipment sales decreased approximately $6.8
million, or 5.4% to $120.1 million. In addition, equipment sales decreased
approximately $1.2 million as a result of the sale of the Company's construction
equipment rental operations.
Parts and service revenues increased approximately $6.8 million, or
8.0%, from $85.3 million for the first six months of fiscal 2000 to $92.1
million for the first six months of fiscal 2001. Truck operations contributed
approximately $4.9 million of the increase as sales grew 30.8% from $15.9
million to $20.8 million. Truck acquisitions since the second quarter of fiscal
2000 provided parts and service revenues of $5.2 million in the first six months
of fiscal 2001. Agricultural operations contributed an increase of $1.9 million,
or 9.0%, as sales increased to $23.1 million. Parts and service revenues from
construction operations increased 0.8%, or $400,000, to $48.2 million.
Offsetting these increases, parts and service revenues decreased approximately
$400,000 for the first six months of fiscal 2001 as a result of the sale of the
Company's construction equipment rental operations.
Rental revenues were $3.8 million for the first six months of fiscal
2001 compared to $16.2 million for the first six months of fiscal 2000, a
decrease of $12.4 million, or 76.5%, primarily attributable to the sale of the
Company's construction equipment rental operations.
GROSS PROFIT
Gross profit for the first six months of fiscal 2001 was $56.9 million,
or 15.4% of total revenues, compared to $63.9 million, or 17.9% of total
revenues, for the first six months of fiscal 2000, a decrease of $7.0 million,
or 11.0%. 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 operations continued to experience
competitive pressures due to changing demand and higher inventory levels
throughout the industry. Financial services also experienced margin declines due
to interest rate increases and a tightening credit environment. Another
contributing factor to the decrease in gross profit was the sale of the
construction equipment rental operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative (SG&A) expenses as a percent of
total revenues for the first
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six months of fiscal 2001 and 2000 were 14.0% and 13.2%, respectively. Total
SG&A expenses increased approximately $4.4 million, from $47.2 million for the
first six months of fiscal 2000 to $51.6 million for the first six months of
fiscal 2001. Approximately $3.1 million of the increase was due to the
operations of the Company's acquisitions since the second 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. However, the Company has been experiencing higher than normal levels
of SG&A expenses related to the consolidation and integration of the Company's
acquired truck dealerships.
INTEREST EXPENSE
Interest expense as a percentage of total revenues decreased from 2.0%
for the first six months of fiscal 2000 to 1.7% for the first six months of
fiscal 2001. Interest expense decreased approximately $700,000, or 9.9%, from
$7.1 million for the first six months of fiscal 2000 to $6.4 million for the
first six 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 (benefit from) income taxes as a percentage
of pretax income (loss) for the first six months of fiscal 2001 and 2000 was
40.7%.
NET INCOME
The Company reported a net loss of $(426,000), or $(0.03) per share,
for the first six months of fiscal 2001, compared to net income of $6.0 million,
or $0.45 per share, for the first six 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 (Bank 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 Bank 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 $79.8 million at July 31, 2000.
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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 five to twelve
months for agricultural equipment and one to four 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 Bank 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 lines of credit totaling $25.0 million with
varying maturity dates through July 1, 2001 and with variable interest rates
based on LIBOR and the prime rate. The Company had approximately $12.7 million
of unused availability relating to these lines of credit at July 31, 2000.
The Company periodically reviews the terms of its financing with its
lenders, including the interest rate. For the first six months of fiscal 2001
and 2000 the average interest rate under interest-bearing floor plan financing
was approximately 8.56% and 7.05%, respectively. As of July 31, 2000 the Company
had outstanding floor plan payables of approximately $202.5 million, of which
$148.9 million was then interest-bearing. The average interest rates on the
Company's lines of credit during the six months ended July 31, 2000 and 1999
were 9.00% and 7.58%, respectively.
The Company's credit agreements with Deere Credit, Bank of America, and
Ag Capital are scheduled to mature during the Company's third and fourth fiscal
quarters. Bank of America has informed the Company that it is exiting the
business of lending to equipment distributors and therefore will not be renewing
its commitment at the November 20, 2000 expiration date. The Company, subsequent
to July 31, 2000, voluntarily reduced the commitment by Bank of America from $45
million to $20 million. The Company is currently negotiating new credit
agreements and anticipates having new credit agreements executed with its
existing lenders or a combination of new and existing lenders prior to the
scheduled maturity of the Company's current credit facilities.
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
as of July 31, 2000. In addition, the Company is in arbitration with John Deere
Construction Equipment Company (JDCEC) regarding JDCEC's contention that the
Company violated of two of the Company's dealership agreements giving JDCEC the
right to terminate the agreements. The alleged violations of the Company's
dealership agreements are listed as an event which if true would constitute a
default under the credit facility with Deere Credit. The Company has received
written confirmation from Deere Credit that these alleged violations will not
constitute a default unless the arbitration panel determines that the Company
violated the dealer agreements.
Cash used for operating activities during the first six months of
fiscal 2001 was $424,000. Reduced depreciation expense after the sale of the
construction equipment rental operations contributed less cash, while a net
lossand reduced levels of payables were the primary factors leading to the use
of cash for operating activities. Cash provided by operating activities for the
first six months of fiscal 2000 was $10.3 million, that primarily resulted from
net income, depreciation and amortization, and increases in floor plan financing
which was partially offset by increases in trade receivables and inventories.
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Cash used for investing activities during the first six months of
fiscal 2001 was $5.7 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 six months of
fiscal 2000 was $8.9 million, which was primarily related to acquisitions, the
purchase of rental equipment and the purchase of property and equipment.
Cash provided by financing activities during the first six months of
fiscal 2001 was $1.9 million. The primary source of cash from financing
activities was increases in the Company's operating lines, partially offset by
net payments of long-term debt. During the first six months of fiscal 2000,
proceeds from issuance of long-term debt and increases in operating lines and
short-term payables were approximately $6.4 million. This increase in cash was
offset by payments of long-term debt of approximately $6.4 million.
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, particularly in the Midwest,
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 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.
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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, in the Company's Form 8-K dated July 18, 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; 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 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.
In late June 2000, the Company received written notice from John Deere
Construction Equipment Company that, effective June 21, 2001, John Deere
Construction would terminate the Company's dealership agreements for the
Burnsville, Minnesota and Phoenix, Arizona areas of responsibility for the sale
and warranty servicing of Deere construction, utility and forestry equipment. In
the termination notice, John Deere Construction cited its view that the Company
was in violation of certain market penetration requirements in the dealership
agreements. On the same date, John Deere Construction also filed an arbitration
demand with the American Arbitration Association in Chicago that seeks
confirmation
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of its allegations that the Company's construction equipment dealerships can be
terminated because the Company allegedly violated these agreements. Such a
termination would result in the Company losing its John Deere Construction
dealership agreements for the Southwest and most of the Midwest regions. The
termination would not affect the Company's Montana or Texas construction
dealerships or its John Deere agricultural dealerships. The Company denies John
Deere Construction's contention that it can terminate its dealership agreements
and has filed a counterclaim in the arbitration, asserting a number of
statutory, contract and tort claims. The Company intends to vigorously defend
its right to remain a John Deere construction equipment dealer under all means
available. The counterclaim incorporates all of the allegations and seeks all of
the remedies set forth in the complaint filed by the Company in the Minnesota
trial court action as described below.
On July 18, 2000, the Company and several affiliates filed suit in the
Fourth Judicial District Court, State of Minnesota against John Deere
Construction Equipment Company, Credit Suisse First Boston Equity Partners, L.P.
and Nortrax, L.L.C. alleging that those companies have violated the Minnesota
Heavy and Utility Equipment Manufacturers and Dealers Act and have intentionally
and inappropriately interfered and conspired to interfere with the Company's
John Deere construction equipment dealership agreements. The Company's suit
alleged that John Deere Construction's notice to terminate the Company's
dealership agreements is based upon Deere's strategic objective to own or
control a significant percentage of its distribution channel. As a result, the
ongoing operation of the Company's construction dealerships is viewed by Deere
as a substantial impediment to its achieving its objectives. Recently, John
Deere Construction entered into a joint venture with Credit Suisse First Boston
Equity Partners, L.P. called Nortrax, L.L.C. Deere has stated that the reason
for the Nortrax joint venture is "to assist in the consolidation, development
and management" of its construction dealerships. In addition to the
above-referenced statutory violations, the lawsuit asserts that the defendants
have conspired to breach the Company's contracts with John Deere Construction
and certain common law duties owed to the Company. The suit seeks unspecified
monetary damages and a judicial declaration that John Deere Construction does
not have the right to terminate the Company's dealership agreements. On August
1, 2000, the parties were ordered by the Minnesota trial court judge to
arbitrate these claims. The Company has until October 6, 2000 to decide whether
to appeal this order.
The Company's construction equipment division is its largest division.
With 31 total retail locations, the division accounted for almost one-half of
the Company's total revenues for the twelve months ended January 31, 2000. The
areas of responsibility covered under the termination notice accounted for
approximately two-thirds of the Division's total revenue. Termination of certain
or all of the Company's dealership agreements with John Deere Construction as
requested in the arbitration demand could have a significant negative impact on
the results of operations, liquidity, profitability and financial condition of
the Company.
The Company is also 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
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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 schedule for resolution of this dispute has yet been set.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibits filed with this report are listed in the Exhibit Index
on page 21.
(b) REPORTS ON FORM 8-K.
During the second quarter ended July 31, 2000, the Company filed
a Current Report on Form 8-K dated July 18, 2000 under Item 5 relating
to the press release dated July 18, 2000 regarding a lawsuit commenced
by RDO Equipment Co. and several affiliated entities against John
Deere Construction Equipment Company, Credit Suisse First Boston
Equity Partners, L.P. and Nortrax, L.L.C. See the discussion under
"Part II - Other Information. Item 1. Legal Proceedings."
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RDO EQUIPMENT CO.
(Registrant)
Date: September 11, 2000 By: /s/ Thomas K. Espel
---------------------------------
Thomas K. Espel
Chief Financial Officer
(principal financial officer)
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EXHIBIT INDEX
ITEM NO. ITEM PAGE OF THIS REPORT
-------- ---- -------------------
10.1 RDO Construction Equipment Co. and RDO 22
Agriculture Equipment Co. amended and restated
loan agreement with John Deere Construction
Equipment Company, Deere Credit, Inc., and John
Deere Company
10.2 RDO Construction Equipment Co. and RDO 42
Agriculture Equipment Co. amended and restated
security agreement with John Deere Construction
Equipment Company, Deere Credit, Inc., and John
Deere Company
10.3 RDO Construction Equipment Co. and RDO 47
Agriculture Equipment Co. guaranty with John
Deere Construction Equipment Company, Deere
Credit, Inc., and John Deere Company
27.1 Financial Data Schedule 50
21
