What changed in this filing

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Item 1. Financial Statements

2020-06-04 compared with 2019-12-05 · 264 added, 330 removed, 334 unchanged (64% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

October 31, 2019

January 31, 2019

April 30, 2020 January 31, 2020

Current Assets

Receivables, net of allowance for doubtful accounts

Cash $ 50,835 $ 43,721

Receivables, net of allowance for expected credit losses 76,430 72,776

Inventories 583,435 597,394

Prepaid expenses and other 10,626 13,655

4 unchanged sentences

Deferred income taxes 3,783 2,147

Goodwill 2,311 2,327

Intangible assets, net of accumulated amortization 8,318 8,367

Other 1,131 1,113

Total noncurrent assets 248,413 247,797

Total Assets $ 969,739 $ 975,343

Liabilities and Stockholders' Equity

2 unchanged sentences

Floorplan payable 378,302 371,772

Senior convertible notes

Current maturities of long-term debt 3,787 13,779

12 unchanged sentences

Common stock, par value $.00001 per share, 45,000 shares authorized;

22,352 shares issued and outstanding at October 31, 2019;

22,314 shares issued and outstanding at April 30, 2020;

22,335 shares issued and outstanding at January 31, 2020 — —

8 unchanged sentences

(in thousands, except per share data)

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

Equipment $ 218,505 $ 193,956

Parts 56,614 51,938

Service 25,600 22,831

Rental and other 9,489 9,567

1 unchanged sentence

Cost of Revenue

Equipment 197,046 173,154

Parts 39,617 36,814

Service 8,345 7,483

Rental and other 6,790 6,941

Total Cost of Revenue 251,798 224,392

Gross Profit 58,410 53,900

Operating Expenses 53,058 52,555

Impairment of Long-Lived Assets 216 135

Restructuring Costs

Income from Operations 5,136 1,210

Other Income (Expense)

Interest income and other income (expense)

Interest and other income 130 794

Floorplan interest expense ( 1,152 ) ( 877 )

Other interest expense ( 966 ) ( 1,642 )

Income Before Income Taxes

Provision for Income Taxes

Income (Loss) Before Income Taxes 3,148 ( 515 )

Provision for (Benefit from) Income Taxes 886 ( 70 )

Net Income (Loss) $ 2,262 $ ( 445 )

Earnings per Share:

Basic $ 0.10 $ ( 0.02 )

Diluted $ 0.10 $ ( 0.02 )

Weighted Average Common Shares:

Basic 22,012 21,872

Diluted 22,012 21,872

See Notes to Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

Net Income (Loss) $ 2,262 $ ( 445 )

Other Comprehensive Income (Loss)

Foreign currency translation adjustments ( 528 ) ( 771 )

Comprehensive Income

Comprehensive Income (Loss) $ 1,734 $ ( 1,216 )

See Notes to Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

Shares Outstanding

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Shares Outstanding Amount

BALANCE, January 31, 2019 22,218 $ — $ 248,423 $ 89,228 $ ( 2,340 ) $ 335,311

Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax

Stock-based compensation expense

Other comprehensive income

BALANCE, April 30, 2018

Cumulative-effect adjustment of adopting ASC 842, Leases — — — ( 5,464 ) — ( 5,464 )

Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 34 ) — ( 492 ) — — ( 492 )

Stock-based compensation expense — — 603 — — 603

Net loss — — — ( 445 ) — ( 445 )

Other comprehensive loss — — — — ( 771 ) ( 771 )

BALANCE, July 31, 2018

Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax

Stock-based compensation expense

Other comprehensive income

BALANCE, October 31, 2018

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

Shares Outstanding

BALANCE, April 30, 2019 22,184 $ — $ 248,534 $ 83,319 $ ( 3,111 ) $ 328,742

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity

Shares Outstanding Amount

BALANCE, January 31, 2020 22,335 $ — $ 250,607 $ 97,717 $ ( 3,220 ) $ 345,104

Cumulative-effect adjustment of adopting ASC 842, Leases

Cumulative-effect adjustment of adopting ASC 326, Credit Loss — — — ( 204 ) — ( 204 )

Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax ( 21 ) — ( 201 ) — — ( 201 )

Stock-based compensation expense — — 645 — — 645

Net income — — — 2,262 — 2,262

Other comprehensive loss — — — — ( 528 ) ( 528 )

BALANCE, April 30, 2020 22,314 $ — $ 251,051 $ 99,775 $ ( 3,748 ) $ 347,078

Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax

Stock-based compensation expense

Other comprehensive income

BALANCE, July 31, 2019

Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax

Stock-based compensation expense

Other comprehensive loss

BALANCE, October 31, 2019

See Notes to Consolidated Financial Statements

2 unchanged sentences

(in thousands)

Nine Months Ended October 31,

Three Months Ended April 30,

Operating Activities

Adjustments to reconcile net income to net cash used for operating activities

Net income (loss) $ 2,262 $ ( 445 )

Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities

Depreciation and amortization 5,375 6,064

Impairment 216 135

Deferred income taxes 117 ( 316 )

2 unchanged sentences

Noncash lease expense 2,833 3,062

Loss on repurchase of senior convertible notes

Other, net ( 54 ) 11

Changes in assets and liabilities

Receivables, prepaid expenses and other assets ( 1,125 ) ( 5,593 )

Inventories 11,941 ( 78,254 )

Manufacturer floorplan payable ( 10,669 ) 89,599

7 unchanged sentences

Acquisition consideration, net of cash acquired — ( 2,972 )

Other, net ( 21 ) 8

Net Cash Used for Investing Activities ( 5,122 ) ( 8,038 )

1 unchanged sentence

Net change in non-manufacturer floorplan payable 18,781 12,772

Principal payments on senior convertible notes

Proceeds from long-term debt borrowings 1,112 373

Principal payments on long-term debt and finance leases ( 1,309 ) ( 878 )

Payment of debt issuance costs (670) —

Other, net ( 200 ) ( 492 )

Net Cash Provided by Financing Activities 17,714 11,775

6 unchanged sentences

Income taxes, net of refunds $ 365 $ 517

Interest $ 2,262 $ 1,712

Supplemental Disclosures of Noncash Investing and Financing Activities

11 unchanged sentences

(the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s Agriculture, Construction and International customers.

Therefore, operating results for the nine -month period ended October 31, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2020 .

Therefore, operating results for the three-month period ended April 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2021.

The information contained in the consolidated balance sheet as of January 31, 2020 was derived from the audited consolidated financial statements for the Company for the fiscal year then ended.

2 unchanged sentences

The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe.

The Company’s North American stores are located in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, New Mexico, North Dakota, South Dakota, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, Serbia and Ukraine.

The Company’s North American stores are located in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, Serbia and Ukraine.

Impact of the COVID-19 Pandemic

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency.

The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of the pandemic, such as shelter-in-place orders and quarantines.

The pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the markets that we operate.

Risk Factors for more information on possible impacts.

Since the beginning of the COVID-19 pandemic, the safety of our employees and customers has been and continues to be our top concern.

At the onset of the pandemic we organized a COVID Task Force to implement safety protocols and to quickly respond to matters, in the event of a positive case at one of our locations.

Even though we are considered an essential business, in response to the COVID-19 pandemic, the company closed its U.S.

stores to the public on March 23, 2020 but continued operations through social distancing means in all areas:

equipment, parts, service and rental.

Beginning May 4, 2020, we began fully reopening our stores to the public, following pandemic safety protocols applicable to the locations.

Additionally, our International stores have also been following pandemic safety protocols applicable to each location.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period.

3 unchanged sentences

All material accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.

Reclassifications

Concurrent with the adoption of new lease accounting guidance, the Company elected to reclassify finance lease liabilities in the accompanying consolidated balance sheet as of January 31, 2019 to maintain consistency and comparability between periods presented.

The amounts reclassified included $1.3 million from current maturities of long-term debt to accrued expenses and other and $5.1 million from long-term debt, less current maturities to other long-term liabilities.

These reclassifications had no impact on total current liabilities, total long-term liabilities or total liabilities and stockholders' equity within the consolidated balance sheets.

Certain reclassifications of amounts previously reported within the consolidated statements of cash flows have been made to maintain consistency and comparability between periods presented.

These reclassifications had no impact on previously reported cash flows from operating, investing or financing activities within the consolidated statements of cash flows.

Recently Adopted Accounting Guidance

In February 2016, the Financial Accounting Standards Board ("FASB") issued a new leasing standard applicable for lessees and lessors and codified in Accounting Standards Codification 842, Leases, ("ASC 842") to increase transparency and comparability among organizations.

Most prominent among the changes in the standard is the recognition on the balance sheet by a lessee of right-of-use assets and lease liabilities for most leases.

The standard also requires new disclosures to help financial statement users better understand the amount, timing, and uncertainty of cash flows arising from lease activities.

This guidance is effective for reporting periods beginning after December 15, 2018.

The Company adopted the leasing guidance on February 1, 2019 using a prospective transition method at the adoption date and recognized a cumulative-effect adjustment to the opening balance of retained earnings as a result of adoption.

Under this method of adoption, prior period amounts are not adjusted and will continue to be reported under accounting standards in effect for those periods.

The Company elected the package of practical expedients afforded under the guidance, which applies to leases that commenced prior to adoption and permits an entity not to:

1) reassess whether existing or expired contracts are or contain a lease, 2) reassess the lease classification, and 3) reassess any initial direct costs for any existing leases.

The Company did not elect the use of the hindsight practical expedient to determine the lease term, but rather included the lease term as defined under former leasing guidance to capitalize the right-of-use asset and lease liability upon adoption.

The Company identified new, and updated existing, internal controls and processes to ensure compliance with the new standard, but such modifications were not deemed to be material to our overall system of internal controls.

Adoption of the new standard for leasing transactions in which the Company is the lessee had a material impact on our consolidated balance sheet but did not have an impact on our consolidated statement of operations or cash flows.

The most significant impact was the recognition of right-of-use assets and lease liabilities for operating leases, while the accounting for financing leases remained substantially unchanged.

We recognized a cumulative-effect adjustment to retained earnings as of February 1, 2019 of $5.5 million primarily resulting from impairment of operating lease right-of-use assets present on the date of adoption, net of the deferred tax impact.

The adoption of the new standard for leasing transactions in which the Company is the lessor did not impact our consolidated balance sheet, statement of operations or cash flows.

The Company has included the additional disclosures required under ASC 842 in Note 13.

Adoption of ASC 842 impacted our consolidated balance sheet as of February 1, 2019 as follows:

January 31, 2019

ASC 842 Adjustment on February 1, 2019

February 1, 2019

(in thousands)

Operating lease assets

Liabilities and Stockholders' Equity

Current maturities of long-term debt

Current operating lease liabilities

Accrued expenses and other

Long-term debt, less current maturities

Operating lease liabilities

Deferred income taxes

Other long-term liabilities

Retained earnings

(a) Capitalization of operating lease assets, net of straight-line rent accrued liabilities, cease-use liabilities, and right-of-use asset impairment present on the date of adoption.

(b) As described above under Reclassifications , concurrent with the adoption of ASC 842, the Company elected to reclassify current maturities of finance lease liabilities from Current maturities of long-term debt to Accrued expenses and other and the long-term portion of finance lease liabilities from Long-term debt, less current maturities to Other long-term liabilities in the accompanying consolidated balance sheet as of January 31, 2019 to maintain consistency and comparability between periods presented.

(d) As described in (b) above, includes the reclassification of current maturities of finance lease liabilities, net of the reclassification of the current portion of cease-use liabilities to Operating lease assets as part of the adoption of ASC 842.

(e) Deferred tax impact of adoption, primarily resulting from operating lease right-of-use asset impairment recognized upon adoption, net of the valuation allowance recognized for such deferred tax assets.

(f) As described in (b) above, includes the reclassification of finance lease liabilities, net of the ASC 842 adoption impact of reclassifying straight-line rent accrued liabilities and cease-use liabilities, and the cumulative-effect adjustment recognized in retained earnings for gains deferred on previous sale-leaseback transactions.

(g) Cumulative-effect adjustment of $6.6 million for operating lease right-of-use asset impairment present on the date of adoption net of the adjustment for deferred gains on previous sale-leaseback transactions of $0.7 million and the deferred tax impact of these adjustments, net of the valuation allowance recognized on such deferred tax assets.

Unadopted Accounting Guidance

In June 2016, the FASB issued a new standard, codified in ASC 326, that modifies how entities measure credit losses on most financial instruments.

The new standard replaces the current "incurred loss" model with an "expected credit loss" model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset.

The new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and will be applied using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align our credit loss methodology with the new standard.

We will adopt this standard on February 1, 2020.

While we are currently evaluating the impact to our consolidated financial statements of adopting this guidance, we do not anticipate that the guidance will materially impact our consolidated financial statements.

The new standard replaced the "incurred loss" model with an "expected credit loss" model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset.

The guidance impacts the Company on its accounts receivable portfolio but specifically excluded receivables from operating lease arrangements and, therefore, the Company’s receivables from rental contracts were not impacted.

The guidance also requires new disclosures to allow the users of the financial statements to understand the credit risk inherent in a portfolio and how management monitors the credit quality of the portfolio, management’s estimate of expected credit losses, and changes in the estimate of expected credit losses that have taken place during the reporting period.

The Company adopted the new guidance on February 1, 2020 using a modified retrospective approach and recognized an immaterial cumulative-effect adjustment to retained earnings as of the effective date.

The Company identified and updated existing internal controls and procedures to ensure compliance with the new guidance, but such modifications were not deemed to be material to the Company's overall system of internal control.

While the adoption of this ASU did not have a material impact on the Company's consolidated financial statements, it required changes to the Company's process of estimating expected credit losses on trade receivables.

Following is a summary of allowance for credit losses on trade and unbilled accounts receivable:

Balance at February 1, 2020 Current Expected Credit Loss Provision Write-offs Charged Against the Allowance Credit Loss Recoveries Collected F/X Impact Balance at April 30, 2020

(in thousands)

Agriculture $ 181 $ 14 $ 5 $ 40 $ — $ 230

Construction 1,016 113 71 4 — 1,062

International 1,746 226 133 6 ( 29 ) 1,816

$ 2,943 $ 353 $ 209 $ 50 $ ( 29 ) $ 3,108

In February 2018, the FASB issued guidance on the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, codified in ASC 350-40.

This guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, and may be applied using either a retrospective or prospective transition approach.

We will adopt this standard on February 1, 2020 and anticipate applying the prospective transition approach.

While we are currently evaluating the impact of adopting this guidance, we do not anticipate that it will materially impact our consolidated financial statements.

This standard was adopted on February 1, 2020 and was applied using the prospective transition approach.

The adoption of this ASU did not have a material impact on the Company's consolidated financial statements.

Unadopted Accounting Guidance

In March 2020, the FASB issued ASU No.

2020-04 , Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No.

2020-04”), which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates.

ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022.

The Company is currently evaluating its contracts and hedging relationships that reference LIBOR to determine if the Company will adopt the new guidance.

NOTE 2 - EARNINGS PER SHARE

The following table sets forth the calculation of basic and diluted EPS:

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands, except per share data)

Net income (loss) $ 2,262 $ ( 445 )

Allocation to participating securities ( 32 ) —

Net income attributable to Titan Machinery Inc.

Net income (loss) attributable to Titan Machinery Inc.

common stockholders $ 2,230 $ ( 445 )

Basic weighted-average common shares outstanding 22,012 21,872

incremental shares from assumed exercises of stock options and vesting of restricted stock units

incremental shares from vesting of restricted stock units — —

Diluted weighted-average common shares outstanding 22,012 21,872

Earnings Per Share:

Basic $ 0.10 $ ( 0.02 )

Diluted $ 0.10 $ ( 0.02 )

Anti-dilutive shares excluded from diluted weighted-average common shares outstanding:

Restricted stock units 9 8

Shares underlying senior convertible notes — 1,057

3 unchanged sentences

The following tables present our revenue disaggregated by revenue source and segment:

Three Months Ended October 31, 2019

Three Months Ended October 31, 2018

International

(in thousands)

Three Months Ended April 30, 2020

Agriculture Construction International Total

(in thousands)

Equipment $ 139,749 $ 34,253 $ 44,503 $ 218,505

Parts 35,079 11,460 10,075 56,614

Service 17,720 6,212 1,668 25,600

Other 733 518 104 1,355

Revenue from contracts with customers

193,281 52,443 56,350 302,074

Rental 346 7,671 117 8,134

Total revenues $ 193,627 $ 60,114 $ 56,467 $ 310,208

Nine Months Ended October 31, 2019

Nine Months Ended October 31, 2018

International

(in thousands)

Three Months Ended April 30, 2019

Agriculture Construction International Total

(in thousands)

Equipment $ 107,864 $ 43,046 $ 43,046 $ 193,956

Parts 29,976 12,704 9,258 51,938

Service 14,985 6,521 1,325 22,831

Other 618 593 22 1,233

Revenue from contracts with customers

153,443 62,864 53,651 269,958

Rental 332 7,879 123 8,334

Total revenues $ 153,775 $ 70,743 $ 53,774 $ 278,292

Unbilled Receivables and Deferred Revenue

Unbilled receivables amounted to $18.7 million and $11.2 million as of October 31, 2019 and January 31, 2019 .

Unbilled receivables amounted to $ 17.1 million and $ 13.9 million as of April 30, 2020 and January 31, 2020.

The increase in unbilled receivables is primarily the result of a seasonal increase in the volume of our service transactions in which we recognize revenue as our work is performed and prior to customer invoicing.

Deferred revenue from contracts with customers amounted to $11.9 million and $44.9 million as of October 31, 2019 and January 31, 2019 .

Deferred revenue from contracts with customers amounted to $ 27.9 million and $ 39.5 million as of April 30, 2020 and January 31, 2020.

Our deferred revenue most often increases in the fourth quarter of each fiscal year due to a higher level of customer down payments or prepayments and longer time periods between customer payment and delivery of the equipment asset, and the related recognition of equipment revenue, prior to its seasonal use.

During the nine months ended October 31, 2019 and 2018 , the Company recognized $43.7 million and $30.0 million , respectively, of revenue that was included in the deferred revenue balance as of January 31, 2019 and January 31, 2018 , respectively.

No material amount of revenue was recognized during the three or nine months ended October 31, 2019 and 2018 from performance obligations satisfied in previous periods.

During the three months ended April 30, 2020 and 2019, the Company recognized $ 29.7 million and $ 30.5 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2020 and January 31, 2019, respectively.

No material amount of revenue was recognized during the three months ended April 30, 2020 and 2019 from performance obligations satisfied in previous periods.

The Company has elected as a practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of service of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed.

1 unchanged sentence

NOTE 4 - RECEIVABLES

October 31, 2019

January 31, 2019

The Company provides an allowance for expected credit losses on its nonrental receivables in accordance with the guidance in ASU 2016-13.

To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics as shown in the table below.

Trade and unbilled receivables from contracts with customers have credit risk and the allowance is determined by applying expected credit loss percentages to aging categories based on historical experience that are updated each quarter.

The rates may also be adjusted to the extent future events are expected to differ from historical results.

Given that the credit terms for these receivables are short-term, changes in credit loss percentages due to future events may not occur on a frequent basis.

In addition, the allowance is adjusted based on information obtained by continued monitoring of individual customer credit.

Trade receivables from finance companies, other receivables due from manufacturers, and other receivables have not historically resulted in any credit losses to the Company.

These receivables are short-term in nature and deemed to be of good credit quality and have no need for any allowance for expected credit losses.

Management continually monitors these receivables and should information be obtained that identifies potential credit risk, an adjustment to the allowance would be made if deemed appropriate.

Trade and unbilled receivables from rental contracts are primarily in the US and are specifically excluded from the guidance in ASU 2016-13 in determining an allowance for expected losses.

The Company does provide an allowance for these receivables based on historical experience and using credit information obtained from continued monitoring of customer accounts.

April 30, 2020 January 31, 2020

(in thousands)

8 unchanged sentences

Due from manufacturers 6,565 5,763

Other 1,346 1,198

Total receivables 81,659 77,899

Less allowance for doubtful accounts

Receivables, net of allowance for doubtful accounts

Less allowance for expected credit losses ( 5,229 ) ( 5,123 )

Receivables, net of allowance for expected credit losses $ 76,430 $ 72,776

The following table presents impairment losses on receivables arising from sales contracts with customers and receivables arising from rental contracts:

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands)

3 unchanged sentences

NOTE 5 - INVENTORIES

October 31, 2019

January 31, 2019

April 30, 2020 January 31, 2020

(in thousands)

3 unchanged sentences

Work in process 1,900 1,707

$ 583,435 $ 597,394

NOTE 6 - PROPERTY AND EQUIPMENT

October 31, 2019

January 31, 2019

April 30, 2020 January 31, 2020

(in thousands)

1 unchanged sentence

Machinery and equipment 22,773 22,682

Vehicles 51,837 51,850

Furniture and fixtures 42,043 41,720

Land, buildings, and leasehold improvements 72,407 70,408

293,948 290,793

Less accumulated depreciation ( 145,655 ) ( 145,231 )

$ 148,293 $ 145,562

The Company reviews its long-lived assets for potential impairment whenever events or circumstances indicate that the carrying value of the long-lived asset (or asset group) may not be recoverable.

During the three months ended October 31, 2019 , the Company determined that a current period operating loss combined with historical losses of a certain store location indicated that the long-lived asset group of the store location may not be recoverable.

During the three months ended April 30, 2020, the Company determined that a current period operating loss combined with historical losses of certain store locations indicated that the long-lived asset group of the store locations may not be recoverable.

The Company performed an impairment assessment of this asset group and as a result recognized an impairment charge of $ 0.2 million within its Construction segment.

For the nine months ended October 31, 2019 , the Company recognized total impairment charges of $0.2 million within its Construction segment.

For the three months ended October 31, 2018, the Company recognized an impairment charge within its Agriculture segment of $0.3 million .

For the nine months ended October 31, 2018, the Company recognized total impairment charges of $0.5 million , of which $0.3 million was recognized within the Agriculture segment and $0.2 million within the International segment.

In March 2019, the Company completed an assessment of its Enterprise Resource Planning ("ERP") application and concluded that the Company will begin the process to prepare for conversion to a new ERP application during the fiscal year ending January 31, 2020, with an anticipated implementation of the new ERP application during the first-half of the fiscal year ending January 31, 2021.

Beginning in March 2019, the Company prospectively adjusted the useful life of its current ERP application such that it will be fully amortized upon its estimated replacement date.

The net book value of the ERP asset of $8.7 million as of March 2019 will be amortized on a straight-line basis over the estimated remaining period of use.

For the three and nine months ended October 31, 2019 , the Company recognized an additional $1.4 million and $3.7 million of amortization expense, which decreased operating income accordingly, decreased net income by approximately $1.1 million and $2.8 million , and decreased basic and diluted earnings per share by approximately $0.05 and $0.13 , respectively.

NOTE 7 - GOODWILL

Changes in the carrying amount of goodwill during the nine months ended October 31, 2019 are as follows:

International

(in thousands)

Balance, January 31, 2019

Arising from business combinations

Foreign currency translation

Balance, October 31, 2019

In March 2019, the Company completed an assessment of its Enterprise Resource Planning ("ERP") application and concluded that the Company would begin the process to prepare for conversion to a new ERP application.

The Company currently anticipates a pilot store to be on the new ERP system in the second quarter of the current fiscal year and all stores to be on the new ERP application in the first half of the fiscal year ending January 31, 2022.

We have prospectively adjusted the useful life of our current ERP application such that it will be fully amortized upon its estimated replacement date.

The net book value of the ERP asset of $ 1.8 million as of April 30, 2020 will be amortized on a straight-line basis over the estimated remaining period of use.

NOTE 7 - FLOORPLAN PAYABLE/ LINES OF CREDIT

As of October 31, 2019 , the Company had floorplan lines of credit totaling $660.0 million , which is primarily comprised of three significant floorplan lines of credit:

(i) a $400.0 million credit facility with CNH Industrial, (ii) a $140.0 million line of credit with a group of banks led by Wells Fargo Bank, National Association (the "Wells Fargo Credit Agreement"), and (iii) a $60.0 million credit facility with DLL Finance LLC.

As of October 31, 2019 and January 31, 2019 , the Company's outstanding balances of floorplan payables and lines of credit consisted of the following:

October 31, 2019

January 31, 2019

On April 3, 2020, the Company entered into a Third Amended and Restated Credit Agreement with a group of banks (the "Bank Syndicate"), that amended and restated the Company's prior $ 200.0 million credit facility, dated October 28, 2015.

The Bank Syndicate provides for a secured credit facility in an amount up to $ 250.0 million, consisting of a $ 185.0 million floorplan facility (the "Floorplan Loan") and a $ 65.0 million operating line (the "Revolver Loan"), and changed the interest rates as compared to the prior credit facility, amongst other things.

The amounts available under the Bank Syndicate are subject to base calculations and reduced by outstanding standby letters of credit and certain reserves.

The Bank Syndicate has a variable interest rate on outstanding balances, has a 0.25% non-usage fee on the average monthly unused amount (replacing the previous non-usage fee of 0.25% to 0.375%), and requires monthly payments of accrued interest.

The Company elects at the time of any advance to choose a Base Rate Loan or a LIBOR Rate Loan.

The LIBOR Rate is based upon one month, two month, or three month LIBOR, as chosen by the Company, but in no event shall the LIBOR Rate be less than 0.50%.

The Base Rate is the greater of (a) the prime rate of interest announced, from time to time, by Bank of America;

(b) the Federal Funds Rate plus 0.5%, (c) one month LIBOR plus 1%, but in no event shall the Base Rate be less than zero.

The applicable margin rate is determined based on excess availability under the Bank Syndicate and ranges from 0.5% to 1.0% for Base Rate Loans and 1.5% to 2.0% for LIBOR Rate Loans.

The new applicable margins under the Bank Syndicate are up to 0.5% less than the existing margins under the prior credit facility.

The Bank Syndicate does not obligate the Company to maintain financial covenants, except in the event that excess availability (each as defined in the Bank Syndicate) is less than 15% of the lower of the borrowing base or the size of the maximum credit line, at which point the Company is required to maintain a fixed charge coverage ratio (“FCCR”) of at least 1.10 :1.00.

The Bank Syndicate includes various restrictions on the Company and its subsidiaries’ activities, including, under certain conditions, limitations on the Company’s ability to make certain cash payments including cash dividends and stock repurchases, issuance of equity instruments, acquisitions and divestitures, and entering into new indebtedness transactions.

The Bank Syndicate matures on April 3, 2025.

The Floorplan Loan under the Bank Syndicate is used to finance equipment inventory purchases.

Amounts outstanding are recorded as floorplan payable, within current liabilities on the consolidated balance sheets, as the Company intends to repay amounts borrowed within one year.

The Revolver Loan under the Bank Syndicate is used to finance rental fleet equipment and for general working capital requirements of the Company.

Amounts outstanding are recorded as long-term debt, within long-term liabilities on the consolidated balance sheets, as the Company does not have the intention or obligation to repay amounts borrowed within one year.

As of April 30, 2020, the Company had floorplan lines of credit totaling $ 762.0 million, which is primarily comprised of three significant floorplan lines of credit:

(i) a $ 450.0 million credit facility with CNH Industrial, (ii) a $ 185.0 million line of credit with the Bank Syndicate, and (iii) a $ 60.0 million credit facility with DLL Finance LLC.

As of April 30, 2020 and January 31, 2020, the Company's outstanding balances of floorplan payables and lines of credit consisted of the following:

April 30, 2020 January 31, 2020

(in thousands)

CNH Industrial $ 179,602 $ 187,690

Wells Fargo Credit Agreement (floorplan payable line)

Bank Syndicate Floorplan Loan 102,900 —

Wells Fargo Floorplan Payable Line — 82,700

DLL Finance 30,198 30,657

Other outstanding balances with manufacturers and non-manufacturers 65,602 70,725

As of October 31, 2019 , the interest-bearing U.S.

floorplan payables carried various interest rates ranging from 4.28% to 5.60% , compared to a range of 4.77% to 6.30% as of January 31, 2019 .

As of October 31, 2019 , foreign floorplan payables carried various interest rates primarily ranging from 0.86% to 7.88% , compared to a range of 0.94% to 8.51% as of January 31, 2019 .

As of October 31, 2019 and January 31, 2019 , $257.1 million and $151.7 million , respectively, of outstanding floorplan payable were non-interest bearing.

As of October 31, 2019 , the Company had a compensating balance arrangement under one

of its foreign floorplan credit facilities, which requires a minimum cash deposit to be maintained with the lender in the amount of $5.0 million for the term of the credit facility.

Wells Fargo Credit Agreement

The maturity date of the Wells Fargo Credit Agreement was previously contingent upon the results of a maturity test that was performed on February 1, 2019, a date that was three months prior to the scheduled maturity date of the Company's outstanding senior convertible notes.

Pursuant to this test, the maturity date for the Wells Fargo Credit Agreement would be October 28, 2020 so long as (i) the Company's fixed charge coverage ratio for the 12 month period ended December 31, 2018 was at least 1.10 to 1.00 and (ii) a liquidity test, requiring that the Company have unrestricted cash on hand plus excess borrowing availability under the Wells Fargo Credit Agreement (on a pro-forma basis reflecting the Company’s repayment in full of its outstanding senior convertible notes) in an amount that was greater than 20% of maximum credit amount under the facility, was met on February 1, 2019.

If both financial tests were not satisfied on February 1, 2019, the Wells Fargo Credit Agreement would immediately mature and all amounts outstanding would become immediately due and payable in full.

The Company satisfied the maturity test requirements on February 1, 2019, and therefore the maturity date of the Wells Fargo Credit Agreement is October 28, 2020.

CNH Industrial Floorplan Payable Line of Credit

In November 2019, the Company amended its credit facility with CNH Industrial to increase the available borrowings under the facility from $400.0 million to $450.0 million .

Domestic available borrowings increased as a result of the amendment from $310.0 million to $360.0 million .

Available borrowings of our European businesses remained unchanged at $90.0 million .

DLL Finance Agreement

In October 2019, the DLL Finance agreement was amended and restated to, among other things, increase the available borrowing capacity from $45.0 million to $60.0 million , of which approximately $47.0 million is available for domestic financing and approximately $13.0 million is available for financing in certain of our European markets, to decrease the interest margin on domestic borrowings from 3.00% to 2.85% , and to replace the maximum net leverage ratio covenant with a maximum adjusted debt to tangible net worth covenant of 3.50 :1.00.

The adjusted debt to tangible net worth covenant is now aligned with the same covenant under our CNH Industrial floorplan financing arrangement.

$ 378,302 $ 371,772

As of April 30, 2020, the interest-bearing U.S.

floorplan payables carried various interest rates ranging primarily from 2.52 % to 4.12 %, compared to a range of 4.05 % to 4.81 % as of January 31, 2020.

As of April 30, 2020, foreign floorplan payables carried various interest rates primarily ranging from 0.98 % to 6.33 %, compared to a range of 0.86 % to 7.66 % as of January 31, 2020.

As of April 30, 2020 and January 31, 2020, $ 201.9 million and $ 205.2 million, respectively, of outstanding floorplan payable were non-interest bearing.

As of April 30, 2020, the Company had a compensating balance arrangement under one of its foreign floorplan credit facilities, which requires a minimum cash deposit to be maintained with the lender in the amount of $ 5.0 million for the term of the credit facility.

NOTE 8 - DEFERRED REVENUE

October 31, 2019

January 31, 2019

April 30, 2020 January 31, 2020

(in thousands)

1 unchanged sentence

Deferred revenue from rental and other contracts 1,274 1,456

$ 29,163 $ 40,968

NOTE 9 - SENIOR CONVERTIBLE NOTES

The Company's senior convertible notes matured, and the outstanding principal balance of $ 45.6 million was repaid in full, on May 1, 2019.

The carrying value of outstanding senior convertible notes previously consisted of the following:

October 31, 2019

January 31, 2019

(in thousands except conversion

rate and conversion price)

Principal value

Unamortized debt discount

Unamortized debt issuance costs

Carrying value of senior convertible notes

Carrying value of equity component, net of deferred taxes

The Company recognized interest expense associated with its senior convertible notes as follows:

Three Months Ended October 31,

Nine Months Ended October 31,

(in thousands)

Three Months Ended April 30,

(in thousands)

4 unchanged sentences

Amortization of transaction costs — 45

The effective interest rate of the liability component was equal to 7.3% for the three months ended October 31, 2018 and the nine months ended October 31, 2019 and 2018.

The effective interest rate of the liability component was equal to 0.0 % for the three months ended April 30, 2019.

NOTE 10 - LONG TERM DEBT

The following is a summary of long-term debt as of October 31, 2019 and January 31, 2019 :

October 31, 2019

January 31, 2019

The following is a summary of long-term debt as of April 30, 2020 and January 31, 2020:

April 30, 2020 January 31, 2020

(in thousands)

Sale-leaseback financing obligations, interest rates ranging from 3.4% to 10.3% with various maturity dates through December 2030 $ 17,469 $ 17,781

Wells Fargo Credit Agreement - Working Capital Line, interest accrues at a variable rate on outstanding balances, requires monthly payments of accrued interest, matures on October 28, 2020.

Real estate mortgage bearing interest at 5.11%, payable in quarterly installments of $0.3 million, maturing on May 15, 2039, secured by real estate assets

Bank Syndicate - Working Capital Line, interest accrues at a variable rate on outstanding balances, requires monthly payments of accrued interest, matures April 2025 10,000 10,000

Real estate mortgage bearing interest at 5.11%, payable in annual installments of $0.3 million, maturing on May 15, 2039, secured by real estate assets 6,827 6,827

Equipment financing loan, payable in monthly installments over a 72-month term for each funded tranche, bearing interest at 3.89%, secured by vehicle assets 7,350 7,468

Real estate mortgage bearing interest at 4.62%, payable in monthly installments of $0.04 million with a final payment at maturity of $3.4 million, maturing on June 10, 2024, secured by real estate assets 4,366 4,416

Real estate mortgage bearing interest at 4.4%, payable in monthly installments of $0.01 million with a final payment at maturity of $1.0 million, maturing on January 1, 2027, secured by real estate assets 1,474 1,489

Real estate mortgage bearing interest at 2.09%, payable in monthly installments, maturing on June 30, 2026, secured by real estate assets 2,396 2,520

Other long-term debt primarily bearing interest at three-month EURIBOR plus 2.6%, payable in quarterly installments, maturing on January 31, 2021 3,427 1,067

53,309 51,568

Less current maturities ( 3,787 ) ( 13,779 )

$ 49,522 $ 37,789

NOTE 11 - DERIVATIVE INSTRUMENTS

5 unchanged sentences

The Company's foreign currency forward contracts generally have three-month maturities, maturing on the last day of each fiscal quarter.

No foreign currency contracts were outstanding as of October 31, 2019 .

The notional value of outstanding foreign currency contracts as of January 31, 2019 was $14.1 million .

As of January 31, 2019 , the fair value of the Company's outstanding derivative instruments was not material.

No foreign currency contracts were outstanding as of January 31, 2020.

The notional value of outstanding foreign currency contracts as of April 30, 2020 was $ 13.0 million.

As of April 30, 2020, the fair value of the Company's outstanding derivative instruments was not material.

Derivative instruments recognized as assets are recorded in prepaid expenses and other in the consolidated balance sheets, and derivative instruments recognized as liabilities are recorded in accrued expenses and other in the consolidated balance sheets.

The following table sets forth the gains and losses recognized in income from the Company’s derivative instruments for the three and nine months ended October 31, 2019 and 2018 .

The following table sets forth the gains and losses recognized in income from the Company’s derivative instruments for the three months ended April 30, 2020 and 2019.

Gains and losses are recognized in interest income and other income (expense) in the consolidated statements of operations:

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

(in thousands)

1 unchanged sentence

NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the periods ended October 31, 2019 and October 31, 2018 :

Foreign Currency Translation Adjustment

Net Investment Hedging Gain

Total Accumulated Other Comprehensive Income (Loss)

The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the periods ended April 30, 2020 and April 30, 2019:

Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss)

(in thousands)

2 unchanged sentences

Balance, April 30, 2020 $ ( 6,459 ) $ 2,711 $ ( 3,748 )

Other comprehensive income

Balance, July 31, 2019

Other comprehensive loss

Balance, October 31, 2019

Foreign Currency Translation Adjustment

Net Investment Hedging Gain

Total Accumulated Other Comprehensive Income (Loss)

Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss)

(in thousands)

Balance, January 31, 2019 $ ( 5,051 ) $ 2,711 $ ( 2,340 )

Other comprehensive income

Balance, April 30, 2018

Other comprehensive loss ( 771 ) — ( 771 )

Balance, July 31, 2018

Other comprehensive income

Balance, October 31, 2018

Balance, April 30, 2019 $ ( 5,822 ) $ 2,711 $ ( 3,111 )

NOTE 13 - LEASES

8 unchanged sentences

Most often the Company cannot readily determine the interest rate implicit in the lease and thus applies its incremental borrowing rate to capitalize the right-of-use asset and lease liability.

We estimate our incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market.

Our lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants.

The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which we have ceased operations.

The Company estimates its incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market.

The Company's lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants.

The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which it has ceased operations.

All sublease arrangements are classified as operating leases.

The components of lease expense were as follows:

Classification

Three Months Ended October 31, 2019

Nine Months Ended October 31, 2019

Classification Three Months Ended April 30, 2020 Three Months Ended April 30, 2019

(in thousands)

Finance lease cost:

Amortization of leased assets

Operating expenses

Interest on lease liabilities

Other interest expense

Operating lease cost

Operating expenses & rental and other cost of revenue

Short-term lease cost

Operating expenses

Variable lease cost

Operating expenses

Sublease income

Interest income and other income (expense)

Amortization of leased assets Operating expenses $ 392 $ 376

Interest on lease liabilities Other interest expense 126 139

Operating lease cost Operating expenses & rental and other cost of revenue 4,463 4,816

Short-term lease cost Operating expenses 80 80

Variable lease cost Operating expenses 635 620

Sublease income Interest income and other income (expense) ( 152 ) ( 168 )

$ 5,544 $ 5,863

Right-of-use lease assets and lease liabilities consist of the following:

Classification

October 31, 2019

Classification April 30, 2020 January 31, 2020

(in thousands)

Operating lease assets

Operating lease assets Operating lease assets $ 84,577 $ 88,281

Finance lease assets (a)

1 unchanged sentence

Total leased assets $ 90,579 $ 94,578

Current operating lease liabilities

Accrued expenses and other

Operating lease liabilities

Other long-term liabilities

Operating Current operating lease liabilities $ 12,320 $ 12,259

Finance Accrued expenses and other 1,714 1,708

Operating Operating lease liabilities 84,499 88,387

Finance Other long-term liabilities 3,747 4,103

Total lease liabilities $ 102,280 $ 106,457

(a) Finance lease assets are recorded net of accumulated amortization of $1.1 million as of October 31, 2019 .

Maturities of lease liabilities as of October 31, 2019 are as follows:

Fiscal Year Ended January 31,

(in thousands)

(a) Finance lease assets are recorded net of accumulated amortization of $1.8 million as of April 30, 2020.

Maturities of lease liabilities as of April 30, 2020 are as follows:

Operating Finance

Leases Leases Total

Fiscal Year Ended January 31, (in thousands)

2021 (remainder) $ 13,393 $ 1,609 $ 15,002

2022 16,887 1,851 18,738

2023 15,748 1,206 16,954

2024 14,824 476 15,300

2025 13,691 393 14,084

2026 13,539 312 13,851

Thereafter 33,624 1,083 34,707

Total lease payments 121,706 6,930 128,636

Interest 24,887 1,469 26,356

Present value of lease liabilities $ 96,819 $ 5,461 $ 102,280

The weighted-average lease term and discount rate as of October 31, 2019 are as follows:

October 31, 2019

The weighted-average lease term and discount rate as of April 30, 2020 are as follows:

April 30, 2020

Weighted-average remaining lease term (years):

4 unchanged sentences

Financing leases 9.8 %

Other lease information is as follows:

Nine Months Ended October 31, 2019

(in thousands)

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases

Operating cash flows from finance leases

Financing cash flows from finance leases

Operating lease assets obtained in exchange for new operating lease liabilities

Finance lease assets obtained in exchange for new finance lease liabilities

Minimum lease payments under operating and capital leases as determined under prior leasing guidance and as of January 31, 2019 were as follows:

Fiscal year ended January 31,

(in thousands)

Total lease payments

Present value of capital lease liabilities

The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis.

7 unchanged sentences

In most cases, our rental arrangements include non-lease components, including delivery and pick-up services.

The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed.

Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed.

The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities.

3 unchanged sentences

Revenue generated from leasing activities is disclosed, by segment, in Note 3.

The following is the balance of our dedicated rental fleet assets of our Construction segment as of October 31, 2019 and January 31, 2019 :

October 31, 2019

January 31, 2019

The following is the balance of our dedicated rental fleet assets of our Construction segment as of April 30, 2020 and January 31, 2020:

April 30, 2020 January 31, 2020

(in thousands)

1 unchanged sentence

Less accumulated depreciation 39,814 42,076

$ 65,074 $ 62,057

NOTE 14 - FAIR VALUE MEASUREMENTS

As of January 31, 2019 , the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material.

As of April 30, 2020 and January 31, 2020, the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material.

These foreign currency contracts were valued using a discounted cash flow analysis, an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement.

The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2019 as part of its long-lived asset impairment testing.

The estimated fair value of such assets was $0.9 million as of January 31, 2019 .

The Company also valued certain long-lived assets at fair value on a non-recurring basis as of April 30, 2020 and January 31, 2020 as part of its long-lived asset impairment testing.

The estimated fair value of such assets as of April 30, 2020 and January 31, 2020 was $ 0.4 million and $ 2.8 million, respectively.

Fair value was estimated through an income approach incorporating both observable and unobservable inputs, and are deemed to be Level 3 fair value inputs.

The most significant unobservable inputs include forecasted net cash generated from the use of the assets and the discount rate applied to such cash flows to arrive at a fair value estimate.

In addition, in certain instances the

Company estimated the fair value of long-lived assets to approximate zero as no future cash flows were assumed to be generated from the use of such assets and the expected value to be realized upon disposition was deemed to be nominal.

The Company also has financial instruments that are not recorded at fair value in the consolidated balance sheets, including cash, receivables, payables, long-term debt and senior convertible notes.

The carrying amounts of these financial instruments approximated their fair values as of October 31, 2019 and January 31, 2019 .

In addition, in certain instances the Company estimated the fair value of long-lived assets to approximate zero as no future cash flows were assumed to be generated from the use of such assets and the expected value to be realized upon disposition was deemed to be nominal.

The Company also has financial instruments that are not recorded at fair value in the consolidated balance sheets, including cash, receivables, payables and long-term debt.

The carrying amounts of these financial instruments approximated their fair values as of April 30, 2020 and January 31, 2020.

Fair value of these financial instruments was estimated based on Level 2 fair value inputs.

NOTE 15 - INCOME TAXES

Our effective tax rate was 33.8% and 15.6% for the three months ended October 31, 2019 and 2018 , and was 31.3% and 22.0% for the nine months ended October 31, 2019 and 2018 .

Our effective tax rate can differ from the domestic federal statutory tax rate due to the mix of domestic and foreign income or losses and the impact of valuation allowances on our U.S.

federal, state and certain of our foreign deferred tax assets, including net operating losses.

In addition, for the three and nine months ended October 31, 2019, the effective tax rate increased by approximately seven percentage points due to foreign currency gains recognized as a result of a strengthening Ukrainian hryvnia.

Differences in the amount of Ukrainian hryvnia foreign currency gains recognized for book and tax accounting are permanent differences that accordingly impacts our effective tax rate.

The effective tax rate for the three months ended October 31, 2018 was impacted by certain discrete items recognized during the period and from certain tax planning strategies applied to minimize the impact of the global intangible low-taxed income ("GILTI") provisions for the fiscal year ended January 31, 2019.

Our effective tax rate was 28.1 % for the three months ended April 30, 2020 compared to an effective tax rate of 13.6 % for the three months ended April 30, 2019.

Our effective tax rate differs from the domestic federal statutory tax rate due to the mix of domestic and foreign income or losses and the impact of the recognition of valuation allowances on our foreign deferred tax assets, including net operating losses.

NOTE 16 - BUSINESS COMBINATIONS

1 unchanged sentence

ESB is a full-service agriculture equipment dealership in Eastern Germany.

Our acquisition of ESB further expands our presence in the German market.

Our acquisition of ESB further expanded our presence in the German market.

The total consideration transferred for the acquired business was $ 3.0 million paid in cash.

This acquisition was recognized in the fiscal year ending January 31, 2020 as the acquisition occurred within our International segment in which all entities maintain a calendar year reporting period.

This acquisition was recognized in the fiscal year ended January 31, 2020 as the acquisition occurred within our International segment in which all entities maintain a calendar year reporting period.

On October 1, 2019, the Company acquired certain assets of Uglem-Ness Co.

1 unchanged sentence

The service area is contiguous to the Company's existing locations in Grand Forks and Casselton, North Dakota and Ada, Minnesota.

The total consideration transferred for the acquired business was $8.8 million paid in cash.

The Company has committed to acquire the real estate of the Uglem-Ness Co., subject to customary closing conditions, for a purchase price of $2.1 million .

The Company anticipates completing the real estate acquisition by January 31, 2020.

The total consideration transferred for the acquired business was $ 10.9 million paid in cash, including the acquired real estate, which was finalized in January 2020 for $ 2.1 million.

In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Uglem-Ness Co.

Upon acquiring such inventories, the Company has been offered floorplan financing by the manufacturer.

Upon acquiring such inventories, the Company was offered floorplan financing by the manufacturer.

In total, the Company acquired inventory and recognized a corresponding financing liability of $ 7.4 million.

The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination.

On July 2, 2018, the Company acquired all interests of two commonly-controlled companies, AGRAM Landtechnikvertrieb GmbH and AGRAM Landtechnik Rollwitz GmbH (collectively "AGRAM"), for $19.2 million in cash consideration.

Founded in 1990, AGRAM is a CaseIH and Steyr dealership complex consisting of four agriculture dealership locations in the following cities of Germany:

Altranft, Burkau, Gutzkow, and Rollwitz.

Our acquisition of these entities provided the Company the opportunity to expand our international presence into the large, well-established German market.

Purchase Price Allocation

Each of the above acquisitions has been accounted for under the acquisition method of accounting, which requires the Company to estimate the acquisition date fair value of the assets acquired and liabilities assumed.

The estimated fair values of the acquired assets of Uglem-Ness Co.

are provisional estimates due to the short duration of time since the acquisition date.

The estimated fair values of assets acquired from Ulgem-Ness Co.

included below are based on the best information currently available but are estimates that are subject to change as the Company completes all remaining steps in finalizing the purchase

price allocation.

The Company expects to finalize the valuation of all assets by January 31, 2020.

The accounting for all other acquisitions is complete as of October 31, 2019.

The following table presents the aggregate purchase price allocations for all acquisitions completed during the nine months ended October 31, 2019 and 2018:

October 31, 2019

October 31, 2018

The accounting for all business combinations was complete as of January 31, 2020.

The following table presents the aggregate purchase price allocations for all acquisitions completed as of January 31, 2020:

January 31, 2020

(in thousands)

Assets acquired:

Prepaid expenses and other

Receivables $ 440

Inventories 6,466

Property and equipment 3,810

Intangible assets 1,973

Goodwill 1,198

Liabilities assumed:

Accounts payable

Floorplan payable

Deferred revenue

Accrued expenses and other

Long-term debt

Deferred income taxes

Net assets acquired $ 13,887

Goodwill recognized by segment:

Agriculture $ 699

Construction —

International 499

1 unchanged sentence

The recognition of goodwill in the above business combinations arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized.

For business combinations occurring during the nine months ended October 31, 2019, the Company recognized, in the aggregate, a customer relationship intangible asset of $0.2 million , a non-competition intangible asset of $0.1 million and a distribution rights intangible asset of $1.6 million .

For the business combination occurring during the nine months ended October 31, 2018, the Company recognized a customer relationship intangible asset of $0.1 million and a distribution rights intangible asset of $1.8 million .

For the business combinations occurring during the twelve months ended January 31, 2020, the Company recognized a customer relationship intangible asset of $ 0.2 million, a non-competition intangible asset of $ 0.1 million, and a distribution rights intangible asset of $ 1.6 million.

The customer relationship and non-competition assets will be amortized over periods ranging from three to five years.

1 unchanged sentence

The Company estimated the fair value of the intangible assets using a multi-period excess earnings model, an income approach.

Acquisition related costs were not material for either the nine months ended October 31, 2019 or 2018, and have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations.

Acquisition related costs were not material for fiscal year ended January 31, 2020, and have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations.

NOTE 17 - CONTINGENCIES

On October 11, 2017, the Romania Competition Council (“RCC”) initiated an administrative investigation of the Romanian Association of Manufacturers and Importers of Agricultural Machinery (“APIMAR”) and all its members, including Titan Machinery Romania.

The RCC's investigation involves whether the APIMAR members engaged in anti-competitive practices in their sales of agricultural machinery not involving European Union ("EU") subvention funding programs, by referring to the published sales prices governing EU subvention funded transactions, which prices are mandatorily disclosed to

and published by AFIR, a Romanian government agency that oversees the EU subvention funding programs in Romania.

The investigation is in a preliminary stage and the Company is currently unable to predict its outcome or reasonably estimate any potential loss that may result from the investigation.

The Company is also engaged in other legal proceedings incidental to the normal course of business.

Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention.

Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between

affected parties and governmental intervention.

Based upon the information available to the Company and discussions with legal counsel, it is the Company's opinion that the outcome of these various legal actions and claims will not have a material impact on the financial position, results of operations or cash flows.

7 unchanged sentences

Certain financial information for each of the Company’s business segments is set forth below.

All revenue amounts for the three and nine months ended October 31, 2018 shown below are presented on an as corrected basis following the correction of an immaterial error identified in previously issued financial statements.

Refer to Note 19 for additional details.

Three Months Ended October 31,

Nine Months Ended October 31,

(in thousands)

Three Months Ended April 30,

(in thousands)

Agriculture $ 193,627 $ 153,775

Construction 60,114 70,743

International 56,467 53,774

Total $ 310,208 $ 278,292

Income (Loss) Before Income Taxes

Agriculture $ 6,162 $ 1,876

Construction ( 2,873 ) ( 2,222 )

International ( 280 ) 216

1 unchanged sentence

Shared Resources 139 ( 385 )

October 31, 2019

January 31, 2019

Total $ 3,148 $ ( 515 )

April 30, 2020 January 31, 2020

(in thousands)

Agriculture $ 436,040 $ 444,942

Construction 272,402 275,645

International 192,966 191,513

1 unchanged sentence

Shared Resources 68,331 63,243

NOTE 20 - IMMATERIAL RESTATEMENT OF PRIOR PERIOD FINANCIAL STATEMENTS

As previously disclosed in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2019, the Company identified an immaterial error within its financial statements, including in the results for the three and nine months ended October 31, 2018.

The identified error was the result of incorrectly eliminating certain internal parts and service transactions.

The adjustments to correct for this error reduce total revenue and cost of revenue by approximately 1.0% and impact the amounts of previously reported equipment, parts, service and rental and other revenue and cost of revenue amounts, but have no impact on total gross profit, operating or net income, earnings per share, or the consolidated balance sheets or statements of cash flows.

Management of the Company has evaluated all relevant quantitative and qualitative factors and has concluded that the error is not material to the results of operations for the previously reported periods.

The Company has restated its accompanying statement of operations to correct for this immaterial error for the three and nine months ended October 31, 2018 .

Included below is a summary of the previously reported amounts of revenue and cost of revenue, the impact of correcting for this immaterial error, and the as-corrected amounts for the three and nine month periods ended October 31, 2018 :

Three Months Ended October 31, 2018

Nine Months Ended October 31, 2018

As Previously Reported

(in thousands)

Rental and other

Total Revenue

Cost of Revenue

Rental and other

Total Cost of Revenue

Total $ 969,739 $ 975,343

NOTE 19 - SUBSEQUENT EVENTS

On January 31, 2020, the Company entered into a definitive purchase agreement to acquire HorizonWest Inc., which owns a three store CaseIH agriculture dealership complex in Scottsbluff and Sidney, Nebraska and Torrington, Wyoming.

In its most recent fiscal year, HorizonWest generated revenue of approximately $ 26 million.

The Company closed on the acquisition on May 4, 2020.

The total purchase price was $ 6.9 million, which does not include the $ 2.7 million of associated inventory that the Company concurrently purchased from CNH Industrial under standard terms.

Due to the limited time since the date of the acquisition, it is impracticable for the Company to make certain business combination disclosures at this time as the Company is still gathering information that is necessary for the required business combination disclosures.

The net assets acquired consist primarily of working capital and fixed assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements