What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-06-04 compared with 2019-12-05 · 182 added, 241 removed, 136 unchanged (76% of the section changed)

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subsidiary CNH Industrial America, LLC, we are the largest retail dealer of Case IH Agriculture equipment in the world, the largest retail dealer of Case Construction equipment in North America and a major retail dealer of New Holland Agriculture and New Holland Construction equipment in the U.S.

We operate our business through three reportable segments, Agriculture, Construction and International.

We operate our business through three reportable segments:

Agriculture, Construction and International.

Within each segment, we have four principal sources of revenue:

new and used equipment sales, parts sales, service, and equipment rental and other activities.

Demand for agriculture equipment and, to a lesser extent, parts and service support, are impacted by agriculture commodity prices and net farm income.

Demand for agricultural equipment and, to a lesser extent, parts and service support, are impacted by agricultural commodity prices and net farm income.

Based on U.S.

Department of Agriculture publications, the most recent estimate of net farm income for calendar year 2018 indicated an approximate 12.0% increase as compared to calendar year 2017, and estimated an approximate 10.0% increase in net farm income for calendar year 2019, as compared to calendar year 2018.

For the third quarter of fiscal 2020 , our net income was $8.2 million , or $0.37 per diluted share, compared to net income of $10.8 million , or $0.48 per diluted share, for the third quarter of fiscal 2019 .

Our adjusted diluted earnings per share was $0.44 for the third quarter of fiscal 2020 , compared to $0.49 for the third quarter of fiscal 2019 .

Department of Agriculture publications, the most recent estimate of net farm income for calendar year 2019 indicated an approximate 11.0% increase as compared to calendar year 2018, and an approximate 3.3% increase in net farm income for calendar year 2020, as compared to calendar year 2019.

For the first quarter of fiscal 2021, our net income was $2.3 million, or $0.10 per diluted share, compared to a fiscal 2020 first quarter loss of $0.4 million, or $0.02 per diluted share.

Our adjusted diluted earnings per share was $0.15 for the first quarter of fiscal 2021, compared to $0.02 for the first quarter of fiscal 2020.

See the Non-GAAP Financial Measures section below for a reconciliation of adjusted diluted earnings per share to diluted earnings per share, the most comparable GAAP financial measure.

Significant factors impacting the quarterly comparisons were:

Revenue in the third quarter of fiscal 2020 was flat compared to the third quarter of fiscal 2019 .

Increased revenue from parts and service was offset by lower equipment and rental and other revenue.

Equipment revenue within our Agriculture and International segments in the third quarter of fiscal 2020 was impacted by continued uncertainty in the agriculture sector and crop and weather conditions in certain markets.

Gross profit margin in the third quarter of fiscal 2020 improved to 19.9% , compared to 19.3% for the third quarter of fiscal 2019 .

The improvement in gross profit margin was primarily the result of a change in gross profit mix with more revenue generated by our higher margin parts and service businesses in the third quarter of fiscal 2020 , as compared to the third quarter last year.

Operating expenses increased $4.9 million , or 9.2% , in the third quarter of fiscal 2020 , as compared to the third quarter last year.

Operating expenses as a percentage of revenue increased from 14.8% in the third quarter of fiscal 2019 to 16.1% in the third quarter of fiscal 2020.

The increase in operating expenses is primarily the result of incremental costs associated with our ERP transition and increased costs required to support higher business volumes in our Agriculture and Construction segments.

Floorplan and other interest expense decreased a combined 30.8% in the third quarter of fiscal 2020, as compared to the third quarter last year, primarily due to a decrease in our level of interest-bearing inventory in the third quarter of fiscal 2020 , and the repayment in full of our senior convertible notes in the second quarter of fiscal 2020 .

Our effective tax rate for the third quarter of fiscal 2020 was 33.8%, compared to 15.6% in the third quarter last year.

The increase in our effective tax rate for the third quarter of fiscal 2020 was primarily due to foreign currency gains recognized as a result of a strengthening Ukrainian hryvnia.

• Revenue in the first quarter of fiscal 2021 was 11.5% higher than the first quarter of fiscal 2020.

Increased revenue from equipment, parts and service was offset by slightly lower rental and other revenue.

The higher revenue was driven by increased equipment, parts and service revenue in our Agriculture segment.

Some of the increase in the Agriculture segment came from our Northwood location, which was purchased in October 2019.

• Gross profit margin in the first quarter of fiscal 2021 declined to 18.8%, compared to 19.4% for the first quarter of fiscal 2020.

The decline in gross profit margin was primarily the result of lower equipment margins and a change in our revenue mix with more revenue generated by our equipment business than our higher margin parts and service businesses in the first quarter of fiscal 2021, as compared to the first quarter last year.

• Floorplan and other interest expense decreased a combined 15.9% in the first quarter of fiscal 2021, as compared to the first quarter last year, primarily due the repayment in full of our senior convertible notes in the second quarter of fiscal 2020.

Impact of the COVID-19 Pandemic on the Company

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.

We believe that each of our business segments will be impacted by the pandemic to varying degrees, although the actual impact will be subject to many variables and uncertainties which are currently unknown and outside of our control.

Overall, COVID-19 has created industry challenges such as lower agriculture commodity prices as demand deterioration and supply chain disruptions are affecting areas such as ethanol, livestock and international trade.

We believe that the existing and anticipated lower commodity prices will reduce our equipment sales, but it is difficult to estimate the extent and timing of this impact given all the variables and uncertainties.

We believe our parts and service business will be less impacted, as our customers will be experiencing similar levels of wear and tear on their equipment.

Also offsetting some of the challenges in the agriculture industry, will be government support programs for our farm customers, such as the recently announced $16 billion Coronavirus Food Assistance Program (CFAP).

We believe all revenue categories of equipment, parts, service and rental will be impacted in this segment, with such effects continuing so long as pandemic related macroeconomic stress and uncertainties persist.

Examples of such macroeconomic stress include:

lower oil prices, higher unemployment, lower GDP, and reduced government spending on infrastructure projects.

All of these factors we believe will lead to lower overall U.S.

construction spending.

International

In addition to the industry challenges indicated for our Agriculture Segment, International is also being impacted by border shutdowns, timing of equipment shipments and more stringent in-country pandemic regulations.

We believe all revenue categories in this segment will experience greater negative impacts than our Agriculture Segment because of these additional challenges along with the general lack of government support programs to our International farm customers.

On October 1, 2019, we acquired certain assets of Uglem-Ness Co., a single Case IH agriculture equipment store in Northwood, North Dakota.

The acquisition continues our strategy of acquiring dealerships in agriculture markets contiguous to our current North American agriculture stores.

The service area of Ulgem-Ness is contiguous to our existing locations in Grand Forks and Casselton, North Dakota and Ada, Minnesota.

The total consideration paid in the acquisition was $8.8 million, which

the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities.

The service area of Uglem-Ness is contiguous to our existing locations in Grand Forks and Casselton, North Dakota and Ada, Minnesota.

The total consideration paid in the acquisition was $10.9 million, which the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities.

The Northwood, ND dealership is included within our Agriculture segment.

On July 2, 2018, we acquired two commonly-controlled companies, AGRAM Landtechnikvertrieb GmbH and AGRAM Landtechnik Rollwitz GmbH (collectively "AGRAM").

AGRAM consists of four Case IH agriculture dealership locations in the following cities of Germany;

Altranft, Burkau, Gutzkow, and Rollowitz.

Total cash consideration paid in the acquisition was $19.2 million, which the Company financed through available cash resources and capacity under our existing floorplan payable and other credit facilities.

The four AGRAM dealerships are included within our International segment.

ERP Transition

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 a 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.

The new ERP application is expected to provide the latest data-driven and mobile-enabled sales and support tools to improve employee efficiency and deliver an enhanced customer experience.

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

During the three and nine months ended October 31, 2019, we recognized ERP transition costs, which include additional amortization expense of our current ERP application and external costs associated with implementing the new ERP application, of $2.1 million and $4.8 million , respectively.

For the remainder of fiscal 2020, we expect to recognize incremental ERP transition costs of approximately $2.4 million.

The Company is in the process of converting to a new Enterprise Resource Planning ("ERP") application.

The new ERP application is expected to provide data-driven and mobile-enabled sales and support tools to improve employee efficiency and deliver an enhanced customer experience.

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.

Critical Accounting Policies and Estimates

Our critical accounting policies and estimates are included in the Management's Discussion and Analysis of Financial Condition and Results of Operations section of our Annual Report on Form 10-K for the fiscal year ended January 31, 2020.

Other than the adoption of the lease accounting guidance described in Note 1, Business Activity and Significant Accounting Policies, and Note 14, Leases, to our consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no other changes in our critical accounting policies since January 31, 2019 .

Other than the adoption of the accounting standard for current expected credit loss and the standard for cloud computing described in Note 1 to our consolidated financial statements in this Quarterly Report on Form 10-Q, there have been no changes in our critical accounting policies since January 31, 2020.

Results of Operations

The results shown below include the operating results of any acquisitions made during these periods and the operating results of any stores closed during these periods up to the date of the store closure.

The results presented below include the operating results of any acquisition made during these periods as well as the operating results of any stores closed during these periods, up to the date of the store closure.

The period-to-period comparisons included below are not necessarily indicative of future results.

Segment information is provided later in this discussion and analysis of our results of operations.

All revenue and cost of revenue amounts for three and nine months ended October 31, 2018 are presented on an as corrected basis after correcting for an immaterial error identified during the year ended January 31, 2019 in these previously issued financial statements.

The correction of this immaterial error reduced total revenue and cost of revenue by approximately 1.0% and impacted the amounts of previously reported equipment, parts, service and rental and other revenue and cost of revenue, but had no impact on total gross profit, operating or net income, or earnings per-share.

See Note 20 to our consolidated financial statements included in this Quarterly Report on Form 10-Q for additional information

Same-store sales for any period represent sales by stores that were part of the Company for the entire comparable periods in the current and preceding fiscal years.

We do not distinguish between relocated or newly-expanded stores in this same-store analysis.

Segment information is provided later in the discussion and analysis of our results of operations.

Same-store sales for any period represent sales by stores that were part of the Company for the entire comparable period in the current and preceding fiscal years.

We do not distinguish between relocated or recently expanded stores in this

same-store analysis.

Closed stores are excluded from the same-store analysis.

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Comparative financial data for each of our four sources of revenue are expressed below.

Three Months Ended October 31,

Nine Months Ended October 31,

(dollars in thousands)

Three Months Ended April 30,

(dollars in thousands)

Revenue $ 218,505 $ 193,956

Cost of revenue 197,046 173,154

Gross profit $ 21,459 $ 20,802

Gross profit margin 9.8 % 10.7 %

Revenue $ 56,614 $ 51,938

Cost of revenue 39,617 36,814

Gross profit $ 16,997 $ 15,124

Gross profit margin 30.0 % 29.1 %

Revenue $ 25,600 $ 22,831

Cost of revenue 8,345 7,483

Gross profit $ 17,255 $ 15,348

Gross profit margin 67.4 % 67.2 %

Rental and other

Revenue $ 9,489 $ 9,567

Cost of revenue 6,790 6,941

Gross profit $ 2,699 $ 2,626

Gross profit margin 28.4 % 27.4 %

The following table sets forth our statements of operations data expressed as a percentage of total revenue for the periods indicated:

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

Equipment 70.4 % 69.7 %

Parts 18.3 % 18.7 %

Service 8.3 % 8.2 %

Rental and other 3.1 % 3.4 %

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Provision for Income Taxes 0.3 % — %

Three Months Ended October 31, 2019 Compared to Three Months Ended October 31, 2018

Net Income 0.7 % (0.2) %

Three Months Ended April 30, 2020 Compared to Three Months Ended April 30, 2019

Consolidated Results

Three Months Ended October 31,

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

Equipment $ 218,505 $ 193,956 $ 24,549 12.7 %

Parts 56,614 51,938 4,676 9.0 %

Service 25,600 22,831 2,769 12.1 %

Rental and other 9,489 9,567 (78) (0.8) %

Total Revenue $ 310,208 $ 278,292 $ 31,916 11.5 %

Total revenue for the third quarter of fiscal 2020 was flat with total revenue in the third quarter of fiscal 2019 .

Increased parts and service revenue of our Agriculture and Construction segments was offset by lower equipment revenue of our International segment.

Company-wide same-store sales was virtually flat in the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019 .

Three Months Ended October 31,

Total revenue for the first quarter of fiscal 2021 was 11.5% or $31.9 million higher than the first quarter of fiscal 2020 driven by revenue increases in equipment, parts, and service.

These increases occurred in our Agriculture and International segments, but were partially offset by lower revenue in our Construction segment.

Company-wide same-store sales in the first quarter of fiscal 2021 increased 11.0% versus the comparable period in the fiscal 2020.

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

Equipment $ 21,459 $ 20,802 $ 657 3.2 %

Parts 16,997 15,124 1,873 12.4 %

Service 17,255 15,348 1,907 12.4 %

Rental and other 2,699 2,626 73 2.8 %

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Gross Profit Margin

Equipment 9.8 % 10.7 % (0.9) % (8.4) %

Parts 30.0 % 29.1 % 0.9 % 3.1 %

Service 67.4 % 67.2 % 0.2 % 0.3 %

Rental and other 28.4 % 27.4 % 1.0 % 3.6 %

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Gross Profit Mix

Equipment 36.7 % 38.6 % (1.9) % (4.9) %

Parts 29.1 % 28.1 % 1.0 % 3.6 %

Service 29.5 % 28.5 % 1.0 % 3.5 %

Rental and other 4.7 % 4.8 % (0.1) % (2.1) %

Total Gross Profit Mix 100.0 % 100.0 %

Gross profit for the third quarter of fiscal 2020 increased 3.2% as compared to the same period last year.

Gross profit margin improved to 19.9% for the third quarter of fiscal 2020 compared to 19.3% for the third quarter of fiscal 2019 .

The increase in gross profit and gross profit margin was primarily the result of a change in gross profit mix resulting from a greater percentage of revenue generated by our higher margin parts and service businesses.

An improvement in rental and other gross profit margin also contributed to the gross profit margin improvement.

Our company-wide absorption rate increased to 82.6% for the third quarter of fiscal 2020 compared to 82.9% during the same period last year as the increase in gross profit from parts, service, and rental and other in the third quarter of fiscal 2020 more than offset the increase in operating expenses during the period.

Our absorption rate for the third quarter of fiscal 2020 was negatively impacted by ERP transition costs recognized during the period.

Gross profit for the first quarter of fiscal 2021 increased 8.4% or $4.5 million, as compared to the same period last year.

However, gross profit margin decreased to 18.8% for the first quarter of fiscal 2021, compared to 19.4% for the first quarter of fiscal 2020.

The increase in gross profit was due to increased revenues.

The decrease in gross profit margins was primarily due to lower equipment margins and a change in revenue mix.

We recognized lower equipment margins on our used Agriculture equipment in the current quarter as we accelerated efforts to sell this inventory.

Revenue mix decreased our overall gross margin in two ways.

First, equipment revenues comprised a larger portion of overall revenues than did our higher margin parts and service business;

and second, our total equipment sales mix was more weighted to Agriculture, which generally experiences lower equipment margins than equipment sold in our Construction and International segments.

Our company-wide absorption rate — which is calculated by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt — increased to 73.2% for the first quarter of fiscal 2021 compared to 67.8% during the same period last year as the increase in gross profit from parts, service, and rental and other in the first quarter of fiscal 2021 more than offset the increase in operating expenses during the period.

Operating Expenses

Three Months Ended October 31,

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

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Operating Expenses as a Percentage of Revenue 17.1 % 18.9 % (1.8) % 9.5 %

Our operating expenses in the third quarter of fiscal 2020 increased $4.9 million , as compared to the third quarter of fiscal 2019 , primarily as a result of ERP transition costs incurred in the third quarter of fiscal 2020, and increased costs required to support the higher business volumes in our Agriculture and Construction segments.

Operating expenses as a percentage of revenue increased to 16.1% in the third quarter of fiscal 2020 from 14.8% in the third quarter of fiscal 2019 .

The increase in operating expenses as a percentage of total revenue was primarily due to ERP transition costs recognized in the third quarter of fiscal 2020 and the decrease in International equipment revenue in the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 , which negatively affected our ability to leverage our fixed operating costs within this segment.

Our operating expenses in the first quarter of fiscal 2021 increased slightly, as compared to the first quarter of fiscal 2020.

Operating expenses as a percentage of revenue decreased to 17.1% in the first quarter of fiscal 2021 from 18.9% in the first quarter of fiscal 2020.

The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, which positively affected our ability to leverage our fixed operating costs.

Impairment Charges

Three Months Ended October 31,

(dollars in thousands)

Impairment of Long-Lived Assets

Restructuring Costs

An immaterial amount of impairment charges on certain long-lived assets was recognized in the third quarter of each of fiscal 2020 and 2019.

The restructuring benefit of $0.2 million recognized in the third quarter of fiscal 2019 related to our revised assumptions, based on changes in circumstances, for our cease-use liabilities associated with certain of our previously closed store locations.

Other Income (Expense)

Three Months Ended October 31,

(dollars in thousands)

Interest income and other income (expense)

Floorplan interest expense

Other interest expense

Floorplan interest expense decreased in the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 , primarily as a result of lower levels of interest-bearing inventory in the third quarter of fiscal 2020 .

The decrease in other interest expense in the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 , is primarily the result of decreased interest expense on our senior convertible notes in the third quarter of fiscal 2020 following our repayment in full of the outstanding balance on May 1, 2019.

The increase in interest income and other income (expense) in the third quarter of fiscal 2020 as compared to the third quarter of fiscal 2019 is primarily the result of differences in foreign currency gains and losses recognized during the periods, with a strengthening U.S.

dollar relative to the Euro and a strengthening Ukrainian hyrvnia relative to the U.S.

dollar in the third quarter of fiscal 2020 creating foreign currency gains during the period.

Provision for Income Taxes

Three Months Ended October 31,

(dollars in thousands)

Provision for Income Taxes

Our effective tax rate was 33.8% for the third quarter of fiscal 2020 and 15.6% for the third quarter of fiscal 2019.

Our effective tax rate is impacted by the mix of income or losses in our domestic and international jurisdictions as well as the impact of valuation allowances on our deferred tax assets, including net operating losses.

In addition, our effective tax rate for the third quarter of fiscal 2020 was impacted by foreign currency gains recognized as a result of a strengthening Ukrainian hyrvnia.

These foreign currency gains caused our effective tax rate to increase by approximately seven percentage points in the

third quarter of fiscal 2020 .

Our effective tax rate for the third quarter of fiscal 2019 was impacted by certain discrete items recognized during the quarter and from a changing mix of domestic and foreign income and certain tax planning strategies applied to minimize the impact of the global intangible low-taxed income ("GILTI") provisions for fiscal 2019.

Segment Results

Certain financial information for our Agriculture, Construction and International business segments is set forth below.

“Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level.

Revenue between segments is immaterial.

Three Months Ended October 31,

(dollars in thousands)

International

Income Before Income Taxes

International

Segment income (loss) before income taxes

Shared Resources

Agriculture segment revenue for the third quarter of fiscal 2020 increased 2.1% compared to the third quarter of fiscal 2019 .

Same-store sales of our Agriculture segment increased 1.6% for the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 .

The revenue increase was the result of increased parts and service revenue, but partially offset by decreased equipment revenue due primarily to difficult industry conditions.

Agriculture segment income before income taxes was $10.3 million for the third quarter of fiscal 2020 compared to $9.4 million for the third quarter of fiscal 2019 .

The improvement in segment results was primarily the result of increased parts and service revenue but partially offset by increased operating expenses required to support this increased activity.

Lower floorplan and other interest expense for the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 , also contributed to the improvement in segment results.

Construction segment revenue for the third quarter of fiscal 2020 increased 1.3% compared to the third quarter of fiscal 2019 .

The increase in revenue, all of which was due to a same-store sales increase, was the result of increased parts and service revenue.

Equipment and rental and other revenue decreased slightly in the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 .

Our Construction segment income before income taxes was $0.3 million for the third quarter of fiscal 2020 compared to $1.2 million in the third quarter of fiscal 2019 .

The increase in segment revenue and an improvement in gross profit margin in the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 , was more than offset by increased operating expenses and increased floorplan and other interest expense.

The amount of impairment and restructuring costs recognized in the third quarter of fiscal 2020 , as compared to the third quarter of fiscal 2019 , also contributed to decreased income before income taxes for the third quarter of fiscal 2020 .

The dollar utilization of our rental fleet increased from 28.8% in the third quarter of fiscal 2019 to 30.4% in the third quarter of fiscal 2020 .

International

International segment revenue for the third quarter of fiscal 2020 decreased 7.3% compared to the third quarter of fiscal 2019 .

The decrease in segment revenue, all of which was due to a same-store sales decrease, was primarily the result of

decreased equipment revenue resulting from challenging industry conditions in certain of our markets reducing industry volumes in those markets.

Our International segment income before income taxes was $2.1 million for the third quarter of fiscal 2020 compared to $2.6 million for the same period last year.

The decrease in segment results was primarily the result of decreased equipment revenue.

but partially offset by foreign currency gains recognized in the third quarter of fiscal 2020 resulting from a strengthening U.S.

dollar relative to the Euro, and a strengthening Ukrainian hryvnia relative to the U.S.

Shared Resources/Eliminations

We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments.

Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur.

Shared Resources loss before income taxes was $0.3 million for the third quarter of fiscal 2020 compared to $0.4 million for the same period last year.

Nine Months Ended October 31, 2019 Compared to Nine Months Ended October 31, 2018

Consolidated Results

Nine Months Ended October 31,

(dollars in thousands)

Rental and other

Total Revenue

The increase in revenue for the first nine months of fiscal 2020 compared to the first nine months of fiscal 2019 was the result of increased revenue from our equipment, parts and service businesses.

Same-store sales increased 3.3% over the comparable prior year period resulting from increased revenues within our Agriculture and Construction segments, but partially offset by a same-store sales decrease within our International segment.

Our total revenue increase was also positively impacted by our AGRAM acquisition, which occurred in the third quarter of fiscal 2019.

Nine Months Ended October 31,

(dollars in thousands)

Rental and other

Total Gross Profit

Gross Profit Margin

Rental and other

Total Gross Profit Margin

Gross Profit Mix

Rental and other

Total Gross Profit Mix

The $13.7 million increase in gross profit for the first nine months of fiscal 2020 , as compared to the same period last year, was primarily due to higher revenue for the first nine months of fiscal 2020 and improved gross profit margins, from 19.5% for the first nine months of fiscal 2019 to 19.9% for the first nine months of fiscal 2020 .

The improvement in gross profit margin was primarily the result of a change in gross profit mix resulting from a greater percentage of revenue generated by our higher margin parts and service businesses.

An improvement in rental and other gross profit margin also contributed to the gross profit margin improvement.

Our company-wide absorption for the first nine months of fiscal 2020 decreased slightly to 76.1% as compared to 76.3% during the same period last year.

Our absorption rate for the first nine months of fiscal 2020 was negatively impacted by ERP transition costs recognized during the period.

Operating Expenses

Nine Months Ended October 31,

(dollars in thousands)

Operating Expenses

Operating Expenses as a Percentage of Revenue

Our operating expenses for the first nine months of fiscal 2020 increased $17.9 million as compared to the first nine months of fiscal 2019 primarily as a result of increased International segment operating expenses resulting from our AGRAM acquisition, ERP transition costs incurred in the first nine months of fiscal 2020 , and increased other costs required to support higher business volumes in our Agriculture and Construction segments.

Operating expenses as a percentage of revenue increased to 17.4% in the first nine months of fiscal 2020 from 16.4% in the first nine months of fiscal 2019 .

The increase in operating expenses as a percentage of total revenue was primarily due to ERP transition costs recognized in the first nine months of fiscal 2020 and the decrease in International equipment revenue in the first nine months of fiscal 2020 , which negatively affected our ability to leverage our fixed operating costs within this segment.

Restructuring Costs

Nine Months Ended October 31,

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

Impairment of Long-Lived Assets $ 216 $ 135 $ 81 (60.0)%

Restructuring Costs

We recognized $0.2 million and $0.5 million of impairment charges on certain long-lived assets during first nine months of fiscal 2020 and 2019 .

Restructuring costs of $0.4 million were recognized during the first nine months of fiscal 2019 related to the Company's revised assumptions, based on changes in circumstances, for our cease-use lease liabilities associated with certain of our previously closed stores.

We recognized $0.2 million of impairment charges on certain long-lived assets in the first quarter of fiscal 2021 compared to $0.1 million in the first quarter of the prior year.

Other Income (Expense)

Nine Months Ended October 31,

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

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Other interest expense (966) (1,642) (676) 41.2 %

The decrease in floorplan interest expense for the first nine months of fiscal 2020 , as compared to the same period last year, was primarily due to a decrease in our interest-bearing inventory in the first nine months of fiscal 2020 .

Interest expense associated with our senior convertible notes, which is reflected in other interest expense, decreased $2.2 million for the first nine months of fiscal 2020 , as compared to the same period last year, due to interest expense savings resulting from our partial repurchase of senior convertible notes during the first nine months of fiscal 2019 and the repayment of the remaining outstanding principal balance on the maturity date of May 1, 2019.

In addition, other interest expense for the first nine months of fiscal 2019 includes a $0.6 million loss recognized on the senior convertible notes repurchased during the period.

Floorplan interest expense increased in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, primarily as a result of increased levels of interest-bearing inventory in the first quarter of fiscal 2021.

The decrease in other interest expense in the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020, is primarily the result of our repayment in full of the outstanding balance of our senior convertible notes in May 2019.

The decrease in interest income and other income (expense) was primarily due to foreign currency remeasurement losses in Ukraine, resulting from a devaluation of the Ukrainian hyrvnia in the first quarter of fiscal 2021.

See the Non-GAAP Financial Measures section below for the impact of these costs on non-GAAP Diluted EPS.

Provision for Income Taxes

Nine Months Ended October 31,

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

Provision for Income Taxes

Our effective tax rate was 31.3% for the first nine months of fiscal 2020 and 22.0% for the same period last year.

The increase in our effective tax rate for the first nine months of fiscal 2020 , as compared to the same period last year, was primarily the result of foreign currency gains recognized as a result of a strengthening Ukrainian hryvnia, which increased our effective tax rate by approximately seven percentage points for the first nine months of fiscal 2020.

Segment Results

Certain financial information for our Agriculture, Construction and International business segments is set forth below.

Provision for Income Taxes $ 886 $ (70) $ 956 n/m

Our effective tax rate was 28.1 % for the first quarter of fiscal 2021 and 13.6 % for the first quarter of fiscal 2020.

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.

Certain financial information for our Agriculture, Construction and International business segments is presented below.

“Shared Resources” in the table below refers to the various unallocated income/(expense) items that we have retained at the general corporate level.

Revenue between segments is immaterial.

Nine Months Ended October 31,

Three Months Ended April 30, Increase/ Percent

2020 2019 (Decrease) Change

(dollars in thousands)

International

Income Before Income Taxes

Agriculture $ 193,627 $ 153,775 $ 39,852 25.9 %

Construction 60,114 70,743 (10,629) (15.0) %

International 56,467 53,774 2,693 5.0 %

Segment income (loss) before income taxes

Shared Resources

Agriculture segment revenue for the first nine months of fiscal 2020 increased 6.0% compared to the same period last year.

Same-store sales increased 5.7% for the first nine months of fiscal 2020 , as compared to the same period last year.

The revenue increase was the result of increased revenue in each of our equipment, parts and service businesses.

Agriculture segment income before income taxes was $18.3 million for the first nine months of fiscal 2020 compared to $15.7 million over the first nine months of fiscal 2019 .

The improvement in segment results was largely the result of increased revenue, but partially offset by increased operating expenses required to support increased volumes within this segment.

Construction segment revenue for the first nine months of fiscal 2020 increased 8.0% compared to the same period last year, all of which was due to a same-store sales increase, and arose from increased revenue from our equipment, parts and service businesses.

Rental and other revenue for the first nine months of fiscal 2020 was flat compared to the same period last year.

Our Construction segment loss before income taxes was $0.5 million for the first nine months of fiscal 2020 compared to $1.8 million for the first nine months of fiscal 2019 .

The improvement in segment results was primarily due to increased revenue and improved gross profit margins, but partially offset by increased operating expenses required to support increased activity within this segment.

The dollar utilization of our rental fleet increased from 24.0% in the first nine months of fiscal 2019 to 25.5% in the first nine months of fiscal 2020 .

Total $ 310,208 $ 278,292 $ 31,916 11.5 %

Income (Loss) Before Income Taxes

Agriculture $ 6,162 $ 1,876 $ 4,286 n/m

Construction (2,873) (2,222) (651) (29.3) %

International (280) 216 (496) n/m

Segment income (loss) before income taxes 3,009 (130) 3,139 n/m

Shared Resources 139 (385) 524 n/m

Total $ 3,148 $ (515) $ 3,663 n/m

Agriculture segment revenue for the first quarter of fiscal 2021 increased 25.9% compared to the first quarter of fiscal 2020.

We experienced increases across our equipment, parts and service businesses.

Equipment sales were supported by replacement demand, efforts to move used equipment, and delay of customer purchases from the fourth quarter of fiscal 2020 to the current quarter due to the late and difficult harvest conditions in parts of our footprint.

Parts and service revenue continued to benefit from an aging customer fleet and challenging operating conditions for our customers.

Same-store sales of our Agriculture segment increased 23.3% for the first quarter of fiscal 2021, as compared to the first quarter of fiscal 2020.

Additionally, our revenues were favorably impacted by the third quarter fiscal 2020 acquisition of Uglem-Ness.

Agriculture segment income before income taxes was $6.2 million for the first quarter of fiscal 2021 compared to $1.9 million for the first quarter of fiscal 2020.

The improvement in segment results were due to higher revenues, but were partially offset by increased operating expenses and floorplan interest expense.

Construction segment revenue for the first quarter of fiscal 2021 decreased 15.0% compared to the first quarter of fiscal 2020, due to a same-store sales decrease and the sale of the Albuquerque, New Mexico store in the fourth quarter of fiscal 2020.

All sources of revenue — equipment, parts, service and rental — declined for the segment’s first quarter of 2021, as compared to the prior year’s first quarter.

The overall lower same-store sales are a result of decreased customer sentiment, lower oil prices, and a general slowdown in the economy due to COVID-19.

Our Construction segment loss before income taxes was $2.9 million for the first quarter of fiscal 2021 compared to $2.2 million in the first quarter of fiscal 2020.

The increase in segment loss was due to the overall lower revenues, but was partially offset by decreases in operating expenses, as compared to the first quarter of fiscal 2020.

The dollar utilization — which is calculated by dividing the rental revenue earned on our rental fleet by the average gross carrying value of our rental fleet (comprised of original equipment costs plus additional capitalized costs) for that period — of our rental fleet decreased from 20.5% in the first quarter of fiscal 2020 to 18.9% in the first quarter of fiscal 2021.

International

International segment revenue for the first nine months of fiscal 2020 increased 2.8% compared to the same period last year primarily due to our AGRAM acquisition that was completed early in the third quarter of fiscal 2019.

Partially offsetting the impact of our AGRAM acquisition is a same-store sales decrease of 9.3% in the first nine months of fiscal 2020 compared to the same period last year due to decreased equipment revenue resulting from challenging industry conditions in certain of our markets.

Our International segment income before income taxes was $2.8 million for the first nine months of fiscal 2020 compared to $6.2 million for the same period last year.

The decrease in segment results was primarily the result of decreased equipment revenue and the resulting negative impact on our ability to leverage our fixed operating costs within this segment.

International segment revenue and same-store sales, for the first quarter of fiscal 2021 increased 5.0% compared to the first quarter of fiscal 2020.

The increase in segment revenue occurred early in the quarter and decreased late in the quarter, due to COVID-19 restrictions and negative impact on customer sentiment.

Our International segment loss before income taxes was $0.3 million for the first quarter of fiscal 2021 compared to segment income of $0.2 million for the same period last year.

Increased revenues were more than offset by foreign currency remeasurement losses, resulting from the devaluation of the Ukrainian hryvnia in the first quarter of fiscal 2021.

Shared Resources/Eliminations

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Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur.

Shared Resources loss before income taxes was $1.2 million for the first nine months of fiscal 2020 compared to loss before income taxes of $1.7 million for the same period last year.

Shared Resources income before income taxes was $0.1 million for the first quarter of fiscal 2021 compared to a loss before income taxes of $0.4 million for the same period last year.

Non-GAAP Financial Measures

To supplement net income and diluted earnings per share ("Diluted EPS"), both GAAP measures, we present adjusted net income and adjusted Diluted EPS, both non-GAAP measures, which include adjustments for ERP transition costs, losses on repurchases of senior convertible notes, and restructuring and impairment charges.

We believe that the presentation of adjusted net income and adjusted Diluted EPS is relevant and useful to our management and investors because it provides a measurement of earnings on activities that we consider to occur in the ordinary course of our business.

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The following tables reconcile (i) net income, a GAAP measure, to adjusted net income and (ii) Diluted EPS, a GAAP measure, to adjusted Diluted EPS:

Three Months Ended October 31,

Nine Months Ended October 31,

Three Months Ended April 30,

(dollars in thousands, except per share data)

Adjusted Net Income

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

ERP transition costs 721 1,016

Loss on repurchase of senior convertible notes

Restructuring and impairment charges

Impairment charges 216 135

Ukraine remeasurement 765 (12)

Total Pre-Tax Adjustments 1,702 1,139

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Adjusted Diluted EPS

Diluted EPS $ 0.10 $ (0.02)

Adjustments (2)

ERP transition costs 0.03 0.05

Loss on repurchase of senior convertible notes

Restructuring and impairment charges

Impairment charges 0.01 —

Ukraine remeasurement 0.04 —

Total Pre-Tax Adjustments 0.08 0.05

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(1) The tax effect of U.S.

related adjustments was calculated using a 21% tax rate, determined based on a 21% federal statutory rate and no impact for state taxes given our valuation allowance against state deferred tax assets.

No tax effect was recognized for foreign related items as all adjustments occurred in a foreign jurisdiction that has a full valuation allowance on its deferred tax assets.

related adjustments was calculated using a 26% tax rate, determined based on a 21% federal statutory rate and a 5% blended state income tax rate.

Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $0.3 million for first quarter fiscal 2021.

(2) Adjustments are net of amounts allocated to participating securities where applicable.

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Equipment Inventory and Floorplan Payable Credit Facilities

As of October 31, 2019 , the Company had floorplan payable lines of credit for equipment purchases totaling $660.0 million , which is primarily comprised of a $400.0 million credit facility with CNH Industrial, a $140.0 million floorplan payable line under the Wells Fargo Credit Agreement, and a $60.0 million credit facility with DLL Finance.

In November 2019, the Company amended its credit facility with CNH Industrial, increasing the available borrowings from $400.0 million to $450.0 million, which increases our total floorplan lines of credit for equipment purchases to $710.0 million.

The maturity date of our Wells Fargo Credit Agreement was previously contingent upon the results of a maturity test that was performed on February 1, 2019.

Pursuant to this test, the maturity date of 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.

At the maturity date of our Wells Fargo Credit Agreement, we expect to have sufficient available cash and available borrowing capacity under our various other floorplan lines of credit to provide sufficient liquidity to our business.

We also expect, prior to the maturity of our Wells Fargo Credit Agreement, to enter into a credit facility with a syndicate of banking partners that is similar in its terms to our current Wells Fargo Credit Agreement.

Our equipment inventory turnover decreased slightly from 1.8 times for the four quarter period ended October 31, 2018 to 1.7 times for the four quarter period ended October 31, 2019 .

The increase in equipment sales volume over the four quarter period ended October 31, 2019 as compared to the four quarter period ended October 31, 2018 was offset by an increase in our average equipment inventory over these time periods.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 18.0% as of October 31, 2019 from 34.4% as of January 31, 2019 .

The decrease in our equity in equipment inventory is primarily due to the stocking of new equipment inventories during the nine months ended October 31, 2019 and the higher level of floorplan financing available on such inventories, and increased borrowing on our floorplan lines of credit following the repayment of our outstanding senior convertible notes on May 1, 2019.

Senior Convertible Notes

The Company's senior convertible notes matured on May 1, 2019.

The Company repaid the outstanding principal balance of $45.6 million on the maturity date using available cash resources and available borrowing capacity under our various floorplan payable lines of credit.

As of April 30, 2020, the Company had floorplan payable lines of credit for equipment purchases totaling $762.0 million, which is primarily comprised of a $450.0 million credit facility with CNH Industrial, a $185.0 million floorplan payable line under the Bank Syndicate Credit Agreement, and a $60.0 million credit facility with DLL Finance.

Our equipment inventory turnover decreased from 1.8 times for the four-quarter period ended April 30, 2019 to 1.6 times for the four-quarter period ended April 30, 2020.

The increase in equipment sales volume over the four-quarter period ended April 30, 2020 as compared to the four-quarter period ended April 30, 2019 was offset by an increase in our average equipment inventory over these time periods.

Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 24.5% as of April 30, 2020 from 27.9% as of January 31, 2020.

The decrease in our equity in equipment inventory is primarily due to the stocking of new equipment inventories during the three months ended April 30, 2020 and the higher level of floorplan financing available on such inventories, and increased borrowing on our floorplan lines of credit.

Long-Term Debt

The Company finalized two real estate mortgage financing arrangements during the nine month period ended October 31, 2019.

The financing arrangements, with an aggregate outstanding balance as of October 31, 2019 of approximately $11.0 million, require monthly or quarterly installment payments, which in the aggregate amount to approximately $0.5 million quarterly, with one arrangement requiring a final payment at maturity in June 2024 of $3.4 million.

The financing arrangements are secured by real estate assets.

During the third quarter of fiscal 2020, the Company reclassified the Wells Fargo working capital line of credit outstanding, which had a maturity date of October 28, 2020, from long-term debt to current maturities of long-term debt.

During the first quarter of fiscal of 2021, the Company entered into an amended and restated 5-year credit agreement with the Bank Syndicate.

Therefore, the working capital line of credit outstanding of $10 million was reclassified from current maturities of long-term debt to long-term debt.

Adequacy of Capital Resources

Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, funding capital expenditures, including rental fleet assets, and repurchasing and repaying our outstanding senior convertible notes.

Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs, meeting our debt service requirements, making payments due under our various leasing arrangements, and funding capital expenditures, including rental fleet assets.

Based on our current operational performance, we believe our cash flow from operations, available cash and available borrowing capacity under our existing credit facilities will adequately provide for our liquidity needs for, at a minimum, the next 12 months.

As of October 31, 2019 , we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Wells Fargo Credit Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the total amount of the credit facility as of October 31, 2019 .

While not expected to occur, if anticipated operating results create the likelihood of a future covenant violation, we would expect to work with our lenders on an appropriate modification or amendment to our financing arrangements.

As of April 30, 2020, we were in compliance with the financial covenants under our CNH Industrial and DLL Finance credit agreements and we were not subject to the fixed charge coverage ratio covenant under the Bank Syndicate Credit Agreement as our adjusted excess availability plus eligible cash collateral (as defined therein) was not less than 15% of the lesser of (i) aggregate borrowing base and (ii) maximum credit amount as of April 30, 2020.

While not expected to occur, if anticipated operating results were to create the likelihood of a future covenant violation, we would expect to work with our lenders on an appropriate modification or amendment to our financing arrangements.

Cash Flow Provided by (Used for) Operating Activities

Net cash used for operating activities was $8.3 million for the first nine months of fiscal 2020 , compared to net cash provided by operating activities of $11.7 million for the first nine months of fiscal 2019 .

The change in net cash provided by (used for) operating activities is primarily the result of increased inventory stock for the first nine months of fiscal 2020 and the mix of floorplan financing between manufacturer and non-manufacturer floorplan financing.

Net cash used for operating activities was $5.4 million for the first three months of fiscal 2021, compared to net cash provided by operating activities of $2.9 million for the first three months of fiscal 2020.

The change in net cash provided by (used for) operating activities is primarily the result of a reduction in liabilities for the first three months of fiscal 2021.

We evaluate our cash flow from operating activities net of all floorplan activity and maintaining a constant level of equity in our equipment inventory.

Taking these adjustments into account, our adjusted cash flow used for operating activities was $35.0 million for the first nine months of fiscal 2020 compared to an adjusted cash flow provided by operating activities of $1.5 million for the first nine months of fiscal 2019 .

The increase in adjusted cash flow used for operating activities for the first nine months of fiscal 2020 is primarily the result of increased equipment inventory stocking during the first nine months of fiscal 2020 as compared to the same period last year.

Taking these adjustments into account, our adjusted cash flow used for operating activities was $3.6 million for the first three months of fiscal 2021 compared to an adjusted cash flow used for operating activities of $37.4 million for the first three months of fiscal 2020.

The adjusted cash flow used for operating activities decreased for the first three months of fiscal 2021, which is primarily the result of increased equipment inventory stocking during the previous

See the Adjusted Cash Flow Reconciliation below for a reconciliation of adjusted cash flow used for operating activities to the GAAP measure of cash flow used for operating activities.

Cash Flow Used for Investing Activities

Net cash used for investing activities was $30.8 million for the first nine months of fiscal 2020 , compared to $23.7 million for the first nine months of fiscal 2019 .

The increase in cash used for investing activities was the result of an increased level of property and equipment purchases, including rental fleet, for the first nine months of fiscal 2020 compared to the same period last year.

Net cash used for investing activities was $5.1 million for the first three months of fiscal 2021, compared to $8.0 million for the first three months of fiscal 2020.

The decrease in cash used for investing activities was the result of lower cash outflows for acquisitions and rental fleet purchases, as compared to the first quarter of fiscal 2020.

Cash Flow Provided by Financing Activities

Net cash provided by financing activities was $34.9 million for the first nine months of fiscal 2020 compared to $11.3 million for the first nine months of fiscal 2019 .

For both periods, net cash provided by financing activities was impacted by increased non-manufacturer floorplan payables associated with seasonal inventory stocking, repurchasing or repaying our senior convertible notes and repaying other long-term debt obligations.

In addition, during the first nine months of fiscal 2020, net cash provided by financing activities was impacted by borrowings under new real estate financing arrangements and borrowings under our working capital line of credit under our Wells Fargo Credit Agreement.

Net cash provided by financing activities was $17.7 million for the first three months of fiscal 2021 compared to $11.8 million for the first three months of fiscal 2020.

For both periods, net cash provided by financing activities was impacted by increased non-manufacturer floorplan payables associated with seasonal inventory stocking.

Adjusted Cash Flow Reconciliation

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We refer to this measure of cash flow as Adjusted Cash Flow.

Our equity in equipment inventory decreased to 18.0% as of October 31, 2019 from 34.4% as of January 31, 2019 , and decreased to 26.2% as of October 31, 2018 from 38.2% as of January 31, 2018 .

Our equity in equipment inventory decreased to 24.5% as of April 30, 2020 from 27.9% as of January 31, 2020, and decreased to 23.6% as of April 30, 2019 from 34.4% as of January 31, 2019.

Adjusted Cash Flow is a non-GAAP financial measure.

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The following table reconciles net cash provided by (used for) operating activities, a GAAP measure, to adjusted net cash provided by (used for) operating activities and net cash provided by (used for) financing activities, a GAAP measure, to adjusted net cash provided by (used for) financing activities.

Net Cash Provided by (Used for) Operating Activities

Net Cash Provided by (Used for) Financing Activities

Nine Months Ended October 31, 2019

Nine Months Ended October 31, 2018

Nine Months Ended October 31, 2019

Nine Months Ended October 31, 2018

(in thousands)

Net Cash Provided by (Used for) Operating Activities Net Cash Provided by (Used for) Financing Activities

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

(in thousands) (in thousands)

Cash Flow, As Reported $ (5,442) $ 2,852 $ 17,714 $ 11,775

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Certain Information Concerning Off-Balance Sheet Arrangements

As of October 31, 2019 , we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

As of April 30, 2020, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

We are, therefore, not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.

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The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.

Forward-looking statements are contained in this Quarterly Report on Form 10-Q, including in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as in our Annual Report on Form 10-K for the year ended January 31, 2019 , and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements made or to be made by the Company).

Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding exchange rate and interest rate impact on our business, the impact of farm income levels on our customers' demand for agricultural equipment and services, the impact of oil prices on market demand for equipment and services, the general market conditions of the agricultural and construction industries, equipment inventory levels, discussion of the anticipated implementation date of our new ERP system, and our primary liquidity sources, including statements relating to our ability to enter into a new credit facility prior to the maturity of our current Wells Fargo Credit Agreement, and the adequacy of our capital resources.

January 31, 2020, and in other materials filed or to be filed by the Company with the Securities and Exchange Commission (and included in oral statements or other written statements made or to be made by the Company).

Forward-looking statements are statements based on future expectations and specifically may include, among other things, statements relating to our expectations regarding exchange rate and interest rate impact on our business, the impact of farm income levels on customer demand for agricultural equipment and services, the impact of oil prices on market demand for equipment and services, the impact of the COVID-19 pandemic on our business, the general market conditions of the agricultural and construction industries, equipment inventory levels, discussion of the anticipated implementation date of our new ERP system, and our primary liquidity sources, and the adequacy of our capital resources.

Any statements that are not based upon historical facts, including the outcome of events that have not yet occurred and our expectations for future performance, are forward-looking statements.

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Such forward-looking information involves important risks and uncertainties that could significantly affect anticipated results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on behalf of the Company.

These risks and uncertainties include, but are not limited to, adverse market conditions in the agricultural and construction equipment industries, and those matters identified and discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

These risks and uncertainties include, but are not limited to, the duration, scope and impact of the COVID-19 pandemic on the Company's operations and business, adverse market conditions in the agricultural and construction equipment industries, and those matters identified and discussed under the section titled “Risk Factors” in our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

Although we are not aware of any other factors, aside from those discussed in our Form 10-K, that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may materially adversely affect our business, financial condition and/or operating results.

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 2. Management’s Discussion and Analysis