What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-03-31 compared with 2020-04-07 · 198 added, 140 removed, 402 unchanged (46% of the section changed)

7 unchanged sentences

Based upon information provided to us by CNH Industrial N.V.

subsidiary CNH Industrial America, LLC, collectively referred to in this annual report as CNH Industrial, 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.

subsidiary CNH Industrial America, LLC, collectively referred to in this Form 10-K as CNH Industrial, we are the largest retail dealer of Case IH Agriculture equipment in the world, one of the largest retail dealers of Case Construction equipment in North America and one of the largest retail dealers of New Holland Agriculture and New Holland Construction equipment in the U.S.

We operate our business through three reportable segments:

3 unchanged sentences

The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale farming to home and garden use.

The construction equipment we sell and service includes heavy construction machinery, light industrial machinery for commercial and residential construction, road and highway construction machinery, mining, energy, and forestry operations equipment.

We offer our customers a one-stop solution for their equipment needs through:

• new and used equipment sales;

• parts sales;

• equipment repair and maintenance services;

12 unchanged sentences

We are subject to a number of factors that affect our business including those factors discussed in the sections in this annual report entitled "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following:

Impact of 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 has been highly fluid 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 related to the pandemic at 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 in March 2020 but continued operations through social distancing means in all areas:

equipment, parts, service and rental.

Beginning in May 2020, we began to fully reopen our stores to the public, following pandemic safety protocols, and, by June 2020, all of our locations were once again open to the public.

Additionally, our international stores have also been following pandemic safety protocols set forth by each country and local government authority, which at times have included border shutdowns and curfew regulations.

As vaccine distributions begin, we continue to follow the requirements of the local authorities for each of our locations to determine mandates and social distancing policies.

Practices and policies we have put in place at the beginning of the pandemic, such as physical barriers, additional cleaning services, social distancing, and mask mandates, will continue until such time COVID-19 does not appear to be a threat.

Each of our segments has been, and will continue to be, impacted differently and to a varying degree.

The complete impact of the pandemic will continue to be subject to many variables and uncertainties many of which are currently unknown or outside of our control.

A brief overview of the impact COVID-19 has had on each of our business segments is listed below.

Overall, we believe COVID-19 has created challenging industry conditions resulting in supply chain disruptions affecting areas such as ethanol, livestock and international trade.

These conditions impacted agricultural commodities early in fiscal 2021, but were more than offset by positive macro conditions later in fiscal 2021, such as U.S.

crop production, increased commodity exports and government support programs for our farm customers, such as the $16 billion Coronavirus Food Assistance Program (CFAP).

We believe all revenue categories of equipment, parts, service and rental have been negatively impacted in our Construction segment as a result of COVID-19, with such effects expected to continue as long as pandemic related macroeconomic stress and uncertainties persist.

Examples of such macroeconomic stressors include:

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

We believe that all of these factors have led to lower overall U.S.

construction spending.

International

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

We believe all revenue categories in our International segment have been more negatively impacted than our Agriculture segment because of these additional challenges and the general lack of government support programs for our international farm customers.

Macroeconomic and Industry Factors

7 unchanged sentences

Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2020 increased 46% compared to calendar year 2019 due to the U.S.

Federal government's direct farm program payments.

Based on its February 2020 report, the USDA projected net farm income for calendar year 2020 to increase 3.0%, as compared to calendar year 2019.

During economic downturns, and especially in the agriculture industry, equipment revenue generally decreases;

however, parts and service revenue tend to be more stable, as the amount of land in production remains unchanged.

Additionally, farmers maintain existing equipment rather than purchase new equipment.

Our gross profit margins on equipment sales are lower than our gross profit margins on parts and service.

As a result, a change in sales mix may cause our gross profit margin to increase on a percentage basis even though our overall gross profit dollars may decrease.

Our operating expenses are largely fixed expenses, other than commissions paid to our equipment sales consultants, which generally fluctuate with gross profit.

When equipment revenue decreases, it may have a negative impact on our ability to leverage these fixed costs, and, as a result, may reduce our operating income.

Federal government's direct farm program payments, U.S.

crop production, and increased commodity exports.

Based on its February 2021 report, the USDA projected net farm income for calendar year 2021 to decrease 8.1%, as compared to calendar year 2020.

Our Construction business is primarily impacted by the demand for construction equipment for use in private and government commercial, residential, and infrastructure construction;

energy and forestry operations.

Industry reports show that demand for construction equipment in our markets is driven by several factors, one of which is public infrastructure spending, including roads and highways, sewer and water.

Any growth in federal allocations to public infrastructure spending over the next few years should positively impact our future results of operations.

Likewise, any decline in federal allocations to public infrastructure spending over the next few years should negatively impact our future results of operations.

Seasonality & Weather

27 unchanged sentences

To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset such increases.

Significant Items Impacting Our Financial Position and Results of Operations

AGRAM Acquisition

On July 2, 2018, we continued our strategy of acquiring dealerships in desired market areas with our acquisition of 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 we 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.

Critical Accounting Policies and Use of Estimates

14 unchanged sentences

Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.

The majority of our used equipment inventory is acquired through trade-ins from our customers and is initially measured and recognized based on the estimated future selling price of the equipment, less a gross profit amount to be realized when the trade-in asset is sold and an estimate of any reconditioning work required to ready the

asset for sale.

Subsequent to the initial recognition, all new and used equipment inventories are subject to lower of cost or net realizable value assessments.

We estimate net realizable value using internal information, management judgment and third-party data that considers various factors including age of equipment, hours of use and market conditions.

We estimate net realizable value using internal information, management judgment and third-party data that considers various factors including age and condition of equipment, hours of use and market conditions.

Generally, used equipment prices are more volatile to changes in market conditions than prices for new equipment due to incentive programs that may be offered by manufacturers to assist in the sale of new equipment.

3 unchanged sentences

Impairment of Long-Lived Assets

Long-Lived Assets.

Our long-lived assets consist primarily of property and equipment and operating lease assets.

6 unchanged sentences

Long-lived assets deployed and used by individual store locations are reviewed for impairment at the individual store level.

Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate.

long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate.

During our 2021 fiscal year, we determined that events or circumstances were present that may indicate that the carrying amount of certain of our store long-lived assets might not be recoverable.

12 unchanged sentences

These assumptions require significant judgment and estimation.

In reviewing our deferred tax assets as of January 31, 2019, we concluded that a partial valuation allowance for U.S.

federal and state deferred tax assets was warranted.

In total we had recognized a valuation allowance of $4.4 million as of January 31, 2019.

This conclusion was principally based on the presence of historical losses and our expected future sources of taxable income, including the anticipated future reversal of our existing deferred tax assets and liabilities.

We review our foreign deferred tax assets, including net operating losses, on a jurisdiction-by-jurisdiction basis.

As of January 31, 2019, we

concluded that a valuation allowance for certain of our foreign deferred tax assets, including net operating losses, was warranted.

In total we have recognized a valuation allowance in the amount of $ 2.3 million .

This conclusion was principally based on the presence of historical losses and the anticipated time period over which we may generate taxable income in excess of these historical losses.

During the fiscal year ended January 31, 2020 , the Company concluded, based upon all available evidence, it was more likely than not that it would have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

In reviewing our deferred tax assets as of January 31, 2021, we concluded that a full valuation allowance continued to be warranted in certain jurisdictions.

It was also concluded that a full valuation allowance for the Company's Ukrainian subsidiary was warranted and a partial valuation allowance for the Company's German subsidiary was warranted, as such the Company recorded an additional $3.8 million valuation allowance for these two subsidiaries.

In total, valuation allowances of $6.1 million exist for our international entities as of January 31, 2021.

At the end of fiscal year ended January 31, 2020, the Company concluded, based upon all available evidence, it was more likely than not that it would have sufficient future taxable income to realize the Company’s federal and state deferred tax assets.

As a result, the Company released the $4.6 million valuation allowance associated with deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statement of operations for the year ended January 31, 2020.

At fiscal year end 2020, the remaining foreign valuation allowance was $2.2 million and there was no domestic valuation allowance.

The Company's conclusion regarding the realizability of such deferred tax assets was based on recent profitable domestic operations resulting in a cumulative profit over the three-year period ending January 31, 2020 and our projections of future profitability in the U.S.

In reviewing our foreign deferred tax assets as of January 31, 2020, we concluded that a full valuation allowance was warranted in certain jurisdiction locations.

In total, valuation allowances of $2.2 million existed for certain of our international entities as of January 31, 2020.

The initial recognition of, and any changes in, a deferred tax asset valuation allowance are recorded to the provision for income taxes and impacts our effective tax rate.

22 unchanged sentences

While our rental fleet has variable expenses related to repairs and maintenance, its primary expense for depreciation is fixed.

Low dollar utilization of our rental fleet has a negative impact on gross profit margin and gross profit dollars due to the fixed

depreciation component.

Low dollar utilization of our rental fleet has a negative impact on gross profit margin and gross profit dollars due to the fixed depreciation component.

However, high dollar utilization of our rental fleet has a positive impact on gross profit margin and gross profit dollars.

8 unchanged sentences

Key Financial Statement Components

• Equipment :

We derive equipment revenue from the sale of new and used agricultural and construction equipment.

6 unchanged sentences

Cost of Revenue

Cost of equipment revenue is the lower of the acquired cost or the market value of the specific piece of equipment sold.

Cost of equipment revenue is the lower of the acquired cost or the net realizable value of the specific piece of equipment sold.

Cost of parts revenue is the lower of the acquired cost or the market value of the parts sold, based on average costing.

6 unchanged sentences

The cost of financing inventory is an important factor affecting our results of operations.

Floorplan payable financing from CNH Industrial Capital, the Bank Syndicate Credit Facility, DLL Finance and various credit facilities related to our foreign subsidiaries represent the primary sources of financing for equipment inventories.

Floorplan payable financing from CNH Industrial Capital, the Bank Syndicate Agreement, DLL Finance and various credit facilities related to our foreign subsidiaries represent the primary sources of financing for equipment inventories.

CNH Industrial regularly offers interest-free periods as well as additional incentives and special offers.

12 unchanged sentences

(dollars in thousands)

Revenue $ 1,016,071 $ 917,202

Cost of revenue 911,170 818,707

Gross profit $ 104,901 $ 98,495

Gross profit margin 10.3 % 10.7 %

Revenue $ 244,676 $ 234,217

Cost of revenue 171,873 165,190

Gross profit $ 72,803 $ 69,027

Gross profit margin 29.8 % 29.5 %

Revenue $ 107,229 $ 99,165

Cost of revenue 36,692 33,446

Gross profit $ 70,537 $ 65,719

Gross profit margin 65.8 % 66.3 %

Rental and other

Revenue $ 43,246 $ 54,587

Cost of revenue 30,125 37,010

Gross profit $ 13,121 $ 17,577

Gross profit margin 30.3 % 32.2 %

1 unchanged sentence

Year Ended January 31,

Equipment 72.0 % 70.3 %

Parts 17.3 % 17.9 %

Service 7.6 % 7.6 %

Rental and other 3.1 % 4.2 %

3 unchanged sentences

Operating Expenses 15.6 % 17.3 %

Impairment of Goodwill 0.1 % — %

Impairment of Intangible and Long-Lived Assets 0.1 % 0.3 %

3 unchanged sentences

Provision for Income Taxes 0.8 % 0.1 %

Net Income 1.4 % 1.1 %

Fiscal Year Ended January 31, 2021 Compared to Fiscal Year Ended January 31, 2020

Consolidated Results

Year Ended January 31,

Year Ended January 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Equipment $ 1,016,071 $ 917,202 $ 98,869 10.8 %

Parts 244,676 234,217 10,459 4.5 %

Service 107,229 99,165 8,064 8.1 %

Rental and other 43,246 54,587 (11,341) (20.8) %

Total Revenue $ 1,411,222 $ 1,305,171 $ 106,051 8.1 %

The increase in total revenue for fiscal 2020 , as compared to fiscal 2019 , was primarily the result of increased parts and service revenue within our Agriculture and Construction segments.

Company-wide same-store sales were relatively flat, increasing 1.6% over the prior fiscal year, which was driven by parts and service revenue.

Our total revenue increase over the prior year was also impacted by our acquisitions of AGRAM and Northwood.

Year Ended January 31,

The increase in total revenue for fiscal 2021, as compared to fiscal 2020, was primarily the result of strong agriculture equipment sales due to U.S.

crop production and increased commodity exports, which increased net farm income.

Our total revenue increase over the prior year was also impacted by our acquisitions of Northwood and HorizonWest.

Company-wide same-store sales increased 6.9% over the prior fiscal year, which was driven by equipment sales within our Agriculture segment.

Year Ended January 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Equipment $ 104,901 $ 98,495 $ 6,406 6.5 %

Parts 72,803 69,027 3,776 5.5 %

Service 70,537 65,719 4,818 7.3 %

Rental and other 13,121 17,577 (4,456) (25.4) %

1 unchanged sentence

Gross Profit Margin

Equipment 10.3 % 10.7 % (0.4) % (3.7) %

Parts 29.8 % 29.5 % 0.3 % 1.0 %

Service 65.8 % 66.3 % (0.5) % (0.8) %

Rental and other 30.3 % 32.2 % (1.9) % (5.9) %

1 unchanged sentence

Gross Profit Mix

Equipment 40.1 % 39.3 % 0.8 % 2.0 %

Parts 27.9 % 27.5 % 0.4 % 1.5 %

Service 27.0 % 26.2 % 0.8 % 3.1 %

Rental and other 5.0 % 7.0 % (2.0) % (28.6) %

Total Gross Profit Mix 100.0 % 100.0 %

Gross profit increased 8.3% or $19.2 million from fiscal 2019 to fiscal 2020 , primarily due to higher revenue from our parts and service business in fiscal 2020.

Gross profit margin increased from 18.4% in fiscal 2019 to 19.2% in fiscal 2020 .

The improvement in overall gross profit margin was the result of an improved sales mix, a greater percentage of revenue was generated by our higher margin parts and service businesses.

Additionally, an increase in our rental fleet dollar utilization to 25.4% in fiscal 2020 compared to 23.9% in fiscal 2019 resulted in an improvement in rental and other gross profit, as well as gross profit margin.

Our company-wide absorption rate improved to 72.0% for fiscal 2020 as compared to 71.6% during fiscal 2019, due to additional parts and service gross profit partially offset by increased expenses.

Gross profit increased 4.2% or $10.5 million from fiscal 2020 to fiscal 2021, primarily due to higher revenue and gross profit from our equipment, parts, and service business partially offset by lower rental gross profit.

Gross profit margin decreased from 19.2% in fiscal 2020 to 18.5% in fiscal 2021.

The decrease in overall gross profit margin was primarily the result of a change in sales mix, with a greater proportion of revenue earned from equipment during fiscal 2021 as compared to the higher margin parts and service revenue during fiscal 2020 .

Additionally, rental and other gross profit was negatively impacted by a decrease in the size of the total rental fleet as well as a decrease in fleet dollar utilization to 22.2% in fiscal 2021 compared to 25.4% in fiscal 2020.

Our company-wide absorption rate improved to 77.7% for fiscal 2021 as compared to 72.0% during fiscal 2020 as the increase in gross profit from parts and service combined with lower operating expenses and lower floorplan interest expense generated the improved absorption rate compared to that of fiscal 2020.

Operating Expenses

Year Ended January 31,

Year Ended January 31, Percent

2021 2020 Decrease Change

(dollars in thousands)

1 unchanged sentence

Operating Expenses as a Percentage of Revenue 15.6 % 17.3 % (1.7) % (9.8) %

Operating expenses for fiscal 2020 increased $24.2 million , as compared to fiscal 2019 .

In fiscal 2020 , operating expenses as a percentage of revenue increased to 17.3% from 16.0% in fiscal 2019 .

Operating expenses increased primarily as a result of costs arising from the ERP transition, a full year of expenses for AGRAM, expenses associated with our acquisition of the Northwood, North Dakota dealership location (October 2019), and increased other costs required to support higher business volumes in our Agriculture and Construction segments.

These expense increases combined with relatively flat same-store sales resulted in the 1.3% increase in operating expenses as a percentage of revenue.

Operating expenses for fiscal 2021 decreased $4.9 million, as compared to fiscal 2020.

The increased operating expenses of four acquired locations, were more than offset by managed expense reductions in our Construction and International segments and various lower operating expenses caused by COVID-19 such as reduced travel and fuel costs.

Fiscal 2020 also included additional depreciation expense for the ERP transition as the estimated useful life of our current ERP was adjusted to coincide with the estimated go-live date of the new ERP.

In fiscal 2021, operating expenses as a percentage of revenue decreased to 15.6% from 17.3% in fiscal 2020.

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

Impairment and Restructuring Costs

Year Ended January 31,

Year Ended January 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Impairment of Goodwill $ 1,453 $ — $ 1,453 n/m

Impairment of Long-Lived Assets 1,727 3,764 (2,037) (54.1) %

Restructuring Costs

During fiscal 2020 , we recognized a total of $3.8 million of impairment expenses related to long-lived assets, as compared to $2.2 million in fiscal 2019 .

The fiscal 2020 impairment expenses were related to certain store assets in the Agriculture and Construction segments, and primarily related to the impairment of right-of-use assets identified after the initial adoption of the new lease accounting standard guidance in ASC 842, which we adopted in fiscal year 2020.

During fiscal 2021, we recognized a total of $3.2 million of impairment expenses related to certain goodwill, other intangible assets, and long-lived assets, as compared to $3.8 million in fiscal 2020.

The fiscal 2021 impairment expenses were primarily related to the impairment of goodwill and certain other intangible assets in our International segment.

Other Income (Expense)

Year Ended January 31,

Year Ended January 31, Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Interest income and other income (expense)

Interest and other income (expense) $ 527 $ 3,126 $ (2,599) (83.1) %

Floorplan interest expense (3,339) (5,354) (2,015) (37.6) %

Other interest expense (3,843) (4,452) (609) (13.7) %

The decrease in floorplan interest expense for fiscal 2020 , as compared to fiscal 2019 , was primarily due to a decrease in our interest-bearing inventory in fiscal 2020 .

Interest expense associated with our Senior Convertible Notes, which is reflected in other interest expense, decreased in fiscal 2020 compared to fiscal 2019 , due to interest savings resulting from the payoff of our Senior Convertible Notes on May 1, 2019.

The decrease in Interest and other income (expense) compared to fiscal 2020 is primarily the result of differences in foreign currency gains and losses recognized during the periods.

dollar strengthened relative to the Euro and the Ukrainian hyrvia strengthened relative to the U.S.

dollar in fiscal 2020 creating foreign currency gains in fiscal 2020.

The decrease in floorplan interest expense for fiscal 2021, as compared to fiscal 2020, was due to an overall lower interest rate environment as well as a decrease in our interest-bearing inventory in fiscal 2021.

Provision for Income Taxes

Year Ended January 31,

Year Ended January 31, Percent

2021 2020 Increase Change

(dollars in thousands)

Provision for Income Taxes

Our effective tax rate decreased from 24.6% in fiscal 2019 to 4.8% in fiscal 2020 .

The Company's effective tax rate decreased due to changes in valuation allowances recognized for deferred tax assets.

Provision for Income Taxes $ 11,397 $ 699 $ 10,698 n/m

Our effective tax rate increased from 4.8% in fiscal 2020 to 37.1% in fiscal 2021.

The Company's effective tax rate increased due to changes in valuation allowances recognized for deferred tax assets.

In fiscal 2020, the Company concluded that a release of its domestic valuation allowance of $4.6 million for U.S.

federal and state deferred tax assets was warranted.

This conclusion was principally based on the presence of three years of cumulative income and our projections of future profitability.

In fiscal 2021, the Company concluded that a full valuation allowance was warranted for the Company's Ukrainian subsidiary and a partial valuation allowance for the Company's German subsidiary.

The Company recorded an additional $3.8 million valuation allowance from the Ukraine and Germany subsidiaries.

See Note 15 to our consolidated financial statements for further details on our effective tax rate.

Segment Results

Year Ended January 31,

Year Ended January 31, Increase/ Percent

2021 2020 (Decrease) Change

(dollars in thousands)

Agriculture $ 886,485 $ 749,042 $ 137,443 18.3 %

Construction 305,745 320,034 (14,289) (4.5) %

International 218,992 236,095 (17,103) (7.2) %

Total $ 1,411,222 $ 1,305,171 $ 106,051 8.1 %

Income (Loss) Before Income Taxes

International

Agriculture $ 34,422 $ 18,036 $ 16,386 90.9 %

Construction 186 (2,290) 2,476 n/m

International (6,025) 504 (6,529) n/m

Segment income before income taxes 28,583 16,250 12,333 75.9 %

Shared Resources

Shared Resources 2,170 (1,598) 3,768 n/m

Total $ 30,753 $ 14,652 $ 16,101 109.9 %

Agriculture segment revenue for fiscal 2021 increased 18.3% or $137.4 million compared to the same period last year.

Agriculture same-store sales increased 14.4% for fiscal 2021, as compared to fiscal 2020.

Total segment revenue and same-store sales were primarily driven by increased parts and service business.

The Northwood acquisition, which closed in October 2019, also contributed to the total sales growth for the segment.

Agriculture segment income before income taxes for fiscal 2020 improved by $1.2 million or 7.4% compared to the same period last year.

The improvement in segment performance was largely the result of increased parts and service sales, partially offset by increases in operating expenses, as well as floorplan interest.

Construction segment revenue for fiscal 2020 improved 6.0% or $ 18.0 million compared to fiscal 2019 .

Same-store sales growth accounted for 6.1% of the 6.0% segment revenue increase.

Our Construction segment experienced increased revenues across all revenue categories:

Total segment revenue and same-store sales were primarily driven by increased equipment sales.

The Northwood and HorizonWest acquisitions, which were completed in October 2019 and May 2020, respectively, also contributed to the total sales growth for the segment.

Agriculture segment income before income taxes for fiscal 2021 improved by $16.4 million or 90.9% compared to fiscal 2020.

The improvement in segment performance was largely the result of increased gross profit, partially offset by an increase in operating expenses.

Construction segment revenue for fiscal 2021 decreased 4.5% or $14.3 million compared to fiscal 2020 due to a same-store sales decrease of 1.4% and our divestiture of the Albuquerque, New Mexico store in the fourth quarter of fiscal 2020.

Our Construction segment experienced decreased revenues across all revenue categories:

equipment, parts, service, and rental and other.

The Construction segment loss before income taxes was $2.3 million for fiscal 2020 compared to $4.4 million for the prior year.

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

The decrease in revenue in the segment was driven by more difficult industry conditions such as lower oil prices and a general slow down in the economy due to COVID-19.

The Construction segment income before income taxes was $0.2 million for fiscal 2021 compared to a loss of $2.3 million for the prior year.

The improvement in segment results was primarily due to decreased operating and interest expenses partially offset by lower revenues compared to the prior year.

International

International segment revenue for fiscal 2020 increased 1.4% or $ 3.4 million compared to fiscal 2019 , primarily due to a full year of results from our AGRAM acquisition plus an increase in parts and service sales.

Partially offsetting the impact of our AGRAM acquisition and parts and service sales growth was a same-store sales decrease of 7.9% in fiscal 2020 compared to the prior year due to decreased equipment revenue resulting from challenging industry conditions in certain of our markets.

Our International segment income before income taxes was $0.5 million for fiscal 2020 , compared to $5.2 million for the same period last year.

The decrease in segment income before income taxes was primarily due to decreased equipment revenue and the resulting negative impact on our ability to leverage our fixed operating costs within this segment as well as an overall increase in segment operating expenses.

International segment revenue for fiscal 2021 decreased 7.2% or $17.1 million compared to fiscal 2020.

Lower segment revenue was driven by decreased customer demand due to below average yields in certain areas of our international footprint as well as overall challenging economic and business conditions due to COVID-19.

Our International segment loss before income taxes was $6.0 million for fiscal 2021, compared to income before income taxes of $0.5 million for fiscal 2020.

The lower segment results were primarily due to impairment charges, decreased equipment gross profits from reduced customer demand resulting from below average crop yields in certain areas of our footprint, as well as overall challenging economic and business conditions due to COVID-19.

Impairment charges of $2.3 million were recognized in fiscal 2021, relating to the impairment of the goodwill balance and a portion of the distribution rights of our Germany reporting unit.

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 Resource loss before income taxes was $1.6 million for fiscal 2020 compared to $1.4 million for fiscal 2019 .

Since these allocations are set early in the year, and a portion is

planned to be unallocated, unallocated balances may occur.

Shared Resource income before income taxes was $2.2 million for fiscal 2021 compared to a loss of $1.6 million for fiscal 2020.

The increase in Shared Resources income was the result of operating expense reductions due to COVID-19 as well as interest expense reductions due to a lower interest rate environment, lower interest rates under the new credit facility, and a lower level of borrowings.

Non-GAAP Financial Measures

To supplement our net income and diluted earnings per share ("diluted EPS"), both GAAP measures, we present and our management utilizes adjusted net income, adjusted diluted EPS, and Adjusted EBITDA, all non-GAAP financial measures.

Generally, these non-GAAP financial measures include adjustments for items such as valuation allowances for income tax, restructuring costs, long-lived asset impairment charges, gains and losses recognized on the repurchase of our Senior Convertible Notes, ERP start-up costs, and other gains and losses.

Generally, these non-GAAP financial measures include adjustments for items such as valuation allowances for income tax, costs associated with impairment charges, Ukraine remeasurement gains/losses and charges associated with our Enterprise Resource Planning (ERP) system transition.

We believe that the presentation of adjusted net income, adjusted diluted EPS and adjusted EBITDA 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.

5 unchanged sentences

Adjusted Net Income

$ 19,356 $ 13,953

ERP transition costs 2,990 7,175

Loss on repurchase of senior convertible notes

Restructuring & impairment charges

Impairment charges 3,180 3,764

Ukraine remeasurement (gain) / loss 1,174 (616)

Total Pre-Tax Adjustments 7,344 10,323

Tax Effect of Adjustments (1) (2,227) (1,036)

Income Tax Valuation Allowance (2)

Adjustment for Tax Valuation Allowance 3,759 (4,611)

Total Adjustments 8,876 4,676

Adjusted Net Income

$ 28,232 $ 18,629

Year Ended January 31,

1 unchanged sentence

Adjusted Diluted EPS

Diluted EPS $ 0.86 $ 0.63

Adjustments (2)

ERP transition costs 0.13 0.32

Loss on repurchase of senior convertible notes

Restructuring & impairment charges

Impairment charges 0.14 0.17

Ukraine remeasurement (gain) / loss 0.05 (0.02)

Total Pre-Tax Adjustments 0.32 0.47

Tax Effect of Adjustments (1) (0.10) (0.05)

Income Tax Valuation Allowance (2)

Adjustment for Tax Valuation Allowance 0.18 (0.21)

Total Adjustments 0.40 0.21

1 unchanged sentence

Adjusted EBITDA

$ 19,356 $ 13,953

Interest expense, net of interest income 3,574 4,121

1 unchanged sentence

Depreciation and amortization 23,701 28,067

ERP transition costs (excluding depreciation)

Loss on repurchase of senior convertible notes

Restructuring & impairment charges

EBITDA 58,028 46,840

ERP transition costs 2,990 2,497

Impairment charges 3,180 3,764

Ukraine remeasurement (gain) / loss 1,174 (616)

Total Adjustments 7,344 5,645

Adjusted EBITDA $ 65,372 $ 52,485

The tax effect of adjustments for all U.S.

related items was determined using the federal and state statutory tax rates applicable to the respective period with an impact for state taxes given our valuation allowances against deferred tax assets.

The federal statutory tax rate for the fiscal years ended January 31, 2020 and 2019 was 23.5% and 21.0%, respectively.

Amounts reflect the tax benefit recognized from the release of the valuation allowance on our U.S.

deferred tax assets.

(1) The tax effect of U.S.

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.

The tax effect of the Germany related adjustments was calculated using a 29% tax rate.

Included in the tax effect of the adjustments is the tax impact of foreign currency changes in Ukraine of $1.2 million for fiscal 2021.

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

4 unchanged sentences

We expect these sources of liquidity to be sufficient to fund our working capital requirements, acquisitions, capital expenditures and other investments in our business, service our debt, pay our tax and lease obligations and other commitments and contingencies, and meet any seasonal operating requirements for the foreseeable future, provided, however, that our borrowing capacity under our credit agreements is dependent on compliance with various financial covenants as further described in Note 8 to our consolidated financial statements included in this Form 10-K.

We have worked in the past, and will continue to work in the future, with our lenders to implement satisfactory modifications to these financial covenants when appropriate for the business conditions confronted by us.

We have worked in the past, and will continue to work in the future if necessary, with our lenders to implement satisfactory modifications to these financial covenants when appropriate for the business conditions confronted by us.

Equipment Inventory and Floorplan Payable Credit Facilities

4 unchanged sentences

Borrowings and repayments on manufacturer floorplan facilities are reported as operating cash flows, while borrowings and repayments on non-manufacturer floorplan facilities are reported as financing cash flows in our consolidated statements of cash flows.

As of January 31, 2020 , we had floorplan payable lines of credit for equipment purchases totaling $717.0 million , which includes a $450.0 million credit facility with CNH Industrial Capital, a $140.0 million floorplan payable line under the Wells Fargo Credit Agreement, a $60.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries.

Available borrowing capacity under these lines of credit are reduced by amounts outstanding under such facilities, borrowing base calculations and amount of standby letters of credit outstanding with respect to the Wells Fargo Credit Agreement, and certain acquisition-related financing arrangements with respect to the CNH Industrial Capital credit facility.

As of January 31, 2021, we had floorplan payable lines of credit for equipment purchases totaling $773.0 million, which includes a $450.0 million credit facility with CNH Industrial Capital, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, a $60.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries.

Available borrowing capacity under these lines of credit are reduced by amounts outstanding under such facilities, borrowing base calculations and amount of standby letters of credit outstanding with respect to the Bank Syndicate Agreement, and certain acquisition-related financing arrangements with respect to the CNH Industrial Capital credit facility.

As of January 31, 2021, the Company was in compliance with the financial covenants under its credit agreements.

Additional details on each of these credit facilities is disclosed in Note 8 to our consolidated financial statements included in this annual report.

As of January 31, 2020, the Company was not subject to the fixed charge ratio covenant under the Wells Fargo Credit Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Wells Fargo Credit Agreement) was not less than 15% of the total amount of the credit facility.

The maturity date for the Wells Fargo Credit Agreement was October 28, 2020.

Additional details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this annual report.

The maturity date for the Wells Fargo Credit Agreement previously was October 28, 2020.

Effective April 3, 2020, we entered into an amended and restated credit agreement with the Bank Syndicate, which has a maturity date of April 3, 2025.

As of January 31, 2021, the Company was not subject to the fixed charge ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Bank Syndicate Agreement) was not less than 15% of the total amount of the credit facility.

Please refer to Note 8 to our consolidated financial statement included in Item 8 for further information regarding the Company's line of credit.

Our equipment inventory turnover decreased to 1.5 times for fiscal 2020 compared to 1.8 times for fiscal 2019 .

Our equipment inventories amount increased 23.7% from January 31, 2019 to January 31, 2020.

The increase in equipment sales volume in fiscal 2020 as compared to fiscal 2019 was offset by the 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 27.9% as of January 31, 2020 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 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 had a maturity date of May 1, 2019.

The outstanding principal balance of Senior Convertible Notes as of January 31, 2019 was $45.6 million .

In fiscal 2020, the Company repaid the remaining

outstanding Senior Convertible Notes, which repayment was primarily funded from non-manufacturer floorplan payables in addition to cash generated from business activities.

Our equipment inventory turnover increased to 2.0 times for fiscal 2021 compared to 1.5 times for fiscal 2020.

Our equipment inventories amount decreased 34.5% from January 31, 2020 to January 31, 2021.

The equipment turnover improved due to the combination of the increase in equipment sales volume in fiscal 2021 as compared to fiscal 2020 and a decrease 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, increased to 52.1% as of January 31, 2021 from 27.9% as of January 31, 2020.

The increase in our equity in equipment inventory is primarily due to a high level of cash generation in fiscal 2021, which was applied against interest bearing floorplan payables.

Long-Term Debt Facilities

As of January 31, 2020, we had a $60.0 million working capital line of credit under the Wells Fargo Credit Agreement (the "Working Capital Line").

Under the recently executed Bank Syndicate Facility Agreement, the Company's working capital line increased to $65.0 million.

The Working Capital Line is used to finance our working capital requirements and fund certain capital expenditures.

As of January 31, 2020 , the Company had utilized $10.0 million or 17% of the Working Capital Line.

As of January 31, 2021, we had a $65.0 million working capital line of credit under the Bank Syndicate Agreement (the "Revolver Loan").

The Revolver Loan is used to finance our working capital requirements and fund certain capital expenditures, as needed.

As of January 31, 2021, the Company did not have a need to utilize any of the Revolver Loan, as such the outstanding balance was zero.

The Company may also decide in the future to finance a portion of our rental fleet as well as our capital expenditures using long-term debt from various lenders.

3 unchanged sentences

making payments due under our various leasing arrangements;

funding capital expenditures, including the purchase of rental fleet assets;

and from time to time, opportunistically repurchasing our previously outstanding Senior Convertible Notes.

and funding capital expenditures, including the purchase of rental fleet assets.

The primary factor affecting our ability to generate cash and to meet cash requirements, is our operating performance as impacted by (i) industry factors, (ii) competition, (iii) general economic conditions, (iv) the timing and extent of acquisitions, and (v) business and other factors including those identified in Item 1A "Risk Factors" and discussed in this Form 10-K.

Our ability to service our debt will depend upon our ability to generate necessary cash.

This will depend on our future acquisition activity, operating performance, general economic conditions, and financial, competitive, business and other factors, some of which are beyond our immediate control.

This will in turn depend on our future acquisition activity, operating performance, general economic conditions, and financial, competitive, business and other factors, some of which are beyond our immediate control.

Based on our current operational performance, we believe our cash flow from operations, available cash, and available borrowings under our existing credit facilities will be adequate to meet our liquidity needs for, at a minimum, the next 12 months.

In fiscal 2020 , we used $14.3 million in cash for rental fleet purchases and $10.7 million in cash for property and equipment purchases and financed $11.0 million in property and equipment purchases with long-term debt and capital leases.

The property and equipment purchases primarily related to the purchase of vehicles and improvements to, or purchase of, real estate assets.

In fiscal 2021, we used $7.1 million in cash for rental fleet purchases and $13.0 million in cash for property and equipment purchases and financed $19.5 million in property and equipment purchases with long-term debt and finance leases.

The property and equipment purchases in fiscal 2021 primarily related to improvements to, or purchases of, real estate assets and the purchase of vehicles.

In fiscal 2020, we used $14.3 million in cash for rental fleet purchases, $10.7 million in cash for property and equipment purchases, and financed $11.0 million in property and equipment purchases with long-term debt.

The property and equipment purchases primarily related to the purchase of vehicles, trucks and real estate.

The property and equipment purchases in fiscal 2020 primarily related to the purchase of vehicles, trucks and real estate.

We expect our cash expenditures for property and equipment, exclusive of rental fleet purchases, for fiscal 2022 to be approximately $20.0 million and expect cash expenditures for our rental fleet for fiscal 2022 to be approximately $15.0 million.

12 unchanged sentences

Cash Flow Provided By Operating Activities

Net cash provided by operating activities in fiscal 2020 was $1.0 million compared to $46.6 million in fiscal 2019 .

The decrease in net cash provided by operating activities of $45.6 million from fiscal 2019 to fiscal 2020 was primarily attributable to changes in inventory.

Net cash provided by operating activities in fiscal 2021 was a record $173.0 million compared to $1.0 million in fiscal 2020.

The increase in net cash provided by operating activities of $172.0 million from fiscal 2020 to fiscal 2021 was primarily the result of a reduction in inventory and increase in net income.

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

5 unchanged sentences

In fiscal 2021, the Company used $20.1 million of cash, compared to $25.0 million in fiscal 2020, for additional investment in our rental fleet, vehicles, capital improvements, and purchases of real estate.

In addition, the Company utilized $13.9 million of cash, compared to $15.3 million in the prior fiscal year, for acquisitions.

In addition, the Company utilized $6.8 million of cash in fiscal 2021, compared to $13.9 million in the prior fiscal year, for acquisitions.

Cash Flow Provided By (Used For) Financing Activities

Net cash provided by financing activities was $22.9 million in fiscal 2020 , compared to net cash used for financing activities of $16.7 million in fiscal 2019 .

In fiscal 2020 , net cash provided by financing activities was the result of increased non-manufacturer floorplan payables, the proceeds of which were partially used to repay $45.6 million face value of our Senior Convertible Notes, which matured on May 1, 2019.

Net cash used for financing activities was $117.9 million in fiscal 2021, compared to net cash provided by financing activities of $22.9 million in fiscal 2020.

In fiscal 2021, net cash used for financing activities was the result of decreased non-manufacturer floorplan payables, which we were able to reduce with the additional cash generated from operating activities.

Additionally, in fiscal 2020, long-term financing proceeds of $18.9 million were utilized to purchase previously leased assets, vehicles and real estate.

Adjusted Cash Flow Reconciliation

We consider our cash flow from operating activities to include all equipment inventory financing activity regardless of whether we obtain the financing from a manufacturer or other source.

We consider our cash flow from operating activities to include all equipment inventory financing activity regardless of whether we obtain the financing from a manufacturer or other sources.

GAAP requires the cash flows associated with non-manufacturer floorplan payables to be recognized as financing cash flows in the consolidated statement of cash flows.

9 unchanged sentences

and net cash used for financing activities, a GAAP financial measure, to adjusted cash flow used for financing activities.

Net Cash Provided by (Used for) Operating Activities

Net Cash Provided by (Used for) Financing Activities

Year Ended January 31,

(in thousands)

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

Year Ended January 31, Year Ended January 31,

2021 2020 2021 2020

(in thousands) (in thousands)

Cash Flow, As Reported $ 172,996 $ 955 $ (117,939) $ 22,869

9 unchanged sentences

Payments Due By Period

Contractual Obligations

Contractual Obligations Total Less Than

1 Year 1 to 3 Years 3 to 5 Years More Than

(in thousands)

2 unchanged sentences

Purchase obligations (3) 13,760 4,163 6,667 2,930 —

Includes obligations under our capital lease and financing obligations, long-term debt obligations and estimates of interest payable under all such obligations.

Total $ 197,050 $ 37,939 $ 52,385 $ 45,508 $ 61,218

(1) Includes obligations under our finance lease and financing obligations, long-term debt obligations and estimates of interest payable under all such obligations.

(2) Includes minimum lease payment obligations under operating leases.

32 unchanged sentences

• our cash needs, sources of liquidity, and the adequacy of our working capital.

our expectations regarding the impact of inflation.

Forward-looking statements are only predictions and are not guarantees of performance.

5 unchanged sentences

Such factors include, but are not limited to, the following:

• the scope, duration and impact of the COVID-19 pandemic on the Company's operations and business;

• incorrect assumptions regarding our cash needs and the amount of inventory we need on hand;

17 unchanged sentences

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-K

Item 7. Management’s Discussion and Analysis