What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-03-31 compared with 2020-04-07 · 520 added, 565 removed, 811 unchanged (57% of the section changed)

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Balance Sheets of the Company as of January 31, 2020 and 2019 , and the related Consolidated Statements of Operations, Comprehensive Income (Loss), Stockholders' Equity, and Cash Flows for the years ended January 31, 2020 , 2019 and 2018 , and the notes thereto, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm.

The Consolidated Balance Sheets of the Company as of January 31, 2021 and 2020, and the related Consolidated Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows for the years ended January 31, 2021, 2020 and 2019, and the notes thereto, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

5 unchanged sentences

Consolidated Statements of Operations for the fiscal years ended January 31, 2021, 2020 and 2019 52

Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended January 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Income for the fiscal years ended January 31, 2021, 2020 and 2019 53

Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 2021, 2020 and 2019 54

5 unchanged sentences

We have audited the accompanying consolidated balance sheets of Titan Machinery Inc.

and subsidiaries (the “Company”) as of January 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended January 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

and subsidiaries (the “Company”) as of January 31, 2021 and 2020, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended January 31, 2021, and the related notes and the schedule listed in the Index at Part IV, Item 15 (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 6, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 30, 2021, expressed an unqualified opinion on the Company’s internal control over financial reporting.

Basis for Opinion

9 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

DELOITTE & TOUCHE LLP

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Inventories – Valuation of Used Equipment Inventories — Refer to Notes 1 and 5 to the financial statements

Critical Audit Matter Description

The majority of the Company’s used equipment inventories are acquired through trade-ins from customers.

Equipment that is traded-in is recorded at fair value less a normal gross profit margin.

The Company determines fair value for the traded-in equipment through internal and third-party data that considers various factors including the age and condition of the equipment, hours of use, and market conditions.

The Company’s used equipment inventories are stated at the lower of cost (specific identification) or net realizable value.

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

The Company periodically subjects used equipment inventories to lower of cost or net realizable value assessments and adjusts carrying values when such values exceed estimated net realizable value.

The Company estimates net realizable value using internal and third-party data that considers various factors including the age and condition of the equipment, hours of use, and market conditions.

The used equipment inventories balance as of January 31, 2021 was $131.4 million.

Given the significant judgments made by management to determine the initial fair value and subsequent net realizable value of used equipment inventories, performing audit procedures to evaluate these judgments to determine the valuation of used equipment inventories required a high degree of auditor judgment and an increased extent of effort.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to management’s judgments regarding the valuation of used equipment inventories included the following, among others:

• We tested the effectiveness of controls over the valuation of used equipment inventories, including the reasonableness of various factors including the age and condition of the equipment, hours of use, and market conditions, used to determine the net realizable value of the equipment.

• We tested the effectiveness of controls over the internal and external data used to determine the valuation of used equipment inventories.

• We evaluated the reasonableness of management’s judgments utilized to determine the net realizable value of the used equipment inventories by:

– Evaluating the reasonableness and consistency of the methodology and assumptions used by management to determine net realizable value.

– Testing the underlying determination of the net realizable value by obtaining sales documentation containing the age of the equipment and hours of use and comparing it to comparable internal and external data.

– Performing a retrospective lookback analysis of management’s process by comparing the actual selling prices of used equipment inventories units sold in the current year to the selling prices estimated by management for those units in the prior year.

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

April 6, 2020

March 30, 2021

We have served as the Company's auditor since 2013.

5 unchanged sentences

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 31, 2021, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the fiscal year ended January 31, 2020, of the Company and our report dated April 6, 2020, expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements and financial statement schedule as of and for the year ended January 31, 2021, of the Company and our report dated March 30, 2021, expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

14 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

DELOITTE & TOUCHE LLP

/s/ DELOITTE & TOUCHE LLP

Minneapolis, Minnesota

April 6, 2020

March 30, 2020

TITAN MACHINERY INC.

2 unchanged sentences

(in thousands, except per share data)

January 31, 2020

January 31, 2019

January 31, 2021 January 31, 2020

Current Assets

Receivables, net of allowance for doubtful accounts

Cash $ 78,990 $ 43,721

Receivables, net of allowance for expected credit losses 69,109 72,776

Inventories 418,458 597,394

Prepaid expenses and other 13,677 13,655

4 unchanged sentences

Deferred income taxes 3,637 2,147

Goodwill 1,433 2,327

Intangible assets, net of accumulated amortization 7,785 8,367

Other 1,090 1,113

Total noncurrent assets 235,555 247,797

Total Assets $ 815,789 $ 975,343

Liabilities and Stockholders' Equity

2 unchanged sentences

Floorplan payable 161,835 371,772

Senior convertible notes

Current maturities of long-term debt 4,591 13,779

2 unchanged sentences

Accrued expenses and other 48,791 38,360

Income taxes payable 11,048 49

Total current liabilities 317,500 494,163

5 unchanged sentences

Total long-term liabilities 127,008 136,076

Commitments and Contingencies (Notes 14 and 15)

Commitments and Contingencies (Note 13)

Stockholders' Equity

4 unchanged sentences

Retained earnings 116,869 97,717

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss) 1,499 ( 3,220 )

Total stockholders' equity 371,281 345,104

5 unchanged sentences

(in thousands, except per share data)

2021 2020 2019

Equipment $ 1,016,071 $ 917,202 $ 909,178

Parts 244,676 234,217 210,796

Service 107,229 99,165 86,840

Rental and other 43,246 54,587 54,691

1 unchanged sentence

Cost of Revenue

Equipment 911,170 818,707 812,467

Parts 171,873 165,190 149,615

Service 36,692 33,446 29,036

Rental and other 30,125 37,010 38,799

Total Cost of Revenue 1,149,860 1,054,353 1,029,917

Gross Profit 261,362 250,818 231,588

Operating Expenses 220,774 225,722 201,537

Impairment of Long-Lived Assets

Impairment of Goodwill 1,453 — —

Impairment of Intangible and Long-Lived Assets 1,727 3,764 2,156

Restructuring Costs — — 414

1 unchanged sentence

Other Income (Expense)

Interest income and other income (expense)

Interest and other income (expense) 527 3,126 2,547

Floorplan interest expense ( 3,339 ) ( 5,354 ) ( 6,114 )

Other interest expense ( 3,843 ) ( 4,452 ) ( 7,760 )

Income (Loss) Before Income Taxes

Provision for (Benefit from) Income Taxes

Net Income (Loss)

Earnings (Loss) per Share:

Income Before Income Taxes 30,753 14,652 16,154

Provision for Income Taxes 11,397 699 3,972

Net Income $ 19,356 $ 13,953 $ 12,182

Earnings per Share:

Basic $ 0.86 $ 0.63 $ 0.55

Diluted $ 0.86 $ 0.63 $ 0.55

Weighted Average Common Shares:

Basic 22,100 21,946 21,809

Diluted 22,104 21,953 21,816

See Notes to Consolidated Financial Statements

TITAN MACHINERY INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

YEARS ENDED JANUARY 31, 2021, 2020 AND 2019

(in thousands)

Net Income (Loss)

2021 2020 2019

Net Income $ 19,356 $ 13,953 $ 12,182

Other Comprehensive Income (Loss)

Foreign currency translation adjustments 4,719 ( 880 ) ( 640 )

Cash flow hedging instruments, net of tax

Total Other Comprehensive Income (Loss)

Comprehensive Income (Loss)

Comprehensive Income $ 24,075 $ 13,073 $ 11,542

See Notes to Consolidated Financial Statements

3 unchanged sentences

(in thousands)

Additional Paid-In Capital

Retained Earnings

Accumulated Other Comprehensive Income (Loss)

Total Stockholders' Equity

Shares Outstanding

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

Shares Outstanding Amount

BALANCE, JANUARY 31, 2018 22,102 $ — $ 246,509 $ 77,046 $ ( 1,700 ) $ 321,855

ASU 2016-19 cumulative effect adjustment

Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 116 — ( 621 ) — — ( 621 )

Stock-based compensation expense — — 2,535 — — 2,535

Repurchase of senior convertible notes

Net income — — — 12,182 — 12,182

Other comprehensive loss — — — — ( 640 ) ( 640 )

2 unchanged sentences

Stock-based compensation expense — — 2,693 — — 2,693

Other comprehensive income

Cumulative-effect adjustment of adopting ASC 842, Leases

— — — ( 5,464 ) — ( 5,464 )

Net income — — — 13,953 — 13,953

Other comprehensive loss — — — — ( 880 ) ( 880 )

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

ASU 2016-02 cumulative effect adjustment

Cumulative-effect adjustment of adopting ASC 326, Financial Instruments - Credit Losses

— — — ( 204 ) — ( 204 )

Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 218 — ( 209 ) — — ( 209 )

Stock-based compensation expense — — 2,515 — — 2,515

Other comprehensive loss

Net income — — — 19,356 — 19,356

Other comprehensive income — — — — 4,719 4,719

BALANCE, JANUARY 31, 2021 22,553 $ — $ 252,913 $ 116,869 $ 1,499 $ 371,281

4 unchanged sentences

(in thousands)

2021 2020 2019

Operating Activities

Net income (loss)

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

Net income $ 19,356 $ 13,953 $ 12,182

Adjustments to reconcile net income to net cash provided by operating activities

Depreciation and amortization 23,701 28,067 23,605

Impairment of goodwill, intangible assets and long lived assets 3,180 3,764 2,156

Deferred income taxes ( 3,538 ) ( 1,663 ) 2,511

2 unchanged sentences

Noncash lease expense 11,537 12,234 —

Loss (gain) on repurchase of senior convertible notes

Loss on repurchase of senior convertible notes — — 615

Other, net ( 1,375 ) ( 388 ) 995

Changes in assets and liabilities

Receivables, prepaid expenses and other assets 4,469 6,217 ( 13,475 )

Inventories 199,245 ( 99,469 ) 4,996

Manufacturer floorplan payable ( 110,084 ) 49,601 ( 2,635 )

7 unchanged sentences

Acquisition consideration, net of cash acquired ( 6,790 ) ( 13,887 ) ( 15,299 )

Other, net ( 10 ) 19 ( 131 )

Net Cash Used for Investing Activities ( 20,297 ) ( 36,469 ) ( 25,832 )

4 unchanged sentences

Principal payments on long-term debt ( 15,942 ) ( 4,490 ) ( 16,116 )

Other, net ( 909 ) ( 509 ) ( 656 )

Net Cash Provided by (Used for) Financing Activities ( 117,939 ) 22,869 ( 16,727 )

4 unchanged sentences

Supplemental Disclosures of Cash Flow Information

Cash paid (received) during the period

Cash paid during the period

Income taxes, net of refunds $ 2,786 $ 3,656 $ 3,681

Interest $ 7,355 $ 9,687 $ 11,064

Supplemental Disclosures of Noncash Investing and Financing Activities

Net property and equipment financed with long-term debt, capital leases, accounts payable and accrued liabilities $ 19,537 $ 11,039 $ 5,230

Business combination assets acquired through direct financing

Net transfer of assets from property and equipment to inventories $ 6,702 $ 2,544 $ 5,263

6 unchanged sentences

and its subsidiaries (collectively, the "Company") are engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe.

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

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

Impact of the COVID-19 Pandemic

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

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

The pandemic 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.

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.

The agricultural and construction equipment businesses are highly seasonal, which causes the Company's quarterly results and cash flows to fluctuate during the year.

The Company's customers generally purchase and rent equipment in preparation for, or in conjunction with, their busy seasons, which for farmers are the spring planting and fall harvesting seasons, and for construction customers is dependent on weather seasons in their respective regions, which is typically the second and third quarters of the Company's fiscal year for much of its Construction footprint.

The Company's parts and service revenues are typically highest during its customers' busy seasons as well, due to the increased use of their equipment during this time, which generates the need for more parts and service work.

The Company's parts and service revenues are also typically highest during its customers' busy seasons, due to the increased use of their equipment during this time, which generates the need for more parts and service work.

However, weather conditions impact the timing of our customers' busy times, which may cause the Company's quarterly financial results to differ between fiscal years.

In addition, the fourth quarter typically is a significant period for equipment sales in the U.S.

because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.

In addition, the fourth quarter typically is a significant period for equipment sales in the United States because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.

Principles of Consolidation

4 unchanged sentences

No events or transactions occurred related to these subsidiaries in January 2021 that would have materially affected the consolidated financial position, results of operations or cash flows.

Reclassifications

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

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

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

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

Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, collectability of receivables, and income taxes.

Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, goodwill, indefinite-lived intangible assets, collectability of receivables, and income taxes.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Concentrations of Credit Risk

The Company's sales are to agricultural and construction equipment customers principally in the U.S.

states and European countries in which its stores are located.

The Company's sales are to agricultural and construction equipment customers principally in the states in which it has stores as well as in the European countries in which its stores are located.

The Company extends credit to its customers in the ordinary course of business and monitors its customers' financial condition to minimize its risks associated with trade receivables;

however, the Company does not generally require collateral on trade receivables.

The Company's cash balances are maintained in bank deposit accounts, which, at times, are in excess of federally insured limits.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company's cash balances are maintained in bank deposit accounts, which, generally, are in excess of federally insured limits.

Concentrations in Operations

24 unchanged sentences

Receivables recognized for amounts not paid at the time our performance obligation is satisfied, including amounts due from third-party financial institutions, generally do not have established payment terms but are collected in relatively short time periods.

For certain equipment sale transactions, the Company provides a residual value guarantee to CNH Industrial Capital in connection with a customer leasing arrangement in which the Company sells the equipment to CNH Industrial Capital, who simultaneously executes a leasing arrangement with the Company's end-user customer.

The amount of revenue recognized for the sale of the equipment asset is reduced by, and the Company recognizes a corresponding liability equal to, our estimate of the amount that is probable of being paid under the guarantee discounted at a rate of interest to reflect the risk inherent in the liability.

Also included in equipment revenue are net commissions earned for serving as the agent in facilitating sales of equipment assets the Company holds as consignee on behalf of the consignor, as well as net commissions earned for facilitating the sale of extended warranty protection plans provided by the Company's suppliers or third-party insurance providers.

We have elected, as a practical expedient, to recognize sales commissions earned on the sale of equipment inventory as an expense when incurred;

because the amortization period of this cost, if it was otherwise capitalized, would be less than one year.

These costs are recorded in operating expenses in our consolidated statements of operations.

Parts Revenue.

We sell a broad range of maintenance and replacement parts for both equipment that we sell and other types of equipment.

The Company satisfies its performance obligation and recognizes revenue at a point in time, upon delivery

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

of the product to the customer.

The Company satisfies its performance obligation and recognizes revenue at a point in time, upon delivery of the product to the customer.

Once a product is delivered, the Company has a present right to payment, the customer has physical possession of the asset, can direct the use of the asset, and has the significant risks and rewards of ownership of the asset.

3 unchanged sentences

Historically, parts returns have not been material.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Parts revenue also includes the retail value of parts inventories consumed during the course of customer repair and maintenance services and services provided under manufacturer warranties.

10 unchanged sentences

Balances not paid at the time of invoicing are typically due in full within 30 days.

Other Revenue.

Other revenues primarily consist of fees charged in connection with short-haul equipment delivery and pick-up services, in which revenue is recognized at a point in time when the service is completed, and Global Positioning System ("GPS") signal subscriptions, in which revenue is recognized on a straight-line basis over the subscription period.

Rental Revenue.

Rental and Other Revenue.

We rent equipment to our customers on a short-term basis for periods ranging from a few days to a few months.

1 unchanged sentence

Revenue from rental equipment delivery and pick-up services is recognized when the service is performed.

Manufacturer Incentives and Discounts

9 unchanged sentences

These receivables do not generally have established payment terms but are collected in relatively short time periods.

Unbilled receivables represent unbilled labor hours incurred and parts inventories consumed during the performance of service arrangements for our customers at their retail rates.

Unbilled receivables primarily represent unbilled labor hours incurred and parts inventories consumed during the performance of service arrangements for our customers at their retail rates.

The carrying amount of trade receivables is reduced by a valuation allowance that reflects management's best estimate of the amounts that will not be collected.

3 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.

All new and used equipment inventories, including that which has been rented, are subject to periodic lower of cost or net realizable value evaluation that considers various factors including aging of equipment and market conditions.

All new and used equipment inventories, including that which has been rented, are subject to periodic lower of cost or net realizable value evaluations that consider various factors including aging and condition of the equipment and market conditions.

Equipment inventory values are adjusted whenever the carrying amount exceeds the net realizable value.

Parts inventories are

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

valued at the lower of average cost or net realizable value.

Parts inventories are valued at the lower of average cost or net realizable value.

The Company estimates its lower of cost or net realizable value adjustments on its parts inventories based on various factors including aging and sales of each type of parts inventory.

Work in process represents costs incurred in the reconditioning and preparation for sale of our equipment inventories.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Property and Equipment

1 unchanged sentence

Depreciation and amortization are computed on a straight-line basis over the estimated useful life of each asset, as summarized below:

Buildings and leasehold improvements

Lesser of 10 - 40 years or lease term

Machinery and equipment

Furniture and fixtures

Buildings and leasehold improvements Lesser of 10 - 40 years or lease term

Machinery and equipment 3 - 10 years

Furniture and fixtures 3 - 10 years

Vehicles 5 - 10 years

Rental fleet 3 - 10 years

Depreciation for income tax reporting purposes is computed using accelerated methods.

4 unchanged sentences

A component of an operating segment is a reporting unit if the component constitutes a business for which discrete financial information is available and segment management regularly reviews the operating results of that component.

After implementing new authoritative guidance regarding goodwill impairment on February 1, 2018, the goodwill impairment analysis is a single-step quantitative assessment that identifies both the existence of impairment and the amount of impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit.

The Company performs its annual goodwill impairment test as of December 31st of each year and has identified two reporting units that carry a goodwill balance.

The goodwill impairment analysis is a single-step quantitative assessment that identifies both the existence of impairment and the amount of impairment loss by comparing the estimated fair value of a reporting unit to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss, limited to the total amount of goodwill allocated to that reporting unit.

The Company performs its annual goodwill impairment test as of December 31st of each year and has identified one reporting unit that carries a goodwill balance.

Intangible Assets

Intangible assets with a finite life consist of customer relationships and covenants not to compete, and are carried at cost less accumulated amortization.

The Company amortizes the cost of identified intangible assets on a straight-line basis over the expected period of benefit, which is generally three years for customer relationships and the contractual term for covenants not to compete, which range from five to ten years.

The Company amortizes the cost of identified intangible assets on a straight-line basis over the expected period of benefit, which is generally five years for customer relationships and the contractual term for covenants not to compete, which range from 3 to 5 years.

Intangible assets with an indefinite life consist of distribution rights with manufacturers.

3 unchanged sentences

The Company performs its annual impairment test as of December 31st of each year.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

See Note 7 for details and results of the Company's impairment testing.

Impairment of Long-Lived Assets

The Company's long-lived assets consist of its intangible assets and property and equipment.

The Company's long-lived assets consist of its property and equipment.

These assets are reviewed for potential impairment when events or circumstances indicate that the carrying value may not be recoverable.

1 unchanged sentence

If the estimated undiscounted cash flows exceed the carrying value, the carrying value is considered recoverable and no impairment recognition is required.

However, if the sum of the undiscounted cash flows is less than the carrying value of the asset, the second step of the impairment analysis must be performed to measure the amount of impairment, if any.

The second step of the impairment analysis compares the estimated fair value of the long-lived asset to its carrying value and any amount by which the carrying value exceeds the fair value is recognized as an impairment charge.

However, if the sum of the undiscounted cash flows is less than the carrying value of the asset, the estimated fair value of the long-lived asset is compared to its carrying value and any amount by which the carrying value exceeds the fair value is recognized as an impairment charge.

When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

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.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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 the year ended January 31, 2021, the Company determined that certain events or circumstances, including a current period operating loss combined with historical losses and anticipated future operating losses, within certain of its stores was an indication that the long-lived assets of these stores may not be recoverable.

The aggregate carrying value of such assets totaled $ 6.4 million.

In light of these circumstances, the Company performed step one of the long-lived asset impairment analysis for these assets and concluded that the carrying value was not recoverable.

Accordingly, the Company performed step two of the impairment analysis and estimated the fair value of the assets using an income approach.

In light of these circumstances, the Company performed a long-lived asset impairment analysis for these assets and concluded that the carrying value was not recoverable.

Accordingly, the Company estimated the fair value of the assets using an income approach.

The Company recognized total impairment charges of $ 0.9 million, of which $ 0.3 million related to the Agriculture segment and $ 0.6 million related to the Construction segment.

All impairment charges recognized are included in the Impairment of Long-Lived Assets amount in the consolidated statements of operations.

All impairment charges recognized are included in the Impairment of Intangible and Long-Lived Assets line item in the consolidated statements of operations.

We performed similar impairment analyses at the end of fiscal 2020 and 2019.

The Company recognized impairment charges totaling $2.2 million on long-lived assets during the year ended January 31, 2019 , of which $0.9 million related to the Agriculture segment, $1.1 million related to the Construction segment, and $ 0.2 million related to the International segment.

The Company recognized impairment charges totaling $ 3.1 million on long-lived assets during the year ended January 31, 2020, of which $ 2.3 million related to the Agriculture segment and $ 0.8 million related to the Construction segment.

The Company recognized impairment charges totaling $ 2.2 million on long-lived assets during the year ended January 31, 2019, of which $ 0.9 million related to the Agriculture segment, $ 1.1 million related to the Construction segment, and $0.2 million related to the International segment.

Construction of Leased Assets and Sale-Leaseback Accounting

5 unchanged sentences

Certain provisions in a number of our lease agreements, primarily provisions regarding repurchase options, are deemed to be continuing involvement in the sold asset which precludes sale recognition.

In such cases, the asset remains on the consolidated balance sheet under property and equipment and the proceeds received in the sale-leaseback transaction are recognized as a financing obligation under long-term debt in the consolidated balance sheet.

In such cases, the asset remains on the consolidated balance sheet under property and equipment and the proceeds received in the sale-leaseback transaction are recognized as a financing obligation within long-term debt in the consolidated balance sheet.

Both the asset and the financing obligation are amortized over the lease term.

In instances in which the Company has no continuing involvement in the sold asset, the criteria for sale recognition are met and the asset and any related financing obligation are derecognized from the consolidated balance sheet, and the lease is analyzed for proper accounting treatment as either an operating or finance lease.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Exit and Disposal Costs

Costs related to exit or disposal activities, including store closures, for the Company primarily include lease termination costs, employee termination benefits and other costs associated with moving assets and vacating the stores.

The Company records a liability at the net present value of the remaining lease obligations, net of estimated sublease income, as of the date the Company ceases using the property, including removal of any Company assets.

Any subsequent adjustments to that liability as a result of changes in estimates are recorded in the period incurred.

The Company records a liability for employee termination costs on the date when management, with appropriate approval, has a formal plan, the plan identifies the number of employees by function with the expected date of termination, benefits for the employees have been identified, the plan is unlikely to be changed and the termination benefits have been communicated to the employees.

Other related costs are expensed as incurred.

Derivative Instruments

In the normal course of business, the Company is subject to risk from adverse fluctuations in foreign currency exchange rates and benchmark interest rates.

The Company may manage its market risk exposures through a program that includes the use of derivative instruments, primarily foreign exchange forward contracts and interest rate derivatives.

In the normal course of business, the Company is subject to risk from adverse fluctuations in foreign currency exchange rates.

The Company may manage its market risk exposures through a program that includes the use of derivative instruments, primarily foreign exchange forward contracts.

The Company's objective in managing its exposure to market risk is to minimize the impact on earnings, cash flows and the consolidated balance sheet.

3 unchanged sentences

Changes in fair values of instruments designated to reduce or eliminate fluctuations in the fair values of recognized assets and liabilities and unrecognized firm commitments are reported currently in earnings along with the change in the fair value of the hedged items.

Changes in the effective portion of the fair values of derivative instruments used to reduce or eliminate fluctuations in cash flows of forecasted transactions are reported in other comprehensive income (loss), a component of stockholders' equity.

Amounts accumulated in other comprehensive income (loss) are reclassified to earnings when the related hedged items affect earnings or the anticipated transactions are no longer probable.

Changes in the fair value of derivative instruments designated to reduce or eliminate fluctuations in the net investment of a foreign subsidiary are reported in other comprehensive income.

Changes in the fair value of derivative instruments that are not designated as hedging instruments or do not qualify for hedge accounting treatment are reported currently in earnings.

The cash flows related to derivative instruments that are accounted for as cash flow hedges are classified in the same category on the consolidated statements of cash flow as the cash flows from the items being hedged.

For derivative instruments accounted for as hedging instruments, the Company formally designates and documents, at inception, the instrument as a hedge of a specific underlying exposure, the risk management objective and the manner by which the effectiveness of the hedging instrument will be evaluated.

At each reporting period after inception, the Company evaluates the hedging instrument's effectiveness in reducing or eliminating the underlying hedged exposure.

Any hedge ineffectiveness is recognized in earnings immediately.

The Company uses the asset and liability method to account for income taxes.

Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of differences between the carrying amounts of assets and liabilities and their respective tax bases.

Deferred tax assets are reduced by a valuation allowance when it is more likely than not that a portion or all of the deferred tax assets will not be realized.

Deferred tax assets are reduced by a valuation allowance when it is more likely

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

than not that a portion or all of the deferred tax assets will not be realized.

Changes in valuation allowances are included in its provision for income taxes in the period of the change.

6 unchanged sentences

Costs incurred for producing and distributing advertising are expensed as incurred.

Advertising expense amounted to $2.2 million , $2.1 million and $2.2 million for the years ended January 31, 2020 , 2019 and 2018 .

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Advertising expense amounted to $ 2.2 million, $ 2.2 million and $ 2.1 million for the years ended January 31, 2021, 2020 and 2019, respectively.

Stock-Based Compensation

1 unchanged sentence

Comprehensive Income and Foreign Currency Matters

For the Company, comprehensive income (loss) represents net income adjusted for foreign currency translation adjustments and unrealized gains or losses on cash flow hedging derivative instruments.

For the Company, comprehensive income (loss) represents net income adjusted for foreign currency translation adjustments.

For its foreign subsidiaries in which their local currency is their functional currency, assets and liabilities are translated into U.S.

7 unchanged sentences

Foreign currency remeasurement adjustments are included in the statement of operations.

The Company recognized, in interest income and other income (expense) in its consolidated statements of operations, a net foreign currency transaction gain of $0.4 million and $1.2 million for the years ended January 31, 2020 and 2018 , respectively, and a net foreign currency transaction loss of $0.9 million for the year ended January 31, 2019 .

The Company recognized, in interest and other income (expense) in its consolidated statements of operations, a net foreign currency transaction loss of $ 2.8 million and $ 0.9 million for the years ended January 31, 2021 and 2019, respectively, and a net foreign currency transaction gain of $ 0.4 million for the year ended January 31, 2020.

Business Combinations

9 unchanged sentences

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Segment Reporting

2 unchanged sentences

Accounting guidance adopted

In March 2016, the FASB amended authoritative guidance on stock-based compensation through the issuance of ASU 2016-09 which is codified in ASC 718, Compensation - Stock Compensation .

The amended guidance changes the accounting for certain aspects of share-based payments, including the income tax consequences, forfeitures, classification of awards as either equity or liabilities, and classification on the statements of cash flows.

The Company adopted this guidance on February

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Under the new guidance, the Company elected to account for forfeitures of share based instruments as they occur, as compared to the previous guidance under which the Company estimated the number of forfeitures.

The Company applied the accounting change on a modified retrospective basis as a cumulative-effect adjustment to retained earnings as of February 1, 2017.

The following table summarizes the impact to the Company’s consolidated balance sheet:

As of February 1, 2017

Balance Sheet Classification

Additional paid-in capital

Deferred income tax liability

Retained earnings

(in thousands)

Increase (Decrease)

Impact of cumulative-effect adjustment from adoption of ASU 2016-09

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company has included the additional disclosures required under ASC 842 in Note 16.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

As Previously

Adoption Impact

(in thousands)

Increase/(Decrease)

Operating lease assets

Liabilities and Stockholders' Equity

Current maturities of long-term debt

Current operating lease liabilities

Accrued expenses and other

Long-term debt, less current maturities

Operating lease liabilities

Deferred income taxes

Other long-term liabilities

Retained earnings

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

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

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

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

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

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

Accounting guidance not yet adopted

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

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

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

We adopted this standard on February 1, 2020.

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

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

In June 2016, the Financial Accounting Standards Board ("FASB") issued a new standard, codified in Accounting Standard Codification ("ASC") 326, Financial Instruments - Credit Losses , that modifies how entities measure credit losses on most financial instruments.

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

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

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

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

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

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

See Note 4 for further discussion of our accounts receivables.

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

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

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

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

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

While we are currently finalizing our evaluation of the impact of adopting this guidance, we anticipate that it will prospectively impact our consolidated financial statements as we expect to incur approximately $2.8 million of costs in fiscal 2021 related to our ERP conversion which will be capitalized, but would have been expensed as incurred under previous accounting guidance.

The Company adopted this standard on February 1, 2020, using the prospective transition approach.

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

Accounting guidance not yet adopted

In March 2020, the FASB issued Accounting Standard Update ("ASU") No.

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

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

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

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

The Company is currently evaluating its contracts that reference LIBOR and is working with our creditors on updating credit agreements as necessary to include language regarding the successor or alternate rate to LIBOR.

The Company does not expect the guidance to have a material impact on its results of operations, financial position, cash flows or disclosures.

NOTE 2 - EARNINGS PER SHARE

Earnings (Loss) Per Share ("EPS")

Earnings Per Share ("EPS")

The Company uses the two-class method to calculate basic and diluted EPS.

1 unchanged sentence

Under the two-class method, earnings of the Company are allocated between common stockholders and these participating securities based on the weighted-average number of shares of common stock and participating securities outstanding during the relevant period.

Basic EPS is computed by dividing net income (loss) attributable to Titan Machinery Inc.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Basic EPS is computed by dividing net income attributable to Titan Machinery Inc.

common stockholders by the weighted-average number of shares of common stock outstanding during the relevant period.

Diluted EPS is computed by dividing net income (loss) attributable to Titan Machinery Inc.

Diluted EPS is computed by dividing net income attributable to Titan Machinery Inc.

common stockholders by the weighted-average number of shares of common stock outstanding after adjusting for potential dilution related to the conversion of all dilutive securities into common stock.

3 unchanged sentences

Year Ended January 31,

2021 2020 2019

(in thousands, except per share data)

Net income (loss)

Net income $ 19,356 $ 13,953 $ 12,182

Allocation to participating securities ( 325 ) ( 221 ) ( 202 )

Net income (loss) attributable to Titan Machinery Inc.

Net income attributable to Titan Machinery Inc.

common stockholders $ 19,031 $ 13,732 $ 11,980

2 unchanged sentences

Diluted weighted-average common shares outstanding 22,104 21,953 21,816

Earnings (Loss) per Share:

Earnings per Share:

Basic $ 0.86 $ 0.63 $ 0.55

Diluted $ 0.86 $ 0.63 $ 0.55

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

Stock options and restricted stock units

Shares underlying senior convertible notes (conversion price of $43.17) — — 1,057

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 3 - REVENUE

1 unchanged sentence

Year Ended January 31, 2021

International

Agriculture Construction International Total

(in thousands)

Equipment $ 654,244 $ 193,495 $ 168,332 $ 1,016,071

Parts 151,278 51,186 42,212 244,676

Service 74,963 25,224 7,042 107,229

Other 3,122 2,295 400 5,817

Revenue from contracts with customers 883,607 272,200 217,986 1,373,793

Rental 2,878 33,545 1,006 37,429

Total revenues $ 886,485 $ 305,745 $ 218,992 $ 1,411,222

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year Ended January 31, 2020

International

Agriculture Construction International Total

(in thousands)

Equipment $ 535,792 $ 194,675 $ 186,735 $ 917,202

Parts 141,093 52,160 40,964 234,217

Service 66,158 26,189 6,818 99,165

Other 2,989 2,895 264 6,148

Revenue from contracts with customers 746,032 275,919 234,781 1,256,732

Rental 3,010 44,115 1,314 48,439

Total revenues $ 749,042 $ 320,034 $ 236,095 $ 1,305,171

Year Ended January 31, 2019

Agriculture Construction International Total

(in thousands)

Equipment $ 535,034 $ 185,163 $ 188,981 $ 909,178

Parts 127,741 47,404 35,651 210,796

Service 58,823 23,267 4,750 86,840

Other 2,690 3,896 179 6,765

Revenue from contracts with customers 724,288 259,730 229,561 1,213,579

Rental 2,505 42,259 3,162 47,926

Total revenues $ 726,793 $ 301,989 $ 232,723 $ 1,261,505

Deferred revenue from contracts with customers totaled $ 57.7 million and $ 39.5 million as of January 31, 2021 and January 31, 2020.

1 unchanged sentence

In the fourth quarter of the fiscal year, longer time periods between customer payments and delivery of the equipment occur.

The decrease in deferred revenue from January 31, 2019 to January 31, 2020 was primarily due to lower new equipment sales activity during the fourth quarter of fiscal 2020.

The increase in deferred revenue from January 31, 2020 to January 31, 2021 was primarily due to increased equipment sales activity, including prepayments and trade-in activity on pending equipment sale transactions in the fourth quarter of fiscal 2021.

During the year ended January 31, 2021, the Company recognized substantially all of the revenue that was included in the deferred revenue balance as of January 31, 2020.

The following is a summary of deferred revenue as of January 31, 2021 and January 31, 2020:

January 31, 2021 January 31, 2020

(in thousands)

Deferred revenue from contracts with customers $ 57,731 $ 39,512

Deferred revenue from rental and other contracts 1,687 1,456

$ 59,418 $ 40,968

No material amount of revenue was recognized during the year ended January 31, 2021 from performance obligations satisfied in previous periods.

4 unchanged sentences

NOTE 4 - RECEIVABLES

January 31, 2020

January 31, 2019

The Company provides an allowance for expected credit losses on its nonrental receivables.

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

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

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

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

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

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

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

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

Trade and unbilled receivables from rental contracts are primarily in the United States and are specifically excluded from the accounting guidance in determining an allowance for expected losses.

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

January 31, 2021 January 31, 2020

(in thousands)

1 unchanged sentence

Trade receivables due from customers $ 31,664 $ 36,400

Trade receivables due from finance companies

Unbilled receivables 12,909 13,944

Less allowance for expected credit losses 2,994 2,943

41,579 47,401

Trade receivables due from finance companies 14,133 12,352

Trade and unbilled receivables from rental contracts

1 unchanged sentence

Unbilled receivables 520 861

Less allowance for expected credit losses 1,939 2,180

Other receivables

Due from manufacturers 8,720 5,763

Total receivables

Less allowance for doubtful accounts

Receivables, net of allowance for doubtful accounts

Other 1,767 1,198

Receivables, net of allowance for expected credit losses $ 69,109 $ 72,776

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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

Agriculture Construction International Total

(in thousands)

Balance at February 1, 2020 $ 181 $ 1,016 $ 1,746 $ 2,943

Current expected credit loss provision 115 282 167 564

Write-offs charged against allowance ( 125 ) ( 247 ) ( 344 ) ( 716 )

Credit loss recoveries collected 58 23 6 87

Foreign exchange impact — — 116 116

Balance at January 31, 2021 $ 229 $ 1,074 $ 1,691 $ 2,994

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

Year Ended January 31,

Year Ended January 31, 2019

(in thousands)

2 unchanged sentences

Receivables from rental contracts 142 1,124

$ 498 $ 2,497

NOTE 5 - INVENTORIES

January 31, 2020

January 31, 2019

January 31, 2021 January 31, 2020

(in thousands)

3 unchanged sentences

Work in process 1,424 1,707

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 418,458 $ 597,394

NOTE 6 - PROPERTY AND EQUIPMENT

January 31, 2020

January 31, 2019

January 31, 2021 January 31, 2020

(in thousands)

1 unchanged sentence

Machinery and equipment 23,354 22,682

Vehicles 55,884 51,850

Furniture and fixtures 43,678 41,720

Land, buildings, and leasehold improvements 90,730 70,408

291,176 290,793

Less accumulated depreciation 144,011 145,231

$ 147,165 $ 145,562

Depreciation expense totaled $ 21.9 million, $ 26.5 million and $ 23.6 million for the years ended January 31, 2021, 2020 and 2019, respectively.

The Company had assets related to sale-leaseback financing obligations and capital leases associated with real estate of store locations, which are included in the land, buildings and leasehold improvements balance above.

The Company had assets related to sale-leaseback financing obligations and finance leases associated with real estate of store locations, which are included in the land, buildings and leasehold improvements balance

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Such assets had gross carrying values totaling $ 31.1 million and $ 24.3 million, and accumulated amortization balances totaling $ 8.7 million and $ 6.9 million, as of January 31, 2021 and 2020.

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

The initial anticipated start date for the new ERP application was the first-half of the fiscal year ending January 31, 2021, which has been postponed to the first-half of the fiscal year ending January 31, 2022.

The Company has prospectively adjusted the useful life of its current ERP application such that it will be fully amortized upon its estimated replacement date.

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

For the year ended January 31, 2020, the Company recognized an additional $4.7 million of amortization expense, which decreased operating income accordingly and decreased net income by approximately $3.6 million .

NOTE 7 - INTANGIBLE ASSETS AND GOODWILL

1 unchanged sentence

The following is a summary of definite-lived intangible assets as of January 31, 2021 and 2020:

January 31, 2020

January 31, 2019

(in thousands)

January 31, 2021 January 31, 2020

Cost Accumulated

Amortization Net Cost Accumulated

Amortization Net

(in thousands) (in thousands)

Covenants not to compete $ 150 $ ( 38 ) $ 112 $ 100 $ ( 7 ) $ 93

Customer relationships 360 ( 185 ) 175 345 ( 83 ) 262

$ 510 $ ( 223 ) $ 287 $ 445 $ ( 90 ) $ 355

Intangible asset amortization expense was $ 0.1 million for each of the three years ended January 31, 2021, 2020 and 2019.

The increase in net, definite-lived intangible assets for fiscal 2020, as compared to fiscal 2019, was primarily the result of the Northwood acquisition, offset by impairments.

As of January 31, 2020 , future amortization expense is expected to be as

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Fiscal years ending January 31,

The covenants not to compete and customer relationships assets for the year ended January 31, 2021 have a weighted-average amortization period of 3.2 years and 3.0 years, respectively.

As of January 31, 2021, future amortization expense is expected to be as follows:

Fiscal years ending January 31, Amount

(in thousands)

1 unchanged sentence

The Company's indefinite-lived intangible assets consist of distribution rights assets.

The following is a summary of distribution rights assets by segment as of January 31, 2020 and 2019 :

Changes in the carrying amount of distribution rights during the years ended January 31, 2021 and 2020 are as follows:

Agriculture Construction International Total

(in thousands)

International

The results of the Company's annual distribution rights impairment test for the year ended January 31, 2020 indicated impairment of $0.7 million , which was appropriately recorded in fiscal 2020.

In the prior years ended January 31, 2019 and 2018 , the annual distribution rights impairment tests indicated no impairment.

Balance, January 31, 2019 $ 5,050 $ 237 $ 1,805 $ 7,092

Arising from business combinations 1,527 — 96 1,623

Foreign currency translation — — ( 31 ) ( 31 )

Impairment 507 165 — 672

Balance, January 31, 2020 6,070 72 1,870 8,012

Arising from business combinations 195 — — 195

Foreign currency translation — — 149 149

Impairment — — 858 858

Balance, January 31, 2021 $ 6,265 $ 72 $ 1,161 $ 7,498

The Company performs at least an annual impairment testing of its indefinite-lived distribution rights intangible assets and, due to ongoing losses and the impact of COVID-19, an interim test was completed in the third quarter of fiscal 2021 for our Germany assets.

Under the impairment test, the fair value of distribution rights intangible assets is estimated based on a multi-period excess earnings model, an income approach.

This model allocates future estimated earnings of the store/complex amongst working capital, fixed assets and other intangible assets of the store/complex and any remaining earnings (the "excess earnings") are allocated to the distribution rights intangible assets.

The earnings allocated to the distribution rights are then

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

discounted to arrive at the present value of the future estimated excess earnings, which represents the estimated fair value of the distribution rights intangible asset.

The discount rate applied reflects the Company's estimate of the weighted-average cost of capital of comparable companies plus an additional risk premium to reflect the additional risk inherent in the distribution right asset.

The results of the Company's impairment testing for the Germany distribution rights intangible assets for the quarter ended October 31, 2020, indicated that the estimated fair value of the tested distribution rights was below the carrying value of such assets, thus requiring an impairment to be recognized.

Impairment charges of $ 0.9 million were recognized and are included in the Impairment of Intangibles and Long-lived Assets amount in the consolidated statements of operations.

The impairment charges arose as the result of lowered expectations of the future financial performance of this reporting unit.

The Company's assumptions about future financial performance were impacted by the current year operating performance of this reporting unit and by the anticipated impact that challenging industry conditions, including COVID-19, may have on the future financial performance of this reporting unit.

The results of the Company's distribution rights impairment tests for the year ended January 31, 2021 indicated no additional impairment.

The results from the impairment test for the prior fiscal year ended January 31, 2020 indicated impairment of $ 0.7 million and no impairment was indicated for the fiscal year ended January 31, 2019.

Changes in the carrying amount of goodwill during the years ended January 31, 2021 and 2020 are as follows:

International

Agriculture International Total

(in thousands)

5 unchanged sentences

Foreign currency translation — 75 75

Impairment — 1,453 1,453

Balance, January 31, 2021 $ 1,433 $ — $ 1,433

The Company performs at least an annual impairment testing of goodwill and, due to ongoing losses and the impact of COVID-19, an interim impairment test was performed in the third quarter of fiscal 2021 for our Germany reporting unit.

Under the impairment test, the fair value of the reporting unit is estimated using an income approach in which a discounted cash flow analysis is utilized, which includes a five-year forecast of future operating performance for the reporting unit and a terminal value that estimates sustained long-term growth.

The discount rate applied to the estimated future cash flows reflects an estimate of the weighted-average cost of capital of comparable companies.

The quantitative goodwill impairment analysis for the Germany reporting unit indicated that the estimated fair value of the reporting unit was less than the carrying value.

T he implied fair value of the goodwill associated with the reporting unit approximated zero, thus requiring a full impairment charge of the goodwill carrying value of the reporting unit.

A s such, a goodwill impairment charge of $1.5 million was recognized, which is included in Impairment of Goodwill in the consolidated statements of operations.

The impairment charge arose as the result of lowered expectations of the future financial performance of this reporting unit.

The results of the Company's annual goodwill impairment tests for the fiscal years ended January 31, 2021, 2020 and 2019 indicated that no goodwill impairment existed as of the test date.

1 unchanged sentence

Floorplan payable balances reflect amounts owed to manufacturers for equipment inventory purchases and amounts outstanding under our various floorplan line of credit facilities.

In the consolidated statements of cash flows, the Company

In the consolidated statements of cash flows, the Company reports cash flows associated with manufacturer floorplan financing as operating cash flows and cash flows associated with non-manufacturer floorplan financing as financing cash flows.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

reports cash flows associated with manufacturer floorplan financing as operating cash flows and cash flows associated with non-manufacturer floorplan financing as financing cash flows.

As of January 31, 2021, the Company had floorplan lines of credit totaling $ 773.0 million, which is primarily comprised of three significant floorplan lines of credit:

(i) a $450.0 million credit facility with CNH Industrial, (ii) a $140.0 million line of credit with a group of banks led by Wells Fargo Bank, National Association (“Wells Fargo”), and (iii) a $60.0 million credit facility with DLL Finance LLC (“DLL Finance”).

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

CNH Industrial Floorplan Payable Line of Credit

5 unchanged sentences

Repayment terms vary, but generally payments are made from sales proceeds or rental revenue generated from the related inventories or rental fleet assets.

Balances under the outstanding with CNH Industrial credit facility are secured by the inventory or rental fleet purchased with the floorplan proceeds.

Balances under the outstanding CNH Industrial credit facility are secured by the inventory or rental fleet purchased with the floorplan proceeds.

The European financing facility offers financing for new equipment inventories.

2 unchanged sentences

Generally, no interest is charged on outstanding balances.

However, in certain international markets the Company receives extended terms from CNH Industrial similar to what we receive domestically with reduced interest and interest free periods.

Amounts outstanding are secured by the inventory purchased with the floorplan proceeds.

8 unchanged sentences

As of January 31, 2021, the Company was in compliance with the adjusted debt to tangible net worth and fixed charge coverage ratio financial covenants under this credit facility.

During the year ended January 31, 2020 , the CNH Industrial credit facility was amended to increase the available borrowings under the credit facility, from a combined capacity of $400.0 million to the current combined capacity of $450.0 million .

Wells Fargo Credit Agreement - Floorplan Payable and Working Capital Lines of Credit

As of January 31, 2020 , the Company had a second amended and restated credit agreement with Wells Fargo (the "Wells Fargo Credit Agreement"), which provides for a $140.0 million wholesale floorplan line of credit (the "Floorplan Payable Line") and a $60.0 million working capital line of credit (the "Working Capital Line").

The amount available for borrowing under the Floorplan Payable Line is reduced by amounts outstanding thereunder, borrowing base calculations and outstanding standby letters of credit.

The Wells Fargo Credit Agreement has a variable interest rate on outstanding balances and has a 0.25% to 0.375% non-usage fee on the average monthly unused amount and requires monthly payments of accrued interest.

Bank Syndicate Credit Agreement - Floorplan Payable and Working Capital Lines of Credit

On April 3, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the "Bank Syndicate Agreement") with a group of banks, that amended and restated the Company's prior $200 million Wells Fargo Credit Agreement, dated October 28, 2015.

The Bank Syndicate Agreement provides for a secured credit facility in an amount up to $250.0 million, consisting of a $ 185.0 million floorplan facility (the "Floorplan Loan") and a $ 65.0 million operating line (the "Revolver Loan").

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

The Bank Syndicate Agreement includes a variable interest rate on outstanding balances, charges a 0.25 % non-usage fee on the average monthly unused amount, and requires monthly payments of accrued interest.

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

The LIBOR Rate is for the duration of one-month, two-month, or three-month LIBOR rate at the time of the loan, as chosen by the Company.

The Base Rate is the greatest of (a) the Federal Funds Rate plus 0.5% , (b) the one-month LIBOR Rate plus 1% , and (c) the prime rate of interest announced, from time to time, within Wells Fargo.

The applicable margin rate is determined based on excess availability under the Wells Fargo Credit Agreement and ranges from 0.75% to 1.5% for Base Rate Loans and 1.75% to 2.50% for LIBOR Rate Loans.

The Wells Fargo Credit Agreement is secured by substantially all our assets and requires the Company to maintain a fixed charge coverage ratio of at least 1.10 :1.00 if adjusted excess availability plus eligible cash collateral is less than 15% of the total amount of the credit facility.

Based on our adjusted excess availability and cash collateral, we were not subject to the fixed charge coverage ratio as of January 31, 2020 .

The Wells Fargo Credit Agreement also includes various non-financial

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

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

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

The applicable margin rate is determined based on excess availability under the Bank Syndicate Agreement and ranges from 0.5% to 1.0% for Base Rate Loans and 1.50 % to 2.00 % for LIBOR Rate Loans.

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

Based on our excess availability and cash collateral, we were not subject to the fixed charge coverage ratio as of January 31, 2021.

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

As of January 31, 2021, under these provisions of the Bank Syndicate Agreement, the Company had an unrestricted dividend availability of approximately $ 47.4 million.

The Bank Syndicate Agreement matures on April 3, 2025.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

covenants, including, under certain conditions, restricting the Company’s ability to make certain cash payments, including for cash dividends and stock repurchases, restricting the Company’s ability to issue equity instruments, restricting the Company’s ability to complete acquisitions or divestitures, and limiting the Company's ability to incur new indebtedness.

The provisions in the Wells Fargo Credit Agreement restricting the Company from making certain cash payments, including for cash dividends and stock repurchases, provide that no such payments may be made unless, (i) as of the date of such payment there is no default or event of default occurring and continuing, (ii) the amount remaining available to be borrowed by the Company under the Wells Fargo Credit Agreement is greater than twenty percent of the total borrowing capacity under the Wells Fargo Credit Agreement and (iii) the Company's fixed charge coverage ratio for the 12 month period most recently ended, on a pro-forma basis assuming that such proposed cash payment has been made, is at least 1.10 to 1.00.

As of January 31, 2020 , under these provisions of the Wells Fargo Credit Agreement, the Company had an unrestricted dividend availability of approximately $31.2 million .

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

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

The Floorplan Payable Line is used to finance equipment inventory purchases.

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

The Working Capital Line is used to finance rental fleet equipment and for general working capital requirements of the Company.

At the end of fiscal 2020, the amount outstanding on the Working Capital Line is recorded as current maturities of long-term debt and within current liabilities on the consolidated balance sheets, because the Wells Fargo Credit Agreement is due to mature on October 28, 2020.

The balances outstanding on the Working Capital Line as of January 31, 2020 and 2019 are disclosed in Note 12.

The Floorplan Loan is used to finance equipment inventory purchases.

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

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

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

Due to cash generation throughout fiscal 2021, the Company was able to repay the amount borrowed in fiscal 2021.

This balance can be drawn on in the future when the need arises.

The balances outstanding on the Revolver Loan as of January 31, 2021 and 2020 are disclosed in Note 11.

DLL Finance Floorplan Payable Line of Credit

9 unchanged sentences

As of January 31, 2021, the Company was in compliance with the net leverage ratio and fixed charge coverage ratio financial covenants under this credit facility.

During the year ended January 31, 2020 , the DLL Finance credit facility was amended to, among other things, increase the available borrowing capacity from $45.0 million to the current level of $60.0 million .

Other Lines of Credit

2 unchanged sentences

Outstanding balances are generally secured by inventory and other current assets.

In most cases these lines of credit have a one-year

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

maturity, with an annual review process to extend the maturity date for an additional one-year period.

In most cases these lines of credit have a one-year maturity, with an annual review process to extend the maturity date for an additional one-year period.

As of January 31, 2021, the Company had a compensating balance arrangement under one of its European floorplan credit facilities which requires a minimum cash deposit to be maintained with the lender in the amount of $ 5.0 million for the term of the credit facility.

1 unchanged sentence

As of January 31, 2021 and 2020, the Company’s outstanding balance of floorplan payables and lines of credit consisted of the following:

January 31, 2020

January 31, 2019

January 31, 2021 January 31, 2020

(in thousands)

CNH Industrial $ 86,792 $ 187,690

Wells Fargo Floorplan Payable Line

Bank Syndicate Agreement Floorplan Loan — 82,700

DLL Finance 10,667 30,657

Other outstanding balances with manufacturers and non-manufacturers 64,376 70,725

As of January 31, 2020 , the interest-bearing U.S floorplan payables carried various interest rates ranging from 4.05% to 4.81% , compared to a range of 4.77% and 6.30% as of January 31, 2019 .

$ 161,835 $ 371,772

As of January 31, 2021, the U.S.

floorplan payables were generally all non-interest bearing, compared to an interest rate range of 4.05 % and 4.81 % as of January 31, 2020.

As of January 31, 2021, foreign floorplan payables carried various interest rates primarily ranging from 1.40 % to 4.82 %, compared to a range of 0.86 % to 7.66 % as of January 31, 2020.

As of January 31, 2020 and 2019 , $205.2 million and $151.7 million of outstanding floorplan payables were non-interest bearing.

NOTE 9 - DEFERRED REVENUE

January 31, 2020

January 31, 2019

(in thousands)

Deferred revenue from contracts with customers

Deferred revenue from rental and other contracts

As of January 31, 2021 and 2020, $ 98.8 million and $ 205.2 million, respectively, of outstanding floorplan payables were non-interest bearing.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 9 - ACCRUED EXPENSES & OTHER

January 31, 2020

January 31, 2019

January 31, 2021 January 31, 2020

(in thousands)

Compensation $ 21,635 $ 19,732

Sales, payroll, real estate and value added taxes 8,287 5,947

Insurance 2,839 3,336

Lease residual value guarantees 868 2,054

Finance lease liabilities 9,823 1,708

Income taxes payable

Interest 257 608

Other 5,082 4,975

$ 48,791 $ 38,360

NOTE 10 - SENIOR CONVERTIBLE NOTES

On April 24, 2012, the Company issued through a private offering $ 150 million of 3.75% Senior Convertible Notes (the "Senior Convertible Notes").

The Senior Convertible Notes bore interest at a rate of 3.75% per year, payable semi-annually

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

in arrears on May 1 and November 1 of each year.

The Senior Convertible Notes matured on May 1, 2019, and the Company repaid the outstanding principal balance of $45.6 million on the maturity date.

In accounting for the Senior Convertible Notes, the Company segregated the liability component of the instrument from the equity component.

The liability component was measured by estimating the fair value of a non-convertible debt instrument that was similar in its terms to the Senior Convertible Notes.

The excess of the aggregate face value of the Senior Convertible Notes over the estimated fair value of the liability component was recognized as a debt discount that was amortized over the expected life of the Senior Convertible Notes using the effective interest rate method.

Amortization of the debt discount was recognized as non-cash interest expense.

The equity component of the Senior Convertible Notes was measured as the residual difference between the aggregate face value of the Senior Convertible Notes and the estimated aggregate fair value of the liability component.

Transaction costs incurred in connection with the issuance of the Senior Convertible Notes were allocated to the liability and equity components based on their relative values.

Transaction costs allocated to the liability component were amortized using the effective interest rate method and recognized as non-cash interest expense.

Transaction costs allocated to the equity component reduced the value of the equity component recognized in stockholders' equity.

As of January 31, 2019 , the Senior Convertible Notes consisted of the following:

January 31, 2019

Principal value

Unamortized debt discount

Unamortized debt issuance costs

Carrying value of senior convertible notes

Carrying value of equity component, net of deferred taxes

Conversion rate (shares of common stock per $1,000 principal amount of notes)

Conversion price (per share of common stock)

During fiscal 2020, the Company repaid the remaining $45.6 million face value ( $45.6 million carrying value) of Senior Convertible Notes with $45.6 million in cash on the maturity date of May 1, 2019.

During fiscal 2019, the Company repurchased an aggregate of $20.0 million face value ( $19.4 million carrying value) of its Senior Convertible Notes with $20.0 million in cash.

All consideration was attributed to the extinguishment of the liability and the Company recognized a pre-tax loss of $0.6 million on the repurchase.

During fiscal 2018, the Company repurchased an aggregate of $30.1 million face value ( $28.1 million carrying value) of its Senior Convertible Notes with $29.1 million in cash.

Of the $29.1 million in total cash consideration, $28.1 million was attributed to the extinguishment of the liability and $1.0 million was attributed to the reacquisition of a portion of the equity component of the instrument.

The Company recognized an immaterial net pre-tax gain on the extinguishment of the liability and recognized a $0.6 million after-tax reduction in additional paid-in capital from the reacquisition of the equity component.

Gains and losses on repurchases are included in other interest expense in the Consolidated Statements of Operations.

The Senior Convertible Notes bore interest at a rate of 3.75 % per year, payable semi-annually in arrears on May 1 and November 1 of each year.

The Senior Convertible Notes matured on May 1, 2019, and the Company repaid the outstanding principal balance of $ 45.6 million on the maturity date, and as such there was no interest expense for the fiscal year ended January 31, 2021.

The Company recognized interest expense associated with its Senior Convertible Notes as follows:

6 unchanged sentences

Amortization of transaction costs 45 216

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The effective interest rate of the liability component was equal to 7.3% for each of the statements of operations periods presented.

$ 816 $ 3,856

The effective interest rate of the liability component was equal to 7.3% for each of the periods presented.

NOTE 11 - LONG-TERM DEBT

The following is a summary of long-term debt as of January 31, 2020 and 2019 :

January 31, 2020

January 31, 2019

(in thousands)

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

Wells Fargo Credit Agreement - Working Capital Line, interest accrues at a variable rate, ranging from 3.9% to 4.7%, on outstanding balances, requires monthly payments of accrued interest, matures on October 28, 2020

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

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

Real estate mortgage bearing interest at 4.40%, payment in monthly installments of $0.01 million with a final payment at maturity of $1.0 million, maturing on January 1, 2027, secured by real estate assets

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

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

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

Less current maturities

Long-term debt maturities are as follows:

Years Ending January 31,

The following is a summary of long-term debt:

Year Ended January 31,

Description Maturity Dates Interest Rates 2021 2020

(in thousands)

NOTE 13 - RESTRUCTURING COSTS

In February 2017, to better align the Company's cost structure and business in certain markets, the Company announced a dealership restructuring plan (the "Fiscal 2018 Restructuring Plan"), which resulted in the closure of one Construction location and 14 Agriculture locations.

The Fiscal 2018 Restructuring Plan resulted in a reduction of expenses while allowing the Company to continue to provide a leading level of service to its customers.

In total, over the term of the Fiscal 2018 Restructuring Plan, the Company recognized $13.9 million of restructuring charges consisting primarily of lease termination costs, termination benefits and fixed asset impairment charges.

Such costs are included in the restructuring costs line in the consolidated statements of operations.

As of January 31, 2018, the Company had closed and fully exited all of these locations and had completed its Fiscal 2018 Restructuring Plan.

For fiscal year ended January 31, 2020, there were no costs

Mortgage loans, secured Various through May 2039 2.1% to 5.1% $ 22,916 $ 15,252

Sale-leaseback financing obligations Various through December 2030 3.4% to 10.3% 16,505 17,781

Bank Syndicate Agreement - Revolver Loan April 2025 2.3% — 10,000

Vehicle loans, secured Various through December 2026 1.7% to 3.9% 9,999 7,468

Other January 2021 2.6% 77 1,067

Total debt 49,497 51,568

current maturities 4,591 13,779

Long-term debt, net $ 44,906 $ 37,789

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

incurred related to the Fiscal 2018 Restructuring Plan.

Restructuring costs (credits) associated with the Company's Fiscal 2018 Restructuring Plan are summarized in the following table:

Year Ended January 31,

Cumulative Amount

(in thousands)

Lease accrual and termination costs

Termination benefits

Impairment of fixed assets, net of gains on asset disposition

Asset relocation and other costs

Restructuring charges (credits) are summarized by segment in the following table:

Year Ended January 31,

(in thousands)

International

Shared Resources

A reconciliation of the beginning and ending exit cost liability balance associated with our Fiscal 2018 Restructuring Plan is as follows:

Lease Accrual & Termination Costs

Termination Benefits

Long-term debt maturities are as follows:

Years Ending January 31, Amounts

(in thousands)

Balance, January 31, 2018

Exit costs incurred and charged to expense

Exit costs paid

Balance, January 31, 2019

Reclassified as a reduction of right-of-use lease assets upon adopting ASC 842, Leases

Balance, January 31, 2020

As of January 31, 2019 , $2.2 million of the exit cost liability was included in other long-term liabilities and $0.2 million was included in accrued expenses and other in the consolidated balance sheets.

During the year ended January 31, 2019 , the Company paid $3.0 million to terminate the real estate lease agreement for one of the Company's previously closed stores.

The termination payment approximated the recorded lease accrual liability and therefore the impact to the consolidated statement of operations was not material.

Thereafter 22,722

NOTE 12 - DERIVATIVE INSTRUMENTS

The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates and benchmark interest rates to which the Company is exposed in the normal course of its operations.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Cash Flow Hedge

The Company previously was party to an interest rate swap instrument which had a notional amount of $100.0 million , an effective date of September 30, 2014 and a maturity date of September 30, 2018.

The objective of the instrument was to protect the Company from changes in benchmark interest rates to which the Company is exposed through certain of its variable interest rate credit facilities.

The instrument provided for a fixed interest rate of 1.901% through the instrument's maturity date.

The interest rate swap instrument was designated as a cash flow hedging instrument and accordingly changes in the effective portion of the fair value of the instrument had been recorded in other comprehensive income and only reclassified into earnings in the period(s) in which the related hedged item affects earnings or the anticipated underlying hedged transactions were no longer probable of occurring.

In April 2017, the Company elected to terminate its outstanding interest rate swap instrument.

The Company paid $0.9 million to terminate the instrument.

This cash payment is presented as a financing cash outflow in the consolidated statements of cash flows.

The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates to which the Company is exposed in the normal course of its operations.

Derivative Instruments Not Designated as Hedging Instruments

4 unchanged sentences

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

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

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

As of January 31, 2020 , the Company had no derivative instruments and as of January 31, 2019 the fair value of the Company's outstanding derivative instruments was not material.

The notional value of outstanding foreign currency contracts as of January 31, 2021 was $ 8.0 million.

As of January 31, 2021, the fair value of the Company's outstanding derivative instruments was not material and as of January 31, 2020 the Company had no derivative instruments.

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

The following table sets forth the gains and losses recognized in other comprehensive income (loss) ("OCI") and income (loss) related to the Company’s derivative instruments for the years ended January 31, 2020 , 2019 and 2018 .

All amounts included in income (loss) in the table below from derivatives designated as hedging instruments relate to reclassifications from accumulated other comprehensive income.

The following table sets forth the gains recognized in income related to the Company’s derivative instruments for the years ended January 31, 2021, 2020 and 2019.

Year Ended January 31,

(in thousands)

2021 2020 2019

(in thousands)

Derivatives Designated as Hedging Instruments:

Cash flow hedges:

Interest rate swap (a)

Derivatives Not Designated as Hedging Instruments:

Foreign currency contracts (b)

Foreign currency contracts (a) $ 934 $ 365 $ 1,696

Total Derivatives $ 934 $ 365 $ 1,696

(a) No material hedge ineffectiveness has been recognized.

The amounts show in income (loss) above are reclassification amounts from accumulated other comprehensive income (loss) and are recorded in Floorplan interest expense in the consolidated statements of operations

(b) Amounts are included in Interest income and other income (expense) in the consolidated statements of operations

During the year ended January 31, 2018 , the Company reclassified $0.6 million of pre-tax accumulated losses on its interest rate swap instrument from accumulated other comprehensive income (loss) to income as the original forecasted interest payments, which served as the hedged item underlying the interest rate swap instrument, were no longer probable of occurring during the time period over which such transactions were previously anticipated to occur.

As of January 31, 2018, the Company had no remaining pre-tax net unrealized losses associated with its interest rate swap cash flow hedging instrument.

(a) Amounts are included in Interest and other income (expense) in the consolidated statements of operations

TITAN MACHINERY INC.

10 unchanged sentences

No liabilities associated with these guarantees are included in the consolidated balance sheets as of January 31, 2021 as the Company deems the probability of being required to make such payments to be remote.

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

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

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

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

7 unchanged sentences

Other Matters

The Company is the lessee under many real estate leases, in which it agrees to indemnify the lessor from certain liabilities arising as a result of the use of the leased premises, including environmental liabilities, or a breach of the lease by the lessee.

Additionally, from time to time, the Company enters into agreements with third parties in connection with the sale of assets in which it agrees to indemnify the purchaser from certain liabilities or costs arising in connection with the assets.

12 unchanged sentences

Most real estate leases grant the Company a right of first refusal or other options to purchase the real estate, generally at fair market value, either during the lease term or at its conclusion.

In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use asset and lease liability.

In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use lease asset and lease liability.

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

4 unchanged sentences

The components of lease expense were as follows:

Year Ended January 31,

Classification 2021 2020

Twelve Months Ended January 31, 2020

(in thousands)

Finance lease cost:

Amortization of leased assets

Operating expenses

Interest on lease liabilities

Other interest expense

Operating lease cost

Operating expenses & rental and other cost of revenue

Short-term lease cost

Operating expenses

Variable lease cost

Operating expenses

Sublease income

Interest income and other income (expense)

Amortization of leased assets Operating expenses $ 1,585 $ 1,457

Interest on lease liabilities Other interest expense 451 554

Operating lease cost Operating expenses and rental and other cost of revenue 18,025 21,225

Short-term lease cost Operating expenses 340 242

Variable lease cost Operating expenses 2,798 2,665

Sublease income Interest income and other income (expense) ( 547 ) ( 620 )

$ 22,652 $ 25,523

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

Classification

January 31, 2020

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Classification January 31, 2021 January 31, 2020

(in thousands)

Operating lease assets

Operating lease assets Operating lease assets $ 74,445 $ 88,281

Financing lease assets (a)

1 unchanged sentence

Total leases assets $ 86,871 $ 94,578

Current operating lease liabilities

Accrued expenses and other

Operating lease liabilities

Other long-term liabilities

Operating Current operating lease liabilities $ 11,772 $ 12,259

Financing Accrued expenses and other 9,823 1,708

Operating Operating lease liabilities 73,567 88,387

Financing Other long-term liabilities 2,911 4,103

Total lease liabilities $ 98,073 $ 106,457

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(a) Finance lease assets are recorded net of accumulated amortization of $1.5 million as of January 31, 2020 .

(a) Finance lease assets are recorded net of accumulated amortization of $3.0 million and $1.5 million as of January 31, 2021 and 2020, respectively.

Maturities of lease liabilities as of January 31, 2021 are as follows:

Fiscal Year Ending January 31,

(in thousands)

Operating Finance

Leases Leases Total

Fiscal Year Ending January 31, (in thousands)

2022 $ 16,521 $ 10,131 $ 26,652

2023 15,433 1,328 16,761

2024 14,324 582 14,906

2025 13,077 463 13,540

2026 12,910 312 13,222

Thereafter 33,252 1,084 34,336

Total lease payments 105,517 13,900 119,417

Interest 20,178 1,166 21,344

Present value of lease liabilities $ 85,339 $ 12,734 $ 98,073

The weighted-average lease term and discount rate as of January 31, 2020 are as follows:

The weighted-average lease term and discount rate as of January 31, 2021 and 2020 are as follows:

January 31, 2021 January 31, 2020

Weighted-average remaining lease term (years):

5 unchanged sentences

Other lease information is as follows:

Twelve Months Ended January 31, 2020

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year Ended January 31,

(in thousands)

10 unchanged sentences

Certain rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

All of the Company's leasing arrangements as lessor are classified as operating leases.

9 unchanged sentences

The following is the balance of our dedicated rental fleet assets of our Construction segment as of January 31, 2021 and 2020, respectively:

January 31, 2020

January 31, 2019

(in thousands)

January 31, 2021 January 31, 2020

(in thousands)

1 unchanged sentence

Less accumulated depreciation 28,916 42,076

NOTE 17 - RELATED PARTY TRANSACTIONS

Effective February 1, 2017, the Company and Peter Christianson (our former President and former member of our Board of Directors), who is a brother of Tony Christianson (a member of our Board of Directors), agreed to terminate a consulting arrangement between the parties.

In connection with the termination, the Company agreed to pay Mr.

Peter Christianson the sum of $0.7 million , payable in two equal installments in fiscal 2018 and fiscal 2019.

All unvested stock options and shares of restricted stock held by Mr.

Peter Christianson were allowed to vest as scheduled.

As a result of the termination agreement, the Company recognized for fiscal 2018, a total of $0.8 million in termination costs, consisting of $0.7 million for future cash payments owed to Mr.

Peter Christianson and $0.1 million for unvested shares of restricted stock.

These termination costs are included in restructuring costs in the consolidated statements of operations.

As of January 31, 2019, all amounts owed to Mr.

Peter Christianson had been paid in full.

Effective September 8, 2017, the Company sold a real estate asset that was primarily used for field training purposes to Stiklestad LLC for $1.8 million .

All consideration related to the transaction was exchanged at closing on September 8, 2017, and there are no amounts owed to either party following that date.

Stiklestad LLC is owned by members of the family of David Meyer, the Company's Chief Executive Officer.

No gain or loss was recognized on the transaction and the Company believes that the selling price approximated fair value.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

$ 48,614 $ 62,057

NOTE 15 - INCOME TAXES

The components of income (loss) before income taxes for the years ended January 31, 2021, 2020 and 2019 consist of the following:

2021 2020 2019

(in thousands)

$ 36,778 $ 14,148 $ 10,994

Foreign ( 6,025 ) 504 5,160

Total $ 30,753 $ 14,652 $ 16,154

The provision for (benefit from) income taxes charged to income for the years ended January 31, 2021, 2020 and 2019 consists of the following:

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2021 2020 2019

(in thousands)

Federal $ 12,825 $ 897 $ ( 110 )

State 1,442 116 ( 189 )

Foreign 668 1,349 1,760

Total current taxes 14,935 2,362 1,461

Federal ( 5,128 ) ( 375 ) 2,071

State 553 ( 1,929 ) ( 45 )

Foreign 1,037 641 485

Total deferred taxes ( 3,538 ) ( 1,663 ) 2,511

$ 11,397 $ 699 $ 3,972

The reconciliation of the statutory federal income tax rate to the Company's effective rate is as follows:

2021 2020 2019

statutory rate 21.0 % 21.0 % 21.0 %

3 unchanged sentences

Impact of Ukraine currency gains or losses ( 4.0 ) % 10.5 % 2.0 %

statutory rate reduction

All other, net 3.3 % 3.1 % 0.6 %

37.1 % 4.8 % 24.6 %

TITAN MACHINERY INC.

7 unchanged sentences

Accrued liabilities and other 4,831 3,533

Receivables 1,153 1,137

Stock-based compensation 1,009 1,095

Right of use lease liability 20,874 25,325

Other 597 452

Total deferred tax assets 38,196 41,062

4 unchanged sentences

Right of use lease asset ( 18,066 ) ( 22,038 )

Senior convertible notes

Total deferred tax liabilities $ ( 28,425 ) $ ( 38,790 )

Net deferred tax asset (liability)

On December 22, 2017, the U.S.

government enacted tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act").

The Tax Act made broad changes to the U.S.

tax code, including, among other things, to 1) reduce the U.S.

federal corporate tax rate from 35% to 21%;

2) generally eliminate U.S.

federal income taxes on dividends from foreign subsidiaries;

3) institute a one-time transaction tax on certain unrepatriated earnings of an entity's foreign subsidiaries;

4) create a new provision designed to tax global intangible low-taxed income ("GILTI");

5) creates a new limitation on deductible interest expense;

and 6) modify the rules related to uses and limitations of net operating losses.

The enactment of the Tax Act lowered the U.S.

federal corporate tax rate from 35% to 21%, accordingly, for the fiscal year ended January 31, 2018, the Company had a blended corporate statutory tax rate of 33.8% , which is based on the number of days in the fiscal year before and after the enactment date.

The Company recorded a net tax benefit of $1.8 million for the fiscal year ended January 31, 2018 as a result of remeasuring its domestic deferred tax assets, deferred tax liabilities and any valuation allowances based on the 21% corporate tax rate at which these deferred tax amounts are expected to reverse in the future.

The Tax Act instituted a one-time transaction tax on previously untaxed accumulated and current earnings and profits of our foreign subsidiaries.

The Company did not record a liability for the transaction tax because of a lack of accumulated earnings and profits, on a combined basis, of our foreign subsidiaries.

The Tax Act requires that certain income (i.e., GILTI) earned by foreign subsidiaries must be included currently in gross income of the U.S.

The Company has elected to treat future GILTI inclusions as a current period expense when incurred.

Net deferred tax asset $ 3,637 $ 92

As of January 31, 2021, the Company has recorded $ 36.7 million of net operating loss carryforwards within certain of its U.S.

2 unchanged sentences

states that expire at various dates between the Company's fiscal years 2032 and 2038.

In reviewing our foreign 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 Ukraine business was warranted and a partial valuation allowance for the Company’s Germany business was warranted, 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.

The Company recorded an additional $3.8 million valuation allowance related to the Ukraine and Germany businesses.

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 U.S.

federal and state deferred tax assets.

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

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

January 31, 2020 .

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 ended 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 continued to be warranted in certain jurisdiction locations.

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

At the end of fiscal year 2019, we concluded that a partial valuation allowance continued to be warranted for 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 jurisdictions.

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

At the end of fiscal year 2019, we concluded that a partial valuation allowance was warranted for U.S.

federal and state deferred tax assets, including state net operating losses, and a full valuation allowance for certain of our foreign deferred tax assets, including net operating losses.

In total, the valuation allowances of $6.7 million existed as of January 31, 2019 .

The recognition of the valuation allowances for our U.S.

In total, valuation allowances of $6.7 million existed as of January 31, 2019.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

recognition of the valuation allowances for our U.S.

and foreign deferred tax assets was 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.

During the fiscal year ended January 31, 2018, 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 deferred tax assets of its Ukrainian subsidiary.

As a result, the Company released the $3.5 million valuation allowance associated with these deferred tax assets and recognized a corresponding benefit from income taxes in the consolidated statement of operations for the year ended January 31, 2018.

The Company's conclusion regarding the realizability of such deferred tax assets was based on recent profitable operations in Ukraine resulting in a cumulative profit over the three-year period ending January 31, 2018, our projections of future profitability in Ukraine, the relative economic and political stability in Ukraine and the unlimited carryforward period of net operating losses in Ukraine.

The Company files income tax returns in the U.S.

14 unchanged sentences

Stock-Based Compensation Plans

The Company has two stock-based compensation plans, the 2014 Equity Incentive Plan and the 2005 Equity Incentive Plan (collectively the "Plans"), to provide incentive compensation to participants for services that have been or will be performed for continuing as employees or members of the Board of Directors of the Company.

Under these plans, which are approved by the stockholders of the Company, the Company may grant incentive stock options, non-qualified stock options and restricted stock for up to a maximum number of shares of common stock set forth in the Plans under all forms of awards.

The Company has one stock-based compensation plan, the Amended and Restated Titan Machinery Inc.

2014 Equity Incentive Plan (the"2014 Equity Incentive Plan") (the "Plan"), to provide incentive compensation to participants for services that have been or will be performed for continuing as employees or members of the Board of Directors of the Company.

Under the plan, which has been approved by the stockholders of the Company, the Company may grant incentive stock options, non-qualified stock options and restricted stock for up to a maximum number of shares of common stock set forth in the Plan under all forms of awards.

Shares issued for stock-based awards consist of authorized but unissued shares.

The Plans authorize and make available 1,650,000 shares for equity awards.

As of January 31, 2020 , the Company has 482,789 shares authorized and available for future equity awards.

Compensation cost arising from stock-based compensation and charged to operations was $2.7 million , $2.7 million and $3.1 million for the years ended January 31, 2020 , 2019 and 2018 .

The related income tax benefit (net) was $0.6 million , $0.8 million and $1.2 million for the years ended January 31, 2020 , 2019 and 2018 .

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The 2014 Equity Incentive Plan authorizes and makes available 2,200,000 shares for equity awards.

As of January 31, 2021, the Company has 791,959 shares authorized and available for future equity awards under the 2014 Equity Incentive Plan.

During the year ended January 31, 2021, the 2014 Equity Incentive Plan was amended to increase the shares available for equity awards from 1,650,000 shares to 2,200,000 shares.

Compensation cost arising from stock-based compensation and charged to operations was $ 2.7 million for each of the years ended January 31, 2021, 2020 and 2019.

The related income tax benefit (net) was $ 0.4 million, $ 0.6 million and $ 0.8 million for the years ended January 31, 2021, 2020 and 2019, respectively.

Restricted Stock Awards ("RSAs")

1 unchanged sentence

The fair value of these awards is determined based on the closing market price of the Company's stock on the date of grant.

The RSAs primarily vest over a period of three to six years for employees and over one year for members of the Board of Directors.

The RSAs primarily vest over a period of four to six years for employees and over one year for members of the Board of Directors.

The Company recognizes compensation expense ratably over the vesting period of the award.

The restricted common stock underlying these awards are deemed issued and outstanding upon grant, and carry the same voting and dividend rights of unrestricted outstanding common stock;

provided, however, any dividends paid shall be subject to a right of forfeiture until the underlying rule of forfeiture of the RSA has lapsed.

The following table summarizes RSA activity for the year ended January 31, 2021:

Weighted Average Grant Date Fair Value

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Shares Weighted Average Grant Date Fair Value

(in thousands)

Nonvested at January 31, 2020 361 $ 16.14

Granted 258 10.54

Forfeited ( 20 ) 15.23

Vested ( 179 ) 15.42

Nonvested at January 31, 2021 420 $ 13.06

9 unchanged sentences

The following table summarizes RSU activity for the year ended January 31, 2021:

Weighted Average Grant Date Fair Value

Shares Weighted Average Grant Date Fair Value

(in thousands)

Nonvested at January 31, 2020 14 $ 17.06

Granted 9 10.33

Vested ( 5 ) 16.48

Nonvested at January 31, 2021 18 $ 13.91

5 unchanged sentences

The accounting for this modification did not have a material impact on the Company's consolidated statement of operations or financial position.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Long-Term Cash Incentive Awards

6 unchanged sentences

The following table summarizes activity for long-term cash incentive awards for the year ended January 31, 2021:

Weighted Average Grant Date Fair Value

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Shares Weighted Average Grant Date Fair Value

(in thousands)

Nonvested at January 31, 2020 27 $ 16.48

Granted 27 10.33

Vested ( 10 ) 15.98

Nonvested at January 31, 2021 44 $ 12.84

3 unchanged sentences

The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the fiscal years ended January 31, 2021, 2020 and 2019:

Foreign Currency Translation Adjustment

Net Investment Hedging Instruments, Unrealized Gain

Cash Flow Hedging Instruments, Unrealized Gain (Loss)

Total Accumulated Other Comprehensive Income (Loss)

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

(in thousands)

Balance, January 31, 2018 $ ( 4,411 ) $ 2,711 $ ( 1,700 )

Other comprehensive income (loss) before reclassifications

Amounts reclassified from accumulated other comprehensive income (loss)

Total other comprehensive income (loss), before tax

Total other comprehensive income (loss), net of tax

Total other comprehensive loss ( 640 ) — ( 640 )

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

4 unchanged sentences

Income taxes are not provided for foreign currency translation adjustments arising from permanent investments in international subsidiaries.

Reclassifications are made to avoid double counting in comprehensive income (loss) items that are also recorded as part of net income (loss).

Reclassification amounts from cash flow hedging instruments for the year ended January 31, 2018 are recorded in floorplan interest expense in the consolidated statements of operations.

The tax effect of these reclassifications, recognized as a tax benefit in the amount of $0.4 million for the year ended January 31, 2018, are recorded in provision for (benefit from) income taxes in the consolidated statements of operations.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Reclassifications are made to avoid double counting in comprehensive income items that are also recorded as part of net income (loss).

NOTE 19 - EMPLOYEE BENEFIT PLANS

5 unchanged sentences

NOTE 20 - BUSINESS COMBINATIONS

On May 4, 2020, the Company acquired certain assets of HorizonWest Inc.

This acquired CaseIH agriculture dealership complex consisted of three agriculture equipment stores in Scottsbluff and Sidney, Nebraska and Torrington, Wyoming, which expanded the Company's agriculture presence in Nebraska and into Wyoming.

This acquisition occurred within the Company's Agriculture segment.

The total consideration transferred for the acquired business was $ 6.8 million paid in cash.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by HorizonWest Inc.

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

In total, the Company acquired inventory and recognized a corresponding financing liability of $ 2.7 million.

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

On January 1, 2019, the Company, through its German subsidiary, acquired certain assets of ESB Agrartechnik GmbH ("ESB").

5 unchanged sentences

The acquired business consists of one Case IH agriculture equipment store in Northwood, North Dakota.

This acquisition occurred with the Company's Agriculture segment.

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

1 unchanged sentence

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

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

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

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

3 unchanged sentences

Altranft, Burkau, Gutzkow, and Rollwitz.

This acquisition occurred within the Company's International segment.

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

6 unchanged sentences

Year Ended January 31,

2021 2020 2019

(in thousands)

Assets acquired:

Cash $ 1 $ — $ 3,857

Receivables — 440 5,340

Inventories 4,260 6,466 21,725

Prepaid expenses and other 48 — 887

Property and equipment 1,752 3,810 3,512

Operating lease assets 2,006 — —

Intangible assets 245 1,973 1,944

Goodwill 484 1,198 924

8,796 13,887 38,250

Liabilities Assumed:

1 unchanged sentence

Floorplan payable — — 13,820

Current operating lease liabilities 159 — —

Deferred revenue — — 85

1 unchanged sentence

Long-term debt — — 1,725

Operating lease liabilities 1,847 — —

Deferred income taxes — — 632

2,006 — 19,094

Net assets acquired $ 6,790 $ 13,887 $ 19,156

Goodwill recognized by segment:

Agriculture $ 484 $ 699 $ —

Construction — — —

International — 499 924

1 unchanged sentence

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

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

For business combinations occurring during the year ended January 31, 2019, the Company recognized a customer relationship intangible asset of $0.1 million and a distribution right intangible asset of $1.8 million .

The Company recognized, in the aggregate, a customer relationship intangible asset of $ 0.2 million and $ 0.1 million for business combinations occurring during the years ended January 31, 2020 and 2019, respectively.

The company recognized, in the aggregate, a non-competition intangible asset of $ 0.1 million each year for business combinations occurring during the years ended January 31, 2021 and 2020.

The company recognized, in the aggregate, a distribution rights intangible asset of $ 0.2 million, $ 1.6 million and $ 1.8 million for business combinations occurring during the years ended January 31, 2021, 2020 and 2019, respectively.

The acquired non-competition and customer relationship intangible assets are being amortized over periods ranging from three to five years.

1 unchanged sentence

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

Acquisition related costs were not material for the fiscal years ended January 31, 2020 and 2019, and have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations.

Acquisition related costs were

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

not material for the fiscal years ended January 31, 2021, 2020, and 2019, and have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations.

NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS

1 unchanged sentence

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

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2020 , April 30, 2019 and January 31, 2019 as part of its long-lived asset impairment testing.

The estimated fair value of such assets as of January 31, 2020 , and January 31, 2019 was $2.8 million and $0.9 million .

The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 2021, October 31, 2020, April 30, 2020, and January 31, 2020 as part of its long-lived asset impairment testing.

The estimated fair value of such assets were $ 0.8 million, $ 0.5 million, $ 0.4 million, and $ 2.8 million, respectively.

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

4 unchanged sentences

The carrying amount of cash, receivables, payables, short-term debt and other current liabilities approximates fair value because of the short maturity and/or frequent repricing of those instruments, which are Level 2 fair value inputs.

Based upon current borrowing rates with similar maturities, which are Level 2 fair value inputs, the carrying value of long-term debt approximates the fair value as of January 31, 2020 and 2019 .

The following table provides details on the Senior Convertible Notes as of January 31, 2019 .

During fiscal 2020, the Company paid off the remaining Senior Convertible Notes.

The difference between the face value and the carrying value of these notes is the result of the allocation between the debt and equity components, and unamortized debt issuance costs (see Note 11).

Fair value of the Senior Convertible Notes was estimated based on Level 2 fair value inputs.

January 31, 2019

Estimated Fair Value

Carrying Value

(in thousands)

Senior convertible notes

Based upon current borrowing rates with similar maturities, which are Level 2 fair value inputs.

the carrying value of long-term debt approximates the fair value as of January 31, 2021 and 2020.

NOTE 22 - SEGMENT INFORMATION AND OPERATING RESULTS

9 unchanged sentences

Revenue generated from sales to customers outside of the United States was $ 219.0 million, $ 236.1 million and $ 232.7 million for the years ended January 31, 2021, 2020 and 2019.

As of January 31, 2020 and 2019 , $11.4 million and $12.3 million of the Company's long-lived assets were held in its European subsidiaries.

As of January 31, 2021 and 2020, $ 18.0 million and $ 18.0 million of the Company's long-lived assets were held in its European subsidiaries and the remaining were held in the United States.

The Company retains various unallocated income/(expense) items and assets at the general corporate level, which the Company refers to as "Shared Resources" in the table below.

5 unchanged sentences

Year Ended January 31,

2021 2020 2019

(in thousands)

Agriculture $ 886,485 $ 749,042 $ 726,793

Construction 305,745 320,034 301,989

International 218,992 236,095 232,723

Total $ 1,411,222 $ 1,305,171 $ 1,261,505

Income (Loss) Before Income Taxes

Agriculture $ 34,422 $ 18,036 $ 16,799

Construction 186 ( 2,290 ) ( 4,400 )

International ( 6,025 ) 504 5,160

Segment income (loss) before income taxes

Segment income before income taxes 28,583 16,250 17,559

Shared Resources 2,170 ( 1,598 ) ( 1,405 )

Total $ 30,753 $ 14,652 $ 16,154

Total Impairment

International

Restructuring Costs

Agriculture $ 272 $ 2,807 $ 886

Construction 597 957 1,114

International 2,311 — 156

Segment impairment

Shared Resources

Total $ 3,180 $ 3,764 $ 2,156

Interest Income

Agriculture $ 72 $ 54 $ 84

Construction 135 217 234

International 46 44 81

1 unchanged sentence

Shared Resources 16 16 ( 73 )

Total $ 269 $ 331 $ 326

Interest Expense

Agriculture $ 4,884 $ 5,142 $ 4,272

Construction 5,552 7,221 6,308

International 2,796 3,504 3,313

1 unchanged sentence

Shared Resources ( 6,050 ) ( 6,061 ) ( 19 )

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year Ended January 31,

(in thousands)

Total $ 7,182 $ 9,806 $ 13,874

Depreciation and Amortization

Agriculture $ 5,337 $ 5,095 $ 4,997

Construction 12,197 12,537 13,652

International 2,645 2,402 1,804

1 unchanged sentence

Shared Resources 3,522 8,033 3,152

Total $ 23,701 $ 28,067 $ 23,605

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Year Ended January 31,

2021 2020 2019

(in thousands)

Capital Expenditures

Agriculture $ 5,355 $ 4,699 $ 2,473

Construction 8,202 15,713 7,012

International 2,124 1,768 1,944

1 unchanged sentence

Shared Resources 4,408 2,836 522

January 31, 2020

January 31, 2019

(in thousands)

Total $ 20,089 $ 25,016 $ 11,951

January 31, 2021 January 31, 2020

Total Assets (in thousands)

Agriculture $ 349,697 $ 444,942

Construction 185,534 275,645

International 177,213 191,513

1 unchanged sentence

Shared Resources 103,345 63,243

NOTE 26 - SELECTED QUARTERLY FINANCIAL DATA (Unaudited)

The following reflects selected quarterly financial information for fiscal years 2020 and 2019 .

First quarter

Second quarter

Third quarter

Fourth quarter

First quarter

Second quarter

Third quarter

Fourth quarter

(in thousands, except per share data)

Net Income (Loss)

Earnings (Loss) per Share-Basic

Earnings (Loss) per Share-Diluted

In the fourth quarter of fiscal 2020, the Company recognized an income tax benefit of $4.6 million from the release of the U.S.

valuation allowance previously recognized for deferred tax assets.

Further details of these tax matters are discussed in Note 18.

TITAN MACHINERY INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

NOTE 27 - SUBSEQUENT EVENTS

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

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

The Company expects to close the acquisition in May 2020.

Effective March 23, 2020, the Company announced it would temporarily prevent public access to its stores in response to the increased impact from novel coronavirus (COVID-19).

While customers temporarily do not have access to our facilities, we are fully staffed;

and we are using technology, mobile service fleets and alternative delivery solutions to provide equipment, parts, service and rental to our customers.

While this is expected to be temporary, the current circumstances are dynamic.

The impacts of COVID-19 on our business operations, financial results, and on customer demand cannot be reasonably estimated at this time.

On April 3, 2020 , the Company entered into a Third Amended and Restated Credit Agreement, arranged by Bank of America, with a syndicate of lenders consisting of Wells Fargo, Regions, BBVA, Sterling National Bank and AgCountry Farm Credit.

The new credit agreement provides for an aggregate $250 million financing commitment by the lenders, consisting of an aggregate floorplan financing commitment of $185 million and an aggregate working capital commitment of $65 million .

Loans under the new credit facility will carry an initial effective interest rate equal to LIBOR plus an applicable margin of 1.5% per annum, based on the Company’s liquidity position.

The terms of the new agreement are similar to those in the previous credit facility, but favorably impacted by the increased advanced rates adding to the Company's excess availability.

In conjunction with entering into the new credit agreement, the Company repaid in full all debt outstanding under its previous Wells Fargo Credit Agreement, which was to mature in October, 2020.

Total $ 815,789 $ 975,343

Schedule II—Valuation and Qualifying Accounts and Reserves

Titan Machinery Inc.

Classification

Beginning Balance

Additions Charged to Expenses

Additions from Business Combinations

Deductions for Write-offs, Net of Recoveries

Foreign Currency Translation Adjustments

Ending Balance

Classification Beginning Balance Additions Charged to Expenses Additions from CECL Adoption Additions from Business Combinations Deductions for Write-offs, Net of Recoveries Foreign Currency Translation Adjustments Ending Balance

(in thousands)

5 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 8. Financial Statements and Supplementary Data