Titan Machinery Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 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 Page Titan Machinery Inc.—Financial Statements Audited Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 48 Report of Independent Registered Public Accounting Firm 50 Consolidated Balance Sheets as of January 31, 2021 and 2020 51 Consolidated Statements of Operations for the fiscal years ended January 31, 2021, 2020 and 2019 52 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 Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2021, 2020 and 2019 55 Notes to Consolidated Financial Statements 55 47 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Titan Machinery Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Titan Machinery Inc. 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, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. 48 Table of Contents 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 March 30, 2021 We have served as the Company's auditor since 2013. 49 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Titan Machinery Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Titan Machinery Inc. and subsidiaries (the “Company”) 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 (COSO). 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 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 The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota March 30, 2020 50 Table of Contents TITAN MACHINERY INC. CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 2021 AND 2020 (in thousands, except per share data) January 31, 2021 January 31, 2020 Assets Current Assets 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 Total current assets 580,234 727,546 Noncurrent Assets Property and equipment, net of accumulated depreciation 147,165 145,562 Operating lease assets 74,445 88,281 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 Current Liabilities Accounts payable $ 20,045 $ 16,976 Floorplan payable 161,835 371,772 Current maturities of long-term debt 4,591 13,779 Current maturities of operating leases 11,772 12,259 Deferred revenue 59,418 40,968 Accrued expenses and other 48,791 38,360 Income taxes payable 11,048 49 Total current liabilities 317,500 494,163 Long-Term Liabilities Long-term debt, less current maturities 44,906 37,789 Operating lease liabilities 73,567 88,387 Deferred income taxes — 2,055 Other long-term liabilities 8,535 7,845 Total long-term liabilities 127,008 136,076 Commitments and Contingencies (Note 13) Stockholders' Equity Common stock, par value $ 0.00001 per share, 45,000,000 shares authorized; 22,552,967 shares issued and outstanding at January 31, 2021; 22,335,377 shares issued and outstanding at January 31, 2020 — — Additional paid-in-capital 252,913 250,607 Retained earnings 116,869 97,717 Accumulated other comprehensive income (loss) 1,499 ( 3,220 ) Total stockholders' equity 371,281 345,104 Total Liabilities and Stockholders' Equity $ 815,789 $ 975,343 See Notes to Consolidated Financial Statements 51 Table of Contents TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JANUARY 31, 2021, 2020 AND 2019 (in thousands, except per share data) 2021 2020 2019 Revenue 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 Total Revenue 1,411,222 1,305,171 1,261,505 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 Goodwill 1,453 — — Impairment of Intangible and Long-Lived Assets 1,727 3,764 2,156 Restructuring Costs — — 414 Income from Operations 37,408 21,332 27,481 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 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 52 Table of Contents TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED JANUARY 31, 2021, 2020 AND 2019 (in thousands) 2021 2020 2019 Net Income $ 19,356 $ 13,953 $ 12,182 Other Comprehensive Income (Loss) Foreign currency translation adjustments 4,719 ( 880 ) ( 640 ) Comprehensive Income $ 24,075 $ 13,073 $ 11,542 See Notes to Consolidated Financial Statements 53 Table of Contents TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JANUARY 31, 2021, 2020 AND 2019 (in thousands) 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 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 Net income — — — 12,182 — 12,182 Other comprehensive loss — — — — ( 640 ) ( 640 ) BALANCE, JANUARY 31, 2019 22,218 — 248,423 89,228 ( 2,340 ) 335,311 Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 117 — ( 509 ) — — ( 509 ) Stock-based compensation expense — — 2,693 — — 2,693 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 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 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 See Notes to Consolidated Financial Statements 54 Table of Contents TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 31, 2021, 2020 AND 2019 (in thousands) 2021 2020 2019 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 Stock-based compensation expense 2,515 2,693 2,535 Noncash interest expense 174 408 2,432 Noncash lease expense 11,537 12,234 — 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 ) Accounts payable, deferred revenue, accrued expenses and other and other long-term liabilities 36,205 ( 1,890 ) 10,688 Operating lease liability ( 12,389 ) ( 12,572 ) — Net Cash Provided by Operating Activities 172,996 955 46,605 Investing Activities Rental fleet purchases ( 7,103 ) ( 14,302 ) ( 5,665 ) Property and equipment purchases (excluding rental fleet) ( 12,986 ) ( 10,714 ) ( 6,286 ) Proceeds from sale of property and equipment 6,592 2,415 1,549 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 ) Financing Activities Net change in non-manufacturer floorplan payable ( 106,414 ) 50,158 16,818 Principal payments on senior convertible notes — ( 45,644 ) ( 20,025 ) Proceeds from long-term debt borrowings 5,326 23,354 3,252 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 ) Effect of Exchange Rate Changes on Cash 509 ( 379 ) ( 697 ) Net Change in Cash 35,269 ( 13,024 ) 3,349 Cash at Beginning of Period 43,721 56,745 53,396 Cash at End of Period $ 78,990 $ 43,721 $ 56,745 Supplemental Disclosures of Cash Flow Information 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 Net transfer of assets from property and equipment to inventories $ 6,702 $ 2,544 $ 5,263 See Notes to Consolidated Financial Statements 55 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES Nature of Business Titan Machinery Inc. 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 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. Seasonality 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 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 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 The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant accounts, transactions and profits between the consolidated companies have been eliminated in consolidation. The Company's foreign subsidiaries have fiscal years ending on December 31 of each year, consistent with statutory reporting requirements in each of the respective countries. The accounts of the Company's foreign subsidiaries are consolidated as of December 31 of each year. 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. Estimates 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, goodwill, indefinite-lived intangible assets, collectability of receivables, and income taxes. 56 Table of Contents 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 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, generally, are in excess of federally insured limits. Concentrations in Operations The Company currently purchases new equipment, rental equipment and the related parts from a limited number of manufacturers. Although no change in suppliers is anticipated, the occurrence of such a change could cause a possible loss of sales and adversely affect operating results. The Company is the holder of authorized dealerships granted by CNH Industrial America, LLC and CNHI International SA (collectively referred to "CNH Industrial") whereby it has the right to act as an authorized dealer for the entity's equipment at specified locations. The dealership authorizations and floorplan payable facilities can be canceled by the respective entity if the Company does not observe certain established guidelines and covenants. In addition, the Company believes that the following factors related to concentrations in suppliers, and in particular CNH Industrial, have a significant impact on its operating results: • CNH Industrial's product offerings, reputation and market share • CNH Industrial's product prices and incentive and discount programs • Supply of inventory from CNH Industrial • CNH Industrial provides floorplan payable financing for the purchase of a substantial portion of the Company's inventory • CNH Industrial provides a significant percentage of the financing and lease financing used by the Company's customers to purchase CNH Industrial equipment from the Company Revenue Recognition Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Company expects to collect in exchange for those goods or services. Shipping and handling costs are recorded as cost of revenue. Sales, value added and other taxes collected from the Company's customers concurrent with the Company's revenue activities are excluded from revenue. Equipment Revenue. Equipment revenue transactions include the sale of new and used agricultural and construction equipment. The Company satisfies its performance obligations and recognizes revenue at a point in time, primarily upon the delivery of the product. Once a product is delivered, 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. Equipment transactions often include both cash and non-cash consideration. Cash consideration is paid directly by the Company's customers or by third-party financial institutions financing the Company's customer transactions. Non-cash consideration is in the form of trade-in equipment assets. The Company assigns a value to trade-in assets by estimating a future selling price, which the Company estimates based on relevant internal and third-party data, less a gross profit amount to be realized at the time the trade-in asset is sold and an estimate of any reconditioning work required to ready the asset for sale. Both cash and non-cash consideration may be received prior to or after the Company's performance obligation is satisfied. Any consideration received prior to the satisfaction of the Company's performance obligation is recognized as deferred revenue. 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. 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 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. In many cases, customers tender payment at the time of delivery. Balances not paid at the time of delivery are typically due in full within 30 days. Most parts are sold with a thirty-day right of return or exchange. Historically, parts returns have not been material. 57 Table of Contents 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. As further described below, we recognize revenue from these activities over time. Service Revenue. We provide repair and maintenance services, including repairs performed under manufacturer warranties, for our customer’s equipment. We recognize service and associated parts revenue of our repair and maintenance services over time as we transfer control of these goods and services over time. The Company recognizes revenue over time in the amount to which we have the right to invoice the customer, as such an amount corresponds to the value of our performance completed to date. Generally, the Company has the right to invoice the customer for labor hours incurred and parts inventories consumed during the performance of the service arrangement. Customer invoicing most often occurs at the conclusion of our repair and maintenance services. Accordingly, we recognize unbilled receivables for the amount of unbilled labor hours incurred and parts inventories consumed under our repair and maintenance arrangements. Upon customer invoicing, unbilled receivables are reclassified to receivables. In many cases, customers tender payment at the completion of our work and the creation of the invoice. Balances not paid at the time of invoicing are typically due in full within 30 days. 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. Rental revenue is recognized on a straight-line basis over the period of the related rental agreement. Revenue from rental equipment delivery and pick-up services is recognized when the service is performed. 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. Manufacturer Incentives and Discounts The Company receives various manufacturer incentives and discounts, which are based on a variety of factors. Discounts and incentives related to the purchase of inventory are recognized as a reduction of inventory prices and recognized as a reduction of cost of revenue when the related inventory is sold. Other incentives, reflecting reimbursement of qualifying expenses, are recognized as a reduction of the related expense when earned. Receivables and Credit Policy Trade accounts receivable due from customers are uncollateralized customer obligations due under normal trade terms requiring payment within 30 to 90 days from the invoice date. Balances unpaid after the due date based on trade terms are considered past due and begin to accrue interest. Payments of trade receivables are allocated to the specific invoices identified on the customer's remittance advice or, if unspecified, are applied to the earliest unpaid invoices. Trade accounts receivable due from manufacturers relate to discount programs and incentive programs. Trade accounts receivable due from finance companies primarily consist of contracts in transit with finance companies and balances due from credit card companies. These receivables do not generally have established payment terms but are collected in relatively short time periods. 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. Management reviews aged receivable balances and estimates the portion, if any, of the balance that will not be collected. Account balances are charged off after all appropriate means of collection have been exhausted and the potential for recovery is considered remote. Inventories New and used equipment 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. 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 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. 58 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Property and Equipment Property and equipment is carried at cost less accumulated depreciation and amortization. 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 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. Goodwill Goodwill is recognized and initially measured as any excess of the acquisition-date consideration transferred in a business combination over the acquisition-date amounts recognized for the net identifiable assets acquired. Goodwill is not amortized but is tested for impairment annually, or more frequently if an event occurs or circumstances change that would more likely than not result in an impairment of goodwill. Impairment testing is performed at the reporting unit level. A reporting unit is defined as an operating segment or one level below an operating segment, referred to as a component. 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. 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 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. Distribution rights are classified as an indefinite-lived intangible asset because the Company's distribution agreements continue indefinitely by their terms, or are routinely awarded or renewed without substantial cost or material modifications to the underlying agreements. Accordingly, the Company believes that its distribution rights intangible assets will contribute to its cash flows for an indefinite period, therefore the carrying amount of distribution rights is not amortized, but is tested for impairment annually, or more frequently upon the occurrence of certain events or when circumstances indicate that impairment may be present. The impairment test is a single-step assessment that identifies both the existence of impairment and the amount of impairment loss by comparing the estimated fair value of the asset to its carrying value, with any excess carrying value over the fair value being recognized as an impairment loss. The Company performs its annual impairment test as of December 31st of each year. 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 property and equipment. These assets are reviewed for potential impairment when events or circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by comparing the estimated future undiscounted cash flows of such assets to their carrying values. 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 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 59 Table of Contents 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 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 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 $ 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 The Company, from time to time, performs construction projects on its store locations, which are recorded as property and equipment in the consolidated balance sheet during the construction period. Upon completion, these assets are either placed in service, at which point the depreciation of the asset commences, or are part of a sale-leaseback transaction with a third-party buyer/lessor. In certain other situations, the Company enters into build-to-suit construction projects with third-party lessors. Under the applicable lease accounting rules, certain forms of lessee involvement in the construction of the leased asset deem the Company to be the owner of the leased asset during the construction period and requires capitalization of the lessor's total project costs on the consolidated balance sheet with the recognition of a corresponding financing obligation. Upon completion of a project for which the constructed assets are sold to a buyer/lessor or the completion of a capitalized build-to suit construction project, the Company performs a sale-leaseback analysis to determine if the asset and related financing obligation can be derecognized from the consolidated balance sheet. 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 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. Derivative Instruments 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. The Company does not use derivative instruments for trading or speculative purposes. All outstanding derivative instruments are recognized in the consolidated balance sheet at fair value. The effect on earnings from recognizing the fair value of the derivative instrument depends on its intended use, the hedge designation, and the effectiveness in offsetting the exposure of the underlying hedged item. 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 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. Income Taxes 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 60 Table of Contents 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. Deferred tax assets and liabilities are netted by taxing jurisdiction and presented as either a net asset or liability position, as applicable, on the consolidated balance sheets. The Company recognizes the financial statement benefit of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured as the largest amount that has a greater than 50% likelihood of being realized. Changes in the recognition or measurement of such positions are reflected in its provision for income taxes in the period of the change. The Company's policy is to recognize interest and penalties related to income tax matters within its provision for income taxes. Advertising Costs Costs incurred for producing and distributing advertising are expensed as incurred. 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 The Company accounts for stock-based compensation at the fair value of the related equity instrument over the applicable service or performance period . Comprehensive Income and Foreign Currency Matters 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. dollars at the balance sheet date exchange rate. Income and expenses are translated at average exchange rates for the year. Foreign currency translation adjustments are recorded directly as other comprehensive income (loss), a component of stockholders' equity. For its foreign subsidiaries in which the local currency is not the functional currency, prior to translation into U.S. dollars, amounts must first be remeasured from the local currency into the functional currency. Nonmonetary assets and liabilities are remeasured at historical exchange rates and monetary assets and liabilities are remeasured at the balance sheet date exchange rate. Income and expenses are remeasured at average exchange rates for the year. Foreign currency remeasurement adjustments are included in the statement of operations. 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 The Company accounts for business combinations by allocating the purchase price amongst the assets acquired, including identifiable intangible assets, and liabilities assumed based on the fair values of the acquired assets and assumed liabilities. The acquisition accounting is finalized during the measurement period, which may not exceed one year from the date of acquisition. During the measurement period the Company's accounting for the business combination transaction may be based on estimates due to various unknown factors present at the date of acquisition. Fair Value Measurements Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Three levels of inputs may be used to measure fair value: Level 1—Values derived from unadjusted quoted prices in active markets for identical assets and liabilities. Level 2—Values derived from observable inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets in markets that are not active. Level 3—Values derived from unobservable inputs for which there is little or no market data available, thereby requiring the reporting entity to develop its own assumptions. 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. 61 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Segment Reporting The Company operates its business in three reportable segments, the Agriculture, Construction and International segments. Recent Accounting Guidance Accounting guidance adopted 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. 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 Per Share ("EPS") The Company uses the two-class method to calculate basic and diluted EPS. Unvested restricted stock awards are considered participating securities because they entitle holders to non-forfeitable rights to dividends during the vesting term. 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. 62 Table of Contents 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 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. All potentially dilutive securities were included in the computation of diluted EPS for years with net income. All anti-dilutive securities were excluded from the computation of diluted EPS. The following table sets forth the calculation of basic and diluted EPS: Year Ended January 31, 2021 2020 2019 (in thousands, except per share data) Numerator Net income $ 19,356 $ 13,953 $ 12,182 Allocation to participating securities ( 325 ) ( 221 ) ( 202 ) Net income attributable to Titan Machinery Inc. common stockholders $ 19,031 $ 13,732 $ 11,980 Denominator Basic weighted-average common shares outstanding 22,100 21,946 21,809 Plus: incremental shares from assumed vesting of restricted stock units 4 7 7 Diluted weighted-average common shares outstanding 22,104 21,953 21,816 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: Shares underlying senior convertible notes (conversion price of $43.17) — — 1,057 NOTE 3 - REVENUE The following tables present our revenue disaggregated by revenue source and segment for the years ended January 31, 2021, 2020 and 2019: Year Ended January 31, 2021 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 63 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended January 31, 2020 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. Our deferred revenue most often increases in the fourth quarter of each fiscal year, due to a higher level of customer down payments or prepayments. In the fourth quarter of the fiscal year, longer time periods between customer payments and delivery of the equipment occur. 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. The Company has elected as a practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of service of one year or less, and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The contracts for which the practical expedient has been applied include (i) equipment revenue transactions, which do not have a stated contractual term, but are short-term in nature, and (ii) service revenue transactions, which also do not have a stated contractual term but are generally completed within 30 days and for such contracts we recognize revenue over time at the amount to which we have the right to invoice for services completed to date. 64 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4 - RECEIVABLES 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) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 31,664 $ 36,400 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 Trade receivables 4,329 7,381 Unbilled receivables 520 861 Less allowance for expected credit losses 1,939 2,180 2,910 6,062 Other receivables Due from manufacturers 8,720 5,763 Other 1,767 1,198 10,487 6,961 Receivables, net of allowance for expected credit losses $ 69,109 $ 72,776 65 Table of Contents 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, 2021 2020 (in thousands) Impairment losses on: Receivables from sales contracts $ 356 $ 1,373 Receivables from rental contracts 142 1,124 $ 498 $ 2,497 NOTE 5 - INVENTORIES January 31, 2021 January 31, 2020 (in thousands) New equipment $ 206,683 $ 358,339 Used equipment 131,369 157,535 Parts and attachments 78,982 79,813 Work in process 1,424 1,707 $ 418,458 $ 597,394 NOTE 6 - PROPERTY AND EQUIPMENT January 31, 2021 January 31, 2020 (in thousands) Rental fleet equipment $ 77,530 $ 104,133 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 finance leases associated with real estate of store locations, which are included in the land, buildings and leasehold improvements balance 66 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) above. 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. NOTE 7 - INTANGIBLE ASSETS AND GOODWILL Definite-Lived Intangible Assets The following is a summary of definite-lived intangible assets as of January 31, 2021 and 2020: 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 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) 2022 $ 112 2023 74 2024 63 2025 38 2026 — Thereafter — $ 287 Indefinite-Lived Intangible Assets The Company's indefinite-lived intangible assets consist of distribution rights assets. 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) 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 67 Table of Contents 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. Goodwill Changes in the carrying amount of goodwill during the years ended January 31, 2021 and 2020 are as follows: Agriculture International Total (in thousands) Balance, January 31, 2019 $ 250 $ 911 $ 1,161 Arising from business combinations 699 499 1,198 Foreign currency translation — ( 32 ) ( 33 ) Balance, January 31, 2020 949 1,378 2,327 Arising from business combinations 484 — 484 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 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 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. NOTE 8 - FLOORPLAN PAYABLE/LINES OF CREDIT 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 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. 68 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 $ 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 As of January 31, 2021, the Company had a $ 450.0 million credit facility with CNH Industrial, of which $ 360.0 million is available for domestic financing and $ 90.0 million is available for European financing. The domestic financing facility offers financing for new and used equipment inventories. Available borrowings under the credit facility are reduced by outstanding floorplan payable balances and other acquisition-related financing arrangements with CNH Industrial. The credit facility charges interest at a rate equal to the prime rate plus 3.25 % for the financing of new and used equipment inventories and rental fleet assets. CNH Industrial offers periods of reduced interest rates and interest-free periods. 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 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. Available borrowings under the credit facility are reduced by outstanding floorplan payable balances. Amounts outstanding are generally due approximately 75 days after the date of invoice by CNH Industrial. 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. The CNH Industrial credit facility contains financial covenants that impose a maximum level of adjusted debt to tangible net worth of 3.50 :1.00 and minimum fixed charge coverage ratio of 1.10 :1.00. It also contains various restrictive covenants that require prior consent of CNH Industrial if the Company desires to engage in any acquisition of, consolidation or merger with, any other business entity in which the Company is not the surviving company; create subsidiaries; move any collateral outside of the U.S.; or sell, rent, lease or otherwise dispose or transfer any of the collateral, other than in the ordinary course of business. CNH Industrial’s consent is also required for the acquisition of any CNH Industrial dealership. In addition, the CNH Industrial credit facility restricts the Company's ability to incur any liens upon any substantial part of the assets. The credit facility automatically renews on August 31st of each year unless earlier terminated by either party. 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. 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 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. 69 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 As of January 31, 2021, the Company had a $ 60.0 million credit facility with DLL Finance, of which $ 46.5 million is available for domestic financing and $ 13.5 million is available for financing in certain of our European markets. The DLL Finance credit facility may be used to purchase or refinance new and used equipment inventory. Amounts outstanding for domestic financing bear interest on outstanding balances of three-month LIBOR plus an applicable margin of 2.85 %. Amounts outstanding for European financing bear interest on outstanding balances of three-month EURIBOR plus an applicable margin of 2.10 % to 2.50 %. The credit facility allows for increase, decrease or termination of the facility by DLL Finance upon 90 days notice. The credit facility contains financial covenants that impose a maximum net leverage ratio of 3.50:1.00 and a minimum fixed charge coverage ratio of 1.10 :1.00. The credit facility also requires the Company to obtain prior consent from DLL Finance if the Company desired to engage in any acquisition meeting certain financial thresholds. The balances outstanding with DLL Finance are secured by the inventory or rental fleet purchased with the floorplan proceeds. Repayment terms vary by individual notes, but generally payments are made from sales proceeds or rental revenue from the related inventories or rental fleet assets. 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. Other Lines of Credit The Company’s other lines of credit include various floorplan and working capital lines of credit primarily offered by non-manufacturer financing entities. Interest charged on outstanding borrowings are generally variable rates of interest most often based on LIBOR or EURIBOR and include interest margins primarily ranging from 1.50% to 6.00%. Outstanding balances are generally secured by inventory and other current assets. 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. Summary of Outstanding Amounts 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, 2021 January 31, 2020 (in thousands) CNH Industrial $ 86,792 $ 187,690 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 $ 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, 2021 and 2020, $ 98.8 million and $ 205.2 million, respectively, of outstanding floorplan payables were non-interest bearing. 70 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 9 - ACCRUED EXPENSES & OTHER 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 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 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: Year Ended January 31, 2020 2019 (in thousands) Cash Interest Expense Coupon interest expense $ 421 $ 2,014 Noncash Interest Expense Amortization of debt discount 350 1,626 Amortization of transaction costs 45 216 $ 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: Year Ended January 31, Description Maturity Dates Interest Rates 2021 2020 (in thousands) 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 Less: current maturities 4,591 13,779 Long-term debt, net $ 44,906 $ 37,789 71 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Long-term debt maturities are as follows: Years Ending January 31, Amounts (in thousands) 2022 $ 4,591 2023 4,729 2024 4,885 2025 8,345 2026 4,225 Thereafter 22,722 $ 49,497 NOTE 12 - DERIVATIVE INSTRUMENTS 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 The Company periodically uses foreign currency forward contracts to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. The Company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loan are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations on net income. The Company's foreign currency forward contracts generally have three-month maturities, maturing on the last day of each fiscal quarter. There were no outstanding foreign currency contracts as of January 31, 2020. 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 recognized in income related to the Company’s derivative instruments for the years ended January 31, 2021, 2020 and 2019. Year Ended January 31, 2021 2020 2019 (in thousands) Derivatives Not Designated as Hedging Instruments: Foreign currency contracts (a) $ 934 $ 365 $ 1,696 Total Derivatives $ 934 $ 365 $ 1,696 (a) Amounts are included in Interest and other income (expense) in the consolidated statements of operations 72 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 13 - CONTINGENCIES AND GUARANTEES Guarantees The Company has provided residual value guarantees to CNH Industrial Capital in connection with certain customer leasing arrangements with CNH Industrial Capital. The Company, as guarantor, may be required to provide payment to CNH Industrial Capital at the termination of the lease agreement if the customer fails to exercise the purchase option under the leasing agreement and the proceeds CNH Industrial Capital receives upon disposition of the leased asset are less than the purchase option price as stipulated in the lease agreement. As of January 31, 2021, the maximum amount of residual value guarantees was approximately $ 2.0 million and the lease agreements have termination dates ranging from 2021 to 2025. As of January 31, 2021, the Company has recognized a liability of approximately $ 1.7 million based on its estimates of the likelihood and amount of residual value guarantees that will become payable at the termination dates of the underlying leasing agreements discounted at a rate of interest to reflect the risk inherent in the liability. As of January 31, 2021, the Company has recorded a current liability, recognized in Accrued expenses and other in the consolidated balance sheets, of $ 0.9 million, and a long-term liability, recognized in other Long-term liabilities in the consolidated balance sheets, of $ 0.8 million. As of January 31, 2021, the Company had $ 1.2 million of guarantees on customer financing with CNH Industrial Capital. In the event that the customer defaulted on the payments owed to CNH Industrial Capital, the Company as the guarantor would be required to make those payments and any accelerated indebtedness to CNH Industrial Capital. Upon such payment, the Company would be entitled to enforce normal creditor rights against the customer including collection action for monetary damages or re-possession of the collateral if CNH Industrial Capital has a perfected security interest. 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. Litigation The Company is engaged in proceedings incidental to the normal course of business. Due to their nature, such legal proceedings involve inherent uncertainties, including but not limited to, court rulings, negotiations between affected parties and governmental intervention. Based upon the information available to the Company and discussions with legal counsel, it is the Company's opinion that the outcome of the various legal actions and claims that are incidental to its business will not have a material impact on the financial position, results of operations or cash flows. Such matters, however, are subject to many uncertainties, and the outcome of any matter is not predictable with assurance. Insurance The Company has insurance policies with varying deductibility levels for property and casualty losses and is insured for losses in excess of these deductibles on a per claim and aggregate basis. The Company is primarily self-insured for health care claims for eligible participating employees. The Company has stop-loss coverage to limit its exposure to significant claims on a per claim and annual aggregate basis. The Company determines its liabilities for claims, including incurred but not reported losses, based on all relevant information, including actuarial estimates of claim liabilities. 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. 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. Also, in the ordinary course of business in connection with purchases or sales of goods and services, the Company enters into agreements that may contain indemnification provisions. In the event that an indemnification claim is asserted, the Company's liability would be limited by the terms of the applicable agreement. See additional information on operating lease commitments in Note 14. 73 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14 - LEASES As Lessee The Company, as lessee, leases certain of its dealership locations, office space, equipment and vehicles under operating and financing classified leasing arrangements. The Company has elected to not record leases with a lease term at commencement of 12 months or less on the consolidated balance sheet; such leases are expensed on a straight-line basis over the lease term. Many real estate lease agreements require the Company to pay the real estate taxes on the properties during the lease term and require that the Company maintains property insurance on each of the leased premises. Such payments are deemed to be variable lease payments, as the amounts may change during the term of the lease. Certain leases include renewal options that can extend the lease term for periods of one to ten years. 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 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. We estimate our incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market. Our lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants. The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which we have ceased operations. All sublease arrangements are classified as operating leases. The components of lease expense were as follows: Year Ended January 31, Classification 2021 2020 (in thousands) Finance lease cost: 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: 74 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Classification January 31, 2021 January 31, 2020 (in thousands) Assets Operating lease assets Operating lease assets $ 74,445 $ 88,281 Financing lease assets (a) Property and equipment, net of accumulated depreciation 12,426 6,297 Total leases assets $ 86,871 $ 94,578 Liabilities Current Operating Current operating lease liabilities $ 11,772 $ 12,259 Financing Accrued expenses and other 9,823 1,708 Noncurrent Operating Operating lease liabilities 73,567 88,387 Financing Other long-term liabilities 2,911 4,103 Total lease liabilities $ 98,073 $ 106,457 (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: 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 Less: 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, 2021 and 2020 are as follows: January 31, 2021 January 31, 2020 Weighted-average remaining lease term (years): Operating leases 7.2 7.9 Financing leases 1.8 5.4 Weighted-average discount rate: Operating leases 6.1 % 6.1 % Financing leases 5.3 % 8.5 % Other lease information is as follows: 75 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended January 31, 2021 2020 (in thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 18,267 $ 18,176 Operating cash flow from finance leases 451 553 Financing cash flows from finance leases 1,816 1,812 Operating lease assets obtained in exchange for new operating lease liabilities 3,066 1,316 Finance lease assets obtained in exchange for new finance lease liabilities 512 1,333 As Lessor The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, may also provide short-term rentals of certain equipment inventory assets. 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. All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force. Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets of our Construction segment as of January 31, 2021 and 2020, respectively: January 31, 2021 January 31, 2020 (in thousands) Rental fleet equipment $ 77,530 $ 104,133 Less accumulated depreciation 28,916 42,076 $ 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) U.S. $ 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: 76 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2021 2020 2019 (in thousands) Current 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 Deferred 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 U.S. statutory rate 21.0 % 21.0 % 21.0 % Foreign statutory rates ( 0.2 ) % 1.0 % 0.6 % State taxes on income net of federal tax benefit 4.8 % 5.8 % 5.6 % Valuation allowances 12.2 % ( 36.6 ) % ( 5.2 ) % Impact of Ukraine currency gains or losses ( 4.0 ) % 10.5 % 2.0 % All other, net 3.3 % 3.1 % 0.6 % 37.1 % 4.8 % 24.6 % 77 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Deferred tax assets and liabilities consist of the following as of January 31, 2021 and 2020: 2021 2020 (in thousands) Deferred tax assets: Inventory allowances $ 2,616 $ 3,037 Intangible assets 1,874 2,192 Net operating losses 5,242 4,291 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 Valuation allowances ( 6,134 ) ( 2,180 ) Deferred tax assets, net of valuation allowances $ 32,062 $ 38,882 Deferred tax liabilities: Property and equipment $ ( 10,359 ) $ ( 16,752 ) Right of use lease asset ( 18,066 ) ( 22,038 ) Total deferred tax liabilities $ ( 28,425 ) $ ( 38,790 ) 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. state and foreign jurisdictions; $ 22.9 million of net operating loss carryforwards are within foreign jurisdictions with unlimited carryforward periods, $ 9.2 million are within foreign jurisdictions that expire at various dates between the Company's fiscal years 2021 and 2025, and $ 4.6 million are within U.S. 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 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 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, valuation allowances of $6.7 million existed as of January 31, 2019. The 78 Table of Contents 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. The Company files income tax returns in the U.S. federal jurisdiction and various states and foreign countries. It is no longer subject to income tax examinations by U.S. federal tax authorities for fiscal years ended prior to January 31, 2018 and state tax authorities for fiscal years ended prior to January 31, 2017. Certain foreign jurisdictions are no longer subject to income tax examinations for the calendar year periods ranging between 2012 and 2016, depending on the jurisdiction of the entity. As of January 31, 2021, the Company had accumulated undistributed earnings in non-U.S. subsidiaries of approximately $ 20.0 million. Upon repatriation of such earnings the Company could be subject to additional U.S. or foreign taxes. The Company has not recorded a deferred tax liability associated with these undistributed earnings as such earnings are to be reinvested outside of the U.S. indefinitely. It is not practicable to estimate the amount of additional tax that might be payable if such earnings were repatriated. NOTE 16 - CAPITAL STRUCTURE The Company's certificate of incorporation provides it with the authority to issue 50,000,000 shares of $ 0.00001 par value stock, consisting of 45,000,000 shares of common stock and 5,000,000 shares classified as undesignated. NOTE 17 - STOCK-BASED COMPENSATION Stock-Based Compensation Plans 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 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") The Company grants RSAs as part of its long-term incentive compensation to employees and members of the Board of Directors of the Company. 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 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: 79 Table of Contents 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 The weighted-average grant date fair value of RSAs granted was $ 10.54 , $ 16.48 and $ 17.22 during the years ended January 31, 2021, 2020 and 2019. The total fair value of RSAs vested was $ 1.6 million, $ 3.8 million and $ 3.6 million during the years ended January 31, 2021, 2020 and 2019. As of January 31, 2021, there was $ 3.8 million of unrecognized compensation cost related to nonvested RSAs that is expected to be recognized over a weighted-average period of 2.3 years. Restricted Stock Units ("RSUs") The Company grants RSUs as part of its long-term incentive compensation to certain employees of the Company in our European operations. 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 RSUs primarily vest over a period of three to six years. The Company recognizes compensation expense ratably over the vesting period of the award. The restricted common stock underlying these awards are not deemed issued or outstanding upon grant, and do not carry any voting or dividend rights. The following table summarizes RSU activity for the year ended January 31, 2021: 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 The weighted-average grant date fair value of RSUs granted was $ 10.33 and $ 17.79 for the fiscal years ended January 31, 2021 and 2020. There were no RSUs granted during fiscal 2019. As of January 31, 2021, there was $ 0.2 million of unrecognized compensation cost related to nonvested RSUs that is expected to be recognized over a weighted-average period of 2.4 years. During the year ended January 31, 2019, the Company modified certain of its RSU agreements to require the settlement of all future vested awards to be paid in cash in an amount equal to the number of vested awards multiplied by the stock price of the Company on the date of vesting. Due to the cash settlement provision, these awards became liability-classified share-based payments on the modification date. The accounting for this modification did not have a material impact on the Company's consolidated statement of operations or financial position. Long-Term Cash Incentive Awards The Company grants long-term cash incentive awards as part of its long-term incentive compensation to certain international employees of the Company. The awards vest over a period of approximately four years and entitle the award recipient to a cash payment on the vesting date equal to the number of vested shares multiplied by the stock price of the Company on the date of vesting. These awards are liability-classified share-based payment awards in which fair value of the award is remeasured at each period until the liability is settled. Fair value of these awards is determined based on the closing price of the Company's stock as of the end of each reporting period. Changes in the fair value of the liability are recognized as compensation cost over the requisite service period. The percentage of the fair value that is accrued as compensation cost at the end of each period is equal to the percentage of the requisite service that has been rendered at that date. The following table summarizes activity for long-term cash incentive awards for the year ended January 31, 2021: 80 Table of Contents 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 The weighted-average grant date fair value of long-term cash incentive awards granted was $ 10.33 during the year ended January 31, 2021. As of January 31, 2021, based on the Company's stock price on that day, there was $ 0.4 million of unrecognized compensation cost related to nonvested awards that is expected to be recognized over a weighted-average period of 1.4 years. NOTE 18 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) 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 Total Accumulated Other Comprehensive Income (Loss) (in thousands) Balance, January 31, 2018 $ ( 4,411 ) $ 2,711 $ ( 1,700 ) Total other comprehensive loss ( 640 ) — ( 640 ) Balance, January 31, 2019 ( 5,051 ) 2,711 ( 2,340 ) Total other comprehensive loss ( 880 ) — ( 880 ) Balance, January 31, 2020 ( 5,931 ) 2,711 ( 3,220 ) Total other comprehensive loss 4,719 — 4,719 Balance, January 31, 2021 $ ( 1,212 ) $ 2,711 $ 1,499 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 items that are also recorded as part of net income (loss). NOTE 19 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) profit-sharing plan ("401(k) Plan") for full-time employees at least 19 years of age. The Company matches 50 % of the first 6 % of participating employees' contributions. In addition, the Company may make a discretionary contribution to the 401(k) Plan as determined by the Board of Directors, with a maximum amount equal to the amount allowed under the IRS regulations. The Company recognized expense for contributions made to the 401(k) Plan totaling $ 3.1 million, $ 3.0 million and $ 2.7 million for the years ended January 31, 2021, 2020 and 2019. All amounts contributed during these years reflected matching contributions, as no discretionary contributions were made by the Company to the 401(k) Plan. NOTE 20 - BUSINESS COMBINATIONS Fiscal 2021 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. 81 Table of Contents 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. Fiscal 2020 On January 1, 2019, the Company, through its German subsidiary, acquired certain assets of ESB Agrartechnik GmbH ("ESB"). ESB is a full-service agriculture equipment dealership in Eastern Germany. The Company's acquisition of ESB further expands its presence in the German market. The total consideration transferred for the acquired business was $ 3.0 million paid in cash. This acquisition was recognized in the fiscal year ended January 31, 2020 as the acquisition occurred within the Company's International segment in which all entities maintain a calendar year reporting period. On October 1, 2019, the Company acquired certain assets of Uglem-Ness Co. 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. The total consideration transferred for the acquired business was $ 10.9 million paid in cash, including the acquired real estate, which was finalized in January 2020 for $ 2.1 million. In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Uglem-Ness Co. Upon acquiring such inventories, the Company was offered floorplan financing by the respective manufacturers. In total, the Company acquired inventory and recognized a corresponding financing liability of $ 7.4 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination. Fiscal 2019 On July 2, 2018, the Company acquired all interests of two commonly-controlled companies, AGRAM Landtechnikvertrieb GmbH and AGRAM Landtechnik Rollwitz GmbH (collectively "AGRAM"), for $ 19.2 million in cash consideration. Founded in 1990, AGRAM is a CaseIH and Steyr dealership complex consisting of four agriculture dealership locations in the following cities of Germany: Altranft, Burkau, Gutzkow, and Rollwitz. 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. 82 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Purchase Price Allocation Each of the above acquisitions has been accounted for under the acquisition method of accounting, which requires the Company to estimate the acquisition date fair value of the assets acquired and liabilities assumed. The accounting for all business combinations is complete as of January 31, 2021. The following table presents the aggregate purchase price allocations for all acquisitions completed during the fiscal years ended January 31, 2021, 2020, and 2019: 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 Other — — 61 8,796 13,887 38,250 Liabilities Assumed: Accounts payable — — 1,553 Floorplan payable — — 13,820 Current operating lease liabilities 159 — — Deferred revenue — — 85 Accrued expenses and other — — 1,279 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 Goodwill expected to be deductible for tax purposes 484 1,198 — The recognition of goodwill in the above business combinations arose from the acquisition of an assembled workforce and anticipated synergies expected to be realized. 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. The distribution rights assets are indefinite-lived intangible assets not subject to amortization, but are tested for impairment annually, or more frequently upon the occurrence of certain events or when circumstances indicate that impairment may be present. The Company estimated the fair value of these intangible assets using a multi-period excess earnings model, an income approach. Acquisition related costs were 83 Table of Contents 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 As of January 31, 2021 and 2020, the fair value of the Company's foreign currency contracts, which are either assets or liabilities measured at fair value on a recurring basis, was not material. These foreign currency contracts were valued using a discounted cash flow analysis, an income approach, utilizing readily observable market data as inputs, which is classified as a Level 2 fair value measurement. The Company also valued certain long-lived assets at fair value on a non-recurring basis as of January 31, 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. The most significant unobservable inputs include forecasted net cash generated from the use of the assets and the discount rate applied to such cash flows to arrive at a fair value estimate. In addition, in certain instances, the Company estimated the fair value of long-lived assets to be approximately zero, as no future cash flows were assumed to be generated from the use of such assets and the expected sales values were deemed to be nominal. All such fair value measurements were based on unobservable inputs and thus are Level 3 fair value inputs. The Company also has financial instruments that are not recorded at fair value in its consolidated financial statements. 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, 2021 and 2020. NOTE 22 - SEGMENT INFORMATION AND OPERATING RESULTS The Company has three reportable segments: Agriculture, Construction and International. The Company's segments are determined based on management structure, which is organized based on types of products sold and geographic areas, as described in the following paragraphs. The operating results for each segment are reported separately to the Company's Chief Executive Officer to make decisions regarding the allocation of resources, to assess the Company's operating performance and to make strategic decisions. The Company's Agriculture segment sells, services, and rents machinery, and related parts and attachments, for uses ranging from large-scale farming to home and garden use in North America. This segment also includes ancillary sales and services related to agricultural activities and products such as equipment transportation, Global Positioning System ("GPS") signal subscriptions and finance and insurance products. The Company's Construction segment sells, services, and rents machinery, and related parts and attachments, for uses ranging from heavy construction to light industrial machinery use to customers in North America. This segment also includes ancillary sales and services related to construction activities such as equipment transportation, GPS signal subscriptions and finance and insurance products. The Company’s International segment sells, services, and rents machinery, and related parts and attachments, for uses ranging from large-scale farming and construction to home and garden use to customers in Eastern Europe. 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, 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. Shared Resource assets primarily consist of cash and property and equipment. Revenue between segments is immaterial. Certain financial information for each of the Company's business segments is set forth below. 84 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended January 31, 2021 2020 2019 (in thousands) Revenue 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 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 Agriculture $ 272 $ 2,807 $ 886 Construction 597 957 1,114 International 2,311 — 156 Total $ 3,180 $ 3,764 $ 2,156 Interest Income Agriculture $ 72 $ 54 $ 84 Construction 135 217 234 International 46 44 81 Segment interest income 253 315 399 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 Segment interest expense 13,232 15,867 13,893 Shared Resources ( 6,050 ) ( 6,061 ) ( 19 ) 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 Segment depreciation and amortization 20,179 20,034 20,453 Shared Resources 3,522 8,033 3,152 Total $ 23,701 $ 28,067 $ 23,605 85 Table of Contents 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 Segment capital expenditures 15,681 22,180 11,429 Shared Resources 4,408 2,836 522 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 Segment assets 712,444 912,100 Shared Resources 103,345 63,243 Total $ 815,789 $ 975,343 86 Table of Contents Schedule II—Valuation and Qualifying Accounts and Reserves Titan Machinery Inc. 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) Valuation reserve deduction from receivables: Year Ended January 31, 2021 $ 5,123 $ 498 $ 210 $ — $ ( 1,013 ) $ 115 $ 4,933 Year Ended January 31, 2020 3,528 2,497 — — ( 872 ) ( 30 ) 5,123 Year Ended January 31, 2019 2,951 835 — 958 ( 1,173 ) ( 43 ) 3,528 87 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.