Titan Machinery Inc. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Balance Sheets of the Company as of January 31, 2023 and 2022, and the related Consolidated Statements of Operations, Comprehensive Income, Stockholders' Equity, and Cash Flows for the years ended January 31, 2023, 2022 and 2021, 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 (PCAOB ID No. 34 ) 45 Report of Independent Registered Public Accounting Firm 47 Consolidated Balance Sheets as of January 31, 2023 and 2022 48 Consolidated Statements of Operations for the fiscal years ended January 31, 2023, 2022 and 2021 49 Consolidated Statements of Comprehensive Income for the fiscal years ended January 31, 2023, 2022 and 2021 50 Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 2023, 2022 and 2021 51 Consolidated Statements of Cash Flows for the fiscal years ended January 31, 2023, 2022 and 2021 52 Notes to Consolidated Financial Statements 52 44 Table of Conten ts REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors 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, 2023 and 2022, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2023, 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, 2023, 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 Marc h 30, 2023, 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. Used equipment acquired through a trade-in or during business combinations 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, 2023 was $164.8 million. Given the significant judgments made by management to determine the initial fair value and subsequent net realizable value of used equipment inventories, performing audit procedures to evaluate these judgments to determine the valuation of used equipment inventories required a high degree of auditor judgment and an increased extent of effort. 45 Table of Conten ts 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 fair value or net realizable value of the used equipment inventories by: • Evaluating the reasonableness and consistency of the methodology and assumptions used by management to determine fair value or net realizable value, as applicable. • Testing the underlying determination of the fair value or 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, as applicable. /s/ DELOITTE & TOUCHE LLP Minneapolis, Minnesota March 30 , 2023 We have served as the Company's auditor since 2013. 46 Table of Conten ts REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the stockholders and the Board of Directors 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, 2023, 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, 2023, 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 as of and for the year ended January 31, 2023, of the Company and our report dated March 30, 2023, expressed an unqualified opinion on those financial statements. As detailed in Management's Report on Internal Control Over Financial Reporting , management excluded from its assessment the internal control over financial reporting at Heartland Agriculture, LLC, Heartland Solutions, LLC, Heartland Leveraged Lender, LLC (“collectively the Heartland Companies”), which were acquired on August 1, 2022, and whose financial statements constitute 5.7% of total assets and 4.7% of total revenue of the consolidated financial statement amounts as of and for the year ended January 31, 2023. Accordingly, our audit did not include the internal control over financial reporting at the Heartland Companies. 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 Ma rch 30, 2023 47 Table of Conten ts TITAN MACHINERY INC. CONSOLIDATED BALANCE SHEETS AS OF JANUARY 31, 2023 AND 2022 (in thousands, except per share data) January 31, 2023 January 31, 2022 Assets Current Assets Cash $ 43,913 $ 146,149 Receivables, net of allowance for expected credit losses 95,844 94,287 Inventories 703,939 421,758 Prepaid expenses and other 25,554 28,135 Total current assets 869,250 690,329 Noncurrent Assets Property and equipment, net of accumulated depreciation 217,782 178,243 Operating lease assets 50,206 56,150 Deferred income taxes 1,246 1,328 Goodwill 30,622 8,952 Intangible assets, net of accumulated amortization 18,411 10,624 Other 1,178 1,041 Total noncurrent assets 319,445 256,338 Total Assets $ 1,188,695 $ 946,667 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $ 40,834 $ 25,644 Floorplan payable 258,372 135,415 Current maturities of long-term debt 7,241 5,876 Current maturities of operating leases 9,855 9,601 Deferred revenue 119,845 134,146 Accrued expenses and other 58,159 59,339 Income taxes payable 3,845 4,700 Total current liabilities 498,151 374,721 Long-Term Liabilities Long-term debt, less current maturities 89,950 74,772 Operating lease liabilities 48,513 55,595 Deferred income taxes 9,563 2,006 Other long-term liabilities 6,212 4,374 Total long-term liabilities 154,238 136,747 Commitments and Contingencies (Note 12) Stockholders' Equity Common stock, par value $ 0.00001 per share, 45,000,000 shares authorized; 22,697,761 shares issued and outstanding at January 31, 2023; 22,587,859 shares issued and outstanding at January 31, 2022 — — Additional paid-in-capital 256,541 254,455 Retained earnings 284,784 182,916 Accumulated other comprehensive income (loss) ( 5,019 ) ( 2,172 ) Total stockholders' equity 536,306 435,199 Total Liabilities and Stockholders' Equity $ 1,188,695 $ 946,667 See Notes to Consolidated Financial Statements 48 Table of Conten ts TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED JANUARY 31, 2023, 2022 AND 2021 (in thousands, except per share data) 2023 2022 2021 Revenue Equipment $ 1,711,559 $ 1,291,684 $ 1,016,071 Parts 327,196 266,916 244,676 Service 129,803 115,641 107,229 Rental and other 40,748 37,665 43,246 Total Revenue 2,209,306 1,711,906 1,411,222 Cost of Revenue Equipment 1,477,539 1,130,205 911,170 Parts 220,418 186,324 171,873 Service 46,208 38,771 36,692 Rental and other 25,302 23,882 30,125 Total Cost of Revenue 1,769,467 1,379,182 1,149,860 Gross Profit 439,839 332,724 261,362 Operating Expenses 301,516 241,044 220,774 Impairment of Goodwill — — 1,453 Impairment of Intangible and Long-Lived Assets — 1,498 1,727 Income from Operations 138,323 90,182 37,408 Other Income (Expense) Interest and other income 3,862 2,431 527 Floorplan interest expense ( 1,875 ) ( 1,175 ) ( 3,339 ) Other interest expense ( 5,069 ) ( 4,537 ) ( 3,843 ) Income Before Income Taxes 135,241 86,901 30,753 Provision for Income Taxes 33,373 20,854 11,397 Net Income $ 101,868 $ 66,047 $ 19,356 Earnings per Share: Basic $ 4.50 $ 2.93 $ 0.86 Diluted $ 4.49 $ 2.92 $ 0.86 Weighted Average Common Shares: Basic 22,373 22,238 22,100 Diluted 22,380 22,248 22,104 See Notes to Consolidated Financial Statements 49 Table of Conten ts TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME YEARS ENDED JANUARY 31, 2023, 2022 AND 2021 (in thousands) 2023 2022 2021 Net Income $ 101,868 $ 66,047 $ 19,356 Other Comprehensive Income (Loss) Foreign currency translation adjustments ( 2,847 ) ( 3,671 ) 4,719 Comprehensive Income $ 99,021 $ 62,376 $ 24,075 See Notes to Consolidated Financial Statements 50 Table of Conten ts TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JANUARY 31, 2023, 2022 AND 2021 (in thousands) Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity Shares Outstanding Amount BALANCE, JANUARY 31, 2020 22,335 $ — $ 250,607 $ 97,717 $ ( 3,220 ) $ 345,104 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 Cumulative-effect adjustment of adopting ASC 326, Financial Instruments - Credit Losses — — — ( 204 ) — ( 204 ) Net income — — — 19,356 — 19,356 Other comprehensive loss — — — — 4,719 4,719 BALANCE, JANUARY 31, 2021 22,553 — 252,913 116,869 1,499 371,281 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 35 — ( 1,012 ) — — ( 1,012 ) Stock-based compensation expense — — 2,554 — — 2,554 Net income — — — 66,047 — 66,047 Other comprehensive loss — — — — ( 3,671 ) ( 3,671 ) BALANCE, JANUARY 31, 2022 22,588 — 254,455 182,916 ( 2,172 ) 435,199 Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 110 — ( 1,144 ) — — ( 1,144 ) Stock-based compensation expense — — 3,230 — — 3,230 Net income — — — 101,868 — 101,868 Other comprehensive income — — — — ( 2,847 ) ( 2,847 ) BALANCE, JANUARY 31, 2023 22,698 $ — $ 256,541 $ 284,784 $ ( 5,019 ) $ 536,306 See Notes to Consolidated Financial Statements 51 Table of Conten ts TITAN MACHINERY INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED JANUARY 31, 2023, 2022 AND 2021 (in thousands) 2023 2022 2021 Operating Activities Net income $ 101,868 $ 66,047 $ 19,356 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 25,197 22,139 23,701 Impairment of goodwill, intangible assets and long lived assets — 1,498 3,180 Deferred income taxes 7,639 4,315 ( 3,538 ) Stock-based compensation expense 3,230 2,554 2,515 Noncash interest expense 245 218 174 Gain on sale of property & equipment ( 502 ) ( 4,525 ) ( 863 ) Other, net 9,383 10,593 11,025 Changes in assets and liabilities Receivables, prepaid expenses and other assets 9,886 ( 37,037 ) 4,469 Inventories ( 180,929 ) 5,799 199,245 Manufacturer floorplan payable 69,633 14,233 ( 110,084 ) Deferred revenue ( 20,901 ) 74,244 18,157 Accounts payable, accrued expenses and other and other long-term liabilities ( 13,933 ) ( 1,162 ) 5,659 Net Cash Provided by Operating Activities 10,816 158,916 172,996 Investing Activities Rental fleet purchases ( 9,994 ) ( 14,594 ) ( 7,103 ) Property and equipment purchases (excluding rental fleet) ( 27,217 ) ( 23,033 ) ( 12,986 ) Proceeds from sale of property and equipment 3,756 16,046 6,592 Acquisition consideration, net of cash acquired ( 100,471 ) ( 33,643 ) ( 6,790 ) Other, net ( 139 ) 26 ( 10 ) Net Cash Used for Investing Activities ( 134,065 ) ( 55,198 ) ( 20,297 ) Financing Activities Net change in non-manufacturer floorplan payable 22,334 ( 35,443 ) ( 106,414 ) Proceeds from long-term debt borrowings 8,415 10,348 5,326 Principal payments on long-term debt and finance leases ( 7,637 ) ( 9,212 ) ( 15,942 ) Other, net ( 1,153 ) ( 1,028 ) ( 909 ) Net Cash Provided by (Used for) Financing Activities 21,959 ( 35,335 ) ( 117,939 ) Effect of Exchange Rate Changes on Cash ( 946 ) ( 1,224 ) 509 Net Change in Cash ( 102,236 ) 67,159 35,269 Cash at Beginning of Period 146,149 78,990 43,721 Cash at End of Period $ 43,913 $ 146,149 $ 78,990 Supplemental Disclosures of Cash Flow Information Cash paid during the period Income taxes, net of refunds $ 26,575 $ 22,946 $ 2,786 Interest $ 6,519 $ 5,399 $ 7,355 Supplemental Disclosures of Noncash Investing and Financing Activities Net property and equipment financed with long-term debt, capital leases, accounts payable and accrued liabilities $ 6,404 $ 14,626 $ 19,537 Long-term debt to acquire finance leases $ 7,119 $ 11,000 $ — Net transfer of assets from (to) property and equipment to (from) inventories $ ( 3,767 ) $ 4,368 $ 6,702 See Notes to Consolidated Financial Statements 52 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, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, and Ukraine. Russia/Ukraine Geopolitical Conflict On February 24, 2022, the ongoing Russia/Ukraine conflict significantly intensified, and the sustained conflict and disruption in the region is ongoing. Titan Machinery Ukraine, LLC ("Titan Machinery Ukraine"), the Company's wholly-owned Ukrainian subsidiary, has nine locations throughout Ukraine primarily in western and central Ukraine. The conflict has caused disruptions in our Ukrainian operations, with our revenues for fiscal 2023 down 40.5% from the prior fiscal year. These disruptions have not been material to the Company's consolidated financial statements. However, if the conflict intensifies in western and central Ukraine, it could significantly increase the adverse effect on Titan Machinery Ukraine in future periods. For the fiscal year ended January 31, 2023, the Company had total assets of $27.4 million in Ukraine compared to $32.7 million as of January 31, 2022. The physical assets (e.g. inventory and fixed assets) are almost exclusively located in central and western areas of the country. The Company continues to monitor Titan Machinery Ukraine's net monetary asset position, and while the currency and payment controls imposed by the National Bank of Ukraine have been relaxed, the controls have limited our ability to manage our net monetary asset position in the past and could limit our ability in the future. 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 2023 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. 53 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, at times, 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 and ability to meet delivery timelines; • CNH Industrial's implementation of an equipment allocation methodology for use in determining production slots in calendar year 2023; • 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 54 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. 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 the Company's 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 average cost or net realizable value adjustments on its parts inventories based on various factors including aging and sales of each type 55 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) of parts inventory. Work in process represents costs incurred in the reconditioning and preparation for sale of our equipment inventories. 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. See Note 7 for details and results of the Company's impairment testing. 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 three to five 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. 56 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) When reviewing long-lived assets for impairment, we group long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities. Long-lived assets deployed and used by individual store locations are reviewed for impairment at the individual store level. Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate. During the year ended January 31, 2023, 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 $12.6 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 recoverable. Accordingly, the Company did not recognize any impairment charges in year ended January 31, 2023. We performed similar impairment analyses at the end of fiscal 2022 and 2021. The Company recognized impairment charges totaling $ 0.4 million on long-lived assets during the year ended January 31, 2022, which were related to the International segment. The Company recognized impairment charges totaling $ 0.9 million on long-lived assets during the year ended January 31, 2021, 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. 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. 57 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 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 $ 2.9 million, $ 2.5 million and $ 2.2 million for the years ended January 31, 2023, 2022 and 2021, 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 the Company's 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 the Company's 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 in its consolidated statements of operations, a net foreign currency transaction loss of $ 1.2 million, $ 0.1 million, and $ 2.8 million for the years ended January 31, 2023, 2022, and 2021 respectively. 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. 58 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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. Segment Reporting The Company operates its business in three reportable segments, the Agriculture, Construction and International segments. Recent Accounting Guidance Accounting guidance not yet adopted In September of 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") No. 2022-04 , Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations . This new standard requires that the buyer in a supplier finance program discloses information about the key terms of the program, outstanding confirmed amounts as of the end of the period, a rollforward of such amounts during each annual period, and a description of where in the financial statements outstanding amounts are presented. This ASU is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective for fiscal years beginning after December 15, 2023. Early adoption of this ASU is permitted. Entities must apply the amendments of this ASU retrospectively to all periods in which a balance sheet is presented, with the exception of the amendment on disclosure of rollforward information, which entities only need to apply prospectively. Management is currently evaluating this ASU to determine its impact on the Company's 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. 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. 59 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the calculation of basic and diluted EPS: Year Ended January 31, 2023 2022 2021 (in thousands, except per share data) Numerator Net income $ 101,868 $ 66,047 $ 19,356 Allocation to participating securities ( 1,295 ) ( 977 ) ( 325 ) Net income attributable to Titan Machinery Inc. common stockholders $ 100,573 $ 65,070 $ 19,031 Denominator Basic weighted-average common shares outstanding 22,373 22,238 22,100 Plus: incremental shares from assumed vesting of restricted stock units 7 10 4 Diluted weighted-average common shares outstanding 22,380 22,248 22,104 Earnings per Share: Basic $ 4.50 $ 2.93 $ 0.86 Diluted $ 4.49 $ 2.92 $ 0.86 NOTE 3 - REVENUE The following tables present our revenue disaggregated by revenue source and segment for the years ended January 31, 2023, 2022 and 2021: Year Ended January 31, 2023 Agriculture Construction International Total (in thousands) Equipment $ 1,269,298 $ 201,077 $ 241,184 $ 1,711,559 Parts 228,520 50,628 48,048 327,196 Service 96,418 25,079 8,306 129,803 Other 4,044 1,897 915 6,856 Revenue from contracts with customers 1,598,280 278,681 298,453 2,175,414 Rental 3,440 29,776 676 33,892 Total revenues $ 1,601,720 $ 308,457 $ 299,129 $ 2,209,306 Year Ended January 31, 2022 Agriculture Construction International Total (in thousands) Equipment $ 823,590 $ 209,318 $ 258,776 $ 1,291,684 Parts 166,623 50,449 49,844 266,916 Service 81,506 26,401 7,734 115,641 Other 3,006 1,913 517 5,436 Revenue from contracts with customers 1,074,725 288,081 316,871 1,679,677 Rental 2,026 29,083 1,120 32,229 Total revenues $ 1,076,751 $ 317,164 $ 317,991 $ 1,711,906 60 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 Deferred revenue from contracts with customers totaled $ 118.1 million and $ 132.2 million as of January 31, 2023 and January 31, 2022. 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. The decrease in deferred revenue from January 31, 2022 to January 31, 2023, was primarily due to lower trade-in activity on pending equipment sale transactions as customer's are less willing to give up their trade until their new equipment is delivered, due to the delays in getting new equipment over the past year. During the year ended January 31, 2023, the Company recognized substantially all of the revenue that was included in the deferred revenue balance as of January 31, 2022. The following is a summary of deferred revenue as of January 31, 2023 and January 31, 2022: January 31, 2023 January 31, 2022 (in thousands) Deferred revenue from contracts with customers $ 118,074 $ 132,193 Deferred revenue from rental and other contracts 1,771 1,953 $ 119,845 $ 134,146 No material amount of revenue was recognized during the year ended January 31, 2023 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. 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 61 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) receivables based on historical experience and using credit information obtained from continued monitoring of customer accounts. January 31, 2023 January 31, 2022 (in thousands) Trade and unbilled receivables from contracts with customers Trade receivables due from customers $ 47,298 $ 30,041 Unbilled receivables 19,764 17,129 Less allowance for expected credit losses 3,080 1,979 63,982 45,191 Trade receivables due from finance companies 11,212 17,937 Trade and unbilled receivables from rental contracts Trade receivables 3,629 3,055 Unbilled receivables 776 538 Less allowance for expected credit losses 360 469 4,045 3,124 Other receivables Due from manufacturers 15,007 22,979 Other 1,598 5,056 16,605 28,035 Receivables, net of allowance for expected credit losses $ 95,844 $ 94,287 62 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 January 31, 2021 $ 229 $ 1,074 $ 1,691 $ 2,994 Current expected credit loss provision 137 186 ( 8 ) 315 Write-offs charged against allowance 166 1,076 111 1,353 Credit loss recoveries collected 44 9 42 95 Foreign exchange impact — — ( 72 ) ( 72 ) Balance at January 31, 2022 244 193 1,542 1,979 Current expected credit loss provision 190 84 1,273 1,547 Write-offs charged against allowance 93 166 184 443 Credit loss recoveries collected 26 13 — 39 Foreign exchange impact — — ( 42 ) ( 42 ) Balance at January 31, 2023 $ 367 $ 124 $ 2,589 $ 3,080 The increase in the credit loss provision in the International segment, during the twelve months ended January 31, 2023, was driven by a $1.0 million bad debt provision placed on the accounts receivables due from customers of Titan Machinery Ukraine. The following table presents impairment losses on receivables arising from sales contracts with customers and receivables arising from rental contracts: Year Ended January 31, 2023 2022 (in thousands) Impairment losses (recoveries) on: Receivables from sales contracts with customers $ 1,490 $ 593 Receivables from rental contracts 127 ( 56 ) $ 1,617 $ 537 The increase in impairment losses on receivables from sales contracts with customers was primarily driven by an increase in the bad debt provision on accounts receivables due from customers of Titan Machinery Ukraine. NOTE 5 - INVENTORIES January 31, 2023 January 31, 2022 (in thousands) New equipment $ 369,828 $ 195,775 Used equipment 164,761 128,047 Parts and attachments 164,553 95,890 Work in process 4,797 2,046 $ 703,939 $ 421,758 63 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6 - PROPERTY AND EQUIPMENT January 31, 2023 January 31, 2022 (in thousands) Rental fleet equipment $ 75,386 $ 65,117 Machinery and equipment 27,220 22,819 Vehicles 80,122 58,650 Furniture and fixtures 53,937 50,228 Land, buildings, and leasehold improvements 140,773 123,323 377,438 320,137 Less accumulated depreciation 159,656 141,894 $ 217,782 $ 178,243 The Company includes depreciation expense related to its rental fleet and its trucking fleet, for hauling equipment, in cost of revenue, which was $ 8.2 million, $ 8.6 million, and $ 10.3 million for the years ended January 31, 2023, 2022 and 2021. All other depreciation expense is included in Operating Expenses, which totaled $ 15.9 million, $ 12.2 million and $ 11.6 million for the years ended January 31, 2023, 2022 and 2021, 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 above. Such assets had gross carrying values totaling $ 18.8 million and $ 26.3 million, and accumulated amortization balances totaling $ 8.6 million and $ 8.3 million, as of January 31, 2023 and 2022. NOTE 7 - INTANGIBLE ASSETS AND GOODWILL Definite-Lived Intangible Assets The following is a summary of definite-lived intangible assets as of January 31, 2023 and 2022: January 31, 2023 January 31, 2022 Cost Accumulated Amortization Net Cost Accumulated Amortization Net (in thousands) (in thousands) Covenants not to compete $ 1,025 $ ( 222 ) $ 803 $ 250 $ ( 79 ) $ 171 Customer relationships 538 ( 180 ) 358 497 ( 252 ) 245 $ 1,563 $ ( 402 ) $ 1,161 $ 747 $ ( 331 ) $ 416 Intangible asset amortization expense was $ 0.2 million for the year ended January 31, 2023, and $0.1 million for the two years ended January 31, 2022 and 2021. The covenants not to compete and customer relationships assets for the year ended January 31, 2023 have a weighted-average amortization period of 4.8 years and 5 years, respectively. As of January 31, 2023, future amortization expense is expected to be as follows: Fiscal years ending January 31, Amount (in thousands) 2024 $ 313 2025 288 2026 246 2027 220 2028 94 Thereafter — $ 1,161 64 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2023 and 2022 are as follows: Agriculture Construction International Total (in thousands) Balance, January 31, 2021 $ 6,265 $ 72 $ 1,161 $ 7,498 Arising from business combinations 3,871 — — 3,871 Foreign currency translation — — ( 22 ) ( 22 ) Impairment — — 1,139 1,139 Balance, January 31, 2022 10,136 72 — 10,208 Arising from business combinations 7,042 — — 7,042 Balance, January 31, 2023 $ 17,178 $ 72 $ — $ 17,250 The Company performs at least an annual impairment testing of its indefinite-lived distribution rights intangible 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 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 annual distribution rights impairment test for the year ended January 31, 2023, indicated no impairment. The results of the Company's impairment testing for the Germany distribution rights intangible assets for the quarter ended July 31, 2021, 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 $ 1.1 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 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. During the year ended January 31, 2023, no impairment charges were recognized in association with indefinite-lived intangible assets. During the years ended January 31, 2022 and 2021, the Company recognized $ 1.1 million and $0.9 million of impairment charges associated with its distribution rights in its German reporting unit. The Company had gross indefinite-lived intangible assets of $18.4 million and accumulated impairments of $1.1 million as of January 31, 2023. 65 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Goodwill Changes in the carrying amount of goodwill during the years ended January 31, 2023 and 2022 are as follows: Agriculture Total (in thousands) Balance, January 31, 2021 $ 1,433 $ 1,433 Arising from business combinations 7,519 7,519 Balance, January 31, 2022 8,952 8,952 Arising from business combinations 21,670 21,670 Balance, January 31, 2023 $ 30,622 $ 30,622 The Company performs an annual impairment testing of goodwill as of December 31st of each year. 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. During the years ended January 31, 2023 and 2022, the Company did not recognize any impairment charges. During the year ended January 31, 2021, the quantitative goodwill impairment analysis for the German reporting unit indicated that the estimated fair value of the reporting unit was less than the carrying value. The 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. As 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. This removed all of the remaining goodwill in the International segment during the year ended January 31, 2021, the Agriculture segment is the only segment with goodwill on its balance sheet. 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. As of January 31, 2023, the Company had floorplan lines of credit totaling $ 781.0 million, which is primarily comprised of three significant floorplan lines of credit: (i) a $ 500.0 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 $ 50.0 million credit facility with DLL Finance LLC (“DLL Finance”). CNH Industrial Floorplan Payable Line of Credit As of January 31, 2023, the Company had a $ 500.0 million credit facility with CNH Industrial, of which $ 410.0 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 dependent on the Company's Retail Finance Market Share, as defined in the credit facility agreement, and ranges from 0.5% to 2.75 % plus the prime rate 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 66 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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, 2023, 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 As of January 31, 2023, the Company had a $250.0 million credit facility under a Third Amended and Restated Credit Agreement (the "Bank Syndicate Agreement"), 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 Secured Overnight Financing Rate ("SOFR") Rate Loan. The SOFR Rate is based upon one-month, three-month, or six-month SOFR, as chosen by the Company, plus an applicable margin, plus 11.4 basis points for one-month, 26.2 basis points for three-month, and 42.8 basis points for six-month loans. In no event shall the SOFR Rate be less than zero. 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 SOFR Rate plus 1 % plus applicable margin, plus 11.4 basis points. 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. 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, 2023. The Bank Syndicate 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, 2023, under these provisions of the Bank Syndicate Agreement, the Company had an unrestricted dividend availability of approximately $ 95.4 million. The Bank Syndicate Agreement matures on April 3, 2025. 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. As of January 31, 2023 and 2022, the Company did not have a need to utilize the revolver loan as the balance was zero for both periods. 67 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) DLL Finance Floorplan Payable Line of Credit As of January 31, 2023, the Company had a $ 50.0 million credit facility with DLL Finance, of which $ 39.0 million is available for domestic financing and $ 11.0 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 one-month SOFR plus an applicable margin of 3.06 %. 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 in its sole discretion at any time. 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, 2023, 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 EURIBOR and include interest margins primarily ranging from 1.40% to 2.50%. 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. Summary of Outstanding Amounts As of January 31, 2023 and 2022, the Company’s outstanding balance of floorplan payables and lines of credit consisted of the following: January 31, 2023 January 31, 2022 (in thousands) CNH Industrial $ 177,337 $ 94,054 Bank Syndicate Agreement Floorplan Loan 35,550 — DLL Finance 9,914 8,558 Other outstanding balances with manufacturers and non-manufacturers 35,571 32,803 $ 258,372 $ 135,415 As of January 31, 2023, the interest-bearing U.S. floorplan payables were primarily on the Bank Syndicate Agreement Loan with a variable interest rate of 5.94%. As of January 31, 2022, generally all U.S. floorplan payables were non-interest bearing. As of January 31, 2023, foreign floorplan payables carried various interest rates primarily ranging from 4.16 % to 4.96 %, compared to a range of 1.40 % to 4.79 % as of January 31, 2022. As of January 31, 2023 and 2022, $ 213.0 million and $ 106.8 million, respectively, of outstanding floorplan payables were non-interest bearing. NOTE 9 - ACCRUED EXPENSES & OTHER January 31, 2023 January 31, 2022 (in thousands) Compensation $ 39,026 $ 31,244 Sales, payroll, real estate and value added taxes 7,357 8,563 Insurance 4,291 3,393 Lease residual value guarantees 193 422 Finance lease liabilities 577 7,466 Interest 487 349 Other 6,228 7,902 $ 58,159 $ 59,339 68 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 10 - LONG-TERM DEBT The following is a summary of long-term debt: Year Ended January 31, Description Maturity Dates Interest Rates 2023 2022 (in thousands) Mortgage loans, secured Various through May 2039 2.1 % to 5.1 % $ 68,689 $ 57,801 Sale-leaseback financing obligations Various through December 2030 3.4 % to 10.3 % 11,252 12,382 Vehicle loans, secured Various through November 2028 1.7 % to 5.9 % 12,659 10,465 Other Various through July 2039 3.6 % 4,591 — Total debt 97,191 80,648 Less: current maturities 7,241 5,876 Long-term debt, net $ 89,950 $ 74,772 Long-term debt maturities are as follows: Years Ending January 31, Amounts (in thousands) 2024 $ 7,241 2025 15,341 2026 6,734 2027 13,755 2028 14,087 Thereafter 40,033 $ 97,191 NOTE 11 - 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, 2023 and 2022. As of January 31, 2023, and 2022, the Company had no derivative instruments outstanding. 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. 69 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The following table sets forth the gains and losses recognized in income related to the Company’s derivative instruments for the years ended January 31, 2023, 2022 and 2021. Year Ended January 31, 2023 2022 2021 (in thousands) Derivatives Not Designated as Hedging Instruments: Foreign currency contracts (a) $ 1,377 $ ( 159 ) $ 934 Total Derivatives $ 1,377 $ ( 159 ) $ 934 (a) Amounts are included in Interest and other income in the consolidated statements of operations . NOTE 12 - CONTINGENCIES 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 13. NOTE 13 - 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. 70 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) 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 2023 2022 2021 (in thousands) Finance lease cost: Amortization of leased assets Operating expenses $ 862 $ 1,036 $ 1,585 Interest on lease liabilities Other interest expense 184 255 451 Operating lease cost Operating expenses and rental and other cost of revenue 13,535 14,471 18,025 Short-term lease cost Operating expenses 71 273 340 Variable lease cost Operating expenses 2,013 2,332 2,798 Sublease income Interest and other income ( 1,384 ) ( 894 ) ( 547 ) $ 15,281 $ 17,473 $ 22,652 Right-of-use lease assets and lease liabilities consist of the following: Classification January 31, 2023 January 31, 2022 (in thousands) Assets Operating lease assets Operating lease assets $ 50,206 $ 56,150 Financing lease assets (a) Property and equipment, net of accumulated depreciation 2,102 9,045 Total leased assets $ 52,308 $ 65,195 Liabilities Current Operating Current operating lease liabilities $ 9,855 $ 9,601 Financing Accrued expenses and other 577 7,466 Noncurrent Operating Operating lease liabilities 48,513 55,595 Financing Other long-term liabilities 1,863 1,518 Total lease liabilities $ 60,808 $ 74,180 (a) Finance lease assets are recorded net of accumulated amortization of $ 1.2 million and $ 1.7 million as of January 31, 2023 and 2022, respectively. Maturities of lease liabilities as of January 31, 2023 are as follows: Operating Finance Leases Leases Total Fiscal Year Ending January 31, (in thousands) 2024 $ 13,049 $ 744 $ 13,793 2025 12,563 672 13,235 2026 12,017 536 12,553 2027 11,104 424 11,528 2028 9,569 318 9,887 Thereafter 10,791 343 11,134 Total lease payments 69,093 3,037 72,130 Less: Interest 10,725 597 11,322 Present value of lease liabilities $ 58,368 $ 2,440 $ 60,808 71 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The weighted-average lease term and discount rate as of January 31, 2023 and 2022 are as follows: January 31, 2023 January 31, 2022 Weighted-average remaining lease term (years): Operating leases 5.7 6.5 Financing leases 4.7 1.3 Weighted-average discount rate: Operating leases 6.1 % 6.1 % Financing leases 8.3 % 4.6 % Other lease information is as follows: Year Ended January 31, 2023 2022 2021 (in thousands) Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 12,628 $ 15,462 $ 18,267 Operating cash flow from finance leases 184 255 451 Financing cash flows from finance leases 701 1,211 1,816 Operating lease assets obtained in exchange for new operating lease liabilities 6,261 2,154 3,066 Finance lease assets obtained in exchange for new finance lease liabilities 4,385 463 512 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, 2023 and 2022, respectively: January 31, 2023 January 31, 2022 (in thousands) Rental fleet equipment $ 75,386 $ 65,117 Less accumulated depreciation 26,959 23,501 $ 48,427 $ 41,616 72 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 14 - INCOME TAXES The components of income (loss) before income taxes for the years ended January 31, 2023, 2022 and 2021 consist of the following: 2023 2022 2021 (in thousands) U.S. $ 115,044 $ 74,349 $ 36,778 Foreign 20,197 12,552 ( 6,025 ) Total $ 135,241 $ 86,901 $ 30,753 The provision for (benefit from) income taxes charged to income for the years ended January 31, 2023, 2022 and 2021 consists of the following: 2023 2022 2021 (in thousands) Current Federal $ 15,943 $ 10,348 $ 12,825 State 5,776 3,316 1,442 Foreign 4,015 2,875 668 Total current taxes 25,734 16,539 14,935 Deferred Federal 6,310 3,978 ( 5,128 ) State 1,210 772 553 Foreign 119 ( 435 ) 1,037 Total deferred taxes 7,639 4,315 ( 3,538 ) Total $ 33,373 $ 20,854 $ 11,397 The reconciliation of the statutory federal income tax rate to the Company's effective rate is as follows: 2023 2022 2021 U.S. statutory rate 21.0 % 21.0 % 21.0 % Foreign statutory rates ( 0.2 ) % ( 2.4 ) % ( 0.2 ) % State taxes on income net of federal tax benefit 4.7 % 4.6 % 4.8 % Valuation allowances 0.4 % 0.6 % 12.2 % Impact of Ukraine currency gains or losses ( 0.9 ) % 0.7 % ( 4.0 ) % All other, net ( 0.3 ) % ( 0.5 ) % 3.3 % 24.7 % 24.0 % 37.1 % 73 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, 2023 and 2022: 2023 2022 (in thousands) Deferred tax assets: Inventory allowances $ 2,551 $ 2,144 Intangible assets 290 1,219 Net operating losses 5,841 5,602 Accrued liabilities and other 3,913 4,164 Receivables 724 557 Stock-based compensation 1,124 1,005 Right of use lease liability 14,238 17,463 Other 374 297 Total deferred tax assets 29,055 32,451 Valuation allowances ( 6,455 ) ( 5,974 ) Deferred tax assets, net of valuation allowances $ 22,600 $ 26,477 Deferred tax liabilities: Property and equipment $ ( 18,889 ) $ ( 12,076 ) Right of use lease asset ( 12,028 ) ( 15,079 ) Total deferred tax liabilities $ ( 30,917 ) $ ( 27,155 ) Net deferred tax asset (liability) $ ( 8,317 ) $ ( 678 ) As of January 31, 2023, the Company has recorded $ 27.7 million of net operating loss carryforwards within certain of its foreign jurisdictions; $ 22.7 million of net operating loss carryforwards are within foreign jurisdictions with unlimited carryforward periods, and $4.9 million are within foreign jurisdictions that expire at various dates between the Company's fiscal years 2037 and 2038. In reviewing the foreign deferred tax assets as of January 31, 2023, the Company concluded that a full valuation allowance continued to be warranted in the Company's Ukrainian subsidiary, due to geopolitical concerns in the area. The Company also concluded a full valuation allowance on the Company's German and Luxembourg subsidiaries continued to be warranted based on the presence of historical losses and our expected future sources of taxable income. In the third quarter of fiscal 2023, the Company released the remaining valuation allowance on its Bulgarian subsidiary, resulting in a benefit of $0.3 million. In total, valuation allowances of $6.5 million exist for our international entities as of January 31, 2023. In reviewing the foreign deferred tax assets as of January 31, 2022, the Company concluded that a full valuation allowance continued to be warranted in the Company's Ukrainian subsidiary, due to geopolitical concerns in the area. It was also concluded that a full valuation allowance for the Company’s German and Luxembourg subsidiaries 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. In the second quarter of fiscal 2022, the Company recorded an additional $2.5 million valuation allowance related to the German and Luxembourg subsidiaries. It was also concluded that a partial release of the valuation allowance of the Company’s Bulgaria subsidiary is warranted based on the presence of historical income, and our expected future sources of taxable income, including the anticipated future reversal of our existing deferred tax assets and liabilities. In the fourth quarter of fiscal 2022, the Company recorded a benefit of $1.3 million from the partial release of the valuation allowance related to the Company’s Bulgaria subsidiary. In total, valuation allowances of $6.0 million exist for our international entities as of January 31, 2022. At the end of fiscal year ended January 31, 2021, the Company concluded that a full valuation allowance continued to be warranted in certain jurisdictions. It was also concluded that a full valuation allowance for the Company's Ukrainian subsidiary was warranted and a partial valuation allowance for the Company's German subsidiary was warranted, 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 74 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Ukrainian and German subsidiaries. In total, valuation allowances of $6.1 million existed for our international entities as of January 31, 2021. 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, 2020 and state tax authorities for fiscal years ended prior to January 31, 2019. Certain foreign jurisdictions are no longer subject to income tax examinations for the calendar year periods ranging between 2016 and 2022, depending on the jurisdiction of the entity. As of January 31, 2023, the Company had accumulated undistributed earnings in non-U.S. subsidiaries of approximately $ 33.0 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 15 - 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 16 - 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"), 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 2014 Equity Incentive 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 2014 Equity Incentive Plan under all forms of awards. Shares issued for stock-based awards consist of authorized but unissued shares. 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. As of January 31, 2023, the Company has 587,273 shares authorized and available for future equity awards under the 2014 Equity Incentive Plan. Compensation cost arising from stock-based compensation and charged to operations was $ 3.3 million, $ 2.8 million, $ 2.7 million for the years ended January 31, 2023, 2022 and 2021, respectively. The related income tax benefit (net) was $ 1.3 million, $ 1.3 million and $ 0.4 million for the years ended January 31, 2023, 2022 and 2021, 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 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, 2023: Shares Weighted Average Grant Date Fair Value (in thousands) Nonvested at January 31, 2022 308 $ 18.33 Granted 145 27.06 Forfeited ( 7 ) 19.62 Vested ( 166 ) 18.30 Nonvested at January 31, 2023 280 $ 22.84 75 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) The weighted-average grant date fair value of RSAs granted was $ 27.06 , $ 34.24 and $ 10.54 during the years ended January 31, 2023, 2022 and 2021. The total fair value of RSAs vested was $ 4.6 million, $ 5.0 million and $ 1.6 million during the years ended January 31, 2023, 2022 and 2021. As of January 31, 2023, there was $ 4.6 million of unrecognized compensation cost related to nonvested RSAs that is expected to be recognized over a weighted-average period of 2.1 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 four 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, 2023: Shares Weighted Average Grant Date Fair Value (in thousands) Nonvested at January 31, 2022 15 $ 16.30 Granted 4 26.23 Vested ( 7 ) 13.16 Nonvested at January 31, 2023 12 $ 21.24 The weighted-average grant date fair value of RSUs granted was $ 26.23 , $ 34.59 , and $ 10.33 for the fiscal years ended January 31, 2023, 2022, and 2021, respectively. As of January 31, 2023, 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 1.9 years. 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, 2023: Shares Weighted Average Grant Date Fair Value (in thousands) Nonvested at January 31, 2022 33 $ 17.52 Granted 11 26.23 Vested ( 13 ) 16.57 Nonvested at January 31, 2023 31 $ 21.06 The weighted-average grant date fair value of long-term cash incentive awards granted was $ 26.23 during the year ended January 31, 2023. As of January 31, 2023, based on the Company's stock price on that day, there was $ 0.5 million of unrecognized compensation cost related to nonvested awards that is expected to be recognized over a weighted-average period of 1.1 years. 76 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 17 - 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, 2023, 2022 and 2021: Foreign Currency Translation Adjustment Net Investment Hedging Instruments, Unrealized Gain Total Accumulated Other Comprehensive Income (Loss) (in thousands) 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 Total other comprehensive income ( 3,671 ) — ( 3,671 ) Balance, January 31, 2022 ( 4,883 ) 2,711 ( 2,172 ) Total other comprehensive loss ( 2,847 ) — ( 2,847 ) Balance, January 31, 2023 $ ( 7,730 ) $ 2,711 $ ( 5,019 ) Income taxes are not provided for foreign currency translation adjustments arising from permanent investments in international subsidiaries. NOTE 18 - EMPLOYEE BENEFIT PLANS The Company has a 401(k) profit-sharing plan ("401(k) Plan") for all employees at least 19 years of age. Effective January 1, 2022, the Company amended the 401(k) Plan where the Company matched 50% of the first 6% of the participating employee's contribution, to a company match of 50 % on the first 8 % of the participating employee's 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 $ 5.4 million, $ 3.8 million and $ 3.1 million for the years ended January 31, 2023, 2022 and 2021. All amounts contributed during these years reflected matching contributions, as no discretionary contributions were made by the Company to the 401(k) Plan. Additionally, the 401(k) Plan for the recent acquisition of the Heartland Companies has continued for those employees. The plan allows all full-time employees at least 21 years of age, to be eligible, and the Company will match 100% of first 4% of the participating employee's contributions. 77 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 19 - BUSINESS COMBINATIONS Fiscal 2023 On August 1, 2022, the Company acquired all outstanding equity interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as the Heartland Companies") for $ 94.4 million in cash consideration. The Heartland Companies consist of 12 CaseIH commercial application agriculture locations, in the states of Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, and Wisconsin. The Heartland Companies have been a successful CaseIH commercial application dealer group and our acquisition of these entities provides the Company the opportunity for synergies due to the overlap of our footprints, which will allow us to package deals that will include both commercial application equipment as well as other agricultural and construction equipment to commercial customers within our core footprint. These locations are included in the Company's Agriculture segment. In the most recent completed fiscal year, the Heartland Companies generated revenue of approximately $214 million. The results of operations for the Heartland Companies from the August 1, 2022 closing date through January 31, 2023, were approximate ly $103.2 million of revenue and $4.6 million of pre-tax income. The Company incurred $1.1 million i n acquisition related expenses in connection with this acquisition, included in operating expenses in the consolidated statements of operations for the year ended January 31, 2023. On April 1, 2022, the Company acquired certain assets of Mark's Machinery, Inc. The acquired business consisted of two agricultural equipment stores in Wagner and Yankton, South Dakota. These locations are included in the Company's Agriculture segment. The total cash consideration transferred for the acquired business was $ 7.7 million. In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Mark's Machinery, 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 $3.2 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination. Fiscal 2022 On December 1, 2021, the Company acquired certain assets of Jaycox Implement, Inc. The acquired business consisted of three agricultural equipment stores in Worthington and Luverne, Minnesota and Lake Park, Iowa. These locations are included in the Company's Agriculture segment. The total cash consideration transferred for the acquired business was $ 28.2 million. The Company completed the real estate purchase on December 31, 2021 for a purchase price of $ 5.5 million, which was partially financed with long-term debt and the remainder was paid in cash. In connection with the acquisition, the Company acquired from CNH Industrial and certain other manufacturers equipment and parts inventory previously owned by Jaycox Implement, 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 $ 5.3 million. The recognition of these inventories and the associated financing liabilities are not included as part of the accounting for the business combination. 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. 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. 78 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. As of January 31, 2023, all business combinations from fiscal years 2023, 2022, and 2021 are complete. The following table presents the aggregate purchase price allocations for all acquisitions completed during the fiscal years ended January 31, 2023, 2022, and 2021: Heartland Companies Mark's Machinery Year Ended January 31, August 1, 2022 April 1, 2022 2023 2022 2021 (in thousands) Assets acquired: Cash $ 1,583 $ 1 $ 1,584 $ 4 $ 1 Receivables 9,007 478 9,485 1,197 — Inventories 103,504 3,386 106,890 13,780 4,260 Prepaid expenses and other 602 66 668 47 48 Property and equipment 20,204 4,088 24,292 8,236 1,752 Operating lease assets 3,928 — 3,928 — 2,006 Intangible assets 7,100 917 8,017 4,121 245 Goodwill 21,087 583 21,670 7,519 484 167,015 9,519 176,534 34,904 8,796 Liabilities Assumed: Accounts payable 18,547 — 18,547 — — Floorplan payable 31,699 — 31,699 — — Current operating lease liabilities 541 — 541 — 159 Deferred revenue 5,195 1,844 7,039 1,261 — Accrued expenses and other 3,523 — 3,523 — — Long-term debt 4,591 — 4,591 — — Operating lease liabilities 3,387 — 3,387 — 1,847 Other Long-term liabilities 5,152 5,152 — — 72,635 1,844 74,479 1,261 2,006 Net assets acquired $ 94,380 $ 7,675 $ 102,055 $ 33,643 $ 6,790 Goodwill recognized by segment: Agriculture $ 21,087 $ 583 $ 21,670 $ 7,519 $ 484 Goodwill expected to be deductible for tax purposes 21,087 583 21,670 7,519 484 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 $ 0.2 million for business combinations occurring during th e years ended January 31, 2023 and 2022, res pectively. The Company recognized, in the aggregate, a non-competition intangible asset of $ 0.8 million, $ 0.1 million, and $ 0.1 million for business combinations occurring during the years ended January 31, 2023, 2022, and 2021, respectively. The Company recognized, in the aggregate, a distribution rights intangible asset of $ 7.0 million, $ 3.9 million and $ 0.2 million for business combinations occurring during the years ended January 31, 2023, 2022 and 2021, 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 for the fiscal year ended January 31, 2023, amounted to $1.1 million and acquisition related 79 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) costs for the fiscal years ended January 31, 2022 and 2021, were not material. All acquisition related costs have been expensed as incurred and recognized as operating expenses in the consolidated statements of operations. Pro Forma Information The following summarized unaudited pro forma condensed statement of operations information for the twelve months ended January 31, 2023 and 2022 assumes that the Heartland Companies acquisition occurred as of February 1, 2021. The Company prepared the following summarized unaudited pro forma financial results for comparative purposes only. The summarized unaudited pro forma information may not be indicative of the results that would have occurred had the Company completed the acquisition as of February 1, 2021 or that will be attained in the future. Year Ended January 31, 2023 2022 (in thousands) Total Revenues $ 2,369,378 $ 1,928,193 Net Income $ 111,062 $ 77,664 NOTE 20 - FAIR VALUE OF FINANCIAL INSTRUMENTS As of January 31, 2023 and 2022, 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 estimated the fair value of long-lived assets to be approximately zero in certain instances when 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 the consolidated balance sheets, including cash, receivables, payables and long-term debt. The carrying amounts of these financial instruments approximated their fair values as of January 31, 2023 and January 31, 2022. Approximate fair value of these financial instruments was estimated based on Level 2 fair value inputs. The estimated fair value of the Company's Level 2 long-term debt, which is provided for disclosure purposes only, is as follows: January 31, 2023 January 31, 2022 (in thousands) Carrying amount $ 81,349 $ 68,267 Fair value $ 70,434 $ 63,237 NOTE 21 - 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. 80 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Revenue generated from sales to customers outside of the United States was $ 299.1 million, $ 318.0 million and $ 219.0 million for the years ended January 31, 2023, 2022 and 2021. As of January 31, 2023 and 2022, $ 14.5 million and $ 15.6 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. Year Ended January 31, 2023 2022 2021 (in thousands) Revenue Agriculture $ 1,601,720 $ 1,076,751 $ 886,485 Construction 308,457 317,164 305,745 International 299,129 317,991 218,992 Total $ 2,209,306 $ 1,711,906 $ 1,411,222 Income (Loss) Before Income Taxes Agriculture $ 102,733 $ 60,567 $ 34,422 Construction 18,569 15,543 186 International 20,197 12,552 ( 6,025 ) Segment income before income taxes 141,499 88,662 28,583 Shared Resources ( 6,258 ) ( 1,761 ) 2,170 Total $ 135,241 $ 86,901 $ 30,753 Total Impairment Agriculture $ — $ — $ 272 Construction — — 597 International — 1,498 2,311 Total $ — $ 1,498 $ 3,180 Interest Income Agriculture $ 79 $ 37 $ 72 Construction 110 114 135 International 133 113 46 Segment interest income 322 264 253 Shared Resources 17 65 16 Total $ 339 $ 329 $ 269 Interest Expense Agriculture $ 3,573 $ 2,564 $ 4,884 Construction 2,218 2,614 5,552 International 1,345 2,128 2,796 Segment interest expense 7,136 7,306 13,232 Shared Resources ( 192 ) ( 1,594 ) ( 6,050 ) Total $ 6,944 $ 5,712 $ 7,182 81 Table of Contents TITAN MACHINERY INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) Year Ended January 31, 2023 2022 2021 Depreciation and Amortization Agriculture $ 9,035 $ 5,942 $ 5,337 Construction 9,262 10,482 12,197 International 2,730 2,858 2,645 Segment depreciation and amortization 21,027 19,282 20,179 Shared Resources 4,170 2,857 3,522 Total $ 25,197 $ 22,139 $ 23,701 Capital Expenditures Agriculture $ 15,303 $ 13,879 $ 5,355 Construction 10,721 17,941 8,202 International 2,767 2,687 2,124 Segment capital expenditures 28,791 34,507 15,681 Shared Resources 7,691 3,119 4,408 Total $ 36,482 $ 37,626 $ 20,089 January 31, 2023 January 31, 2022 Total Assets (in thousands) Agriculture $ 788,265 $ 481,190 Construction 187,739 157,846 International 170,647 155,275 Segment assets 1,146,651 794,311 Shared Resources 42,044 152,356 Total $ 1,188,695 $ 946,667 NOTE 22 - SUBSEQUENT EVENTS On February 1, 2023, the Company acquired certain assets of Pioneer Equipment. The acquired business consists of five agricultural equipment stores in American Falls, Blackfoot, Idaho Falls, Rexburg, and Rupert, Idaho. These locations will be included in the Company's Agriculture segment. In its most recently available completed fiscal year, ended December 31, 2021, Pioneer Equipment generated revenue of approximately $60.0 million. The total cash consideration paid for the acquired business was $10.1 million, and the Company used cash on hand to fund the acquisition. The Company has committed to acquire the real estate of Pioneer Equipment subject to customary closing conditions, for a purchase price of $9.4 million. The Company closed on three of the properties on March 8, 2023 and anticipates closing on the remaining locations on or before April 30, 2023. The Company has considered the disclosure requirements of ASC 805-10-50-2 and ASC 805-10-50-4 but has not included certain required disclosures in this report due to determination that it is not a material transaction. 82 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 Deductions for Write-offs, Net of Recoveries Foreign Currency Translation Adjustments Ending Balance (in thousands) Valuation reserve deduction from receivables: Year Ended January 31, 2023 $ 2,448 $ 1,674 $ — $ ( 655 ) $ ( 27 ) $ 3,440 Year Ended January 31, 2022 4,933 260 — ( 2,688 ) ( 57 ) 2,448 Year Ended January 31, 2021 5,123 498 210 ( 1,013 ) 115 4,933 83 Table of Contents ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.