### Table of Contents

 

 

 

### **UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, DC  20549**

 

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**FORM 10-Q**

 

**QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF**

**THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the quarterly period ended April 30, 2010**

 

**Commission File No. 001-33866**

 

**TITAN MACHINERY INC.**

(Exact name of registrant as specified in itscharter)

 

| **Delaware**                                                    | ** ** | **No. 45-0357838**            |
|-----------------------------------------------------------------|------------|------------------------------------|
| (State or Other Jurisdiction of

Incorporation or Organization) |       | (IRS Employer

Identification No.) |

 

**644 EastBeaton Drive**

**West Fargo,ND 58078-2648**

(Address ofPrincipal Executive Offices)

 

Registrant’stelephone number**(701) 356-0130**

 

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  YES  x  NO  o

 

Indicate by checkmark whether the registrant has submitted electronically and posted on itscorporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 ofthis chapter) during the preceding 12 months (or for such shorter period thatthe registrant was required to submit and post such files).  YES  o  NO  o

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer,a non-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler”, “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| Large accelerated  filer o              |   | Accelerated  filer x         |
|----------------------------------------------|--------|-----------------------------------|
|                                         |   |                              |
| Non-accelerated  filer o                |   | Smaller  reporting company o |
| (Do not check if  smaller reporting company) |   |                              |

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).  YES  o  NO  x

 

The number ofshares outstanding of the registrant’s common stock as of May 31, 2010was: Common Stock, $0.00001 par value, 17,782,127 shares.

 

 

 

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Tableof Contents

 

**TITANMACHINERY INC.**

**QUARTERLYREPORT ON FORM 10-Q**

 

**Table of Contents**

 
| ** **        | ** **         | ** **                                                                                     | **Page No.** |
|-------------------|--------------------|------------------------------------------------------------------------------------------------|-------------------|
| **PART I.**  | ** **         | **FINANCIAL INFORMATION**                                                                      |              |
|              |               |                                                                                           |              |
|              | ITEM 1.            | FINANCIAL STATEMENTS                                                                           | 1                 |
|              |               |                                                                                           |              |
|              |               | Consolidated Balance Sheets as of  April 30, 2010 and January 31, 2010               | 1                 |
|              |               |                                                                                           |              |
|              |               | Consolidated Statements of  Operations for the three months ended April 30, 2010 and 2009 | 2                 |
|              |               |                                                                                           |              |
|              |               | Consolidated Statements of  Cash Flows for the three months ended April 30, 2010 and 2009 | 3                 |
|              |               |                                                                                           |              |
|              |               | Notes to Consolidated Financial Statements                                                     | 5                 |
|              |               |                                                                                           |              |
|              | ITEM 2.            | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    | 12                |
|              |               |                                                                                           |              |
|              | ITEM 3.            | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                    | 19                |
|              |               |                                                                                           |              |
|              | ITEM 4.            | CONTROLS AND  PROCEDURES                                                                       | 19                |
|              |               |                                                                                           |              |
| **PART II.** | ** **         | **OTHER INFORMATION**                                                                          |              |
|              |               |                                                                                           |              |
|              | ITEM 1.            | LEGAL PROCEEDINGS                                                                              | 20                |
|              |               |                                                                                           |              |
|              | ITEM 1A.           | RISK FACTORS                                                                                   | 20                |
|              |               |                                                                                           |              |
|              | ITEM 2.            | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                   | 20                |
|              |               |                                                                                           |              |
|              | ITEM 3.            | DEFAULTS UPON  SENIOR SECURITIES                                                               | 20                |
|              |               |                                                                                           |              |
|              | ITEM 4.            | (REMOVED AND RESERVED)                                                                         | 20                |
|              |               |                                                                                           |              |
|              | ITEM 5.            | OTHER INFORMATION                                                                              | 20                |
|              |               |                                                                                           |              |
|              | ITEM 6.            | EXHIBITS                                                                                       | 20                |
|              |               |                                                                                           |              |
|              | Signatures         |                                                                                           | 21                |
|              |               |                                                                                           |              |
|              | Exhibit Index |                                                                                           | 22                |
|                   |                    |                                                                                                |                   |  |

 

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Tableof Contents

 

**PART I. — FINANCIAL INFORMATION**

 

**ITEM 1.             FINANCIAL STATEMENTS**

 

**TITAN MACHINERY INC.**

**CONSOLIDATED BALANCE SHEETS**

**(in thousands, except per share data)**

** **
| ** **                                                                                                                                                          | ** ** | **April 30,** | ** ** | **January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                                                                                                                                          | ** ** | **2010**           | ** ** | **2010**             | ** ** |
| ** **                                                                                                                                                          | ** ** | **(Unaudited)**    | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                                                          |       |               |       |                 |       |
| ** **                                                                                                                                                          |       |               |       |                 |       |
| CURRENT ASSETS                                                                                                                                                      |       |               |       |                 |       |
| Cash and cash equivalents                                                                                                                                           |       | $                  | 81,334     |                 | $          | 76,185 |   |
| Receivables, net                                                                                                                                                    |       | 24,239             |       | 22,254               |       |
| Inventories                                                                                                                                                         |       | 352,682            |       | 347,580              |       |
| Prepaid expenses                                                                                                                                                    |       | 924                |       | 1,009                |       |
| Income taxes receivable                                                                                                                                             |       | 991                |       | 1,595                |       |
| Deferred income taxes                                                                                                                                               |       | 2,645              |       | 2,266                |       |
|                                                                                                                                                                |       |               |       |                 |       |
| Total current assets                                                                                                                                                |       | 462,815            |       | 450,889              |       |
|                                                                                                                                                                |       |               |       |                 |       |
| INTANGIBLES AND OTHER ASSETS                                                                                                                                        |       |               |       |                 |       |
| Noncurrent parts inventories                                                                                                                                        |       | 1,803              |       | 1,642                |       |
| Goodwill                                                                                                                                                            |       | 14,762             |       | 14,762               |       |
| Intangible assets, net of accumulated amortization                                                                                                                  |       | 429                |       | 295                  |       |
| Other                                                                                                                                                               |       | 651                |       | 620                  |       |
|                                                                                                                                                                |       | 17,645             |       | 17,319               |       |
|                                                                                                                                                                |       |               |       |                 |       |
| PROPERTY AND EQUIPMENT, net of accumulated  depreciation                                                                                                            |       | 48,526             |       | 46,604               |       |
|                                                                                                                                                                |       |               |       |                 |       |
|                                                                                                                                                                |       | $                  | 528,986    |                 | $          | 514,812 |   |
|                                                                                                                                                                |       |               |       |                 |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                      |       |               |       |                 |       |
|                                                                                                                                                                |       |               |       |                 |       |
| CURRENT LIABILITIES                                                                                                                                                 |       |               |       |                 |       |
| Accounts payable                                                                                                                                                    |       | $                  | 17,402     |                 | $          | 12,352 |   |
| Floorplan notes payable                                                                                                                                             |       | 262,809            |       | 249,872              |       |
| Current maturities of long-term debt and short-term  advances                                                                                                       |       | 6,725              |       | 7,218                |       |
| Customer deposits                                                                                                                                                   |       | 8,517              |       | 12,974               |       |
| Accrued expenses                                                                                                                                                    |       | 9,789              |       | 9,870                |       |
|                                                                                                                                                                |       |               |       |                 |       |
| Total current liabilities                                                                                                                                           |       | 305,242            |       | 292,286              |       |
|                                                                                                                                                                |       |               |       |                 |       |
| LONG-TERM LIABILITIES                                                                                                                                               |       |               |       |                 |       |
| Long-term debt, less current maturities                                                                                                                             |       | 21,456             |       | 21,852               |       |
| Deferred income taxes                                                                                                                                               |       | 6,359              |       | 6,356                |       |
| Other long-term liabilities                                                                                                                                         |       | 3,562              |       | 3,794                |       |
| ** **                                                                                                                                                          |       | 31,377             |       | 32,002               |       |
|                                                                                                                                                                |       |               |       |                 |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                           |       |               |       |                 |       |
| Common stock, par value $.00001 per share,  authorized - 25,000 shares; issued and outstanding - 17,785 at April 30,  2010 and 17,777 at January 31, 2010 |       | —             |       | —               |       |
| Additional paid-in-capital                                                                                                                                          |       | 139,059            |       | 138,775              |       |
| Retained earnings                                                                                                                                                   |       | 53,308             |       | 51,749               |       |
|                                                                                                                                                                |       | 192,367            |       | 190,524              |       |
|                                                                                                                                                                |       |               |       |                 |       |
|                                                                                                                                                                |       | $                  | 528,986    |                 | $          | 514,812 |   |

 

See Notes to ConsolidatedFinancial Statements

 

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**TITAN MACHINERY INC.**

**CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)**

**(in thousands, except per share data)**

 
| ** **                           | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **April 30,**     | ** ** |
| ** **                           | ** ** | **2010**               | ** ** | **2009** | ** ** |
|                                 |       |                   |       |   |   |
| REVENUE                              |       |                   |       |   |   |
| Equipment                            |       | $                      | 150,360    |   | $ | 124,865 |   |
| Parts                                |       | 35,063                 |       | 26,398 |   |
| Service                              |       | 16,551                 |       | 12,542 |   |
| Other, including trucking and rental |       | 3,483                  |       | 2,496 |   |
| TOTAL REVENUE                        |       | 205,457                |       | 166,301 |   |
|                                 |       |                   |       |   |   |
| COST OF REVENUE                      |       |                   |       |   |   |
| Equipment                            |       | 136,801                |       | 112,300 |   |
| Parts                                |       | 25,186                 |       | 18,537 |   |
| Service                              |       | 5,971                  |       | 4,600 |   |
| Other, including trucking and rental |       | 3,056                  |       | 2,348 |   |
| TOTAL COST OF REVENUE                |       | 171,014                |       | 137,785 |   |
|                                 |       |                   |       |   |   |
| GROSS PROFIT                         |       | 34,443                 |       | 28,516 |   |
|                                 |       |                   |       |   |   |
| OPERATING EXPENSES                   |       | 29,796                 |       | 24,705 |   |
|                                 |       |                   |       |   |   |
| INCOME FROM OPERATIONS               |       | 4,647                  |       | 3,811 |   |
|                                 |       |                   |       |   |   |
| OTHER INCOME (EXPENSE)               |       |                   |       |   |   |
| Interest and other income            |       | 173                    |       | 211 |   |
| Floorplan interest expense           |       | (1,801                 | )          | (731 | ) |
| Interest expense other               |       | (377                   | )          | (263 | ) |
|                                 |       |                   |       |   |   |
| INCOME BEFORE INCOME TAXES           |       | 2,642                  |       | 3,028 |   |
|                                 |       |                   |       |   |   |
| PROVISION FOR INCOME TAXES           |       | (1,083                 | )          | (1,238 | ) |
|                                 |       |                   |       |   |   |
| NET INCOME                           |       | $                      | 1,559      |   | $ | 1,790 |   |
|                                 |       |                   |       |   |   |
| EARNINGS PER SHARE - NOTE 1          |       |                   |       |   |   |
|                                 |       |                   |       |   |   |
| EARNINGS PER SHARE - BASIC           |       | $                      | 0.09       |   | $ | 0.10 |   |
| EARNINGS PER SHARE - DILUTED         |       | $                      | 0.09       |   | $ | 0.10 |   |
|                                 |       |                   |       |   |   |
| WEIGHTED AVERAGE SHARES - BASIC      |       | 17,617                 |       | 17,571 |   |
| WEIGHTED AVERAGE SHARES - DILUTED    |       | 18,040                 |       | 17,860 |   |

 

See Notes to Consolidated Financial Statements

 

2

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**TITAN MACHINERY INC.**

**CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)**

**(in thousands)**

 
| ** **                                                                                                        | ** ** | **Three Months Ended April 30,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                        | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                                                                                                              |       |                                  |       |   |   |
| OPERATING ACTIVITIES                                                                                              |       |                                  |       |   |   |
| Net income                                                                                                        |       | $                                     | 1,559      |   | $ | 1,790 |   |
| Adjustments to reconcile net income to net cash  from operations                                                  |       |                                  |       |   |   |
| Depreciation and amortization                                                                                     |       | 2,078                                 |       | 1,910 |   |
| Deferred income taxes                                                                                             |       | (376                                  | )          | 55 |   |
| Stock-based compensation expense                                                                                  |       | 275                                   |       | 194 |   |
| Other                                                                                                             |       | 24                                    |       | (10 | ) |
| Changes in assets and liabilities, net of purchase  of equipment dealerships assets and assumption of liabilities |       |                                  |       |   |   |
| Receivables, prepaid expenses and other assets                                                                    |       | (1,900                                | )          | (2,079 | ) |
| Inventories                                                                                                       |       | 6,771                                 |       | (24,246 | ) |
| Floorplan notes payable                                                                                           |       | (905                                  | )          | 1,330 |   |
| Accounts payable, customer deposits, accrued  expenses and other long-term liabilities                            |       | 190                                   |       | (827 | ) |
| Income taxes                                                                                                      |       | 604                                   |       | 533 |   |
|                                                                                                              |       |                                  |       |   |   |
| NET CASH PROVIDED BY (USED FOR) OPERATING  ACTIVITIES                                                             |       | 8,320                                 |       | (21,350 | ) |
|                                                                                                              |       |                                  |       |   |   |
| INVESTING ACTIVITIES                                                                                              |       |                                  |       |   |   |
| Net change in U.S. treasury bills                                                                                 |       | —                                |       | 44,994 |   |
| Property and equipment purchases                                                                                  |       | (2,166                                | )          | (2,880 | ) |
| Net proceeds from sale of equipment                                                                               |       | 119                                   |       | 291 |   |
| Payment for intangible asset                                                                                      |       | (150                                  | )          | — |   |
|                                                                                                              |       |                                  |       |   |   |
| NET CASH PROVIDED BY (USED FOR) INVESTING  ACTIVITIES                                                             |       | (2,197                                | )          | 42,405 |   |
|                                                                                                              |       |                                  |       |   |   |
| FINANCING ACTIVITIES                                                                                              |       |                                  |       |   |   |
| Net change in non-manufacturer floorplan notes  payable                                                           |       | 704                                   |       | 13,447 |   |
| Short-term advances related to customer contracts  in transit, net                                                |       | (598                                  | )          | — |   |
| Proceeds from long-term debt borrowings                                                                           |       | 257                                   |       | 4,629 |   |
| Principal payments on long-term debt                                                                              |       | (1,346                                | )          | (1,464 | ) |
| Other                                                                                                             |       | 9                                     |       | — |   |
|                                                                                                              |       |                                  |       |   |   |
| NET CASH PROVIDED BY (USED FOR) FINANCING  ACTIVITIES                                                             |       | (974                                  | )          | 16,612 |   |
|                                                                                                              |       |                                  |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                           |       | 5,149                                 |       | 37,667 |   |
|                                                                                                              |       |                                  |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                                  |       | 76,185                                |       | 41,047 |   |
|                                                                                                              |       |                                  |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                        |       | $                                     | 81,334     |   | $ | 78,714 |   |

 

See Notes to Consolidated Financial Statements

 

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**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (UNAUDITED)**Page –2

**(in thousands)**

 
| ** **                                                                                                                                                      | ** ** | **Three Months Ended April 30,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                                                                                                                                      | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                                                                                                                                                            |       |                                  |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                                                                               |       |                                  | ** ** | ** ** | ** ** |
| Cash paid during the period                                                                                                                                     |       |                                  |       |   |   |
| Income taxes, net of refunds                                                                                                                                    |       | $                                     | 863        |   | $ | 646 |   |
|                                                                                                                                                            |       |                                  |       |   |   |
| Interest                                                                                                                                                        |       | $                                     | 2,166      |   | $ | 996 |   |
|                                                                                                                                                            |       |                                  |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND  FINANCING ACTIVITIES                                                                                         |       |                                  |       |   |   |
| Property and equipment purchased with long-term  debt                                                                                                           |       | $                                     | 798        |   | $ | 1,425 |   |
|                                                                                                                                                            |       |                                  |       |   |   |
| Net transfer of equipment from (to) fixed assets to  (from) inventories                                                                                         |       | $                                     | (1,104     | ) | $ | 3,355 |   |
|                                                                                                                                                            |       |                                  |       |   |   |
| Acquisition of equipment dealership assets in  exchange for cash and assumption of liabilities including purchase accounting  adjustments on prior acquisitions |       |                                  |       |   |   |
| Receivables                                                                                                                                                     |       | $                                     | —     |   | $ | 58 |   |
| Inventories                                                                                                                                                     |       | —                                |       | 98 |   |
| Goodwill                                                                                                                                                        |       | —                                |       | 211 |   |
| Accounts payable, customer deposits and accrued  expenses                                                                                                       |       | —                                |       | (319 | ) |
| Income taxes payable                                                                                                                                            |       | —                                |       | (48 | ) |
|                                                                                                                                                            |       |                                  |       |   |   |
| Non-cash consideration: other long-term liabilities                                                                                                             |       | —                                |       | — |   |
| Cash paid for dealerships, net of cash purchased  and adjustments on prior acquisitions                                                                         |       | $                                     | —     |   | $ | — |   |

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERYINC.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

**NOTE 1 -       BUSINESS ACTIVITYAND SIGNIFICANT ACCOUNTING POLICIES**

 

*Basis of Presentation*

 

The unauditedconsolidated financial statements included herein have been prepared pursuantto the rules and regulations of the Securities and Exchange Commission (“SEC”)for interim reporting. Accordingly, they do not include all the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America for complete financial statements. In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included. Operatingresults for the three-month period ended April 30, 2010 are notnecessarily indicative of the results that may be expected for the year ending January 31,2011. The information contained in the balance sheet as of January 31,2010 was derived from the audited financial statements for Titan Machinery Inc.(the “Company”) for the year then ended. These consolidated financialstatements should be read in conjunction with the audited consolidatedfinancial statements and notes thereto included in the Company’s Form 10-Kfor the fiscal year ended January 31, 2010 as filed with the SEC.

 

*Nature of Business*

 

TitanMachinery Inc. is engaged in the retail sale, service and rental ofagricultural and construction machinery through stores in North Dakota, SouthDakota, Minnesota, Iowa, Nebraska, Montana and Wyoming.

 

*Estimates*

 

The preparation offinancial statements in conformity with accounting principles generallyaccepted in the United States of America requires management to make estimatesand assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent assets and liabilities at the date of the financialstatements and the reported amounts of revenue and expenses during thereporting period. Actual results could differ from those estimates.

 

*Principles of Consolidation*

 

The consolidatedfinancial statements include the accounts of the Company and its wholly-ownedsubsidiary, Transportation Solutions, LLC. All significant accounts,transactions and profits between the consolidated companies have beeneliminated in consolidation.

 

*Fair Value of Financial Instruments*

 

The carryingamount of cash, receivables, payables, short-term debt and other currentliabilities approximates fair value because of the short maturity and/orfrequent repricing of those instruments. Based upon current borrowing rateswith similar maturities, the carrying value of the long-term debt approximatesthe fair value as of April 30, 2010 and January 31, 2010.

 

*Exit and Disposal Costs*

 

The Companyaccounts for exit or disposal activities, including store closures, inaccordance with Financial Accounting Standards Board (“FASB”) AccountingStandards Codification (“ASC”) 420, *Exit or Disposal CostObligations.*Such costs mainly include lease termination costs andemployee termination costs. The Company records a liability for the net presentvalue of any remaining lease obligations, net of estimated sublease income, atthe date the Company ceases using the property. Any subsequent adjustments tothat liability as a result of lease termination or changes in estimates ofsublease income are recorded in the period incurred. The Company records aliability for employee termination costs at the date the termination benefitswere communicated to the employees.

 

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As part of theCompany’s Construction business action plan, in April 2010, the Companydecided to close its Construction store in Columbia Falls, Montana. The primaryexit costs relate to estimated lease termination costs of $93,000 and employeetermination costs of $27,000. The Company is transferring the majority of theassets and related floorplan notes payable and long-term debt to other stores.Exit costs are included in the operating expenses line item on the consolidatedstatements of operations for the three months ended April 30, 2010. Areconciliation of the beginning and ending liability balance follows:

 
| ** **                                  | ** ** | **(in thousands)** | ** ** |
|---------------------------------------------|------------|--------------------|------------|
| Balance  at January 31, 2010           |       | $                  | —     |   |
| Exit  costs incurred and charged to expense |       | 120                |       |
| Exit  costs paid                            |       | (16                | )          |
| Balance  at April 30, 2010             |       | $                  | 104        |   |

 

*Recent Accounting Guidance*

 

In January 2010,the FASB updated authoritative guidance on fair value measurements, codified inASC 820, *Fair Value Measurements and Disclosures*.This guidance required additional disclosure of significant transfers in andout of Level 1 and Level 2 fair value measurements and activity in Level 3 fairvalue measurements. It also clarified existing disclosure requirementsregarding level of disaggregation and valuation inputs and techniques. Theguidance is effective for interim and annual reporting periods beginning after December 15,2009, except for the disclosure of the Level 3 activity, which is effective forinterim and fiscal years beginning after December 15, 2010. The Companyadopted these provisions on February 1, 2010, except for the Level 3activity disclosures, which will be effective for the Company on February 1,2011. The provisions of this guidance have not, and are not expected to, have amaterial effect on the Company’s results of operations, financial position orcash flows.

 

In October 2009,the FASB issued authoritative guidance on revenue recognition, codified in ASC605-25, *Revenue Recognition*. This guidancemodifies the fair value requirements of revenue recognition on multiple elementarrangements by allowing the use of the “best estimate of selling price” inaddition to vendor specific objective evidence and third-party evidence fordetermining the selling price of a deliverable. This guidance establishes aselling price hierarchy for determining the selling price of a deliverable,which is based on: (a) vendor-specific objective evidence, (b) third-partyevidence, or (c) estimates. In addition, the guidance eliminates theresidual method of allocation and significantly expands the disclosurerequirements for such arrangements. This guidance is effective for fiscal yearsbeginning on or after June 15, 2010, with early adoption permitted. TheCompany is in the process of determining the impact that this guidance willhave on the Company’s consolidated financial statements.

 

In June 2009,the FASB issued authoritative guidance on the consolidation of variableinterest entities (“VIE”), codified in ASC 810, *Consolidation.*This guidance eliminates the exemption for qualifyingspecial-purpose entities, amends the approach companies use to identify theVIEs for which they are deemed to be the primary beneficiary and are requiredto consolidate, and requires additional disclosure of a company’s involvementwith a VIE. The guidance requires companies to perform ongoing reassessments ofwhether it is the primary beneficiary of a VIE. This assessment no longerincludes the quantitative-based assessment, and instead requires a qualitativeassessment of whether a company has the power to direct the VIE’s activitiesthat most significantly impact the VIE’s economic performance and whether thecompany has the obligation to absorb losses or the right to receive benefitsthat could be significant to the VIE. The Company adopted this guidance on February 1,2010. Its adoption did not have a material impact on the Company’s consolidatedfinancial statements.

 

In April 2009,the FASB issued authoritative guidance on the accounting and disclosure ofassets acquired and liabilities assumed in a business combination that arisefrom contingencies, and subsequent accounting for these contingencies. Thisguidance was codified in ASC 805, *Business Combinations*.The Company adopted this guidance on February 1, 2010. Its adoption didnot have a material impact on the Company’s consolidated financial statements.

 

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*EarningsPer Share*

 

The followingtable sets forth the denominator for the computation of basic and dilutedearnings per share:

 
| ** **                                         | ** ** | **Three Months Ended April 30,** | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                         | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                                         | ** ** | **(in thousands)**                    | ** ** |
|                                               |       |                                  |       |   |   |
| Basic  weighted-average shares outstanding         |       | 17,617                                |       | 17,571 |   |
| Plus:  Incremental shares from assumed conversions |       |                                  |       |   |   |
| Restricted  Stock                                  |       | 167                                   |       | 97 |   |
| Warrants                                           |       | 59                                    |       | 80 |   |
| Stock  Options                                     |       | 197                                   |       | 112 |   |
| Diluted  weighted-average shares outstanding       |       | 18,040                                |       | 17,860 |   |

 

There were 138,500and 191,000 stock options outstanding as of April 30, 2010 and 2009,respectively, that were not included in the computation of diluted earnings pershare because they were anti-dilutive.

 

**NOTE 2 -       INVENTORIES**

 
| ** **             | ** ** | **April 30,** | ** ** | **January 31,** | ** ** |
|------------------------|------------|--------------------|------------|----------------------|------------|
| ** **             | ** ** | **2010**           | ** ** | **2010**             | ** ** |
| ** **             | ** ** | **(in thousands)** | ** ** |
| New  equipment         |       | $                  | 186,268    |                 | $          | 174,193 |   |
| Used  equipment        |       | 118,081            |       | 127,884              |       |
| Parts  and attachments |       | 44,387             |       | 42,611               |       |
| Work  in process       |       | 3,946              |       | 2,892                |       |
|                   |       |               |       |                 |       |
|                   |       | $                  | 352,682    |                 | $          | 347,580 |   |

 

In addition to theabove amounts, the Company has estimated that a portion of its parts inventorywill not be sold in the next year. Accordingly, these balances have beenclassified as noncurrent assets.

 

**NOTE 3 -       LINES OF CREDIT /FLOORPLAN NOTES PAYABLE**

 

*Operating Line of Credit*

 

On July 15,2009, the Company entered into a Loan Agreement (the “Loan Agreement”) withBremer Bank National Association (“Bremer Bank”) which provides for a $25.0million revolving operating line of credit (“Revolving Loan”) and a $15.0million term loan (“Term Loan”). The Revolving Loan may be used to fund shortterm working capital requirements of the Company, and replaces the Company’sprevious $25.0 million operating line of credit with Bremer Bank. The RevolvingLoan has a variable interest rate of 0.25% per annum below a Bremer Bankreference rate (subject to a minimum interest rate floor of 4.5%) onoutstanding balances, has a 0.5% non-usage fee on the average monthly unusedamount, requires monthly payments of accrued interest commencing August 1,2009, and has a maturity date of July 14, 2010. Advances under the LoanAgreement are secured by substantially all of the Company’s assets. See detailsof the Term Loan in the long-term debt schedule in the Company’s Form 10-Kfor the fiscal year ended January 31, 2010 as filed with the SEC.

 

The Company had noamount outstanding on the Revolving Loan at April 30, 2010. The LoanAgreement contains certain financial covenants which impose minimum levels ofcurrent ratio, debt service coverage, and inventory turnover ratio and amaximum level of debt to tangible net worth ratio. As of April 30, 2010,the Company was in compliance with all of these financial covenants.

 

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*Floorplan Lines of Credit*

 

The Company hasdiscretionary floorplan lines of credit for equipment purchases totalingapproximately $365.0 million with various lending institutions, including a$300.0 million Wholesale Floorplan Credit Facility with CNH CapitalAmerica LLC (“CNH Capital”) and $50.0 million with GE CommercialDistribution Finance Corporation (“GE”). The available borrowings under the CNHCapital credit facility are reduced by outstanding floorplan notes payable,rental fleet financing and other acquisition-related financing arrangementswith CNH Capital. During fiscal 2010, interest rates for new borrowings underthe CNH Capital floorplan line of credit ranged from the prime rate plus 0.3%to the prime rate plus 6% per annum, subject to any interest-free periodsoffered by CNH Capital. Beginning in February 2010, interest rates areequal to the prime rate plus 4% on new borrowings, subject to any interest-freeperiods offered by CNH Capital. The CNH Capital credit facility automaticallyrenews on August 31 of each year through August 31, 2012, unlessearlier terminated by either party. Under covenants of the CNH Capital creditfacility, the Company has agreed, among other things, to maintain variousfinancial ratio levels and to submit certain financial information. It alsocontains various restrictive covenants that require prior consent of CNHCapital if the Company desires to engage in any acquisition of, consolidationor merger with any other business entity in which the Company is not thesurviving company; create subsidiaries; move any collateral outside of theU.S.; or sell, rent, lease or otherwise dispose or transfer any of thecollateral, other than in the ordinary course of business. CNH Capital’sconsent is also required for the acquisition of any CNH dealership. Inaddition, the CNH Capital credit facility restricts the Company’s ability toincur any liens upon any substantial part of its assets.

 

The GE creditfacility may be used to purchase new and used inventory from vendors approvedby GE, or to finance or refinance new or used inventory. The interest rate onborrowings under the GE floorplan line of credit is equal to the three-monthLIBOR rate plus 5.5%. The GE credit facility may be terminated by either partyon 60 days notice. Under covenants of the GE credit facility, the Company hasagreed, among other things, to maintain various financial ratio levels and tosubmit certain financial information. It also contains various restrictivecovenants regarding related party transactions outside of the ordinary courseof business and requires GE’s prior consent if the Company desires to engage inany acquisition meeting certain financial thresholds; make any investmentsoutside of the ordinary course of business; or have a change in control, asdefined by the agreement.

 

Floorplan notespayable relating to these credit facilities totaled approximately $246.0million of the total floorplan notes payable balance of $262.8 millionoutstanding as of April 30, 2010 and $245.3 million of the total floorplannotes payable balance of $249.9 million outstanding as of January 31,2010. As of April 30, 2010, the Company had approximately $108.0 millionin available borrowings remaining under these lines of credit. These floorplannotes carried various interest rates primarily ranging from 3.35 to 7.25% as ofApril 30, 2010, subject to interest-free periods offered by CNH Capital,and are secured by the related inventory. Repayment terms vary by individualnotes, but generally payments are made from sales proceeds or rental revenuefrom the related inventories. As of April 30, 2010, the Company was incompliance with all floorplan financial covenants.

 

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**NOTE 4 -       STOCK WARRANTS, STOCK OPTIONS AND RESTRICTED STOCK**

 

*CommonStock Warrants*

 

The followingtable summarizes stock warrant activity for the three months ended April 30,2010:

* *
| ** **                                            | ** ** | ** **              | ** ** | ** **   | ** ** | ** **              | ** ** | **Weighted**     | ** ** |
|-------------------------------------------------------|------------|-------------------------|------------|--------------|------------|-------------------------|------------|------------------|------------|
| ** **                                            | ** ** | ** **              | ** ** | **Weighted** | ** ** | ** **              | ** ** | **Average**      | ** ** |
| ** **                                            | ** ** | ** **              | ** ** | **Average**  | ** ** | **Aggregate**           | ** ** | **Remaining**    | ** ** |
| ** **                                            | ** ** | **Number of**           | ** ** | **Exercise** | ** ** | **Intrinsic**           | ** ** | **Contractual**  | ** ** |
| ** **                                            | ** ** | **Warrants**            | ** ** | **Price**    | ** ** | **Value**               | ** ** | **Life (Years)** | ** ** |
| ** **                                            | ** ** | **(in thousands)** | ** ** | ** **   | ** ** | **(in thousands)** | ** ** | ** **       | ** ** |
| Outstanding  and exercisable at January 31, 2010 |       | 83                      |       | $            | 3.43       |                    |       |             |       |   |
| Granted                                               |       | —                  |       | —       |       |                    |       |             |       |
| Exercised                                             |       | (3                      | )          | 3.50         |       |                    |       |             |       |
| Forfeited                                             |       | —                  |       | —       |       |                    |       |             |       |
| Outstanding  and exercisable at April 30, 2010   |       | 80                      |       | $            | 3.43       |                    | $          | 878              |       | 2.9 |   |
|                                                       |            |                         |            |              |            |                         |            |                  |            |  |  |

 

*Stock Options*

 

The followingtable summarizes stock option activity for the three months ended April 30,2010:

* *
| ** **                            | ** ** | ** **              | ** ** | ** **   | ** ** | ** **              | ** ** | **Weighted**     | ** ** |
|---------------------------------------|------------|-------------------------|------------|--------------|------------|-------------------------|------------|------------------|------------|
| ** **                            | ** ** | ** **              | ** ** | **Weighted** | ** ** | ** **              | ** ** | **Average**      | ** ** |
| ** **                            | ** ** | ** **              | ** ** | **Average**  | ** ** | **Aggregate**           | ** ** | **Remaining**    | ** ** |
| ** **                            | ** ** | **Number of**           | ** ** | **Exercise** | ** ** | **Intrinsic**           | ** ** | **Contractual**  | ** ** |
| ** **                            | ** ** | **Options**             | ** ** | **Price**    | ** ** | **Value**               | ** ** | **Life (Years)** | ** ** |
| ** **                            | ** ** | **(in thousands)** | ** ** | ** **   | ** ** | **(in thousands)** | ** ** | ** **       | ** ** |
| Outstanding  at January 31, 2010 |       | 631                     |       | $            | 10.90      |                    |       |             |       |   |
| Granted                               |       | —                  |       | —       |       |                    |       |             |       |
| Exercised                             |       | —                  |       | —       |       |                    |       |             |       |
| Forfeited                             |       | —                  |       | —       |       |                    |       |             |       |
| Outstanding  at April 30, 2010   |       | 631                     |       | $            | 10.90      |                    | $          | 3,248            |       | 6.7 |   |
|                                  |       |                    |       |         |       |                    |       |             |       |
|                                  |       |                    |       |         |       |                    |       |             |       |
| Exercisable  at April 30, 2010   |       | 253                     |       | $            | 8.58       |                    | $          | 1,641            |       | 6.2 |   |

 

As of April 30,2010, there was approximately $1,447,000 of unrecognized compensation cost onnon-vested stock options that is expected to be recognized over aweighted-average period of 3.2 years.

 

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*RestrictedStock*

 

The followingtable summarizes restricted stock activity for the three months ended April 30,2010:

* *
| ** **                          | ** ** | ** **              | ** ** | ** **     | ** ** | **Weighted**    | ** ** |
|-------------------------------------|------------|-------------------------|------------|----------------|------------|-----------------|------------|
| ** **                          | ** ** | ** **              | ** ** | **Weighted**   | ** ** | **Average**     | ** ** |
| ** **                          | ** ** | ** **              | ** ** | **Average**    | ** ** | **Remaining**   | ** ** |
| ** **                          | ** ** | ** **              | ** ** | **Grant Date** | ** ** | **Contractual** | ** ** |
| ** **                          | ** ** | **Shares**              | ** ** | **Fair Value** | ** ** | **Term**        | ** ** |
| ** **                          | ** ** | **(in thousands)** | ** ** | ** **     | ** ** | ** **      | ** ** |
| Nonvested  at January 31, 2010 |       | 163                     |       | $              | 11.45      |            | 2.5        |   |
| Granted                             |       | 7                       |       | 11.06          |       |            |       |
| Forfeited                           |       | (2                      | )          | 10.94          |       |            |       |
| Vested                              |       | (2                      | )          | 10.61          |       |            |       |
| Nonvested  at April 30, 2010   |       | 166                     |       | $              | 11.45      |            | 2.3        |   |

 

The weightedaverage grant date fair value of restricted stock granted was $11.06 and $10.50per share for the three months ended April 30, 2010 and 2009,respectively. The total fair value of restricted stock vested was $18,000 and$103,000 for the three months ended April 30, 2010 and 2009, respectively.As of April 30, 2010, there was approximately $1,125,000 of unrecognizedcompensation cost on non-vested restricted stock that is expected to berecognized over a weighted-average period of 2.3 years.

 

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**NOTE 5 -       SEGMENT INFORMATIONAND OPERATING RESULTS**

 

Certain financialinformation for each of the Company’s business segments is set forth below.Revenues, income before income tax and total assets at the segment level arereported before eliminations. The Company retains various unallocatedincome/(expense) items and assets at the general corporate level, which theCompany refers to as “Shared Resources” in the table below. Shared Resourceassets primarily consist of cash and property and equipment. Intersegmentrevenues are immaterial.

** **
| ** **                                 | ** ** | **Three Months Ended April 30,** | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|
| ** **                                 | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                                 | ** ** | **(in thousands)**                    | ** ** |
| **Revenues**                               |       |                                  |       |   |   |
| Agriculture                                |       | $                                     | 181,382    |   | $ | 148,329 |   |
| Construction                               |       | 32,104                                |       | 24,698 |   |
| Segment  revenues                          |       | 213,486                               |       | 173,027 |   |
| Eliminations                               |       | (8,029                                | )          | (6,726 | ) |
| Total                                      |       | $                                     | 205,457    |   | $ | 166,301 |   |
|                                       |       |                                  |       |   |   |
| **Income (Loss) Before Income Taxes**      |       |                                  |       |   |   |
| Agriculture                                |       | $                                     | 4,792      |   | $ | 5,716 |   |
| Construction                               |       | (1,915                                | )          | (1,950 | ) |
| Segment  income (loss) before income taxes |       | 2,877                                 |       | 3,766 |   |
| Shared  Resources                          |       | 9                                     |       | (471 | ) |
| Eliminations                               |       | (244                                  | )          | (267 | ) |
| Income  before income taxes                |       | $                                     | 2,642      |   | $ | 3,028 |   |

 
| ** **        | ** ** | **April 30,** | ** ** | **January 31,** | ** ** |
|-------------------|------------|--------------------|------------|----------------------|------------|
| ** **        | ** ** | **2010**           | ** ** | **2010**             | ** ** |
| ** **        | ** ** | **(in thousands)** | ** ** |
| **Total Assets**  |       |               |       |                 |       |
| Agriculture       |       | $                  | 362,201    |                 | $          | 350,086 |   |
| Construction      |       | 86,107             |       | 87,910               |       |
| Segment  assets   |       | 448,308            |       | 437,996              |       |
| Shared  Resources |       | 81,738             |       | 77,631               |       |
| Eliminations      |       | (1,060             | )          | (815                 | )          |
| Total             |       | $                  | 528,986    |                 | $          | 514,812 |   |

 

**NOTE 6 -       SUBSEQUENT EVENTS**

 

On June 1,2010, the Company closed on the acquisition of certain assets of HubbardImplement, Inc., for consideration totaling approximately $1,496,000. Theacquired entity consisted of one agricultural equipment store located in IowaFalls, Iowa which is contiguous to Titan Machinery’s existing locations inGrundy Center and Waverly, Iowa.

 

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**ITEM 2.**        MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION ANDRESULTS OF OPERATIONS

 

The followingdiscussion and analysis of our financial condition and results of operationsshould be read in conjunction with our interim unaudited consolidated financialstatements and related notes included in Item 1 of Part 1 of thisQuarterly Report, and the audited consolidated financial statements and notesthereto and Management’s Discussion and Analysis of Financial Condition andResults of Operations contained in our Annual Report on Form 10-K for theyear ended January 31, 2010.

 

**CriticalAccounting Policies**

 

There have been nomaterial changes in our Critical Accounting Policies, as disclosed in ourAnnual Report on Form 10-K for the year ended January 31, 2010.

 

**Overview**

 

We own and operatea network of full service agricultural and construction equipment stores in theUnited States. Based upon information provided to us by CNH Global N.V. orits U.S. subsidiary CNH America LLC, collectively referred to in this Form 10-Kas CNH, we are the world’s largest retail dealer of Case IH Agricultureequipment and a major retail dealer of New Holland Agriculture, CaseConstruction and New Holland Construction equipment in the U.S. We have twoprimary business segments, Agriculture and Construction, within each of whichwe sell and rent new and used equipment, sell parts, and service the equipmentin the areas surrounding our stores.

 

Our net income was$1.6 million, or $0.09 per diluted share, for the three months ended April 30,2010, compared to $1.8 million, or $0.10 per diluted share, for the threemonths ended April 30, 2009. Significant factors impacting the quarterlycomparisons were:

 

***·***                  Increase in revenue due to acquisitions andsame-store sales growth in both our Agriculture and Construction segmentsresulting from the continuation of a strong agriculture equipment market andexecution of our fiscal 2011 Construction business action plan, which includedright-sizing our rental fleet, changing key Construction personnel, closing theColumbia Falls store and implementing the Titan strong-store operating modelinto the fiscal 2009 Construction acquisition stores;

 

***·***                  Increase in gross profits primarily due to increasedrevenues, offset by decreases in equipment gross profit percent;

 

***·***                  Increase in floorplan interest expense due to higherfloorplan notes payable balances and higher interest rates.

 

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**Results of Operations**

** **

Comparativefinancial data for each of our four sources of revenue are expressed below. Theresults for these periods include the operating results of the acquisitionsmade during these periods. The period-to-period comparisons included below arenot necessarily indicative of future results. Segment information is providedlater in this discussion and analysis of our results of operations.

 
| ** **                            | ** ** | **Three Months Ended April 30,** | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|-------------|------------|
| ** **                            | ** ** | **2010**                              | ** ** | **2009**    | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**            | ** ** | ** **  | ** ** |
| Equipment                             |       |                                  |       |        |       |   |   |
| Revenue                               |       | $                                     | 150,360    |        | $          | 124,865 |   | 20.4 | % |
| Cost  of revenue                      |       | 136,801                               |       | 112,300     |       | 21.8 | % |
| Gross  profit                         |       | $                                     | 13,559     |        | $          | 12,565 |   | 7.9 | % |
| Gross  profit margin                  |       | 9.0                                   | %          | 10.1        | %          | (1.1 | )% |
|                                  |       |                                  |       |        |       |   |   |
| Parts                                 |       |                                  |       |        |       |   |   |
| Revenue                               |       | $                                     | 35,063     |        | $          | 26,398 |   | 32.8 | % |
| Cost  of revenue                      |       | 25,186                                |       | 18,537      |       | 35.9 | % |
| Gross  profit                         |       | $                                     | 9,877      |        | $          | 7,861 |   | 25.6 | % |
| Gross  profit margin                  |       | 28.2                                  | %          | 29.8        | %          | (1.6 | )% |
|                                  |       |                                  |       |        |       |   |   |
| Service                               |       |                                  |       |        |       |   |   |
| Revenue                               |       | $                                     | 16,551     |        | $          | 12,542 |   | 32.0 | % |
| Cost  of revenue                      |       | 5,971                                 |       | 4,600       |       | 29.8 | % |
| Gross  profit                         |       | $                                     | 10,580     |        | $          | 7,942 |   | 33.2 | % |
| Gross  profit margin                  |       | 63.9                                  | %          | 63.3        | %          | 0.6 | % |
|                                  |       |                                  |       |        |       |   |   |
| Other,  including trucking and rental |       |                                  |       |        |       |   |   |
| Revenue                               |       | $                                     | 3,483      |        | $          | 2,496 |   | 39.5 | % |
| Cost  of revenue                      |       | 3,056                                 |       | 2,348       |       | 30.2 | % |
| Gross  profit                         |       | $                                     | 427        |        | $          | 148 |   | 188.5 | % |
| Gross  profit margin                  |       | 12.3                                  | %          | 5.9         | %          | 6.4 | % |

 

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The followingtable sets forth our statements of operations data expressed as a percentagefor each of our four sources of revenue for the periods indicated:

 
| ** **                            | ** ** | **Three Months Ended April 30,** | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|
| ** **                            | ** ** | **2010**                              | ** ** | **2009** | ** ** |
|                                  |       |                                  |       |   |   |
| Revenue                               |       |                                  |       |   |   |
| Equipment                             |       | 73.2                                  | %          | 75.1 | % |
| Parts                                 |       | 17.1                                  | %          | 15.9 | % |
| Service                               |       | 8.0                                   | %          | 7.5 | % |
| Other,  including trucking and rental |       | 1.7                                   | %          | 1.5 | % |
| Total  revenue                        |       | 100.0                                 | %          | 100.0 | % |
|                                  |       |                                  |       |   |   |
| Cost  of revenue                      |       |                                  |       |   |   |
| Equipment                             |       | 66.5                                  | %          | 67.5 | % |
| Parts                                 |       | 12.3                                  | %          | 11.1 | % |
| Service                               |       | 2.9                                   | %          | 2.8 | % |
| Other,  including trucking and rental |       | 1.5                                   | %          | 1.5 | % |
| Total  cost of revenue                |       | 83.2                                  | %          | 82.9 | % |
|                                  |       |                                  |       |   |   |
| Gross  profit                         |       | 16.8                                  | %          | 17.1 | % |
|                                  |       |                                  |       |   |   |
| Operating  expenses                   |       | 14.5                                  | %          | 14.8 | % |
|                                  |       |                                  |       |   |   |
| Income  from operations               |       | 2.3                                   | %          | 2.3 | % |

 

***Three Months Ended April 30,2010 Compared to Three Months Ended April 30, 2009***

* *

**Consolidated Results**

 

*Revenue*

* *
| ** **                            | ** ** | **Three Months Ended April 30,** | ** ** | ** ** | ** ** | **Percent**  | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|------------|------------|--------------|------------|
| ** **                            | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **Increase** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**            | ** ** | ** ** | ** ** |
| Equipment                             |       | $                                     | 150,360    |       | $          | 124,865      |       | $ | 25,495 |   | 20.4 | % |
| Parts                                 |       | 35,063                                |       | 26,398     |       | 8,665        |       | 32.8 | % |
| Service                               |       | 16,551                                |       | 12,542     |       | 4,009        |       | 32.0 | % |
| Other,  including trucking and rental |       | 3,483                                 |       | 2,496      |       | 987          |       | 39.5 | % |
|                                  |       |                                  |       |       |       |         |       |   |   |
| Total  Revenue                        |       | $                                     | 205,457    |       | $          | 166,301      |       | $ | 39,156 |   | 23.5 | % |

* *

The increase inrevenue for the three months ended April 30, 2010, as compared to the sameperiod last year, was due to acquisitions contributing $16.1 million andsame-store sales growth contributing $23.1 million to current period revenue.This revenue growth was in both our Agriculture and Construction segments andresulted from the continuation of a strong agriculture equipment market andexecution of our fiscal 2011 Construction business action plan in the firstquarter of fiscal 2011.

 

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* *

*Cost of Revenue*

* *
| ** **                            | ** ** | **Three Months Ended April 30,** | ** ** | ** ** | ** ** | **Percent**  | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|------------|------------|--------------|------------|
| ** **                            | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **Increase** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**            | ** ** | ** ** | ** ** |
| Equipment                             |       | $                                     | 136,801    |       | $          | 112,300      |       | $ | 24,501 |   | 21.8 | % |
| Parts                                 |       | 25,186                                |       | 18,537     |       | 6,649        |       | 35.9 | % |
| Service                               |       | 5,971                                 |       | 4,600      |       | 1,371        |       | 29.8 | % |
| Other,  including trucking and rental |       | 3,056                                 |       | 2,348      |       | 708          |       | 30.2 | % |
|                                  |       |                                  |       |       |       |         |       |   |   |
| Total  cost of revenue                |       | $                                     | 171,014    |       | $          | 137,785      |       | $ | 33,229 |   | 24.1 | % |

 

The increase incost of revenue for the three months ended April 30, 2010, as compared tothe same period last year, was primarily due to increased revenue. Acquisitionscontributed $13.6 million of the increase in total cost of revenue, whilesame-store sales growth contributed $19.6 million of the increase. As apercentage of revenue, cost of revenue was 83.2% compared to 82.9% for thefirst quarter of fiscal 2010.

 

*Gross Profit*

* *
| ** **                            | ** ** | **Three Months Ended April 30,** | ** ** | ** ** | ** ** | **Percent**  | ** ** |
|---------------------------------------|------------|---------------------------------------|------------|------------|------------|--------------|------------|
| ** **                            | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **Increase** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**            | ** ** | ** ** | ** ** |
| Equipment                             |       | $                                     | 13,559     |       | $          | 12,565       |       | $ | 994 |   | 7.9 | % |
| Parts                                 |       | 9,877                                 |       | 7,861      |       | 2,016        |       | 25.6 | % |
| Service                               |       | 10,580                                |       | 7,942      |       | 2,638        |       | 33.2 | % |
| Other,  including trucking and rental |       | 427                                   |       | 148        |       | 279          |       | 188.5 | % |
|                                  |       |                                  |       |       |       |         |       |   |   |
| Total  Gross Profit                   |       | $                                     | 34,443     |       | $          | 28,516       |       | $ | 5,927 |   | 20.8 | % |

 

The $5.9 millionincrease in gross profit for the three months ended April 30, 2010, ascompared to the same period last year, was primarily due to increased revenue.Acquisitions contributed $2.4 million to the increase in gross profit for thethree months ended April 30, 2010, while increases in same-store grossprofits contributed the remaining $3.5 million. Gross profit margins were 16.8%for the first quarter of fiscal 2011, compared to 17.1% for the first quarterof fiscal 2010. The decrease in gross profit margin on equipment revenues from10.1% for the first quarter of fiscal 2010 to 9.0% for the first quarter offiscal 2011 is reflective of increased pricing pressures from our competitionexperienced in the agriculture market in the first quarter of fiscal 2011compared to the same period last year.

 

*Operating Expenses*

* *
| ** **          | ** ** | **Three Months Ended April 30,** | ** ** | ** ** | ** ** | **Percent**  | ** ** |
|---------------------|------------|---------------------------------------|------------|------------|------------|--------------|------------|
| ** **          | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **Increase** | ** ** | **Change** | ** ** |
| ** **          | ** ** | **(dollars in thousands)**            | ** ** | ** ** | ** ** |
| Operating  Expenses |       | $                                     | 29,796     |       | $          | 24,705       |       | $ | 5,091 |   | 20.6 | % |
|                     |            |                                       |            |            |            |              |            |  |  |  |  |  |

* *

The $5.1 millionincrease in operating expenses, as compared to the same period last year, wasprimarily due to the additional costs associated with acquisitions such ascompensation, rent and depreciation. As a percentage of total revenue,operating expenses remained relatively flat at 14.5% for the first quarter offiscal 2011 compared to 14.8% for the first quarter of fiscal 2010.

 

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* *

*Other Income (Expense)*

* *
| ** **                  | ** ** | **Three Months Ended April 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|-----------------------------|------------|---------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                  | ** ** | **2010**                              | ** ** | **2009**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
|                        |       | **(dollars in thousands)**            |       |          |       |
| Interest  and other income  |       | $                                     | 173        |          | $          | 211            |       | $ | (38 | ) | (18.0 | )% |
| Floorplan  interest expense |       | (1,801                                | )          | (731          | )          | 1,070          |       | 146.4 | % |
| Interest  expense           |       | (377                                  | )          | (263          | )          | 114            |       | 43.3 | % |
|                             |            |                                       |            |               |            |                |            |  |  |  |  |  |

* *

Interest and otherincome for the three months ended April 30, 2010 remained fairlyconsistent with the same period last year. The increase in floorplan interestexpense was due to the increase in floorplan notes payable balances and higherinterest rates for the three months ended April 30, 2010, as compared tothe same period in the prior year. The increase in interest expense resultedfrom higher interest rates on our long-term debt related to rental fleetequipment.

 

*Provision for IncomeTaxes*

 
| ** **                  | ** ** | **Three Months Ended April 30,** | ** ** | ** ** | ** ** | **Percent**  | ** ** |
|-----------------------------|------------|---------------------------------------|------------|------------|------------|--------------|------------|
| ** **                  | ** ** | **2010**                              | ** ** | **2009**   | ** ** | **Decrease** | ** ** | **Change** | ** ** |
| ** **                  | ** ** | **(dollars in thousands)**            | ** ** | ** ** | ** ** |
| Provision  for income taxes |       | $                                     | 1,083      |       | $          | 1,238        |       | $ | (155 | ) | (12.5 | )% |
|                             |            |                                       |            |            |            |              |            |  |  |  |  |  |

* *

The effective taxrate was 41.0% for the three months ended April 30, 2010 and 2009.

 

**Segment Results**

 

Certain financialinformation for our Agriculture and Construction business segments is set forthbelow. Revenues and income (loss) before income taxes at the segment level arereported before eliminations.  “SharedResources” in the table below refers to the various unallocated income/(expense)items that we have retained at the general corporate level. Intersegmentrevenues are immaterial.

 
| ** **                                 | ** ** | **Three Months Ended April 30,** | ** ** | **Increase/** | ** ** | **Percent**    | ** ** |
|--------------------------------------------|------------|---------------------------------------|------------|---------------|------------|----------------|------------|
| ** **                                 | ** ** | **2010**                              | ** ** | **2009**      | ** ** | **(Decrease)** | ** ** | **Change** | ** ** |
| ** **                                 | ** ** | **(dollars in thousands)**            | ** ** | ** **    | ** ** |
| **Revenues**                               |       |                                  |       |          |       |           |       |   |   |
| Agriculture                                |       | $                                     | 181,382    |          | $          | 148,329        |       | $ | 33,053 |   | 22.3 | % |
| Construction                               |       | 32,104                                |       | 24,698        |       | 7,406          |       | 30.0 | % |
| Segment  revenues                          |       | 213,486                               |       | 173,027       |       | 40,459         |       | 23.4 | % |
| Eliminations                               |       | (8,029                                | )          | (6,726        | )          | (1,303         | )          | 19.4 | % |
| Total                                      |       | $                                     | 205,457    |          | $          | 166,301        |       | $ | 39,156 |   | 23.5 | % |
|                                       |       |                                  |       |          |       |           |       |   |   |
| **Income (Loss) Before Income Taxes**      |       |                                  |       |          |       |           |       |   |   |
| Agriculture                                |       | $                                     | 4,792      |          | $          | 5,716          |       | $ | (924 | ) | (16.2 | )% |
| Construction                               |       | (1,915                                | )          | (1,950        | )          | 35             |       | (1.8 | )% |
| Segment  income (loss) before income taxes |       | 2,877                                 |       | 3,766         |       | (889           | )          | (23.6 | )% |
| Shared  Resources                          |       | 9                                     |       | (471          | )          | 480            |       | (101.9 | )% |
| Eliminations                               |       | (244                                  | )          | (267          | )          | 23             |       | (8.6 | )% |
| Income  before income taxes                |       | $                                     | 2,642      |          | $          | 3,028          |       | $ | (386 | ) | (12.7 | )% |

* *

*Agriculture*

* *

Agriculturerevenues for the three months ended April 30, 2010 increased 22.3%compared to the same period last year. The revenue increase was due toacquisitions and an Agriculture same-store sales increase of 12.7% over thefirst quarter of fiscal 2010. Income before income tax decreased 16.2% due tolower Agriculture gross profit margins on equipment 

 

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revenues, which isreflective of increased pricing pressures from our competition experienced inthe agriculture market, as well as higher floorplan interest expense resultingfrom increased floorplan notes payable balances and increased interest rates inthe first quarter of fiscal 2011 compared to the same period last year.

 

*Construction*

 

Constructionrevenues for the three months ended April 30, 2010 increased 30.0%compared to the same period last year. The revenue increase was due toacquisitions and a Construction same-store sales increase of 21.5% over thefirst quarter of fiscal 2010. Loss before income taxes decreased 1.8% due tohigher Construction sales, offset by higher floorplan interest expenses and$120,000 in exit costs related to the closing of our store in Columbia Falls,Montana. While the Construction segment experienced improvement in both revenueand loss before income taxes over the same period last year, we believe thatboth acquisition and same-store revenue continue to be negatively impacted by aweak construction market.

 

*SharedResources/Eliminations*

 

Shared Resources allocations to each of our segments are set early inthe year and therefore unallocated balances may occur.  The Shared Resource amount decreased $0.5million in the first quarter of fiscal 2011 compared to the prior year.

 

Eliminations remove any inter-company revenues or income before taxresiding in our segment results.

 

**Liquidity and CapitalResources**

** **

*Cash Flow from OperatingActivities*

* *

For the threemonths ended April 30, 2010, our cash flow provided by operatingactivities was $8.3 million. Our cash flow from operations was primarily theresult of our reported net income of $1.6 million, an add-back of non-cashdepreciation and amortization of $2.1 million and a decrease in net cash usedfor inventories of $6.8 million. This amount was principally offset by a netincrease in receivables, prepaid expenses and other assets of $1.9 million.

 

For the threemonths ended April 30, 2009, our cash flow used in operating activitieswas $21.4 million. Our cash flow from operations was primarily the result ofour reported net income of $1.8 million, an increase in floorplan notes payableof $1.3 million, and an add-back of non-cash depreciation and amortization of$1.9 million. This amount was principally offset by an increase in inventoriesof $24.2 million, a net increase in receivables, prepaid expenses and otherassets of $2.1 million and a net decrease in accounts payable, customerdeposits, accrued expenses and other long-term liabilities of $0.8 million. Theincrease in inventories was primarily the result of purchases to meet ourexpected equipment sales in fiscal 2010.

 

We evaluate our cash flow from operating activities net of all floorplanactivity and short-term advances related to customer contracts in transit.  Taking these adjustments into account, ournon-GAAP cash flow provided by operating activities as of April 30, 2010 was $8.4 million.  For a reconciliation of this non-GAAPfinancial measure, please see the Non-GAAP Cash Flow Reconciliation sectionbelow.

 

*Cash Flow from InvestingActivities*

* *

For the threemonths ended April 30, 2010, cash used for investing activities was $2.2million. Our cash flow from investing activities primarily consisted ofpurchases of property and equipment for $2.2 million.

 

Forthe three months ended April 30, 2009, cash provided by investingactivities was $42.4 million. Our cash provided by investing activitiesprimarily consisted of the sale of U.S. treasury bills of $45.0 million, offsetby purchases of property and equipment for $2.9 million. We are now investingour excess cash balances in investments that are classified as cash equivalents.

 

*CashFlow from Financing Activities*

* *

For the threemonths ended April 30, 2010, cash used for financing activities was $1.0million. Cash flow from financing activities was primarily the result of anincrease in non-manufacturer floorplan notes payable of $0.7 million andprincipal payments on long-term debt and short-term advances exceeding proceedsfrom long-term debt by $1.7 million.

 

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For the threemonths ended April 30, 2009, cash provided by financing activities was$16.6 million. Cash provided by financing activities was primarily the resultof an increase in non-manufacturer floorplan payable of $13.4 million andproceeds from long-term debt exceeding principal payments on long-term debt by$3.2 million.

 

*Non-GAAP Cash Flow Reconciliation*

* *

Non-GAAP cash flow provided by (used for) operating activities is anon-GAAP financial measure which is adjusted for the following:

 

***·***                  Non-manufacturer floorplannotes payable: We review our cash flow from operating activities to include allfloorplan notes payable activity regardless of whether we obtain the financingfrom a manufacturer or a non-manufacturer. We consider inventory financing with both manufacturers andnon-manufacturers to be part of the normal operations of our business and usethe adjusted cash flow analysis in the evaluation of our inventory andinventory flooring needs.  GAAPcategorizes non-manufacturer floorplan payable as financing activities in theConsolidated Statements of Cash Flows.

*** ***

***·***                  Short-term advances related to customer contracts intransit:  We review our cash flow fromoperating activities to include short-term advances related to customercontracts in transit.  These advances aredirectly related to our contracts in transit and are considered part of ourworking capital.  GAAP categorizesshort-term advances related to customer contracts in transit as financingactivities in the Consolidated Statements of Cash Flows.

*** ***

The followingtable reconciles net cash provided by (used for) operating activities, a GAAPmeasure, to non-GAAP cash flow provided by (used for) operating activities asof April 30, 2010 and 2009 and net cash provided by (used for) financingactivities, a GAAP measure, to non-GAAP cash flow provided by (used for) financingactivities as of April 30, 2010 and 2009:

 
| ** **                                            | ** ** | ** **         | ** ** | **Adjustment** | ** ** | **Adjustment** | ** ** | **Non-GAAP** | ** ** |
|-------------------------------------------------------|------------|--------------------|------------|----------------|------------|----------------|------------|--------------|------------|
| ** **                                            | ** ** | **As Reported**    | ** ** | **(1)**        | ** ** | **(2)**        | ** ** | **Measures** | ** ** |
| ** **                                            | ** ** | **(in thousands)** | ** ** |
| **Fiscal 2010:**                                      |       |               |       |           |       |           |       |         |       |
| Net  cash provided by (used for) operating activities |       | $                  | 8,320      |           | $          | 704            |       | $            | (598       | ) | $ | 8,426 |   |
| Net  cash provided by (used for) financing activities |       | (974               | )          | (704           | )          | 598            |       | (1,080       | )          |
|                                                  |       |               |       |           |       |           |       |         |       |
| **Fiscal 2009:**                                      |       |               |       |           |       |           |       |         |       |
| Net  cash provided by (used for) operating activities |       | $                  | (21,350    | )              | $          | 13,447         |       | $            | —     |   | $ | (7,903 | ) |
| Net  cash provided by (used for) financing activities |       | 16,612             |       | (13,447        | )          | —         |       | 3,165        |       |

 

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(1) - Netchange in non-manufacturer floorplan notes payable

(2) - Netchange in short-term advances related to customer contracts in transit

 

Non-GAAP cash flow provided by (used for) operating activities should beevaluated in addition to, and not considered a substitute for, or superior to,other GAAP measures such as net cash provided by (used for) operatingactivities.

 

**Sourcesof Liquidity**

 

Our primarysources of liquidity are cash reserves, cash flow from operations, proceedsfrom the issuance of debt and borrowings under our credit facilities. We expectthat ongoing requirements for debt service and capital expenditures will befunded from these sources.

 

**Adequacy of CapitalResources**

** **

Our primary usesof cash have been to fund our strategic acquisitions, finance the purchase ofinventory, meet debt service requirements and fund operating activities,working capital, payments due under building space operating leases andmanufacturer floorplan notes payable. Based on our current operationalperformance, we believe our cash flow from operations, available cash andavailable borrowings under the existing credit facilities will adequatelyprovide our liquidity needs for, at a minimum, the next 12 months.

 

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**Certain InformationConcerning Off-Balance Sheet Arrangements**

** **

We do not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured finance, special purpose entities orvariable interest entities, which would have been established for the purposeof facilitating off-balance sheet arrangements or other contractually narrow orlimited purposes. We are, therefore, not exposed to any financing, liquidity,market or credit risk that could arise if we had engaged in theserelationships. In the normal course of our business activities, we lease rentalequipment and buildings under operating leases.

 

# **PRIVATE SECURITIES LITIGATION REFORM ACT**

#  

The PrivateSecurities Litigation Reform Act of 1995 provides a “safe harbor” forforward-looking statements. Such “forward-looking” information is included inthis Quarterly Report on Form 10-Q, including in “Management’s DiscussionAnd Analysis Of Financial Condition And Results Of Operations,” as well as inour Annual Report on Form 10-K for the year ended January 31, 2010that was filed with the Securities and Exchange Commission, and in othermaterials filed or to be filed by the Company with the Securities and ExchangeCommission (as well as information included in oral statements or other writtenstatements made or to be made by the Company).

 

Forward-lookingstatements include all statements based on future expectations and specificallyinclude, among other things, all statements relating to our expectationsregarding our primary liquidity sources and adequacy of our capital resources.Any statements that are not based upon historical facts, including the outcomeof events that have not yet occurred and our expectations for futureperformance, are forward-looking statements. The words “potential,” “believe,” “estimate,”“expect,” “intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similarwords and expressions are intended to identify forward-looking statements. Suchstatements are based upon the current beliefs and expectations of ourmanagement. Such forward-looking information involves important risks anduncertainties that could significantly affect anticipated results in the futureand, accordingly, such results may differ from those expressed in anyforward-looking statements made by or on behalf of the Company. These risks anduncertainties include, but are not limited to, adverse market conditions in theagricultural and construction equipment industries, the continuation ofunfavorable conditions in the credit markets and those matters identified anddiscussed in our Annual Report on Form 10-K under the section titled “RiskFactors”.

 

**ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK**

 

We are exposed tomarket risk from changes in interest rates. Market risk is the potential lossarising from adverse changes in market rates and prices such as interest rates.For fixed rate debt, interest rate changes affect the fair value of financialinstruments but do not impact earnings or cash flows. Conversely, for floatingrate debt, interest rate changes generally do not affect the fair value but doimpact future earnings and cash flows, assuming other factors are heldconstant. We have both fixed and floating rate financing.

 

Based uponbalances and interest rates as of April 30, 2010, holding other variablesconstant, a one percentage point increase in interest rates for the next12-month period would decrease pre-tax earnings and cash flow by approximately$1.3 million. Conversely, a one percentage point decrease in interest rates forthe next 12-month period would result in an increase to pre-tax earnings andcash flow of approximately $1.3 million. At April 30, 2010, we hadvariable rate floorplan notes payable of $262.8 million, of which approximately$120.8 million was interest-bearing, variable notes payable and long-term debtof $10.2 million, and fixed rate notes payable and long-term debt of $18.0million.

 

Our policy is notto enter into derivatives or other financial instruments for trading orspeculative purposes.

 

**ITEM 4.**CONTROLS ANDPROCEDURES**

 

(a)                                  *Evaluation ofdisclosure controls and procedures*. After evaluating the effectiveness of the Company’sdisclosure controls and procedures pursuant to Rule 13a-15(b) of theSecurities Exchange Act of 1934 (the “Exchange Act”) as of the end of theperiod covered by this quarterly report, our Chief Executive Officer and ChiefFinancial Officer with the participation of the Company’s management, haveconcluded that the Company’s disclosure controls and procedures (as defined inExchange Act Rule 13a-15(e)) are effective to ensure that information thatis required to be disclosed by the Company in reports that it files under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the rules of the Securities and Exchange Commission.Our Chief Executive Officer and Chief Financial Officer, with 

 

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the participation of theCompany’s management, have also concluded that the Company’s disclosurecontrols and procedures are effective to ensure that information required to bedisclosed in reports filed or submitted under the Exchange Act is accumulatedand communicated to management, including our principal executive officer and principalfinancial officer, to allow timely decisions regarding required disclosures.

 

(b)                                 *Changes in internal controls*. There has not been any change in theCompany’s internal control over financial reporting (as defined in Exchange ActRule 13a-15(f)) during its most recently completed fiscal quarter that hasmaterially affected, or is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

### **PART II.- OTHER INFORMATION**

###  

**ITEM 1.                  LEGAL PROCEEDINGS**

 

We are currently nota party to any material pending legal proceedings.

 

**ITEM 1A.               RISKFACTORS**

 

In addition to theother information set forth in this report, including the important informationin “Private Securities Litigation Reform Act,” you should carefully consider the“Risk Factors” discussed in our Form 10-K for the year ended January 31,2010 as filed with the Securities and Exchange Commission. Those factors, ifthey were to occur, could cause our actual results to differ materially fromthose expressed in our forward-looking statements in this report, andmaterially adversely affect our financial condition or future results. Althoughwe are not aware of any other factors that we currently anticipate will causeour forward-looking statements to differ materially from our future actualresults, or materially affect the Company’s financial condition or futureresults, additional risks and uncertainties not currently known to us or thatwe currently deem to be immaterial might materially adversely affect our actualbusiness, financial condition and/or operating results.

 

**ITEM 2.                  UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.                  DEFAULTSUPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.                  (REMOVEDAND RESERVED)**

 

None.

 

**ITEM 5.                  OTHERINFORMATION**

 

None.

 

**ITEM 6.                  EXHIBITS**

 

Exhibits - See “Exhibit Index”on page following signatures.

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the registrant has duly caused thisReport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

Dated: June 9, 2010

 
|   | **TITAN MACHINERY INC.** |
|--------|--------------------------|
|   | ** **               |
|   | ** **               |
|   | By                       | /s/ Peter J.  Christianson |
|   |                     | Peter J. Christianson |
|   |                     | President and Chief  Financial Officer |
|   |                     | (Principal Financial  Officer) |

 

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EXHIBIT INDEX

TITAN MACHINERYINC.

FORM 10-Q

 
| **Exhibit No.** | ** ** | **Description**                                                                                           |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------|
| *31.1                |       | Certification of Chief  Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 |
|                 |       |                                                                                                      |
| *31.2                |       | Certification of Chief Financial Officer Pursuant to  Section 302 of the Sarbanes-Oxley Act of 2002  |
|                 |       |                                                                                                      |
| *32.1                |       | Certification of Chief Executive Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002  |
|                 |       |                                                                                                      |
| *32.2                |       | Certification of Chief Financial Officer Pursuant to  Section 906 of the Sarbanes-Oxley Act of 2002  |

 

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*Filed herewith

 

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