### 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 October 31, 2009**

**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.) |

 

**4876Rocking Horse CircleFargo, ND 58104-6049**

(Address ofPrincipal Executive Offices)

 

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

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the ExchangeAct of 1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.           YES  x    NO  o

 

Indicate by check mark whether the registrant has submittedelectronically and posted on its corporate Web site, if any, every InteractiveData File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (orfor such shorter period that the registrant was required to submit and postsuch files).           YES  o    NO  o

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer or a smaller reportingcompany.  See the definitions of “largeaccelerated filer”, “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 a shell company (asdefined in Rule 12b-2 of the Exchange Act).  YES o  NO x

 

Thenumber of shares outstanding of the registrant’s common stock as of December 1,2009 was: Common Stock, $0.00001 par value, 17,773,534 shares.

 

 

 

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Tableof Contents

 

**TITAN MACHINERY INC.**

**QUARTERLY REPORT ON FORM 10-Q**

 

**Table of Contents**

 
| ** **         | ** **                                                                                                 | **Page No.** |
|--------------------|------------------------------------------------------------------------------------------------------------|-------------------|
|               |                                                                                                       |              |
| **PART I.**   | **FINANCIAL INFORMATION**                                                                                  | 1                 |
|               |                                                                                                       |              |
| ITEM  1.           | FINANCIAL STATEMENTS                                                                                       | 1                 |
|               |                                                                                                       |              |
|               | Consolidated Balance  Sheets as of October 31, 2009 and January 31, 2009                         | 1                 |
|               |                                                                                                       |              |
|               | Consolidated  Statements of Operations for the three and nine months ended October 31,  2009 and 2008 | 2                 |
|               |                                                                                                       |              |
|               | Consolidated  Statements of Cash Flows for the nine months ended October 31, 2009 and  2008           | 3                 |
|               |                                                                                                       |              |
|               | Notes  to Consolidated Financial Statements                                                                | 5                 |
|               |                                                                                                       |              |
| ITEM 2.            | MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                | 13                |
|               |                                                                                                       |              |
| ITEM 3.            | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                | 21                |
|               |                                                                                                       |              |
| ITEM 4.            | CONTROLS AND  PROCEDURES                                                                                   | 21                |
|               |                                                                                                       |              |
| **PART II.**  | **OTHER INFORMATION**                                                                                      | 22                |
|               |                                                                                                       |              |
| ITEM 1.            | LEGAL PROCEEDINGS                                                                                          | 22                |
|               |                                                                                                       |              |
| ITEM 1A.           | RISK FACTORS                                                                                               | 22                |
|               |                                                                                                       |              |
| ITEM 2.            | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                               | 22                |
|               |                                                                                                       |              |
| ITEM 3.            | DEFAULTS  UPON SENIOR SECURITIES                                                                           | 22                |
|               |                                                                                                       |              |
| ITEM 4.            | SUBMISSION  OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                       | 22                |
|               |                                                                                                       |              |
| ITEM 5.            | OTHER INFORMATION                                                                                          | 22                |
|               |                                                                                                       |              |
| ITEM  6.           | EXHIBITS                                                                                                   | 22                |
|               |                                                                                                       |
| Signatures         | 23                                                                                                         |
|               |                                                                                                       |
| Exhibit Index | 24                                                                                                         |
|                    |                                                                                                            |                   |  |

 

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Tableof Contents

 

**PART I. – FINANCIAL INFORMATION**

 

**ITEM 1.**                  **FINANCIAL STATEMENTS**

 

**TITAN MACHINERY INC.**

**CONSOLIDATED BALANCE SHEETS**

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

** **
| ** **                                                                                                                                                            | ** ** | **October 31,** | ** ** | **January 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------|------------|----------------------|------------|
| ** **                                                                                                                                                            | ** ** | **2009**             | ** ** | **2009**             | ** ** |
| ** **                                                                                                                                                            | ** ** | **(Unaudited)**      | ** ** | ** **           | ** ** |
| **ASSETS**                                                                                                                                                            |       |                 |       |                 |       |
|                                                                                                                                                                  |       |                 |       |                 |       |
| CURRENT ASSETS                                                                                                                                                        |       |                 |       |                 |       |
| Cash and cash equivalents                                                                                                                                             |       | $                    | 82,376     |                 | $          | 41,047 |   |
| U.S. treasury bills                                                                                                                                                   |       | —               |       | 44,994               |       |
| Total cash, cash equivalents and U.S. treasury  bills                                                                                                                 |       | 82,376               |       | 86,041               |       |
|                                                                                                                                                                  |       |                 |       |                 |       |
| Receivables, net                                                                                                                                                      |       | 23,593               |       | 19,627               |       |
| Inventories                                                                                                                                                           |       | 355,196              |       | 241,094              |       |
| Prepaid expenses                                                                                                                                                      |       | 927                  |       | 532                  |       |
| Income taxes receivable                                                                                                                                               |       | —               |       | 1,433                |       |
| Deferred income taxes                                                                                                                                                 |       | 2,154                |       | 1,426                |       |
| Total current assets                                                                                                                                                  |       | 464,246              |       | 350,153              |       |
|                                                                                                                                                                  |       |                 |       |                 |       |
| INTANGIBLES AND OTHER ASSETS                                                                                                                                          |       |                 |       |                 |       |
| Noncurrent parts inventories                                                                                                                                          |       | 1,946                |       | 1,509                |       |
| Goodwill                                                                                                                                                              |       | 13,679               |       | 12,464               |       |
| Intangible assets, net of accumulated amortization                                                                                                                    |       | 312                  |       | 366                  |       |
| Other                                                                                                                                                                 |       | 563                  |       | 487                  |       |
|                                                                                                                                                                  |       | 16,500               |       | 14,826               |       |
| PROPERTY AND EQUIPMENT, net of accumulated  depreciation                                                                                                              |       | 45,741               |       | 45,269               |       |
|                                                                                                                                                                  |       | $                    | 526,487    |                 | $          | 410,248 |   |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                        |       |                 |       |                 |       |
|                                                                                                                                                                  |       |                 |       |                 |       |
| CURRENT LIABILITIES                                                                                                                                                   |       |                 |       |                 |       |
| Accounts payable                                                                                                                                                      |       | $                    | 14,596     |                 | $          | 18,652 |   |
| Floorplan notes payable                                                                                                                                               |       | 261,905              |       | 166,481              |       |
| Current maturities of long-term debt and short-term  advances                                                                                                         |       | 9,865                |       | 7,623                |       |
| Customer deposits                                                                                                                                                     |       | 9,937                |       | 15,158               |       |
| Accrued expenses                                                                                                                                                      |       | 10,373               |       | 8,308                |       |
| Income taxes payable                                                                                                                                                  |       | 1,584                |       | —               |       |
| Total current liabilities                                                                                                                                             |       | 308,260              |       | 216,222              |       |
|                                                                                                                                                                  |       |                 |       |                 |       |
| LONG-TERM LIABILITIES                                                                                                                                                 |       |                 |       |                 |       |
| Long-term debt, less current maturities                                                                                                                               |       | 23,192               |       | 14,810               |       |
| Deferred income taxes                                                                                                                                                 |       | 4,917                |       | 3,503                |       |
| Other long-term liabilities                                                                                                                                           |       | 3,214                |       | 1,946                |       |
| ** **                                                                                                                                                            |       | 31,323               |       | 20,259               |       |
|                                                                                                                                                                  |       |                 |       |                 |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                             |       |                 |       |                 |       |
| Common stock, par value $.00001 per share,  authorized - 25,000 shares; issued and outstanding - 17,770 at  October 31, 2009 and 17,657 at January 31, 2009 |       | —               |       | —               |       |
| Additional paid-in-capital                                                                                                                                            |       | 138,518              |       | 137,755              |       |
| Retained earnings                                                                                                                                                     |       | 48,386               |       | 36,012               |       |
|                                                                                                                                                                  |       | 186,904              |       | 173,767              |       |
|                                                                                                                                                                  |       | $                    | 526,487    |                 | $          | 410,248 |   |

 

See Notes toConsolidated Financial Statements

 

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**TITAN MACHINERY INC.**

**CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

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

 
| ** **                           | ** ** | **Three  Months Ended** | ** ** | **Nine  Months Ended** | ** ** |
|--------------------------------------|------------|-------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **October 31,**    | ** ** | **October 31,**   | ** ** |
| ** **                           | ** ** | **2009**                | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                 |       |                    |       |                   |       |   |   |   |   |
| REVENUE                              |       |                    |       |                   |       |   |   |   |   |
| Equipment                            |       | $                       | 173,367    |                   | $          | 167,950 |   | $ | 439,374 |   | $ | 386,705 |   |
| Parts                                |       | 32,961                  |       | 29,794                 |       | 91,813 |   | 74,910 |   |
| Service                              |       | 15,854                  |       | 12,894                 |       | 44,036 |   | 32,626 |   |
| Other, including trucking and rental |       | 4,836                   |       | 3,322                  |       | 11,288 |   | 7,207 |   |
| TOTAL REVENUE                        |       | 227,018                 |       | 213,960                |       | 586,511 |   | 501,448 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| COST OF REVENUE                      |       |                    |       |                   |       |   |   |   |   |
| Equipment                            |       | 155,653                 |       | 148,678                |       | 393,405 |   | 343,582 |   |
| Parts                                |       | 22,291                  |       | 20,638                 |       | 63,767 |   | 53,121 |   |
| Service                              |       | 5,658                   |       | 5,019                  |       | 15,844 |   | 12,344 |   |
| Other, including trucking and rental |       | 3,833                   |       | 2,279                  |       | 9,388 |   | 5,027 |   |
| TOTAL COST OF REVENUE                |       | 187,435                 |       | 176,614                |       | 482,404 |   | 414,074 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| GROSS PROFIT                         |       | 39,583                  |       | 37,346                 |       | 104,107 |   | 87,374 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| OPERATING EXPENSES                   |       | 27,792                  |       | 23,153                 |       | 79,159 |   | 60,805 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| INCOME FROM OPERATIONS               |       | 11,791                  |       | 14,193                 |       | 24,948 |   | 26,569 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| OTHER INCOME (EXPENSE)               |       |                    |       |                   |       |   |   |   |   |
| Interest and other income            |       | 180                     |       | 496                    |       | 531 |   | 1,257 |   |
| Floorplan interest expense           |       | (1,798                  | )          | (783                   | )          | (3,461 | ) | (2,082 | ) |
| Interest expense other               |       | (454                    | )          | (46                    | )          | (1,045 | ) | (589 | ) |
|                                 |       |                    |       |                   |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES           |       | 9,719                   |       | 13,860                 |       | 20,973 |   | 25,155 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| PROVISION FOR INCOME TAXES           |       | (3,986                  | )          | (5,675                 | )          | (8,599 | ) | (10,250 | ) |
|                                 |       |                    |       |                   |       |   |   |   |   |
| NET INCOME                           |       | $                       | 5,733      |                   | $          | 8,185 |   | $ | 12,374 |   | $ | 14,905 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| EARNINGS PER SHARE - NOTE 1          |       |                    |       |                   |       |   |   |   |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| EARNINGS PER SHARE - BASIC           |       | $                       | 0.33       |                   | $          | 0.47 |   | $ | 0.70 |   | $ | 0.94 |   |
| EARNINGS PER SHARE - DILUTED         |       | $                       | 0.32       |                   | $          | 0.45 |   | $ | 0.69 |   | $ | 0.91 |   |
|                                 |       |                    |       |                   |       |   |   |   |   |
| WEIGHTED AVERAGE SHARES - BASIC      |       | 17,604                  |       | 17,553                 |       | 17,586 |   | 15,864 |   |
| WEIGHTED AVERAGE SHARES - DILUTED    |       | 18,013                  |       | 18,041                 |       | 17,958 |   | 16,374 |   |

 

See Notes to Consolidated Financial Statements

 

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**TITAN MACHINERY INC.**

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

**(in thousands)**

 
| ** **                                                                                                              | ** ** | **Nine Months Ended October 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                                                                                                    |       |                                   |       |   |   |
| OPERATING ACTIVITIES                                                                                                    |       |                                   |       |   |   |
| Net income                                                                                                              |       | $                                      | 12,374     |   | $ | 14,905 |   |
| Adjustments to reconcile net income to net cash  from operations                                                        |       |                                   |       |   |   |
| Depreciation and amortization                                                                                           |       | 5,888                                  |       | 2,939 |   |
| Deferred income taxes                                                                                                   |       | 680                                    |       | 68 |   |
| Stock-based compensation expense                                                                                        |       | 720                                    |       | 488 |   |
| Other                                                                                                                   |       | (28                                    | )          | (92 | ) |
| Changes in assets and liabilities, net of purchase  of equipment dealerships assets and assumption of liabilities       |       |                                   |       |   |   |
| Receivables, prepaid expenses and other assets                                                                          |       | (4,122                                 | )          | 2,451 |   |
| Inventories                                                                                                             |       | (49,981                                | )          | (14,066 | ) |
| Floorplan notes payable                                                                                                 |       | 5,144                                  |       | 4,637 |   |
| Accounts payable, customer deposits, accrued  expenses and other long-term liabilities                                  |       | (6,764                                 | )          | (1,303 | ) |
| Income taxes                                                                                                            |       | 3,017                                  |       | 3,761 |   |
|                                                                                                                    |       |                                   |       |   |   |
| NET CASH PROVIDED BY (USED FOR) OPERATING  ACTIVITIES                                                                   |       | (33,072                                | )          | 13,788 |   |
|                                                                                                                    |       |                                   |       |   |   |
| INVESTING ACTIVITIES                                                                                                    |       |                                   |       |   |   |
| Net change in U.S. treasury bills                                                                                       |       | 44,994                                 |       | (49,904 | ) |
| Property and equipment purchases                                                                                        |       | (11,066                                | )          | (6,072 | ) |
| Net proceeds from sale of equipment                                                                                     |       | 338                                    |       | 288 |   |
| Purchase of equipment dealerships, net of cash  purchased                                                               |       | (3,737                                 | )          | (24,275 | ) |
|                                                                                                                    |       |                                   |       |   |   |
| NET CASH PROVIDED BY (USED FOR) INVESTING  ACTIVITIES                                                                   |       | 30,529                                 |       | (79,963 | ) |
|                                                                                                                    |       |                                   |       |   |   |
| FINANCING ACTIVITIES                                                                                                    |       |                                   |       |   |   |
| Proceeds from follow-on offering of common stock  net of underwriting discount of $4,389 and other direct costs of $396 |       | —                                 |       | 78,815 |   |
| Net change in non-manufacturer floorplan notes  payable                                                                 |       | 33,664                                 |       | 3,603 |   |
| Short-term advances related to customer contracts  in transit                                                           |       | 1,329                                  |       | — |   |
| Proceeds from long-term debt borrowings                                                                                 |       | 20,570                                 |       | 691 |   |
| Principal payments on long-term debt and  subordinated debentures                                                       |       | (11,734                                | )          | (17,916 | ) |
| Other                                                                                                                   |       | 43                                     |       | 40 |   |
|                                                                                                                    |       |                                   |       |   |   |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                                                               |       | 43,872                                 |       | 65,233 |   |
|                                                                                                                    |       |                                   |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                                 |       | 41,329                                 |       | (942 | ) |
|                                                                                                                    |       |                                   |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                                        |       | 41,047                                 |       | 42,803 |   |
|                                                                                                                    |       |                                   |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                              |       | $                                      | 82,376     |   | $ | 41,861 |   |

 

See Notes to Consolidated Financial Statements

 

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

**(in thousands)**

 
| ** **                                                                                                                                                      | ** ** | **Nine Months Ended October 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                                                                                                      | ** ** | **2009**                               | ** ** | **2008** | ** ** |
|                                                                                                                                                            |       |                                   |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                                                                               |       |                                   | ** ** | ** ** | ** ** |
| Cash paid during the period                                                                                                                                     |       |                                   |       |   |   |
| Income taxes, net of refunds                                                                                                                                    |       | $                                      | 5,710      |   | $ | 6,178 |   |
| Interest                                                                                                                                                        |       | $                                      | 3,763      |   | $ | 2,763 |   |
|                                                                                                                                                            |       |                                   |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND  FINANCING ACTIVITIES                                                                                         |       |                                   |       |   |   |
| Property and equipment purchased with long-term  debt                                                                                                           |       | $                                      | 1,772      |   | $ | — |   |
| Net transfer of equipment from fixed assets to  inventories                                                                                                     |       | $                                      | 7,684      |   | $ | — |   |
| Net transfer of financing from long-term debt to  floorplan notes payable                                                                                       |       | $                                      | 3,180      |   | $ | — |   |
| Acquisition of equipment dealership assets in  exchange for cash and assumption of liabilities including purchase accounting  adjustments on prior acquisitions |       |                                   |       |   |   |
| Receivables                                                                                                                                                     |       | $                                      | (239       | ) | $ | (1,255 | ) |
| Inventories                                                                                                                                                     |       | (6,391                                 | )          | (25,644 | ) |
| Deferred income taxes, net                                                                                                                                      |       | 133                                    |       | 328 |   |
| Property and equipment                                                                                                                                          |       | (851                                   | )          | (6,917 | ) |
| Intangible assets                                                                                                                                               |       | —                                 |       | (250 | ) |
| Goodwill                                                                                                                                                        |       | (1,215                                 | )          | (1,895 | ) |
| Accounts payable                                                                                                                                                |       | (247                                   | )          | 350 |   |
| Floorplan notes payable                                                                                                                                         |       | 2,443                                  |       | 7,476 |   |
| Customer deposits                                                                                                                                               |       | 205                                    |       | 391 |   |
| Accrued expenses                                                                                                                                                |       | 188                                    |       | 43 |   |
| Income taxes payable                                                                                                                                            |       | (127                                   | )          | 242 |   |
| Long-term debt                                                                                                                                                  |       | 1,867                                  |       | 735 |   |
| Non-cash consideration: other long-term liabilities                                                                                                             |       | 497                                    |       | 2,121 |   |
| Cash paid for dealerships, net of cash purchased  and adjustments on prior acquisitions                                                                         |       | $                                      | (3,737     | ) | $ | (24,275 | ) |

 

See Notes to Consolidated Financial Statements

 

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TITAN MACHINERYINC.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

**NOTE 1 -**       **BUSINESS ACTIVITY AND SIGNIFICANTACCOUNTING 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 nine-month period ended October 31, 2009 are notnecessarily indicative of the results that may be expected for the year ending January 31,2010. The information contained in the balance sheet as of January 31,2009 was derived from the Company’s audited financial statements for the yearthen ended. These consolidated financial statements should be read inconjunction with the audited consolidated financial statements and notesthereto included in our Form 10-K for the fiscal year ended January 31,2009 as filed with the SEC.

 

*Nature of Business*

 

TitanMachinery Inc. (the “Company”) is engaged in the retail sale, service andrental of agricultural and construction machinery through stores in NorthDakota, South Dakota, 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 October 31, 2009 and January 31, 2009.

 

*Recent Accounting Guidance*

 

In June 2009,the FASB issued authoritative guidance on the FASB Accounting Standards Codification (“ASC” or “Codification”)and the hierarchy of generallyaccepted accounting principles, codified in ASC 105, *Generally Accepted Accounting Principles*. This guidanceestablished the Codification as the single source of authoritativenongovernmental GAAP. All existing accounting standard documents, excludingguidance from the SEC, was superseded by the Codification. All othernon-grandfathered, non-SEC accounting literature not included in theCodification became nonauthoritative. The Codification does not change GAAP,but instead introduced a new structure that combined all authoritativestandards into a comprehensive, topically organized online database. TheCodification was effective for interim or annual periods ending after September 15,2009, and impacted the Company’s financial statement disclosures beginning withthe quarter ending October 31, 2009 as all future references toauthoritative accounting literature will be referenced in accordance with theCodification.

 

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There will be no changesto the content of the Company’s consolidated financial statements ordisclosures as a result of implementing the Codification.

 

In October 2009,the Financial Accounting Standards Board (“FASB”) issued authoritative guidanceon revenue recognition, codified in ASC 605-25, *RevenueRecognition*. This guidance modifies the fair value requirements ofrevenue recognition on multiple element arrangements by allowing the use of the“best estimate of selling price” in addition to vendor specific objectiveevidence and third-party evidence for determining the selling price of adeliverable. This guidance establishes a selling price hierarchy fordetermining the selling price of a deliverable, which is based on: (a) vendor-specificobjective evidence, (b) third-party evidence, or (c) estimates. Inaddition, the guidance eliminates the residual method of allocation andsignificantly expands the disclosure requirements for such arrangements. Thisguidance is effective for fiscal years beginning on or after June 15,2010, with early adoption permitted. The Company is in the process ofdetermining the impact that this guidance will have on the Company’sconsolidated financial statements.

 

In June 2009,the FASB issued authoritative guidance on the consolidation of variableinterest entities (“VIEs”), 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 required toconsolidate, and requires additional disclosure of an entity’s involvement witha 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 company’s economic performance and whetherthe entity has the obligation to absorb losses or the right to receive benefitsthat could be significant to the VIE. This guidance is effective for fiscalyears beginning after November 15, 2009. The Company is in the process ofdetermining the impact it will have on the Company’s consolidated financialstatements.

 

In May 2009,the FASB issued authoritative guidance on subsequent events, codified in ASC855, *Subsequent Events*. This guidanceestablished general standards of accounting for and disclosure of events thatoccur after the balance sheet date but before financial statements are issuedor are available to be issued. The Company adopted the guidance as of July 31,2009. Its adoption did not have a material effect 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*,and will be effective for the Company on February 1, 2010. Its adoption isnot expected to have a material effect on the Company’s consolidated financialstatements based on the nature of the assets acquired and liabilities assumedin our business combinations.

 

In April 2009,the FASB issued authoritative guidance that required disclosures about fairvalue of financial instruments for interim reporting periods of publicly tradedcompanies, in addition to inclusion in annual financial statements. Thisguidance was codified in ASC 820, *Fair Value Measurementsand Disclosures*. The Company adopted this FSP as of July 31,2009. Its adoption did not have a material effect on the Company’s consolidatedfinancial statements.

 

In February 2008,the FASB issued authoritative guidance on fair value measurements, codified inASC 820, *Fair Value Measurements and Disclosures*.This guidance permitted a one year deferral of the application of fair valuemeasurements for all non-financial assets and non-financial liabilities, exceptthose recognized or disclosed at fair value in the financial statements on arecurring basis (at least annually). The Company adopted fair valuemeasurements for non-financial assets and non-financial liabilities on February 1,2009. Its adoption did not have a material effect on the Company’s results ofoperations, financial position or cash flows.

 

In December 2007,the FASB issued authoritative guidance on business combinations which providedadditional guidance on improving the relevance, representational faithfulness,and comparability of the financial information that a reporting entity providesin its financial reports about a business combination and its effects. Thisguidance was codified in ASC 805, *Business Combinations,*andapplied prospectively to business combinations for which the acquisition dateis on or after the beginning of the first annual reporting period beginning onor after December 15, 2008. The Company adopted SFAS 141R effective February 1,2009. Its adoption did not have a material effect on the Company’s consolidatedfinancial statements. Any acquisition made in fiscal 2010 and future periodsare subject to this new accounting guidance.

 

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In December 2007,the FASB issued authoritative guidance on accounting and reporting fornon-controlling interests in a subsidiary and for the deconsolidation of asubsidiary, codified in ASC 810, *Consolidation*.This guidance applied to all entities that prepare consolidated financialstatements and have an outstanding noncontrolling interest in one or moresubsidiaries. The Company adopted this guidance on February 1, 2009. Itsadoption did not have a material effect on the Company’s consolidated financialstatements.

 

*Earnings Per Share*

 

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

 
| ** **                                         | ** ** | **Three Months Ended October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| **(in thousands)**                                 | ** ** | **2009**                                | ** ** | **2008**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                               |       |                                    |       |                                   |       |   |   |   |   |
| Basic  weighted-average shares outstanding         |       | 17,604                                  |       | 17,553                                 |       | 17,586 |   | 15,864 |   |
| Plus:  Incremental shares from assumed conversions |       |                                    |       |                                   |       |   |   |   |   |
| Restricted  Stock                                  |       | 161                                     |       | 86                                     |       | 132 |   | 86 |   |
| Warrants                                           |       | 62                                      |       | 111                                    |       | 74 |   | 112 |   |
| Stock  Options                                     |       | 186                                     |       | 291                                    |       | 166 |   | 312 |   |
| Diluted  weighted-average shares outstanding       |       | 18,013                                  |       | 18,041                                 |       | 17,958 |   | 16,374 |   |

 

There were 148,500and 78,500 stock options outstanding as of October 31, 2009 and 2008,respectively, that were not included in the computation of diluted earnings pershare because they were anti-dilutive.

 

**NOTE 2 -**       **INVENTORIES**

 
| ** **                    | ** **   | **October 31,** | ** ** | **January 31,** | ** ** |
|-------------------------------|--------------|----------------------|------------|----------------------|------------|
| ** **                    | ** **   | **2009**             | ** ** | **2009**             | ** ** |
| ** **                    | *** *** | **(in thousands)**   | ** ** |
| New  equipment                |         | $                    | 207,766    |                 | $          | 132,502 |   |
| Used  equipment               |         | 103,633              |       | 68,333               |       |
| Parts,  tires and attachments |         | 40,259               |       | 37,314               |       |
| Work  in process              |         | 3,538                |       | 2,945                |       |
|                          |         | $                    | 355,196    |                 | $          | 241,094 |   |

 

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 -**       **LINESOF 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%), requiresmonthly payments of accrued interest commencing August 1, 2009, and has amaturity date of July 14, 2010. Advances under the Loan Agreement aresecured by substantially all of the Company’s assets. See discussion of theTerm Loan in Note 4.

 

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The Company had noamount outstanding on the Revolving Loan at October 31, 2009. 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 October 31, 2009,the Company was in compliance with all of these financial covenants.

 

*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”). The available borrowings under the CNH creditfacility are reduced by outstanding floorplan notes payable, rental fleetfinancing and other acquisition-related financing arrangements with CNH. Priorto September 1, 2009, the interest rate for new borrowings under the CNHCapital floorplan line of credit was equal to the prime rate plus 0.3% perannum for most purposes, subject to any interest-free periods offered by CNH.From September 1, 2009 through January 31, 2010, interest rates rangefrom the prime rate plus 4% to the prime rate plus 6% on new borrowings underthe CNH Capital floorplan line of credit, subject to any interest-free periodsoffered by CNH. The CNH Capital credit facility automatically renews on August 31of each year through August 31, 2012, unless earlier terminated by eitherparty. Under covenants of the CNH credit facility, the Company has agreed,among other things, to maintain various financial ratio levels and to submitcertain financial information. As of October 31, 2009, the Company was incompliance with all floorplan financial covenants.

 

Floorplan notespayable relating to these credit facilities totaled approximately $252.9million of the total floorplan notes payable balance of $261.9 millionoutstanding as of October 31, 2009 and $153.8 million of the totalfloorplan notes payable balance of $166.5 million outstanding as of January 31,2009. As of October 31, 2009, the Company had approximately $96.9 millionin available borrowings remaining under these lines of credit. These floorplannotes carried various interest rates primarily ranging from 3.25 to 9.25% as ofOctober 31, 2009 and January 31, 2009, and are secured by the relatedinventory. Repayment terms vary by individual notes, but generally payments aremade from sales proceeds or rental revenue from the related inventories.

 

**NOTE 4 -**       **LONG-TERMDEBT**

 

As discussed inNote 3, on July 15, 2009 the Company entered into a Loan Agreement withBremer Bank that provides for a $25.0 million Revolving Loan and a $15.0 millionTerm Loan. The Term Loan will be used for the long term working capitalrequirements of the Company. The Term Loan has a fixed interest rate of 5.9%,requires monthly payments of principal and interest commencing August 1,2009, and has a maturity date of July 1, 2014. Advances under the LoanAgreement are secured by substantially all of the Company’s assets. The LoanAgreement contains certain financial covenants that impose minimum levels ofcurrent ratio, debt service coverage, and inventory turnover ratio and amaximum level of debt to tangible net worth ratio. As of October 31, 2009,the Company was in compliance with all of these financial covenants. Seediscussion of the Revolving Loan in Note 3.

 

There was $14.3million outstanding on this Term Loan as of October 31, 2009. Futurematurities on this Term Loan are as follows:

 

| **12 Months Ending  October 31,** | ** ** | **Amount**          | ** ** |
|----------------------------------------|------------|---------------------|------------|
| ** **                             | ** ** | **(in  thousands)** | ** ** |
| 2010                                   |       | $                   | 2,688      |   |
| 2011                                   |       | 2,853               |       |
| 2012                                   |       | 3,027               |       |
| 2013                                   |       | 3,215               |       |
| 2014                                   |       | 2,535               |       |
| Thereafter                             |       | —              |       |
|                                   |       | $                   | 14,318     |   |

 

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**NOTE 5 -**       **INCOME TAXES**

 

In August 2009,the Internal Revenue Service (“IRS”) completed its audit of the Company,including the uncertain tax position taken during fiscal 2008. All amounts owedto state and federal taxing authorities were paid prior to October 31,2009. A reconciliation of the beginning and ending amount of unrecognized taxbenefits for the nine months ended October 31, 2009 follows (in thousands):

 
| Balance  at January 31, 2009                             |   | $      | 446    |   |
|---------------------------------------------------------------|--------|--------|--------|--------|
| Additions  for tax positions related to current year          |   | — |   |
| Additions/reductions  for tax positions taken in prior years: |   |   |   |
| Accrued  interest expense                                     |   | 9      |   |
| Reduction  due to final IRS settlement                        |   | (14    | )      |
| Reductions  for tax positions as a result of:                 |   |   |   |
| Settlements                                                   |   | (441   | )      |
| Lapse  of statute of limitations                              |   | — |   |
| Balance  at October 31, 2009                             |   | $      | — |   |

 

The Company is nolonger subject to U.S. federal income tax examinations for fiscal years endingprior to January 31, 2007.

 

**NOTE 6 -**       **STOCKWARRANTS, STOCK OPTIONS AND RESTRICTED STOCK**

 

*CommonStock Warrants*

 

The followingtable summarizes stock warrant activity for the nine months ended October 31,2009:

 

*(number of warrants and aggregate intrinsic valuein thousands)*

 
| ** **                                            | ** ** | ** **    | ** ** | ** **   | ** ** | ** **    | ** ** | **Weighted**     | ** ** |
|-------------------------------------------------------|------------|---------------|------------|--------------|------------|---------------|------------|------------------|------------|
| ** **                                            | ** ** | ** **    | ** ** | **Weighted** | ** ** | ** **    | ** ** | **Average**      | ** ** |
| ** **                                            | ** ** | ** **    | ** ** | **Average**  | ** ** | **Aggregate** | ** ** | **Remaining**    | ** ** |
| ** **                                            | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** | **Contractual**  | ** ** |
| ** **                                            | ** ** | **Warrants**  | ** ** | **Price**    | ** ** | **Value**     | ** ** | **Life (Years)** | ** ** |
|                                                  |       |          |       |         |       |          |       |             |       |
| Outstanding  and exercisable at January 31, 2009 |       | 123           |       | $            | 3.45       |          |       |             |       |   |
| Granted                                               |       | —        |       | —       |       |          |       |             |       |
| Exercised                                             |       | (38           | )          | 3.50         |       |          |       |             |       |
| Forfeited                                             |       | —        |       | —       |       |          |       |             |       |
| Outstanding  and exercisable at October 31, 2009 |       | 85            |       | $            | 3.43       |          | $          | 624              |       | 2.6 |   |
|                                                       |            |               |            |              |            |               |            |                  |            |  |  |

 

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*StockOptions*

 

The followingtable summarizes stock option activity for the nine months ended October 31,2009:

 

*(numberof stock options and aggregate intrinsic value in thousands)*

 
| ** **                            | ** ** | ** **    | ** ** | ** **   | ** ** | ** **    | ** ** | **Weighted**     | ** ** |
|---------------------------------------|------------|---------------|------------|--------------|------------|---------------|------------|------------------|------------|
| ** **                            | ** ** | ** **    | ** ** | **Weighted** | ** ** | ** **    | ** ** | **Average**      | ** ** |
| ** **                            | ** ** | ** **    | ** ** | **Average**  | ** ** | **Aggregate** | ** ** | **Remaining**    | ** ** |
| ** **                            | ** ** | **Number of** | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** | **Contractual**  | ** ** |
| ** **                            | ** ** | **Options**   | ** ** | **Price**    | ** ** | **Value**     | ** ** | **Life (Years)** | ** ** |
|                                  |       |          |       |         |       |          |       |             |       |
| Outstanding  at January 31, 2009 |       | 646           |       | $            | 10.91      |          |       |             |       |   |
| Granted                               |       | 5             |       | 11.16        |       |          |       |             |       |
| Exercised                             |       | (8            | )          | 5.32         |       |          |       |             |       |
| Forfeited                             |       | —        |       | —       |       |          |       |             |       |
| Outstanding  at October 31, 2009 |       | 643           |       | $            | 10.98      |          | $          | 1,472            |       | 7.3 |   |
|                                  |       |          |       |         |       |          |       |             |       |
| Exercisable  at October 31, 2009 |       | 178           |       | $            | 8.72       |          | $          | 627              |       | 6.9 |   |

 

*RestrictedStock*

 

The followingtable summarizes restricted stock activity for the nine months ended October 31,2009:

 

*(numberof restricted shares in thousands)*

 
| ** **                          | ** ** | ** ** | ** ** | ** **     | ** ** | **Weighted**    | ** ** |
|-------------------------------------|------------|------------|------------|----------------|------------|-----------------|------------|
| ** **                          | ** ** | ** ** | ** ** | **Weighted**   | ** ** | **Average**     | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **Average**    | ** ** | **Remaining**   | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **Grant Date** | ** ** | **Contractual** | ** ** |
| ** **                          | ** ** | **Shares** | ** ** | **Fair Value** | ** ** | **Term**        | ** ** |
| Nonvested  at January 31, 2009 |       | 92         |       | $              | 10.18      |            | 2.1        |   |
| Granted                             |       | 84         |       | 13.05          |       |            |       |
| Forfeited                           |       | (4         | )          | 10.90          |       |            |       |
| Vested                              |       | (11        | )          | 12.78          |       |            |       |
| Nonvested  at October 31, 2009 |       | 161        |       | $              | 11.48      |            | 2.7        |   |

 

The weightedaverage grant date fair value of restricted stock granted was $13.05 and $20.40per share for the nine months ended October 31, 2009 and 2008,respectively. The total fair value of restricted stock vested was $133,000 and$13,000 for the nine months ended October 31, 2009 and 2008, respectively.As of October 31, 2009, there was approximately $707,000 of unrecognizedcompensation cost on non-vested restricted stock that is expected to berecognized over a weighted-average period of 2.7 years.

 

**NOTE 7 -**       **BUSINESS COMBINATIONS**

 

On May 1,2009, the Company acquired 100% of the outstanding stock of Winger Implement, Inc.The acquired entity consisted of one agricultural equipment store located inWinger, Minnesota and expands the Company’s presence in the Red River Valley.The acquisition-date fair value of the total consideration transferred for thedealership was $1,450,000. The Company expects the allocation of the purchaseprice to be finalized within one year of the acquisition date.

 

On May 28,2009, the Company acquired certain assets of Arthur Mercantile, Co. Theacquired entity consisted of one agricultural equipment store located inArthur, North Dakota and expands the Company’s presence in the Red RiverValley. The acquisition-date fair value of the total consideration transferredfor the dealership was $831,697. The Company

 

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expects the allocation ofthe purchase price to be finalized within one year of the acquisition date.James L. Williams, Arthur Mercantile, Co.’s President and Treasurer, is a TitanMachinery director.

 

On June 30,2009, the Company acquired certain assets of Valley Equipment, Inc. inMayville, North Dakota. The acquired entity consisted of one agriculturalequipment store and expands the Company’s presence in the Red River Valley. Theacquisition-date fair value of the total consideration transferred for thedealership was $753,404. The Company expects the allocation of the purchaseprice to be finalized within one year of the acquisition date.

 

On August 14,2009, the Company acquired certain assets of Lickness Bros. Implement Co. Theacquired entity consisted of one agricultural equipment store located inBritton, South Dakota and is contiguous to existing markets in Northeast SouthDakota and Southeast North Dakota.  Theacquisition-date fair value of the total consideration transferred for thedealership was $209,551. The Company expects the allocation of the purchaseprice to be finalized within one year of the acquisition date.

 

During the ninemonths ended October 31, 2009 adjustments were recorded to finalize thepurchase price allocations of prior acquisitions and for additionalconsideration of $1,063,000 earned and paid under agreements disclosed in our Form 10-Kfor the fiscal year ended January 31, 2009 as filed with the SEC. Theseadjustments and additional consideration resulted in a net increase in goodwillof $862,000.

 

The results ofoperations have been included in the Company’s consolidated results ofoperations since the date of each respective business combination. The fairvalue of assets acquired and liabilities assumed in the above businesscombinations and adjustments on prior acquisitions are presented in thefollowing table:

 

| *** ***                                        | *** *** | **(in thousands)** | *** *** |
|-----------------------------------------------------|--------------|--------------------|--------------|
|                                                |         |               |         |
| Cash                                                |         | 73                 |         |
| Receivables                                         |         | 239                |         |
| Inventories                                         |         | 6,391              |         |
| Deferred income taxes                               |         | 8                  |         |
| Property and equipment                              |         | 851                |         |
| Goodwill                                            |         | 1,215              |         |
|                                                |         | $                  | 8,777        |   |
| ** **                                          | ** **   | ** **         | ** **   |
| Accounts payable                                    |         | $                  | (247         | ) |
| Floorplan notes payable                             |         | 2,443              |         |
| Customer deposits                                   |         | 205                |         |
| Accrued expenses                                    |         | 188                |         |
| Income taxes payable                                |         | (127               | )            |
| Long-term debt                                      |         | 1,867              |         |
| Deferred income taxes                               |         | 141                |         |
|                                                |         | $                  | 4,470        |   |
|                                                |         |               |         |
| Cash consideration                                  |         | 3,810              |         |
| Non-cash consideration: other long-term liabilities |         | 497                |         |
| Total consideration                                 |         | $                  | 4,307        |   |

 

Goodwill of$1,068,000 recorded in the acquisition transactions during the nine monthsended October, 31, 2009 is expected to be deductible for tax purposes.

 

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**NOTE 8 -**       **SUBSEQUENTEVENTS**

 

On November 2,2009, the Company closed on the acquisition of certain assets of OskaloosaImplement Co., for approximately $2,559,000. The acquired entity consisted oftwo agricultural equipment stores located in Pella and Oskaloosa, Iowa andexpands the Company’s presence in Iowa. Used equipment inventory of approximately $1,752,000, and the relatedfloorplan notes payable and accounts payable, were purchased in October 2009and are included in the Company’s balance sheet as of October 31, 2009.

 

On November 2,2009, the Company acquired 100% of the outstanding stock of Valley FarmEquipment, Inc. in Milbank, South Dakota, for approximately $1,860,000.The acquired entity consisted of one agricultural equipment store and isstrategically located in the Whetstone Valley in Eastern South Dakota, betweenTitan Machinery’s existing dealerships in Graceville, Minnesota, Watertown,South Dakota, and Aberdeen, South Dakota.

 

The Companyevaluated for the occurrence of subsequent events through December 10,2009, the issuance date of the Company’s financial statements. No recognized ornon-recognized subsequent events occurred except as noted above.

 

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| **ITEM 2.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF FINANCIAL**CONDITION AND RESULTSOF  OPERATIONS |
|-------------|------------------------------------------------------------------------------------------------|

** **

The followingdiscussion and analysis of our financial condition and results of operationsshould be read in conjunction with our interim 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, 2009.

 

**Critical AccountingPolicies**

** **

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, 2009.

 

**Overview**

** **

We own and operateone of the largest networks of full service agricultural and constructionequipment stores in North America. We are the world’s largest retail dealer ofCase IH Agriculture equipment and a major retail dealer of New HollandAgriculture, Case Construction and New Holland Construction equipment in theU.S. We sell and rent agricultural and construction equipment, sell parts, andservice the equipment operating in the areas surrounding our stores.

 

Our net income was$5.7 million, or $0.32 per diluted share, for the three months ended October 31,2009, compared to $8.2 million, or $0.45 per diluted share, for the threemonths ended October 31, 2008. Significant factors impacting the quarterwere:

 

***·***                  Overall revenue growth was due to acquisitions andwas partially offset by declines in same-store sales resulting from aparticularly strong agriculture equipment market in the third quarter of fiscal2009 and a challenging construction market, as compared to the third quarter offiscal 2009;

*** ***

***·***                  Increase in gross profits primarily due to increasedrevenues;

*** ***

***·***                  Increase in operating expenses as a percent ofrevenue primarily due to an increased concentration of construction stores inour overall store composition, as well as lower revenues due to the challengingconstruction market; and

*** ***

***·***                  Increase in inventories reflecting historicalstocking levels to support future sales.

 

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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:

 
|                                  |   | **Three Months Ended October 31,** |          | **Nine Months Ended October 31,** |       |
|---------------------------------------|--------|-----------------------------------------|---------------|----------------------------------------|------------|
|                                  |   |                                    |          |                                   |       | **Percent** |   |   |   |   |   | **Percent** |   |
|                                  |   | **2009**                                | ** **    | **2008**                               | ** ** | **Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **Change** |   |
|                                  |   | **(dollars in thousands)**              |          |                                   |       | **(dollars in thousands)** |   |   |   |
| Equipment                             |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |   | $                                       |  173,367 |                                   | $          |  167,950 |   | 3.2 | % | $ |  439,374 |   | $ |  386,705 |   | 13.6 | % |
| Cost  of revenue                      |   | 155,653                                 |          | 148,678                                |       | 4.7 | % | 393,405 |   | 343,582 |   | 14.5 | % |
| Gross  profit                         |   | $                                       |  17,714  |                                   | $          |  19,272 |   | (8.1 | )% | $ |  45,969 |   | $ |  43,123 |   | 6.6 | % |
|                                  |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Parts                                 |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |   | $                                       |  32,961  |                                   | $          |  29,794 |   | 10.6 | % | $ |  91,813 |   | $ |  74,910 |   | 22.6 | % |
| Cost  of revenue                      |   | 22,291                                  |          | 20,638                                 |       | 8.0 | % | 63,767 |   | 53,121 |   | 20.0 | % |
| Gross  profit                         |   | $                                       |  10,670  |                                   | $          |  9,156 |   | 16.5 | % | $ |  28,046 |   | $ |  21,789 |   | 28.7 | % |
|                                  |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Service                               |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |   | $                                       |  15,854  |                                   | $          |  12,894 |   | 23.0 | % | $ |  44,036 |   | $ |  32,626 |   | 35.0 | % |
| Cost  of revenue                      |   | 5,658                                   |          | 5,019                                  |       | 12.7 | % | 15,844 |   | 12,344 |   | 28.4 | % |
| Gross  profit                         |   | $                                       |  10,196  |                                   | $          |  7,875 |   | 29.5 | % | $ |  28,192 |   | $ |  20,282 |   | 39.0 | % |
|                                  |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Other,  including trucking and rental |   |                                    |          |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                               |   | $                                       |  4,836   |                                   | $          |  3,322 |   | 45.6 | % | $ |  11,288 |   | $ |  7,207 |   | 56.6 | % |
| Cost  of revenue                      |   | 3,833                                   |          | 2,279                                  |       | 68.2 | % | 9,388 |   | 5,027 |   | 86.8 | % |
| Gross  profit                         |   | $                                       |  1,003   |                                   | $          |  1,043 |   | (3.8 | )% | $ |  1,900 |   | $ |  2,180 |   | (12.8 | )% |

 

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 October 31,** | ** ** | **Nine Months Ended October 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                            | ** ** | **2009**                                | ** ** | **2008**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Revenue                               |       |                                    |       |                                   |       |   |   |   |   |
| Equipment                             |       | 76.4                                    | %          | 78.5                                   | %          | 74.9 | % | 77.1 | % |
| Parts                                 |       | 14.5                                    | %          | 13.9                                   | %          | 15.7 | % | 15.0 | % |
| Service                               |       | 7.0                                     | %          | 6.0                                    | %          | 7.5 | % | 6.5 | % |
| Other,  including trucking and rental |       | 2.1                                     | %          | 1.6                                    | %          | 1.9 | % | 1.4 | % |
| Total  revenue                        |       | 100.0                                   | %          | 100.0                                  | %          | 100.0 | % | 100.0 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Cost  of revenue                      |       |                                    |       |                                   |       |   |   |   |   |
| Equipment                             |       | 68.6                                    | %          | 69.5                                   | %          | 67.1 | % | 68.5 | % |
| Parts                                 |       | 9.8                                     | %          | 9.6                                    | %          | 10.9 | % | 10.6 | % |
| Service                               |       | 2.5                                     | %          | 2.3                                    | %          | 2.7 | % | 2.5 | % |
| Other,  including trucking and rental |       | 1.7                                     | %          | 1.1                                    | %          | 1.5 | % | 1.0 | % |
| Total  cost of revenue                |       | 82.6                                    | %          | 82.5                                   | %          | 82.2 | % | 82.6 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Gross  profit                         |       | 17.4                                    | %          | 17.5                                   | %          | 17.8 | % | 17.4 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Operating  expenses                   |       | 12.2                                    | %          | 10.8                                   | %          | 13.5 | % | 12.1 | % |
|                                  |       |                                    |       |                                   |       |   |   |   |   |
| Income  from operations               |       | 5.2                                     | %          | 6.7                                    | %          | 4.3 | % | 5.3 | % |

 

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***Three Months Ended October 31,2009 Compared to Three Months Ended October 31, 2008***

* *

*Revenue*

 
| ** **                            | ** ** | **Three months ended**     | ** **    | **Three months ended**    | ** ** | ** **    | ** ** | **Percent** | ** **   |
|---------------------------------------|------------|----------------------------|---------------|---------------------------|------------|---------------|------------|-------------|--------------|
| ** **                            | ** ** | **October 31, 2009**  | ** **    | **October 31, 2008** | ** ** | **Increase**  | ** ** | **Change**  | ** **   |
| ** **                            | ** ** | **(dollars in thousands)** | ** **    | ** **                | ** ** |
|                                  |       |                       |          |                      |       |          |       |        |         |
| Equipment                             |       | $                          |  173,367 |                      | $          |  167,950 |       | $           |  5,417  |   | 3.2 | % |
| Parts                                 |       | 32,961                     |          | 29,794                    |       | 3,167         |       | 10.6        | %            |
| Service                               |       | 15,854                     |          | 12,894                    |       | 2,960         |       | 23.0        | %            |
| Other,  including trucking and rental |       | 4,836                      |          | 3,322                     |       | 1,514         |       | 45.6        | %            |
|                                  |       |                       |          |                      |       |          |       |        |         |
| Total  Revenue                        |       | $                          |  227,018 |                      | $          |  213,960 |       | $           |  13,058 |   | 6.1 | % |

* *

The increase inrevenue for the three months ended October 31, 2009, as compared to thesame period last year, was due to acquisitions contributing to current periodrevenue, offset by a decline in same-store sales. Acquisitions contributed$25.1 million of the increase in total revenue, while same-store sales declinedby $12.0 million. Revenue from acquisitions was negatively impacted by the slowconstruction market we are currently experiencing and the large number ofconstruction stores acquired in the prior year. Same-store sales decreased 5.7%over the same period of the prior year, resulting from a particularly strongequipment market in the third quarter of fiscal 2009 that did not recur in thethird quarter of fiscal 2010.

 

*Cost of Revenue*

 
| ** **                            | ** ** | **Three months ended**     | ** **    | **Three months ended**    | ** ** | ** **    | ** ** | **Percent** | ** **   |
|---------------------------------------|------------|----------------------------|---------------|---------------------------|------------|---------------|------------|-------------|--------------|
| ** **                            | ** ** | **October 31, 2009**  | ** **    | **October 31, 2008** | ** ** | **Increase**  | ** ** | **Change**  | ** **   |
| ** **                            | ** ** | **(dollars in thousands)** | ** **    | ** **                | ** ** |
|                                  |       |                       |          |                      |       |          |       |        |         |
| Equipment                             |       | $                          |  155,653 |                      | $          |  148,678 |       | $           |  6,975  |   | 4.7 | % |
| Parts                                 |       | 22,291                     |          | 20,638                    |       | 1,653         |       | 8.0         | %            |
| Service                               |       | 5,658                      |          | 5,019                     |       | 639           |       | 12.7        | %            |
| Other,  including trucking and rental |       | 3,833                      |          | 2,279                     |       | 1,554         |       | 68.2        | %            |
|                                  |       |                       |          |                      |       |          |       |        |         |
| Total  cost of revenue                |       | $                          |  187,435 |                      | $          |  176,614 |       | $           |  10,821 |   | 6.1 | % |

* *

The increase incost of revenue for the three months ended October 31, 2009, as comparedto the same period last year, was primarily due to increased revenue.Acquisitions contributed $20.6 million of the increase in total cost ofrevenue, while the decline in same-store sales resulted in a decrease in costof revenue of $9.8 million. As a percentage of revenue, cost of revenue was82.6% compared to 82.5% for the third quarter of fiscal 2009.

 

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*Gross Profit*

 
| ** **                            | ** ** | **Three months ended**     | ** **   | **Three months ended**    | ** ** | **Increase/**  | ** ** | **Percent** | ** **   |
|---------------------------------------|------------|----------------------------|--------------|---------------------------|------------|----------------|------------|-------------|--------------|
| ** **                            | ** ** | **October 31, 2009**  | ** **   | **October 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** **   |
| ** **                            | ** ** | **(dollars in thousands)** | ** **   | ** **                | ** ** |
|                                  |       |                       |         |                      |       |           |       |        |         |
| Equipment                             |       | $                          |  17,714 |                      | $          |  19,272   |       | $           |  (1,558 | ) | (8.1 | )% |
| Parts                                 |       | 10,670                     |         | 9,156                     |       | 1,514          |       | 16.5        | %            |
| Service                               |       | 10,196                     |         | 7,875                     |       | 2,321          |       | 29.5        | %            |
| Other,  including trucking and rental |       | 1,003                      |         | 1,043                     |       | (40            | )          | (3.8        | )%           |
|                                  |       |                       |         |                      |       |           |       |        |         |
| Total  Gross Profit                   |       | $                          |  39,583 |                      | $          |  37,346   |       | $           |  2,237  |   | 6.0 | % |

 

The $2.2 millionincrease in gross profit for the three months ended October 31, 2009, ascompared to the same period last year, was primarily due to increased revenue.Acquisitions contributed $4.5 million to the increase in gross profit for thethree months ended October 31, 2009, offset by a decrease in same-storegross profits of $2.3 million from the three months ended October 31,2008. Gross profit margins were 17.4% for the third quarter of fiscal 2010,compared to 17.5% for the third quarter of fiscal 2009. The gross profit marginon equipment revenues for the third quarter of fiscal 2010 declined compared tothe same period last year due to a particularly strong equipment market in thethird quarter of fiscal 2009 that did not recur in the third quarter of fiscal2010, but was enhanced by a manufacturer incentive program. The gross profitmargin on parts revenues for the third quarter of fiscal 2010, as compared tothe same period last year, was enhanced by a parts incentive program.

 

*Operating Expenses*

 
| ** **          | ** ** | **Three months ended**     | ** **   | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** **  |
|---------------------|------------|----------------------------|--------------|---------------------------|------------|--------------|------------|-------------|-------------|
| ** **          | ** ** | **October 31, 2009**  | ** **   | **October 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** **  |
| ** **          | ** ** | **(dollars in thousands)** | ** **   | ** **                | ** ** |
| Operating  Expenses |       | $                          |  27,792 |                      | $          |  23,153 |       | $           |  4,639 |   | 20.0 | % |
|                     |            |                            |              |                           |            |              |            |             |             |  |  |  |

* *

The $4.6 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 increased to 12.2% for the third quarter of fiscal 2010compared to 10.8% for the third quarter of fiscal 2009. This increase from theprior year was due to the increased number of construction stores, which havehigher operating expenses as a percent of revenue, as well as lower revenuesdue to the challenging construction market, as compared to the same period offiscal 2009. In addition, the strong prior year sales resulted in improvedfixed operating expense utilization as a percentage of sales in the thirdquarter of fiscal 2009.

 

*Other Income (Expense)*

 
| ** **                  | ** ** | **Three months ended**     | ** ** | **Three months ended**    | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| ** **                  | ** ** | **October 31, 2009**  | ** ** | **October 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Interest  and other income  |       | $                          |  180  |                      | $          |  496      |       | $           |  (316 | ) | (63.7 | )% |
| Floorplan  interest expense |       | (1,798                     | )          | (783                      | )          | 1,015          |       | 129.6       | %          |
| Interest  expense           |       | (454                       | )          | (46                       | )          | 408            |       | 887.0       | %          |
|                             |            |                            |            |                           |            |                |            |             |            |  |  |  |

* *

Interest and otherincome decreased $0.3 million for the three months ended October 31, 2009,as compared to the same period last year, as we invested our cash balances inhighly secure investments that carried lower interest rates than those earnedin the three months ended October 31, 2008. The increase in floorplaninterest expense was due to the increase in 

 

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floorplan notes payablebalances and higher interest rates for the three months ended October 31,2009, as compared to the same period in the prior year. The increase ininterest expense resulted from higher long-term debt balances.

 

*Provision for IncomeTaxes*

 
| ** **                  | ** ** | **Three months ended**     | ** **  | **Three months ended**    | ** ** | ** **   | ** ** | **Percent** | ** **   |
|-----------------------------|------------|----------------------------|-------------|---------------------------|------------|--------------|------------|-------------|--------------|
| ** **                  | ** ** | **October 31, 2009**  | ** **  | **October 31, 2008** | ** ** | **Decrease** | ** ** | **Change**  | ** **   |
| ** **                  | ** ** | **(dollars in thousands)** | ** **  | ** **                | ** ** |
| Provision  for income taxes |       | $                          |  3,986 |                      | $          |  5,675  |       | $           |  (1,689 | ) | (29.8 | )% |
|                             |            |                            |             |                           |            |              |            |             |              |  |  |  |

* *

The effective taxrate was 41.0% for the three months ended October 31, 2009 and 2008,respectively.

 

***Nine Months Ended October 31,2009 Compared to Nine Months Ended October 31, 2008***

* *

*Revenue*

 
| ** **                            | ** ** | **Nine Months Ended**      | ** **    | **Nine Months Ended**     | ** ** | ** **    | ** ** | **Percent** | ** **   |
|---------------------------------------|------------|----------------------------|---------------|---------------------------|------------|---------------|------------|-------------|--------------|
| ** **                            | ** ** | **October 31, 2009**  | ** **    | **October 31, 2008** | ** ** | **Increase**  | ** ** | **Change**  | ** **   |
| ** **                            | ** ** | **(dollars in thousands)** | ** **    | ** **                | ** ** |
| Equipment                             |       | $                          |  439,374 |                      | $          |  386,705 |       | $           |  52,669 |   | 13.6 | % |
| Parts                                 |       | 91,813                     |          | 74,910                    |       | 16,903        |       | 22.6        | %            |
| Service                               |       | 44,036                     |          | 32,626                    |       | 11,410        |       | 35.0        | %            |
| Other,  including trucking and rental |       | 11,288                     |          | 7,207                     |       | 4,081         |       | 56.6        | %            |
|                                  |       |                       |          |                      |       |          |       |        |         |
| Total  Revenue                        |       | $                          |  586,511 |                      | $          |  501,448 |       | $           |  85,063 |   | 17.0 | % |

 

The increase inrevenue for the nine months ended October 31, 2009, as compared to thesame period last year, was due to acquisitions contributing to current periodrevenue, offset by a decline in same-store sales. Acquisitions contributed$86.4 million of the increase in total revenue, while same-store sales declinedby $1.3 million, a decrease of 0.3% over the same period of the prior year.Revenue from acquisitions was negatively impacted by the slow constructionmarket we are currently experiencing and the large number of constructionstores acquired in the prior year.

 

*Cost of Revenue*

 
| ** **                            | ** ** | **Nine Months Ended**      | ** **    | **Nine Months Ended**     | ** ** | ** **    | ** ** | **Percent** | ** **   |
|---------------------------------------|------------|----------------------------|---------------|---------------------------|------------|---------------|------------|-------------|--------------|
| ** **                            | ** ** | **October 31, 2009**  | ** **    | **October 31, 2008** | ** ** | **Increase**  | ** ** | **Change**  | ** **   |
| ** **                            | ** ** | **(dollars in thousands)** | ** **    | ** **                | ** ** |
| Equipment                             |       | $                          |  393,405 |                      | $          |  343,582 |       | $           |  49,823 |   | 14.5 | % |
| Parts                                 |       | 63,767                     |          | 53,121                    |       | 10,646        |       | 20.0        | %            |
| Service                               |       | 15,844                     |          | 12,344                    |       | 3,500         |       | 28.4        | %            |
| Other,  including trucking and rental |       | 9,388                      |          | 5,027                     |       | 4,361         |       | 86.8        | %            |
|                                  |       |                       |          |                      |       |          |       |        |         |
| Total  cost of revenue                |       | $                          |  482,404 |                      | $          |  414,074 |       | $           |  68,330 |   | 16.5 | % |

 

The increase incost of revenue for the nine months ended October 31, 2009, as compared tothe same period last year, was primarily due to increased revenue. Acquisitionscontributed $70.8 million of the increase in total cost of revenue, while thedecline in same-store sales resulted in a decrease in cost of revenue of $2.5million. As a percentage of revenue, cost of revenue was 82.2% for the ninemonths ended October 31, 2009 compared to 82.6% for the nine months ended October 31,2008.

 

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*Gross Profit*

 
| ** **                            | ** ** | **Nine Months Ended**      | ** **    | **Nine Months Ended**     | ** ** | **Increase/**  | ** ** | **Percent** | ** **   |
|---------------------------------------|------------|----------------------------|---------------|---------------------------|------------|----------------|------------|-------------|--------------|
| ** **                            | ** ** | **October 31, 2009**  | ** **    | **October 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** **   |
| ** **                            | ** ** | **(dollars in thousands)** | ** **    | ** **                | ** ** |
|                                  |       |                       |          |                      |       |           |       |        |         |
| Equipment                             |       | $                          |  45,969  |                      | $          |  43,123   |       | $           |  2,846  |   | 6.6 | % |
| Parts                                 |       | 28,046                     |          | 21,789                    |       | 6,257          |       | 28.7        | %            |
| Service                               |       | 28,192                     |          | 20,282                    |       | 7,910          |       | 39.0        | %            |
| Other,  including trucking and rental |       | 1,900                      |          | 2,180                     |       | (280           | )          | (12.8       | )%           |
|                                  |       |                       |          |                      |       |           |       |        |         |
| Total  Gross Profit                   |       | $                          |  104,107 |                      | $          |  87,374   |       | $           |  16,733 |   | 19.2 | % |

 

The $16.7 millionincrease in gross profit for the nine months ended October 31, 2009, ascompared to the same period last year, was primarily due to increased revenue.Acquisitions contributed $15.6 million to the increase in gross profit for thenine months ended October 31, 2009, while increases in same-store grossprofits provided the remaining $1.1 million of the gross profit improvement.Gross profit margins were 17.8% for the nine months ended October 31,2009, compared to 17.4% for the nine months ended October 31, 2008. Thegross profit margin on equipment revenues for the nine months ended October 31,2009 declined compared to the same period in fiscal 2009 due to a particularlystrong equipment market in the third quarter of fiscal 2009 that did not recurin the third quarter of fiscal 2010, but was enhanced by a manufacturerincentive program. The gross profit margin on parts revenues for the thirdquarter of fiscal 2010, as compared to the same period last year, was enhancedby a parts incentive program. The decrease in gross profit margins on other,including trucking and rental, was due to a lower utilization of our rentalfleet.

 

*Operating Expenses*

 
| ** **          | ** ** | **Nine Months Ended**      | ** **   | **Nine Months Ended**     | ** ** | ** **   | ** ** | **Percent** | ** **   |
|---------------------|------------|----------------------------|--------------|---------------------------|------------|--------------|------------|-------------|--------------|
| ** **          | ** ** | **October 31, 2009**  | ** **   | **October 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** **   |
| ** **          | ** ** | **(dollars in thousands)** | ** **   | ** **                | ** ** |
| Operating  Expenses |       | $                          |  79,159 |                      | $          |  60,805 |       | $           |  18,354 |   | 30.2 | % |
|                     |            |                            |              |                           |            |              |            |             |              |  |  |  |

 

The $18.3 millionincrease in operating expenses for the nine months ended October 31, 2009,as compared to the same period last year, was primarily due to the additionalcosts associated with acquisitions such as compensation, rent and depreciation.As a percentage of total revenue, operating expenses increased to 13.5% for thenine months ended October 31, 2009, compared to 12.1% for the nine monthsended October 31, 2008. This increase from the prior year is due to theincreased number of construction stores, which have higher operating expensesas a percent of revenue, as well as lower revenues due to the challengingconstruction market, as compared to the same period of fiscal 2009.

 

*Other Income (Expense)*

 
| ** **                  | ** ** | **Nine Months Ended**      | ** ** | **Nine Months Ended**     | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|---------------------------|------------|----------------|------------|-------------|------------|
| ** **                  | ** ** | **October 31, 2009**  | ** ** | **October 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **                | ** ** |
| Interest  and other income  |       | $                          |  531  |                      | $          |  1,257    |       | $           |  (726 | ) | (57.8 | )% |
| Floorplan  interest expense |       | (3,461                     | )          | (2,082                    | )          | 1,379          |       | 66.2        | %          |
| Interest  expense           |       | (1,045                     | )          | (589                      | )          | 456            |       | 77.4        | %          |
|                             |            |                            |            |                           |            |                |            |             |            |  |  |  |

 

Interest and otherincome decreased $0.7 million for the nine months ended October 31, 2009as we invested our cash balances in highly secure investments that carriedlower interest rates than those earned in the nine months ended October 31,2008. The increase in floorplan interest expense was primarily due to theincrease in floorplan notes payable balances for the nine months ended October 31,2009 compared to the same period in the prior year. The increase in interestexpense resulted from higher long-term debt balances.

 

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*Provision for IncomeTaxes*

 
| ** **                  | ** ** | **Nine Months Ended**      | ** **  | **Nine Months Ended**     | ** ** | ** **   | ** ** | **Percent** | ** **   |
|-----------------------------|------------|----------------------------|-------------|---------------------------|------------|--------------|------------|-------------|--------------|
| ** **                  | ** ** | **October 31, 2009**  | ** **  | **October 31, 2008** | ** ** | **Decrease** | ** ** | **Change**  | ** **   |
| ** **                  | ** ** | **(dollars in thousands)** | ** **  | ** **                | ** ** |
| Provision  for income taxes |       | $                          |  8,599 |                      | $          |  10,250 |       | $           |  (1,651 | ) | (16.1 | )% |
|                             |            |                            |             |                           |            |              |            |             |              |  |  |  |

 

The effective taxrate was 41.0% for the nine months ended October 31, 2009 and 2008,respectively.

 

**Liquidity and CapitalResources**

 

*Cash Flow from OperatingActivities*

* *

For the ninemonths ended October 31, 2009, our cash flow used in operating activitieswas $33.1 million. Our cash flow from operations was primarily the result ofour reported net income of $12.4 million, an increase in floorplan notespayable of $5.1 million and an add-back of non-cash depreciation andamortization of $5.9 million. This amount was principally offset by an increasein inventories of $50.0 million and a net decrease in accounts payable,customer deposits, accrued expenses and other long-term liabilities of $6.8million. The increase in inventories reflects historical stocking levels tosupport future sales.

 

For the ninemonths ended October 31, 2008, our cash flow provided by operatingactivities was $13.8 million.  Our cash flow from operations was primarilythe result of our reported net income of $14.9 million, a net decrease inreceivables, prepaid expenses and other assets of $2.5 million, a net increasein floorplan notes payable of $4.6 million, an increase in income taxes of $3.8million, and an add-back of non-cash depreciation and amortization of $2.9million.  This amount was principally offset by an increase in inventoriesof $14.0 million and a net decrease in accounts payable, customer deposits,accrued expenses and other long-term liabilities of $1.3 million.  Theincrease in inventory was primarily the result of a build-up of new equipmentinventory for the fourth quarter.

 

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 October 31, 2009 was $1.9 million.  For areconciliation of this non-GAAP financial measure, please see the Non-GAAP CashFlow Reconciliation below.

 

*Cash Flow from InvestingActivities*

* *

For the ninemonths ended October 31, 2009, cash provided by investing activities was$30.5 million. Our cash provided by investing activities primarily consisted ofthe sale of U.S. treasury bills of $45.0 million, offset by purchases ofproperty and equipment for $11.1 million, and purchases of equipment dealershipsof $3.7 million. We are now investing our excess cash balances in investmentsthat are classified as cash equivalents.

 

Forthe nine months ended October 31, 2008, cash used for investing activitieswas $80.0 million.  Our cash used for investing activities primarilyconsisted of the purchase of U.S. treasury bills of $49.9 million, equipmentdealership purchases of $24.3 million and purchases of property and equipmentfor $6.1 million.  We began purchasing U.S. treasury bills in the third quarterof the current year to safely invest our cash reserves.  The secondquarter $14.4 million purchase of the Mid-Land Equipment Company was the mostsignificant cash acquisition during the nine months ended October 31,2008.

 

*Cash Flow from FinancingActivities*

* *

For the ninemonths ended October 31, 2009, cash provided by financing activities was$43.9 million. Cash provided by financing activities was primarily the resultof an increase in non-manufacturer floorplan notes payable of $33.7 million andproceeds from long-term debt and short-term advances exceeding principalpayments on long-term debt by $10.2 million.

 

For the ninemonths ended October 31, 2008, cash provided from financing activities was$65.2 million.  Cash provided by financing activities was primarily theresult of $78.8 million in net proceeds from our second quarter follow-onoffering and an increase in non-manufacturer floorplan payable of $3.6million.  Partially offsetting these proceeds were principal payments onlong-term debt and subordinated debentures of $17.9 million.

 

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*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 Statement 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 operating activities as of October 31,2009 and net cash provided by financing activities, a GAAP measure, to non-GAAPcash flow provided by financing activities as of October 31, 2009 (inthousands):

 
| ** **                                            | ** ** | ** **      | ** **    | **Adjustment** | ** ** | **Adjustment** | ** ** | **Non-GAAP** | ** **  |
|-------------------------------------------------------|------------|-----------------|---------------|----------------|------------|----------------|------------|--------------|-------------|
| ** **                                            | ** ** | **As Reported** | ** **    | **(1)**        | ** ** | **(2)**        | ** ** | **Measures** | ** **  |
|                                                  |       |            |          |           |       |           |       |         |        |
| Net  cash provided by (used for) operating activities |       | $               |  (33,072 | )              | $          |  33,664   |       | $            |  1,329 |   | $ |  1,921 |   |
|                                                  |       |            |          |           |       |           |       |         |        |
| Net  cash provided by financing activities            |       | 43,872          |          | (33,664        | )          | (1,329         | )          | 8,879        |        |
|                                                       |            |                 |               |                |            |                |            |              |             |  |  |  |  |

 

----

(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 ourcurrent operational performance, we believe our cash flow from operations,available cash and available borrowings under the existing credit facilitieswill adequately provide our liquidity needs for, at a minimum, the next 12months.

 

**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 or special purpose entities,which would have been established for the purpose of facilitating off-balancesheet arrangements or other contractually narrow or limited purposes. We are,therefore, not exposed to any financing, 

 

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liquidity, market orcredit risk that could arise if we had engaged in these relationships. In thenormal course of our business activities, we lease rental equipment andbuildings under operating leases.

 

# **PRIVATESECURITIES 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, 2009that was filed with the Securities and Exchange Commission, and in other materialsfiled or to be filed by the Company with the Securities and Exchange Commission(as well as information included in oral statements or other written statementsmade 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 (i) ourexpectations regarding parts inventory sales, (ii) our expectationsregarding our primary liquidity sources, and (iii) our expectations andbeliefs with respect to the uses and adequacy of our capital resources. Anystatements that are not based upon historical facts, including the outcome ofevents that have not yet occurred and our expectations for future performance,are forward-looking statements. The words “potential,” “believe,” “estimate,” “expect,”“intend,” “may,” “could,” “will,” “plan,” “anticipate,” and similar words andexpressions 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.

 

Based uponbalances and interest rates as of October 31, 2009, 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$1.2 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 $1.2 million. At October 31, 2009, we hadvariable rate floorplan notes payable of $261.9 million, of which approximately$108.8 million was interest-bearing, variable notes payable and long-term debtof $12.7 million, and fixed rate notes payable and long-term debt of $20.4million.

 

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 the periodcovered 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 the participationof the Company’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 andprincipal financial officer, to allow timely decisions regarding requireddisclosures.

 

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(b)                                *Changes in internalcontrols*. TheCompany is in the process of converting to a new enterprise resource planning (ERP)system, which is scheduled to be implemented in phases.  During the fiscalquarter ended October 31, 2009, the Company went live on its initial phaseof the new ERP system implementation, which included the financial reportingand shared resource center functions.  The Company believes that the newERP system and related changes to internal controls will enhance the Company’sinternal controls over financial reporting.  The Company has taken thenecessary steps to monitor and maintain appropriate internal controls duringthis period of change and will continue to evaluate the operating effectivenessof related key controls during subsequent periods.

 

Otherthan the implementation of the new ERP system discussed above, there has notbeen any change in the Company’s internal control over financial reporting (asdefined in Exchange Act Rule 13a-15(f)) during its most recently completedfiscal quarter that has materially affected, or is reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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

 

**ITEM 1.                  LEGAL PROCEEDINGS**

 

We are currentlynot a 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 considerthe “Risk Factors” discussed in our Form 10-K for the year ended January 31,2009 as filed with the United States Securities and Exchange Commission. Thosefactors, if they were to occur, could cause our actual results to differmaterially from those expressed in our forward-looking statements in thisreport, and materially adversely affect our financial condition or futureresults. Although we are not aware of any other factors that we currentlyanticipate will cause our forward-looking statements to differ materially fromour future actual results, or materially affect the Company’s financialcondition or future results, additional risks and uncertainties not currentlyknown to us or that we currently deem to be immaterial might materiallyadversely affect our actual business, financial condition and/or operatingresults.

 

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

 

None.

 

**ITEM 3.                  DEFAULTSUPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.                  SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

None.

 

**ITEM 5.                  OTHERINFORMATION**

 

None.

 

**ITEM 6.                  EXHIBITS**

 

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

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Company has dulycaused this Report to be signed on its behalf by the undersigned, thereuntoduly authorized.

 

Dated: December 10,2009

 
|   | **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 MACHINERYINCORPORATED

FORM 10-Q

 
| **Exhibit No.** | ** ** | **Description**                                                                                           |
|----------------------|------------|-----------------------------------------------------------------------------------------------------------|
| *10.1                |       | Letter Agreement with  CNH Capital America, LLC dated November 25, 2009                              |
|                 |       |                                                                                                      |
| *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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