Tableof Contents

 

 

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### **UNITEDSTATES**

**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 July 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 o  NO x

 

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

 

The number of shares outstanding of the registrant’s common stock as ofSeptember 1, 2009 was: Common Stock, $0.00001 par value, 17,761,588shares.

 

 

 

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Table ofContents

 

**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 July 31, 2009  and January 31, 2009                       |              | 1 |
|                                                                                                     |                                                                                                  |              |   |
|                                                                                                     | Consolidated Statements of Operations for the three  and six months ended July 31, 2009 and 2008 |              | 2 |
|                                                                                                     |                                                                                                  |              |   |
|                                                                                                     | Consolidated Statements of Cash Flows for the six  months ended July 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           |              | 12 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 3.                                                                                                  | QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                           |              | 20 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 4.                                                                                                  | CONTROLS AND  PROCEDURES                                                                              |              | 20 |
|                                                                                                     |                                                                                                  |              |
| **PART II.              OTHER INFORMATION**       |                                                                                                  | 21                |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 1.                                                                                                  | LEGAL PROCEEDINGS                                                                                     |              | 21 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM  1A.                                                                                                | RISK FACTORS                                                                                          |              | 21 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 2.                                                                                                  | UNREGISTERED  SALES OF EQUITY SECURITIES AND USE OF PROCEEDS                                          |              | 21 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 3.                                                                                                  | DEFAULTS UPON  SENIOR SECURITIES                                                                      |              | 21 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 4.                                                                                                  | SUBMISSION OF  MATTERS TO A VOTE OF SECURITY HOLDERS                                                  |              | 21 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM 5.                                                                                                  | OTHER INFORMATION                                                                                     |              | 22 |
|                                                                                                     |                                                                                                  |              |   |
| ITEM  6.                                                                                                 | EXHIBITS                                                                                              |              | 22 |
|                                                                                                     |                                                                                                  |              |   |
| Signatures                                                                                               |                                                                                                  | 23                |
|                                                                                                     |                                                                                                  |              |
| Exhibit Index                                                                                       |                                                                                                  | 24                |

 

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Table of Contents

 

**PART I. – FINANCIAL INFORMATION**

 

**ITEM 1.          FINANCIAL STATEMENTS**

 

**TITAN MACHINERY INC.**

**CONSOLIDATED BALANCE SHEETS**

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

** **
| ** **                                                                                                                                                          | ** ** | **July 31,** | ** **    | **January 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|---------------|----------------------|------------|
| ** **                                                                                                                                                          | ** ** | **2009**          | ** **    | **2009**             | ** ** |
| ** **                                                                                                                                                          | ** ** | **(Unaudited)**   | ** **    | ** **           | ** ** |
| **ASSETS**                                                                                                                                                          |       |              |          |                 |       |
| ** **                                                                                                                                                          |       |              |          |                 |       |
| CURRENT ASSETS                                                                                                                                                      |       |              |          |                 |       |
| Cash and cash equivalents                                                                                                                                           |       | $                 | 85,981        |                 | $          | 41,047 |   |
| U.S. treasury bills                                                                                                                                                 |       | —            |          | 44,994               |       |
| Total cash, cash equivalents and U.S. treasury  bills                                                                                                               |       | 85,981            |          | 86,041               |       |
|                                                                                                                                                                |       |              |          |                 |       |
| Receivables, net                                                                                                                                                    |       | 20,524            |          | 19,627               |       |
| Inventories                                                                                                                                                         |       | 346,463           |          | 241,094              |       |
| Prepaid expenses                                                                                                                                                    |       | 695               |          | 532                  |       |
| Income taxes receivable                                                                                                                                             |       | —            |          | 1,433                |       |
| Deferred income taxes                                                                                                                                               |       | 1,923             |          | 1,426                |       |
|                                                                                                                                                                |       |              |          |                 |       |
| Total current assets                                                                                                                                                |       | 455,586           |          | 350,153              |       |
|                                                                                                                                                                |       |              |          |                 |       |
| INTANGIBLES AND OTHER ASSETS                                                                                                                                        |       |              |          |                 |       |
| Parts inventory in excess of amounts expected to be  sold currently                                                                                                 |       | 1,784             |          | 1,509                |       |
| Goodwill                                                                                                                                                            |       | 13,702            |          | 12,464               |       |
| Intangible assets, net of accumulated amortization                                                                                                                  |       | 329               |          | 366                  |       |
| Other                                                                                                                                                               |       | 538               |          | 487                  |       |
|                                                                                                                                                                |       | 16,353            |          | 14,826               |       |
|                                                                                                                                                                |       |              |          |                 |       |
| PROPERTY AND EQUIPMENT, net of accumulated  depreciation                                                                                                            |       | 47,609            |          | 45,269               |       |
|                                                                                                                                                                |       |              |          |                 |       |
|                                                                                                                                                                |       | $                 |  519,548 |                 | $          | 410,248 |   |
|                                                                                                                                                                |       |              |          |                 |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                                                                      |       |              |          |                 |       |
|                                                                                                                                                                |       |              |          |                 |       |
| CURRENT LIABILITIES                                                                                                                                                 |       |              |          |                 |       |
| Accounts payable                                                                                                                                                    |       | $                 | 14,685        |                 | $          | 18,652 |   |
| Floorplan notes payable                                                                                                                                             |       | 257,563           |          | 166,481              |       |
| Current maturities of long-term debt and short-term  advances                                                                                                       |       | 11,511            |          | 7,623                |       |
| Customer deposits                                                                                                                                                   |       | 9,516             |          | 15,158               |       |
| Accrued expenses                                                                                                                                                    |       | 7,402             |          | 8,308                |       |
| Income taxes payable                                                                                                                                                |       | 1,609             |          | —               |       |
|                                                                                                                                                                |       |              |          |                 |       |
| Total current liabilities                                                                                                                                           |       | 302,286           |          | 216,222              |       |
|                                                                                                                                                                |       |              |          |                 |       |
| LONG-TERM LIABILITIES                                                                                                                                               |       |              |          |                 |       |
| Long-term debt, less current maturities                                                                                                                             |       | 28,107            |          | 14,810               |       |
| Deferred income taxes                                                                                                                                               |       | 4,389             |          | 3,503                |       |
| Other long-term liabilities                                                                                                                                         |       | 3,926             |          | 1,946                |       |
|                                                                                                                                                                |       | 36,422            |          | 20,259               |       |
|                                                                                                                                                                |       |              |          |                 |       |
| STOCKHOLDERS’ EQUITY                                                                                                                                           |       |              |          |                 |       |
| Common stock, par value $.00001 per share,  authorized - 25,000 shares; issued and outstanding - 17,755 at July 31,  2009 and 17,657, at January 31, 2009 |       | —            |          | —               |       |
| Additional paid-in-capital                                                                                                                                          |       | 138,187           |          | 137,755              |       |
| Retained earnings                                                                                                                                                   |       | 42,653            |          | 36,012               |       |
|                                                                                                                                                                |       | 180,840           |          | 173,767              |       |
|                                                                                                                                                                |       |              |          |                 |       |
|                                                                                                                                                                |       | $                 |  519,548 |                 | $          | 410,248 |   |

 

See Notes to Consolidated Financial Statements

 

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**TITAN MACHINERY INC.**

**CONSOLIDATED STATEMENTS OFOPERATIONS (UNAUDITED)**

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

 
| ** **                           | ** ** | **Three  Months Ended** | ** ** | **Six  Months Ended** | ** ** |
|--------------------------------------|------------|-------------------------|------------|-----------------------|------------|
| ** **                           | ** ** | **July 31,**       | ** ** | **July 31,**     | ** ** |
| ** **                           | ** ** | **2009**                | ** ** | **2008**              | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                 |       |                    |       |                  |       |   |   |   |   |
| REVENUE                              |       |                    |       |                  |       |   |   |   |   |
| Equipment                            |       | $                       | 141,142    |                  | $          | 97,840 |   | $ | 266,007 |   | $ | 218,754 |   |
| Parts                                |       | 32,454                  |       | 23,612                |       | 58,852 |   | 45,116 |   |
| Service                              |       | 15,640                  |       | 10,788                |       | 28,182 |   | 19,732 |   |
| Other, including trucking and rental |       | 3,956                   |       | 2,665                 |       | 6,452 |   | 3,885 |   |
| TOTAL REVENUE                        |       | 193,192                 |       | 134,905               |       | 359,493 |   | 287,487 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| COST OF REVENUE                      |       |                    |       |                  |       |   |   |   |   |
| Equipment                            |       | 125,452                 |       | 86,986                |       | 237,752 |   | 194,904 |   |
| Parts                                |       | 22,939                  |       | 16,689                |       | 41,476 |   | 32,483 |   |
| Service                              |       | 5,586                   |       | 3,907                 |       | 10,186 |   | 7,325 |   |
| Other, including trucking and rental |       | 3,207                   |       | 1,894                 |       | 5,555 |   | 2,747 |   |
| TOTAL COST OF REVENUE                |       | 157,184                 |       | 109,476               |       | 294,969 |   | 237,459 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| GROSS PROFIT                         |       | 36,008                  |       | 25,429                |       | 64,524 |   | 50,028 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| OPERATING EXPENSES                   |       | 26,662                  |       | 19,470                |       | 51,367 |   | 37,652 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| INCOME FROM OPERATIONS               |       | 9,346                   |       | 5,959                 |       | 13,157 |   | 12,376 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| OTHER INCOME (EXPENSE)               |       |                    |       |                  |       |   |   |   |   |
| Interest and other income            |       | 140                     |       | 450                   |       | 351 |   | 761 |   |
| Floorplan interest expense           |       | (932                    | )          | (578                  | )          | (1,663 | ) | (1,299 | ) |
| Interest expense other               |       | (328                    | )          | (230                  | )          | (591 | ) | (543 | ) |
|                                 |       |                    |       |                  |       |   |   |   |   |
| INCOME BEFORE INCOME TAXES           |       | 8,226                   |       | 5,601                 |       | 11,254 |   | 11,295 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| PROVISION FOR INCOME TAXES           |       | (3,375                  | )          | (2,269                | )          | (4,613 | ) | (4,575 | ) |
|                                 |       |                    |       |                  |       |   |   |   |   |
| NET INCOME                           |       | $                       | 4,851      |                  | $          | 3,332 |   | $ | 6,641 |   | $ | 6,720 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| EARNINGS PER SHARE - NOTE 1          |       |                    |       |                  |       |   |   |   |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| EARNINGS PER SHARE - BASIC           |       | $                       | 0.28       |                  | $          | 0.20 |   | $ | 0.38 |   | $ | 0.45 |   |
| EARNINGS PER SHARE - DILUTED         |       | $                       | 0.27       |                  | $          | 0.19 |   | $ | 0.37 |   | $ | 0.43 |   |
|                                 |       |                    |       |                  |       |   |   |   |   |
| WEIGHTED AVERAGE SHARES - BASIC      |       | 17,589                  |       | 16,630                |       | 17,577 |   | 15,006 |   |
| WEIGHTED AVERAGE SHARES - DILUTED    |       | 17,998                  |       | 17,170                |       | 17,930 |   | 15,512 |   |

 

See Notes to Consolidated Financial Statements

 

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**TITAN MACHINERY INC.**

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

**(in thousands)**

 
| ** **                                                                                                              | ** ** | **Six Months Ended July 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                              | ** ** | **2009**                           | ** ** | **2008** | ** ** |
|                                                                                                                    |       |                               |       |   |   |
| OPERATING ACTIVITIES                                                                                                    |       |                               |       |   |   |
| Net income                                                                                                              |       | $                                  | 6,641      |   | $ | 6,720 |   |
| Adjustments to reconcile net income to net cash  from operations                                                        |       |                               |       |   |   |
| Depreciation and amortization                                                                                           |       | 3,962                              |       | 1,873 |   |
| Deferred income taxes                                                                                                   |       | 329                                |       | 80 |   |
| Stock-based compensation expense                                                                                        |       | 432                                |       | 309 |   |
| Other                                                                                                                   |       | (22                                | )          | (80 | ) |
| Changes in assets and liabilities, net of purchase  of equipment dealerships assets and assumption of liabilities       |       |                               |       |   |   |
| Receivables and prepaid expenses                                                                                        |       | (755                               | )          | (7,837 | ) |
| Inventories                                                                                                             |       | (35,238                            | )          | (6,952 | ) |
| Floorplan notes payable                                                                                                 |       | 2,989                              |       | (1,745 | ) |
| Accounts payable, customer deposits, accrued  expenses and other long-term liabilities                                  |       | (8,785                             | )          | 14,605 |   |
| Income taxes                                                                                                            |       | 3,042                              |       | 424 |   |
|                                                                                                                    |       |                               |       |   |   |
| NET CASH PROVIDED BY (USED FOR) OPERATING  ACTIVITIES                                                                   |       | (27,405                            | )          | 7,397 |   |
|                                                                                                                    |       |                               |       |   |   |
| INVESTING ACTIVITIES                                                                                                    |       |                               |       |   |   |
| Sales of U.S. treasury bills, net of purchases                                                                          |       | 44,994                             |       | — |   |
| Property and equipment purchases                                                                                        |       | (7,635                             | )          | (3,690 | ) |
| Net proceeds from sale of equipment                                                                                     |       | 190                                |       | 146 |   |
| Purchase of equipment dealerships, net of cash  purchased                                                               |       | (4,025                             | )          | (20,329 | ) |
|                                                                                                                    |       |                               |       |   |   |
| NET CASH PROVIDED BY (USED FOR) INVESTING  ACTIVITIES                                                                   |       | 33,524                             |       | (23,873 | ) |
|                                                                                                                    |       |                               |       |   |   |
| FINANCING ACTIVITIES                                                                                                    |       |                               |       |   |   |
| Proceeds from follow-on offering of common stock  net of underwriting discount of $4,389 and other direct costs of $354 |       | —                             |       | 78,857 |   |
| Net change in non-manufacturer floorplan notes payable                                                                  |       | 25,185                             |       | (1,985 | ) |
| Short-term advances related to customer contracts  in transit                                                           |       | 2,700                              |       | — |   |
| Proceeds from long-term debt borrowings                                                                                 |       | 20,388                             |       | 564 |   |
| Principal payments on long-term debt and  subordinated debentures                                                       |       | (9,458                             | )          | (16,817 | ) |
| Other                                                                                                                   |       | —                             |       | 40 |   |
|                                                                                                                    |       |                               |       |   |   |
| NET CASH PROVIDED BY FINANCING ACTIVITIES                                                                               |       | 38,815                             |       | 60,659 |   |
|                                                                                                                    |       |                               |       |   |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                                                                 |       | 44,934                             |       | 44,183 |   |
|                                                                                                                    |       |                               |       |   |   |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                                                        |       | 41,047                             |       | 42,803 |   |
|                                                                                                                    |       |                               |       |   |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                                              |       | $                                  | 85,981     |   | $ | 86,986 |   |

 

See Notes toConsolidated Financial Statements

** **

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** **

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

**(in thousands)**

 
| ** **                                                                                                                                                      | ** ** | **Six Months Ended July 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|------------|
| ** **                                                                                                                                                      | ** ** | **2009**                           | ** ** | **2008** | ** ** |
|                                                                                                                                                            |       |                               |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                                                                                               | ** ** | ** **                         | ** ** | ** ** | ** ** |
| Cash paid during the period                                                                                                                                     |       |                               |       |   |   |
| Income taxes, net of refunds                                                                                                                                    |       | $                                  | 1,688      |   | $ | 4,070 |   |
| Interest                                                                                                                                                        |       | $                                  | 2,206      |   | $ | 1,927 |   |
|                                                                                                                                                            |       |                               |       |   |   |
| SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND  FINANCING ACTIVITIES                                                                                         |       |                               |       |   |   |
| Property and equipment purchased with long-term  debt                                                                                                           |       | $                                  | 1,688      |   | $ | — |   |
| Net transfer of equipment from fixed assets to  inventories                                                                                                     |       | $                                  | 4,292      |   | $ | — |   |
|                                                                                                                                                            |       |                               |       |   |   |
| Acquisition of equipment dealership assets in  exchange for cash and assumption of liabilities including purchase accounting  adjustments on prior acquisitions |       |                               |       |   |   |
| Receivables                                                                                                                                                     |       | $                                  | (305       | ) | $ | (1,255 | ) |
| Inventories                                                                                                                                                     |       | (6,203                             | )          | (18,200 | ) |
| Deferred income taxes, net                                                                                                                                      |       | 133                                |       | 328 |   |
| Property and equipment                                                                                                                                          |       | (786                               | )          | (5,344 | ) |
| Goodwill                                                                                                                                                        |       | (1,238                             | )          | (727 | ) |
| Accounts payable                                                                                                                                                |       | (211                               | )          | 346 |   |
| Floorplan notes payable                                                                                                                                         |       | 2,398                              |       | 3,361 |   |
| Customer deposits                                                                                                                                               |       | 205                                |       | 392 |   |
| Accrued expenses                                                                                                                                                |       | 188                                |       | 43 |   |
| Income taxes payable                                                                                                                                            |       | (73                                | )          | 242 |   |
| Long-term debt                                                                                                                                                  |       | 1,867                              |       | 485 |   |
| Cash paid for dealerships, net of cash purchased,  and adjustments on prior acquisitions                                                                        |       | $                                  | (4,025     | ) | $ | (20,329 | ) |

 

See Notes to ConsolidatedFinancial Statements

 

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TITAN MACHINERYINC.

NOTES TOCONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

 

**NOTE 1 - ****BUSINESS ACTIVITY AND SIGNIFICANTACCOUNTING POLICIES**

 

*Basisof 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 six-month period ended July 31, 2009 are not necessarilyindicative 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 statement and notes theretoincluded in our Form 10-K for the fiscal year ended January 31, 2009as filed with the SEC.

 

*Nature of Business*

 

TitanMachinery Inc. (the “Company”) is engaged in the retail sale, service andrental of agricultural and industrial machinery through stores in North Dakota,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 July 31, 2009 and January 31, 2009.

 

*Recently Issued Accounting Pronouncements*

 

In June 2009,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 168, *The**FASB Accounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles—a replacement of FASB Statement No. 162*,(“the Codification”) as the single source of authoritative nongovernmentalGAAP. All existing accounting standard documents, excluding guidance from theSecurities and Exchange Commission (“SEC”), will be superseded by theCodification. All other non-grandfathered, non-SEC accounting literature notincluded in the Codification will become nonauthoritative. The Codificationdoes not change GAAP, but instead introduces a new structure that will combineall authoritative standards into a comprehensive, topically organized onlinedatabase. The Codification will be effective for interim or annual periodsending after September 15, 2009, and will impact the Company’s financialstatement disclosures beginning with the quarter ending October 31, 2009as all future references to authoritative 

 

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accounting literaturewill be referenced in accordance with the Codification. There will be nochanges to the content of the Company’s consolidated financial statements ordisclosures as a result of implementing the Codification.

 

In May 2009,the FASB issued SFAS No. 165, *Subsequent Events*.SFAS 165 establishes general standards of accounting for and disclosure ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. The Company adopted SFAS 165 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 FASB Staff Position (“FSP”) FAS 141(R)-1,*Accountingfor Assets Acquired and Liabilities Assumed in a Business Combination ThatArise from Contingencies*. This pronouncement provides guidance onthe accounting and disclosure of assets acquired and liabilities assumed in abusiness combination that arise from contingencies, and subsequent accountingfor these contingencies. This FSP will be effective for the Company on February 1,2010. Its adoption is not expected to have a material effect on the Company’sconsolidated financial statements based on the nature of the assets acquiredand liabilities assumed in our business combinations.

 

In April 2009,the FASB issued FSP FAS 107 and APB 28-1, *Interim Disclosures aboutFair Value of Financial Instruments*. This pronouncement requires disclosures about fair value of financialinstruments for interim reporting periods of publicly traded companies, inaddition to inclusion in annual financial statements. The Company adopted this FSPas of July 31, 2009. Its adoption did not have a material effect on theCompany’s consolidated financial statements.

 

In February 2008,the FASB issued FSP FAS 157-2, *Effective Date of FASBStatement No. 157* (“FSP FAS 157-2”), which permits a oneyear deferral of the application of SFAS 157 for all non-financial assetsand non-financial liabilities, except those that are recognized or disclosed atfair value in the financial statements on a recurring basis (at leastannually). The Company adopted SFAS 157 for non-financial assets andnon-financial liabilities on February 1, 2009. Its adoption did not have amaterial effect on the Company’s results of operations, financial position orcash flows.

 

In December 2007,the FASB issued SFAS No. 141 (Revised 2007), *BusinessCombinations* (“SFAS 141R”). SFAS 141R provides additionalguidance on improving the relevance, representational faithfulness, andcomparability of the financial information that a reporting entity provides inits financial reports about a business combination and its effects.SFAS 141R applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The Company adoptedSFAS 141R effective February 1, 2009. Its adoption did not have amaterial effect on the Company’s consolidated financial statements. Anyacquisition we make in fiscal 2010 and future periods will be subject to thisnew accounting guidance.

 

In December 2007,the FASB issued SFAS No. 160, *Noncontrolling Interestsin Consolidated Financial Statements* (“SFAS 160”).SFAS 160 applies to all entities that prepare consolidated financialstatements and have an outstanding noncontrolling interest in one or moresubsidiaries. SFAS 160 amends Accounting Research Bulletin No. 51 toestablish accounting and reporting standards for the noncontrolling interest ina subsidiary and for the deconsolidation of a subsidiary. SFAS 160 iseffective for fiscal years, and interim periods within those fiscal years,beginning on or after December 15, 2008. The Company adopted SFAS 160effective as of February 1, 2009. Its adoption did not have a materialeffect on the Company’s consolidated financial statements.

 

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*EarningsPer Share*

 

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

 
| ** **                                         | ** ** | **Three Months Ended July 31,** | ** ** | **Six Months Ended July 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| **(in thousands)**                                 | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                               |       |                                 |       |                               |       |   |   |   |   |
| Basic  weighted-average shares outstanding         |       | 17,589                               |       | 16,630                             |       | 17,577 |   | 15,006 |   |
| Plus:  Incremental shares from assumed conversions |       |                                 |       |                               |       |   |   |   |   |
| Restricted  Stock                                  |       | 137                                  |       | 85                                 |       | 117 |   | 85 |   |
| Warrants                                           |       | 79                                   |       | 116                                |       | 80 |   | 113 |   |
| Stock  Options                                     |       | 193                                  |       | 339                                |       | 156 |   | 308 |   |
| Diluted  weighted-average shares outstanding       |       | 17,998                               |       | 17,170                             |       | 17,930 |   | 15,512 |   |

 

There were 163,500and 20,000 stock options outstanding as of July 31, 2009 and 2008, respectively,that were not included in the computation of diluted earnings per share becausethey were anti-dilutive.

 

**NOTE 2 -  INVENTORIES**

 
| ** **                    | ** **   | **July 31,**  | ** **    | **January 31,** | ** ** |
|-------------------------------|--------------|--------------------|---------------|----------------------|------------|
| ** **                    | ** **   | **2009**           | ** **    | **2009**             | ** ** |
| *** ***                  | *** *** | **(in thousands)** | *** ***  |
| New  equipment                |         | $                  | 216,560       |                 | $          | 132,502 |   |
| Used  equipment               |         | 84,905             |          | 68,333               |       |
| Parts,  tires and attachments |         | 40,504             |          | 37,314               |       |
| Work  in process              |         | 4,494              |          | 2,945                |       |
|                          |         |               |          |                 |       |
|                          |         | $                  |  346,463 |                 | $          | 241,094 |   |

 

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

 

**NOTE 3 -  LINES OFCREDIT/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.

 

The Company had noamount outstanding on the Revolving Loan at July 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 July 31, 2009,the Company was in compliance with all of these financial covenants. TheCompany had a standby letter of credit outstanding in the amount of $0.3million, which reduced the amount of borrowings available on its Revolving Loanto $24.7 million as of July 31, 2009. The letter of credit expired on August 1,2009 and was not renewed.

 

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*Floorplan Lines of Credit*

 

The Company hasdiscretionary floorplan lines of credit for equipment purchases totalingapproximately $365.0 million with various lending institutions, including a$300.0 million Wholesale Floorplan Credit Facility with CNH CapitalAmerica LLC (“CNH”). The available borrowings under the CNH creditfacility are reduced by outstanding floorplan notes payable, rental fleetfinancing and other acquisition-related financing arrangements with CNH. As of July 31,2009, the interest rate for new borrowings under the CNH Capital floorplan lineof credit is equal to the prime rate plus 0.3% per annum for most purposes,subject to any interest-free periods offered by CNH. Effective September 1,2009, the interest rates will be the prime rate plus 4% on the first $25.0million in floorplan borrowings prior to December 31, 2009 and the primerate plus 6% on all other floorplan borrowings. The CNH Capital credit facilityautomatically renews on August 31 of each year through August 31,2012, unless earlier terminated by either party. Under covenants of the CNHcredit facility, the Company has agreed, among other things, to maintainvarious financial ratio levels and to submit certain financial information. Asof July 31, 2009, the Company was in compliance with all floorplanfinancial covenants.

 

Floorplan notespayable relating to these credit facilities totaled approximately $238.8million of the total floorplan notes payable balance of $257.6 millionoutstanding as of July 31, 2009 and $153.8 million of the total floorplannotes payable balance of $166.5 million outstanding as of January 31,2009. As of July 31, 2009, the Company had approximately $105.9 million inavailable borrowings remaining under these lines of credit. These floorplannotes carried various interest rates primarily ranging from 3.25 to 9.25% as ofJuly 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-TERM DEBT**

 

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 $15.0million Term 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 July 31, 2009,the Company was in compliance with all of these financial covenants. Seediscussion of the Revolving Loan in Note 3.

 

There was $15.0million outstanding on this Term Loan as of July 15, 2009. Futurematurities on this Term Loan are as follows:

 

| **12 Months Ending July 31,** | ** ** | **Amount**          | ** ** |
|------------------------------------|------------|---------------------|------------|
| ** **                         | ** ** | **(in  thousands)** | ** ** |
| 2010                               |       | $                   | 2,682      |   |
| 2011                               |       | 2,810               |       |
| 2012                               |       | 2,982               |       |
| 2013                               |       | 3,167               |       |
| 2014                               |       | 3,359               |       |
| Thereafter                         |       | —              |       |
|                               |       | $                   | 15,000     |   |

 

**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. The Company’sunrecognized tax benefit and related interest was $455,000 as of July 31,2009, which includes $9,000 in accrued interest expense recognized in the sixmonths ended July 31, 2009. As a result of the IRS audit, the $455,000 isincluded in income taxes payable as of July 31, 2009 and is expected tocover the payments owed to the IRS and applicable state tax authorities. TheCompany is no longer subject to U.S. federal income tax examinations for fiscalyears ending prior to January 31, 2009.

 

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**NOTE 6 -  STOCK WARRANTS, STOCKOPTIONS AND RESTRICTED STOCK**

 

*CommonStock Warrants*

 

The followingtable summarizes stock warrant activity for the six months ended July 31,2009:

 

*(numberof warrants and aggregate intrinsic value in 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                                             |       | (37           | )          | 3.50         |       |          |       |             |       |
| Forfeited                                             |       | —        |       | —       |       |          |       |             |       |
| Outstanding  and exercisable at July 31, 2009    |       | 86            |       | $            | 3.43       |          | $          | 776              |       | 2.8 |   |
|                                                       |            |               |            |              |            |               |            |                  |            |  |  |

 

*StockOptions*

 

The followingtable summarizes stock option activity for the six months ended July 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                             |       | —        |       | —       |       |          |       |             |       |
| Forfeited                             |       | —        |       | —       |       |          |       |             |       |
| Outstanding  at July 31, 2009    |       | 651           |       | $            | 10.91      |          | $          | 2,352            |       | 7.5 |   |
|                                  |       |          |       |         |       |          |       |             |       |
| Exercisable  at July 31, 2009    |       | 168           |       | $            | 7.87       |          | $          | 897              |       | 7.0 |   |

 

 

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*RestrictedStock*

 

The followingtable summarizes restricted stock activity for the six months ended July 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                             |       | 75         |       | 13.09          |       |            |       |
| Forfeited                           |       | (3         | )          | 11.28          |       |            |       |
| Vested                              |       | (7         | )          | 15.30          |       |            |       |
| Nonvested  at July 31, 2009    |       | 157        |       | 11.31          |       | 3.0             |       |
|                                     |            |            |            |                |            |                 |            |  |

 

The weightedaverage grant date fair value of restricted stock granted was $13.09 and $17.53per share for the six months ended July 31, 2009 and 2008, respectively.The total fair value of restricted stock vested was $114,000 and $1,000 for thesix months ended July 31, 2009 and 2008, respectively. As of July 31,2009, there was approximately $787,000 of unrecognized compensation cost onnon-vested restricted stock that is expected to be recognized over aweighted-average period of 3.0 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 total cash purchase price for the dealership was $1,450,000. The Companyexpects the allocation of the purchase price to be finalized within one year ofthe acquisition date.

 

On May 28,2009, the Company acquired certain assets of Arthur Mercantile, Co. Theacquired entity consisted of one agricultural equipment store located in Arthur,North Dakota and expands the Company’s presence in the Red River Valley. Thetotal cash purchase price for the dealership was $831,697. The Company expectsthe allocation of the purchase price to be finalized within one year of theacquisition date. James L. Williams, Arthur Mercantile, Co.’s President andTreasurer, is a Titan Machinery director.

 

On June 30,2009, the Company acquired certain assets of Valley Equipment, Inc. Theacquired entity consisted of one agricultural equipment store located in Mayville,North Dakota and expands the Company’s presence in the Red River Valley. Thetotal cash purchase price for the dealership was $753,404. The Company expectsthe allocation of the purchase price to be finalized within one year of theacquisition date.

 

During the sixmonths ended July 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 $865,000.

 

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The allocations ofthe purchase prices in the above business combinations and adjustments on prioracquisitions are presented in the following table:

 

| *** ***            | *** *** | ***(in thousands)*** | *** *** |
|-------------------------|--------------|----------------------|--------------|
|                    |         |                 |         |
| Cash                    |         | 73                   |         |
| Receivables             |         | 305                  |         |
| Inventories             |         | 6,203                |         |
| Deferred income taxes   |         | 8                    |         |
| Property and equipment  |         | 786                  |         |
| Goodwill                |         | 1,238                |         |
|                    |         |                 |         |
|                    |         | $                    | 8,613        |   |
| ** **              | ** **   | ** **           | ** **   |
| Accounts payable        |         | $                    | (211         | ) |
| Floorplan notes payable |         | 2,398                |         |
| Customer deposits       |         | 205                  |         |
| Accrued expenses        |         | 188                  |         |
| Income taxes payable    |         | (73                  | )            |
| Long-term debt          |         | 1,867                |         |
| Deferred income taxes   |         | 141                  |         |
| ** **              | ** **   | ** **           | ** **   |
|                    |         | $                    | 4,515        |   |
| ** **              | ** **   | ** **           | ** **   |
| Consideration given     |         | $                    | 4,098        |   |

 

**NOTE 8 -  SUBSEQUENT EVENTS**

 

On August 14,2009, the Company acquired the assets of Lickness Bros. Implement Co., forapproximately $210,000. The acquired entity consisted of one agriculturalequipment store located in Britton, South Dakota and is strategically locatedin the James River Valley of northeast South Dakota between Titan Machinery’sLisbon, North Dakota and Aberdeen, South Dakota stores.

 

The Companyevaluated for the occurrence of subsequent events through September 9,2009, the issuance date of the Company’s financial statements. No recognized ornon-recognized subsequent events occurred except as disclosed in Notes 3, 5 and8 above.

 

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** **

**ITEM 2.**                        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF 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 Accounting Policies**

** **

There have been nomaterial changes in our Critical Accounting Policies, as disclosed in ourAnnual Report on Form 10-K for the year ended January 31, 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$4.9 million, or $0.27 per diluted share, for the three months ended July 31,2009, compared to $3.3 million, or $0.19 per diluted share, for the threemonths ended July 31, 2008. Significant factors impacting the quarterwere:

 

***·***                  Overall revenue growth due to acquisitions andincreased same-store sales, despite revenue from acquisitions being negativelyimpacted by the slow construction market and the large number of constructionstores acquired in the prior year;

*** ***

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

*** ***

***·***                  Increase in operating expenses primarily due toacquisitions; and

*** ***

***·***                  Increase in inventories which aligns with 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 July 31,** | ** ** | **Six Months Ended July 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | ** **                           | ** ** | ** **                         | ** ** | **Percent** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent** | ** ** |
| ** **                            | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **Change** | ** ** | **2009** | ** ** | **2008** | ** ** | **Change** | ** ** |
| ** **                            | ** ** | **(dollars in thousands)**           | ** ** | ** **                         | ** ** | **(dollars in thousands)** | ** ** | ** ** | ** ** |
| Equipment                             |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                    | 141,142    |                               | $          | 97,840 |   | 44.3 | % | $ | 266,007 |   | $ | 218,754 |   | 21.6 | % |
| Cost  of revenue                      |       | 125,452                              |       | 86,986                             |       | 44.2 | % | 237,752 |   | 194,904 |   | 22.0 | % |
| Gross  profit                         |       | $                                    | 15,690     |                               | $          | 10,854 |   | 44.6 | % | $ | 28,255 |   | $ | 23,850 |   | 18.5 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Parts                                 |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                    | 32,454     |                               | $          | 23,612 |   | 37.4 | % | $ | 58,852 |   | $ | 45,116 |   | 30.4 | % |
| Cost  of revenue                      |       | 22,939                               |       | 16,689                             |       | 37.4 | % | 41,476 |   | 32,483 |   | 27.7 | % |
| Gross  profit                         |       | $                                    | 9,515      |                               | $          | 6,923 |   | 37.4 | % | $ | 17,376 |   | $ | 12,633 |   | 37.5 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Service                               |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                    | 15,640     |                               | $          | 10,788 |   | 45.0 | % | $ | 28,182 |   | $ | 19,732 |   | 42.8 | % |
| Cost  of revenue                      |       | 5,586                                |       | 3,907                              |       | 43.0 | % | 10,186 |   | 7,325 |   | 39.1 | % |
| Gross  profit                         |       | $                                    | 10,054     |                               | $          | 6,881 |   | 46.1 | % | $ | 17,996 |   | $ | 12,407 |   | 45.0 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Other,  including trucking and rental |       |                                 |       |                               |       |   |   |   |   |   |   |   |   |
| Revenue                               |       | $                                    | 3,956      |                               | $          | 2,665 |   | 48.4 | % | $ | 6,452 |   | $ | 3,885 |   | 66.1 | % |
| Cost  of revenue                      |       | 3,207                                |       | 1,894                              |       | 69.3 | % | 5,555 |   | 2,747 |   | 102.2 | % |
| Gross  profit                         |       | $                                    | 749        |                               | $          | 771 |   | (2.9 | )% | $ | 897 |   | $ | 1,138 |   | (21.2 | )% |

 

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 July 31,** | ** ** | **Six Months Ended July 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------|------------|------------------------------------|------------|
| ** **                            | ** ** | **2009**                             | ** ** | **2008**                           | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Revenue                               |       |                                 |       |                               |       |   |   |   |   |
| Equipment                             |       | 73.1                                 | %          | 72.5                               | %          | 74.0 | % | 76.1 | % |
| Parts                                 |       | 16.8                                 | %          | 17.5                               | %          | 16.4 | % | 15.7 | % |
| Service                               |       | 8.1                                  | %          | 8.0                                | %          | 7.8 | % | 6.8 | % |
| Other,  including trucking and rental |       | 2.0                                  | %          | 2.0                                | %          | 1.8 | % | 1.4 | % |
| Total  revenue                        |       | 100.0                                | %          | 100.0                              | %          | 100.0 | % | 100.0 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Cost  of revenue                      |       |                                 |       |                               |       |   |   |   |   |
| Equipment                             |       | 64.9                                 | %          | 64.5                               | %          | 66.1 | % | 67.8 | % |
| Parts                                 |       | 11.9                                 | %          | 12.4                               | %          | 11.6 | % | 11.3 | % |
| Service                               |       | 2.9                                  | %          | 2.9                                | %          | 2.8 | % | 2.5 | % |
| Other,  including trucking and rental |       | 1.7                                  | %          | 1.4                                | %          | 1.6 | % | 1.0 | % |
| Total  cost of revenue                |       | 81.4                                 | %          | 81.2                               | %          | 82.1 | % | 82.6 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Gross  profit                         |       | 18.6                                 | %          | 18.8                               | %          | 17.9 | % | 17.4 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Operating  expenses                   |       | 13.8                                 | %          | 14.4                               | %          | 14.2 | % | 13.1 | % |
|                                  |       |                                 |       |                               |       |   |   |   |   |
| Income  from operations               |       | 4.8                                  | %          | 4.4                                | %          | 3.7 | % | 4.3 | % |

 

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* *

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

* *

*Revenue*

 
| ** **                            | ** ** | **Three months ended**     | ** ** | **Three months ended** | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
|                                  |       |                       |       |                   |       |         |       |        |       |
| Equipment                             |       | $                          | 141,142    |                   | $          | 97,840       |       | $           | 43,302     |   | 44.3 | % |
| Parts                                 |       | 32,454                     |       | 23,612                 |       | 8,842        |       | 37.4        | %          |
| Service                               |       | 15,640                     |       | 10,788                 |       | 4,852        |       | 45.0        | %          |
| Other,  including trucking and rental |       | 3,956                      |       | 2,665                  |       | 1,291        |       | 48.4        | %          |
|                                  |       |                       |       |                   |       |         |       |        |       |
| Total  Revenue                        |       | $                          | 193,192    |                   | $          | 134,905      |       | $           | 58,287     |   | 43.2 | % |

* *

The increase inrevenue for the three months ended July 31, 2009, as compared to the sameperiod last year, was due to acquisitions contributing to current periodrevenue and same-store sales growth. Acquisitions contributed $32.0 million intotal revenue, or 54.9% of the increase, while same-store sales growthcontributed $26.3 million, or 45.1% of the increase. Revenue from acquisitionswas negatively impacted by the slow construction market we are currentlyexperiencing and the large number of construction stores acquired in the prioryear. Same-store sales increased 20.2% over the same period of the prior yearreflecting more traditional timing of equipment sales between the first andsecond quarters.

 

*Cost of Revenue*

 
| ** **                            | ** ** | **Three months ended**     | ** ** | **Three months ended** | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
|                                  |       |                       |       |                   |       |         |       |        |       |
| Equipment                             |       | $                          | 125,452    |                   | $          | 86,986       |       | $           | 38,466     |   | 44.2 | % |
| Parts                                 |       | 22,939                     |       | 16,689                 |       | 6,250        |       | 37.4        | %          |
| Service                               |       | 5,586                      |       | 3,907                  |       | 1,679        |       | 43.0        | %          |
| Other,  including trucking and rental |       | 3,207                      |       | 1,894                  |       | 1,313        |       | 69.3        | %          |
|                                  |       |                       |       |                   |       |         |       |        |       |
| Total  cost of revenue                |       | $                          | 157,184    |                   | $          | 109,476      |       | $           | 47,708     |   | 43.6 | % |

* *

The increase incost of revenue for the three months ended July 31, 2009, as compared tothe same period last year, was primarily due to increased revenue. Acquisitionscontributed $26.0 million in total cost of revenue, or 54.4% of the increase,while same-store sales growth contributed $21.7 million, or 45.6% of theincrease. As a percentage of revenue, cost of revenue was 81.4% compared to81.2% for the second quarter of fiscal 2009.

 

14

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*Table of Contents*

* *

*Gross Profit*

 
| ** **                            | ** ** | **Three months ended**     | ** ** | **Three months ended** | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |   |
|---------------------------------------|------------|----------------------------|------------|------------------------|------------|----------------|------------|-------------|------------|--------|
| ** **                            | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
|                                  |       |                       |       |                   |       |           |       |        |       |
| Equipment                             |       | $                          | 15,690     |                   | $          | 10,854         |       | $           | 4,836      |   | 44.6 | % |
| Parts                                 |       | 9,515                      |       | 6,923                  |       | 2,592          |       | 37.4        | %          |
| Service                               |       | 10,054                     |       | 6,881                  |       | 3,173          |       | 46.1        | %          |
| Other,  including trucking and rental |       | 749                        |       | 771                    |       | (22            | )          | (2.9        | )%         |
|                                  |       |                       |       |                   |       |           |       |        |       |
| Total  Gross Profit                   |       | $                          | 36,008     |                   | $          | 25,429         |       | $           | 10,579     |   | 41.6 | % |

* *

The $10.6 millionincrease in gross profit for the three months ended July 31, 2009, ascompared to the same period last year, was primarily due to increased revenue.Acquisitions contributed $6.1 million to the gross profit for the three monthsended July 31, 2009, which was 57.1% of the increase in total grossprofit, while increases in same-store sales gross profits provided theremaining $4.5 million, or 42.9% of the increase over the three months ended July 31,2008. Gross profit margins were 18.6% for the second quarter of fiscal 2010,compared to 18.8% for the second quarter of fiscal 2009. Decrease in grossprofit margins resulted from an increase in equipment revenues as a percentageof net revenue, which is a lower-margin revenue source. The decrease in grossprofit margins on other, including trucking and rental, was due to a lowerutilization of our rental fleet. We are working to maximize the utilization ofour rental fleet and expect to have increased margins as utilization improves.

 

*Operating Expenses*

 
| ** **          | ** ** | **Three months ended**     | ** ** | **Three months ended** | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **          | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **          | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Operating  Expenses |       | $                          | 26,662     |                   | $          | 19,470       |       | $           | 7,192      |   | 36.9 | % |
|                     |            |                            |            |                        |            |              |            |             |            |  |  |  |

* *

The $7.2 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 decreased to 13.8% for the second quarter of fiscal 2010compared to 14.4 % for the second quarter of fiscal 2009. The strong salesresulted in improved fixed operating expense utilization as a percentage ofsales in the second quarter of fiscal 2010.

 

*Other Income (Expense)*

 
| ** **                  | ** ** | **Three months ended**     | ** ** | **Three months ended** | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|------------------------|------------|----------------|------------|-------------|------------|
| ** **                  | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Interest  and other income  |       | $                          | 140        |                   | $          | 450            |       | $           | (310       | ) | (68.9 | )% |
| Floorplan  interest expense |       | (932                       | )          | (578                   | )          | 354            |       | 61.2        | %          |
| Interest  expense           |       | (328                       | )          | (230                   | )          | 98             |       | 42.6        | %          |
|                             |            |                            |            |                        |            |                |            |             |            |  |  |  |

* *

Interest and otherincome decreased $0.3 million for the three months ended July 31, 2009, ascompared 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 July 31, 2008. The increase in floorplaninterest expense was due to the increase in floorplan notes payable balancesfor the three months ended July 31, 2009 compared to the same period inthe prior year, partially offset by lower borrowing rates compared to the prioryear. The increase in interest expense resulted from higher long-term debtbalances.

 

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Table of Contents

 

*Provision for Income Taxes*

 
| ** **                  | ** ** | **Three months ended**     | ** ** | **Three months ended** | ** ** | ** **   | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **                  | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Provision  for income taxes |       | $                          | 3,375      |                   | $          | 2,269        |       | $           | 1,106      |   | 48.7 | % |
|                             |            |                            |            |                        |            |              |            |             |            |  |  |  |

* *

The effective taxrate increased to 41.0% for the three months ended July 31, 2009 from40.5% for the three months ended July 31, 2008. The increase in theeffective tax rate from the prior year primarily reflects the changing mix ofsales originating in states with higher tax rates.

 

***Six Months Ended July 31,2009 Compared to Six Months Ended July 31, 2008***

* *

*Revenue*

 
| ** **                            | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended**   | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Equipment                             |       | $                          | 266,007    |                   | $          | 218,754      |       | $           | 47,253     |   | 21.6 | % |
| Parts                                 |       | 58,852                     |       | 45,116                 |       | 13,736       |       | 30.4        | %          |
| Service                               |       | 28,182                     |       | 19,732                 |       | 8,450        |       | 42.8        | %          |
| Other,  including trucking and rental |       | 6,452                      |       | 3,885                  |       | 2,567        |       | 66.1        | %          |
|                                  |       |                       |       |                   |       |         |       |        |       |
| Total  Revenue                        |       | $                          | 359,493    |                   | $          | 287,487      |       | $           | 72,006     |   | 25.0 | % |

* *

The increase inrevenue for the six months ended July 31, 2009, as compared to the sameperiod last year, was due to acquisitions contributing to current periodrevenue and same-store sales growth. Acquisitions contributed $62.2 million intotal revenue, or 86.4% of the increase, while same-store sales growthcontributed $9.8 million, or 13.6% of the increase. Revenue from acquisitionswas negatively impacted by the slow construction market we are currentlyexperiencing and the large number of construction stores acquired in the prioryear. Same-store sales increased 3.5% over the same period of the prior year.

 

*Cost of Revenue*

 
| ** **                            | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended**   | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **                            | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Equipment                             |       | $                          | 237,752    |                   | $          | 194,904      |       | $           | 42,848     |   | 22.0 | % |
| Parts                                 |       | 41,476                     |       | 32,483                 |       | 8,993        |       | 27.7        | %          |
| Service                               |       | 10,186                     |       | 7,325                  |       | 2,861        |       | 39.1        | %          |
| Other,  including trucking and rental |       | 5,555                      |       | 2,747                  |       | 2,808        |       | 102.2       | %          |
|                                  |       |                       |       |                   |       |         |       |        |       |
| Total  cost of revenue                |       | $                          | 294,969    |                   | $          | 237,459      |       | $           | 57,510     |   | 24.2 | % |

* *

The increase incost of revenue for the six months ended July 31, 2009, as compared to thesame period last year, was primarily due to increased revenue. Acquisitionscontributed $50.7 million in total cost of revenue, or 88.2% of the increase,while the same-store sales growth contributed $6.8 million, or 11.8% of theincrease. As a percentage of revenue, cost of revenue was 82.1% for the firstsix months of fiscal 2010 compared to 82.6% for the first six months of fiscal2009.

 

16

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*Table of Contents*

* *

*Gross Profit*

 
| ** **                            | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended**   | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|---------------------------------------|------------|----------------------------|------------|------------------------|------------|----------------|------------|-------------|------------|
| ** **                            | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                            | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
|                                  |       |                       |       |                   |       |           |       |        |       |
| Equipment                             |       | $                          | 28,255     |                   | $          | 23,850         |       | $           | 4,405      |   | 18.5 | % |
| Parts                                 |       | 17,376                     |       | 12,633                 |       | 4,743          |       | 37.5        | %          |
| Service                               |       | 17,996                     |       | 12,407                 |       | 5,589          |       | 45.0        | %          |
| Other,  including trucking and rental |       | 897                        |       | 1,138                  |       | (241           | )          | (21.2       | )%         |
|                                  |       |                       |       |                   |       |           |       |        |       |
| Total  Gross Profit                   |       | $                          | 64,524     |                   | $          | 50,028         |       | $           | 14,496     |   | 29.0 | % |

* *

The $14.5 millionincrease in gross profit for the six months ended July 31, 2009, ascompared to the same period last year, was primarily due to increased revenueas well as stronger margins on parts and service revenues. Acquisitionscontributed $11.5 million to the gross profit for the six months ended July 31,2009, or 79.3% of the increase, while increases in same-store sale grossprofits provided the remaining $3.0 million, or 20.7% of the gross profitimprovement. Gross profit margins were 17.9% for the six months ended July 31,2009, compared to 17.4% for the six months ended July 31, 2008.Improvement in gross profit margins resulted from an increase in parts andservice revenues as a percentage of net revenue, which are higher-marginrevenue sources. The decrease in gross profit margins on other, includingtrucking and rental, was due to a lower utilization of our rental fleet. We areworking to maximize the utilization of our rental fleet and expect increasedmargins as utilization improves.

 

*Operating Expenses*

 
| ** **          | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended**   | ** ** | ** **   | ** ** | **Percent** | ** ** |
|---------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **          | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **          | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Operating  Expenses |       | $                          | 51,367     |                   | $          | 37,652       |       | $           | 13,715     |   | 36.4 | % |
|                     |            |                            |            |                        |            |              |            |             |            |  |  |  |

* *

The $13.7 millionincrease in operating expenses for the six months ended July 31, 2009, ascompared 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 14.2% for thesix months ended July 31, 2009, compared to 13.1% for the six months endedJuly 31, 2008. This increase from the prior year is due to the increasednumber of construction stores, which have higher operating expenses as apercent of revenue.

 

*Other Income (Expense)*

 
| ** **                  | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended**   | ** ** | **Increase/**  | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|------------------------|------------|----------------|------------|-------------|------------|
| ** **                  | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **(Decrease)** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Interest  and other income  |       | $                          | 351        |                   | $          | 761            |       | $           | (410       | ) | (53.9 | )% |
| Floorplan  interest expense |       | (1,663                     | )          | (1,299                 | )          | 364            |       | 28.0        | %          |
| Interest  expense           |       | (591                       | )          | (543                   | )          | 48             |       | 8.8         | %          |
|                             |            |                            |            |                        |            |                |            |             |            |  |  |  |

* *

Interest and otherincome decreased $0.4 million for the six months ended July 31, 2009 as weinvested our cash balances in highly secure investments that carried lowerinterest rates than those earned in the six months ended July 31, 2008.The increase in floorplan interest expense was due to the increase in floorplannotes payable balances for the six months ended July 31, 2009 compared tothe same period in the prior year, partially offset by lower borrowing ratescompared to the prior year. The slight increase in interest expense resultedfrom higher long-term debt balances, offset by lower borrowing rates comparedto the prior year quarter.

 

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*Provision for Income Taxes*

 
| ** **                  | ** ** | **Six Months Ended**       | ** ** | **Six Months Ended**   | ** ** | ** **   | ** ** | **Percent** | ** ** |
|-----------------------------|------------|----------------------------|------------|------------------------|------------|--------------|------------|-------------|------------|
| ** **                  | ** ** | **July 31, 2009**     | ** ** | **July 31, 2008** | ** ** | **Increase** | ** ** | **Change**  | ** ** |
| ** **                  | ** ** | **(dollars in thousands)** | ** ** | ** **             | ** ** |
| Provision  for income taxes |       | $                          | 4,613      |                   | $          | 4,575        |       | $           | 38         |   | 0.8 | % |
|                             |            |                            |            |                        |            |              |            |             |            |  |  |  |

* *

The effective taxrate increased to 41.0% for the six months ended July 31, 2009 from 40.5%for the six months ended July 31, 2008. The increase in the effective taxrate from the prior year primarily reflects the changing mix of salesoriginating in states with higher tax rates.

 

**Liquidity and Capital Resources**

 

*Cash Flow from Operating Activities*

* *

For the six monthsended July 31, 2009, our cash flow used in operating activities was $27.4million. Our cash flow from operations was primarily the result of our reportednet income of $6.6 million, an increase in floorplan notes payable of $3.0million, an increase in income taxes payable of $3.0 million, and an add-backof non-cash depreciation and amortization of $4.0 million. This amount wasprincipally offset by an increase in inventories of $35.2 million and a netdecrease in accounts payable, customer deposits, accrued expenses and otherlong-term liabilities of $8.8 million. Increase in inventories reflectshistorical stocking levels to support future sales.

 

For the six monthsended July 31, 2008, our cash flow provided by operating activities was$7.4 million.  Our cash flow from operations was primarily the result ofour reported net income of $6.7 million, a net increase in accounts payable,customer deposits, accrued expenses and other long-term liabilities of $14.6million, and an add-back of non-cash depreciation and amortization of $1.9million.  This amount was principally offset by a net increase inreceivables and prepaid expenses of $7.8 million and an increase in inventoriesof $7.0 million.

 

We evaluate our cash flow from operating activitiesnet of all floorplan activity and short-term advances related to customercontracts in transit.  Taking theseadjustments into account, our non-GAAP cash flow provided by operatingactivities as of July 31, 2009 was $0.5 million.  For a reconciliation of this non-GAAPfinancial measure, please see the Non-GAAP Cash Flow Reconciliation below.  

 

*Cash Flow from Investing Activities*

* *

For the six monthsended July 31, 2009, cash provided by investing activities was $33.5million. Our cash provided by investing activities primarily consisted of thesale of U.S. treasury bills of $45.0 million, offset by purchases of propertyand equipment for $7.6 million, and purchases of equipment dealerships of $4.0million. We are now investing our excess cash balances in investments that areclassified as cash equivalents.

 

Forthe six months ended July 31, 2008, cash used for investing activities was$23.9 million.  Our cash used for investing activities primarily consistedof equipment dealership purchases of $20.3 million and purchases of propertyand equipment for $3.7 million.  The second quarter $14.4 million purchaseof the assets of Mid-Land Equipment Company was the most significant cashacquisition during the six months ended July 31, 2008.

 

*Cash Flow from FinancingActivities*

* *

For the six monthsended July 31, 2009, cash provided by financing activities was $38.9million. Cash provided by financing activities was primarily the result of anincrease in non-manufacturer floorplan notes payable of $25.2 million andproceeds from long-term debt and short-term advances exceeding principalpayments on long-term debt by $13.6 million.

 

For the six monthsended July 31, 2008, cash provided by financing activities was $60.7million.  Cash provided by financing activities was primarily the resultof $78.9 million in net proceeds from our May 2008 follow-on common stockoffering. Partially offsetting these proceeds were principal payments onlong-term debt and subordinated debentures of $16.8 million.

 

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*Non-GAAP Cash Flow Reconciliation*

* *

Non-GAAP cash flow providedby (used for) operating activities is a non-GAAP financial measure which isadjusted for the following:

 

***·***      Non-manufacturer floorplan notes payable: We review ourcash flow from operating activities to include all floorplan notes payableactivity regardless of whether we obtain the financing from a manufacturer or anon-manufacturer.  We consider inventoryfinancing with both manufacturers and non-manufacturers to be part of thenormal operations of our business and use the adjusted cash flow analysis inthe evaluation of our inventory and inventory flooring needs.  GAAP categorizes non-manufacturer floorplanpayable as financing activities in the Consolidated 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 following table reconciles net cash provided by(used for) operating activities, a GAAP measure, to non-GAAP cash flow providedby operating activities as of July 31, 2009 and net cash provided byfinancing activities, a GAAP measure, to non-GAAP cash flow provided byfinancing activities as of July 31, 2009 (in thousands):

 
| ** **                                            | ** ** | ** **      | ** ** | **Adjustment** | ** ** | **Adjustment** | ** ** | **Non-GAAP** | ** ** |
|-------------------------------------------------------|------------|-----------------|------------|----------------|------------|----------------|------------|--------------|------------|
| ** **                                            | ** ** | **As Reported** | ** ** | **(1)**        | ** ** | **(2)**        | ** ** | **Measures** | ** ** |
|                                                  |       |            |       |           |       |           |       |         |       |
| Net cash  provided by (used for) operating activities |       | $               | (27,405    | )              | $          | 25,185         |       | $            | 2,700      |   | $ | 480 |   |
|                                                  |       |            |       |           |       |           |       |         |       |
| Net cash  provided by financing activities            |       | 38,815          |       | (25,185        | )          | (2,700         | )          | 10,930       |       |
|                                                       |            |                 |            |                |            |                |            |              |            |  |  |  |  |

 

----

(1) - Net changein non-manufacturer floorplan notes payable

(2) - Short-termadvances related to customer contracts in transit

 

Non-GAAP cash flow providedby (used for) operating activities should be evaluated in addition to, and notconsidered a substitute for, or superior to, other GAAP measures such as netcash provided by (used for) operating activities.

 

**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 Capital Resources**

** **

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.

 

**Contractual and Commercial Commitments**

** **

At July 31,2009, our long-term debt obligations had increased to $39.6 million, primarilyas a result of the $15 million term loan from Bremer Bank.  There were no other material changes in ourcontractual obligations from those disclosed in our 

 

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AnnualReport on Form 10-K for the fiscal year ended January 31, 2009.  Please see Item 7, “Management’s Discussionand Analysis of Financial Condition and Results of Operations — Contractual andCommercial Commitment”.

 

**Certain Information Concerning Off-Balance SheetArrangements**

** **

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, liquidity, market or credit risk thatcould arise if we had engaged in these relationships. In the normal course ofour business activities, we lease rental equipment and buildings underoperating 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 othermaterials filed or to be filed by the Company with the Securities and ExchangeCommission (as well as information included in oral statements or other writtenstatements made or to be made by the Company).

 

Forward-lookingstatements include all statements based on future expectations and specificallyinclude, among other things, all statements relating to (i) ourexpectations regarding utilization of our rental fleet and increased marginsfrom such utilization, (ii) our expectations regarding our primaryliquidity sources, and (iii) our expectations and beliefs with respect tothe uses and adequacy of our capital resources. Any statements that are notbased upon historical facts, including the outcome of events that have not yetoccurred and our expectations for future performance, are forward-lookingstatements. The words “potential,” “believe,” “estimate,” “expect,” “intend,” “may,”“could,” “will,” “plan,” “anticipate,” and similar words and expressions areintended to identify forward-looking statements. Such statements are based uponthe current beliefs and expectations of our management. Such forward-lookinginformation involves important risks and uncertainties that could significantlyaffect anticipated results in the future and, accordingly, such results maydiffer from those expressed in any forward-looking statements made by or onbehalf of the Company. These risks and uncertainties include, but are notlimited to, adverse market conditions in the agricultural and constructionequipment industries, the continuation of unfavorable conditions in the creditmarkets and those matters identified and discussed in our Annual Report on Form 10-Kunder the section titled “Risk Factors”.

 

**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 July 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$1.1 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 $1.1 million. At July 31, 2009, we had variablerate floorplan notes payable of $257.6 million, of which approximately $89.6million was interest-bearing, variable notes payable and long-term debt of$16.9 million, and fixed rate notes payable and long-term debt of $22.7million.

 

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

 

**ITEM 4.**CONTROLS ANDPROCEDURES**

 

(a)                                *Evaluation ofdisclosure controls and procedures*. After evaluating the effectiveness of the Company’sdisclosure controls and procedures pursuant to Rule 13a-15(b) of theSecurities Exchange Act of 1934 the (“Exchange Act”) as of the end of theperiod covered by this quarterly report, our Chief Executive Officer and ChiefFinancial Officer with the participation of the Company’s management, haveconcluded that the 

 

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Company’s disclosurecontrols and procedures (as defined in Exchange Act Rule 13a-15(e)) areeffective to ensure that information that is required to be disclosed by theCompany in reports that it files under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules ofthe Securities Exchange Commission. Our Chief Executive Officer and ChiefFinancial Officer, with the participation of the Company’s management, havealso concluded that the Company’s disclosure controls and procedures areeffective to ensure that information required to be disclosed in reports filedor submitted under the Exchange Act is accumulated and communicated tomanagement, including our principal executive officer and principal financialofficer, to allow timely decisions regarding required disclosures.

 

(b)                                *Changes in internalcontrols*. Therehas not been any change in the Company’s internal control over financialreporting (as defined in Exchange Act Rule 13a-15(f)) during its mostrecently completed fiscal quarter that has materially affected, or isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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

###  

**ITEM 1.****                                        ****LEGALPROCEEDINGS**

 

We are currentlynot a party to any material pending legal proceedings.

 

**ITEM 1A.****                               ****RISK FACTORS**

 

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.****                                        ****UNREGISTERED SALES OF EQUITYSECURITIES AND USE OF PROCEEDS**

 

None.

 

**ITEM 3.****                                        ****DEFAULTS UPON SENIOR SECURITIES**

 

None.

 

**ITEM 4.****                                        ****SUBMISSION OF MATTERS TO A VOTEOF SECURITY HOLDERS**

 

The stockholders of theCompany voted on one item, the election of three Class II directors, atthe Annual Meeting of Stockholders held on June 12, 2009:

 

Proxies for the AnnualMeeting were solicited pursuant to Regulation 14A under the Securities ExchangeAct of 1934.  There was no solicitation in opposition to management’snominees, and the stockholders elected the following persons as directors ofthe Company to serve until the 2012 Annual Meeting or until their successorsare elected and qualified:

 
| ** **                 | ** ** | **Votes**  | ** ** | **Votes**    |
|----------------------------|------------|------------|------------|--------------|
| **Nominee**                | ** ** | **For**    | ** ** | **Withheld** |
| Peter Christianson         |       | 14,570,390 |       | 1,570,139    |
| Gordon Paul  Anderson |       | 15,553,002 |       | 587,527      |
| James Williams             |       | 15,152,686 |       | 987,843      |

 

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**ITEM 5.****                                        ****OTHER INFORMATION**

 

As previouslydisclosed in Item 1.01 of the Current Report on Form 8-K filed on July 21,2009, on July 15, 2009, the Company entered into a Loan Agreement (the “LoanAgreement”) with Bremer Bank, N.A. (“Bremer”), which provides for a $25 millionrevolving operating line of credit (the “Revolving Loan”) and a $15 millionterm loan (the “Term Loan”).  The Revolving Loan may be used to fund shortterm working capital requirements of the Company, and replaces the Company’sprevious $25 million operating line of credit with Bremer.  The RevolvingLoan has a variable interest rate of 0.25% per annum below a Bremer referencerate (subject to a minimum interest rate floor of 4.5%), requires monthlypayments of accrued interest commencing August 1, 2009, and has a maturitydate of July 14, 2010.  The Term Loan will be used for the long termworking capital requirements of the Company.  The Term Loan has a fixedinterest rate of 5.90%, requires monthly payments of principal and interestcommencing August 1, 2009, and has a maturity date of July 1,2014.  Advances under the Loan Agreement are secured by substantially allof the Company’s assets.  The Loan Agreement contains customary financialcovenants and various restrictive covenants that are substantially identical tothose of the previous Bremer loan agreement. This information is included here for the purpose of also filing itunder Item 2.03 of Form 8-K. Additional information required to be disclosed under Item 2.03 is asfollows:  The Loan Agreement containscustomary event of default triggers, as well as event of default triggers ifthe Company is in default of its master dealer agreements with Case IH or NewHolland, if such agreements are terminated for any reason, or if the Company’sdealerships representing more than 25% or more of the Company’s gross revenues,cease to be authorized Case IH or New Holland dealers.  If an event of default occurs, Bremer mayaccelerate all obligations of the Company under the Loan Agreement.

 

On July 29, 2009, the Company and CNH Capital America LLC enteredinto an amendment (the “Amendment”) to the Amended and Restated Wholesale FloorPlan Credit Facility and Security Agreement dated November 13, 2007.  Pursuant to the Amendment, effective September 1,2009, the interest rates will be the prime rate plus 4% on the first $25.0million in floorplan borrowings prior to December 31, 2009 and the primerate plus 6% on all other floorplan borrowings. The foregoing description of the Amendment does not purport to becomplete and is qualified in its entirety by reference to the Amendment, whichis included in Exhibit 10.2 filed herewith.

 

**ITEM 6.****                                        ****EXHIBITS**

 

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

 

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**SIGNATURES**

 

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Company has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.

 
| Dated:  September 9, 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                |       | Loan Agreement dated  July 15, 2009 between Bremer Bank, N.A. and the registrant                                     |
|                 |       |                                                                                                                      |
| *10.2                |       | Letter Agreements dated  July 29, 2009 and October 17, 2008 between CNH Capital America LLC  and the registrant |
|                 |       |                                                                                                                      |
| *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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