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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC  20549
 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, 2020
OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to ____
 
Commission File No. 001-33866
 
TITAN MACHINERY INC.
(Exact name of registrant as specified in its charter)
Delaware   45-0357838
(State or Other Jurisdiction of
Incorporation or Organization)
  (IRS Employer
Identification No.)

644 East Beaton Drive
West Fargo, ND 58078-2648
(Address of Principal Executive Offices)
 
Registrant’s telephone number (701) 356-0130

Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, $0.00001 par value per share TITN The Nasdaq Stock Market LLC
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes     No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer   Accelerated filer  ☒
Non-accelerated filer Smaller reporting company  ☐
Emerging growth company  ☐

        If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

As of August 31, 2020, 22,533,401 shares of Common Stock, $0.00001 par value, of the registrant were outstanding.


TITAN MACHINERY INC.
QUARTERLY REPORT ON FORM 10-Q
 
Table of Contents

  Page No.
PART I.
FINANCIAL INFORMATION
3
ITEM 1.
FINANCIAL STATEMENTS
3
  Consolidated Balance Sheets
3
  Consolidated Statements of Operations
4
  Consolidated Statements of Comprehensive Income
5
  Consolidated Statements of Stockholders' Equity
6
  Consolidated Statements of Cash Flows
7
 
Notes to Consolidated Financial Statements
8
ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 4.
CONTROLS AND PROCEDURES
PART II.
OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
ITEM 1A.
RISK FACTORS
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
ITEM 4.
MINE SAFETY DISCLOSURES
ITEM 5.
OTHER INFORMATION
ITEM 6.
EXHIBITS
Exhibit Index
Signatures

2

PART I. — FINANCIAL INFORMATION
 
ITEM 1.                FINANCIAL STATEMENTS
 
TITAN MACHINERY INC.
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
July 31, 2020 January 31, 2020
Assets
Current Assets
Cash $ 44,484  $ 43,721 
Receivables, net of allowance for expected credit losses 75,782  72,776 
Inventories 570,680  597,394 
Prepaid expenses and other 7,144  13,655 
Total current assets 698,090  727,546 
Noncurrent Assets
Property and equipment, net of accumulated depreciation 150,496  145,562 
Operating lease assets 83,586  88,281 
Deferred income taxes 3,337  2,147 
Goodwill 2,818  2,327 
Intangible assets, net of accumulated amortization 8,568  8,367 
Other 1,130  1,113 
Total noncurrent assets 249,935  247,797 
Total Assets $ 948,025  $ 975,343 
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 20,734  $ 16,976 
Floorplan payable 352,215  371,772 
Current maturities of long-term debt 3,921  13,779 
Current operating lease liabilities 12,158  12,259 
Deferred revenue 22,716  40,968 
Accrued expenses and other 38,122  38,409 
Total current liabilities 449,866  494,163 
Long-Term Liabilities
Long-term debt, less current maturities 48,665  37,789 
Operating lease liabilities 83,341  88,387 
Deferred income taxes 2,301  2,055 
Other long-term liabilities 9,060  7,845 
Total long-term liabilities 143,367  136,076 
Commitments and Contingencies
Stockholders' Equity
Common stock, par value $.00001 per share, $45,000 shares authorized; $22,553 shares issued and outstanding at July 31, 2020; $22,335 shares issued and outstanding at January 31, 2020
   
Additional paid-in-capital 251,587  250,607 
Retained earnings 106,175  97,717 
Accumulated other comprehensive loss (2,970) (3,220)
Total stockholders' equity 354,792  345,104 
Total Liabilities and Stockholders' Equity $ 948,025  $ 975,343 
 See Notes to Consolidated Financial Statements
3

TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
  Three Months Ended July 31, Six Months Ended July 31,
  2020 2019 2020 2019
Revenue
Equipment $ 202,654  $ 214,435  $ 421,159  $ 408,390 
Parts 61,454  59,202  118,068  111,140 
Service 27,986  26,832  53,586  49,662 
Rental and other 11,371  14,512  20,860  24,079 
Total Revenue 303,465  314,981  613,673  593,271 
Cost of Revenue
Equipment 180,231  190,707  377,278  363,861 
Parts 43,032  41,732  82,649  78,546 
Service 9,665  8,737  18,010  16,219 
Rental and other 7,849  9,778  14,636  16,719 
Total Cost of Revenue 240,777  250,954  492,573  475,345 
Gross Profit 62,688  64,027  121,100  117,926 
Operating Expenses 53,079  54,855  106,137  107,410 
Impairment of Long-Lived Assets     216  135 
Income from Operations 9,609  9,172  14,747  10,381 
Other Income (Expense)
Interest and other income 562  620  692  1,414 
Floorplan interest expense (901) (1,399) (2,054) (2,276)
Other interest expense (978) (966) (1,944) (2,607)
Income Before Income Taxes 8,292  7,427  11,441  6,912 
Provision for Income Taxes 1,892  1,916  2,779  1,846 
Net Income $ 6,400  $ 5,511  $ 8,662  $ 5,066 
Earnings per Share:
Basic $ 0.28  $ 0.25  $ 0.39  $ 0.23 
Diluted $ 0.28  $ 0.25  $ 0.39  $ 0.23 
Weighted Average Common Shares:
Basic 22,118  21,960  22,068  21,917 
Diluted 22,119  21,964  22,068  21,922 
 
See Notes to Consolidated Financial Statements

4

TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(in thousands)
 
  Three Months Ended July 31, Six Months Ended July 31,
  2020 2019 2020 2019
Net Income $ 6,400  $ 5,511  $ 8,662  $ 5,066 
Other Comprehensive Income
Foreign currency translation adjustments 778  1,012  250  241 
Comprehensive Income $ 7,178  $ 6,523  $ 8,912  $ 5,307 
 
See Notes to Consolidated Financial Statements

5

TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
(in thousands)

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Shares Outstanding Amount
BALANCE, January 31, 2019 22,218  $   $ 248,423  $ 89,228  $ (2,340) $ 335,311 
Cumulative-effect adjustment of adopting ASC 842, Leases       (5,464)   (5,464)
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax (34)   (492)     (492)
Stock-based compensation expense     603      603 
Net loss       (445)   (445)
Other comprehensive loss         (771) (771)
BALANCE, April 30, 2019 22,184  $   $ 248,534  $ 83,319  $ (3,111) $ 328,742 
Cumulative-effect adjustment of adopting ASC 842, Leases            
Common stock issued on grant of restricted stock and exercise of stock options, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 170           
Stock-based compensation expense     694      694 
Net Income       5,511    5,511 
Other comprehensive Income         1,012  1,012 
BALANCE, July 31, 2019 22,354    249,228  88,830  (2,099) 335,959 

Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Stockholders' Equity
Shares Outstanding Amount
BALANCE, January 31, 2020 22,335  $   $ 250,607  $ 97,717  $ (3,220) $ 345,104 
Cumulative-effect adjustment of adopting ASC 326, Credit Loss       (204)   (204)
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax (21)   (201)     (201)
Stock-based compensation expense     645      645 
Net income       2,262    2,262 
Other comprehensive loss         (528) (528)
BALANCE, April 30, 2020 22,314  $   $ 251,051  $ 99,775  $ (3,748) $ 347,078 
Cumulative-effect adjustment of adopting ASC 326, Credit Loss            
Common stock issued on grant of restricted stock, net of restricted stock forfeitures and restricted stock withheld for employee withholding tax 239           
Stock-based compensation expense     536      536 
Net income       6,400    6,400 
Other comprehensive income         778  778 
BALANCE, July 31, 2020 22,553    251,587  106,175  (2,970) 354,792 

See Notes to Consolidated Financial Statements
6


TITAN MACHINERY INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
  Six Months Ended July 31,
  2020 2019
Operating Activities
Net income $ 8,662  $ 5,066 
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Depreciation and amortization 11,286  13,264 
Impairment 216  135 
Deferred income taxes (944) (251)
Stock-based compensation expense 1,181  1,297 
Noncash interest expense 75  407 
Noncash lease expense 5,717  6,198 
Other, net (368) (8)
Changes in assets and liabilities
Receivables, prepaid expenses and other assets 3,347  (2,149)
Inventories 31,885  (140,149)
Manufacturer floorplan payable (26,726) 128,635 
Accounts payable, deferred revenue, accrued expenses and other and other long-term liabilities (15,140) (12,362)
Operating lease liabilities (6,156) (6,386)
Net Cash Provided by (Used for) Operating Activities 13,035  (6,303)
Investing Activities
Rental fleet purchases (6,001) (9,249)
Property and equipment purchases (excluding rental fleet) (4,472) (3,101)
Proceeds from sale of property and equipment 489  670 
Acquisition consideration, net of cash acquired (6,790) (2,972)
Other, net (20) 14 
Net Cash Used for Investing Activities (16,794) (14,638)
Financing Activities
Net change in non-manufacturer floorplan payable 7,229  49,937 
Principal payments on senior convertible notes   (45,644)
Proceeds from long-term debt borrowings 1,112  11,786 
Principal payments on long-term debt and finance leases (2,952) (1,940)
Payment of debt issuance costs (670)  
Other, net (200) (492)
Net Cash Provided by Financing Activities 4,519  13,647 
Effect of Exchange Rate Changes on Cash 3  66 
Net Change in Cash 763  (7,228)
Cash at Beginning of Period 43,721  56,745 
Cash at End of Period $ 44,484  $ 49,517 
Supplemental Disclosures of Cash Flow Information
Cash paid (received) during the period
Income taxes, net of refunds $ (228) $ 3,064 
Interest $ 4,103  $ 4,705 
Supplemental Disclosures of Noncash Investing and Financing Activities
Net property and equipment financed with long-term debt, finance leases, accounts payable and accrued liabilities $ 4,645  $ 6,133 
Net transfer of assets from (to) property and equipment to (from) inventories $ 319  $ (2,995)

See Notes to Consolidated Financial Statements
7

TITAN MACHINERY INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
 
NOTE 1 - BUSINESS ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited consolidated financial statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim reporting. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. The quarterly operating results for Titan Machinery Inc. (the “Company”) are subject to fluctuation due to varying weather patterns, which may impact the timing and amount of equipment purchases, rentals, and after-sales parts and service purchases by the Company’s Agriculture, Construction and International customers. Therefore, operating results for the six-month period ended July 31, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending January 31, 2021. The information contained in the consolidated balance sheet as of January 31, 2020 was derived from the audited consolidated financial statements for the Company for the fiscal year then ended. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020 as filed with the SEC.
Nature of Business
The Company is engaged in the retail sale, service and rental of agricultural and construction machinery through its stores in the United States and Europe. The Company’s North American stores are located in Arizona, Colorado, Iowa, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Wisconsin and Wyoming, and its European stores are located in Bulgaria, Germany, Romania, Serbia and Ukraine. 
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, and the President of the United States declared the COVID-19 outbreak as a national emergency. The nature of COVID-19 led to worldwide shutdowns and halting of commercial and interpersonal activity as governments imposed regulations in efforts to control the spread of the pandemic, such as shelter-in-place orders and quarantines. The pandemic is a highly fluid and rapidly evolving situation, and we cannot anticipate with any certainty the length, scope, or severity of such restrictions in each of the markets that we operate. See Item 1A. Risk Factors for more information on possible impacts.
Since the beginning of the COVID-19 pandemic, the safety of our employees and customers has been and continues to be our top concern. At the onset of the pandemic we organized a COVID Task Force to implement safety protocols and to quickly respond to matters, in the event of a positive case at one of our locations.
Even though we are considered an essential business, in response to the COVID-19 pandemic, the Company closed its U.S. stores to the public on March 23, 2020 but continued operations through social distancing means in all areas: equipment, parts, service and rental. Beginning May 4, 2020, we began fully reopening our stores to the public, following pandemic safety protocols applicable to the locations. Additionally, our International stores have also been following pandemic safety protocols applicable to each location. By June 2020, all of our stores were open to the public but still maintain pandemic safety protocols.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, particularly related to realization of inventory, impairment of long-lived assets, collectability of receivables, and income taxes.
Principles of Consolidation
        The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material accounts, transactions and profits between the consolidated companies have been eliminated in consolidation.

8

Recently Adopted Accounting Guidance
        In June 2016, the Financial Accounting Standards Board ("FASB") issued a new standard, codified in ASC 326, that modifies how entities measure credit losses on most financial instruments. The new standard replaced the "incurred loss" model with an "expected credit loss" model that requires consideration of a broader range of information to estimate expected credit losses over the lifetime of the asset. The guidance impacts the Company on its accounts receivable portfolio but specifically excluded receivables from operating lease arrangements and, therefore, the Company’s receivables from rental contracts were not impacted. The guidance also requires new disclosures to allow the users of the financial statements to understand the credit risk inherent in a portfolio and how management monitors the credit quality of the portfolio, management’s estimate of expected credit losses, and changes in the estimate of expected credit losses that have taken place during the reporting period.
The Company adopted the new guidance on February 1, 2020 using a modified retrospective approach and recognized an immaterial cumulative-effect adjustment to retained earnings as of the effective date. The Company identified and updated existing internal controls and procedures to ensure compliance with the new guidance, but such modifications were not deemed to be material to the Company's overall system of internal control. While the adoption of this standard did not have a material impact on the Company's consolidated financial statements, it required changes to the Company's process of estimating expected credit losses on trade receivables. See footnote 4 for further discussion of our accounts receivables.
In February 2018, the FASB issued guidance on the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract, codified in ASC 350-40. This guidance aligns the accounting for costs incurred to implement a cloud computing arrangement that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. This standard was adopted on February 1, 2020 and was applied using the prospective transition approach. The adoption of this standard did not have a material impact on the Company's consolidated financial statements.
Accounting Guidance Not Yet Adopted
In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU No. 2020-04”), which provides temporary optional expedients and exceptions to accounting guidance on contract modifications and hedge accounting to ease entities’ financial reporting burdens as the market transitions from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective upon issuance and can be applied through December 31, 2022. The Company is currently evaluating its contracts and hedging relationships that reference LIBOR to determine if the Company will adopt the new guidance.
9

NOTE 2 - EARNINGS PER SHARE
The following table sets forth the calculation of basic and diluted EPS:
  Three Months Ended July 31, Six Months Ended July 31,
  2020 2019 2020 2019
  (in thousands, except per share data)
Numerator:
Net income $ 6,400  $ 5,511  $ 8,662  $ 5,066 
Allocation to participating securities (101) (82) (129) (76)
Net income attributable to Titan Machinery Inc. common stockholders $ 6,299  $ 5,429  $ 8,533  $ 4,990 
Denominator:
Basic weighted-average common shares outstanding 22,118  21,960  22,068  21,917 
Plus: incremental shares from vesting of restricted stock units 1  4    5 
Diluted weighted-average common shares outstanding 22,119  21,964  22,068  21,922 
Earnings Per Share:
Basic $ 0.28  $ 0.25  $ 0.39  $ 0.23 
Diluted $ 0.28  $ 0.25  $ 0.39  $ 0.23 
Anti-dilutive shares excluded from diluted weighted-average common shares outstanding:
Restricted stock units     18   

NOTE 3 - REVENUE
        Revenues are recognized when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration we expect to collect in exchange for those goods or services. Sales, value added and other taxes collected from our customers concurrent with our revenue activities are excluded from revenue.
        The following tables present our revenue disaggregated by revenue source and segment:
Three Months Ended July 31, 2020 Three Months Ended July 31, 2019
Agriculture Construction International Total Agriculture Construction International Total
(in thousands) (in thousands)
Equipment $ 110,601  $ 48,478  $ 43,575  $ 202,654  $ 111,212  $ 51,396  $ 51,827  $ 214,435 
Parts 37,470  13,016  10,968  61,454  35,054  13,066  11,082  59,202 
Service 19,429  6,806  1,751  27,986  18,000  6,968  1,864  26,832 
Other 829  725  119  1,673  793  820  130  1,743 
Revenue from contracts with customers
168,329  69,025  56,413  293,767  165,059  72,250  64,903  302,212 
Rental 743  8,694  261  9,698  633  11,789  347  12,769 
Total revenues $ 169,072  $ 77,719  $ 56,674  $ 303,465  $ 165,692  $ 84,039  $ 65,250  $ 314,981 

Six Months Ended July 31, 2020 Six Months Ended July 31, 2019
Agriculture Construction International Total Agriculture Construction International Total
(in thousands) (in thousands)
Equipment $ 250,349  $ 82,732  $ 88,078  $ 421,159  $ 219,075  $ 94,442  $ 94,873  $ 408,390 
Parts 72,550  24,476  21,042  118,068  65,029  25,770  20,341  111,140 
Service 37,150  13,017  3,419  53,586  32,984  13,489  3,189  49,662 
Other 1,562  1,243  223  3,028  1,412  1,413  152  2,977 
Revenue from contracts with customers
361,611  121,468  112,762  595,841  318,500  135,114  118,555  572,169 
Rental 1,089  16,365  378  17,832  964  19,668  470  21,102 
Total revenues $ 362,700  $ 137,833  $ 113,140  $ 613,673  $ 319,464  $ 154,782  $ 119,025  $ 593,271 
10

Unbilled Receivables and Deferred Revenue
        Unbilled receivables amounted to $17.3 million and $13.9 million as of July 31, 2020 and January 31, 2020. The increase in unbilled receivables is primarily the result of a seasonal increase in the volume of our service transactions in which we recognize revenue as our work is performed and prior to customer invoicing.
        Deferred revenue from contracts with customers amounted to $21.7 million and $39.5 million as of July 31, 2020 and January 31, 2020. Our deferred revenue most often increases in the fourth quarter of each fiscal year due to a higher level of customer down payments or prepayments and longer time periods between customer payment and delivery of the equipment asset, and the related recognition of equipment revenue, prior to its seasonal use. During the six months ended July 31, 2020 and 2019, the Company recognized $37.0 million and $41.2 million, respectively, of revenue that was included in the deferred revenue balance as of January 31, 2020 and January 31, 2019, respectively. No material amount of revenue was recognized during the three months ended July 31, 2020 and 2019 from performance obligations satisfied in previous periods.
        The Company has elected as a practical expedient to not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of service of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed. The contracts for which the practical expedient has been applied include (i) equipment revenue transactions, which do not have a stated contractual term, but are short-term in nature, and (ii) service revenue transactions, which also do not have a stated contractual term but are generally completed within 30 days and for such contracts we recognize revenue over time at the amount to which we have the right to invoice for services completed to date.
NOTE 4 - RECEIVABLES
The Company provides an allowance for expected credit losses on its nonrental receivables in accordance with the guidance in ASU 2016-13. To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics as shown in the table below.
Trade and unbilled receivables from contracts with customers have credit risk and the allowance is determined by applying expected credit loss percentages to aging categories based on historical experience that are updated each quarter. The rates may also be adjusted to the extent future events are expected to differ from historical results. Given that the credit terms for these receivables are short-term, changes in credit loss percentages due to future events may not occur on a frequent basis. In addition, the allowance is adjusted based on information obtained by continued monitoring of individual customer credit.
Trade receivables from finance companies, other receivables due from manufacturers, and other receivables have not historically resulted in any credit losses to the Company. These receivables are short-term in nature and deemed to be of good credit quality and have no need for any allowance for expected credit losses. Management continually monitors these receivables and should information be obtained that identifies potential credit risk, an adjustment to the allowance would be made if deemed appropriate.
Trade and unbilled receivables from rental contracts are primarily in the US and are specifically excluded from the guidance in ASU 2016-13 in determining an allowance for expected losses. The Company does provide an allowance for these receivables based on historical experience and using credit information obtained from continued monitoring of customer accounts.
11

July 31, 2020 January 31, 2020
(in thousands)
Trade and unbilled receivables from contracts with customers
Trade receivables due from customers $ 35,691  $ 36,400 
Unbilled receivables 17,280  13,944 
Less allowance for expected credit loss 3,293  2,943 
49,678  47,401 
Trade receivables due from finance companies 11,813  12,352 
Trade and unbilled receivables from rental contracts
Trade receivables 5,578  7,381 
Unbilled receivables 875  861 
Less allowance for expected credit loss 1,979  2,180 
4,474  6,062 
Other receivables
Due from manufacturers 8,819  5,763 
Other 998  1,198 
9,817  6,961 
Receivables, net of allowance for expected credit losses $ 75,782  $ 72,776 

Following is a summary of allowance for credit losses on trade and unbilled accounts receivable:
Agriculture Construction International Total
Balance at February 1, 2020 $ 181  $ 1,016  $ 1,746  $ 2,943 
Current Expected Credit Loss Provision 14  113  226  353 
Write-offs Charged Against Allowance 5  71  133  209 
Credit Loss Recoveries Collected 40  4  6  50 
F/X Impact     (29) (29)
Balance at April 30, 2020 230  1,062  1,816  3,108 
Current Expected Credit Loss Provision 16  95  265  376 
Write-offs Charged Against Allowance 47  78  98  223 
Credit Loss Recoveries Collected 9      9 
F/X Impact     23  23 
Balance at July 31, 2020 $ 208  $ 1,079  $ 2,006  $ 3,293 
The following table presents impairment losses on receivables arising from sales contracts with customers and receivables arising from rental contracts:
Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
(in thousands)
Impairment losses on:
Receivables from sales contracts $ 377  $ 658  $ 520  $ 986 
Receivables from rental contracts 13  414  151  497 
$ 390  $ 1,072  $ 671  $ 1,483 

12

NOTE 5 - INVENTORIES
July 31, 2020 January 31, 2020
  (in thousands)
New equipment $ 334,457  $ 358,339 
Used equipment 148,239  157,535 
Parts and attachments 86,301  79,813 
Work in process 1,683  1,707 
$ 570,680  $ 597,394 

NOTE 6 - PROPERTY AND EQUIPMENT
July 31, 2020 January 31, 2020
  (in thousands)
Rental fleet equipment $ 101,856  $ 104,133 
Machinery and equipment 23,346  22,682 
Vehicles 53,048  51,850 
Furniture and fixtures 42,468  41,720 
Land, buildings, and leasehold improvements 76,861  70,408 
297,579  290,793 
Less accumulated depreciation 147,083  145,231 
$ 150,496  $ 145,562 
        The Company reviews its long-lived assets for potential impairment whenever events or circumstances indicate that the carrying value of the long-lived asset (or asset group) may not be recoverable. During the three months ended July 31, 2020, the Company determined that a current period operating loss combined with historical losses of a certain store location indicated that the long-lived asset group of a store location may not be recoverable. The Company performed an impairment assessment of this asset group and as a result determined an impairment charge was not needed for the three months ended July 31, 2020. For the six months ended July 31, 2020, the Company recognized total impairment charges of $0.2 million within its Construction segment. For the three and six months ended July 31, 2019, the Company recognized an impairment charge of $0.1 million within its Construction segment.
        In March 2019, the Company completed an assessment of its Enterprise Resource Planning ("ERP") application and concluded that the Company would begin the process to prepare for conversion to a new ERP application. The Company integrated one pilot store on the new ERP system in the second quarter of the current fiscal year and expects all domestic stores to be on the new ERP application in the first half of the fiscal year ending January 31, 2022. We have prospectively adjusted the useful life of our current ERP application such that it will be fully amortized upon its estimated replacement date. The net book value of the current ERP asset of $1.3 million as of July 31, 2020 will be amortized on a straight-line basis over the estimated remaining period of use.
NOTE 7 - FLOORPLAN PAYABLE/LINES OF CREDIT
        On April 3, 2020, the Company entered into a Third Amended and Restated Credit Agreement (the "Bank Syndicate Agreement") with a group of banks, that amended and restated the Company's prior $200.0 million credit facility, dated October 28, 2015. The Bank Syndicate Agreement provides for a secured credit facility in an amount up to $250.0 million, consisting of a $185.0 million floorplan facility (the "Floorplan Loan") and a $65.0 million operating line (the "Revolver Loan"), and changed the interest rates as compared to the prior credit facility, amongst other things. The amounts available under the Bank Syndicate Agreement are subject to base calculations and reduced by outstanding standby letters of credit and certain reserves. The Bank Syndicate Agreement has a variable interest rate on outstanding balances, has a 0.25% non-usage fee on the average monthly unused amount (replacing the previous non-usage fee of 0.25% to 0.375%), and requires monthly payments of accrued interest. The Company elects at the time of any advance to choose a Base Rate Loan or a LIBOR Rate Loan. The LIBOR Rate is based upon one month, two month, or three month LIBOR, as chosen by the Company, but in no event shall the LIBOR Rate be less than 0.50%. The Base Rate is the greater of (a) the prime rate of interest announced, from time to time, by Bank of America; (b) the Federal Funds Rate plus 0.5%, or (c) one month LIBOR plus 1%, but in no event shall the Base Rate be less than zero. The applicable margin rate is determined based on excess availability under the Bank Syndicate Agreement and
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ranges from 0.5% to 1.0% for Base Rate Loans and 1.5% to 2.0% for LIBOR Rate Loans. The new applicable margins under the Bank Syndicate Agreement are up to 0.5% less than the existing margins under the prior credit facility.
The Bank Syndicate Agreement does not obligate the Company to maintain financial covenants, except in the event that excess availability (each as defined in the Bank Syndicate Agreement) is less than 15% of the lower of the borrowing base or the size of the maximum credit line, at which point the Company is required to maintain a fixed charge coverage ratio of at least 1.10:1.00. The Bank Syndicate Agreement includes various restrictions on the Company and its subsidiaries’ activities, including, under certain conditions, limitations on the Company’s ability to make certain cash payments including cash dividends and stock repurchases, issuance of equity instruments, acquisitions and divestitures, and entering into new indebtedness transactions. The Bank Syndicate Agreement matures on April 3, 2025.
The Floorplan Loan under the Bank Syndicate Agreement e is used to finance equipment inventory purchases. Amounts outstanding are recorded as floorplan payable, within current liabilities on the consolidated balance sheets, as the Company intends to repay amounts borrowed within one year.
The Revolver Loan under the Bank Syndicate Agreement is used to finance rental fleet equipment and for general working capital requirements of the Company. Amounts outstanding are recorded as long-term debt, within long-term liabilities on the consolidated balance sheets, as the Company does not have the intention or obligation to repay amounts borrowed within one year.
As of July 31, 2020, the Company had floorplan lines of credit totaling $763.0 million, which is primarily comprised of three significant floorplan lines of credit: (i) a $450.0 million credit facility with CNH Industrial, (ii) a $185.0 million line of credit under the Bank Syndicate Agreement, and (iii) a $60.0 million credit facility with DLL Finance LLC.
As of July 31, 2020 and January 31, 2020, the Company's outstanding balances of floorplan lines of credit consisted of the following:
July 31, 2020 January 31, 2020
(in thousands)
CNH Industrial $ 151,790  $ 187,690 
Bank Syndicate Agreement Floorplan Loan 98,400   
Wells Fargo Floorplan Payable Line   82,700 
DLL Finance 25,064  30,657 
Other outstanding balances with manufacturers and non-manufacturers 76,961  70,725 
$ 352,215  $ 371,772 
        As of July 31, 2020, the interest-bearing U.S. floorplan payables carried various interest rates ranging primarily from 2.00% to 3.31%, compared to a range of 4.05% to 4.81% as of January 31, 2020. As of July 31, 2020, foreign floorplan payables carried various interest rates primarily ranging from 1.34% to 6.15%, compared to a range of 0.86% to 7.66% as of January 31, 2020. As of July 31, 2020 and January 31, 2020, $185.0 million and $205.2 million, respectively, of outstanding floorplan payables were non-interest bearing. As of July 31, 2020, the Company had a compensating balance arrangement under one of its foreign floorplan credit facilities, which requires a minimum cash deposit to be maintained with the lender in the amount of $5.0 million for the term of the credit facility.
NOTE 8 - DEFERRED REVENUE
July 31, 2020 January 31, 2020
(in thousands)
Deferred revenue from contracts with customers $ 21,686  $ 39,512 
Deferred revenue from rental and other contracts 1,030  1,456 
$ 22,716  $ 40,968 

NOTE 9 - SENIOR CONVERTIBLE NOTES
        The Company's senior convertible notes matured, and the outstanding principal balance of $45.6 million was repaid in full, on May 1, 2019, as such there was no interest expense for the three months ended July 31, 2019.
The Company recognized interest expense associated with its senior convertible notes as follows:
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Six Months Ended July 31,
2020 2019
(in thousands)
Cash Interest Expense
Coupon interest expense $   $ 421 
Noncash Interest Expense
Amortization of debt discount   350 
Amortization of transaction costs   45 
$   $ 816 

NOTE 10 - LONG TERM DEBT
        The following is a summary of long-term debt as of July 31, 2020 and January 31, 2020:
July 31, 2020 January 31, 2020
(in thousands)
Sale-leaseback financing obligations, interest rates ranging from 3.4% to 10.3% with various maturity dates through December 2030 $ 17,153  $ 17,781 
Bank Syndicate Agreement - Working Capital Line, interest accrues at a variable rate on outstanding balances, requires monthly payments of accrued interest, matures April 2025 10,000  10,000 
Real estate mortgage bearing interest at 5.11%, payable in annual installments of $0.3 million, maturing on May 15, 2039, secured by real estate assets 6,485  6,827 
Equipment financing loan, payable in monthly installments over a 72-month term for each funded tranche, interest rates ranging from 1.7% to 3.89%, secured by vehicle assets 7,446  7,468 
Real estate mortgage bearing interest at 4.62%, payable in monthly installments of $0.04 million with a final payment at maturity of $3.4 million, maturing on June 10, 2024, secured by real estate assets 4,315  4,416 
Real estate mortgage interest accrues at a variable rate of 2.5% plus 1-month LIBOR, requires monthly payments of accrued interest, final payment at maturity of $2.0 million, maturing on February 28, 2027, secured by real estate assets 1,964   
Real estate mortgage bearing interest at 4.4%, payable in monthly installments of $0.01 million with a final payment at maturity of $1.0 million, maturing on January 1, 2027, secured by real estate assets 1,458  1,489 
Equipment financing loan, payable in monthly installments over a 72-month term, bearing interest at 3.94%, secured by vehicle assets 1,025   
Real estate mortgage bearing interest at 2.09%, payable in monthly installments, maturing on June 30, 2026, secured by real estate assets 2,339  2,520 
Other long-term debt primarily bearing interest at three-month EURIBOR plus 2.6%, payable in quarterly installments, maturing on January 31, 2021 401  1,067 
52,586  51,568 
Less current maturities (3,921) (13,779)
$ 48,665  $ 37,789 

NOTE 11 - DERIVATIVE INSTRUMENTS
The Company holds derivative instruments for the purpose of minimizing exposure to fluctuations in foreign currency exchange rates to which the Company is exposed in the normal course of its operations.
        The Company uses foreign currency forward contracts to hedge the effects of fluctuations in exchange rates on outstanding intercompany loans. The Company does not formally designate and document such derivative instruments as hedging instruments; however, the instruments are an effective economic hedge of the underlying foreign currency exposure. Both the gain or loss on the derivative instrument and the offsetting gain or loss on the underlying intercompany loan are recognized in earnings immediately, thereby eliminating or reducing the impact of foreign currency exchange rate fluctuations
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on net income. The Company's foreign currency forward contracts generally have three-month maturities, maturing on the last day of each fiscal quarter. No foreign currency contracts were outstanding as of January 31, 2020. The notional value of outstanding foreign currency contracts as of July 31, 2020 was $11.0 million.
        As of July 31, 2020, the fair value of the Company's outstanding derivative instruments was not material. Derivative instruments recognized as assets are recorded in prepaid expenses and other in the consolidated balance sheets, and derivative instruments recognized as liabilities are recorded in accrued expenses and other in the consolidated balance sheets.
        The following table sets forth the gains and losses recognized in income from the Company’s derivative instruments for the three and six months ended July 31, 2020 and 2019. Gains and losses are recognized in interest income and other income (expense) in the consolidated statements of operations:
Three Months Ended July 31, Six Months Ended July 31,
2020 2019 2020 2019
  (in thousands)
Foreign currency contract gain $ 202  $ 166  $ 189  $ 368 

NOTE 12 - ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
        The following is a summary of the changes in accumulated other comprehensive income (loss), by component, for the periods ended July 31, 2020 and July 31, 2019:
Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, January 31, 2020 $ (5,931) $ 2,711  $ (3,220)
Other comprehensive loss (528)   (528)
Balance, April 30, 2020 (6,459) 2,711  (3,748)
Other comprehensive income 778    778 
Balance, July 31, 2020 $ (5,681) $ 2,711  $ (2,970)

Foreign Currency Translation Adjustment Net Investment Hedging Gain Total Accumulated Other Comprehensive Income (Loss)
(in thousands)
Balance, January 31, 2019 $ (5,051) $ 2,711  $ (2,340)
Other comprehensive loss (771)   (771)
Balance, April 30, 2019 (5,822) 2,711  (3,111)
Other comprehensive income 1,012    1,012 
Balance, July 31, 2019 $ (4,810) $ 2,711  $ (2,099)

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NOTE 13 - LEASES
As Lessee
        The Company, as lessee, leases certain of its dealership locations, office space, equipment and vehicles under operating and financing classified leasing arrangements. The Company has elected to not record leases with a lease term at commencement of 12 months or less on the consolidated balance sheet; such leases are expensed on a straight-line basis over the lease term. Many real estate lease agreements require the Company to pay the real estate taxes on the properties during the lease term and require that the Company maintain property insurance on each of the leased premises. Such payments are deemed to be variable lease payments as the amounts may change during the term of the lease. Certain leases include renewal options that can extend the lease term for periods of one to ten years. Most real estate leases grant the Company a right of first refusal or other options to purchase the real estate, generally at fair market value, either during the lease term or at its conclusion. In most cases, the Company has not included these renewal and purchase options within the measurement of the right-of-use asset and lease liability. Most often the Company cannot readily determine the interest rate implicit in the lease and thus applies its incremental borrowing rate to capitalize the right-of-use asset and lease liability. The Company estimates its incremental borrowing rate by incorporating considerations of lease term, asset class and lease currency and geographical market. The Company's lease agreements do not contain any material non-lease components, residual value guarantees or material restrictive covenants.
        The Company subleases a small number of real estate assets to third-parties, primarily dealership locations for which it has ceased operations. All sublease arrangements are classified as operating leases.
        The components of lease expense were as follows:
Three Months Ended July 31, Six Months Ended July 31,
Classification 2020 2019 2020 2019
(in thousands) (in thousands)
Finance lease cost:
Amortization of leased assets Operating expenses $ 389  $ 331  $ 781  $ 707 
Interest on lease liabilities Other interest expense 117  139  242  278 
Operating lease cost Operating expenses & rental and other cost of revenue 4,325  4,725  8,788  9,541 
Short-term lease cost Operating expenses 110  80  190  160 
Variable lease cost Operating expenses 735  715  1,370  1,335 
Sublease income Interest income and other income (expense) (131) (154) (283) (321)
$ 5,545  $ 5,836  $ 11,088  $ 11,700 

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        Right-of-use lease assets and lease liabilities consist of the following:
Classification July 31, 2020 January 31, 2020
(in thousands)
Assets
Operating lease assets Operating lease assets $ 83,586  $ 88,281 
Finance lease assets(a)
Property and equipment, net of accumulated depreciation 8,027  6,297 
Total leased assets $ 91,613  $ 94,578 
Liabilities
Current
Operating Current operating lease liabilities $ 12,158  $ 12,259 
Finance Accrued expenses and other 4,038  1,708 
Noncurrent
Operating Operating lease liabilities 83,341  88,387 
Finance Other long-term liabilities 3,398  4,103 
Total lease liabilities $ 102,935  $ 106,457 
(a)Finance lease assets are recorded net of accumulated amortization of $2.2 million as of July 31, 2020 and $1.5 million as of January 31, 2020. 
        Maturities of lease liabilities as of July 31, 2020 are as follows:
Operating Finance
Leases Leases Total
Fiscal Year Ended January 31, (in thousands)
2021 (remainder) $ 8,852  $ 3,404  $ 12,256 
2022 17,004  1,873  18,877 
2023 16,028  1,226  17,254 
2024 15,097  493  15,590 
2025 13,961  402  14,363 
2026 13,804  311  14,115 
Thereafter 34,698  1,084  35,782 
Total lease payments 119,444  8,793  128,237 
Less: Interest 23,945  1,357  25,302 
Present value of lease liabilities $ 95,499  $ 7,436  $ 102,935 
        The weighted-average lease term and discount rate as of July 31, 2020 are as follows:
July 31, 2020
Weighted-average remaining lease term (years):
Operating leases 7.6
Financing leases 5.1
Weighted-average discount rate:
Operating leases 6.1  %
Financing leases 9.7  %

As Lessor
        The Company rents equipment to customers, primarily in the Construction segment, on a short-term basis. Our rental arrangements generally do not include minimum, noncancellable periods as the lessee is entitled to cancel the arrangement at any time. Most often, our rental arrangements extend for periods ranging from a few days to a few months. We maintain a fleet of dedicated rental assets within our Construction segment and, within all segments, may also provide short-term rentals of certain equipment inventory assets. Certain rental arrangements may include rent-to-purchase options whereby customers are given a period of time to exercise an option to purchase the related equipment at an established price with any rental payments paid applied to reduce the purchase price.
        All of the Company's leasing arrangements as lessor are classified as operating leases. Rental revenue is recognized on a straight-line basis over the rental period. Rental revenue includes amounts charged for loss and damage insurance on rented equipment. In most cases, our rental arrangements include non-lease components, including delivery and pick-up services. The
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Company accounts for these non-lease components separate from the rental arrangement and recognizes the revenue associated with these components when the service is performed. The Company has elected to exclude from rental revenue all sales, value added and other taxes collected from our customers concurrent with our rental activities. Rental billings most often occur on a monthly basis and may be billed in advance or in arrears, thus creating unbilled rental receivables or deferred rental revenue amounts. The Company manages the residual value risk of its rented assets by (i) monitoring the quality, aging and anticipated retail market value of our rental fleet assets to determine the optimal period to remove an asset from the rental fleet, (ii) maintaining the quality of our assets through on-site parts and service support and (iii) requiring physical damage insurance of our lessee customers. We primarily dispose of our rental assets through the sale of the asset by our retail sales force.
        Revenue generated from leasing activities is disclosed, by segment, in Note 3. The following is the balance of our dedicated rental fleet assets of our Construction segment as of July 31, 2020 and January 31, 2020:
July 31, 2020 January 31, 2020
(in thousands)
Rental fleet equipment $ 101,856  $ 104,133