AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 3, 1997
REGISTRATION NO. 333-13267
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
RDO EQUIPMENT CO.
(Exact name of registrant as specified in its charter)
NORTH DAKOTA 5082/5083 45-0306084
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification No.)
incorporation or organization)
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2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(701) 237-7363
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
RONALD D. OFFUTT
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
RDO EQUIPMENT CO.
2829 SOUTH UNIVERSITY DRIVE
FARGO, NORTH DAKOTA 58109
(701) 237-7363
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES OF ALL COMMUNICATIONS TO:
GARY M. NELSON, ESQ. WENDELL H. ADAIR, JR., P.C.
OPPENHEIMER WOLFF & DONNELLY MCDERMOTT, WILL & EMERY
3400 PLAZA VII, 45 SOUTH SEVENTH STREET 227 WEST MONROE STREET
MINNEAPOLIS, MINNESOTA 55402 CHICAGO, ILLINOIS 60606
(612) 344-9291 (312) 372-2000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after Registration Statement becomes effective.
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE (1) REGISTRATION FEE
Class A Common Stock, $.01 par value........................................ $82,110,000 $24,882
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(1) Estimated solely for the purpose of calculating the registration fee, of which $18,095 was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
SUBJECT TO COMPLETION, DATED JANUARY 3, 1997
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State.
4,200,000 SHARES
[LOGO]
CLASS A COMMON STOCK
($.01 par value)
All of the shares of Class A Common Stock, $.01 par value ("Class A Common Stock"), offered hereby (the "Offering") are being issued and sold by RDO Equipment Co. (the "Company"). Prior to this Offering, there has been no public market for the Class A Common Stock. It is anticipated that the initial public offering price will be between $14 and $17 per share. For information relating to the factors considered in determining the initial offering price to the public, see "Underwriting." The shares of Class A Common Stock have been approved for listing on the New York Stock Exchange ("NYSE") under the symbol "RDO."
The Company's authorized Common Stock consists of Class A Common Stock and Class B Common Stock, par value $.01 per share ("Class B Common Stock"). The economic rights of each class of Common Stock are the same, but the voting rights differ. Each share of Class A Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to four votes per share. The Class A Common Stock is freely transferable, but the Class B Common Stock is transferable only to certain transferees. Each share of Class B Common Stock is convertible into one share of Class A Common Stock. Upon con-summation of this Offering, the principal stockholder of the Company will own 100% of the outstanding Class B Common Stock, which will represent approximately 59.4% of the Common Stock of the Company (56.6% if the Underwriters' over-allotment option is exercised in full) and approximately 85.4% of the combined voting power of all classes of voting stock of the Company (83.9% if the Underwriters' over-allotment option is exercised in full). See "Principal Stockholders" and "Description of Capital Stock."
For a discussion of certain factors that should be considered in connection with an investment in the Class A Common Stock, see "Risk Factors" on page 9 herein.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Underwriting
Price to Discounts and Proceeds to
Public Commissions Company(1)
-------------- -------------- --------------
Per Share................................... $ $ $
Total(2).................................... $ $ $
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(1) Before deduction of expenses payable by the Company estimated at $1,000,000.
(2) The Company has granted the Underwriters an option, exercisable for 30 days from the date of this Prospectus, to purchase a maximum of 630,000 additional shares to cover over-allotments of shares. If the option is exercised in full, the total Price to the Public will be $ , Underwriting Discounts and Commissions will be $ , and Proceeds to Company will be $ .
The Shares are offered by the several Underwriters when, as and if issued by the Company, delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that the Shares will be ready for delivery on or about , 1997, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON DAIN BOSWORTH
INCORPORATED
Prospectus dated , 1997.
[Outside gatefold: Photos depicting various types of industrial and agricultural equipment]
[Inside gatefold: two maps, one depicting industrial store locations and Deere areas of responsibility and the other depicting agricultural store locations, and two inset photos depicting Company service technicians repairing industrial and agricultural equipment]
INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WHICH CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH AS "MAY," "WILL," "EXPECT," "ANTICIPATE," "ESTIMATE," OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREON OR COMPARABLE TERMINOLOGY. THE STATEMENTS IN "RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS, INCLUDING CERTAIN RISKS AND UNCERTAINTIES, WITH RESPECT TO SUCH FORWARD-LOOKING STATEMENTS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN THE CLASS A COMMON STOCK PURSUANT TO EXEMPTIONS FROM RULES 10b-6 AND 10b-7 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND COMBINED FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS OTHERWISE NOTED OR CONTAINED IN THE COMBINED FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED HEREIN, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION GRANTED BY THE COMPANY, AND (II) REFLECTS CHANGES TO THE COMPANY'S CAPITAL STRUCTURE EFFECTED PRIOR TO THE CONSUMMATION OF THIS OFFERING, INCLUDING THE 44.5-FOR-ONE STOCK SPLIT AND SHARE EXCHANGE IN CONNECTION WITH THE REINCORPORATION OF THE COMPANY IN DELAWARE, EFFECTIVE IN JANUARY 1997. IN ADDITION, (I) REFERENCES TO THE COMPANY ON A PRO FORMA BASIS REFLECT ADJUSTMENTS TO GIVE EFFECT TO THE COMPANY'S RECENT ACQUISITIONS OF INDUSTRIAL OPERATIONS IN CENTRAL TEXAS AND AGRICULTURAL OPERATIONS IN WASHINGTON, AS IF SUCH ACQUISITIONS HAD OCCURRED ON FEBRUARY 1, 1995 WITH RESPECT TO STATEMENTS OF OPERATIONS DATA, AND (II) REFERENCES TO THE COMPANY INCLUDE ITS WHOLLY-OWNED SUBSIDIARIES. SEE "REINCORPORATION" AND "BUSINESS--GROWTH STRATEGY." THE CLASS A COMMON STOCK AND THE CLASS B COMMON STOCK ARE SOMETIMES COLLECTIVELY REFERRED TO AS THE "COMMON STOCK."
THE COMPANY
RDO Equipment Co. (the "Company") owns and operates the largest networks of John Deere industrial stores and agricultural stores in the United States. Through its 32 stores, the Company sells, services, and rents industrial and agricultural equipment, primarily supplied by Deere & Company and its subsidiaries ("Deere" or "John Deere"). The Company's revenues have grown at a compound annual rate of 33% over the past five fiscal years, from $71.2 million in fiscal 1992 to $223.6 million in fiscal 1996.
INDUSTRIAL EQUIPMENT INDUSTRY. Management estimates that United States retail sales of new industrial equipment in its target product market in calendar 1995 totaled approximately $5.7 billion. Deere is one of the leading suppliers of industrial equipment in the United States for light to medium applications and offers a broad array of products. Currently, Deere has approximately 110 industrial dealers which operate approximately 355 stores in the United States. Each dealer within the Deere industrial system is assigned specific geographic areas of responsibility within which it has the right to sell new Deere products. Over the last five years, while the number of Deere industrial stores has remained constant, the number of Deere industrial dealers has declined by more than 30%. This dealer consolidation is being driven, in part, by an increasing need for capital, owners' concerns about succession, and Deere's support for consolidation of its dealers. The Company expects to benefit from this consolidation trend by continuing its strategic acquisition of Deere industrial dealerships.
AGRICULTURAL EQUIPMENT INDUSTRY. Management estimates that United States retail sales of new agricultural equipment in its target product market in calendar 1995 totaled approximately $10.1 billion. Deere is the leading supplier of agricultural equipment in the United States. Currently, Deere has approximately 1,275 agricultural dealers which operate approximately 1,545 stores in the United States. Deere agricultural dealers are not assigned exclusive territories, but have authorized store locations. The Company believes that Deere agricultural dealerships also face an increasing need for capital, owners' concerns about succession, and Deere's support for consolidation and, as a result, that a consolidation of Deere agricultural dealerships will occur. The Company expects that it will have increasing opportunities to complete strategic acquisitions of Deere agricultural dealerships as this consolidation trend develops.
GROWTH STRATEGY. The Company's growth strategy is to continue to expand and
improve its operations through a combination of (i) increasing market share
within its existing Deere areas of responsibility, (ii) capitalizing on the
consolidation trends among Deere dealers by acquiring additional dealerships,
(iii) improving the operating performance of its store networks by implementing
its operating model, and (iv) continuing the business and geographic
diversification of its operations. Over the last five years, the Company has
acquired 13 stores from seven dealers, including five stores acquired in
calendar 1996. The acquisitions completed in calendar 1996 establish new
industrial operations in Texas and new agricultural
operations in Washington, which the Company believes will provide platforms for further growth. Approximately $34.4 million of the net proceeds of this Offering is expected to be used to finance future acquisitions, new stores, and internal growth. In addition to its acquisitions, the Company also has opened four stores in the last five years.
INDUSTRIAL DIVISION
The Company operates the largest network of Deere industrial stores, representing approximately 6% of Deere's United States industrial equipment sales in calendar 1995. The Industrial Division operates 21 stores located primarily in areas with significant construction activity within the Company's designated Deere areas of responsibility, including Dallas-Fort Worth, southern Los Angeles, Minneapolis-St. Paul, Phoenix, and San Diego. Customers of the Company's industrial stores include contractors, for both residential and commercial construction, utility companies, and federal, state, and local government agencies. Revenues of the Industrial Division increased from $30.5 million in fiscal 1992 to $139.0 million in fiscal 1996, representing a compound annual growth rate of 46%. The growth in the Industrial Division's revenues are due to same store sales increases and the acquisition of 11 stores over the last five years. The increases in same store sales are attributable to the continued implementation of the Company's operating model, particularly at acquired stores, as well as a favorable construction environment. Industrial acquisitions have been made in Arizona, California, and Texas due to the favorable construction economies and year-round construction seasons in these locations, as well as the Company's strategy to diversify geographically.
The Company's industrial stores offer a full range of new and used Deere equipment, replacement parts, and fully-equipped service and repair facilities. In addition, the Company sells industrial equipment supplied by other manufacturers which is complementary to the Deere lines, as well as used industrial equipment taken as trade-ins. The Company believes that product support, through its parts and service programs, has been and will be increasingly important to the profitability of its industrial equipment operations and its ability to attract and retain customers. In the Southwest region, the Industrial Division has established a rental fleet of industrial equipment, which the Company intends to continue to expand. See "Business--Recent and Contemplated Acquisitions."
AGRICULTURAL DIVISION
The Company operates the largest network of Deere agricultural stores, representing approximately 1% of Deere's U.S. agricultural equipment sales in calendar 1995. The Agricultural Division operates 11 stores located in Minnesota, North Dakota, South Dakota, and Washington. Revenues of the Agricultural Division increased from $40.7 million in fiscal 1992 to $84.6 million in fiscal 1996, representing a compound annual growth rate of 20%. The growth in the Agricultural Division's revenues is almost entirely due to same store sales increases. The increase in same store sales is attributable to the continued implementation of the Company's operating model, as well as a favorable agricultural economy.
As full-service suppliers to farmers, the Company's agricultural stores offer a broad range of farm equipment and related products, with sales of new Deere equipment the primary focus. The Company also sells agricultural equipment supplied by other manufacturers which is complementary to the Deere lines, as well as used agricultural equipment taken as trade-ins. In addition, the agricultural stores offer lawn and grounds care equipment, primarily supplied by Deere. As part of its strategy to provide a full complement of product support services to its agricultural customers, the Company offers a broad range of replacement parts and fully-equipped service and repair facilities at each store.
GROWTH STRATEGY
In order to capitalize on industry consolidation trends, expand its market leadership position, and further develop its industrial and agricultural equipment operations, the Company has developed its growth strategy, the key elements of which are:
- INCREASING MARKET SHARE. The Company seeks to increase its market share by enhancing customer service and generating customer loyalty. With a larger installed base of equipment, the Company has the opportunity to generate additional parts and service business, which currently accounts for approximately 26% of the Company's total revenues and which has higher profit margins than wholegoods sales.
- PURSUING ADDITIONAL ACQUISITIONS. Acquisitions have been and will continue to be an important element of the Company's growth strategy, particularly given the consolidation trends among industrial and agricultural equipment dealers. Over the past five years, the Company has acquired 11 industrial stores and two agricultural stores from seven dealers. Due to its leadership position in the industry and its track record in completing and integrating acquisitions, the Company believes that attractive acquisition candidates will continue to become available to the Company. Approximately $34.4 million of the net proceeds of this Offering is expected to be used to finance future acquisitions, new stores, and internal growth. Completion of any prospective acquisition of a Deere dealership, or the opening of a new Deere store, requires Deere's consent. See "Risk Factors-- Risks Associated with Expansion" and "Business--Recent and Contemplated Acquisitions."
- IMPLEMENTING THE RDO OPERATING MODEL. The Company has developed a proven
operating model designed to improve the performance and profitability of
each of its stores. Components of this operating model include (i)
pursuing aggressive marketing programs, (ii) allowing store employees to
focus on customers by managing administrative functions, training, and
purchasing at the corporate level, (iii) providing a full complement of
parts and state-of-the-art service functions, including a computerized
real-time inventory system and quick response, on-site repair service,
(iv) motivating store level management in accordance with corporate goals,
and (v) focusing on cost structures at the store level.
- CAPITALIZING ON DIVERSITY OF OPERATIONS. A major focus of the Company's strategy is to expand its networks of industrial and agricultural stores into geographic areas that have a large base of construction or agricultural activity and that provide the Company with opportunities to continue to develop its store networks. The Company believes that its business diversification into both industrial and agricultural store operations has significantly increased its customer base, while also mitigating the effects of industry-specific economic cycles. Similarly, the Company's geographic diversification into regions outside the Midwest helps to diminish the effects of seasonality, as well as local and regional economic fluctuations. Typically, other Deere dealers operate only industrial or agricultural dealerships, with a limited number of stores concentrated in a specific geographic region.
RECENT ACQUISITIONS
The Company recently acquired three industrial stores and two agricultural stores, thereby extending the Company's store networks into Texas and Washington, which the Company believes will provide platforms for future growth. The Company recently completed the purchase of a Deere industrial dealership in Central Texas, with three stores located in the Dallas-Fort Worth and Waco, Texas metropolitan areas with a Deere area of responsibility covering the 35 surrounding counties (the "Central Texas Acquisition"). The Company also recently completed the acquisition of a Deere agricultural dealership, with two stores located in Pasco and Sunnyside, Washington (the "Washington Acquisition"). Completion of any prospective acquisition of a Deere dealership requires Deere's consent. See "Risk Factors--Risks Associated with Expansion" and "Business--Recent and Contemplated Acquisitions."
The Company was incorporated in North Dakota on March 13, 1968 and will be reincorporated in Delaware in January 1997. The Company's executive offices are located at 2829 South University Drive, Fargo, North Dakota 58109. The Company's phone number is (701) 237-7363.
THE OFFERING
Class A Common Stock
offered...................... 4,200,000 shares of Class A Common Stock
Common Stock to be outstanding
after this Offering
Class A Common Stock........ 5,091,508 shares(1)
Class B Common Stock........ 7,458,492 shares
---------
Total..................... 12,550,000 shares
---------
---------
Use of Proceeds............... The net proceeds from this Offering will be used (i) to
repay indebtedness incurred to finance recent acquisitions
in the aggregate amount of approximately $10.1 million,
(ii) to make an S corporation distribution in the amount of
approximately $15.0 million to the Company's existing
stockholders in connection with termination of the
Company's S corporation status, and (iii) to finance future
acquisitions, new stores, internal growth, and working
capital needs. See "Use of Proceeds," "S Corporation
Distributions," and "Certain Relationships and Related
Transactions."
Voting Rights................. The Class A Common Stock and Class B Common Stock vote
together as a single class on all matters, except as
otherwise required by law, with each share of Class A
Common Stock entitling its holder to one vote and each
share of Class B Common Stock entitling its holder to four
votes. All of the outstanding Class B Common Stock is held
by Ronald D. Offutt, the Company's Chairman, Chief
Executive Officer, and principal stockholder. Under certain
circumstances, Class B Common Stock automatically converts
into Class A Common Stock. See "Description of Capital
Stock-- Common Stock."
NYSE symbol................... RDO
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(1) Excludes 1,250,000 shares of Class A Common Stock reserved for issuance pursuant to the Company's stock incentive plan of which approximately 600,000 shares will be subject to options to be granted upon consummation of this Offering at an exercise price equal to the initial public offering price. See "Management--1996 Stock Incentive Plan."
SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(in thousands, except store and per share data)
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------
ACTUAL
------------------------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996 (1)(2)
----------- ----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Revenues..................................... $ 71,226 $ 105,378 $ 144,112 $ 183,910 $ 223,557 $ 265,478
Cost of sales................................ 56,422 83,548 116,369 148,111 180,839 212,824
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................................. 14,804 21,830 27,743 35,799 42,718 52,654
Selling, general, and administrative
expense..................................... 11,929 16,737 20,577 24,893 31,655 38,858
----------- ----------- ----------- ----------- ----------- -----------
Operating income............................. 2,875 5,093 7,166 10,906 11,063 13,796
Interest expense............................. (1,299) (1,284) (1,670) (1,895) (3,817) (1,584)
Interest income.............................. 173 376 336 802 823 1,031
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
Provision for income taxes(3)................ 700 1,674 2,332 3,925 3,228 5,297
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,049 $ 2,511 $ 3,500 $ 5,888 $ 4,841 $ 7,946
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income per share ............................................................................................. $ .63
-----------
-----------
Weighted average shares outstanding .............................................................................. 12,570
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sales increase.......... -- 12% 32% 25% 11% --
Stores open at beginning of period........... 15 17 21 22 22 22
Stores opened.............................. 1 0 0 0 2 2
Stores acquired............................ 1 4 1 0 2 7
----------- ----------- ----------- ----------- ----------- -----------
Stores open at end of period................. 17 21 22 22 26 31
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Capital expenditures......................... $ 561 $ 681 $ 627 $ 1,208 $ 9,993 $ 10,131
Depreciation................................. 504 584 668 690 1,326 1,653
NINE MONTHS ENDED OCTOBER 31,
---------------------------------------
ACTUAL
------------------------- PRO FORMA
1995 1996 1996 (1)(2)
----------- ----------- -----------
INCOME STATEMENT DATA:
Revenues..................................... $ 176,825 $ 229,260 $ 257,823
Cost of sales................................ 143,718 186,451 208,581
----------- ----------- -----------
Gross profit................................. 33,107 42,809 49,242
Selling, general, and administrative
expense..................................... 23,600 29,492 33,908
----------- ----------- -----------
Operating income............................. 9,507 13,317 15,334
Interest expense............................. (2,435) (4,116) (2,247)
Interest income.............................. 586 633 816
----------- ----------- -----------
Net income................................... $ 7,658 $ 9,834 $ 13,903
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 7,658 $ 9,834 $ 13,903
Provision for income taxes(3)................ 3,063 3,934 5,561
----------- ----------- -----------
Net income................................... $ 4,595 $ 5,900 $ 8,342
----------- ----------- -----------
----------- ----------- -----------
Net income per share ........................ $ .66
-----------
-----------
Weighted average shares outstanding ......... 12,555
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sales increase.......... 13% 23% --
Stores open at beginning of period........... 22 26 26
Stores opened.............................. 1 1 1
Stores acquired............................ 2 5 5
----------- ----------- -----------
Stores open at end of period................. 25 32 32
----------- ----------- -----------
----------- ----------- -----------
Capital expenditures......................... $ 9,674 $ 3,182 $ 3,328
Depreciation................................. 614 1,930 2,155
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AS OF OCTOBER 31, 1996
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA (4) AS ADJUSTED (2)(4)
--------- -------------- ------------------
BALANCE SHEET DATA:
Working capital................................... $ 20,778 $ 5,778 $ 65,278
Inventories....................................... 125,766 125,766 125,766
Total assets...................................... 176,712 177,562 177,562
Floor plan payables(5)............................ 100,612 100,612 66,212
Total debt........................................ 26,758 26,758 16,658
Stockholders' equity.............................. 34,284 20,134 79,634
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(SEE FOOTNOTES ON FOLLOWING PAGE)
NOTES TO SUMMARY COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
(1) Reflects adjustment to give effect to the Central Texas and the Washington Acquisitions as if such acquisitions had occurred February 1, 1995. The pro forma information is not necessarily indicative of the results that actually would have been achieved had such transactions been consummated as of February 1, 1995, or that may be achieved in the future. See "Selected Combined and Pro Forma Financial and Operating Data" and Pro Forma Unaudited Financial Statements and the Notes thereto.
(2) Adjusted to give effect to the sale of 4,200,000 shares of Class A Common Stock offered hereby at an assumed initial offering price of $15.50 per share and the application of the net proceeds therefrom. See "Use of Proceeds," "S Corporation Distributions," "Capitalization," Pro Forma Unaudited Financial Statements and the Notes thereto, and the Combined Financial Statements and the Notes thereto.
(3) For all periods presented, the Company was an S corporation and was not generally subject to corporate income taxes. The pro forma income tax provision has been computed as if the Company were subject to corporate income taxes for all periods presented based on the tax laws in effect during the respective periods. See "S Corporation Distributions" and the Combined Financial Statements and the Notes thereto.
(4) Adjusted to give effect to (i) the deferred tax asset of approximately $850,000 resulting from the termination of the Company's status as an S corporation, and (ii) the $15.0 million S corporation distribution to existing stockholders which will be paid out of the net proceeds of this Offering.
(5) Includes interest bearing and non-interest bearing liabilities incurred in connection with inventory financing. See Note 5 to the Combined Financial Statements.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE PURCHASING THE SHARES OF CLASS A COMMON STOCK OFFERED HEREBY.
DEPENDENCE UPON JOHN DEERE
The Company is an authorized dealer of John Deere industrial and
agricultural equipment and parts in its designated areas of responsibility and
at its store locations, and the Company's acquisition strategy contemplates the
acquisition of additional Deere areas of responsibility and store locations.
During fiscal 1996, approximately 72% of the Company's new equipment sales
represented sales of new equipment supplied by Deere and a majority of the
Company's sales from parts and service also were directly related to Deere
equipment. The Company depends on Deere for floor plan financing to finance a
substantial portion of its inventory. As of October 31, 1996, Deere and its
subsidiaries were financing approximately $89.1 million of the Company's
inventory of Deere equipment. See "Business--Floor Plan Financing." In addition,
Deere provides a significant percentage of the financing used by the Company's
customers to purchase Deere equipment from the Company. See "Business--Customer
Financing Options." Deere also provides incentive programs and discount programs
from time to time which enable the Company to price its products more
competitively. In addition, Deere conducts promotional and marketing activities
on national, regional, and local levels. Due to the Company's dependence on
Deere, the Company believes that its success depends, in significant part, on
(i) the overall success of Deere, (ii) the availability and terms of floor plan
financing and customer financing from Deere, (iii) the incentive and discount
programs provided by Deere and its promotional and marketing efforts for its
industrial and agricultural products, (iv) the goodwill associated with John
Deere trademarks, (v) the introduction of new and innovative products by Deere,
(vi) the manufacture and delivery of competitively-priced, high quality
equipment and parts by Deere in quantities sufficient to meet the requirements
of the Company's customers on a timely basis, and (vii) the quality,
consistency, and management of the overall Deere dealership system. If Deere
does not provide, maintain, or improve any of the foregoing, there could be a
material adverse effect on the Company's results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Dealership Agreements."
DEERE TERMINATION RIGHTS
Under the Deere Agreement, Deere has the right to terminate the Company's
dealer appointments immediately if Ronald D. Offutt, the Company's Chairman,
Chief Executive Officer, and principal stockholder, ceases to (i) own or control
in excess of 50% of the outstanding voting power, or whatever greater percentage
is required to control corporate actions that require a stockholder vote, and
(ii) own at least 35% of the outstanding Common Stock. Upon consummation of this
Offering, Mr. Offutt will own or control approximately 85.4% (83.9% if the
Underwriters' over-allotment option is exercised in full) of the outstanding
voting power of the Company and will own approximately 59.4% (56.6% if the
Underwriters' over-allotment option is exercised in full) of the Common Stock.
Deere also has a right to terminate the Company's dealer appointments in the
event of Mr. Offutt's death; however, Deere cannot exercise this right to
terminate if, at that time, (i) there is in place an ownership succession plan
approved by Deere, (ii) the Company and Deere have identified events which would
thereafter constitute changes of control of the Company entitling Deere to
terminate the dealer appointments, (iii) the Company and each of its stores are
under continuing management acceptable to Deere, (iv) there is no existing
breach and no grounds for termination exist with respect to any of the Company's
agreements with Deere, including the ownership requirements, and (v) Deere in
its sole discretion has determined that each of the Company's areas of
responsibility and store locations justifies the continuation of the Deere
appointment for such area or location. As of the date of this Prospectus, all of
these conditions would be met.
In addition, Deere is entitled to terminate the Company's dealer appointments on one year's notice if the equity-to-assets ratio of the Company's Deere dealer operations is below 25% as calculated by Deere based on the Company's fiscal year end audit, provided that the Company has not cured such deficiency within 180 days of such fiscal year end. Certain business operations and assets of the Company held in
wholly-owned subsidiaries, such as real estate and its irrigation and equipment rental businesses, are excluded from this calculation. In addition, without regard to any subsequent attempts to cure, upon one year's notice Deere may terminate dealer appointments for which the Company fails to meet certain performance criteria and market share objectives for each of its agricultural stores, including developing and achieving Deere-approved business plans. The Company's industrial operations also must maintain overall and core product market share and product support standards at a level greater than the level corresponding to the 50th percentile of all of Deere's United States industrial dealers and may be terminated upon one year's prior written notice without regard to any subsequent attempts to cure. Acquired operations that are performing below these levels at the time the acquisition is completed have a three-year grace period to meet these standards. As of the date of this Prospectus, Deere has advised the Company that, after excluding acquisitions that fall into such grace period, the Company's operations meet all of these performance criteria. In addition, Deere can terminate the Company's agricultural dealer appointments for cause or if Deere determines that there is not sufficient market potential to support a dealership in a particular location upon prior written notice to the Company of 180 days. The Company's dealer appointments terminate immediately upon the commencement of the dissolution or liquidation of the Company or a sale of a substantial part of the business, change in the location of a dealership without Deere's prior written consent, the withdrawal of a major stockholder or a substantial reduction in interest of a major stockholder, or a default under any security agreement with Deere. The appointments also may be terminated upon the revocation or discontinuance of any guaranty of Ronald D. Offutt or the Company to Deere, unless replaced by a letter of credit acceptable to Deere. See "Business--Personal Guaranty."
In the event of Mr. Offutt's death, Deere thereafter will have the right to
terminate the Company's dealer appointments upon the occurrence of a "change of
control." A "change of control" is defined for these purposes as (i) the sale,
lease, exchange, or other transfer of substantially all of the Company's assets,
(ii) a merger, consolidation, reorganization, or similar transaction in which
the Company's stockholders do not own more than 50% of the voting power of the
surviving entity (provided that if they own more than 50% but less than 80% of
the voting power, the merger must be approved by a majority of the directors who
were directors at the time of Mr. Offutt's death or subsequent directors whose
election has been approved by existing directors ("Continuity Directors")),
(iii) a vote by the stockholders to approve a transaction set forth in (i) or
(ii), (iv) the acquisition by a person other than Mr. Offutt or his heirs of 50%
or more of the voting power of the Company (20% if such acquisition has not been
approved by a majority of the Continuity Directors), (v) a change in the
corporate executive officers without Deere's approval, or (vi) if Continuity
Directors cease to constitute a majority of the Company's Board of Directors.
Termination of certain or all of the Company's Deere dealer appointments would have a material adverse effect on the results of operations and financial condition of the Company. See "Business-- Dealership Agreements."
DEERE DEALERSHIP AGREEMENTS--OTHER PROVISIONS
The Company operates its Deere industrial and agricultural stores pursuant to a master agreement with Deere (the "Deere Agreement") and pursuant to Deere's customary industrial or agricultural dealership agreements for each of the Company's industrial areas of responsibility and agricultural store locations. These agreements impose a number of restrictions and obligations on the Company with respect to its operations, including a prohibition on carrying industrial products which are competitive with Deere products, and an obligation to maintain suitable facilities, provide competent management, actively promote the sale of Deere equipment in the Company's designated areas of responsibility, fulfill the warranty obligations of Deere, provide service and maintain sufficient parts inventory to service the needs of its customers, maintain inventory in proportion to the sales potential in each of the Company's designated areas of responsibility, maintain adequate working capital, and maintain stores only in authorized locations. The Deere Agreement also provides that the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. In addition, Deere has the right to have input into the selection of the Company's management personnel, including store managers, and to have input with respect to the selection of
nominees to the Company's Board of Directors and the removal of directors. The prior consent of Deere is required for the opening of any store within the Company's designated areas of responsibility and for the acquisition of any other Deere dealership. There can be no assurance that any such consent will be given by Deere. See "Business--Dealership Agreements." In addition, the Company is prohibited from making acquisitions, initiating new business activity, paying dividends, repurchasing its capital stock, or making any other distributions to stockholders if the Company's equity to assets ratio is below 30%, as calculated by Deere under the Deere Agreement, or if such ratio would fall below 30% as a result of such action. The Company believes its equity-to-assets ratio as so calculated at the time of consummation of this Offering and at the end of fiscal 1997 will be at least 30%.
The Company's Deere dealer appointments are not exclusive. Deere could appoint other dealers in close proximity to the Company's existing stores. The areas of responsibility assigned to the Company's industrial dealerships can be reduced by Deere upon 120 days' prior written notice. In addition, the dealer agreements can be amended at any time without the Company's consent, so long as the same amendment is made to the dealer agreements of all other Deere dealers. Deere also has the right to sell directly to federal, state, and local governments, as well as national accounts. To the extent Deere appoints other dealers in the Company's markets, reduces the areas of responsibility relating to the Company's industrial stores, amends the dealer agreements, or sells substantial amounts of equipment directly to government entities and national accounts, the Company's results of operations and financial condition could be adversely affected.
EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS; CYCLICALITY, SEASONALITY, AND WEATHER
The Company's business, and particularly the sale of new equipment, is dependent on a number of factors relating to general economic conditions, including agricultural industry cycles, construction spending, federal, state, and local government spending on highways and other construction projects, new housing starts, interest rate fluctuations, economic recessions, customer business cycles, and customer confidence in the economy. Accordingly, the Company's financial condition and results of operations may be materially and adversely affected by any general downward economic pressures, or adverse cyclical trends. The ability to finance affordable purchases, of which the interest rate charged is a significant component, is an important part of a customer's decision to purchase equipment. Interest rate increases may make equipment purchases less affordable for customers and, as a result, the Company's revenues and profitability may decrease. To the extent the Company cannot pass on to its customers the increased costs of its own inventory financing resulting from increased interest rates, its net income also may decrease. As a result of all of the foregoing, the Company's results of operations have in the past and in the future are expected to continue to fluctuate from quarter to quarter and year to year.
The Company generally experiences lower levels of equipment sales during the period from November through April, impacting the first and fourth quarters of each fiscal year, due to the crop growing season and winter weather conditions in the Midwest. Typically, farmers purchase agricultural equipment immediately prior to planting or harvesting crops, which occurs during the Company's second and third fiscal quarters. As a result, sales of agricultural equipment generally are lower in the first and fourth fiscal quarters. Winter weather in the Midwest also limits construction to some degree and, therefore, also typically results in lower sales of industrial equipment in the first and fourth fiscal quarters. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company's results of operations have been and are expected to be affected by weather. Severe weather can adversely impact agricultural and construction activity, resulting in decreased demand for the Company's products and services and lost revenues. For example, the winter of 1995/1996 was extremely cold, with numerous record low temperatures set in both December 1995 and January 1996. As a result, customers in the Midwest did not buy wholegoods and equipment was not able to be moved for normal servicing. To the extent severe weather occurs, the Company's results of operations and financial condition could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH EXPANSION
The Company believes a significant portion of its future growth will depend on its ability to acquire additional dealerships, and the Company intends to use up to approximately $34.4 million of the net proceeds of this Offering to finance future acquisitions, new stores, and internal growth. In pursuing its acquisition strategy, the Company will face risks commonly encountered with growth through acquisitions. These risks include incurring significantly higher than anticipated capital expenditures and operating expenses, failing to assimilate the operations and personnel of acquired dealerships, disrupting the Company's ongoing business, dissipating the Company's management resources, failing to maintain uniform standards, controls, and policies, and impairing relationships with employees and customers as a result of changes in management. Realization of the full benefit of the Company's strategies, operating model, and systems as to an acquired dealership may take several years. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered with acquisitions, including the Company's recent and future acquisitions. To the extent the Company does not successfully avoid or overcome the risks or problems related to acquisitions, the Company's results of operations and financial condition could be adversely affected. Future acquisitions also will have a significant impact on the Company's financial position and capital needs, and could cause substantial fluctuations in the Company's quarterly and yearly results of operations. Acquisitions could include significant goodwill and intangible assets, resulting in substantial amortization charges to the Company that would reduce stated earnings. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business--Growth Strategy--Pursuing Additional Acquisitions."
Deere's consent is required for the acquisition of any Deere dealership or the opening of a new store, and, consequently, any prospective acquisition or new store opening will require Deere's consent. Deere typically evaluates management, performance, and capitalization of a prospective acquiror or existing Deere dealer, as the case may be, in determining whether to consent to the sale of a Deere dealership or approve the opening of a new store. While the Company believes that its management, operational history, acquisition history, and capitalization allow it to compete effectively for the acquisition of additional areas of responsibility and stores and to grow by opening new stores, there can be no assurance that Deere will allow ownership concentration of Deere dealerships beyond a certain level. Although the Company believes that Deere wants fewer, better capitalized dealers to achieve higher sales and better customer service, there can be no assurance that Deere will approve any or all future acquisitions or the opening of new stores proposed by the Company. See "Business--Dealership Agreements."
MANAGEMENT OF GROWTH
The Company has grown significantly in recent years and is expected to continue to grow through acquisitions, opening new stores, and internal growth. Management has expended, and expects to continue to expend, significant time and effort in evaluating, completing, and integrating acquisitions, opening new stores, and supporting internal growth. There can be no assurance that the Company's systems, procedures, and controls will be adequate to support the Company's operations as they expand. Any future growth also will impose significant added responsibilities on members of senior management, including the need to identify, recruit, and integrate new senior level managers and executives. There can be no assurance that such additional management will be identified and retained by the Company. If the Company is unable to manage its growth efficiently and effectively, or is unable to attract and retain additional qualified management, there could be a material adverse effect on the Company's financial condition and results of operations.
AVAILABILITY OF ACQUISITION CANDIDATES; NEED FOR ADDITIONAL CAPITAL
The Company's ability to continue to grow through the acquisition of additional Deere areas of responsibility and store locations or other businesses will be dependent upon (i) the availability of suitable acquisition candidates at an acceptable cost, (ii) receiving Deere approval of acquisitions as required or appropriate, (iii) the Company's ability to compete effectively for available acquisition candidates, and (iv) the availability of capital to complete the acquisitions. Expansion of the Company through new store
openings and internal growth also will require significant capital expenditures. The Company intends to use up to $34.4 million of the net proceeds of this Offering to finance acquisitions, new stores, and internal growth. If additional financing for those purposes is necessary, the Company intends to finance growth with cash generated from operations, through the incurrence or assumption of indebtedness, and through issuances of Class A Common Stock, Preferred Stock, other forms of equity, or debt securities. Using cash to finance acquisitions, new stores, and internal growth could substantially limit the Company's financial flexibility, using debt could result in financial covenants that limit the Company's operating and financial flexibility, and using equity may result in significant dilution of the interest in the Company of the stockholders at that time. The use of cash, debt, or equity to finance acquisitions, new stores, and internal growth also could be limited by provisions in the Deere Agreement, which gives Deere the right to terminate the Company's dealer appointments if Mr. Offutt ceases to (i) own or control in excess of 50% of the outstanding voting power, or whatever greater percentage is required to control corporate actions requiring a stockholder vote, and (ii) own at least 35% of the outstanding Common Stock, and which requires that the Company meet the required equity-to-asset ratio upon completion of each acquisition. The Deere Agreement also provides that the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. See "Business--Dealership Agreements." In addition, there can be no assurance that the Company will be able to obtain additional capital on acceptable terms. If the Company is unable to obtain additional capital on acceptable terms, the Company's acquisition activities, new store openings, and internal growth may be limited. See "Management's Discussion and Analysis of Financial Condition and Results of Operation-- Liquidity and Capital Resources." In addition, there can be no assurance that Deere will consent to any future acquisition. To the extent the Company is limited in its ability to make acquisitions, open new stores, or to grow internally for any reason, the Company's growth, financial condition, and results of operations could be adversely affected.
SUBSTANTIAL INVENTORY FINANCING REQUIREMENTS
The sale of industrial and agricultural equipment requires substantial inventories of equipment and parts to be maintained at each store in order to facilitate sales to customers on a timely basis. The Company generally purchases its inventories of Deere equipment with the assistance of floor plan financing programs through Deere. Inventories of products from other suppliers generally are financed through a line of credit with Ag Capital Company ("Ag Capital"), a cooperative lending institution which is controlled by Ronald D. Offutt, the Company's Chairman, Chief Executive Officer, and principal stockholder, or through floor financing programs offered by such suppliers. As the Company grows, whether through acquisitions, opening new stores, or internal growth, its inventory requirements will increase and, as a result, the Company's financing requirements also will increase. In the event that the Company's available financing sources are not sufficient to satisfy its future requirements, the Company would be required to obtain additional financing from other sources. While the Company believes that it could obtain additional financing or alternative financing if required, there can be no assurance that such financing could be obtained on commercially reasonable terms. To the extent such additional financing cannot be obtained on commercially reasonable terms, the Company's growth and results of operations could be adversely affected. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources," "Business--Floor Plan Financing," and "Certain Relationships and Related Transactions."
COMPETITION
The Company anticipates that both its industrial and agricultural operations will continue to face strong, and perhaps increasing, competition. The Company's industrial stores compete with distributors of industrial equipment from suppliers other than Deere such as Case Corporation ("Case"), Caterpillar Inc. ("Caterpillar"), and Komatsu Corporation ("Komatsu"). The Company's agricultural stores compete with distributors of agricultural equipment from suppliers such as Agco Corporation ("Agco"), Case, and New Holland, N.V., a subsidiary of Fiat ("New Holland"). Some of these competitors may be larger and have substantially greater capital resources than the Company. The Company's stores also compete to a degree
with other Deere dealerships. Competition among distributors of equipment can be intense and is primarily based on the price, value, reputation, quality, and design of the products offered by the dealer, the customer service and equipment servicing provided by the dealer, and the accessibility of stores. Although the Company believes that it is competitive in all of these categories, there can be no assurance that the Company will remain competitive in general or in any particular area in which the Company has operations. To the extent Deere's competitors provide their distributors with more innovative and/or higher quality products, better pricing, or more favorable customer financing, or have more effective marketing efforts, the Company's ability to compete and financial condition and results of operations could be adversely affected. In addition, to the extent Deere's products are not as competitive or in demand as those of suppliers not used by the Company, the Company's results of operations could be adversely affected. With respect to industrial equipment rental operations, there are a number of significant competitors, including Deere, which participates in a rental joint venture with operations in Arizona and California. See "Business--Competition."
DEPENDENCE UPON KEY PERSONNEL
The Company believes its success depends, in large part, upon the continued services of Ronald D. Offutt, Chairman and Chief Executive Officer, Paul T. Horn, President and Chief Operating Officer, and Allan F. Knoll, Chief Financial Officer. The loss of any of these individuals could materially and adversely affect the Company. Since October 1, 1996, Mr. Horn has been devoting his full-time to the Company. Messrs. Offutt and Knoll will continue to spend approximately 25% of their time on Company-related activities, with the balance of their time spent on activities for R. D. Offutt Company ("Offutt Co.") and other entities wholly or substantially owned, controlled, and/or managed by Mr. Offutt (collectively, the "Offutt Entities"). Messrs. Horn and Knoll also are stockholders and serve as officers and directors of Offutt Co. and many of the Offutt Entities. See "Management" and "Certain Relationships and Related Transactions."
CERTAIN TRANSACTIONS WITH AFFILIATES AND POTENTIAL CONFLICTS OF INTEREST
The Company has engaged in, and expects to continue to engage in, business transactions with various Offutt Entities, including, among others, sales of agricultural equipment and parts, leasing of real estate, corporate support services, floor plan financing, and customer financing. The Company had sales of equipment and related parts and services to the Offutt Entities in the aggregate amounts of $1.9 million, $3.5 million, $5.5 million, and $4.9 million in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. Ag Capital and another Offutt Entity provide the Company with financing for a portion of its working capital needs, primarily inventory financing for non-Deere equipment. Interest on such financings typically is at the prime rate as it varies from time to time. Interest paid to Offutt Entities for inventory financing totalled $771,000, $627,000, $849,000, and $829,000 in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. The total amount outstanding under these inventory financing arrangements at October 31, 1996 was $9.4 million. In addition, the amount of customer financing provided by Offutt Entities as of January 31, 1994, 1995, and 1996, and as of October 31, 1996 was $12.2 million, $24.3 million, $32.8 million, and $43.8 million, respectively. The Offutt Entities will continue to purchase equipment, parts, and services from the Company and provide financing to the Company and its customers following this Offering. The Company receives certain corporate support services from various Offutt Entities, including office space for its executive offices, use of conference and meeting facilities, use of an aircraft for Company business, administration of the Company's 401(k) plan and other employee benefits, and certain real estate management services. The Company has historically paid for such services based on its pro rata usage compared to the usage of other Offutt Entities or at a fixed charge. Charges for such services totalled $48,000, $56,000, $77,000, and $94,000, in fiscal 1994, 1995, 1996, and the nine months ended October 31, 1996, respectively. Upon consummation of this Offering, all such services will be provided to the Company pursuant to a three-year Corporate Services Agreement and the cost of such services to the Company will be on the same basis as in prior years. The Company believes that all of these transactions were made on terms no less favorable to the Company than could have been obtained from unaffiliated third parties. All future transactions
between the Company and any of the Offutt Entities or the Company's officers, directors, principal stockholder, or their affiliates will be approved both by a majority of all members of the Company's Board of Directors and by a majority of the independent and disinterested outside directors, and will continue to be on terms believed to be no less favorable to the Company than could be obtained from unaffiliated third parties. Messrs. Offutt, Horn, and Knoll also are stockholders and serve as officers and directors of various Offutt Entities, which may present a conflict of interest when the Company enters into transactions with an Offutt Entity. See "Certain Relationships and Related Transactions."
CONTROL BY RONALD D. OFFUTT
The Company's outstanding voting capital stock consists of Class A Common Stock and Class B Common Stock. Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to four votes per share. Upon consummation of this Offering, Ronald D. Offutt, the Company's Chairman, Chief Executive Officer, and principal stockholder, will own 100% of the outstanding Class B Common Stock representing approximately 85.4% of the outstanding voting power of the Common Stock (approximately 83.9% if the Underwriters' over-allotment option is exercised in full). Under the Deere Agreement, Deere has the right to terminate the Company's dealer appointments if Mr. Offutt ceases to (i) own or control in excess of 50% of the outstanding voting power, or whatever greater percentage is required to control corporate actions that require a stockholder vote, and (ii) own at least 35% of the outstanding Common Stock. As a result of such voting control, Mr. Offutt will have the power to control the Company, including the election of all of the directors of the Company, the determination of matters requiring stockholder approval, and other matters pertaining to corporate governance. Such voting concentration may have the effect of discouraging, delaying, or preventing a change of control, including transactions in which the holders of Class A Common Stock might otherwise receive a premium for their shares over the then-current market price. Mr. Offutt will also have sufficient voting power to take stockholder action by written consent, without a stockholder meeting. See "Principal Stockholders" and "Description of Capital Stock."
PRODUCT LIABILITY RISK
Products sold or serviced by the Company may expose it to potential liabilities for personal injury or property damage claims relating to the use of such products. Although product liability claims historically have not had a material adverse effect upon the Company, there can be no assurance that the Company will not be subject to or incur any liability for such claims in the future. While the Company maintains third-party product liability insurance which it believes to be adequate, there can be no assurance that the Company will not experience claims in excess of its insurance coverage, or claims which are ultimately not covered by insurance or for which manufacturers do not provide indemnity. There also can be no assurance that such insurance will continue to be available on economically reasonable terms. An uninsured or partially insured claim for which indemnification is not provided could have a material adverse effect on the financial condition of the Company. Furthermore, if any significant claims are made against the Company or against Deere or any of the Company's other suppliers, the Company's business may be adversely affected by any resulting negative publicity. See "Business--Product Liability and Legal Proceedings."
GOVERNMENT REGULATION
The Company is subject to numerous federal, state, and local rules and regulations, including regulations promulgated by the Environmental Protection Agency and similar state agencies with respect to storing, shipping, disposing, discharging, and manufacturing hazardous materials and hazardous and non-hazardous waste. These activities are associated with the repair and maintenance of equipment at the Company's facilities. Currently, none of the Company's stores or operations exceeds small quantity generation status. Although the Company believes that its operations are in material compliance with current laws and regulations, including environmental laws and regulations, there can be no assurance that current regulatory requirements will not change, that unforeseen environmental incidents will not occur, or
that past contamination or non-compliance with environmental laws will not be discovered on properties on which the Company is or has been located. See "Business--Environmental Standards and Government Regulations."
S CORPORATION STATUS; USE OF PROCEEDS
Beginning November 1, 1989 and continuing until the consummation of this Offering, the Company has elected to be treated as an S corporation under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"). As a result, the Company's stockholders have been directly subject to tax on the income of the Company for federal, state, and certain local income tax purposes. The Company will use approximately $15.0 million of the net proceeds of this Offering to make a distribution to its existing stockholders of substantially all of the previously undistributed accumulated net income of the Company as of January 31, 1996 with respect to which such stockholders have previously paid taxes. Upon consummation of this Offering, the Company will be taxed as a C corporation and similar distributions will not be made to the purchasers of Class A Common Stock in this Offering. Additionally, while the Company believes that it has met the S corporation requirements and, as of the date of this Prospectus, the Internal Revenue Service (the "IRS") has not challenged the Company's S corporation status, if, for any reason, the Company were subsequently determined by the IRS not to have met S corporation requirements, the Company could be liable to pay federal corporate taxes on its income at the effective federal corporate tax rate for all or a part of the period from November 1, 1989 through the consummation of this Offering, plus interest and possibly penalties. See "S Corporation Distributions" and "Certain Relationships and Related Transactions."
ANTI-TAKEOVER MEASURES; POSSIBLE ISSUANCES OF PREFERRED STOCK
Under the Deere Agreement, Deere has the right to terminate the Company's
dealer appointments if Mr. Offutt ceases to (i) own or control in excess of 50%
of the outstanding voting power, or whatever greater percentage is required to
control corporate actions that require a stockholder vote, and (ii) own at least
35% of the outstanding Common Stock. Further, in the event of Ronald D. Offutt's
death, Deere also will have the power to terminate the Company's dealer
appointments upon the occurrence of a "change of control." See "--Deere
Termination Rights." These restrictions may effectively prevent a third party
from acquiring a substantial portion or a majority of the Company's outstanding
capital stock without Deere's consent. In addition, pursuant to the Company's
Certificate of Incorporation, the Board of Directors is authorized to issue up
to 500,000 shares of Preferred Stock and fix the rights, preferences,
privileges, and restrictions, including voting rights, of such shares without
any further vote or action by the stockholders. See "Description of Capital
Stock--Preferred Stock." The rights of the holders of Class A Common Stock will
be subject to, and may be adversely affected by, the rights of the holders of
any Preferred Stock that may be issued in the future. The issuance of any shares
of Preferred Stock may result in significant dilution of the interest in the
Company of the holders of Common Stock at that time. While the Company has no
present intention to issue shares of Preferred Stock, any such issuance could
make it more difficult for a third party to acquire a majority of the
outstanding voting power of the Company. Stockholders also do not have the right
of cumulative voting for the election of directors. The ownership interest and
voting control by Mr. Offutt, the requirements in the Deere Agreement, the
ability of the Board of Directors to issue shares of Preferred Stock without
further vote or action by the stockholders, and other provisions in the
Company's Certificate of Incorporation may discourage, delay, or prevent a
change of control of the Company without further action by the stockholders,
and, consequently, also could adversely affect the market price of the Class A
Common Stock. The Company also is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law (the "DGCL"), which could
have the effect of delaying or preventing a change of control of the Company.
See "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares of Class A Common Stock (including shares issued upon the exercise of stock options) in the public market after consummation of this Offering, or the perception that such sales could occur,
could materially and adversely affect the market price of the Class A Common Stock. Such sales also might make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price that the Company would deem appropriate. Upon the consummation of this Offering, the Company will have 12,550,000 shares of Class A Common Stock outstanding, or issuable upon conversion of the 7,458,492 outstanding shares of Class B Common Stock, of which the shares offered hereby will be tradeable without restriction unless they are purchased by an affiliate of the Company. Shares of Common Stock outstanding prior to consummation of this Offering will be "restricted securities" within the meaning of the Securities Act of 1933, as amended (the "Securities Act"). These "restricted securities" and any shares purchased by affiliates of the Company in this Offering may be sold only if they are registered under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act, including Rule 144. The Company and the holders of approximately 8,350,000 shares of Common Stock have agreed not to sell, otherwise dispose of, or pledge such shares for 180 days after the date of this Prospectus without the prior written consent of Credit Suisse First Boston Corporation. After expiration of the lock-up agreements, an aggregate of 7,924,716 shares of Class A Common Stock will be available for sale in the public market, including 7,033,208 shares of Class A Common Stock into which shares of Class B Common Stock are convertible on a one-for-one basis, subject in certain cases to volume and manner of sale limitations. The remaining 425,284 shares of Common Stock held by existing stockholders will become eligible for public resale at various times over a period of less than two years following the consummation of this Offering, subject to volume and manner of sale limitations pursuant to Rule 144. In addition, the Company intends to file a registration statement under the Securities Act to register an aggregate of 1,250,000 shares of Class A Common Stock reserved for issuance under the Company's 1996 Stock Incentive Plan (the "Incentive Plan"). The Company intends to grant options to purchase approximately 600,000 shares of Class A Common Stock prior to consummation of this Offering at an exercise price equal to the initial public offering price. The issuance of such shares could result in the dilution of the voting power of the shares of Class A Common Stock purchased in this Offering and could have a dilutive effect on earnings per share. See "Management--1996 Stock Incentive Plan," "Description of Capital Stock," "Shares Eligible for Future Sale," and "Underwriting."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, no public market for the Common Stock existed. Although the Class A Common Stock has been approved for listing on the NYSE, there can be no assurance that an active trading market will develop or be sustained following this Offering. The initial public offering price of the Class A Common Stock offered hereby will be determined through negotiations between the Company and the representatives of the Underwriters. See "Underwriting." The market price for the Class A Common Stock may be volatile and subject to fluctuations resulting from news announcements concerning the Company, quarterly operating results, the markets for industrial or agricultural equipment, announcements by Deere or other suppliers of equipment to the Company or by competitive manufacturers, analyst recommendations, general securities market conditions, and other factors. The stock market in general, and the market for shares of small capitalization stocks in particular, have experienced significant price and volume fluctuations that often have been unrelated to the operating performance of particular companies. These market fluctuations may adversely affect the market price of the Class A Common Stock and the negotiated initial public offering price may not be indicative of future market prices of the Class A Common Stock.
DILUTION
Purchasers of shares of the Class A Common Stock offered hereby (at an assumed initial public offering price of $15.50 per share) will experience immediate and substantial dilution of the net tangible book value of the Class A Common Stock in the amount of $9.67 per share from the initial public offering price. The net tangible book value per share of the Class A Common Stock represents the amount of the Company's tangible assets less liabilities divided by the number of shares of Common Stock outstanding. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 4,200,000 shares of Class A Common Stock offered hereby (at an assumed initial public offering price of $15.50 per share and after deducting estimated underwriting discounts and commissions and offering expenses) are estimated to be approximately $59.5 million ($68.6 million if the Underwriters' over-allotment option is exercised in full).
The Company plans to use a portion of the net proceeds of this Offering to pay the purchase price and repay indebtedness incurred in connection with recently completed acquisitions, in the aggregate amount of approximately $10.1 million, including (i) a promissory note in the amount of $8.4 million, payable by the Company to Ag Capital, which bears interest at the prime rate (8.25% as of December 31, 1996) and matures on February 28, 1997, incurred in connection with the Central Texas Acquisition, and (ii) a promissory note in the amount of $1.7 million, payable by the Company to Ag Capital, which bears interest at the prime rate and matures February 28, 1997, incurred in connection with the Washington Acquisition. See "Certain Relationships and Related Transactions." The Company also plans to use a portion of the net proceeds of this Offering to pay an aggregate distribution of approximately $15.0 million to the existing stockholders of the Company of substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996. See "S Corporation Distributions."
The Company plans to use the balance of the net proceeds of approximately $34.4 million ($43.5 million if the Underwriters' over-allotment option is exercised in full) to finance future acquisitions, new stores, and internal growth and for other general corporate purposes, including working capital. The Company intends to continue to evaluate acquisition opportunities as they arise and expects that future acquisitions primarily will consist of existing Deere agricultural and industrial dealers. The Company also may consider acquisitions of complementary businesses, such as equipment rental operations. The Company has entered into a letter of intent to acquire certain assets of an industrial equipment rental company with five locations in Arizona. If this contemplated acquisition is completed, the Company would expect to use approximately $2.4 million of the net proceeds of this Offering and assume certain liabilities. See "Business--Recent and Contemplated Acquisitions." This contemplated acquisition is subject to a number of conditions, including the negotiation and execution of a definitive agreement and the completion of due diligence. There can be no assurance that such conditions will be fulfilled or that the contemplated acquisition will be consumated.
The Company currently is not a party to any other agreement or understanding with respect to other possible acquisitions.
Pending such uses, the net proceeds of this Offering will be used to reduce borrowings under the Company's lines of credit, including its floor plan financing with Deere or indebtedness to Ag Capital, each of which bears interest at the prime rate (8.25% as of December 31, 1996).
S CORPORATION DISTRIBUTIONS
The Company has elected to be taxed as an S corporation since November 1, 1989 and its S corporation election will continue until the consummation of this Offering. Consequently, the stockholders of the Company have been paying the federal and state income taxes on the Company's taxable income directly for all periods during which the Company has been an S corporation and will continue paying or accruing such tax liability while the Company remains an S corporation. Prior to fiscal 1997, a portion of the net income of the Company was distributed to the stockholders, primarily to enable them to pay the tax liability incurred by them in connection with the Company's taxable income. Distributions declared to date in fiscal 1997 approximate the net income of the Company for that period. Dividends declared and paid for the fiscal years ended January 31, 1994, 1995, 1996, and during the nine-month period ended October 31, 1996 aggregated approximately $2.3 million, $3.8 million, $4.3 million, and $7.5 million, respectively, and dividends declared but unpaid as of October 31, 1996 were $2.2 million. This amount, plus net income before taxes for the fourth quarter of fiscal 1997, which is estimated to be approximately $900,000, is
expected to be distributed to the existing stockholders prior to the consummation of this Offering. Purchasers of Class A Common Stock in this Offering will not receive any of these distributions.
Simultaneously with the consummation of this Offering, the Company will pay to its existing stockholders from the net proceeds of this Offering an additional aggregate distribution of approximately $15.0 million, which represents a distribution to such stockholders of substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996 with respect to which such stockholders have previously paid taxes. This distribution, which will coincide with the termination of the Company's S corporation election, will allow the existing stockholders of the Company to receive this accumulated net income without having to pay additional taxes on such amounts. Purchasers of Class A Common Stock in this Offering will not receive any of these distributions. The Company will enter into a tax agreement with its existing stockholders prior to the consummation of this Offering which will provide that, to the extent undistributed taxable income of the Company, as subsequently established in connection with the filing of the Company's tax return for the Company's last S corporation tax year, is less than these distributions, such stockholders will make a payment equal to such difference to the Company, and if such undistributed taxable income is greater than these dividends, the Company will make an additional distribution equal to such difference to such stockholders. This agreement will also provide that the Company will indemnify its existing stockholders against additional income taxes resulting from adjustments made (as a result of a final determination made by a competent tax authority) to the taxable income reported by the Company as an S corporation for periods prior to termination of the S corporation status, but only to the extent those adjustments provide a tax benefit to the Company.
Because the Company has used a fiscal year rather than a calendar year for its taxable year during its existence as an S corporation, the Company has made required payments to the IRS under Section 444 of the Internal Revenue Code. As of October 31, 1996, the payments held on deposit totalled approximately $570,000, which amount will be refunded to the Company.
The Company has elected to allocate its taxable income on the basis of closing its books effective the end of business on the day before the termination of its S corporation status. Upon termination of its S corporation status, the Company will become subject to income taxation and, in connection therewith, the Company will record an asset of approximately $850,000 for deferred income taxes on its balance sheet. See Note 8 to the Combined Financial Statements.
REINCORPORATION
The Company, originally incorporated in North Dakota in 1968, was reincorporated in Delaware effective in January 1997. Concurrently with the reincorporation, the Company also completed a 44.5-for-one stock split and share exchange so that each existing stockholder other than Mr. Offutt received 44.5 shares (a total of 891,508 shares) of Class A Common Stock, and Mr. Offutt received 44.5 shares (a total of 7,458,492 shares) of Class B Common Stock, of the new Delaware corporation for each share of the North Dakota corporation.
DIVIDEND POLICY
Following the consummation of this Offering, the Company's Board of Directors intends to retain the earnings of the Company, if any, to support the Company's operations and to finance expansion, and it does not intend to pay cash dividends on the Common Stock in the foreseeable future. Any future determination as to the payment of dividends will be at the discretion of the Board of Directors and will depend on the Company's financial condition, results of operations, capital requirements, dividend restrictions under its agreements with Deere or with any other credit provider, and such other factors as the Board of Directors may deem relevant. No dividends may be declared or paid on any share of either class of Common Stock, unless such dividend, at the same rate per share, is simultaneously declared or paid on each share of the other class of Common Stock.
Under the Deere Agreement, the Company is prohibited from paying any dividends, effecting any capital stock repurchase, or making any other distributions to stockholders if the equity-to-assets ratio of the Company's Deere dealer operations is below 30% as calculated by Deere or would be below such percentage as a result of such dividend, repurchase, or distribution. For purposes of making this calculation, certain business operations and assets of the Company held in wholly-owned subsidiaries, such as its real estate and its irrigation and rental businesses, are excluded.
Because the Company has been and will be an S corporation until the consummation of this Offering, a portion of the net income of the Company has been distributed from time to time to its existing stockholders as a dividend primarily to cover the taxes payable by such stockholders with respect to the Company's taxable income. In addition, dividends declared but unpaid as of October 31, 1996 were $2.2 million. This amount, plus net income before taxes for the fourth quarter of fiscal 1997, which is estimated to be approximately $900,000, is expected to be distributed to the existing stockholders prior to consummation of this Offering. An additional distribution of approximately $15.0 million will be paid to the existing stockholders from the net proceeds of this Offering simultaneously with the consummation of this Offering, representing substantially all of the previously undistributed, accumulated net income of the Company as of January 31, 1996 with respect to which stockholders have already paid taxes. Purchasers of shares of Class A Common Stock in this Offering will not receive any of these distributions. See "S Corporation Distributions."
DILUTION
The pro forma net tangible book value of the Common Stock as of October 31, 1996 was $13.6 million or $1.63 per share, after giving pro forma effect to the Central Texas and the Washington Acquisitions, the 44.5-for-one stock split in connection with the reincorporation of the Company, and the $15.0 million S corporation distribution to the existing stockholders. See Pro Forma Unaudited Financial Statements and the Notes thereto.
Net tangible book value dilution per share represents the difference between the amount per share paid by purchasers of shares of Class A Common Stock in this Offering and the pro forma net tangible book value per share of the Common Stock (both Class A and Class B) immediately after consummation of this Offering. After giving effect to the sale of 4,200,000 shares of Class A Common Stock in this Offering at an assumed initial public offering price of $15.50 per share and the application of the estimated net proceeds therefrom, the pro forma net tangible book value of the Company as of October 31, 1996 would have been $73.1 million, or $5.83 per share. See "Use of Proceeds" and "S Corporation Distributions." This represents an immediate increase in net tangible book value of $4.20 per share to existing stockholders of the Company and an immediate dilution in net tangible book value of $9.67 per share to purchasers of Class A Common Stock in this Offering, as illustrated in the following table:
Initial public offering price per share of Class A Common
Stock....................................................... $ 15.50
Pro forma net tangible book value per share before this
Offering................................................. $ 1.63
Increase per share attributable to new investors........... 4.20
---------
Pro forma net tangible book value per share after this
Offering.................................................... 5.83
---------
Dilution per share to new investors(1)....................... $ 9.67
---------
---------
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(1) Excludes 1,250,000 shares of Class A Common Stock reserved for issuance under the Incentive Plan, of which approximately 600,000 shares will be subject to options to be granted prior to consummation of this Offering at an exercise price equal to the initial public offering price. See "Management--1996 Stock Incentive Plan."
The following table summarizes, on a pro forma basis as of October 31, 1996, the difference between the existing stockholders and the purchasers of shares of Class A Common Stock in this Offering (at an assumed offering price of $15.50 per share) with respect to the number of shares of Common Stock purchased from the Company, the total consideration paid therefor to the Company, and the average price per share paid by the existing stockholders and by purchasers of shares of Class A Common Stock in this Offering:
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
Existing stockholders(1)....... 8,350,000 66.5% $ 16,300,000 20.0% $ 1.95
New investors.................. 4,200,000 33.5 65,100,000 80.0 15.50
------------ ----- ------------- -----
Total(2)................... 12,550,000 100.0% $ 81,400,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
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(1) Includes both Class A and Class B Common Stock purchased by existing stockholders. See "Principal Stockholders" for information on ownership by the existing stockholders, directors, and executive officers.
(2) Excludes 1,250,000 shares of Class A Common Stock reserved for issuance under the Incentive Plan, of which approximately 600,000 shares will be subject to options to be granted prior to consummation of this Offering at an exercise price equal to the initial public offering price. See "Management--1996 Stock Incentive Plan."
CAPITALIZATION
The following table sets forth the actual and pro forma capitalization of the Company as of October 31, 1996, and as adjusted to give effect to the sale of shares of Class A Common Stock offered hereby and the application of the net proceeds therefrom as described under "Use of Proceeds," which includes an S corporation distribution to the existing stockholders. See "S Corporation Distributions." The capitalization table excludes $100.6 million ($66.2 million on a pro forma as adjusted basis) of floor plan payables, a portion of which is interest bearing. Such payables are used to finance the Company's inventory purchases. See Note 5 to the Combined Financial Statements.
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED
----------- ------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Notes payable and long-term debt(1):
Banks and others.......................................... $ 11,020 $ 11,020 $ 11,020
Affiliates................................................ 15,738(3) 15,738 5,638
----------- ------------- -------------
Total debt.............................................. 26,758 26,758 16,658
----------- ------------- -------------
Less short-term notes and current maturities of long-term
debt....................................................... (15,928) (15,928) (5,828)
----------- ------------- -------------
Net long-term debt...................................... 10,830 10,830 10,830
----------- ------------- -------------
Stockholders' equity:
Preferred stock, no par value, 500,000 shares authorized;
none outstanding........................................ -- -- --
Class A Common Stock, $.01 par value, 20,000,000 shares
authorized; 891,508 shares issued and outstanding,
actual and pro forma; 5,091,508 shares issued and
outstanding, as adjusted................................ 9 9 51
Class B Common Stock, $.01 par value, 7,500,000 shares
authorized; 7,458,492 shares issued and outstanding,
actual, pro forma, and as adjusted...................... 75 75 75
Additional paid-in capital................................ 16,216 16,216 75,674
Retained earnings......................................... 17,984 3,834 3,834
----------- ------------- -------------
Total stockholders' equity............................ 34,284 20,134 79,634
----------- ------------- -------------
Total capitalization.................................. $ 45,114 $ 30,964 $ 90,464
----------- ------------- -------------
----------- ------------- -------------
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(1) See Note 6 to the Combined Financial Statements for information regarding outstanding notes payable and long-term debt.
(2) Adjusted to give effect to (i) the deferred tax asset of approximately $850,000 resulting from the termination of the Company's status as an S corporation, and (ii) the $15.0 million S corporation distribution to existing stockholders which will be paid out of the net proceeds of this Offering.
(3) Includes $10.1 million of notes issued to Ag Capital in connection with the consummation of the Central Texas and Washington Acquisitions, which notes will be repaid from the net proceeds of this Offering.
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
The following Selected Combined and Pro Forma Financial and Operating Data relating to the Company have been taken or derived from the Combined Financial Statements and other records of the Company. The selected financial data for the fiscal year ended January 31, 1996 have been derived from combined financial statements which have been audited by Arthur Andersen LLP, independent public accountants. The selected financial data for each of the four years in the period ended January 31, 1995 have been derived from combined financial statements which have been audited by Eide Helmeke PLLP, independent public accountants. The selected financial data for the nine months ended October 31, 1995 and 1996 have been derived from unaudited interim financial statements, for those periods, which have been prepared on the same basis as the audited financial statements and, in the opinion of management, include all adjustments which are necessary for a fair statement of the results of the interim period, and all such adjustments are of a normal recurring nature. The financial and operating data presented below may not be comparable between periods in all material respects or indicative of the Company's future financial position or results of operations due primarily to acquisitions which occurred during the periods presented, or subsequent thereto, including the Central Texas and the Washington Acquisitions. The selected financial and operating data for the nine months ended October 31, 1996 are not necessarily indicative of the results to be expected for the fiscal year ending January 31, 1997. The pro forma financial statements are provided for informational purposes only and should not be construed to be indicative of the Company's results of operations had the acquisitions been consummated on the dates assumed and do not project the Company's results of operations for any future period. The Selected Combined and Pro Forma Financial and Operating Data should be read in conjunction with the Company's Combined Financial Statements and the Notes thereto and Pro Forma Unaudited Financial Statements and the Notes thereto and other financial information included elsewhere in this Prospectus. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SELECTED COMBINED AND PRO FORMA FINANCIAL AND OPERATING DATA
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------------------------------------------------
ACTUAL
------------------------------------------------------------------- PRO FORMA
1992 1993 1994 1995 1996 1996(1)(2)
----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT STORE AND PER SHARE DATA)
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales........................... $ 49,097 $ 73,516 $ 106,600 $ 135,704 $ 164,054 $ 192,760
Parts and service.......................... 22,129 31,862 37,512 48,206 58,998 72,213
Rental..................................... -- -- -- -- 505 505
----------- ----------- ----------- ----------- ----------- -----------
Total revenues........................... 71,226 105,378 144,112 183,910 223,557 265,478
Cost of sales................................ 56,422 83,548 116,369 148,111 180,839 212,824
----------- ----------- ----------- ----------- ----------- -----------
Gross profit................................. 14,804 21,830 27,743 35,799 42,718 52,654
Selling, general, and administrative
expense..................................... 11,929 16,737 20,577 24,893 31,655 38,858
----------- ----------- ----------- ----------- ----------- -----------
Operating income............................. 2,875 5,093 7,166 10,906 11,063 13,796
Interest expense............................. (1,299) (1,284) (1,670) (1,895) (3,817) (1,584)
Interest income.............................. 173 376 336 802 823 1,031
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 1,749 $ 4,185 $ 5,832 $ 9,813 $ 8,069 $ 13,243
Provision for income taxes(3)................ 700 1,674 2,332 3,925 3,228 5,297
----------- ----------- ----------- ----------- ----------- -----------
Net income................................... $ 1,049 $ 2,511 $ 3,500 $ 5,888 $ 4,841 $ 7,946
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Net income per share..............................................................................................
$ .63
-----------
-----------
Weighted average shares outstanding............................................................................... 12,570
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sale increase........... -- 12% 32% 25% 11% --
Stores open at beginning of period........... 15 17 21 22 22 22
Stores opened.............................. 1 0 0 0 2 2
Stores acquired............................ 1 4 1 0 2 7
----------- ----------- ----------- ----------- ----------- -----------
Stores open at end of period................. 17 21 22 22 26 31
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Capital expenditures......................... $ 561 $ 681 $ 627 $ 1,208 $ 9,993 $ 10,131
Depreciation................................. 504 584 668 690 1,326 1,653
NINE MONTHS ENDED OCTOBER 31,
---------------------------------------
ACTUAL
------------------------- PRO FORMA
1995 1996 1996(1)(2)
----------- ----------- -----------
INCOME STATEMENT DATA:
Revenues:
Wholegoods sales........................... $ 131,211 $ 170,036 $ 191,044
Parts and service.......................... 45,614 57,322 64,877
Rental..................................... -- 1,902 1,902
----------- ----------- -----------
Total revenues........................... 176,825 229,260 257,823
Cost of sales................................ 143,718 186,451 208,581
----------- ----------- -----------
Gross profit................................. 33,107 42,809 49,242
Selling, general, and administrative
expense..................................... 23,600 29,492 33,908
----------- ----------- -----------
Operating income............................. 9,507 13,317 15,334
Interest expense............................. (2,435) (4,116) (2,247)
Interest income.............................. 586 633 816
----------- ----------- -----------
Net income................................... $ 7,658 $ 9,834 $ 13,903
----------- ----------- -----------
----------- ----------- -----------
PRO FORMA INCOME STATEMENT DATA: (UNAUDITED)
Income before taxes.......................... $ 7,658 $ 9,834 $ 13,903
Provision for income taxes(3)................ 3,063 3,934 5,561
----------- ----------- -----------
Net income................................... $ 4,595 $ 5,900 $ 8,342
----------- ----------- -----------
----------- ----------- -----------
Net income per share.........................
$ .66
-----------
-----------
Weighted average shares outstanding.......... 12,555
-----------
-----------
SELECTED OPERATING DATA:
Comparable store net sale increase........... 13% 23% --
Stores open at beginning of period........... 22 26 26
Stores opened.............................. 1 1 1
Stores acquired............................ 2 5 5
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