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What changed in Titan Machinery Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Titan Machinery Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+281 added−267 removedSource: 10-K (2023-03-30) vs 10-K (2022-04-01)

Top changes in Titan Machinery Inc.'s 2023 10-K

281 paragraphs added · 267 removed · 224 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

66 edited+16 added−5 removed84 unchanged
Biggest changePayment and financing practices with these other suppliers are similar to those practices described above with respect to CNH Industrial. 6 Table of Content Customers Our North America agriculture customers vary from small, single machine owners to large farming operations, primarily in the states of Iowa, Minnesota, Nebraska, North Dakota, South Dakota and Wyoming.
Biggest changeCustomers Our North America agriculture customers vary from small, single machine owners to large farming operations to large commercial application operations, primarily in the states of Idaho, Iowa, Kansas, Missouri, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming. In fiscal 2023, no single agriculture customer accounted for more than 1.0% of our Agriculture revenue.
The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale farming to home and garden purposes. The construction equipment we sell and service includes heavy construction machinery, light industrial machinery for commercial and residential construction, and road and highway construction machinery.
The agricultural equipment we sell and service includes machinery and attachments for uses ranging from large-scale commercial farming to home and garden purposes. The construction equipment we sell and service includes heavy construction machinery, light industrial machinery for commercial and residential construction, and road and highway construction machinery.
For construction customers, the busy season is typically the second and third quarters of our fiscal year for much of our Construction footprint, subject to weather conditions.
For construction customers, the busy season is typically the second and third quarters of our fiscal year for much of our footprint, subject to weather conditions.
Superior Centralized Marketing Systems Our shared resource group includes a professional marketing team that supports all aspects of brand and solution awareness, customer analytics and targeting, and lead generation through multichannel campaigns that typically incorporate digital marketing (email, website, search, social and syndication), direct mail, and regional and local advertising and sponsorships.
Professional Centralized Marketing Systems Our centralized shared resource group includes a professional marketing team that supports all aspects of brand and solution awareness, customer analytics and targeting, and lead generation through multichannel campaigns that typically incorporate digital marketing (email, website, search, social and syndication), direct mail, and regional and local advertising and sponsorships.
We strongly believe that a safe work environment will help us gain a competitive advantage, and that doing what is right, honest and ethical is essential to developing trust with our partners. This includes providing a safe place to works, safety training relevant to the employee's position, and following all safety and environmental regulations.
We strongly believe that a safe work environment will help us gain a competitive advantage, and that doing what is right, honest and ethical is essential to developing trust with our partners. This includes providing a safe place to work, safety training relevant to the employee's position, and following all safety and environmental regulations.
Deere & Company ("Deere"), CNH Industrial, and Agco Corporation ("AGCO") are the largest global manufacturers of agricultural equipment, and they each manufacture a full line of equipment and parts that supply the primary machinery requirements of farmers. In addition to the major manufacturers, several short-line manufacturers produce specialized equipment that satisfies various niche requirements of farmers.
Deere & Company ("Deere"), CNH Industrial, AGCO Corporation ("AGCO"), and Kubota Corporation ("Kubota"), are the largest global manufacturers of agricultural equipment, and they each manufacture a full line of equipment and parts that supply the primary machinery requirements of farmers. In addition to the major manufacturers, several short-line manufacturers produce specialized equipment that satisfies various niche requirements of farmers.
Industry Overview Agricultural Equipment Industry Agricultural equipment is purchased primarily by commercial farmers for the production of crops used for food, fiber, feed grain and feedstock for renewable energy. Agricultural equipment is also purchased by "life-style farmers" and for home and garden applications, and for maintenance of commercial, residential and government properties.
Industry Overview Agricultural Equipment Industry Agricultural equipment is purchased primarily by commercial farmers and cooperatives for the production of crops used for food, fiber, feed grain and feedstock for renewable energy. Agricultural equipment is also purchased by "life-style farmers" and for home and garden applications, and for maintenance of commercial, residential and government properties.
We seek to generate growth in same-store sales and market share through the following: • employing significant marketing and advertising programs, including targeted direct mailings, internet based marketing, advertising with targeted local media outlets, participation in and sponsorship of trade shows and industry events, our Titan Trader monthly magazine, and by hosting open houses, service clinics, equipment demonstrations, product showcases and customer appreciation outings; • supporting and providing customers with training on evolving technologies, such as precision farming and farm data management, which can be difficult for small dealers to support; • maintaining state-of-the-art service facilities, mobile service trucks and trained service technicians to maximize our customers' equipment uptime through preventative maintenance programs and seasonal 24/7 service support; and • centrally managing our inventory to optimize the availability of equipment and parts for our customers.
We seek to generate growth in same-store sales and market share through the following: • employing significant marketing and advertising programs, including targeted direct mailings, internet based marketing, advertising with targeted local media outlets, participation in and sponsorship of trade shows and industry events, our Titan Trader semi-annual magazine, and by hosting open houses, service clinics, equipment demonstrations, product showcases and customer appreciation outings; • supporting and providing customers with training on evolving technologies, such as precision farming and farm data management, which can be difficult for small dealers to support; • maintaining state-of-the-art service facilities, mobile service trucks and trained service technicians to maximize our customers' equipment uptime through preventative maintenance programs and seasonal 24/7 service support; and • centrally managing our inventory to optimize the availability of equipment and parts for our customers.
We must obtain the approval or consent of CNH Industrial in the event of proposed fundamental changes to our ownership, governance or business structure (defined as "change in control" events) including, among other things, (i) a merger, consolidation or reorganization, unless securities representing more than 50% of the total combined voting power of the successor corporation are immediately owned, directly or indirectly, by persons that owned our securities prior to the transaction; (ii) a sale of all or substantially all of our assets; (iii) any transaction or series of transactions resulting in a person or affiliated group acquiring 30% or more of the combined voting power of our securities or, in the case of a competitor of CNH Industrial, acquiring 20% or more of the combined voting power of our securities; (iv) a substantial disposition of shares of our common stock by certain named executives; (v) certain significant changes in the 5 Table of Content composition of our Board of Directors; and (vi) replacement of our Chief Executive Officer.
We must obtain the approval or consent of CNH Industrial in the event of proposed fundamental changes to our ownership, governance or business structure (defined as "change in control" events) including, among other things, (i) a merger, consolidation or reorganization, unless securities representing more than 50% of the total combined voting power of the successor corporation are immediately owned, directly or indirectly, by persons that owned our securities prior to the transaction; (ii) a sale of all or substantially all of our assets; (iii) any transaction or series of transactions resulting in a person or affiliated group acquiring 30% or more of the combined voting power of our securities or, in the case of a competitor of CNH Industrial, acquiring 20% or more of the combined voting power of our securities; (iv) a substantial disposition of shares of our common stock by certain named executives; (v) certain significant changes in the composition of our Board of Directors; and (vi) replacement of our Chief Executive Officer.
Our performance management program focuses on enabling staff employees and their managing supervisors to gain alignment through: a. a structured annual goal-setting process where managers and associates work collaboratively to develop specific, measurable, achievable, relevant and time bound (SMART) goals that align with our overarching business objectives and our Company values; b. clear, organization-wide expectations that managers and staff employees monitor progress toward completion of their SMART goals with regular coaching sessions and periodic evaluations; and c. an annual performance discussion.
Our performance management program focuses on enabling staff employees and their managing supervisors to gain alignment through: • a structured annual goal-setting process where managers and associates work collaboratively to develop specific, measurable, achievable, relevant and time bound (SMART) goals that align with our overarching business objectives and our Company values; • clear, organization-wide expectations that managers and staff employees monitor progress toward completion of their SMART goals with regular coaching sessions and periodic evaluations; and • an annual performance discussion.
Our competitors range from multi-location, regional operators to single-location dealers and include dealers and distributors of competing equipment brands, including Deere, Caterpillar and the AGCO brands, as well as other dealers and distributors of the CNH Industrial family of brands.
Our competitors range from multi-location, regional operators to single-location dealers and include dealers and distributors of competing equipment brands, including Deere, Caterpillar, Kubota, and the AGCO brands, as well as other dealers and distributors of the CNH Industrial family of brands.
We believe that our efforts in these areas will enable us to attract and retain superior employees, necessary for us to be successful in our industry. See "Human Capital". Diverse and Stable Customer Base Reduces Market Risk Our large geographic footprint covering eight U.S. states and four European countries provides a diversified customer base.
We believe that our efforts in these areas will enable us to attract and retain superior employees necessary for us to be successful in our industry. See "Human Capital". Diverse and Stable Customer Base Reduces Market Risk Our large geographic footprint covering thirteen U.S. states and four European countries provides a diversified customer base.
In addition to the CNH Industrial Capital floorplan line of credit, as of January 31, 2022, we also had a $185.0 million wholesale floorplan line of credit under the Bank Syndicate Agreement, and a $50.0 million credit facility with DLL Finance LLC that can be used to finance inventory purchases.
In addition to the CNH Industrial Capital floorplan line of credit, as of January 31, 2023, we also had a $185.0 million wholesale floorplan line of credit under the Bank Syndicate Agreement, and a $50.0 million credit facility with DLL Finance LLC that can be used to finance inventory purchases.
We believe that these various federal policies reduce financial volatility in the agriculture industry and assist farmers in continuing to operate their farms during economic down cycles and through the adverse headwinds caused by trade policies and tariffs. 2 Table of Content Construction Equipment Industry Construction equipment is purchased primarily for use in commercial, residential and infrastructure construction, as well as for agriculture, demolition, energy production and forestry operations.
We believe that these various federal policies reduce financial volatility in the agriculture industry and assist farmers in continuing to operate their farms during economic down cycles and through the adverse headwinds caused by trade policies and tariffs. 2 Table of Conten ts Construction Equipment Industry Construction equipment is purchased primarily for use in commercial, residential and infrastructure construction, as well as for agriculture, demolition, energy production and forestry operations.
We believe that this diverse customer base reduces the potential impact of risks associated with customer concentration and fluctuations in local market conditions. During fiscal 2022, none of our customers accounted for more than 1.0% of our total revenue.
We believe that this diverse customer base reduces the potential impact of risks associated with customer concentration and fluctuations in local market conditions. During fiscal 2023, none of our customers accounted for more than 1.0% of our total revenue.
Members of our training and development team collaborate with employees from our various operations teams to identify our strategic training needs and prioritize the development of appropriate training content. 9 Table of Content Employee Engagement and Retention We conduct periodic comprehensive employee engagement surveys designed to measure organizational culture and engagement.
Members of our training and development team collaborate with employees from our various operations teams to identify our strategic training needs and prioritize the development of appropriate training content. Employee Engagement and Retention We conduct periodic comprehensive employee engagement surveys designed to measure organizational culture and engagement.
Each of the CNH Industrial Dealer Agreements assign to us a geographically defined area of primary responsibility, providing us with distribution and product support rights within the identified territory for specific equipment products.
Each of the CNH Industrial Dealer Agreements assigns to us a geographically defined area of primary responsibility, providing us with distribution and product support rights within the identified territory for specific equipment products.
We provide ancillary equipment support activities such as equipment transportation, Global Positioning System ("GPS") signal subscriptions and other precision farming products, farm data management products, and CNH Industrial finance and insurance products. Equipment rental and other revenue represented 2.2%, 3.1% and 4.2% of total revenue for the fiscal years ended January 31, 2022, 2021 and 2020.
We provide ancillary equipment support activities such as equipment transportation, Global Positioning System ("GPS") signal subscriptions and other precision farming products, farm data management products, and CNH Industrial finance and insurance products. Equipment rental and other revenue represented 1.8%, 2.2% and 3.1% of total revenue for the fiscal years ended January 31, 2023, 2022 and 2021.
Channels for Selling Aged Equipment Inventory In certain circumstances, we sell aged equipment inventories through the use of alternative channels such as onsite and online auctions. Competition The agricultural and construction equipment sales and distribution industries are highly competitive and fragmented, with large numbers of companies operating on a regional or local scale.
Channels for Selling Aged Equipment Inventory In certain circumstances, we sell aged equipment inventories through the use of alternative channels such as onsite and online auctions. 8 Table of Conten ts Competition The agricultural and construction equipment sales and distribution industries are highly competitive and fragmented, with large numbers of companies operating on a regional or local scale.
Our after-market repair and maintenance services have historically provided a high-margin, relatively stable source of revenue through changing economic cycles. Service revenue represented 6.8%, 7.6% and 7.6% of total revenue for the fiscal years ended January 31, 2022, 2021 and 2020.
Our after-market repair and maintenance services have historically provided a high-margin, relatively stable source of revenue through changing economic cycles. Service revenue represented 5.9%, 6.8% and 7.6% of total revenue for the fiscal years ended January 31, 2023, 2022 and 2021.
The CNH Industrial Dealer Agreements impose various requirements on us regarding the location and appearance of facilities, satisfactory levels of new equipment and parts inventories, the training of personnel, adequate business enterprise and information technology systems, adequate working capital, a maximum adjusted debt to tangible net worth ratio, development of annual sales and marketing goals, and furnishing of monthly and annual financial information to CNH Industrial.
The CNH Industrial Dealer Agreements impose 5 Table of Conten ts various dealer standards on us regarding the location and appearance of facilities, satisfactory levels of new equipment and parts inventories, the training of personnel, adequate business enterprise and information technology systems, adequate working capital, a maximum adjusted debt to tangible net worth ratio, development of annual sales and marketing goals, and furnishing of monthly and annual financial information to CNH Industrial.
Strategic Acquisitions Since January 1, 2003, we have completed the acquisition of over 50 dealerships located in 11 U.S. states and four European countries. In addition, we have added dealership locations in Ukraine through new start-up operations. The agricultural and construction equipment dealership industries are fragmented and consist of many relatively small, independent businesses serving discrete local markets.
Strategic Acquisitions Since January 1, 2003, we have completed over 55 acquisitions located in 15 U.S. states and four European countries. In addition, we have added dealership locations in Ukraine through new start-up operations. The agricultural and construction equipment dealership industries are fragmented and consist of many relatively small, independent businesses serving discrete local markets.
Generally, payment for parts purchased from CNH Industrial entities is due within 30 days. CNH Industrial makes available to us any floorplan programs, parts return programs, sales or incentive programs or similar plans or programs it offers to its other dealers, and provides us with promotional items and marketing materials.
Generally, payment for parts purchased from CNH Industrial entities is due within 30 days. CNH Industrial makes available to us any floorplan programs, parts return programs, 6 Table of Conten ts sales or incentive programs or similar plans or programs it offers to its other dealers, and provides us with promotional items and marketing materials.
Revenue from customers located outside of the United States is primarily included in our International segment, which represented 18.6%, 15.5% and 18.1% of total consolidated revenue during fiscal 2022, 2021 and 2020, respectively.
Revenue from customers located outside of the United States is primarily included in our International segment, which represented 13.5%, 18.6% and 15.5% of total consolidated revenue during fiscal 2023, 2022 and 2021, respectively.
We also believe our scale, customer service, diverse and stable customer base, centralized resources, and experienced management team provide us with a competitive advantage in many of our local markets. Throughout our 41-year operating history, we have built an extensive, geographically contiguous network of 74 stores in the United States and 35 stores in Europe.
We also believe our scale, customer service, diverse and stable customer base, centralized resources, and experienced management team provide us with a competitive advantage in many of our local markets. Throughout our 42-year operating history, we have built an extensive network of 86 stores in the United States and 35 stores in Europe.
Approximately 27% of our total new equipment sales in fiscal 2022 resulted from sales of products manufactured by companies other than CNH Industrial, with our single largest manufacturer other than CNH Industrial representing approximately 2% of our total new equipment sales during fiscal 2022.
Approximately 27% of our total new equipment sales in fiscal 2023 resulted from sales of products manufactured by companies other than CNH Industrial, with our single largest manufacturer other than CNH Industrial representing approximately 4% of our total new equipment sales during fiscal 2023.
Our Agriculture stores in the U.S. are located in Iowa, Minnesota, Nebraska, North Dakota, South Dakota and Wyoming and include several highly productive farming regions, such as the Red River Valley in eastern North Dakota and northwestern Minnesota, portions of the corn belt in Iowa, eastern South Dakota and southern Minnesota, and along the I-80 corridor in Nebraska, which sits on top of the Ogallala Aquifer.
Our Agriculture stores in the U.S. are located in Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota, South Dakota, Washington, Wisconsin, and Wyoming and include several highly productive farming regions, such as the Red River Valley in eastern North Dakota and northwestern Minnesota, portions of the corn belt in Iowa, eastern South Dakota and southern Minnesota, along the I-80 corridor in Nebraska, which sits on top of the Ogallala Aquifer, and the Snake River Valley in eastern Idaho.
Suppliers CNH Industrial—Case IH Agriculture, Case Construction, New Holland Agriculture and New Holland Construction CNH Industrial is a publicly-traded, global leader in the agricultural and construction equipment industries. In 2021, CNH Industrial generated $17.8 billion in revenue from its equipment operations.
Suppliers CNH Industrial—Case IH Agriculture, Case Construction, New Holland Agriculture and New Holland Construction CNH Industrial is a publicly-traded, global leader in the agricultural and construction equipment industries. In 2022, CNH Industrial generated $21.5 billion in revenue from its equipment operations.
We generally sell used equipment "as is" and without OEM warranty unless the original warranty period has not expired and is transferable. We also offer extended warranty programs on certain used equipment through various third-party warranty providers.
We are paid by the OEM for repairs we perform on equipment under warranty. We generally sell used equipment "as is" and without OEM warranty unless the original warranty period has not expired and is transferable. We also offer extended warranty programs on certain used equipment through various third-party warranty providers.
We also sell Case construction equipment in Bulgaria and Romania. In fiscal 2022, no single international customer accounted for more than 2.0% of our International revenue. Floorplan Payable Financing We attempt to maintain at each store, or have readily available at other stores in our network, sufficient new equipment inventory to satisfy customer demand.
In fiscal 2023, no single international customer accounted for more than 2.0% of our International revenue. Floorplan Payable Financing We attempt to maintain at each store, or have readily available at other stores in our network, sufficient new equipment inventory to satisfy customer demand.
They vary in size from small, single machine owners to large firms. In fiscal 2022, no single construction equipment customer accounted for more than 2.0% of our Construction revenue. Our international customers vary from small, single machine owners to large farming operations, primarily in the European countries of Bulgaria, Germany, Romania, and Ukraine.
In fiscal 2023, no single construction equipment customer accounted for more than 2.0% of our Construction revenue. Our international customers vary from small, single machine owners to large farming operations, primarily in the European countries of Bulgaria, Germany, Romania, and Ukraine. We also sell Case construction equipment in Bulgaria and Romania.
As of January 31, 2022, we had a $450.0 million floorplan credit facility with CNH Industrial Capital.
As of January 31, 2023, we had a $500.0 million floorplan credit facility with CNH Industrial Capital.
Our employees are not covered by a collective bargaining agreement. 10 Table of Content Environmental and Other Governmental Regulation We are subject to a wide range of environmental laws and regulations, including those governing discharges into water, air emissions, storage of petroleum substances and chemicals, handling and disposal of solid and hazardous wastes, remediation of various types of contamination, and otherwise relating to health, safety and protection of the environment.
Environmental and Other Governmental Regulation We are subject to a wide range of environmental laws and regulations, including those governing discharges into water, air emissions, storage of petroleum substances and chemicals, handling and disposal of solid and hazardous wastes, remediation of various types of contamination, and otherwise relating to health, safety and protection of the environment.
To date, we have not experienced any work stoppages as a result of labor disputes, and we consider our relationship with our employees to be good.
To date, we have not experienced any work stoppages as a result of labor disputes, and we consider our relationship with our employees to be good. Our employees are not covered by a collective bargaining agreement.
We offer paid time off for employees to volunteer their time to community efforts. Employees As of January 31, 2022, we employed 2,288 people on a full-time basis, 1,637 in the U.S. and 651 in Europe, and an additional 148 part-time employees. We do not regularly use independent contractors in our business operations.
We offer paid time off for employees to volunteer their time to community efforts. Employees As of January 31, 2023, we employed 2,700 people on a full-time basis, 2,042 in the U.S. and 658 in Europe, and an additional 186 part-time employees. We do not regularly use independent contractors in our business operations.
We recognize that attracting and retaining talented employees is essential to achieving outstanding company performance. We strive to develop our employees through a structured training program, and to invest in our employees' development. In addition, we have robust compensation tools that allow us to react to rapidly changing market conditions and reward employees for high performance.
We strive to develop our employees through a structured training program and to invest in our employees' development. In addition, we have robust compensation tools that allow us to react to rapidly changing market conditions and reward employees for high performance.
In fiscal 2022, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 66% of the new equipment sold in our Construction segment, and 70% of the new equipment sold in our International segment.
In fiscal 2023, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 76% of the new equipment sold in our Construction segment, and 60% of the new equipment sold in our International segment.
Since January 1, 2003, we have completed the acquisition of over 50 dealerships located in 11 U.S. states and four European countries, along with establishing a new network of dealership stores in Ukraine.
Since January 1, 2003, we have completed over 55 acquisitions located in 15 U.S. states and four European countries, along with establishing a new network of dealership stores in Ukraine.
Acquisitions are typically financed with available cash balances, floorplan payable line of credit capacity, and long-term debt. The consent of CNH Industrial is required to acquire any CNH Industrial dealership.
On occasion, we have acquired all of the outstanding equity of a company. Acquisitions are typically financed with available cash balances, floorplan payable line of credit capacity, and long-term debt. The consent of CNH Industrial is required to acquire any CNH Industrial dealership.
Our marketing functions also drive increased customer engagement and loyalty through participation in trade shows and industry events and communication and coordination for local store open houses, service clinics, equipment demonstrations, product showcases and customer appreciation outings. 3 Table of Content Ability to Attract and Retain Superior Employees.
Our marketing functions also drive increased customer engagement and loyalty through participation in trade shows and industry events and communication and coordination for local store open houses, service clinics, equipment demonstrations, product showcases and customer appreciation outings. 3 Table of Conten ts Ability to Attract and Retain Superior Employees We recognize that attracting and retaining talented employees is essential to achieving outstanding company performance.
The terms of our arrangements with these other suppliers vary, but most of the dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period, which is typically 30 days.
The terms of our arrangements with these other suppliers vary, but most of the dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period, which is typically 30 days. Payment and financing practices with these other suppliers are similar to those practices described above with respect to CNH Industrial.
Our Construction stores are located in Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. Our international stores are located in the European countries of Bulgaria, Germany, Romania, and Ukraine. We have a history of growth through acquisitions.
Our Construction stores are located in Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. Our international stores are located in the European countries of Bulgaria, Germany, Romania, and Ukraine. We have a history of growth through acquisitions. Those acquisitions vary from a single dealership to larger dealership groups with locations in multiple states.
We also partner with several technical colleges to sponsor students who we plan to eventually employ as service technicians. Ability to Act on Acquisition Opportunities We believe that our experienced management team and access to capital enables us to be opportunistic in responding to accretive growth opportunities, primarily arising from the continued consolidation of the equipment dealer network.
Ability to Act on Acquisition Opportunities We believe that our experienced management team and access to capital enables us to be opportunistic in responding to accretive growth opportunities, primarily arising from the continued consolidation of the equipment dealer network.
Our compensation programs are designed to attract, retain, motivate and reward employees who must operate in a highly competitive, fast-paced environment.
Compensation Programs and Employee Benefits We conduct regular assessments of our pay and benefit practices. Our compensation programs are designed to attract, retain, motivate and reward employees who must operate in a highly competitive, fast-paced environment.
In addition to the environmental regulations discussed above, we are subject to numerous federal, state, and local laws regulating the conduct of our business, including those relating to sales and marketing, taxation, employment practices, working conditions, data privacy, and corruption. The foreign countries and domestic states that we operate in, subject us to a significant number of regulatory jurisdictions.
In addition to the environmental regulations discussed above, we are subject to numerous federal, state, and local laws regulating the conduct of our business, including those relating to sales and marketing, taxation, employment practices, working 11 Table of Conten ts conditions, data privacy, and corruption.
This data is reviewed monthly by the executive leadership team and shared with the Company's Board of Directors on a quarterly basis. We are also interested in improving the health and well-being of our employees. The purpose of our U.S. employee wellness program is to help educate, motivate and reward our employees for maintaining healthy lifestyles.
This data is reviewed monthly by the executive leadership team and shared with the Company's Board of Directors on a quarterly basis. We are also interested in improving the health and well-being of our employees.
Performance Management We have developed an employee performance management program that is consistently applied throughout our U.S. operations. The core goal of our performance management process is to develop and maintain a high-performing organization that is positioned to meet our business objectives.
The core goal of our performance management process is to develop and maintain a high-performing organization that is positioned to meet our business objectives.
Seasonal weather trends, particularly severe wet or dry conditions, can have a significant impact on regional agricultural and construction market performance by affecting crop production yields and the ability to undertake construction projects. Weather conditions that adversely affect the agricultural or construction markets would have a negative effect on the demand for our products and services.
Seasonal weather trends, particularly severe wet or dry conditions, can have a significant impact on regional agricultural and construction market performance by affecting crop production yields and the ability to undertake construction 9 Table of Conten ts projects.
Sales and Marketing We currently market our products and services through: • our sales employees, who operate out of our network of local stores and call on customers in the markets surrounding each store; • our area product support managers, and our store parts managers and service managers, who provide our customers with comprehensive after-market support; • our website; • local and regional advertising efforts, including broadcast, cable, print and web-based media; and • alternative channels, such as auctions, for selling our aged equipment inventories.
In addition, we have other lines of credit offered by various financial institutions as well as floorplan payable financing programs offered by manufacturers and suppliers, or their third party lenders, from which we purchase equipment inventory. 7 Table of Conten ts Sales and Marketing We currently market our products and services through: • our sales employees, who operate out of our network of local stores and call on customers in the markets surrounding each store; • our area product support managers, and our store parts managers and service managers, who provide our customers with comprehensive after-market support; • our website; • local and regional advertising efforts, including broadcast, cable, direct mail, print and web-based media, social media channels; and • alternative channels, such as auctions, for selling our aged equipment inventories.
In addition, we enable our regional and area managers and their sales teams to develop localized sales and marketing strategies. 7 Table of Content Parts Managers and Service Managers Our parts managers and service managers at our stores are involved in our efforts to market our parts and service offerings, taking advantage of our seasonal marketing campaigns in parts and service sales.
Parts Managers and Service Managers Our parts sales managers and service managers at our stores are involved in our efforts to market our parts and service offerings, taking advantage of our seasonal marketing campaigns in parts and service sales.
At the time equipment is purchased, we also offer customers the option of purchasing extended warranty protection provided by the OEM or through various third-party warranty providers. We are paid by the OEM for repairs we perform on equipment under warranty.
Product Warranties Product warranties for new equipment and parts are provided by the original equipment manufacturer ("OEM"). The term and scope of these warranties vary greatly by OEM and by product. At the time equipment is purchased, we also offer customers the option of purchasing extended warranty protection provided by the OEM or through various third-party warranty providers.
All of our stores have service shops staffed by trained service technicians. In addition, our technicians are able to make off-site repairs at customer locations.
In addition, our technicians are able to make off-site repairs at customer locations.
In fiscal 2022, no single agriculture customer accounted for more than 1.0% of our Agriculture revenue. Our Construction customers include a wide range of construction contractors, public utilities, forestry, energy companies, farmers, municipalities and maintenance contractors, primarily in the states of Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin.
Our construction customers include a wide range of construction contractors, public utilities, forestry, energy companies, farmers, municipalities and maintenance contractors, primarily in the states of Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin. They vary in size from small, single machine owners to large firms.
A picture of each piece of equipment is shown, along with the equipment specifications, price and store location. Parts manufactured by the CNH Industrial brands are marketed and can be purchased directly through our website. Other sales and financing programs are also marketed through our website.
Customers can search and view equipment based on type, manufacturer, price and/or store location. Pictures and descriptions of each piece of equipment are displayed, along with the equipment specifications, price and store location. Parts manufactured by the CNH Industrial brands and other suppliers are marketed and can be purchased directly through our website.
Typically, in an acquisition, we have acquired only the working capital and fixed assets that we believe are necessary to run an efficient store, and we do not generally assume any indebtedness. On occasion, we have acquired all of the outstanding equity of a company.
We regularly assess the acquisition landscape, evaluating potential acquisitions in terms of availability and alignment to our long-term growth strategy. Typically, in an acquisition, we have acquired only the working capital and fixed assets that we believe are necessary to run an efficient store, and we do not generally assume any indebtedness.
We intend to pursue acquisitions with the objectives of entering new markets, consolidating distribution within our existing footprint, and strengthening our competitive position.
We intend to pursue acquisitions with the objectives of 4 Table of Conten ts consolidating distribution within our existing footprint, entering new markets, and strengthening our competitive position. We expect that strategic acquisitions will continue to be a component of our long-term growth strategy.
Case IH, Case and New Holland are registered trademarks of CNH Industrial, which we are authorized to use pursuant to the terms of the CNH Industrial Dealer Agreements.
We operate each of our stores under the Titan Machinery name. Case IH, Case and New Holland are registered trademarks of CNH Industrial, which we are authorized to use pursuant to the terms of the CNH Industrial Dealer Agreements. We also license trademarks and trade names from other suppliers of equipment to us.
We believe that we are currently in material compliance with laws and regulations applicable to our business operations.
The foreign countries and domestic states that we operate in, subject us to a significant number of regulatory jurisdictions. We believe that we are currently in material compliance with laws and regulations applicable to our business operations.
Our SEC filings are available on the Investor Relations page of our website or at www.sec.gov. Intellectual Property We have registered trademarks for certain names and designs used in our business and have trademark applications pending for certain others. We operate each of our stores under the Titan Machinery name.
We are not including the information on our website as a part of, or incorporating it by reference into, this Form 10-K.Our SEC filings are also available at www.sec.gov. Intellectual Property We have registered trademarks for certain names and designs used in our business and have trademark applications pending for certain others.
Our parts sales provide a relatively stable revenue stream that is less sensitive to economic cycles than our equipment sales. Parts revenue represented 15.6%, 17.3% and 17.9% of total revenue for the fiscal years ended January 31, 2022, 2021 and 2020. Equipment Repair and Maintenance Services We provide repair and maintenance services, including warranty repairs, for our customers' equipment.
Parts revenue represented 14.8%, 15.6% and 17.3% of total revenue for the fiscal years ended January 31, 2023, 2022 and 2021. Equipment Repair and Maintenance Services We provide repair and maintenance services, including warranty repairs, for our customers' equipment. All of our stores have service shops staffed by trained service technicians.
In addition, numerous external factors such as credit markets, commodity prices, production yields, and other circumstances may disrupt normal purchasing practices and buyer sentiment, further contributing to the seasonal fluctuations. Human Capital We recognize that our success is highly dependent upon the talents and dedication of our employees.
Weather conditions that adversely affect the agricultural or construction markets would have a negative effect on the demand for our products and services. In addition, numerous external factors such as credit markets, commodity prices, production yields, and other circumstances may disrupt normal purchasing practices and buyer sentiment, further contributing to the seasonal fluctuations.
Our shared resources group provides centralized sales and marketing support for our field operations, and coordinates centralized media buys, strategic planning, sales support and training.
Our shared resources group provides centralized sales and marketing support for our field operations, and coordinates centralized media buys, strategic planning, sales support, training and files for available cooperative advertising reimbursement from our suppliers. In addition, we enable our regional and area managers and their sales teams to develop localized sales and marketing strategies.
We seek a workforce that reflects the communities in which we operate, and strive to create diverse, equal and inclusive workplaces where our employees have the opportunity to achieve their full potential. Compensation Programs and Employee Benefits We conduct regular assessments of our pay and benefit practices.
Additionally, we believe it is incumbent upon all of our managers to continuously monitor their local markets for experienced individuals who might be successful additions to our organization. We seek a workforce that reflects the communities in which we operate, and strive to create diverse, equal and inclusive workplaces where our employees have the opportunity to achieve their full potential.
As a result, we are committed to attracting, developing and retaining a team of highly talented and motivated employees. Employee Recruitment We strive to attract the best talent from a variety of sources to meet the current and future needs of our business.
Human Capital We recognize that our success is highly dependent upon the talents and dedication of our employees. As a result, we are committed to attracting, developing and retaining a team of highly talented and motivated employees.
Equipment revenue represented 75.4%, 72.0% and 70.3% of total revenue for the fiscal years ended January 31, 2022, 2021 and 2020. 1 Table of Content Parts Sales We maintain an extensive in-house parts inventory to provide timely parts and repair and maintenance support to our customers.
Equipment sales generate cross-selling opportunities by populating our markets with equipment in 1 Table of Conten ts need of service and parts. Equipment revenue represented 77.5%, 75.4% and 72.0% of total revenue for the fiscal years ended January 31, 2023, 2022 and 2021.
We have established relationships with multiple high schools, trade schools and colleges across our footprint, which we utilize as a source for entry-level talent. Additionally, we believe it is incumbent upon all of our managers to continuously monitor their local markets for experienced individuals who might be successful additions to our organization.
Employee Recruitment We strive to attract the best talent from a variety of sources to meet the current and future needs of our business. We have established relationships with multiple high schools, trade schools and colleges across our footprint, which we utilize as a source for entry-level talent.
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Equipment sales generate cross-selling opportunities by populating our markets with equipment in need of service and parts.
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Parts Sales We maintain an extensive in-house parts inventory to provide timely parts and repair and maintenance support to our customers. Our parts sales provide a relatively stable revenue stream that is less sensitive to economic cycles than our equipment sales.
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We expect that strategic acquisitions will continue to be a component of our long-term growth strategy. 4 Table of Content We regularly assess the acquisition landscape, evaluating potential acquisitions in terms of availability and alignment to our long-term growth strategy.
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We also partner with several technical colleges to offer scholarships and sponsor students who we plan to eventually employ as service technicians.
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In addition, we have other lines of credit offered by various financial institutions as well as floorplan payable financing programs offered by manufacturers and suppliers, or their third party lenders, from which we purchase equipment inventory.
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Bryan Knutson, our President and Chief Operating Officer, has over 20 years of industry experience ranging from equipment sales to his current executive positions. Robert Larsen, Chief Financial Officer, also brings 14 years of industry and other finance leadership experience having worked at CNH Industrial, Raven Industries, and PricewaterhouseCoopers prior to joining the Company.
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As a group, they have won multiple awards from our suppliers for their efforts benefiting both our customers and our key suppliers. Website Our used equipment inventories are marketed on our website, www.titanmachinery.com, through an equipment search feature which allows users to search by equipment type, manufacturer, price and/or store.
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Our Case IH commercial sprayer application distribution rights, related to our Heartland acquisition, were granted to us by CNH Industrial at the time of the closing of the Heartland transaction.
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We also license trademarks and trade names from other suppliers of equipment to us. 8 Table of Content Product Warranties Product warranties for new equipment and parts are provided by the original equipment manufacturer ("OEM"). The term and scope of these warranties vary greatly by OEM and by product.
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For our full-line distribution footprint existing as of the time of closing, these distribution rights were granted through amendments to our full-line dealer agreements that added floaters and sprayers as authorized products permitted to be sold to commercial application customers.
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For those Heartland territories outside of our full-line dealership territory existing as of the time of closing, we entered into new Case IH dealer agreements granting us distribution rights to sell floaters and sprayers to commercial application customers for those territories.
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For purposes of this Form 10-K, the granted distribution rights for the commercial application sprayers and floaters in territories outside of Titan’s full-line footprint as of the date of closing of the Heartland transaction are referred to as the “Non-Footprint Commercial Application Distribution Rights”.
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The Non-Footprint Commercial Application Distribution Rights expire on August 1, 2030, at which time these distribution rights are ceded back to Case IH, unless the term therefor is further extended by the parties.
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If we seek to sell our commercial sprayer application business or any portion thereof related to the Non-Footprint Commercial Application Distribution Rights prior to the expiration date of August 1, 2030 (or such later date as agreed to by the parties), then we are required to pay to CNH Industrial the sales consideration paid by such buyer for the applicable commercial application distribution rights; provided, that Titan will receive sales consideration from the buyer in an amount not less than the fair value of the facilities, fixed assets, current assets, and other investments applicable to the location and market being sold.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeIn addition, in recent years it has been unusually difficult to hire and retain employees, which we believe is primarily attributable to COVID-19 pandemic related factors and which in turn has created increased competition in labor markets. 18 Table of Content Difficulties in hiring and retaining employees and heightened competition for employees may impact our ability to serve customers, increase our costs, and impair our efficiency and effectiveness and our ability to pursue growth opportunities.
Biggest changeMoreover, the technician shortage may increase our service technician compensation expense, and reduce our gross margins on service work. In addition, in recent years it has been unusually difficult to hire and retain employees, which we believe is primarily attributable to market conditions which in turn has created increased competition in labor markets.
Our ability to maintain or grow market share is dependent on CNH Industrial’s ability to design, manufacture, and allocate to our stores at the right time high quality and desirable products that compare favorably to those of our principal competitors in terms of price, quality, functionality, features, connected and digital solutions, and autonomy.
Our ability to maintain or grow market share is dependent on CNH Industrial’s ability to design, manufacture, allocate and deliver to our stores at the right time high quality and desirable products that compare favorably to those of our principal competitors in terms of price, quality, functionality, features, connected and digital solutions, and autonomy.
Risks Related to Economic Conditions Affecting our Customers' Demand for our Products and Services Our agriculture equipment sales are significantly affected by net farm income, which is influenced by factors which we have no control.
Risks Related to Economic Conditions Affecting our Customers' Demand for our Products and Services Our agriculture equipment sales are significantly affected by net farm income, which is influenced by factors over which we have no control.
Our level of indebtedness could limit our financial and operational flexibility. As of January 31, 2022, our indebtedness included floorplan payable financing, real estate mortgage financing arrangements that are secured by real estate assets and other long-term debt. In addition, we have obligations under our lease agreements for our store locations and corporate headquarters.
Our level of indebtedness could limit our financial and operational flexibility. As of January 31, 2023, our indebtedness included floorplan payable financing, real estate mortgage financing arrangements that are secured by real estate assets and other long-term debt. In addition, we have obligations under our lease agreements for our store locations and corporate headquarters.
Second, CNH Industrial supports our business by providing financial assistance and marketing support including the following: • Floorplan payable financing for the purchase of a substantial portion of our equipment inventory; • Retail financing used by many of our customers to purchase CNH Industrial equipment from us; • Incentive programs and discount programs offered from time to time that enable us to price our products more competitively; and 11 Table of Content • Promotional and marketing activities on national, regional and local levels.
Second, CNH Industrial supports our business by providing financial assistance and marketing support including the following: • Floorplan payable financing for the purchase of a substantial portion of our equipment inventory; • Retail financing used by many of our customers to purchase CNH Industrial equipment from us; • Incentive, financing, and discount programs offered from time to time that enable us to price our products more competitively; and • Promotional and marketing activities on national, regional and local levels.
The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results to fluctuate during the year. Farmers generally purchase agricultural equipment and service work in preparation for, or in conjunction with, the spring planting and fall harvesting seasons.
The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and cash flows to fluctuate during the year. Farmers generally purchase agricultural equipment and service work in preparation for, or in conjunction with, the spring planting and fall harvesting seasons.
The credit agreements governing our indebtedness contain covenants that, among other things, may limit or place conditions on our ability to: • incur more debt; • make investments; • create liens; • merge, consolidate, or make certain acquisitions; • transfer and sell assets, or divest of dealership stores; • pay dividends or repurchase stock; and 15 Table of Content • issue equity instruments.
The credit agreements governing our indebtedness contain covenants that, among other things, may limit or place conditions on our ability to: • incur more debt; • make investments; • create liens; • merge, consolidate, or make certain acquisitions; • transfer and sell assets, or divest of dealership stores; • pay dividends or repurchase stock; and • issue equity instruments.
Similarly, rental house companies engage in regular sales of rental fleet units, which can further disrupt the supply-demand balance. We have no control over or ability to significantly influence any of the foregoing factors affecting the equipment distribution markets. 13 Table of Content Our industry is highly competitive .
Similarly, rental house companies engage in regular sales of rental fleet units, which can further disrupt the supply-demand balance. We have no control over or ability to significantly influence any of the foregoing factors affecting the equipment distribution markets. Our industry is highly competitive.
If we are unable to manage these credit risk issues adequately, or if a large number of customers should have financial difficulties at the same time, our credit losses could increase above historical levels and our 16 Table of Content operating results would be adversely affected.
If we are unable to manage these credit risk issues adequately, or if a large number of customers should have financial difficulties at the same time, our credit losses could increase above historical levels and our operating results would be adversely affected.
In addition, our CNH Industrial Dealer Agreement for Case Construction equipment prohibits us from carrying other suppliers' products (new equipment and parts) at our Case Construction stores that are 12 Table of Content competitive with CNH Industrial's products. These restrictions may discourage or prevent us from pursuing activities that we believe will grow our business.
In addition, our CNH Industrial Dealer Agreement for Case Construction equipment prohibits us from carrying other suppliers' products (new equipment and parts) at our Case Construction stores that are competitive with CNH Industrial's products. These restrictions may discourage or prevent us from pursuing activities that we believe will grow our business.
Any failure of CNH Industrial to offer competitive products, or delays in bringing strategic new products to market, could have a material adverse effect on our business, results of operations and financial condition.
Any failure of CNH Industrial to offer competitive products, or delays in bringing strategic new products to market or delivery of ordered products to our stores could have a material adverse effect on our business, results of operations and financial condition.
Acquisitions could include significant goodwill and intangible assets. If the acquisitions giving rise to these intangible assets are unsuccessful, this may result in future impairment charges that would reduce our stated earnings. Human Capital Risks Our business success depends on attracting and retaining qualified personnel.
If the acquisitions giving rise to these intangible assets are unsuccessful, this may result in future impairment charges that would reduce our stated earnings. Human Capital Risks Our business success depends on attracting and retaining qualified personnel.
These risks include: • difficulties in implementing our business model in foreign markets; • costs and diversion of domestic management attention related to oversight of international operations; • unexpected adverse changes in export duties, quotas and tariffs and difficulties in obtaining import licenses; • cyclicality of demand in European Union member states for agricultural equipment, based on availability of European Union government subsidy programs and tax incentives; • unexpected adverse changes in foreign laws or regulatory requirements; • compliance with a variety of tax regulations, foreign laws and regulations; • compliance with the Foreign Corrupt Practices Act and other U.S. laws that apply to the international operations of U.S. companies which may be difficult and costly to implement and monitor, can create competitive disadvantages if our competitors are not subject to such laws, and which, if violated, may result in substantial financial and reputational harm; • fluctuations in foreign currency exchange rates to which we are exposed may adversely affect the results of our operations, the value of our foreign assets and liabilities and our cash flows; • the laws of the European countries in which we operate, unlike U.S. states, do not include specific dealer protection laws and, therefore, we may be more susceptible to actions of suppliers that are adverse to our interests such as termination of our dealer agreements for any reason or installing additional dealers in our designated territories; and • geopolitical or economic instability in the regions in which we operate, including the impact of the Russian invasion of Ukraine.
These risks include: • difficulties in implementing our business model in foreign markets; • costs and diversion of domestic management attention related to oversight of international operations; • unexpected adverse changes in export duties, currency or payment controls that impact our ability to repatriate funds from the county, quotas and tariffs and difficulties in obtaining import licenses; • cyclicality of demand in European Union member states for agricultural equipment, based on availability of European Union government subsidy programs and tax incentives; • unexpected adverse changes in foreign laws or regulatory requirements; • compliance with a variety of tax regulations, foreign laws and regulations; • compliance with the Foreign Corrupt Practices Act and other U.S. laws that apply to the international operations of U.S. companies which may be difficult and costly to implement and monitor, can create competitive disadvantages if our competitors are not subject to such laws, and which, if violated, may result in substantial financial and reputational harm; • fluctuations in foreign currency exchange rates to which we are exposed may adversely affect the results of our operations, the value of our foreign assets and liabilities and our cash flows; • the laws of the European countries in which we operate, unlike U.S. states, do not include specific dealer protection laws and, therefore, we may be more susceptible to actions of suppliers that are adverse to our interests such as termination of our dealer agreements for any reason or installing additional dealers in our designated territories; and • geopolitical or economic instability in the regions in which we operate, including the impact of the Russian invasion of Ukraine. 15 Table of Conten ts The Russian-Ukraine conflict has presented significant challenges and risks for our Ukraine operations.
ITEM 1A. RISK FACTORS Risks related to our Reliance on CNH Industrial We are substantially dependent upon CNH Industrial, our primary supplier of equipment and parts inventory. The substantial majority of our business involves the sale and distribution of new equipment and after-market parts supplied by CNH Industrial and the servicing of equipment manufactured by CNH Industrial.
Risks related to our Reliance on CNH Industrial We are substantially dependent upon CNH Industrial, our primary supplier of equipment and parts inventory. The substantial majority of our business involves the sale and distribution of new equipment and after-market parts supplied by CNH Industrial and the servicing of equipment manufactured by CNH Industrial.
Proposed state and federal legislation has been introduced that generally would require the manufacturers of products to provide the purchaser and/or independent repair technicians with documents, diagnostic software, and other information that would allow the equipment to be repaired without having it returned to the dealer for repair.
Proposed state and federal legislation has been introduced, including in states in our footprint, that generally would require the manufacturers of products to provide the purchaser and/or independent repair technicians with documents, diagnostic software, and other information that would allow the equipment to be repaired without having it returned to the dealer for repair.
Supply chain issues and labor shortages could diminish the manufacturing output of CNH Industrial's plants, resulting in our stores not receiving inventories in the expected quantities and timelines necessary to satisfy customer demand.
Supply chain issues, labor disputes such as strikes, and labor shortages could diminish the manufacturing output of CNH Industrial's plants, resulting in our stores not receiving inventories in the expected quantities and timelines necessary to satisfy customer demand.
The terms of our CNH Industrial dealer agreements subject us to restrictions that may adversely impact our business including our ability to acquire additional stores. We have entered into CNH Industrial Dealer Agreements under which we sell CNH Industrial’s branded agricultural and construction equipment, along with after-market parts and repair services.
The terms of our CNH Industrial dealer agreements subject us to restrictions that may adversely impact our business. We have entered into CNH Industrial Dealer Agreements under which we sell CNH Industrial’s branded agricultural and construction equipment, along with after-market parts and repair services.
Construction equipment customers’ purchases of equipment and service work, as well as rental of equipment, are also seasonal in our stores located in colder climates where construction work slows significantly in the winter months.
Construction equipment customers’ purchases of equipment and service work, as well as rental of equipment, are also seasonal in our stores located in colder climates where 17 Table of Conten ts construction work slows significantly in the winter months.
We may not be successful in passing along the equipment price increases to our customers, which could impact our results of operation. To the extent that we attempt to pass along price increases to our customers, the increased costs of equipment will likely negatively affect their purchasing decisions.
We may not be successful in passing along the equipment price 18 Table of Conten ts increases to our customers, which could impact our results of operation. To the extent that we attempt to pass along price increases to our customers, the increased costs of equipment may negatively affect their purchasing decisions.
These risks include incurring significantly higher than anticipated capital expenditures and operating expenses; failing to integrate the operations and personnel of the acquired dealerships; failing to integrate the operations and personnel of the acquired dealerships; employee attrition at the acquired business; disrupting our ongoing business; diluting the effectiveness of our management; failing to maintain uniform standards, controls and policies; and impairing relationships with employees and customers as a result of changes in management.
These risks include incurring significantly higher than anticipated capital expenditures and operating expenses; unexpected liabilities; synergies, economies of scale and cost reductions not occurring as anticipated; failing to integrate the operations and personnel of the acquired dealerships; employee attrition at the acquired business; disrupting our ongoing business; diluting the effectiveness of our management; failing to maintain uniform standards, controls and policies; and impairing relationships with employees and customers as a result of changes in management.
In fiscal 2022, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 66% of the new equipment sold in our Construction segment, and 70% of the new equipment sold in our International segment, and supplied a significant portion of our parts inventory.
In fiscal 2023, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 76% of the new equipment sold in our Construction segment, and 60% of the new equipment sold in our International segment, and supplied a significant portion of our parts inventory.
Our estimates of net realizable value for our used equipment, as determined at the time of the trade-in, may prove to be inaccurate, given the potential for sudden changes in market conditions and other factors beyond our control.
Our estimates of net realizable value for our used equipment, as determined at the time of the trade-in or in connection with an acquisition of a new dealership, may prove to be inaccurate, given the potential for sudden changes in market conditions and other factors beyond our control.
CNH Industrial may be adversely impacted by economic downturns, industry declines, natural disasters, labor strikes or similar disruptions, financial performance and liquidity concerns, supply shortages or rising raw materials costs, failed strategic initiatives, or other adverse events.
CNH Industrial may be adversely impacted by global economic conditions and economic downturns, industry declines, natural disasters, labor strikes or similar disruptions, changes in interest rates, energy prices, inflation, financial performance and liquidity concerns, supply shortages or rising raw materials costs, failed strategic initiatives, or other adverse events.
Despite our and the third parties with whom we do business' security measures and business continuity plans, our information technology and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance or other disruptions arising from power outages, telecommunication failures, terrorist acts, natural disasters, or other catastrophic events.
Despite the security measures and business continuity plans, put in place by us and our third party providers, our information technology and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by hackers or breaches due to employee error or malfeasance or other disruptions arising from power outages, telecommunication failures, terrorist acts, natural disasters, or other catastrophic events.
Risks Related to Financial Matters Our financial performance is dependent on our ability to effectively manage our inventory. Our dealership network requires substantial inventories of equipment and parts to be maintained at each store and company-wide to facilitate sales to customers on a timely basis. Our equipment inventory has traditionally represented a significant portion of our total assets.
Our dealership network requires substantial inventories of equipment and parts to be maintained at each store and Company-wide to facilitate sales to customers on a timely basis. Our equipment inventory has traditionally represented a significant portion of our total assets.
We currently operate dealership locations in Bulgaria, Germany, Romania, and Ukraine. In fiscal 2022, total International segment revenues were 18.6% of our consolidated total revenue. As of January 31, 2022, total International segment assets were 16.4% of our consolidated total assets.
We currently operate dealership locations in Bulgaria, Germany, Romania, and Ukraine. In fiscal 2023, total International segment revenues were 13.5% of our consolidated total revenue. As of January 31, 2023, total International segment assets were 14.4% of our consolidated total assets.
If no crops are planted or the upcoming growing season is negatively impacted, it will limit our ability to maintain working capital loans or increase the cost of maintaining such loans, and as a result of imposed currency exchange controls and other restrictions, restrict our ability to manage our cash held in Ukraine and our investment in our Ukrainian business.
If no crops are planted or the upcoming growing season is negatively impacted, it will limit our ability to generate cash and repay outstanding debt, and as a result of imposed currency exchange controls and other restrictions, restrict our ability to manage our cash held in Ukraine and our investment in our Ukrainian business.
Labor organizing activities could negatively impact us. Although none of our employees are covered by a collective bargaining agreement, there have been attempts to unionize our store personnel.
Although none of our employees are covered by a collective bargaining agreement, there have been attempts to unionize our store personnel.
Our stores perform warranty work for equipment under these product warranties, and we direct bill CNH Industrial as opposed to invoicing the store customer. At any particular time, we have significant receivables from CNH Industrial for warranty work performed. CNH Industrial’s commitment to its product warranties is important to both our market share success and our parts and service revenue.
Our stores perform warranty work for equipment under these product warranties, and we direct bill CNH Industrial as opposed to invoicing the customer. At any particular time, we have significant receivables from CNH Industrial for warranty work performed.
We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems. 19 Table of Content ITEM 1B. UNRESOLVED STAFF COMMENTS None.
We maintain cyber risk insurance, but this insurance may not be sufficient to cover all of our losses from any future breaches of our systems.
The nature of the agricultural industry is such that a downturn in equipment demand can occur suddenly, resulting in negative impact on dealers in the form of declining revenues, reduced profit margins, excess new and used equipment inventories, and increased floorplan interest expenses. These downturns may be prolonged, and during these periods, our revenues and profitability could be harmed.
The nature of the agricultural industry is such that a downturn in equipment demand can occur suddenly, resulting in negative impacts on dealers in the form of declining revenues, reduced or negative profit margins, excess new and used equipment inventories, lower inventory turns, and increased floorplan interest expenses.
The unionization of all or a substantial portion of our workforce could result in work slowdowns or stoppages, could increase our overall costs, could reduce our operating margins and reduce the efficiency of our operations at the affected locations, could adversely affect our flexibility to run our business competitively, and could otherwise have an adverse effect on our business.
The unionization of all or a substantial portion of our workforce could result in work slowdowns or stoppages, could increase our overall costs, could reduce our operating margins and reduce the efficiency of our operations at the affected locations, could adversely affect our flexibility to run our business competitively, and could otherwise have an adverse effect on our business. 19 Table of Conten ts Liability Risks Selling and renting agricultural and construction equipment, selling parts, and providing repair services subject us to liability risks that could adversely affect our financial condition and reputation.
Projected interest rate hikes will increase financing costs of our customers, which may make equipment purchases less affordable for customers and, as a result, our revenue and profitability may decrease.
Periods of elevated inflation and increased interest rates will increase financing costs and installment payment obligations of our customers, which may make equipment purchases less affordable for customers and impact purchasing decisions and, as a result, our revenue and profitability may decrease.
Furthermore, our financial performance and future success are highly dependent on the overall reputation, brand and success of CNH Industrial in the agricultural and construction equipment manufacturing industries, including its ability to maintain a competitive position in product innovation, product quality, and product pricing.
Our business, results of operations, and financial condition could be materially adversely affected as a result of any event that has a material adverse effect on CNH Industrial. 12 Table of Conten ts Furthermore, our financial performance and future success are highly dependent on the overall reputation, brand and success of CNH Industrial in the agricultural and construction equipment manufacturing industries, including its ability to maintain a competitive position in product innovation, product quality, and product pricing.
Demand for our parts and repair services, although not as cyclical as equipment purchases, also can be negatively affected in agricultural industry downturns and in regions affected by adverse weather or growing conditions which result in fewer acres planted or harvested. Our construction equipment sales are affected by several market factors over which we have no control.
These downturns may be prolonged, and during these periods, our revenues and profitability could be harmed, including severely . Demand for our parts and repair services, although not as cyclical as equipment purchases, also can be negatively affected in agricultural industry downturns and in regions affected by adverse weather or growing conditions which result in fewer acres planted or harvested.
Our commercial liability insurance may not be adequate to cover significant product liability claims, or we may not be able to secure such insurance on economically reasonable terms. An uninsured or partially insured claim for which indemnification from the manufacturer is not available could have a material adverse effect on our financial condition or results of operations.
An uninsured or partially insured claim for which indemnification from the manufacturer is not available could have a material adverse effect on our financial condition or results of operations.
Net farm income is influenced by factors such as: • the price of agricultural commodities and the ability to competitively export agricultural commodities; • the profitability of agricultural enterprises, farmers’ income and their capitalization; • the demand for food products; ▪ the availability of stocks from previous harvests; and • agricultural policies, including aid and subsidies to agricultural enterprises provided by governments, policies impacting commodity prices or limiting the export or import of commodities, and alternative fuel mandates.
Net farm income is influenced by factors such as: • the price of agricultural commodities and the ability to competitively export agricultural commodities; • the cost of farm inputs including value of land, seed, fertilizer, fuel, labor and other inputs; • the demand for food products and products made with farm commodities such as bio fuels; ▪ the availability of stocks from previous harvests; and • agricultural policies, including aid and subsidies to agricultural enterprises provided by governments, policies impacting commodity prices or limiting the export or import of commodities, and alternative fuel mandates. 13 Table of Conten ts In addition to macroeconomic drivers of net farm income, local growing conditions also influence farmers’ buying sentiment.
Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the Company’s ability to operate successfully and efficiently, including timely and accurate SEC filings. If we are unable to successfully implement the new ERP system as planned, our financial position, results of operations and cash flows could be negatively impacted.
Beyond cost and scheduling, potential flaws in the implementation of an ERP system may pose risks to the Company’s ability to operate successfully and efficiently, including our ability to prepare timely and accurate SEC filings.
To the extent we do not successfully avoid or overcome the risks or problems related to acquisitions, our results of operations and financial condition could be adversely affected. Future acquisitions also may have a significant impact on our financial position and capital needs, and could cause substantial fluctuations in our quarterly and yearly results of operations.
To the extent we do not successfully avoid or overcome the risks or problems related to acquisitions, our results of operations and financial condition could be adversely affected.
In addition to macroeconomic drivers of net farm income, local growing conditions also influence farmers’ buying sentiment within the affected geography. Therefore, droughts, excess rain, hail, and other unfavorable climatic conditions affecting certain geographic regions will adversely impact the local farmers’ buying sentiment.
Therefore, droughts, excess rain, hail, and other unfavorable climatic conditions affecting certain geographic regions will adversely impact the local farmers’ buying sentiment.
Our construction equipment customers primarily operate in the natural resource, construction, transportation, agriculture, manufacturing, industrial processing and utilities industries. The construction equipment market is influenced by factors such as: • public infrastructure spending; • new residential and non-residential construction; and • capital spending in oil and gas, forestry, agricultural and mining.
The construction equipment market is influenced by factors such as: • the amount and timing of public infrastructure spending; • the level of new residential and non-residential construction; and • the amount of capital spending in oil and gas, forestry, agricultural and mining.
Many scientific reports predict that severe weather events can be expected to become more frequent as a result of global climate change. 17 Table of Content New or more stringent greenhouse gas emission standards designed to address climate change could increase costs of the equipment we purchase from our suppliers and increase our customers’ costs of operations.
New or more stringent greenhouse gas emission standards designed to address climate change could increase costs of the equipment we purchase from our suppliers and increase our customers’ costs of operations.
Any significant decline in the selling prices for used rental equipment, or increased costs resulting from our rental operations, could have an adverse effect on our results of operations and cash flows. Risks Related to Governmental Regulation Enactment of "right to repair" legislation could adversely affect the sales and profitability of our parts and service business.
Any significant decline in the selling prices for used rental equipment, or increased costs resulting from our rental operations, could have an adverse effect on our results of operations and cash flows. Climate and Weather Risks Weather conditions may negatively impact the agricultural and construction equipment markets and affect our financial results.
Additionally, trucker, dockworker, and labor shortages, a surge of consumer demand, and other factors have led to industry-wide delays and inflationary trends. Our suppliers' challenges directly affect us through price increases, and disruptions and delays on delivery of certain products, which may cause us to lose business. Risks of International Operations Our international operations expose us to risks and uncertainties.
Our suppliers' challenges directly affect us through price increases, which we may be unable to pass along to our customers, and disruptions and delays on delivery of certain products, which may cause us to lose business or delay our ability to recognize revenue. Risks of International Operations Our international operations expose us to risks and uncertainties.
This in turn could result in lower demand for our agricultural and construction equipment and services and adversely affect our results of operation.
This in turn could result in lower demand for our agricultural and construction equipment and services and adversely affect our results of operation. Many scientific reports predict that severe weather events can be expected to become more frequent as a result of global climate change.
This would result in asset write-offs and a loss in revenues and profits. See additional information in Note 1 to the Consolidated Financial Statements at Item 8. Even if we are able to continue operations, we expect that the military conflict will significantly impact our customers' liquidity and their purchasing decisions for our 14 Table of Content products and services.
Even if we are able to continue operations, we expect that the military conflict has significantly impacted, and we expect will continue to impact our customers' liquidity and their purchasing decisions for our products and services.
The construction industry in many of our geographical areas has experienced periodic, and sometimes prolonged, economic down cycles. During these downturns our revenues and profitability could be adversely impacted. The ability to obtain affordable financing is an important part of a customer's decision to purchase agricultural or construction equipment.
The construction industry in many of our geographical areas has experienced periodic, and sometimes prolonged, economic down cycles. During these downturns, our revenues and profitability could be adversely impacted. Inflationary increases to cost of equipment combined with higher interest rates may negatively impact our customers' equipment purchasing decisions. Many of our customers finance their equipment purchases.
We expect to use cash flow from operations and borrowings under our credit facilities to fund our operations, debt service and capital expenditures. However, our cash flow and ability to borrow depends on our future performance, which will be affected by financial, business, economic and other factors, many of which may be beyond our control.
However, our cash flow and ability to borrow depends on our future performance, which will be affected by financial, business, economic and other factors, many of which may be beyond our control. 16 Table of Conten ts The credit agreements governing our indebtedness restrict our ability to engage in certain corporate and financial transactions, and require us to satisfy financial covenants.
The outcome of the Russian military operation remains unclear and we cannot predict when or if our stores and business operations will reopen. The military conflict and related political instability may make it impossible for us to effectively operate our Ukraine dealerships, which may result in our decision to cease operations in Ukraine.
In fiscal 2023, revenues of our Ukrainian subsidiary declined 40.5% from fiscal 2022 and the conflict could continue to negatively impact revenues in fiscal 2024. The military conflict and related political instability, if it intensifies, may make it impossible for us to effectively operate our Ukraine dealerships, which may result in our decision to cease operations in Ukraine.
Additional risks related to our operations in Ukraine, likely made more acute by the impact of the military conflict, include further devaluation of the local currency, increased interest rates and increased inflation. These factors, in addition to others that we have not anticipated, may negatively impact our financial condition and results of operations.
The military intervention has disrupted our Ukrainian work force, with certain employees being called to active military duty and other employees leaving the country and working remotely. Additional risks related to our operations in Ukraine, likely made more acute by the impact of the military conflict, include further devaluation of the local currency, increased interest rates and increased inflation.
Liability Risks Selling and renting agricultural and construction equipment, selling parts, and providing repair services subject us to liability risks that could adversely affect our financial condition and reputation. Products sold, rented or serviced by us may expose us to potential liabilities for personal injury or property damage claims that arise from the use of those products.
Products sold, rented or serviced by us may expose us to potential liabilities for personal injury or property damage claims that arise from the use of those products. Our commercial liability insurance may not be adequate to cover significant product liability claims, or we may not be able to secure such insurance on economically reasonable terms.
The Russian-Ukraine conflict has presented significant challenges and risks for our Ukraine operations. The Russian military occupation of Ukraine has significantly disrupted our Ukrainian operations and resulted in the shut-down of our 10 Ukrainian stores for a period of time, some of which have reopened.
The Russian military occupation of Ukraine has significantly disrupted our Ukrainian operations and resulted in the temporary shut-down of our 9 Ukrainian stores during early fiscal 2023, all locations have since reopened. The outcome of the Russian military operation remains unclear and we cannot predict the impact this conflict will have on our Ukrainian operations.
In addition, e-commerce companies selling parts have negatively impacted dealers' parts sales and margins, and we expect that this competitive pressure will continue to increase in the future. Risks Related to Supply Chain Following the business interruptions caused by COVID-19, our suppliers have experienced continuing supply chain disruptions, including country of origin production and port delays.
In addition, e-commerce companies selling parts have negatively impacted dealers' parts sales and margins, and we expect that this competitive pressure will continue to increase in the future. 14 Table of Conten ts The recent agreements of equipment manufacturers, including CNH Industrial, to provide farmers and independent repair shops access to diagnostic tools, combined with an enactment of proposed right to repair legislation, could negatively impact our repair services business .
It is difficult to predict whether any form of this legislation will be enacted in any of the states where we do business or at the federal level. If enacted, however, any such legislation could have negative impacts on our parts and service business as follows: • Increased competition for repair services.
The Memorandum of Understanding follows a similar format as agreed to by John Deere earlier this year which, in turn, follows the auto industry format. It is difficult to predict the impact that right to repair legislation, if enacted in any our states of operation, or the CNH Memorandum of Understanding, will have on our repair services business.
Removed
Our business, results of operations, and financial condition could be materially adversely affected as a result of any event that has a material adverse effect on CNH Industrial.
Added
ITEM 1A. RISK FACTORS The following risks should be considered in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations, including the risks and uncertainties described in the forward-looking statements, and our financial statements and the related notes appearing under Item 8 of this Form 10-K.
Removed
The credit agreements governing our indebtedness restrict our ability to engage in certain corporate and financial transactions, and require us to satisfy financial covenants.
Added
The following is a cautionary discussion of risks, uncertainties and assumptions that we believe are material to our business. These risks may affect our operating results and, individually or in the aggregate, could cause our actual results to differ materially from past and projected future results.
Removed
Moreover, recent versions of the proposed legislation require that the manufacturer sell certain spare parts to users and third-party repair shops at the same price as offered by the manufacturer to its authorized dealers. To date, no form of legislation has passed in the states where we do business or at the federal level.
Added
Some of these risks and uncertainties could affect particular revenue sources or segments, while others could affect our full business. Although risks are organized by headings, and each risk is discussed separately, many are interrelated.
Removed
We would become subject to additional competition from independent repair shops and/or other equipment dealers’ repair shops, who would have greater access to manufacturer furnished diagnostic tools as necessary to perform repair and maintenance services on CNH Industrial branded equipment. • Loss of parts sales .
Added
Except as required by applicable law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. You should, however, consult any subsequent disclosures we make from time to time in materials filed with the SEC.
Removed
If customers, third-party repair shops, and/or parts vendors are able to purchase parts directly from the manufacturer at the same price as available to us, then our parts business would be negatively impacted. • Margin Compression on Parts and Service Revenue .
Added
CNH Industrial’s commitment to its product warranties is important to both our market share success and our warranty related parts and service revenue.
Removed
With the increased competition for repair service and parts sales, we would expect that this new competition would result in margin compression in our sales. Climate and Weather Risks Weather conditions may negatively impact the agricultural and construction equipment markets and affect our financial results.
Added
Our construction equipment sales are affected by several market factors over which we have no control. Our construction equipment customers primarily operate in the natural resource, construction, transportation, agriculture, manufacturing, industrial processing and utilities industries.
Removed
Moreover, the technician shortage may increase our service technician compensation expense, and reduce our gross margins on service work.
Added
The ability to obtain affordable financing is an important part of a customer's decision to purchase agricultural or construction equipment.
Added
Separately, the American Farm Bureau Federation and CNH Industrial brands, Case IH and New Holland, signed a memorandum of understanding in March 2023 that allows farmers and independent repair shops to access CNH Industrial's brand manuals, tools, product guides and information to self-diagnose and self-repair machines, as well as provides support from CNH Industrial brands for farmers and independent repair shops to directly purchase diagnostic tools.
Added
Risks Related to Supply Chain Our business has been adversely impacted by supply chain distributions. Our suppliers have experienced continuing supply chain disruptions, including country of origin production and port delays. Additionally, trucker, dockworker, and labor shortages, a surge of consumer demand, and other factors have led to industry-wide delays and inflationary trends, which have also impacted the Company.
Added
This would result in asset write-offs and a loss in revenues and profits. See additional information in Note 1 to the Consolidated Financial Statements at Item 8.
Added
These factors, in addition to others, have negatively impacted our financial condition and results of operations in 2022 and may continue to impact our business in Ukraine in future periods, including on a more acute basis. Risks Related to Financial Matters Our financial performance is dependent on our ability to effectively manage our inventory.
Added
We expect to use cash flow from operations and borrowings under our credit facilities to fund our operations, debt service and capital expenditures.
Added
If we are unable to successfully implement the new ERP system as planned, our financial position, results of operations and cash flows could be negatively impacted.
Added
Future acquisitions also may have a significant impact on our financial position and capital needs, and could cause substantial fluctuations in our quarterly and yearly results of operations or result in a diversion of management's time and attention from our core business. Acquisitions could include significant intangible assets and goodwill.
Added
Difficulties in hiring and retaining employees and heightened competition for employees may impact our ability to serve customers, increase our costs, and impair our efficiency and effectiveness and our ability to pursue growth opportunities. Labor organizing activities could negatively impact us.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changePROPERTIES Equipment Stores As of January 31, 2022, we operated 109 agricultural and construction equipment stores in the United States and Europe in the following locations: Agriculture Segment Construction Segment International Segment Total United States North Dakota 10 5 — 15 Minnesota 12 3 — 15 Iowa 11 3 — 14 Nebraska 13 2 — 15 South Dakota 8 2 — 10 Colorado — 3 — 3 Wisconsin — 1 — 1 Wyoming 1 — — 1 European Countries Bulgaria — — 7 7 Germany — — 5 5 Romania — — 13 13 Ukraine — — 10 10 Total 55 19 35 109 Store Lease Arrangements As of January 31, 2022, we leased 66 store facilities with lease arrangements expiring at various dates through January 31, 2031.
Biggest changePROPERTIES Equipment Stores As of January 31, 2023, we operated 121 agricultural and construction equipment stores in the United States and Europe in the following locations: Agriculture Segment Construction Segment International Segment Total United States North Dakota 12 4 — 16 Minnesota 13 3 — 16 Iowa 12 3 — 15 Nebraska 14 2 — 16 South Dakota 10 2 — 12 Colorado — 3 — 3 Idaho 1 — — 1 Kansas 1 — — 1 Missouri 1 — — 1 Montana 1 — — 1 Washington 1 — — 1 Wisconsin 1 1 — 2 Wyoming 1 — — 1 European Countries Bulgaria — — 7 7 Germany — — 5 5 Romania — — 14 14 Ukraine — — 9 9 Total 68 18 35 121 Store Lease Arrangements As of January 31, 2023, we leased 67 store facilities with lease arrangements expiring at various dates through February 28, 2031.
In recent years, we have been strategically purchasing real estate and financing the purchases with long term debt, to take advantage of low interest rates. We currently own the store facilities for 39 U.S. dealership locations and four Germany dealership locations. We have incurred debt financing and granted mortgages on these owned facilities.
In recent years, we have been strategically purchasing real estate and financing the purchases with long term debt, to take advantage of low interest rates. We currently own the store facilities for 50 U.S. dealership locations and four Germany dealership locations. We have incurred debt financing and have been granted mortgages on these owned facilities.
Headquarters We currently lease and occupy approximately 48,000 square feet in West Fargo, North Dakota for our headquarters and this lease expires on January 31, 2028. We continually review our location needs, including the adequacy of our headquarters space, to ensure our space is sufficient to support our operations.
Headquarters We currently lease and occupy approximately 48,000 square feet in West Fargo, North Dakota for our headquarters and this lease expires on January 31, 2028. We continually review our location needs, including the adequacy of our 21 Table of Conten ts headquarters space, to ensure our space is sufficient to support our operations.
We believe there is ample opportunity for expansion in our West Fargo headquarters facility if necessary. 20 Table of Content
We believe there is ample opportunity for expansion in our West Fargo headquarters facility if necessary.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

3 edited+1 added−2 removed1 unchanged
Biggest changeBryan Knutson became our Chief Operating Officer in August 2017 and previously served as our Vice President, Ag Operations since 2016. Mr. Knutson joined the company in 2002 where he began his career in equipment sales later advancing to store manager, complex manager and region manager prior to his current role. Mr.
Biggest changeIn 2022 Mr.Knutson was appointed to President. Mr . Knutson joined the company in 2002 where he began his career in equipment sales later advancing to store manager, complex manager and region manager prior to his current role. Mr. Knutson is a current board member and Chairman of the Pioneer Equipment Dealers Association. PART II
MINE SAFETY DISCLOSURES Not applicable. 21 Table of Content INFORMATION ABOUT OUR EXECUTIVE OFFICERS The names, ages and positions of our executive officers are as follows: Name Age Position David Meyer 68 Board Chair and Chief Executive Officer Mark Kalvoda 50 Chief Financial Officer and Treasurer Bryan Knutson 43 Chief Operating Officer David Meyer is our Board Chair and Chief Executive Officer.
MINE SAFETY DISCLOSURES Not applicable. 22 Table of Conten ts INFORMATION ABOUT OUR EXECUTIVE OFFICERS The names, ages and positions of our executive officers are as follows: Name Age Position David Meyer 69 Board Chair and Chief Executive Officer Robert Larsen 37 Chief Financial Officer and Treasurer Bryan Knutson 44 President and Chief Operating Officer David Meyer is our Board Chair and Chief Executive Officer.
Mr. Meyer is the past chairman of the North Dakota Implement Dealers Association, and currently serves as a Trustee on the University of Minnesota Foundation. Mark Kalvoda became our Chief Financial Officer in April 2011 and previously served as our Chief Accounting Officer since September 2007.
Mr. Meyer is the past chairman of the North Dakota Implement Dealers Association, and currently serves as a Trustee on the University of Minnesota Foundation. Robert Larsen became our Chief Financial Officer in December 2022. Prior to joining us, he served as the Head of Finance for CNH Industrial’s team focused on precision technology. Prior to joining CNH Industrial, Mr.
Removed
Prior to joining us, he held various positions between 2004 and 2007 at American Crystal Sugar Co., including Corporate Controller, Assistant Secretary and Assistant Treasurer. Prior to working for American Crystal Sugar Co., he served in various financial positions within Hormel Foods Corporation.
Added
Larsen held various positions at Raven Industries starting in 2016, including Director of Finance, Director of Investor Relations and various other roles. Mr. Larsen began his career as an accountant with PricewaterhouseCoopers LLP and is a Certified Public Accountant. Bryan Knutson became our Chief Operating Officer in August 2017 and previously served as our Vice President, Ag Operations since 2016.
Removed
Knutson is a current board member of the Pioneer Equipment Dealers Association. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

4 edited+0 added−0 removed2 unchanged
Biggest changeJanuary 31, 2017 2018 2019 2020 2021 2022 Titan Machinery Inc. $ 100.00 $ 155.61 $ 135.70 $ 88.41 $ 154.24 $ 223.03 Russell 2000 Index 100.00 115.65 110.10 118.52 152.27 148.95 S&P 500 Retail Index 100.00 143.84 150.77 180.19 253.16 275.65 ITEM 6. [RESERVED] 23 Table of Content
Biggest changeJanuary 31, 2018 2019 2020 2021 2022 2023 Titan Machinery Inc. $ 100.00 $ 87.20 $ 56.82 $ 99.12 $ 143.32 $ 204.47 Russell 2000 Index 100.00 95.20 102.48 131.66 128.79 122.66 S&P 500 Retail Index 100.00 104.82 125.27 176.00 191.64 154.13 ITEM 6. [RESERVED] 24 Table of Conten ts
UNREGISTERED SALES OF EQUITY SECURITIES We did not have any unregistered sales of equity securities during the fiscal quarter ended January 31, 2022.
UNREGISTERED SALES OF EQUITY SECURITIES We did not have any unregistered sales of equity securities during the fiscal quarter ended January 31, 2023.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS For information on securities authorized for issuance under our equity compensation plans, refer to Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters." REPURCHASES We did not engage in any repurchases of our common stock during the fiscal quarter ended January 31, 2022. 22 Table of Content STOCK PERFORMANCE GRAPH The following graph compares the cumulative total return for the last trading day of our last five fiscal years on a $100 investment (assuming dividend reinvestment) on January 31, 2017, the last trading day before our fifth preceding fiscal year, in each of our common stock, the Russell 2000 Stock Index and the S&P Retailing Group Index.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS For information on securities authorized for issuance under our equity compensation plans, refer to Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters." REPURCHASES We did not engage in any repurchases of our common stock during the fiscal quarter ended January 31, 2023. 23 Table of Conten ts STOCK PERFORMANCE GRAPH The following graph compares the cumulative total return for the last trading day of our last five fiscal years on a $100 investment (assuming dividend reinvestment) on January 31, 2018, the last trading day before our fifth preceding fiscal year, in each of our common stock, the Russell 2000 Index and the S&P 500 Retail Index.
As of March 28, 2022, there were approximately 575 record holders of our common stock, which excludes holders whose stock is held either in nominee name or street name brokerage accounts. DIVIDENDS We have not historically paid any dividends on our common stock.
As of March 24, 2023, there were approximately 580 record holders of our common stock, which excludes holders whose stock is held either in nominee name or street name brokerage accounts. DIVIDENDS We have not historically paid any dividends on our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

86 edited+24 added−28 removed79 unchanged
Biggest changeYear Ended January 31, 2022 2021 (dollars in thousands, except per share data) Adjusted Net Income Net Income $ 66,047 $ 19,356 Adjustments ERP transition costs — 2,990 Impairment charges 1,498 3,180 Ukraine remeasurement (gain) / loss (263) 1,174 Total Pre-Tax Adjustments 1,235 7,344 Tax Effect of Adjustments (1) — 2,227 Total Adjustments 1,235 5,117 Adjusted Net Income $ 67,282 $ 24,473 Adjusted Diluted EPS Diluted EPS $ 2.92 $ 0.86 Adjustments (2) ERP transition costs — 0.13 Impairment charges 0.07 0.14 Ukraine remeasurement (gain) / loss (0.01) 0.05 Total Pre-Tax Adjustments 0.06 0.32 Tax Effect of Adjustments (1) — 0.09 Total Adjustments 0.06 0.23 Adjusted Diluted EPS $ 2.98 $ 1.09 36 Table of Content Year Ended January 31, 2022 2021 (dollars in thousands, except per share data) Adjusted EBITDA Net Income $ 66,047 $ 19,356 Adjustments Interest expense, net of interest income 4,208 3,574 Provision for income taxes 20,854 11,397 Depreciation and amortization 22,139 23,701 EBITDA 113,248 58,028 Adjustments ERP transition costs — 2,990 Impairment charges 1,498 3,180 Ukraine remeasurement (gain) / loss (263) 1,174 Total Adjustments 1,235 7,344 Adjusted EBITDA $ 114,483 $ 65,372 (1) The tax effect of U.S. related adjustments was calculated using a 26% tax rate, determined based on a 21% federal statutory rate and a 5% blended state income tax rate.
Biggest changeYear Ended January 31, 2023 2022 (dollars in thousands, except per share data) Adjusted Net Income Net Income $ 101,868 $ 66,047 Adjustments Impairment charges — 1,498 Ukraine remeasurement (gain) / loss 777 (263) Total Adjustments (1) 777 1,235 Adjusted Net Income $ 102,645 $ 67,282 Adjusted Diluted EPS Diluted EPS $ 4.49 $ 2.92 Adjustments (2) Impairment charges — 0.07 Ukraine remeasurement (gain) / loss 0.03 (0.01) Total Adjustments (1) 0.03 0.06 Adjusted Diluted EPS $ 4.52 $ 2.98 36 Table of Conten ts Year Ended January 31, 2023 2022 (dollars in thousands, except per share data) Adjusted EBITDA Net Income $ 101,868 $ 66,047 Adjustments Interest expense, net of interest income 4,730 4,208 Provision for income taxes 33,373 20,854 Depreciation and amortization 25,197 22,139 EBITDA 165,168 113,248 Adjustments Impairment charges — 1,498 Ukraine remeasurement (gain) / loss 777 (263) Total Adjustments 777 1,235 Adjusted EBITDA $ 165,945 $ 114,483 (1) Due to the income tax valuation allowance on the Ukrainian and German subsidiaries, there are no tax adjustments of the Ukraine remeasurement (gain)/loss or the impairment charge.
Our forward-looking statements in this Form 10-K generally relate to the following: • our beliefs and intentions with respect to our growth strategies, including growth through strategic acquisitions, the types of acquisition targets we intend to pursue, the availability of suitable acquisition targets, the industry climate for dealer consolidation, and our ability to implement our growth strategies; • our beliefs with respect to factors that will affect demand and seasonality of purchasing in the agricultural and construction industries; 39 Table of Content • our beliefs with respect to our primary supplier (CNH Industrial) of equipment and parts inventory; • our beliefs with respect to the equipment market, our competitors and our competitive advantages; • our beliefs with respect to the impact of U.S federal government policies on the agriculture economy; • our beliefs with respect to the impact of commodity prices for the fossil fuels and other commodities on our operating results; • our beliefs with respect to the impact of government regulations; • our beliefs with respect to our business strengths and the diversity of our customer base; • our plans and beliefs with respect to real property used in our business; • our plans and beliefs regarding future sales, sales mix, and marketing activities; • our beliefs and assumptions regarding the payment of dividends; • our beliefs and assumptions regarding valuation reserves, equipment inventory balances, fixed operating expenses, and absorption rate; • our beliefs and expectations regarding the impact of the Russia-Ukraine military conflict on our Ukrainian operations; • our beliefs and assumptions with respect to our rental equipment operations; • our beliefs with respect to our employee relations; • our assumptions, beliefs and expectations with respect to past and future market conditions, including interest rates, and public infrastructure spending, new environmental standards, and the impact these conditions will have on our operating results; • our beliefs with respect to the impact of our credit agreements, including future interest expense, limits on corporate transactions, financial covenant compliance, and ability to negotiate amendments or waivers, if needed; • our beliefs with respect to the impact of increase or decrease in applicable foreign exchange rates; • our plans and assumptions for future capital expenditures and rental fleet purchases; • our cash needs, sources of liquidity, and the adequacy of our working capital.
Our forward-looking statements in this Form 10-K generally relate to the following: • our beliefs and intentions with respect to our growth strategies, including growth through strategic acquisitions, the types of acquisition targets we intend to pursue, the availability of suitable acquisition targets, the industry climate for dealer consolidation, and our ability to implement our growth strategies; • our beliefs with respect to factors that will affect demand and seasonality of purchasing in the agricultural and construction industries; • our beliefs with respect to our primary supplier (CNH Industrial) of equipment and parts inventory; • our beliefs with respect to the equipment market, our competitors and our competitive advantages; • our beliefs with respect to the impact of U.S federal government policies on the agriculture economy; • our beliefs with respect to the impact of commodity prices for the fossil fuels and other commodities on our operating results; • our beliefs with respect to the impact of government regulations; • our beliefs with respect to our business strengths and the diversity of our customer base; • our plans and beliefs with respect to real property used in our business; • our plans and beliefs regarding future sales, sales mix, and marketing activities; • our beliefs and assumptions regarding the payment of dividends; • our beliefs and assumptions regarding valuation reserves, equipment inventory balances, fixed operating expenses, and absorption rate; • our beliefs and expectations regarding the impact of the Russia-Ukraine military conflict on our Ukrainian operations; • our beliefs and assumptions with respect to our rental equipment operations; • our beliefs with respect to our employee relations; 41 Table of Conten ts • our assumptions, beliefs and expectations with respect to past and future market conditions, including interest rates, and public infrastructure spending, new environmental standards, and the impact these conditions will have on our operating results; • our beliefs with respect to the impact of our credit agreements, including future interest expense, limits on corporate transactions, financial covenant compliance, and ability to negotiate amendments or waivers, if needed; • our beliefs with respect to the impact of increase or decrease in applicable foreign exchange rates; • our plans and assumptions for future capital expenditures and rental fleet purchases; • our cash needs, sources of liquidity, and the adequacy of our working capital.
Such factors include, but are not limited to, the following: • the impact of the Russian-Ukraine military conflict on our operations in Ukraine; • assumptions regarding our cash needs and the amount of inventory we need on hand; • general economic conditions and construction activity in the markets where we operate; • our dependence on CNH Industrial, our primary supplier of equipment and parts inventory, and our relationships with other equipment suppliers; • the terms of the CNH dealer agreements that subject us to restrictions that may adversely impact our business and growth; • the risks associated with our international operations; • risks resulting from the implementation or design of our new ERP system; • risks resulting from the impact of the enactment of "right to repair" legislation; • the impact of security breaches and other disruptions to our information system; • our level of indebtedness and ability to comply with the terms of agreements governing our indebtedness; 40 Table of Content • the risks associated with the expansion of our business; • the risks resulting from outbreaks or other public health crises, including COVID-19; • the potential inability to integrate any businesses we acquire; • competitive pressures; • significant fluctuations in the price of our common stock; • risks related to our dependence on our information technology systems and the impact of potential breaches and other disruptions; • compliance with laws and regulations; and • other factors discussed under "Risk Factors" or elsewhere in this Form 10-K.
Such factors include, but are not limited to, the following: • the impact of the Russian-Ukraine military conflict on our operations in Ukraine; • assumptions regarding our cash needs and the amount of inventory we need on hand; • general economic conditions and construction activity in the markets where we operate; • our dependence on CNH Industrial, our primary supplier of equipment and parts inventory, and our relationships with other equipment suppliers; • the terms of the CNH dealer agreements that subject us to restrictions that may adversely impact our business and growth; • the risks associated with our international operations; • risks resulting from the implementation or design of our new ERP system; • risks resulting from the impact of the enactment of "right to repair" legislation; • the impact of security breaches and other disruptions to our information system; • our level of indebtedness and ability to comply with the terms of agreements governing our indebtedness; • the risks associated with the expansion of our business; • the risks resulting from outbreaks or other public health crises, including the continuing impact of COVID-19 on our business; • the potential inability to integrate any businesses we acquire; • competitive pressures; • significant fluctuations in the price of our common stock; • risks related to our dependence on our information technology systems and the impact of potential breaches and other disruptions; • compliance with laws and regulations; and • other factors discussed under "Risk Factors" or elsewhere in this Form 10-K.
The actual amount of our fiscal 2023 capital expenditures will depend upon factors such as general economic conditions, growth prospects for our industry and our decisions regarding financing and leasing options. We currently expect to finance property and equipment purchases with borrowings under our existing credit facilities, financing with long-term debt, with available cash or with cash flow from operations.
The actual amount of our fiscal 2024 capital expenditures will depend upon factors such as general economic conditions, growth prospects for our industry and our decisions regarding financing and leasing options. We currently expect to finance property and equipment purchases with borrowings under our existing credit facilities, financing with long-term debt, with available cash or with cash flow from operations.
Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate. During our 2022 fiscal year, we determined that events or circumstances were present that may indicate that the carrying amount of certain of our store long-lived assets might not be recoverable.
Other long-lived assets shared across stores within a segment or shared across segments are reviewed for impairment on a segment or consolidated level as appropriate. During our 2023 fiscal year, we determined that events or circumstances were present that may indicate that the carrying amount of certain of our store long-lived assets might not be recoverable.
Adequacy of Capital Resources Our primary uses of cash have been to fund our operating activities, including the purchase of inventories and providing for other working capital needs; meeting our debt service requirements; making payments due under our various leasing arrangements; and funding capital expenditures, including the purchase of rental fleet assets.
Adequacy of Capital Resources Our primary uses of cash have been to fund our operating activities, including the purchase of inventory and providing for other working capital needs; meeting our debt service requirements; making payments due under our various leasing arrangements; and funding capital expenditures, including the purchase of rental fleet assets.
Likewise, any decline in federal allocations to public infrastructure spending over the next few years should negatively impact our future results of operations. 25 Table of Content Seasonality & Weather The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and our available cash flow to fluctuate during the year.
Likewise, any decline in federal allocations to public infrastructure spending over the next few years should negatively impact our future results of operations. Seasonality & Weather The agricultural and construction equipment businesses are highly seasonal, which causes our quarterly results and our available cash flow to fluctuate during the year.
Macroeconomic and industry factors that affect commodity prices and net farm income include changing worldwide demand for agriculture commodities, crop yields and supply disruptions caused by weather patterns and crop diseases, crop stock levels, production costs, and changing U.S. dollar foreign currency exchange rates. Based on U.S.
Macroeconomic and industry factors that affect commodity prices and net farm income include changing worldwide demand for agriculture commodities, crop yields and supply disruptions caused by weather patterns and crop diseases, crop stock levels, production costs, and changing U.S. dollar foreig n currency exchange rates. Based on U.S.
Parts inventories are valued at the lower of average cost or net realizable value. We estimate net realizable value of our parts inventories based on various factors including aging and sales history of each type of parts inventory. 27 Table of Content Impairment of Long-Lived Assets Our long-lived assets consist primarily of property and equipment and operating lease assets.
Parts inventories are valued at the lower of average cost or net realizable value. We estimate net realizable value of our parts inventories based on various factors including aging and sales history of each type of parts inventory. Impairment of Long-Lived Assets Our long-lived assets consist primarily of property and equipment and operating lease assets.
If we incur additional indebtedness to finance any of these transactions, this may place increased 38 Table of Content demands on our cash flow from operations to service the resulting increased debt. Our existing debt agreements contain restrictive covenants that may restrict our ability to adopt any of these alternatives.
If we incur additional indebtedness to finance any of these transactions, this may place increased demands on our cash flow from operations to service the resulting increased debt. Our existing debt agreements contain restrictive covenants that may restrict our ability to adopt any of these alternatives.
Income Taxes In determining our provision for (benefit from) income taxes, we must make certain judgments and estimates, including an assessment of the realizability of our deferred tax assets.
Income Taxes In determining our provision for income taxes, we must make certain judgments and estimates, including an assessment of the realizability of our deferred tax assets.
Our assessment of the need for and magnitude of valuation allowances for 28 Table of Content our deferred tax assets may be impacted by changes in tax laws, our assumptions regarding the ability to generate future taxable income and the availability of tax-planning strategies.
Our assessment of the need for, and magnitude of, valuation allowances for our deferred tax assets may be impacted by changes in tax laws, our assumptions regarding the ability to generate future taxable income and the availability of tax-planning strategies.
Sales of new CNH Industrial products accounted for approximately 73% of our new equipment revenue in fiscal 2022, with our single largest manufacturer other than CNH Industrial representing approximately 2% of our total new equipment sales in fiscal 2022. We acquire used equipment for resale primarily through trade-ins from our customers and in some cases through selective purchases.
Sales of new CNH Industrial products accounted for approximately 73% of our new equipment revenue in fiscal 2023, with our single largest manufacturer other than CNH Industrial representing approximately 4% of our total new equipment sales in fiscal 2023. We acquire used equipment for resale primarily through trade-ins from our customers and in some cases through selective purchases.
In addition, the fourth quarter typically is a significant period for equipment sales in the U.S. because of our customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.
In addition, the fourth quarter typically is a significant period for equipment sales in the U.S. because of our 26 Table of Conten ts customers’ year-end tax planning considerations, the timing of dealer incentives and the increase in availability of funds from completed harvests and construction projects.
In total, valuation allowances of $6.1 million existed for certain of our international entities as of January 31, 2021. The initial recognition of, and any changes in, a deferred tax asset valuation allowance are recorded to the provision for income taxes and impacts our effective tax rate.
In total, valuation allowances of $6.0 million existed for certain of our international entities as of January 31, 2022. The initial recognition of, and any changes in, a deferred tax asset valuation allowance are recorded to the provision for income taxes and impacts our effective tax rate.
A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2020 to fiscal year 2021 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2021, filed with the SEC on March 31, 2021.
A discussion of changes in our Financial Results and Cash Flow Comparisons from fiscal year 2021 to fiscal year 2022 has been omitted from this Form 10-K, but may be found in Item 7 of Part II of our Annual Report on Form 10-K for the fiscal year ended January 31, 2022, filed with the SEC on April 1, 2022.
This includes long-term debt used to finance the purchase of real estate and vehicles. 30 Table of Content Results of Operations Comparative financial data for each of our four sources of revenue for fiscal 2022 and 2021 are presented below. The results include the acquisitions made during these periods.
This includes long-term debt used to finance the purchase of real estate and vehicles. 30 Table of Conten ts Results of Operations Comparative financial data for each of our four sources of revenue for fiscal 2023 and 2022 are presented below. The results include the acquisitions made during these periods.
We calculate absorption by dividing our gross profit from sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt.
We calculate absorption by dividing our gross profit from 28 Table of Conten ts sales of parts, service and rental fleet by our operating expenses, less commission expense on equipment sales, plus interest expense on floorplan payables and rental fleet debt.
As of January 31, 2022, we had floorplan payable lines of credit for equipment purchases totaling $752.0 million, which includes a $450.0 million credit facility with CNH Industrial Capital, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, a $50.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries.
As of January 31, 2023, we had floorplan payable lines of credit for equipment purchases totaling $781.0 million, which includes a $500.0 million credit facility with CNH Industrial Capital, a $185.0 million floorplan payable line under the Bank Syndicate Agreement, a $50.0 million credit facility with DLL Finance, and additional credit facilities related to our foreign subsidiaries.
Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2021 increased 25.1% compared to calendar year 20 20 due to U.S. crop production and increased commodity exports and partially offset by a reduction in U.S. Federal government's direct farm program payments.
Department of Agriculture ("USDA") publications, the most recent estimate of net farm income for calendar year 2022 increased 15.5% compared to calendar year 2021 due to U.S. crop production and increased commodity exports and partially offset by a reduction in U.S. Federal government's direct farm program payments.
Based on our current operational performance, we believe our cash flow from operations, available cash, and available borrowings under our existing credit facilities will be adequate to meet our liquidity needs for, at a minimum, the next 12 months.
Based on our current operational performance, we believe our cash flow from operations, available cash, and available borrowings under our existing credit facilities will be adequate to meet our liquidity needs beyond the next 12 months.
Any non-compliance by us under the terms of our debt agreements could result in an event of default which, if not cured, could result in the acceleration of our debt. We have met all financial covenants under these credit agreements as of January 31, 2022.
Any non-compliance by us under the terms 38 Table of Conten ts of our debt agreements could result in an event of default which, if not cured, could result in the acceleration of our debt. We have met all financial covenants under these credit agreements as of January 31, 2023.
Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future. 41 Table of Content
Other than as required by law, we undertake no obligation to update these forward-looking statements, even though our situation may change in the future. 42 Table of Conten ts
CNH Industrial regularly offers interest-free periods as well as additional incentives and special offers. As of January 31, 2022, 78.8% of our floorplan payable financing was non-interest bearing. Other Interest Expense Interest expense represents the interest on our debt instruments, other than floorplan payable financing facilities.
CNH Industrial regularly offers interest-free periods as well as additional incentives and special offers. As of January 31, 2023, 82.4% of our floorplan payable financing was non-interest bearing. Other Interest Expense Interest expense represents the interest on our debt instruments, other than floorplan payable financing facilities.
The property and equipment purchases in fiscal 2022 primarily related to the purchase of vehicles, trucks and real estate. We expect our cash expenditures for property and equipment, exclusive of rental fleet purchases, for fiscal 2023 to be approximately $25.0 million and expect cash expenditures for our rental fleet for fiscal 2023 to be approximately $10.0 million.
The property and equipment purchases in fiscal 2022 primarily related to the purchase of vehicles, trucks and real estate. We expect our cash expenditures for property and equipment, exclusive of rental fleet purchases, for fiscal 2024 to be approximately $35.0 million and expect cash expenditures for our rental fleet for fiscal 2024 to be approximately $12.0 million.
Cash Flow Used For Investing Activities Net cash used for investing activities is primarily comprised of cash used for property and equipment purchases, including rental fleet purchases, and for business acquisitions. Net cash used for investing activities was $55.2 million in fiscal 2022, compared to $20.3 million in fiscal 2021.
Cash Flow Used For Investing Activities Net cash used for investing activities is primarily comprised of cash used for property and equipment purchases, including rental fleet purchases, and for business acquisitions. Net cash used for investing activities was $134.1 million in fiscal 2023, compared to $55.2 million in fiscal 2022.
In fiscal 2022, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 66% of the new equipment sold in our Construction segment, and 70% of the new equipment sold in our International segment, and represented a significant portion of our parts revenue.
In fiscal 2023, CNH Industrial supplied approximately 76% of the new equipment sold in our Agriculture segment, 76% of the new equipment sold in our Construction segment, and 60% of the new equipment sold in our International segment, and represented a significant portion of our parts revenue.
Throughout our 41-year operating history, we have built an extensive, geographically contiguous network of 74 stores located in the United States and 35 stores in Europe. We have a history of growth through acquisitions, including over 50 acquisitions in 11 U.S. states and four European countries since January 1, 2003.
Throughout our 42-year operating history, we have built an extensive, geographically contiguous network of 86 stores located in the United States and 35 stores in Europe. We have a history of growth through acquisitions, including over 55 acquisitions in 15 U.S. states and four European countries since January 1, 2003.
However, if retail interest rates remain low, our business may be positively affected by customers who find financing purchases of our equipment more attractive due to lower borrowing costs. Our business is also particularly dependent on our access to credit markets to manage inventory and finance acquisitions.
However, if retail interest rates continue to rise, our business may be negatively affected by customers who find financing purchases of our equipment less attractive due to higher borrowing costs. Our business is also particularly dependent on our access to credit markets to manage inventory and finance acquisitions.
Please refer to Note 8 to our consolidated financial statement included in Item 8 for further information regarding the Company's line of credit. Our equipment inventory turnover increased to 3.4 times for fiscal 2022 compared to 2.0 times for fiscal 2021. Our equipment inventories amount decreased 4.2% from January 31, 2021 to January 31, 2022.
Please refer to Note 8 to our consolidated financial statement included in Item 8 for further information regarding the Company's line of credit. Our equipment inventory turnover decreased slightly to 3.3 times for fiscal 2023 compared to 3.4 times for fiscal 2022. Our equipment inventory balance increased 65.1% from January 31, 2022 to January 31, 2023.
Based on its February 2022 report, the USDA projected net farm income for calendar year 2022 to decrease 4.5%, as compared to calendar year 2021. Our Construction business is primarily impacted by the demand for construction equipment for use in private and government commercial, residential, and infrastructure construction; demolition; maintenance; energy and forestry operations.
Based on its February 2023 report, the USDA projected net farm income for calendar year 2023 to decrease 15.9%, as compared to calendar year 2022, but still remain above historical levels. Our Construction business is primarily impacted by the demand for construction equipment for use in private and government commercial, residential, and infrastructure construction; demolition; maintenance; energy and forestry operations.
The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in fiscal 2022 compared to fiscal 2021, which positively affected our ability to leverage our fixed operating costs. 33 Table of Content Impairment Year Ended January 31, Percent 2022 2021 Decrease Change (dollars in thousands) Impairment of Goodwill $ — $ 1,453 $ (1,453) n/m Impairment of Intangible and Long-Lived Assets 1,498 1,727 (229) (13.3) % During fiscal 2022, the Company did not recognize any goodwill impairment charges and recognized a total of $1.5 million of impairment charges related to certain intangible and long-lived assets.
The decrease in operating expenses as a percentage of total revenue was due to the increase in total revenue in fiscal 2023 compared to fiscal 2022, which positively affected our ability to leverage our fixed operating costs. 33 Table of Conten ts Impairment Charges Year Ended January 31, Percent 2023 2022 Decrease Change (dollars in thousands) Impairment of Intangible and Long-Lived Assets — 1,498 (1,498) n/m During fiscal 2023, the Company did not recognize any impairment charges.
In fiscal 2021, the Company recognized $1.5 million of impairment charges related to goodwill and $1.7 million of impairment charges related to other intangible and long lived assets. The fiscal 2022 and 2021 impairment expenses were primarily related to the impairment of goodwill and certain other intangible assets in our International segment.
In fiscal 2022, the Company recognized $1.5 million of impairment charges related to certain intangible and long-lived assets, in our International segment.
The property and equipment purchases in fiscal 2022 primarily related to improvements to, or purchases of, real estate assets and the purchase of vehicles. In fiscal 2021, we used $7.1 million in cash for rental fleet purchases, $13.0 million in cash for property and equipment purchases, and financed $19.5 million in property and equipment purchases with long-term debt.
The property and equipment purchases in fiscal 2023 primarily related to improvements to, or purchases of, real estate assets and the purchase of vehicles. In fiscal 2022, we used $14.6 million in cash for rental fleet purchases, $23.0 million in cash for property and equipment purchases, and financed $14.6 million in property and equipment purchases with long-term debt.
Thus, we believe the following factors have a significant impact on our operating results: • CNH Industrial’s product offerings, reputation and market share; • CNH Industrial’s product prices and incentive and discount programs; • CNH Industrial's supply of inventory; • CNH Industrial's offering of floorplan payable financing for the purchase of a substantial portion of our inventory; and • CNH Industrial's offering of financing and leasing used by our customers to purchase CNH Industrial equipment from us.
Thus, we believe the following factors have a significant impact on our operating results: • CNH Industrial’s product offerings, reputation and market share; • CNH Industrial’s product prices and incentive and discount programs; • CNH Industrial's supply of inventory and ability to meet delivery timelines; • CNH Industrial's implementation of an equipment allocation methodology for use in determining production slots in calendar year 2023; • CNH Industrial's offering of floorplan payable financing for the purchase of a substantial portion of our inventory; and • CNH Industrial's offering of financing and leasing used by our customers to purchase CNH Industrial equipment from us.
In fiscal 2022, we used $14.6 million in cash for rental fleet purchases and $23.0 million in cash for property and equipment purchases and financed $14.6 million in property and equipment purchases with long-term debt and finance leases.
In fiscal 2023, we used $10.0 million in cash for rental fleet purchases and $27.2 million in cash for property and equipment purchases and financed $6.4 million in property and equipment purchases with long-term debt and finance leases.
Since these allocations are set early in the year, and a portion is 35 Table of Content planned to be unallocated, unallocated balances may occur. Shared Resource loss before income taxes was $1.8 million for fiscal 2022 compared to income before income taxes of $2.2 million for fiscal 2021.
Since these allocations are set early in the year, and a portion is planned to be unallocated, unallocated balances may occur and cause a difference in reported shared resource expense. Shared Resource loss before income taxes was $6.3 million for fiscal 2023 compared to $1.8 million for fiscal 2022.
In all other cases, in which the aggregate carrying value of such assets totaled $20.6 million, our analyses indicated that the carrying values are recoverable based on our estimates of future undiscounted cash flows under step one of the impairment analysis.
In all cases, our analyses indicated that the carrying values are recoverable based on our estimates of future undiscounted cash flows under step one of the impairment analysis.
Cost of Revenue • Equipment: Cost of equipment revenue is the lower of the acquired cost or the net realizable value of the specific piece of equipment sold. • Parts: Cost of parts revenue is the lower of the acquired cost or the market value of the parts sold, based on average costing. • Service: Cost of service revenue represents costs attributable to services provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers. • Rental and other: Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, truck depreciation, fuel costs, shipping costs and our costs related to damage waiver policies.
Cost of Revenue • Equipment: Cost of equipment revenue is the lower of the acquired cost or the net realizable value of the specific piece of equipment sold. • Parts: Cost of parts revenue is the lower of the acquired cost or the market value of the parts sold, based on average costing. • Service: Cost of service revenue represents costs attributable to services provided for the maintenance and repair of customer-owned equipment and equipment then on-rent by customers. • Rental and other: Costs of other revenue represent costs associated with equipment rental, such as depreciation, maintenance and repairs, as well as costs associated providing transportation, hauling, parts freight, GPS subscriptions and damage waivers, including, among other items, drivers' wages, truck depreciation, fuel costs, shipping costs and our costs related to damage waiver policies. 29 Table of Conten ts Operating Expenses Our operating expenses include sales and marketing expenses, sales commissions (which generally are based upon equipment gross profit margins), payroll and related benefit costs, insurance expenses, professional fees, property rental and related costs, property and other taxes, administrative overhead, and depreciation associated with property and equipment (other than rental and trucking equipment).
Operating Expenses Year Ended January 31, Increase/ Percent 2022 2021 (Decrease) Change (dollars in thousands) Operating Expenses $ 241,044 $ 220,774 $ 20,270 9.2 % Operating Expenses as a Percentage of Revenue 14.1 % 15.6 % (1.5) % (9.6) % Operating expenses for fiscal 2022 increased $20.3 million, as compared to fiscal 2021.
Operating Expenses Year Ended January 31, Increase/ Percent 2023 2022 (Decrease) Change (dollars in thousands) Operating Expenses $ 301,516 $ 241,044 $ 60,472 25.1 % Operating Expenses as a Percentage of Revenue 13.6 % 14.1 % (0.5) % (3.5) % Operating expenses for fiscal 2023 increased $60.5 million, as compared to fiscal 2022.
Our estimates of the value of trade-in assets are impacted by changing market values of used equipment and the availability of relevant and reliable third-party data. In instances in which relevant third-party information is not available, the value assigned to trade-in equipment is dependent on internal judgments.
Our estimates of the value of trade-in assets are impacted by changing market values of used equipment and the availability of relevant and reliable third-party data.
In light of these circumstances, we performed step one of the impairment analysis for these assets, which have a combined carrying value of $25.8 million, to determine if the asset values are recoverable. In certain cases, the analysis indicated that the carrying value is not recoverable. The aggregate carrying value of such assets totaled $5.2 million.
In light of these circumstances, we performed step one of the impairment analysis for these assets, which have a combined carrying value of $12.6 million, to determine if the asset values are recoverable.
The Company works with various lenders to finance the purchase of real estate we currently lease or are acquiring through an acquisition. The Company may also decide in the future to finance a portion of our rental fleet as well as our capital expenditures using long-term debt from various lenders.
The Company may also decide in the future to finance a portion of our rental fleet as well as our capital expenditures using long-term debt from various lenders.
Inventory Turnover Inventory turnover measures the rate at which inventory is sold during the year. We calculate it by dividing cost of sales on equipment for the last twelve months by the average of the month-end balances of our equipment and parts inventories for the same twelve-month period.
We calculate it by dividing cost of sales on equipment for the last twelve months by the average of the month-end balances of our equipment and parts inventories for the same twelve-month period. We believe that inventory turnover is an important management metric in evaluating the efficiency at which we are managing and selling our inventories.
Inventories New and used equipment inventories are stated at the lower of cost (specific identification) or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation.
Refer to the Non-GAAP Financial Measures section for a reconciliation of Adjusted EBITDA to net income. 29 Table of Content Key Financial Statement Components Revenue • Equipment : We derive equipment revenue from the sale of new and used agricultural and construction equipment. • Parts: We derive parts revenue from the sale of parts for brands of equipment that we sell, other makes of equipment, and other types of equipment and related components.
Key Financial Statement Components Revenue • Equipment : We derive equipment revenue from the sale of new and used agricultural and construction equipment. • Parts: We derive parts revenue from the sale of parts for brands of equipment that we sell, other makes of equipment, and other types of equipment and related components.
The decrease in floorplan interest expense for fiscal 2022, as compared to fiscal 2021, was due to an overall lower interest rate environment as well as lower borrowings. The increase in other interest expense in fiscal 2022 is the result of an increased amount of long term debt resulting from real estate purchased in fiscal 2022.
The increase in floorplan interest expense for fiscal 2023, as compared to fiscal 2022, was primarily due to increased interest-bearing borrowings. The increase in other interest expense in fiscal 2023 is the result of an increased amount of long term debt resulting from real estate purchased via acquisition or the buyout of previously leased facilities in fiscal 2022 and 2023.
We do not distinguish relocated or newly-expanded stores in this same-store analysis. Closed stores are excluded from the same-store analysis. Absorption Absorption is an industry term that refers to the percentage of an equipment dealer's operating expense covered by the combined gross profit from parts, service and rental fleet activity.
Absorption Absorption is an industry term that refers to the percentage of an equipment dealer's operating expense covered by the combined gross profit from parts, service and rental fleet activity.
Impairment charges of $1.5 million were recognized in fiscal 2022, compared to impairment charges of $2.3 million in fiscal 2021. Shared Resources/Eliminations We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments.
There were no fixed or intangible asset impairment charges recognized in fiscal 2023, while $1.5 million of charges were recognized in fiscal 2022 related to the impairment of certain intangible and long-lived assets of our German subsidiary. 35 Table of Conten ts Shared Resources/Eliminations We incur centralized expenses/income at our general corporate level, which we refer to as “Shared Resources,” and then allocate most of these net expenses to our segments.
As of January 31, 2022, the Company was not subject to the fixed charge ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Bank Syndicate Agreement) was not less than 15% of the total amount of the credit facility.
Additional details on each of these credit facilities are disclosed in Note 8 to our consolidated financial statements included in this annual report. 37 Table of Conten ts As of January 31, 2023, the Company was not subject to the fixed charge ratio covenant under the Bank Syndicate Agreement as our adjusted excess availability plus eligible cash collateral (as defined in the Bank Syndicate Agreement) was not less than 15% of the total amount of the credit facility.
The improvement in equipment turnover was due to the combination of the increase in equipment sales volume in fiscal 2022 as compared to fiscal 2021 and a decrease in our average equipment inventory over these time periods.
The decrease in equipment turnover was primarily due to the increase in average equipment inventory in fiscal 2023 as compared to fiscal 2022 but was mostly offset by an increase in equipment cost of sales over these time periods.
The decrease in net cash provided by operating activities of $14.1 million from fiscal 2021 to fiscal 2022 is primarily the result of a consistent inventory balance and manufacturer floorplan payable balance during fiscal 2022 compared to a reduction in inventories in fiscal 2021, this was partially offset by an increase in receivables and prepaid expenses for fiscal 2022.
The decrease in net cash provided by operating activities is primarily the result of an increasing inventory balance and a decrease in deferred revenue which were partially offset by an increase in net income and manufacturer floorplan payable balance during fiscal 2023 compared to fiscal 2022.
The strong same store sales increase was primarily driven by strong agriculture equipment sales due to higher commodity prices, higher net farm income, and good growing conditions in our international footprint. 32 Table of Content Gross Profit Year Ended January 31, Increase/ Percent 2022 2021 (Decrease) Change (dollars in thousands) Gross Profit Equipment $ 161,479 $ 104,901 $ 56,578 53.9 % Parts 80,592 72,803 7,789 10.7 % Service 76,870 70,537 6,333 9.0 % Rental and other 13,783 13,121 662 5.0 % Total Gross Profit $ 332,724 $ 261,362 $ 71,362 27.3 % Gross Profit Margin Equipment 12.5 % 10.3 % 2.2 % 21.4 % Parts 30.2 % 29.8 % 0.4 % 1.3 % Service 66.5 % 65.8 % 0.7 % 1.1 % Rental and other 36.6 % 30.3 % 6.3 % 20.8 % Total Gross Profit Margin 19.4 % 18.5 % 0.9 % 4.9 % Gross Profit Mix Equipment 48.6 % 40.1 % 8.5 % 21.2 % Parts 24.2 % 27.9 % (3.7) % (13.3) % Service 23.1 % 27.0 % (3.9) % (14.4) % Rental and other 4.1 % 5.0 % (0.9) % (18.0) % Total Gross Profit Mix 100.0 % 100.0 % Gross profit increased 27.3% or $71.4 million from fiscal 2021 to fiscal 2022, primarily due to higher revenue and gross profit from our equipment, parts, and service business.
The strong same store sales increase was primarily driven by agriculture equipment sales, which benefited from high demand levels that were supported by higher commodity prices and higher net farm income. 32 Table of Conten ts Gross Profit Year Ended January 31, Increase/ Percent 2023 2022 (Decrease) Change (dollars in thousands) Gross Profit Equipment $ 234,020 $ 161,479 $ 72,541 44.9 % Parts 106,778 80,592 26,186 32.5 % Service 83,595 76,870 6,725 8.7 % Rental and other 15,446 13,783 1,663 12.1 % Total Gross Profit $ 439,839 $ 332,724 $ 107,115 32.2 % Gross Profit Margin Equipment 13.7 % 12.5 % 1.2 % 9.6 % Parts 32.6 % 30.2 % 2.4 % 7.9 % Service 64.4 % 66.5 % (2.1) % (3.2) % Rental and other 37.9 % 36.6 % 1.3 % 3.6 % Total Gross Profit Margin 19.9 % 19.4 % 0.5 % 2.6 % Gross Profit Mix Equipment 53.2 % 48.6 % 4.6 % 9.5 % Parts 24.3 % 24.2 % 0.1 % 0.4 % Service 19.0 % 23.1 % (4.1) % (17.7) % Rental and other 3.5 % 4.1 % (0.6) % (14.6) % Total Gross Profit Mix 100.0 % 100.0 % Gross profit increased 32.2% or $107.1 million from fiscal 2022 to fiscal 2023, primarily due to higher revenue and gross profit from our equipment and parts business.
Total cash consideration paid for the business was $28.2 million which was financed through available cash resources. In conjunction with the acquisition, we purchased the real estate for $5.5 million which was financed with available cash and long term debt. The three Jaycox locations are included within our Agriculture segment.
In conjunction with the acquisition, we purchased the real estate for $5.5 million which was financed with available cash and long term debt. The three Jaycox locations are included within our Agriculture segment. Key Financial Metrics In addition to tracking our sales and expenses to evaluate our operational performance, we also monitor the following key financial metrics.
Non-GAAP Financial Measures To supplement our net income and diluted earnings per share ("diluted EPS"), both GAAP measures, we present and our management utilizes adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.
Non-GAAP Financial Measures To supplement our net income and diluted earnings per share ("diluted EPS"), both GAAP measures, we present, and our management utilizes, adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures. Generally, these non-GAAP financial measures include adjustments for items such as impairment charges and foreign currency remeasurement gains/losses in Ukraine.
We also recorded a full valuation allowance on our Luxembourg holding company. Due to improved performance, a partial release of a valuation allowance for the Company's Bulgarian subsidiary was recorded. In total, valuation allowances of $6.0 million exist for our international entities as of January 31, 2022.
It was also concluded that a full valuation allowance was warranted on our German subsidiary and we also recorded a full valuation allowance of our Luxembourg holding company. Due to improved performance, a partial release of a valuation allowance for the Company's Bulgarian subsidiary was recorded.
Year Ended January 31, 2022 2021 Revenue Equipment 75.4 % 72.0 % Parts 15.6 % 17.3 % Service 6.8 % 7.6 % Rental and other 2.2 % 3.1 % Total Revenue 100.0 % 100.0 % Total Cost of Revenue 80.6 % 81.5 % Gross Profit Margin 19.4 % 18.5 % Operating Expenses 14.1 % 15.6 % Impairment of Goodwill — % 0.1 % Impairment of Intangible and Long-Lived Assets 0.1 % 0.1 % Income from Operations 5.3 % 2.7 % Other Income (Expense) (0.2) % (0.5) % Income Before Income Taxes 5.1 % 2.2 % Provision for Income Taxes 1.2 % 0.8 % Net Income 3.9 % 1.4 % Fiscal Year Ended January 31, 2022 Compared to Fiscal Year Ended January 31, 2021 Consolidated Results Revenue Year Ended January 31, Increase/ Percent 2022 2021 (Decrease) Change (dollars in thousands) Equipment $ 1,291,684 $ 1,016,071 $ 275,613 27.1 % Parts 266,916 244,676 22,240 9.1 % Service 115,641 107,229 8,412 7.8 % Rental and other 37,665 43,246 (5,581) (12.9) % Total Revenue $ 1,711,906 $ 1,411,222 $ 300,684 21.3 % The increase in total revenue for fiscal 2022, as compared to fiscal 2021, was primarily the result of Company-wide same-store sales increase of 23.5% over the prior fiscal year and our acquisitions of HorizonWest and Jaycox, completed in May 2020 and December 2021, respectively.
Year Ended January 31, 2023 2022 Revenue Equipment 77.5 % 75.4 % Parts 14.8 % 15.6 % Service 5.9 % 6.8 % Rental and other 1.8 % 2.2 % Total Revenue 100.0 % 100.0 % Total Cost of Revenue 80.1 % 80.6 % Gross Profit Margin 19.9 % 19.4 % Operating Expenses 13.6 % 14.1 % Impairment of Intangible and Long-Lived Assets — % 0.1 % Income from Operations 6.3 % 5.3 % Other Income (Expense) (0.2) % (0.2) % Income Before Income Taxes 6.1 % 5.1 % Provision for Income Taxes 1.5 % 1.2 % Net Income 4.6 % 3.9 % Fiscal Year Ended January 31, 2023 Compared to Fiscal Year Ended January 31, 2022 Consolidated Results Revenue Year Ended January 31, Increase/ Percent 2023 2022 (Decrease) Change (dollars in thousands) Equipment $ 1,711,559 $ 1,291,684 $ 419,875 32.5 % Parts 327,196 266,916 60,280 22.6 % Service 129,803 115,641 14,162 12.2 % Rental and other 40,748 37,665 3,083 8.2 % Total Revenue $ 2,209,306 $ 1,711,906 $ 497,400 29.1 % The increase in total revenue for fiscal 2023, as compared to fiscal 2022, was primarily the result of Company-wide same-store sales increase of 22.4% over the prior fiscal year and our acquisitions of Jaycox Implement, Mark's Machinery, and the Heartland Companies, completed in December 2021, April 2022, and August 2022, respectively, which was partially offset by the divestitures in Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming, in January 2022, and Fargo, North Dakota in March 2022.
Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, increased to 58.2% as of January 31, 2022, from 52.1% as of January 31, 2021.
Our equity in equipment inventory, which reflects the portion of our equipment inventory balance that is not financed by floorplan payables, decreased to 51.7% as of January 31, 2023, from 58.2% as of January 31, 2022. The decrease was primarily due to drawing on our floorplan loan with the Bank Syndicate to finance acquisitions in fiscal 2023.
Year Ended January 31, 2022 2021 (dollars in thousands) Equipment Revenue $ 1,291,684 $ 1,016,071 Cost of revenue 1,130,205 911,170 Gross profit $ 161,479 $ 104,901 Gross profit margin 12.5 % 10.3 % Parts Revenue $ 266,916 $ 244,676 Cost of revenue 186,324 171,873 Gross profit $ 80,592 $ 72,803 Gross profit margin 30.2 % 29.8 % Service Revenue $ 115,641 $ 107,229 Cost of revenue 38,771 36,692 Gross profit $ 76,870 $ 70,537 Gross profit margin 66.5 % 65.8 % Rental and other Revenue $ 37,665 $ 43,246 Cost of revenue 23,882 30,125 Gross profit $ 13,783 $ 13,121 Gross profit margin 36.6 % 30.3 % 31 Table of Content The following table sets forth our statements of operations data expressed as a percentage of revenue for the fiscal years indicated.
Year Ended January 31, 2023 2022 (dollars in thousands) Equipment Revenue $ 1,711,559 $ 1,291,684 Cost of revenue 1,477,539 1,130,205 Gross profit $ 234,020 $ 161,479 Gross profit margin 13.7 % 12.5 % Parts Revenue $ 327,196 $ 266,916 Cost of revenue 220,418 186,324 Gross profit $ 106,778 $ 80,592 Gross profit margin 32.6 % 30.2 % Service Revenue $ 129,803 $ 115,641 Cost of revenue 46,208 38,771 Gross profit $ 83,595 $ 76,870 Gross profit margin 64.4 % 66.5 % Rental and other Revenue $ 40,748 $ 37,665 Cost of revenue 25,302 23,882 Gross profit $ 15,446 $ 13,783 Gross profit margin 37.9 % 36.6 % 31 Table of Conten ts The following table sets forth our statements of operations data expressed as a percentage of revenue for the fiscal years indicated.
Certain External Factors Affecting our Business We are subject to a number of factors that affect our business including those factors discussed in the sections in this annual report entitled "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following: 24 Table of Content Russia/Ukraine Geopolitical Conflict As discussed in Risk Factors and Note 22, to the consolidated Financial Statements, our Ukrainian operations closed for a period of time.
Certain External Factors Affecting our Business We are subject to a number of factors that affect our business including those factors discussed in the sections in this annual report entitled "Risk Factors" and "Information Regarding Forward-Looking Statements." Certain of these external factors include, but are not limited to, the following: Russia/Ukraine Geopolitical Conflict Since the onset of the active conflict in February 2022, most of Titan Machinery Ukraine's customers have been able to continue their work, although at a reduced capacity and schedule.
Cash Flow Provided By (Used For) Financing Activities Net cash used for financing activities was $35.3 million in fiscal 2022, compared to net cash used for financing activities of $117.9 million in fiscal 2021.
Cash Flow Provided By (Used For) Financing Activities Net cash provided by financing activities was $22.0 million in fiscal 2023, compared to net cash used for financing activities of $35.3 million in fiscal 2022. In fiscal 2023, net cash provided by financing activities was the result of increased non-manufacturer floorplan payables, which was used to finance acquisitions in fiscal 2023.
In reviewing our deferred tax assets as of January 31, 2022, we concluded that a full valuation allowance continued to be warranted on our Ukrainian subsidiary. It was also concluded that a full valuation allowance was warranted on our German subsidiary which was previously only a partial valuation allowance.
In reviewing our deferred tax assets as of January 31, 2023, we concluded that a full valuation allowance continued to be warranted on our Ukrainian and German subsidiaries and our Luxembourg holding company. Due to continued improved performance, a release of the remaining valuation allowance on the Company's Bulgarian subsidiary was recorded.
Macroeconomic and Industry Factors Our Agriculture and International businesses are primarily driven by the demand for agricultural equipment for use in the production of food, fiber, feed grain and renewable energy; home and garden applications; and the maintenance of commercial, residential and government properties.
We will continue to work with our manufacturers to source future inventory to fulfill as much customer demand as possible. Macroeconomic and Industry Factors Our Agriculture and International businesses are primarily driven by the demand for agricultural equipment for use in the production of food, fiber, feed grain and renewable energy.
In addition, other companies may calculate Adjusted EBITDA in a different manner, which may hinder comparability with other companies.
In addition, other companies may calculate Adjusted EBITDA in a different manner, which may hinder comparability with other companies. Refer to the Non-GAAP Financial Measures section for a reconciliation of Adjusted EBITDA to net income.
If anticipated operating results create the likelihood of a future covenant violation, we would seek to work with our lenders on an appropriate modification or amendment to our financing arrangements. Cash Flow Cash Flow Provided By Operating Activities Net cash provided by operating activities in fiscal 2022 was $158.9 million compared to $173.0 million in fiscal 2021.
If anticipated operating results create the likelihood of a future covenant violation, we would seek to work with our lenders on an appropriate modification or amendment to our financing arrangements. We enter into contractual obligations in the ordinary course of business that may require future cash payments.
Our International segment income before income taxes was $12.6 million for fiscal 2022, compared to loss before income taxes of $6.0 million for fiscal 2021. The higher segment results were primarily the result of increased equipment sales and equipment gross profit margin including a $1.3 million increase in manufacturer incentive programs.
Our International segment income before income taxes was $20.2 million for fiscal 2023, compared to $12.6 million for fiscal 2022. The higher segment results were primarily the result of improved gross profit margin for our three main revenue streams, equipment, parts, and service.
Gross profit margin increased from 18.5% in fiscal 2021 to 19.4% in fiscal 2022. The increase in overall gross profit margin was primarily due to stronger equipment margins, which were positively impacted by favorable end market conditions, healthy inventory, and a $6.4 million increase in the amount earned under manufacturer incentive programs.
Gross profit margin increased from 19.4% in fiscal 2022 to 19.9% in fiscal 2023. The increase in overall gross profit margin was primarily due to stronger equipment margins, which were positively impacted by favorable end market conditions. Our Company-wide absorption rate declined to 82.7% for fiscal 2023 as compared to 84.6% during fiscal 2022.
Provision for Income Taxes Year Ended January 31, Percent 2022 2021 Increase Change (dollars in thousands) Provision for Income Taxes $ 20,854 $ 11,397 $ 9,457 83.0 % Our effective tax rate decreased from 37.1% in fiscal 2021 to 24.0% in fiscal 2022. The Company's effective tax rate decreased due to changes in valuation allowances recognized for deferred tax assets.
Provision for Income Taxes Year Ended January 31, Percent 2023 2022 Increase Change (dollars in thousands) Provision for Income Taxes $ 33,373 $ 20,854 $ 12,519 60.0 % Our effective tax rate increased from 24.0% in fiscal 2022 to 24.7% in fiscal 2023.
See Note 14 to our consolidated financial statements for further details on our effective tax rate. 34 Table of Content Segment Results Year Ended January 31, Increase/ Percent 2022 2021 (Decrease) Change (dollars in thousands) Revenue Agriculture $ 1,076,751 $ 886,485 $ 190,266 21.5 % Construction 317,164 305,745 11,419 3.7 % International 317,991 218,992 98,999 45.2 % Total $ 1,711,906 $ 1,411,222 $ 300,684 21.3 % Income (Loss) Before Income Taxes Agriculture $ 60,567 $ 34,422 $ 26,145 76.0 % Construction 15,543 186 15,357 n/m International 12,552 (6,025) 18,577 n/m Segment income before income taxes 88,662 28,583 60,079 210.2 % Shared Resources (1,761) 2,170 (3,931) n/m Total $ 86,901 $ 30,753 $ 56,148 182.6 % Agriculture Agriculture segment revenue for fiscal 2022 increased 21.5% or $190.3 million compared to the same period last year.
See Note 14 to our consolidated financial statements for further details on our effective tax rate. 34 Table of Conten ts Segment Results Year Ended January 31, Increase/ Percent 2023 2022 (Decrease) Change (dollars in thousands) Revenue Agriculture $ 1,601,720 $ 1,076,751 $ 524,969 48.8 % Construction 308,457 317,164 (8,707) (2.7) % International 299,129 317,991 (18,862) (5.9) % Total $ 2,209,306 $ 1,711,906 $ 497,400 29.1 % Income (Loss) Before Income Taxes Agriculture $ 102,733 $ 60,567 $ 42,166 69.6 % Construction 18,569 15,543 3,026 19.5 % International 20,197 12,552 7,645 60.9 % Segment income before income taxes 141,499 88,662 52,837 59.6 % Shared Resources (6,258) (1,761) (4,497) n/m Total $ 135,241 $ 86,901 $ 48,340 55.6 % Agriculture Agriculture segment revenue for fiscal 2023 increased 48.8% or $525.0 million compared to the same period last year.
For comparability, references to prior periods' non-GAAP financial measures have also been updated to show the effect of omitting the valuation allowance from Adjusted Net Income and Adjusted Diluted EPS - see tables below. The following tables reconcile net income and diluted EPS, GAAP financial measures, to adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.
The following tables reconcile net income and diluted EPS, GAAP financial measures, to adjusted net income, adjusted diluted EPS, and adjusted EBITDA, all non-GAAP financial measures.
We believe that inventory turnover is an important management metric in evaluating the efficiency at which we are managing and selling our inventories. Same-Store Results Same-store results for any period represent results of operations by stores that were part of our Company for the entire comparable period in the preceding fiscal year.
Same-Store Results Same-store results for any period represent results of operations by stores that were part of our Company for the entire comparable period in the preceding fiscal year. We do not distinguish relocated or newly-expanded stores in this same-store analysis.
The segment also benefited from a $5.7 million gain on the divestiture of our Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming locations. International International segment revenue for fiscal 2022 increased 45.2% or $99.0 million compared to fiscal 2021.
The dollar utilization of our rental fleet increased from 26.5% in fiscal 2022 to 30.2% in fiscal 2023. The prior year benefited from a $5.7 million gain on the divestitures of the Billings, Great Falls, and Missoula, Montana and Gillette, Wyoming stores in January 2022.
The increase in our equity in equipment inventory is primarily due to a high level of cash generation in fiscal 2022, which was applied against interest bearing floorplan payables. Long-Term Debt Facilities As of January 31, 2021, we had a $65.0 million working capital line of credit under the Bank Syndicate Agreement (the "Revolver Loan").
Long-Term Debt Facilities As of January 31, 2023, we had a $65.0 million working capital line of credit under the Bank Syndicate Agreement (the "Revolver Loan"). The Revolver Loan is used to finance our working capital requirements and fund certain capital expenditures, as needed.
Other Income (Expense) Year Ended January 31, Increase/ Percent 2022 2021 (Decrease) Change (dollars in thousands) Interest and other income (expense) $ 2,431 $ 527 $ 1,904 n/m Floorplan interest expense (1,175) (3,339) (2,164) (64.8) % Other interest expense (4,537) (3,843) 694 18.1 % The increase in Interest and other income (expense) compared to fiscal 2021 is primarily the result of fluctuations in foreign currency exchange rates, primarily the Ukrainian currency.
Other Income (Expense) Year Ended January 31, Increase/ Percent 2023 2022 (Decrease) Change (dollars in thousands) Interest and other income (expense) $ 3,862 $ 2,431 $ 1,431 58.9 % Floorplan interest expense (1,875) (1,175) 700 59.6 % Other interest expense (5,069) (4,537) 532 11.7 % The increase in interest and other income (expense) compared to fiscal 2022 is primarily the result of a strengthening U.S. dollar relative to the Euro thus creating foreign currency gains in fiscal 2023.
Key Financial Metrics In addition to tracking our sales and expenses to evaluate our operational performance, we also monitor the following key financial metrics. The results of some of these metrics are discussed further throughout the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K.
The results of some of these metrics are discussed further throughout the Management's Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K. Inventory Turnover Inventory turnover measures the rate at which inventory is sold during the year.
At the end of fiscal year ended January 31, 2021, the Company concluded, a full valuation allowance continued to be warranted in certain jurisdictions.
In total, valuation allowances of $6.5 million exist for our international entities as of January 31, 2023. 40 Table of Conten ts At the end of fiscal year ended January 31, 2022, the Company concluded a full valuation allowance continued to be warranted on our Ukrainian subsidiary.
The overall absorption rate in fiscal 2022 was positively impacted by a one-time gain of $5.7 million on the fourth quarter divestiture of three Montana and one Wyoming stores in our Construction segment.
There was a gain of $1.4 million recognized on the divestiture of our consumer products store in North Dakota in the fist quarter of fiscal 2023, and a $5.7 million gain recognized on the divestiture of one Wyoming and three Montana stores in the fourth quarter of fiscal 2022. Excluding these divestiture related gains, absorption was flat at 82.2%.
To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset much of the increases and expect to continue to do so in the future.
To date, in those instances in which we have experienced cost increases, we have been able to increase selling prices to offset much of the increases and expect to continue to do so in the future. 27 Table of Conten ts Significant Items Impacting Our Financial Position and Results of Operations Heartland Acquisition On August 1, 2022 we acquired all interests of three entities, Heartland Agriculture, LLC, Heartland Solutions, LLC, and Heartland Leveraged Lender, LLC, (collectively referred to as "Heartland Companies").
The Construction segment income before income taxes was $15.5 million for fiscal 2022 compared to income of $0.2 million for the prior year. The improvement in segment results was the result of improved equipment margins and lower floorplan and other interest expense.
The Construction segment income before income taxes was $18.6 million for fiscal 2023 compared to income of $15.5 million for the prior year. The improvement in segment results was primarily due to increased construction activity within our footprint and an increase in rental fleet utilization.
Agriculture same-store sales increased 19.3% for fiscal 2022, as compared to fiscal 2021. Equipment sales were driven by increased equipment demand due to higher commodity prices and higher net farm income. The HorizonWest and Jaycox acquisitions, which were completed in May 2020 and December 2021, respectively, also contributed to the total sales growth for the segment.
The same-store sales increase was driven by increased demand for equipment due to higher commodity prices and higher net farm income. Agriculture segment income before income taxes for fiscal 2023 improved by $42.2 million or 69.6% compared to fiscal 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

7 edited+1 added−1 removed7 unchanged
Biggest changeContinuation of political tensions in the Russian/Ukraine conflict could lead to more significant UAH devaluations. The inability to fully manage our net monetary asset position and continued UAH devaluations for an extended period of time, could have a material impact on our results of operations and cash flows.
Biggest changeThe inability to fully manage our net monetary asset position and continued UAH devaluations for an extended period of time, could have a significant adverse impact on our results of operations and cash flows.
Based upon balances and exchange rates as of January 31, 2022, holding other variables constant, we believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates would not have a material impact on our results of operations or cash flows.
Based upon balances and exchange rates as of January 31, 2023, holding other variables constant, we believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates would not have a material impact on our results of operations or cash flows.
Based upon our interest-bearing balances and interest rates as of January 31, 2022, holding other variables constant, a one percentage point increase in interest rates for the next 12-month period would decrease pre-tax earnings and cash flow by approximately $0.3 million.
Based upon our interest-bearing balances and interest rates as of January 31, 2023, holding other variables constant, a one percentage point increase in interest rates for the next 12-month period would decrease pre-tax earnings and cash flow by approximately $0.5 million.
In addition, at January 31, 2022, we had total long-term debt outstanding and finance lease liabilities of $89.6 million, primarily all of which is fixed rate debt. Foreign Currency Exchange Rate Risk Our foreign currency exposures arise as the result of our foreign operations.
In addition, at January 31, 2023, we had total long-term debt outstanding and finance lease liabilities of $99.6 million, primarily all of which is fixed rate debt. Foreign Currency Exchange Rate Risk Our foreign currency exposures arise as the result of our foreign operations.
We believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates, holding all other variables constant, would not have a material impact on our results of operations or cash flows. 42 Table of Content
We believe that a hypothetical 10% increase or decrease in all applicable foreign exchange rates, holding all other variables constant, would not have a material impact on our results of operations or cash flows. 43 Table of Conten ts
As of January 31, 2022, our Ukrainian subsidiary had $1.7 million of net monetary assets denominated in Ukrainian hryvnia (UAH). We have attempted to minimize our net monetary asset position through reducing overall asset levels in Ukraine and through borrowing in UAH which serves as a natural hedging instrument offsetting our net UAH denominated assets.
As of January 31, 2023, our Ukrainian subsidiary had $(0.2) million of net monetary assets denominated in Ukrainian hryvnia (UAH). We have attempted to minimize our net monetary asset position through reducing overall asset levels in Ukraine and through borrowing in UAH which serves as a natural hedging instrument offsetting our net UAH denominated assets.
Conversely, a one percentage point decrease in interest rates for the next 12-month period would result in an increase to pre-tax earnings and cash flow of approximately $0.3 million. At January 31, 2022, we had total floorplan payables outstanding of $135.4 million, of which $28.6 million was interest-bearing at variable interest rates and $106.8 million was non-interest bearing.
Conversely, a one percentage point decrease in interest rates for the next 12-month period would result in an increase to pre-tax earnings and cash flow of approximately $0.5 million. At January 31, 2023, we had total floorplan payables outstanding of $258.4 million, of which $45.4 million was interest-bearing at variable interest rates and $213.0 million was non-interest bearing.
Removed
With the Russia/Ukraine conflict significantly intensifying in February 2022, currency and payment controls imposed by the National Bank of Ukraine limit our ability to manage our net monetary asset position. However in late March 2022, Ukraine's government classified agriculture as a critical industry. This has allowed us to convert hryvnia to pay for certain parts and equipment invoices.
Added
Many of the currency and payment controls the National Bank of Ukraine imposed in February 2022, have been relaxed, making it more practicable to manage our UAH exposure. However, the continuation of the Russia/Ukraine conflict could lead to more significant UAH devaluations, similar to the 24% devaluation that occurred in July 2022, or more stringent payment controls in the future.

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