Messmer and Son, Inc 1

Transcription

1 CAB CS 04.1 Messmer and Son, Inc 1 Maud Roucan, Dr. Allan Gray and Dr. Michael Boehlje 2 December 2004 Center for Food and Agricultural Business Department of Agricultural Economics Purdue University 1145 Krannert Room 781 West Lafayette, Indiana Phone: Fax: Copyright 2004, Purdue Foundation, West Lafayette, Indiana All rights reserved. Unless permission is granted, this material shall not be copied, reproduced or coded for reproduction by any electrical mechanical or chemical process or combination thereof, now known or later developed. Note: this case was prepared as the basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation. 2 This case was developed by Maud Roucan (Research Associate, Center for Food and Agricultural Business, Purdue University), Allan Gray (Associate Professor, Center for Food and Agricultural Business, Purdue University) and Mike Boehlje (Professor, Center for Food and Agricultural Business, Purdue University). The generous contributions of information and time by Darrin Lindquist (Division Manager), Michael Gause (Project Manager of Training), Glenn Biedermann (Dealer Development Manager), Alan Hughes (Dealer Development Manager) and the many others at John Deere are gratefully acknowledged.

2 MESSMER S AND SON, INC 3 Maud Roucan, Allan Gray and Michael Boehlje 1 Introduction Josh Light was deep in thought while walking out of his boss s office. Josh, a John Deere employee for several years, had just been promoted to territory manager. His boss had handed him the file of one of the most successful John Deere dealers in the region: Steve Messmer. Josh was scheduled to talk with Steve at the beginning of the following week about the dealership s financial results. Josh was quite confident in his sales management ability but did not feel that finance was his strong point. Deciding he should not waste any time, Josh sat in his office and began to review the thick Messmer file 2 History of the Dealership Management History After graduating from college, Steve Messmer went back home to manage the farming portion of his dad s assets. Steve s father had been involved in agriculture for quite some time. One of his father s primary businesses was a John Deere dealership, which Steve had been involved with over time. In 1992, after his dad s death, Steve took over the ownership and management of the dealership. During Steve s leadership tenure, the business has expanded significantly. 3 This case is based on a real situation. However, for privacy reasons, names, cities and numbers have been changed. 2

3 As Figure 1 shows, Steve started with about $2 million worth of assets in 1993 and has grown the assets to about $9 million over the last decade. The dealership was highly leveraged when Steve took over. But, over the last decade Steve has managed to build the equity position of the business as shown by the expanding difference between the assets and liabilities. Figure 1: Messmer s and Son, Inc. Total Assets and Liabilities, $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ Total Assets Total Liabilities Growth in sales for Steve s dealership follows a similar pattern as the growth in assets over the last decade (Figure 2). Of course, Steve s goal is to run a profitable business. The net operating income before paying interest or taxes has been variable over the past decade. Profits took a considerable downturn during the 97 to 99 period before seeing a dramatic improvement in the last four years. Part of Steve s profitability struggles during the late 90s can be attributed to the transition from a single-store dealership to a two-store dealership in

4 Figure 2: Messmer s and Son, Inc. Total Sales and Pre-tax Income, $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $ $500,000 $400,000 $300,000 $200,000 $100,000 $0 -$100,000 -$200,000 Total Sales Pre-tax Income (Loss) Steve attributed the negative incomes in 1998 and 1999 to a new marketing offer from John Deere where farmers could rollover their machinery every three years for no extra cost. The retail price set by John Deere for this offer was higher than earlier marketing offers but not high enough in Steve s opinion to cover dealers expenses (repair and resale of used equipment). For this reason, Steve did not participate in this program as heavily as other dealers and lost some sales to his competitors. Josh could see from the history of Steve s financial records that the dealership was indeed a growing dealership. He also recognized that much of Steve s growth could be attributed to the expansion to a new store location in 1997 and another one in The multi-store dealership is a clear trend for John Deere and Steve was following John Deere s lead for his business. Josh wondered how much Steve s marketplace differed for each of his locations. 4

5 3 Market Description 4 Steve started with a single-store dealership in In 2003, he was running a multi-store dealership composed of three stores located reasonably close to each other as indicated Figure 3. Figure 3: Messmer s and Son, Inc Territory $17.6 million in sales 48% new ag equipment 4% new C&CE 31% used equipment 8% parts 6% service $6.7 million in sales 35% new ag equipment 15% new C&CE 25% used equipment 14% parts 8% service Warren (92) Red Lake (01) Timmins Cornwall (96) Geraldton $12.6 million in sales 32% new ag equipment 8% new C&CE 43% used equipment 10% parts 5% service Stores locations Major cities Size of the city Territory Overview Market Characteristics Steve s territory contains eight counties in a rural area with only three major cities: Timmins (population - 58,096), Cornwall (population - 15,201) and Geraldton 4 Country s, state s and counties information all came from the following resource: 5

6 (population - 9,987). As shown in Table 1, the main crops grown in these eight counties are corn, soybeans and forage. A small number of farms raise livestock; mainly beef cows. Since they are crop oriented counties, the value of land, buildings, machinery and equipment tend to be high (see Table 2). Table 1: Farm Size, Crop Acreage and Trends of the Market Area Locations Market share Corn for grain Soybean Forage No. of Farms Acres Trend Acres Trend Acres Trend Warren 69.9% ,949 (-) 123,326 (-) 14,924 (+/-) Cornwall 60.6% 1, ,438 (-) 205,343 (+) 16,882 (-) Red Lake 77.2% 1, ,091 (-) 163,069 (+) 11,310 (+/-) Total Area 4, ,477 (-) 491,738 (+) 43,115 (-) Table 2: General Financial Information of the Market Area Value of Machinery and Equipment Farm Production Expenses Net Cash Farm Income Value of Land and Buildings Ag Products Sold Warren $ 318,927,395 $ 41,630,546 $ 43,532,271 $ 33,898,370 $ 14,733,838 Cornwall $ 423,156,136 $ 63,463,812 $ 57,345,769 $ 50,256,770 $ 13,808,671 Red Lake $ 204,677,518 $ 32,522,322 $ 29,937,979 $ 24,906,601 $ 7,314,492 Total Area $946,761,049 $137,616,681 $130,816,019 $109,061,741 $35,857,001 Steve s business generated approximately $37 million in sales in 2003 and was expected to top $40 million in sales in Of the total sales, 41% were from new ag equipment, 8% from new C&CE equipment, 34% from used equipment, 10% from parts and 6% from services in Of course, each of the three stores had a somewhat different mix of customers, resulting in a slightly different mix of sales activity. 6

7 Warren First Store The original store is located in Warren, a town of 1,935 inhabitants, on a county highway in the county seat. The market area for the Warren store is represented by about two and a half counties with a total population of 34,739 in 2003 and a per capita personal income of $23,500 5 in The entire county is rural with no major population center. Compared to the other two stores, this store is located in the smallest town and has the least populated market area. The counties surrounding the store are heavily agricultural with mostly corn and soybean farms. The farmers in this market area also tend to be larger farmers and Steve felt that the market would continue to trend towards larger farmers in the area. About 7% of the population in the region was employed in production agriculture in In 2003, the store sold $17.6 million worth of machinery and equipment, parts and service. Of this amount, 48 percent was new farm machinery, 4 percent was new C&CE, 31 percent was used equipment, 8 percent was parts and 6 percent was service. In 2003, new farm machinery sales at Warren were twice as high as at Cornwall, and four times as high as at Red Lake. Total sales were one and a half times higher than the Cornwall store and about two and a half times higher than the Red Lake store. In terms of net profit, the Warren store reported about $183,000 in 2003; this net profit was one and a half times as high as Cornwall. Cornwall Second Store In 1996, Steve decided to open a second store at Cornwall. The surrounding area had not had a John Deere dealer since 1986, and John Deere s market share had slipped 5 The state average for the per capita personal income was $28,000 in

8 dramatically. John Deere had tried to maintain market share with the surrounding dealers, but in the early 90s, they began looking for a dealer to locate in the region. Steve and John Deere felt there were tremendous opportunities in the new location. Steve purchased land and built a building. Cornwall (15,201 inhabitants in 2003) is in the middle of one of the top three grain producing counties in the state and is the major town in the region. This second store is located just off the interstate and on the edge of Cornwall. The location was originally chosen to help attract more C&CE business. However, Wal-Mart and Home Depot recently established at the other end of the town. These two new stores tend to drive the traffic away from Steve s dealership. Home Depot sells John Deere lawn mowers which take away some of Steve s C&CE business. But, most of the warranty and service work for these mowers is directed to Steve s dealership. The market area for the Cornwall store is represented by about two and a half counties with a total population of 83,268 persons in 2003 and a per capita personal income of $23,400 in There are two main population centers: Cornwall and Geraldton with 15,201 and 9,987 inhabitants in 2003, respectively. Compared to the two other stores, this one is located in the largest town. The store s market area is twice as populated as Warren s store and half as large as Red Lake s. It is, therefore, definitely able to attract C&CE business as well as retain a large amount of farm equipment sales. In Steve s opinion, the Cornwall store affords the greatest long term opportunity and best potential. It has a better mix of products sold and has the largest population base of the three stores. 8

9 The counties served by Cornwall have more farms than Warren but like Warren, 7% of the employed population in the market area farmed in Again most of the farms are crop farms with some beef farms. The Cornwall store had $12.6 million in sales in 2003 with a net profit of $120,500. Of these sales, 32 percent was new farm machinery, 8 percent new C&CE, 43 percent used equipment, 10 percent parts and 5 percent service. Cornwall sold more C&CE than Warren (9% of the total sales came from new and used C&CE equipment sales) dollar-wise and percent-wise. Cornwall also sold the largest amount of used equipment (dollar-wise and percent-wise). Red Lake Third Store In August 2002, Steve was contacted by John Deere with the message: The dealer of tomorrow is a growing dealer with 3 or 4 stores and we see you as a dealer of tomorrow. John Deere knew of a store for sale in a neighboring county that they thought could be a great fit for Steve. Steve was not looking to grow when John Deere called, but he felt compelled to entertain the idea. So in December 2002, Steve purchased his third store. The third store is located in the southeast portion of Steve s territory in a small town of 2,722 inhabitants called Red Lake. This store sits on a main road going through the area and has high daily traffic. Steve believes the store is in the best location in the city. The market area for the Red Lake store is represented by about three counties with a total population of 148,263 persons in 2003 and a per capita personal income of $23,000 in The market area has one main population center: Timmins, with a population of 58,096. The Red Lake store has the most population within its market area with less rural 9

10 customers than the other two stores, but it is located in a small town. Therefore, sales may be expected to be larger than Warren (smaller population) but smaller than Cornwall (larger town). According to the Census and Steve, the marketplace may be characterized as having farming units similar in size to Cornwall. However, the counties have fewer farms than Cornwall and more than Warren. About 5% of the employed population in the market area farmed in This store had $6.7 million in sales in 2003 with a net loss of $189,000. Of this amount of sales, 34 percent was new farm machinery, 18 percent was new C&CE, 26 percent used equipment, 12 percent was parts and 9 percent was service. It sold the most C&CE percent-wise in This store also sold more C&CE than Warren dollar-wise and a little bit less than Cornwall. Finally, it reported the highest amount of customer labor dollar-wise and percent-wise. Steve said that the net loss in 2003 was the result of the recent takeover. He hoped to improve the situation in 2004 and 2005 with better advertising and closer management. Steve was planning on spending most of his time onsite at this location in 2004 and Competition The John Deere dealerships in the state (six in Steve s territory) try as much as possible not to compete with each other. However, Cornwall and Red Lake border an adjacent state. The John Deere dealerships in the neighboring state tend to be much more aggressive about pursuing Steve s customers, particularly one. They are very good dealers. But, they do things that I do not like, such as coming across the state line and undercutting us with customers that clearly are ours or have been doing the majority of 10

11 their business with us. This practice causes lower margins and lower profits than what we should be getting. Furthermore, even though other John Deere dealerships represent the main competition, Steve also has to compete with other brands. The competition from other brands in farm equipment comes mostly from two sources. Looking at his market territory broadly, Steve has to compete with four stores selling the Case brand in his market area. Competition from Case is real and they control about 25% of the market share. We have good Case dealers around us, but we are still getting very good market share. As for C&CE, Steve also faces competition from two stores marketing the Kubota brand. The competition from Kubota is almost solely in small tractors (compacts). They are very good competition and have a greater market share in this size tractor. We definitely lose compact tractor sales to them. I am sure we could double our compact sales if they were not in the picture. 4 Organizational Chart Running a multi-store dealership is always challenging and requires good organization. As seen in Figure 4, Steve is president and after-market manager for the three locations. As president, he makes the long-term decisions (marketing strategy, purchase of new store, etc), manages the financials, allocates the resources and provides guidelines to managers in all three locations. As after-market manager, Steve manages the after-market sales - warranty and service department - for all three locations. Steve s son, Brian, who joined the business a couple of years ago, is sales manager for all three locations. Brian s task is to increase sales by helping the store managers improve their marketing strategy. 11

12 Each location has a store manager (although Steve is actually serving as the store manager for the newly acquired third location), a parts manager and a service manager. The store manager is responsible for the daily activities and daily decisions affecting the store. He helps and guides the service manager and the parts manager in daily activities. The store manager also guides the other employees, particularly the ones interacting with customers for sales of equipment. The parts manager runs the parts department. His responsibilities include managing the sales of parts and merchandise and guiding the parts department s employees. The parts manager records the financial information related to his department. Each location also has a service center and, therefore, a service manager. The service manager manages the service department including employees and customer relationships. All three managers (store, service, and parts managers) report to the aftermarket manager and sales manager individually on a monthly basis for long-term direction and to review the financials for their department. Every department manager, for each location, receives a monthly income statement and balance sheet and a set of monthly objectives. All three stores information systems are connected and information is sent to the headquarters. At the headquarters (Warren), a staff assistant and an outside accountant take care of the financial reporting (monthly and annual financial results). 12

13 Figure 4: Organization of Messmer s and Son, Inc President: Steve After-market Manager: Steve Sales Manager: Brian Warren Store manager Cornwall Store manager Red Lake Store manager Parts mgr Service mgr Parts mgr Service mgr Parts mgr Service mgr 5 Marketing Strategy An Agricultural Market Dealership Steve sells primarily new farm machinery, most of which is sold to large farmers. Steve reasons that margin dollars add up faster in sales of new farm equipment. As Steve says It takes a lot of $1,500 mowers to equal one $200,000 combine even though the percentage margins are greater in C&CE. Secondly, Steve s business is located in a rural area ( something totally different than a dealer in a large city ) with a heavy emphasis on crops. Steve also grew up on a farm; he knows and is comfortable with the rural world and does not know the urban clientele as well. Consequently, most of the revenue for Messmer and Son, Inc comes from the sales of large tractors and combines. Indeed, 84% of the equipment sales were farm equipment sales in Selling to large farmers, and to farmers in general, means low 13

14 margins but large sales. A small part of the business (10% in 2003) is C&CE sales; mainly lawn mowers. The C&CE business has better margin but requires an urban clientele Steve feels he is still trying to reach. Steve is selling enough ag equipment, but feels he needs to improve the margins in this area. Sales Dominant in New Equipment Most of the ag machinery revenue comes from sales of new ag equipment (see exhibit 2). The large farmers who represent the bulk of Steve s market area are looking for brand new equipment that requires less maintenance and can be traded frequently. Consequently, Steve wholesales much of the used equipment he receives as trade-ins. Steve believes there is not a large market for used equipment in his trade area, and the cost of repairing and merchandising the equipment along with the cash flow and financing burden is not worth it to him. Parts and Service Departments Relying heavily on new equipment sales generally means less service and parts sales. However, selling lots of ag equipment to large farmers with many acres still means more repair than C&CE equipment; particularly on-farm repair. Steve has been challenged with his service centers. It is always difficult during busy seasons (planting and harvesting) to forecast the weather and know how many mechanics should be scheduled for the week-end. Furthermore, Steve has had difficulties recruiting and keeping good mechanics: the hours are long and it is often a 6-day-a-week job. 14

15 Parts and service are two areas where Steve feels he can improve his business performance. Over the past few months, he has been working on becoming more aggressive with after-market sales, getting out to the country and making phone calls. 6 Financing and Cash Flow Steve s total liabilities reached $7.6 million in 2003 (see exhibit 1). This debt level was quite high but is reflective of the recent store acquisitions. Acquisitions of new stores often mean financing with borrowed capital; particularly when the growth happens rapidly. Steve could not finance his recent growth with equity capital and therefore borrowed much of the needed funds. As seen in Figures 5 and 6, Steve has managed his growth reasonably well. Except for 2003, Steve s currents assets have been greater than his current liabilities (much of his debt is carried for inventory and floor planning) i.e., he has been able to pay back his current debt with current assets. Total asset value has always been greater than debt, and in fact the equity position (difference between assets and debt) has been increasing (see exhibit 3). 15

16 Figure 5: Messmer s and Son, Inc. Total Current Assets and Current Liabilities, $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ Current Assets Current Liabilities Figure 6: Messmer s and Son, Inc. Equity and Total Assets, $12,000,000 $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ Equity Total Assets As shown in Figure 7, Steve s interest expenses are high since his debt level is high. This fact, combined with Steve s tight liquidity position means that he needs to generate substantial and timely cash flows to be able to pay principal and interest 16

17 payments (see exhibit 4). Steve watches his cash flows carefully since he feels this is a vulnerable area for his business. Figure 7: Messmer and Son, Inc. Interest Expenses and Interest Leverage 6, $500,000 $400,000 $300,000 $200,000 $100,000 $0 -$100, $200, Pre-tax Income (Loss) Interest Leverage 7 Summary The phone was ringing. It was Josh s wife reminding him that he was supposed to be home an hour ago. Josh closed the folder and headed to his car. On his way home, he was still thinking about Steve s business. What was he going to tell Steve? The financial statements (See exhibits 1 through 4) looked unusual but Josh still had to crunch the numbers, look at the ratios and compare them with John Deere s benchmarks. Josh was expecting them to differ quite a lot from the benchmarks. Some of these differences might be because of Steve s strategy. Was Steve s marketing strategy right? Had Steve and John Deere been right about the Red Lake store? How could Steve improve his margins in sales of new ag equipment? Could Steve improve his performance in 6 Interest leverage is a ratio. It is calculated by dividing Pre-tax Income by Net Operating Income. 17

18 increasing his sales of parts, service and C&CE? Josh had arrived home. Would a good night s sleep help him come up with useful solutions? 18

19 Exhibit 1: Messmer s and Son, Inc. Balance Sheet 2003 and 2002 Description Amount Percent Amount Percent ASSET Cash on Hand 336, % 120, % Cash in Bank 539, % 102, % Cash Items 875, % 120, % Accounts Receivable - Customer 349, % 380, % Accounts Receivable - Warranty 58, % 84, % Accounts Receivable - Product Improvement 2, % 2, % Accounts Receivable - Other 233, % 37, % Accounts Receivable 644, % 504, % Notes & Contracts Rec 328, % 1,835, % Other Receivables 9, % 69, % Total Cash & Receivables 1,859, % 2,530, % John Deere Farm Equipment 1,367, % 2,027, % John Deere Consumer Products 544, % 487, % John Deere Farm Equip Attachments 62, % 70, % John Deere L&GC Attachments 3, % 2, % John Deere Complete Goods 1,977, % 2,589, % Other Equipment & Attachments 194, % 221, % Used Equipment 1,518, % 2,361, % Total Complete Goods Inventory 3,690, % 5,172, % John Deere Parts 899, % 771, % JD Parts PIP 16, % - - John Deere Parts and Merchandise 915, % 771, % Other Parts and Merchandise 104, % 114, % Total Parts Inventory 1,020, % 886, % Service Accessories 8, % 10, % Work In Process 205, % 192, % Miscellaneous Inventories 214, % 202, % Total Inventories 4,925, % 6,262, % Prepaid Expenses 9, % 9, % Current Assets 6,794, % 8,801, % Land, Building & Equipment 543, % 429, % Furn, Fixtures & Serv Equipment 912, % 717, % Vehicles 1,186, % 671, % All Other Property 246, % 183, % Total Capital Assets 2,888, % 2,002, % Accumulated Depreciation 1,333, % 1,163, % Net Capital Assets 1,555, % 838, % Finance Reserves 613, % 318, % Total Other Assets 613, % 318, % Total Assets 8,963, % 9,958, % 19

20 LIABILITIES & OWNER'S EQUITY Accounts Payable - Deere 3,848, % 4,817, % Other Acounts Payable 138, % 108, % Short Term Notes Payable 1,450, % 1,075, % Other Payables 128, % 636, % Total Payables 5,565, % 6,636, % Accrued Taxes 96, % 62, % Other Accrued Liabilities 40, % 11, % Total Accrued Liabilities 137, % 74, % Current Liabilities 5,702, % 6,711, % Total Deferred Credits Long Term Debt-F/P Bank 1,957, % 2,036, % Long Term Debt - Stockholders Total Long Term Debt 1,957, % 2,036, % Total Liabilities 7,660, % 8,748, % Capital Investments 220, % 220, % Retained Earnings or Undistributed Profits 990, % 687, % Profit Year to Date 92, % 303, % Total Equity 1,302, % 1,210, % Total Liabilities & Owner's Equity 8,963, % 9,958, % 20

21 Exhibit 2: Messmer s and Son, Inc. Income Statement, Description Net Sales Cost of Sales Gross Margin Amount Amount Amount Percent John Deere Farm Equipment 14,875,726 14,405, , % John Deer Lawn & Grounds Care Products 2,768,957 2,517, , % Other Equipment 503, ,433 18, % John Deere Farm Equipment Attachments 134,426 98,969 35, % John Deer Lawn & Grounds Care Products Attachments - 3,835-3,835 - Used Equipment 12,689,658 12,868, , % Rental Revenue Total Complete Goods Sales 30,971,886 30,378, , % John Deere Parts 3,394,138 2,396, , % Other Merchandise 301, ,055 79, % Parts Special Handling 62, ,776-54, % Parts Order Discount Earned , ,653 - Parts Discount Allowed -151, , % Inventory Valuation Adjustment - Parts - -17,586 17,586 - Total Parts Sales 3,605,793 2,581,712 1,024, % Service Accessories 28,075 40,096-12, % Customer Labor Sales 1,175,521-1,175, % Internal Labor Sales 763, , % Warranty Labor Sales 256, , % Product Improvement Labor Sales 83,316-83, % Other Service Sales 256, ,759 (94,505) -36.9% Service Labor Discounts Allowed -14, , % Service Non-Labor Discounts Allowed % Service Labor Allowance -307, , % Technician Salaries - 894,609 (894,609) - Non-Revenue Technician Salaries - (281,685) 281,685 - Total Service Sales 2,240,495 1,003,780 1,236, % Total Net Sales 36,818,174 33,964,057 2,854, % 21

22 Expenses & Changes to Income Amount Percent Total Gross Margin 2,854, % Variable Expenses 578, % Volume Discount / Performance Bonus 884, % Remaining Additions to Income 56, % Deductions From Income % Contribution Margin - Complete Goods 1,219, % Contribution Margin - Parts 932, % Contribution Margin - Service 1,063, % Contribution Margin - Total 3,216, % Fixed Expenses 2,947, % Total Expenses 3,525, % Net Operating Income 269, % Interest Expense 176, % Pre-tax Income 92, % Taxes & Adjustments - - After-tax Income 92, % 22

23 Exhibit 3: Messmer s and Son, Inc. Income Statement, Description Net Sales Cost of Sales Gross Margin Amount Amount Amount Percent John Deere Farm Equipment 10,058,462 9,739, , % John Deer Lawn & Grounds 1,342,489 Care Products 1,235, , % Other Equipment 393, ,222 (9,890) -0.1% John Deere Farm Equipment Attachments 84,645 62,885 21, % John Deer Lawn & Grounds Care Products Attachments 995 1,718 (723) -72.7% Used Equipment 11,212,379 11,137,132 75, % Rental Revenue % Total Complete Goods Sales 23,092,662 22,579, , % John Deere Parts 2,533,403 1,866, , % Other Merchandise 242, ,847 66, % Parts Special Handling 43,259 75,362 (32,103) -74.2% Parts Order Discount Earned - (109,149) 109,149 - Parts Discount Allowed -106,302 - (106,302) 100.0% Inventory Valuation Adjustment - Parts - 75,256 (75,256) - Total Parts Sales 2,712,772 2,084, , % Service Accessories 31,705 35,464 (3,759) -11.9% Customer Labor Sales 706, , % Internal Labor Sales 594, , % Warranty Labor Sales 235, , % Product Improvement Labor Sales 49,722-49, % Other Service Sales 224, ,669 (26,309) -11.7% Service Labor Discounts Allowed -14,319 - (14,319) 100.0% Service Non-Labor Discounts Allowed (245) 100.0% Service Labor Allowance -168,686 - (168,686) 100.0% Technician Salaries - 619,245 (619,245) - Non-Revenue Technician Salaries - (164,848) 164,848 - Total Service Sales 1,659, , , % Total Net Sales 27,464,911 25,404,719 2,060, % 23

24 Expenses & Changes to Income Amount Percent Total Gross Margin 2,060, % Variable Expenses 425, % Volume Discount / Performance Bonus 636, % Remaining Additions to Income 39, % Deductions From Income - - Contribution Margin - Complete Goods 901, % Contribution Margin - Parts 584, % Contribution Margin - Service 824, % Contribution Margin - Total 2,310, % Fixed Expenses 1,847, % Total Expenses 2,273, % Net Operating Income 462, % Interest Expense 159, % Pre-tax Income 303, % Taxes & Adjustments - - After-tax Income 303, % 24

25 Exhibit 4: Messmer and Son, Inc. Statements of Changes in Stockholders Equity, Common Stock Add'l Paid-In Capital Retained Earnings Total BALANCE - NOVEMBER 30, , , , ,775 Net income (loss) , ,261 Distributions ,586-54,586 BALANCE - NOVEMBER 30, , , ,450 1,210,450 Net income (loss) , ,533 Distributions BALANCE - NOVEMBER 30, , ,000 1,103,983 1,323,983 25

26 Exhibit 5: Messmer and Son, Inc. Statements of Cash Flows and 2002 Description INCOME Total Net Sales 36,818,174 27,464,911 Total Cost of Sales 33,964,057 25,404,719 Gross Margin 2,854,116 2,060,192 Total Expenses 3,525,647 2,273,447 Volume Discount/Performance Bonus 884, ,669 Remaining Additions to Income 56,741 39,117 Deductions From Income Net Operating Income 269, ,531 Depreciation/Amortization 223, ,568 Adjusted Net Operating Income 492, ,099 WORKING CAPITAL FLOWS (Increase) Decrease In Customer Receivables 30, ,971 (Increase) Decrease In Other Receivables 1,396,627-1,355,651 (Increase) Decrease In New Inventory 493, ,167 (Increase) Decrease In Used Inventory 843, ,678 Prepaid Expense - -3,486 Increase (Decrease) In Accounts Payable - Deere -969,188 2,423,439 Increase (Decrease) In Accounts Payable - Other - MFR -19,297-19,340 Increase (Decrease) In Accounts Payable - Other -457, ,122 Increase (Decrease) In Total Accrued Liabilities 62,416-52,745 Increase (Decrease) In Total Deferred Credits - - Working Capital Flow 1,379, ,424 Cash Flow Operations 1,871, ,675 CASH FROM (FOR) OTHER ACTIVITIES (Increase) Decrease In Capital Assets -940, ,739 (Increase) Decrease In Notes Receivables - - (Increase) Decrease in Other Assets -294, ,379 Income Taxes (Paid) Recovered - - Cash Flow - Other Activities -1,235, ,118 CASH FROM (FOR) FINANCING ACTIVITIES (Increase) Decrease In Short Term Notes Payable 375,000-1,148,612 Increase (Decrease) In Long-Term Debt -79,009 1,251,737 Increase (Decrease) In Capital Stock & Investment - - Increase (Decrease) In Paid-In Capital - - (Increase) Decrease In Treasury Stock - - Dividends & Withdrawals (Paid) - - Interest Expense (Paid) -176, ,260 Adjustments To Equity 0-51,762 Cash Flow - Financing Activities 119, ,896 Net Cash Flow 755,817-48,339 MEMO Cash And Marketable Securities - Beginning Balance 120, ,517 Change In Cash And Marketable Securities 755,817-48,339 Cash And Marketable Securities - Ending Balance 875, ,178 26