10-K 1 rdo031867_10k.txt RDO EQUIPMENT COMPANY FORM 10K =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________ TO _______________ COMMISSION FILE NO. 1-12641 RDO EQUIPMENT CO. (Exact name of registrant as specified in its charter) DELAWARE 45-0306084 (State of incorporation) (I.R.S. Employer Identification No.) 2829 SOUTH UNIVERSITY DRIVE FARGO, NORTH DAKOTA 58103 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code: (701) 297-4288 Securities registered pursuant to Section 12(b) of the Act: CLASS A COMMON STOCK, $.01 PAR VALUE Name of exchange on which registered: NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. _X_ YES ___ NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ___ No _X_ The aggregate market value of common equity held by persons other than directors and officers was approximately $22 million as of July 31, 2002, based on the last reported sale price at that date reported by the New York Stock Exchange. The Company had 5,179,808 shares of Class A Common Stock and 7,450,492 shares of Class B Common Stock outstanding for a total of 12,630,300 shares of Common Stock as of March 31, 2003. DOCUMENTS INCORPORATED BY REFERENCE None. ================================================================================ CAUTIONARY STATEMENT REGARDING FUTURE RESULTS AND FORWARD-LOOKING STATEMENTS The future results of RDO Equipment Co. (the "Company"), including results reflected in any forward-looking statement made by or on behalf of the Company will be impacted by a number of important factors. The factors identified below in the section entitled "Certain Important Factors" are important factors (but not necessarily all important factors) that could cause the Company's actual future results to differ materially from those expressed in any forward-looking statement made by or on behalf of the Company. Any statements contained or incorporated by reference in this Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. Forward-looking statements, by their nature, involve substantial risks and uncertainties. PART I ITEM 1. BUSINESS. GENERAL The Company specializes in the distribution, sale, service, rental and finance of equipment and trucks to the agricultural, construction, manufacturing, transportation and warehousing industries, as well as to public service entities, government agencies and utilities. At the end of fiscal 2003, the Company operated 45 retail stores in nine states - Arizona, California, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Texas and Washington. Its stores include one of the largest networks of Deere & Company ("Deere") construction equipment dealerships and agricultural equipment dealerships in North America. Deere, a leading manufacturer and supplier of construction and agricultural equipment, is the primary supplier of new products sold by the Company. Sales of new Deere products accounted for approximately 48% of the Company's sales in fiscal 2003 with no other supplier accounting for more than 10%. The Company's stores also offer complementary products from other suppliers, used products, new and used parts, product servicing, product rental, loans, leases and other related products and services. Revenues for product rental, loans, leases and other related products and services were not significant for fiscal 2003, 2002, or 2001. For the fiscal year ended January 31, 2003, the Company's revenues were generated from the following areas of business: New equipment and truck sales........................... 51% Used equipment and truck sales.......................... 20% Product support (parts and service revenues)............ 29% The Company was incorporated in April 1968 and re-incorporated in Delaware in January 1997. The Company's executive offices are located at 2829 South University Drive, Fargo, North Dakota 58103. The Company's phone number is (701) 297-4288. References to the Company in this Form 10-K include its subsidiaries. 2 The Company's business is organized, managed and internally reported as three business segments. Business segment information is contained in Note 14 of the Company's financial statements on pages 60 and 61 of this report and is incorporated in this item by reference. During fiscal 2003, the Company was affected by various economic conditions in all operating segments. New farm legislation along with generally favorable growing conditions in the Company's agricultural store regions, resulted in increased farmer confidence and increased revenues in this operating segment. Construction operations were affected by a general slowdown in equipment purchasing by construction equipment contractors in the Company's geographic areas of responsibility, especially in the Company's southern regions. These conditions provided for increased competitive pressures and a decline in unit market potential in the Company's operating regions. The Company's truck revenues continued to decline reflecting the sale of the majority of the Company's truck operations at various times during the past two years. CONSTRUCTION EQUIPMENT OPERATIONS The Company estimates that North American retail sales of new construction equipment in its target product market in calendar 2002 totaled over $8 billion. Deere is one of the leading suppliers of construction equipment in North America for light to medium applications and offers a broad array of products. The Company believes Deere has approximately 80 construction dealers who operate approximately 400 main stores and sales and service centers in North America. Each dealer within the Deere construction dealer system is assigned designated geographic areas of responsibility within which it has the right to sell new Deere construction products. The Company believes it is one of the largest Deere construction equipment dealers in North America, both in number of stores and total purchases, accounting for approximately seven percent of Deere's North American construction equipment sales in calendar 2002. As of the end of fiscal 2003, the Company operated 25 Deere construction equipment stores located in metropolitan areas in Arizona, southern California, Minnesota, Montana, North Dakota, South Dakota and central Texas. Customers of the Company's construction equipment and material handling stores are diverse and include contractors for both residential and commercial construction, utility companies, and federal, state and local government agencies. The Company's stores provide a full line of equipment for light, medium and heavy size applications and related product support to their customers. Primary products include Deere backhoes, excavators, crawler dozers, four-wheel-drive loaders and articulated dump trucks. The Company's construction equipment stores also offer complementary equipment from other suppliers, as well as used equipment generally acquired as trade-ins. The Company's construction equipment stores are located in areas with significant construction activity, including Austin, Dallas/Fort Worth, southeastern Los Angeles, Minneapolis/St. Paul, Phoenix, San Antonio and San Diego. Each construction equipment store displays a broad array of new and used equipment and has a series of fully equipped service bays to provide on-site service and maintenance of construction equipment and well-equipped service trucks are maintained to handle in-the-field customer services. In addition to selling and servicing new and used construction equipment, the Company engages in rent-to-purchase and rent-to-rent transactions as part of its dealership activities. AGRICULTURAL EQUIPMENT OPERATIONS The Company estimates that North American retail sales of new agricultural equipment in its target product market in calendar 2002 totaled over $10 billion. Deere is the leading supplier of agricultural 3 equipment in North America. Within the Deere agricultural dealer system, dealers are not assigned exclusive territories, but are authorized to operate at specific store locations. The Company believes Deere has in excess of 1,000 agricultural dealers that operate approximately 1,600 stores and parts and service centers in North America. The Company believes it is the largest Deere agricultural equipment dealer in North America, both in number of stores and total purchases, accounting for approximately 2.9 percent of Deere's North American sales of agricultural equipment, parts and attachments in calendar 2002. As of the end of fiscal 2003, the Company operated 14 Deere agricultural equipment stores located in Arizona, southern California, Minnesota, North Dakota, South Dakota and Washington. The Company's agricultural equipment stores are a full-service supplier to farmers, offering a broad range of farm equipment and related products for the crops grown in each of their areas. As a result of the customer mix and Deere's product offering, the core products include combines, tractors, planting equipment and tillage equipment. The Company's agricultural equipment stores also carry other harvesting and crop handling machinery, as well as lawn and grounds care equipment. Certain locations also have the commercial work-site products dealer agreement with Deere, offering Deere skid steer products. The sale of new Deere agricultural equipment is the primary focus of the Company's agricultural equipment sales and accounts for a majority of new equipment sales. A wide variety of additional agricultural equipment lines, which complement the Deere products, are also offered according to local market demand. The agricultural stores also sell used equipment, generally acquired as trade-ins. The agricultural equipment stores are located in areas with significant concentrations of farmers and typically serve customers within a 25 to 50 mile radius. Each store displays a broad array of new and used equipment and has fully-equipped service bays to provide on-site service and maintenance of agricultural equipment. The Company also conducts agricultural equipment rental operations in Arizona and California. The Company believes the agricultural equipment rental business is a growing trend being driven primarily by agricultural customers that are increasingly outsourcing their equipment needs. Outsourcing allows producers to reduce their investment in non-core assets and to convert equipment costs from fixed to variable, especially in the western, southwestern and south central regions of the United States. TRUCK OPERATIONS The Company estimates that United States retail sales of heavy-duty trucks in calendar 2002 exceeded $8 billion. Mack Trucks, Inc. ("Mack") and Volvo AB ("Volvo") are leading suppliers of heavy-duty trucks in North America. The Company believes Mack has approximately 123 dealers that operate approximately 254 locations in the United States, while Volvo has approximately 134 dealers that operate approximately 240 locations in the United States. Each Mack or Volvo truck dealer is assigned designated geographical areas of responsibility within which it has the right to sell new trucks made by the truck manufacturer. The Company currently operates truck centers in Fargo and Grand Forks, North Dakota that sell and service Mack, Volvo, GMC and Isuzu trucks. The Company's truck centers are located in high truck traffic areas on or near major highways. The Company sells light, medium and heavy-duty trucks. The medium and heavy-duty trucks sold by the Company are generally classified as Class 4 through Class 8 by the American Automobile 4 Manufacturers Association. Class 8 trucks have a minimum gross vehicle weight rating above 33,000 pounds, and are primarily used for over-the-road and off-highway transportation of general freight and various vocational applications including the hauling of construction materials, logging, mining, petroleum, refuse, waste and other specialty uses. Customers generally purchase these trucks for commercial purposes that are outfitted to perform according to the user's specifications. The Company's truck centers display a broad array of new and used trucks and have fully-equipped service bays to provide on-site service and maintenance of trucks. MATERIAL HANDLING EQUIPMENT OPERATIONS The Company estimates that North American retail sales of lift trucks in its target product market in calendar 2002 totaled approximately $7 billion. Hyster Company, part of the material-handling group of NACCO Industries, Inc., ("Hyster") is a leading supplier of lift trucks in North America. The Company believes Hyster has approximately 54 geographic sales territories with approximately 230 stores in North America. Each Hyster dealer is assigned designated geographical areas of responsibility within which it has the right to sell new Hyster lift trucks and parts. The Company is the designated Hyster lift truck dealer for the upper Midwest - Minnesota, Nebraska, North Dakota, South Dakota, western Iowa and northwestern Wisconsin. Hyster lift trucks (also referred to as forklift trucks or forklifts) are used in a wide variety of business applications, including manufacturing and warehousing. The principal categories of lift trucks include electric rider, electric narrow-aisle and electric-motorized hand forklift trucks primarily for indoor use and internal combustion engine forklift trucks for indoor or outdoor use. The Company currently conducts its material handling operations from two locations dedicated solely to material handling equipment. The remaining authorized territories are serviced by several of the Company's agricultural and construction equipment stores in Minnesota and North Dakota. These stores display a variety of equipment for sale or rent, and have fully-equipped service bays to provide on-site service and maintenance. Full service trucks also provide mobile service to customers on site at their businesses. Customers include commercial, manufacturing, trucking and warehousing businesses, some of which have fleets of material handling equipment to maintain. USED EQUIPMENT AND TRUCKS The Company believes that an integral part of its operations is the handling of used equipment and trucks. Accordingly, each of the Company's divisions has established a management team to assist in the valuation and sale of used products that the Company receives in trade and assist in the purchase of used products for sale or rent by its dealerships. These activities include the purchase and remarket on the open market of used equipment manufactured by companies other than Deere such as Caterpillar Inc. ("Caterpillar"), Komatsu Corporation ("Komatsu"), CNH Global N.V. ("CNH") and Volvo. PARTS AND SERVICE The Company's stores offer a broad range of replacement parts and fully equipped service and repair facilities for their respective product lines. The Company believes that product support through parts and service is increasingly important to its ability to attract and retain customers for its operations. Each store includes service bays staffed by highly trained service technicians. Technicians are also available to make on-site repairs of equipment that cannot be brought in for service. The Company's service 5 technicians receive training from Deere and certain other suppliers, as well as additional on-site training conducted by the Company. The construction equipment stores located in Dallas and San Antonio, Texas; Riverside, California and Minneapolis, Minnesota also operate undercarriage shops for all makes and sizes of crawler equipment. FINANCIAL SERVICES The Company facilitates the sale and/or lease of equipment and trucks by providing on site finance professionals to assist in completing transactions. The Company has developed a private label financing/leasing program with CitiCapital Commercial Corporation ("CitiCapital"). Under the program the Company markets financial services which are provided by CitiCapital. The Company has also developed relationships with other vendors of financial products which include loans, leases, extended warranties, credit life insurance and casualty insurance, which are sold to the Company's customers. The Company believes there is a growing trend in the equipment and truck distribution business toward selling new and used products with financing and service contracts. In addition, financing incentives are an important element in the Company's selling efforts. Many customers want to purchase products from retailers who can also provide financing and other products and services of the types being offered by the Company. INVENTORY AND ASSET MANAGEMENT The Company maintains substantial inventories of equipment, trucks and parts in order to facilitate sales to customers on a timely basis. The Company also is required to build its inventory of construction and agricultural equipment and parts in advance of its second and third fiscal quarters, which historically have higher sales, to ensure that it will have sufficient inventory available to meet the needs of its construction and agricultural customers and to avoid shortages or delays. The Company maintains a database on sales and inventory, and has a centralized real-time inventory control system. This system enables each store to access the available inventory of the Company's other stores before ordering additional items from the supplier. As a result, the Company minimizes its investment in inventory while effectively and promptly satisfying its customers' needs. Using this system, the Company also monitors inventory levels and mix in its network and at each store and makes adjustments as needed in accordance with its operating plan. INVENTORY FINANCING Having adequate equipment, truck and parts inventories at each of the Company's stores is important to meeting its customer needs and to its sales. Accordingly, the Company attempts to maintain at each store, or have readily available at other stores in its network, sufficient inventory to satisfy anticipated customer needs. Inventory levels fluctuate throughout the year and tend to increase before the primary sales seasons for construction and agricultural equipment. The cost of financing its inventory is an important factor affecting the Company's results of operations. Floor plan financing from Deere and Deere Credit Services, Inc. ("Deere Credit") represents the primary source of borrowing base financing for equipment inventories, particularly for equipment supplied by Deere. The Company also has a borrowing base credit facility for financing of equipment inventories with CitiCapital. Floor plan financing of truck inventories is primarily supplied by General Motors Acceptance Corporation ("GMAC"). Operating and capital leases, primarily provided by GE Commercial 6 Distribution Finance Corporation ("CDF") and Deere Credit, are used to finance some rental equipment. All lenders generally receive a security interest in the inventory or rental equipment being financed. CUSTOMER FINANCING OPTIONS Financing options for customer purchases support the sales activities of the Company. Financing for purchases by the Company's customers are available through the Company's private label financing/leasing program provided by CitiCapital, by manufacturer-sponsored sources (such as Deere Credit) and by major finance companies. The Company's finance subsidiary coordinates arrangements for most of the Company's customers who request financing. The Company does not grant extended payment terms. PRODUCT WARRANTIES The manufacturer generally provides warranties for new products and parts. The term and scope of these warranties vary greatly by manufacturer and product. The manufacturer (such as Deere) pays the Company for repairs to equipment under warranty. The Company generally sells used products "as is" and without manufacturer's warranty, although manufacturers sometimes provide limited warranties if the manufacturer's original warranty is transferable and has not yet expired. The Company also sells warranty products offered by third parties on new and used equipment. The Company itself has not generally provided additional warranties. COMPETITION The Company's construction equipment stores compete with distributors of equipment produced by manufacturers other than Deere, including Caterpillar, CNH and Komatsu. The Company also faces competition from distributors of manufacturers of specific types of construction equipment, including JCB backhoes, Kobelco excavators, and Bobcat skid loaders. The Company's agricultural equipment stores compete with distributors of equipment from suppliers other than Deere, including AGCO Corporation, Caterpillar and CNH. The Company's agricultural equipment stores also compete with other Deere agricultural dealerships that may be located in close proximity to the Company's agricultural equipment stores. The Company's equipment rental operations compete with equipment rental companies and dealers. Equipment rental businesses generally make available for short-term rent used equipment manufactured by the foregoing manufacturers, including those who are suppliers to the Company. The Company's truck centers compete with distributors of trucks produced by manufacturers other than Mack and Volvo, including Daimler Chrysler AG (Freightliner and Sterling), Ford Motor Co., Navistar International Corp. and Paccar Inc. (Peterbilt and Kenworth). The Company's material handling stores compete with distributors of lift trucks produced by manufacturers other than Hyster. Competing manufacturers include Clark Material Handling Company, Crown Equipment Corporation, Nissan Motor Co., Toyota Motor Corp., another division of the NACCO material handling group (Yale), and equipment rental companies that rent aerial and high-reach man lifts, lift trucks and other material handling equipment. Competition among equipment and truck retailers is primarily based on price, value, reputation, quality, design and performance of the products offered by the retailer, the customer service and product servicing provided by the retailer, and the accessibility of the retailer's stores. The Company believes that 7 its store locations, broad product lines, quality products, product support and other customer and financial services enable it to compete effectively. BACKLOG In the current economic environment affecting all of the Company's operating segments, all equipment and trucks are readily available from the Company's manufacturers and currently there is no backlog of orders which will not be filled in fiscal 2004. AGREEMENTS WITH MANUFACTURERS DEERE CONSTRUCTION DEALER AGREEMENTS. The Company has agreements with Deere which authorize the Company to act as a dealer of Deere construction, utility and forestry equipment (the "Construction Dealer Agreements"). The Company's areas of responsibility for the sale of Deere construction equipment are: (i) in the midwest: most of Minnesota, Montana, North Dakota and South Dakota, and small portions of Iowa and Wyoming; (ii) in the southwest: Arizona and part of southern California; and (iii) in south central: central Texas, including the Austin, Dallas-Fort Worth and San Antonio metropolitan areas. Pursuant to the Construction Dealer Agreements, the Company is required, among other things, to maintain suitable facilities, provide competent management, actively promote the sale of construction equipment in the designated areas of responsibility, fulfill the warranty obligations of Deere, maintain inventory in proportion to the sales potential in each area of responsibility, provide service and maintain sufficient parts inventory to service the needs of its customers, maintain adequate working capital and maintain stores only in authorized locations. Deere is obligated to make available to the Company any finance plans, lease plans, floor plans, parts return programs, sales or incentive programs or similar plans or programs it offers to other dealers. Deere also provides the Company with promotional items and marketing materials prepared by Deere for its construction equipment dealers. The Construction Dealer Agreements also entitle the Company to use John Deere trademarks and tradenames, with certain restrictions. In addition to the Deere Construction Dealer Agreements, the Company also has dealer agreements with Hitachi Construction Machinery (America) Corporation ("Hitachi") for similar territories of the midwest and southern California that the Company represents Deere. Hitachi is a joint venture partner with Deere and generally offers products which complement Deere including large excavators, shovels and rigid frame mining trucks. DEERE AGRICULTURAL DEALER AGREEMENTS. The Company has non-exclusive dealership agreements with Deere for each of its Deere agricultural equipment stores, each of which authorizes the Company to act as a dealer in Deere agricultural equipment (the "Agricultural Dealer Agreements") at a specific authorized store location. The terms of the Agricultural Dealer Agreements are substantially the same as the Construction Dealer Agreements. The Deere agricultural equipment stores also offer John Deere lawn and grounds equipment, for which the Company has entered into non-exclusive Lawn and Garden Dealer Agreements containing substantially the same terms as the Agricultural Dealer Agreements. DEERE DEALERSHIP AGREEMENTS - OTHER PROVISIONS. The Company operates its Deere construction and agricultural stores pursuant to its agreements with Deere, including Deere's customary construction or agricultural dealership agreements for each of the Company's construction areas of responsibility and agricultural store locations. These agreements impose a number of restrictions and 8 obligations on the Company with respect to its operations, including a prohibition on carrying construction products which are competitive with Deere products, and an obligation to maintain suitable facilities. In addition, the Company must provide competent management, actively promote the sale of Deere equipment in the Company's designated areas of responsibility, fulfill the warranty obligations of Deere, provide service and maintain sufficient parts inventory to service the needs of its customers. The Company must also maintain inventory in proportion to the sales potential in each of the Company's designated areas of responsibility, maintain adequate working capital and maintain stores only in authorized locations. Under an agreement with Deere, the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. There can be no assurance that any such consent will be given by Deere. In addition, Deere has the right to have input into the selection of the Company's management personnel, including managers of the Company's Deere equipment stores, and to have input with respect to the selection of nominees to the Company's Board of Directors and the removal of directors. The prior consent of Deere is required for the opening of any Deere equipment store within the Company's designated areas of responsibility and for the acquisition of any other Deere dealership. With respect to the Company, the Company's Deere construction equipment dealerships (construction operations) and the Company's agricultural equipment dealerships (agricultural operations), a minimum equity-to-asset ratio of 25% must be maintained. As of January 31, 2003, the equity-to-asset ratio for the Company, construction operations and agricultural operations were 44%, 42%, and 38%, respectively. The Company is prohibited from paying any dividends and may not effect any stock repurchase, repay or discharge its indebtedness for any subordinate loans, make any other distributions to owners, make acquisitions or initiate new business without complying with certain financial ratios related to minimum equity-to-assets levels and tangible net worth ratios before and after such actions. In the event of the death of Ronald D. Offutt, the Company's Chairman, Chief Executive Officer and principal stockholder, Deere has the right to terminate the Company's dealer appointments upon the occurrence of a "change of control." The Company's Deere dealer appointments are not exclusive. Deere could appoint other dealers in close proximity to the Company's existing stores. Deere can reduce the areas of responsibility assigned to the Company's construction equipment dealerships upon 120 days prior written notice. In addition, the dealer agreements can be amended at any time without the Company's consent, so long as the same amendment is made to the dealer agreements of all other Deere dealers. Deere also has the right to sell directly to federal, state or local governments, as well as national accounts. To the extent Deere appoints other dealers in the Company's markets, reduces the areas of responsibility relating to the Company's construction equipment stores, or amends the dealer agreements or directly sells substantial amounts of equipment to government entities and national accounts, the Company's results of operations and financial condition could be adversely affected. DEERE INDEMNIFICATION AGREEMENT. Some time after the Company's initial public offering in January 1997, Deere advised the Company that it was requiring Deere dealerships to sign an indemnification agreement before "going public". Deere also informed the Company that it would not be willing to consider possible future acquisitions of Deere dealerships by the Company unless and until the Company signed such an agreement. After prolonged discussions and negotiations, the Company signed an indemnification agreement in March 2000. In general, this agreement provides that the Company will indemnify Deere (and its directors, officers, employees and agents) from and against lawsuits and other proceedings commenced by shareholders of the Company and by governmental agencies arising from (a) the registration, listing, offer, sale, distribution or resale of any security of the Company, (b) an untrue statement or omission, whether actual or alleged, in connection with any security of the Company, or (c) an allegation that Deere is a "controlling person" of the Company within the meaning of federal securities laws. The Company will pay, or reimburse Deere for, any judgments, penalties, expenses and other losses 9 resulting from any such lawsuit or other proceeding. The Company has no obligation to indemnify Deere with respect to any judgment rendered against Deere as a result of Deere's own intentional or reckless misconduct or as a result of an untrue written statement of fact signed by an officer of Deere. RELEASE AND COVENANT NOT TO SUE. The Company signed a Release and Covenant not to Sue agreement with John Deere Construction & Forestry Company ("JDCFC"). The agreement states the Company and Mr. Offutt, on behalf of themselves, their successors and assigns, and on behalf of any person or entity claiming by, through, or on behalf of any of them: 1. release and forever discharge JDCFC, its successors, and all other persons or entities affiliated with JDCFC (the "Released Parties"), from any and all claims the Company or Mr. Offutt may have or which may arise in the future that relate to the Market Potential Limitation (see part b. of "Certain Important Factors", "Growth Through Acquisitions and Store Openings" of this Form 10-K, for definition), including disapproval or withholding of approval, by JDCFC, of an acquisition, merger, or other transaction which would result in noncompliance with the Market Potential Limitation; and 2. agree that they will not bring any legal proceeding or assist any other person or entity in bringing any legal proceeding against any Released Party based in whole or in part on any claim released in the Release and Covenant Not to Sue. OTHER SUPPLIERS. The Company is an authorized dealer at various stores for suppliers of other products. The terms of such arrangements vary, but most of the dealership agreements contain termination provisions allowing the supplier to terminate the agreement after a specified notice period (usually 180 days) upon a change of control and in the event of Mr. Offutt's death. INTELLECTUAL PROPERTY RIGHTS RDO Equipment Co. is a registered service mark owned by the Company. John Deere is a registered trademark of Deere & Company, the Company's use of which is authorized under the Deere dealership agreements. Trademarks and tradenames with respect to new equipment and trucks obtained from manufacturers other than Deere are authorized under their respective dealership agreements. The Company historically has operated each of its dealerships under either the RDO Equipment Co. service mark and tradename or, for purposes of continuity at a particular store if there was strong local name recognition and customer loyalty, the name historically used by the dealership in that location. Each dealership store is generally identified as an authorized dealer or representative of the manufacturer or manufacturers of the equipment, trucks or other products sold at the store, and may also display signs of other suppliers. ENVIRONMENTAL AND GOVERNMENTAL REGULATIONS The Company's operations are subject to numerous federal, state and local rules and regulations, including laws and regulations designed to regulate workplace health and safety, to protect the environment and to regulate the discharge of materials into the environment, primarily relating to its service operations. Based on current laws and regulations, the Company believes that it is in compliance with such laws and regulations and that its policies, practices and procedures are designed to prevent unreasonable risk of environmental damage or violation of environmental laws and regulations and any resulting material financial liability to the Company. The Company is not aware of any federal, state or local laws or regulations that have been enacted or adopted, the compliance with which would have a material adverse 10 effect on the Company's results of operations or would require the Company to make any material capital expenditures. No assurance can be given that future changes in such laws or regulations or changes in the nature of the Company's operations or the effects of activities of prior occupants or activities at neighboring facilities will not have an adverse impact on the Company's operations. The Company's truck operations are subject to the National Traffic and Motor Vehicle Safety Act, Federal Motor Vehicle Safety standards promulgated by the U.S. Department of Transportation and various state motor vehicle regulatory agencies. State and local laws and regulations require each truck dealership to obtain licenses to operate as a dealer in heavy-duty vehicles. The Company believes that its truck operations are in compliance with all federal, state and local laws and regulations and that it has obtained all necessary licenses and permits. The Company's financial services operations are subject to laws and regulations with respect to financing, commercial finance regulations that may be similar to consumer finance regulations in some states, including those governing interest rates and charges, maximum amounts and maturities of credit and customer disclosure of transaction terms. The Company's insurance products and services are subject to laws and regulations with respect to insurance, licensing, insurance premiums, financing rates and insurance agencies. The Company believes that it is in compliance with these laws and regulations. EMPLOYEES As of January 31, 2003, the Company employed 1,182 full-time employees. Of this number, nine employees were located at the Company's corporate offices and employed in corporate administration. A total of 75 employees were employed in field support roles located in various offices. The remaining employees were involved in the Company's operations: 650 in construction operations, 360 in agriculture operations and 88 in truck operations. None of the Company's employees are covered by a collective bargaining agreement. The Company believes that its relations with its employees are good. CERTAIN IMPORTANT FACTORS In addition to the matters discussed above or included from time to time in filings with the Securities and Exchange Commission, there are important factors that could cause the Company's future results to differ materially from those anticipated or planned by the Company or which are reflected in any forward-looking statement which may be made by or on behalf of the Company. Some of these important factors (but not necessarily all important factors) include the following: DEPENDENCE ON DEERE. The Company is an authorized dealer of Deere construction and agricultural equipment, consumer products and parts in its Deere designated areas of responsibility and store locations. A substantial portion of the Company's new equipment sales represents sales of new equipment supplied by Deere and a substantial portion of the Company's sales from parts and service also are directly related to Deere equipment. The Company depends on Deere for floor plan financing to finance a substantial portion of its inventory. In addition, Deere provides a significant percentage of the financing used by the Company's customers to purchase Deere equipment from the Company. Deere also provides incentive programs and discounts from time to time, which enable the Company to price its products more competitively. In addition, Deere conducts promotional and marketing activities on national, regional and local levels. The Company believes its success depends, in significant part, on: (i) the overall success of Deere; (ii) the availability and terms of floor plan financing and customer financing from Deere; (iii) the incentive and discount programs provided by Deere and its promotional and marketing efforts for its construction and agricultural products; (iv) the goodwill associated with Deere trademarks; 11 (v) the introduction of new and innovative products by Deere; (vi) the manufacture and delivery of competitively-priced, high-quality equipment and parts by Deere in quantities sufficient to meet the requirements of the Company's customers on a timely basis; and (vii) the quality, consistency and management of the overall Deere dealership system. If Deere does not provide, maintain or improve any of the foregoing, there could be a material adverse effect on the Company's results of operations. DEERE TERMINATION RIGHTS. Under agreements with Deere, Deere has the right to terminate the Company's dealer appointments immediately if Mr. Offutt ceases to: (i) own or control a minimum percentage of the outstanding voting power, 50 percent in relation to agricultural operations and 30 percent in relation to construction operations, or whatever greater percentage is required to control corporate actions that require a stockholder vote; and (ii) own Common Stock representing a minimum percentage of the Company's shareholders' equity, 35 percent in relation to agricultural operations and 30 percent in relation to construction operations. Deere also has a right to terminate the Company's dealer appointments in the event of Mr. Offutt's death; however, Deere cannot exercise this right to terminate if at that time: (i) there is in place an ownership succession plan approved by Deere; (ii) the Company and Deere have identified events which would thereafter constitute changes of control of the Company entitling Deere to terminate the dealer appointments; (iii) the Company and each of its Deere stores are under continuing management acceptable to Deere; (iv) there is no existing breach and no grounds for termination exist with respect to any of the Company's agreements with Deere, including the ownership requirements; and (v) Deere in its sole discretion has determined that each of the Company's Deere areas of responsibility and store locations justifies the continuation of the Deere appointment for such area or location. In the event of Mr. Offutt's death and change in control without Deere's consent, Deere thereafter has the right to terminate the Company's dealer appointments. A "change of control" is defined for these purposes as: (i) the sale, lease, exchange or other transfer of substantially all of the Company's assets; (ii) a merger, consolidation, reorganization or similar transaction in which the Company's stockholders do not own more than 50 percent of the voting power of the surviving entity (provided that if they own more than 50 percent but less than 80 percent of the voting power, the merger must be approved by a majority of the directors who were directors at the time of Mr. Offutt's death or subsequent directors whose election has been approved by existing directors ("Continuity Directors")); (iii) a vote by the stockholders to approve a transaction set forth in (i) or (ii), (iv) the acquisition by a person other than Mr. Offutt or his heirs of 50 percent or more of the voting power of the Company (20 percent if such acquisition has not been approved by a majority of the Continuity Directors); (v) a change in the corporate executive officers without Deere's approval; or (vi) if Continuity Directors cease to constitute a majority of the Company's Board of Directors. In addition, Deere is entitled to terminate the Company's applicable dealer appointments on one year's notice if the equity-to-assets ratio of the Company, the Company's construction operations, or the Company's agricultural operations, is below 25 percent as calculated by Deere based on the Company's fiscal year end audited financial statements. The Company has a right to cure such deficiency within 180 days of such fiscal year end. The Company's dealer appointments terminate immediately upon the commencement of the dissolution or liquidation of the Company or a sale of a substantial part of the business, change in the location of a dealership without Deere's prior written consent, or a default under any security agreement with Deere. The appointments also may be terminated upon the revocation or discontinuance of any guaranty of Mr. Offutt or the Company to Deere, unless replaced by a letter of credit acceptable to Deere. 12 In addition, without regard to any subsequent attempts to cure, upon one year's written notice Deere may terminate agricultural dealer appointments for which the Company fails to submit acceptable business plans to Deere or to make meaningful progress toward the objectives in the business plans. Also, without regard to any subsequent attempts to cure, upon 180 days written notice, JDCFC can terminate construction dealer appointments for which the Company fails to make Meaningful Progress, as defined in the dealership agreement, with respect to a Performance Criterion, as defined in the dealership agreement, in any fiscal or calendar year. Deere can also terminate the Company's dealer appointments for cause or if Deere determines there is not sufficient market potential to support a dealership in a particular location or area of responsibility, upon prior written notice to the Company of 180 days for agricultural dealerships and one year's notice for construction dealerships. Any effort by Deere to terminate any of the Company's Deere dealer appointments may be subject to various legal rights to which the Company is entitled, including dealer protection statutes. Termination of certain or all of the Company's Deere dealer appointments could have a material adverse effect on the results of operations and financial condition of the Company. Any effort by Deere to terminate any of the Company's Deere dealer appointments could also have a material adverse effect on the results of operations and financial condition of the Company whether or not the Company prevails in any resulting lawsuit or other dispute resolution process. EFFECTS OF DOWNTURN IN GENERAL ECONOMIC CONDITIONS, CYCLICALITY, SEASONALITY AND WEATHER. The Company's business, and particularly the sale of new equipment and trucks, is dependent on a number of factors relating to general economic conditions worldwide and locally. Such factors include agricultural industry cycles, construction spending, federal, state and local government spending on highways and other construction projects, federal government spending on agricultural programs, housing starts, interest rate fluctuations, fuel prices, economic recessions, customer business cycles, and customer confidence in the economy. Accordingly, any general downward economic pressures, or adverse cyclical trends may materially and adversely affect the Company's financial condition and results of operations. The ability to finance affordable purchases, of which the interest rate charged is a significant component, is an important part of a customer's decision to purchase equipment or a truck. Interest rate increases may make equipment and truck purchases less affordable for customers and, as a result, the Company's revenues and profitability may decrease. To the extent the Company cannot pass on to its customers the increased costs of its own inventory financing resulting from increased interest rates, its net income also may decrease. Similarly, the number of housing starts is especially important to sales of construction equipment, and fuel prices can significantly affect truck operations. As a result of the foregoing, the Company's results of operations have fluctuated in the past and are expected to fluctuate in the future. The Company generally experiences lower revenue levels during the first and fourth quarters of each fiscal year due to the crop growing season, winter weather conditions in the midwest, and a general slowdown in construction activity at the end of the calendar year. Typically, farmers purchase agricultural equipment immediately prior to planting or harvesting crops, which occurs during the Company's second and third fiscal quarters, especially in the midwest. As a result, sales of agricultural equipment may be somewhat lower in the first and fourth fiscal quarters. Winter weather in the midwest also limits construction to some degree and, therefore, also typically results in lower sales of construction equipment in the first and fourth fiscal quarters. The Company's results of operations have been and are expected to be affected by weather. Climatic phenomena such as La Nina and El Nino, and severe weather such as extreme cold and snowfall 13 in the winter and major flooding in the spring or summer, can adversely impact the agricultural and construction industries. The results may include delayed delivery and servicing of equipment or decreased demand for the Company's products and services and a corresponding delay or loss in revenues. To the extent adverse weather occurs, the Company's results of operations and financial condition could be adversely affected. COMPETITION. The Company anticipates that its operations will continue to face strong, and perhaps increasing, competition. Some of these competitors may be larger and have substantially greater capital resources than the Company. The Company's Deere stores also compete to a degree with other Deere dealerships. Competition among distributors can be intense and is primarily based on the price, value, reputation, quality and design of the products offered by the dealer, the customer service and product support provided by the dealer, and the accessibility of stores. Although the Company believes that it is competitive in all of these categories, there can be no assurance that the Company will remain competitive in general or in any particular area in which the Company has operations. To the extent competitors of the Company's suppliers provide their distributors with more innovative and/or higher quality products, better pricing or more favorable customer financing, or have more effective marketing efforts, the Company's ability to compete and its financial condition and results of operations could be adversely affected. In addition, to the extent products sold by the Company are not as competitive or in demand as those of suppliers not used by the Company, the Company's results of operations could be adversely affected. Worldwide economic conditions can impact competition in the geographic areas where the Company does business. For example, a downturn in the economies of foreign countries could result in an increased supply of equipment in U.S. markets with a corresponding increase in competitive pressures such as lower equipment prices. To the extent the Company experiences increased competition, the Company's results of operations and financial condition could be adversely affected. AVAILABLE FINANCING FOR CUSTOMERS. The sale of equipment, trucks and parts requires the availability of financing for customers. The Company has established multiple sources of financing for the customer, including manufacturer-sponsored finance companies (e.g., Deere Credit) and major independent finance companies (e.g., CitiCapital). To the extent such financing cannot be obtained on reasonable terms, the Company's revenues and results of operations could be adversely affected. SUBSTANTIAL INVENTORY FINANCING REQUIREMENTS, AND LENDING INDUSTRY CHANGES. The sale of equipment, trucks and parts requires substantial inventories to be maintained in order to facilitate sales to customers on a timely basis. As the Company grows, whether through acquisitions, opening new stores or internal growth, its inventory requirements will increase and, as a result, the Company's financing requirements also will increase. In the event that the Company's available financing sources are not sufficient to satisfy its future requirements, the Company would be required to obtain additional financing from other sources. While the Company believes that it could obtain additional financing or alternative financing if required, there can be no assurance that such financing could be obtained on commercially reasonable terms. To the extent such additional financing cannot be obtained on commercially reasonable terms, the Company's growth and results of operations could be adversely affected. In addition, consolidation among key lenders to the equipment industry and changes in such lenders policies could adversely affect the availability and pricing of funding for the Company's inventory financing needs. DEPENDENCE UPON KEY PERSONNEL. The Company believes its success depends upon the continued services of Mr. Offutt. The loss of Mr. Offutt could materially and adversely affect the Company. The Company does not maintain key person life insurance on Mr. Offutt. 14 DEPENDENCE ON INFORMATION TECHNOLOGY SYSTEMS. The ability to monitor and control operations depends to a large extent on the proper functioning of information technology systems. Any disruption in these systems or the failure of these systems to operate as expected could, depending on the magnitude and duration of the problem, adversely affect the Company. GROWTH BY ACQUISITIONS AND STORE OPENINGS. The Company's ability to grow through acquisitions of additional dealerships, stores or other businesses is dependent upon many important factors. Some, but not necessarily all, of these important factors are: a. As discussed above, the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere can withhold in its sole discretion. In addition, an acquisition of a Deere dealership or the opening of a new Deere store requires Deere's consent. From time to time since the Company's formation in 1968, Deere has withheld its consent to acquisitions proposed by the Company or by other Deere dealers expressing an interest in being acquired by the Company. There can be no assurance that Deere will approve any future acquisitions or store openings proposed by the Company. b. Deere has informed the Company there are limits to acceptable ownership concentration of Deere dealerships. The current restriction for consolidation of JDCFC dealerships with respect to the Company is 9.9% of the total market potential for Deere construction products in North America. Such market potential is measured as of the 12-month period ended January 31, 1997, or such other limitation, but not less than 9.9%, as determined by JDCFC in its sole discretion (Market Potential Limitation). The Company believes Deere's current restriction for consolidation by any one dealer of Deere agricultural dealerships is two to three percent of Deere's market potential in North America. Accordingly, there can be no assurance that Deere will approve acquisitions or store openings up to or beyond these levels. c. The ability to grow the Company through acquisitions or store openings is dependent upon (i) the availability of suitable acquisition candidates at an acceptable cost, (ii) receiving the manufacturer's approval of acquisitions as required or appropriate, (iii) the Company's ability to compete effectively for available acquisition candidates, and (iv) the availability of capital to complete the acquisitions. There can be no assurance the Company can overcome these factors to complete future acquisitions or store openings. d. The Company could face risks commonly encountered with growth through acquisitions. These risks include incurring significantly higher than anticipated capital expenditures and operating expenses, and failing to assimilate the operations and personnel of acquired dealerships. Related risks include disrupting the Company's ongoing business, dissipating the Company's management resources, failing to maintain uniform standards, controls and policies, and impairing relationships with employees and customers as a result of changes in management. Realization of the full benefit of the Company's strategies, operating model and systems as to an acquired dealership may take several years. There can be no assurance that the Company will be successful in overcoming these risks or any other problems encountered with acquisitions. To the extent the Company does not successfully avoid or overcome the risks or problems related to acquisitions, the Company's results of operations and financial condition could be adversely affected. Acquisitions also could have a significant impact on the Company's financial position and capital needs, and could cause substantial fluctuations in the Company's quarterly and yearly results of operations. 15 e. The Company has grown significantly in recent years and may continue to grow through acquisitions, opening new stores and internal growth. Management has expended, and may continue to expend, significant time and effort in evaluating, completing and integrating acquisitions, opening new stores, and supporting internal growth. There can be no assurance that the Company's systems, procedures and controls will be adequate to support the Company's operations as they may expand. Any future growth also will impose significant added responsibilities on members of senior management, including the need to identify, recruit and integrate new senior level managers and executives. There can be no assurance that such additional management will be identified and retained by the Company. If the Company is unable to manage its growth efficiently and effectively, or is unable to attract and retain additional qualified management, there could be a material adverse effect on the Company's financial condition and results of operations. RECENT DEVELOPMENTS On March 6, 2003, the Company received an updated letter from Mr. Offutt, the Company's Chairman, Chief Executive Officer and President, proposing to acquire at a purchase price of $6.01 per share all of the outstanding shares of the Company's Class A Common Stock that Mr. Offutt does not currently own or control ("Tender Offer"). This represented a substantial increase from the $5.22-$5.66 per share price range originally proposed by Mr. Offutt in December 2002 and was the result of discussions and negotiations between Mr. Offutt and the Special Committee of the Company's Board of Directors comprised of non-management directors that was formed to review and evaluate the offer from Mr. Offutt. On March 7, 2003, the Special Committee announced that it had received an opinion, with customary assumptions and qualifications, from its financial advisor, Houlihan Lokey Howard & Zukin, that Mr. Offutt's proposal to acquire the outstanding Class A shares that he does not own or control for cash consideration of $6.01 per share is fair, from a financial point of view, to the Company's stockholders holding those other shares. Based upon this opinion and the Special Committee's deliberations prior to March 7, 2003, the Committee also announced that if Mr. Offutt formally commenced a tender offer as proposed, the Special Committee intended to recommend that stockholders tender their shares, assuming no material changes have occurred prior to the formal commencement of Mr. Offutt's tender offer that would alter the views of the Committee or its financial advisors. In his March 6, 2003 letter, Mr. Offutt reiterated that until RDO Tender Co. formally commences a tender offer to the Company's stockholders, he reserves the right, in his sole and absolute discretion, not to proceed with the offer for any reason. Mr. Offutt beneficially owns 8,125,884 Class A shares (assuming conversion of his 7,450,492 Class B shares into an equal number of Class A shares), or approximately 63.5% of the outstanding shares of RDO Equipment. On April 8, 2003, the Company announced that Mr. Offutt indicated to the Company that he plans to cause RDO Tender Co., an acquisition entity Mr. Offutt intends to form, to commence the proposed tender offer by filing tender offer materials with the Securities and Exchange Commission and mailing such materials to the Company's stockholders on or about April 28, 2003. THE FOREGOING FACTORS ARE NOT EXHAUSTIVE AND NEW FACTORS MAY EMERGE, OR CHANGES TO THE FOREGOING FACTORS MAY OCCUR, WHICH WOULD IMPACT THE COMPANY'S BUSINESS. THE COMPANY MAKES NO COMMITMENT TO REVISE FORWARD-LOOKING STATEMENTS, OR TO DISCLOSE SUBSEQUENT FACTS, EVENTS OR CIRCUMSTANCES THAT MAY BEAR UPON FORWARD-LOOKING STATEMENTS. 16 ITEM 2. PROPERTIES. As of the end of fiscal 2003, the Company owned the real estate for seven of its stores and leased its executive offices and 21 stores from an Offutt Entity (as defined in Item 4A. below). The Company also leased 17 stores from unrelated third parties. Lease terms range from one to twelve years and some leases include an option to purchase the leased property. The Company believes that all of its facilities are in good operating condition. The Company's retail stores are located in the following states: ------------------------------------- Arizona 7 California 3 Minnesota 8 Montana 2 Nebraska 1 North Dakota 13 South Dakota 3 Texas 6 Washington 2 ------------------------------------- TOTAL LOCATIONS 45 ===================================== ITEM 3. LEGAL PROCEEDINGS. On March 31, 2003, one of the Company's stockholders filed a complaint in the Delaware Court of Chancery purporting to commence a class action lawsuit on behalf of the Company's public stockholders against the Company, Mr. Offutt and each of the individual directors of the Company. The complaint was encaptioned as SRZ TRADING, LLC V. RDO EQUIPMENT CO., ET AL (C.A. No. 20214-NC). In general, the complaint alleges, among other things: (1) breaches of fiduciary duty by each of the Company, Mr. Offutt and the members of the Company's Board of Directors in connection with Mr. Offutt's contemplated Tender Offer; (2) inadequate disclosure to minority stockholders of RDOE; and (3) that the consideration offered is inadequate. Among other remedies, the complaint seeks to enjoin the Tender Offer (and the follow-up merger) or, alternatively, damages in an unspecified amount and rescission in the event the Tender Offer (and the follow-up merger) occur. The Company and Mr. Offutt believe the complaint is without merit and intend to vigorously defend against these claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 17 ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT. The executive officers of the Company, their ages and offices held as of March 31, 2003, are as follows: NAME AGE OFFICE ---- --- ------ Ronald D. Offutt 60 Chairman of the Board, Chief Executive Officer and President Allan F. Knoll 59 Secretary Christi J. Offutt 33 Chief Operating Officer Steven B. Dewald 42 Chief Financial Officer Thomas K. Espel 44 Treasurer and Assistant Secretary RONALD D. OFFUTT is the Company's founder, President, Chairman, Chief Executive Officer and principal stockholder. He has served as Chairman and Chief Executive Officer since the Company's formation in 1968. He has served as the Company's President since December 2000 and he served as a member of the Company's Office of the Chairman from December 1998 to December 2000. Mr. Offutt also serves as Chief Executive Officer and Chairman of the Board of R.D. Offutt Company ("Offutt Co.") and other entities he owns, controls or manages (collectively, "Offutt Entities"). The Offutt Entities are engaged in a variety of businesses such as farming, food processing and auto dealerships, some of which transact business with the Company. See Item 13 of this Form 10-K, "Certain Relationships and Related Transactions." Mr. Offutt spent approximately one-half of his time on the business of the Company during fiscal 2003. He is Former Chairman of the Board of Regents of Concordia College of Moorhead and is a graduate of Concordia College of Moorhead with a degree in Economics. Mr. Offutt is the father of Christi J. Offutt, Chief Operating Officer. ALLAN F. KNOLL has served as Secretary and a director of the Company since 1974. Mr. Knoll also served as a member of the Company's Office of the Chairman from December 1998 to December 2000. He served as Chief Financial Officer of the Company from 1974 through January 1999. Mr. Knoll also serves as Chief Financial Officer and Secretary of Offutt Co., and serves as a director and officer and is a beneficial stockholder of many of the Offutt Entities. Mr. Knoll spent approximately twenty percent of his time on the business of the Company during fiscal 2003. Mr. Knoll is a graduate of Moorhead State University with degrees in Business Administration and Accounting. CHRISTI J. OFFUTT has served as Chief Operating Officer since January 2001. She previously served as Senior Vice President - Midwest Agriculture from June 1999 to January 2001 and as Vice President - Strategic Planning from December 1998 until June 1999, and as Legal Counsel of Offutt Co. from January 1997 until December 1998. Ms. Offutt is a graduate of University of Puget Sound with degrees in politics and government and in business administration, and received her law degree in May 1996 from Boston University. She is the daughter of Ronald D. Offutt, Chairman and Chief Executive Officer. 18 STEVEN B. DEWALD has served as Chief Financial Officer since July 2001. He previously served as Senior Vice President - Director of Finance Construction Division from January 2001 to July 2001. Mr. Dewald served as Senior Vice President - RDO Financial Services Co. from its formation in December 1997 until January 2001. Mr. Dewald also served as Director of Finance of Ag Capital Company ("Ag Capital"). Prior to joining Ag Capital in 1996, he served as Chief Financial Officer of Metropolitan Financial Corporation. Mr. Dewald began his career with Ernst & Young focusing primarily in the financial services industry. He is a graduate of Concordia College of Moorhead with a degree in accounting and finance. THOMAS K. ESPEL has served as Treasurer and Assistant Secretary since March 2000. Mr. Espel also served as Chief Financial Officer from February 1999 until July 2001. He previously served as Executive Vice President - Finance from August 1998 until February 1999. Prior to joining the Company, he served as manager of Ag Capital since its inception in 1989 and continues to serve as a member of its board of directors. From 1981 through 1988, Mr. Espel held various lending positions at St. Paul Bank for Cooperatives. He has a bachelor's degree from the University of Illinois and a master's degree from Michigan State University, both in Agricultural Economics - Finance. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Class A Common Stock of RDO Equipment Co. is traded on the New York Stock Exchange under the symbol "RDO". The quarterly high and low reported sales prices on the New York Stock Exchange during the Company's two most recent fiscal years were: FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER FISCAL 2003 High $ 4.73 $ 6.10 $ 5.23 $ 5.18 Low $ 3.52 $ 4.25 $ 3.90 $ 3.96 FISCAL 2002 High $ 4.05 $ 3.45 $ 3.50 $ 3.67 Low $ 2.80 $ 3.05 $ 1.92 $ 2.30 As of April 17, 2003, the Company had 248 record holders and approximately 2,200 beneficial holders of its Class A Common Stock, and one holder of its Class B Common Stock. The Company did not have any unregistered sales of equity securities during fiscal 2003. The Company intends to retain the earnings of the Company to support the Company's operations and to finance expansion and growth, and it does not intend to pay cash dividends in the foreseeable future. Payment of dividends rests within the discretion of the Board of Directors and will depend upon, among other factors, the Company's earnings, capital requirements, financial condition, and any dividend restrictions under its dealership and credit agreements. 19 ITEM 6. SELECTED FINANCIAL DATA. The data presented below have been derived from the Company's Consolidated Financial Statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-K. RDO EQUIPMENT CO. AND SUBSIDIARIES

~~NAME~~FISCAL ~~AGE~~YEARS ~~OFFICE~~ENDED JANUARY 31, ------------------------------------------------------------------------------------------------------------------------ [in thousands, except store and per share data] 2003 2002 2001 2000 1999 ------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED INCOME STATEMENT DATA Revenues: Equipment and truck sales $ 381,205 $ 386,888 $ 499,205 $ 515,634 $ 435,289 Parts and service 153,259 163,032 181,173 173,336 143,335 ------------------------------------------------------------------------------------------------------------------------ ~~Ronald~~Total D.revenues ~~Offutt~~534,464 59549,920 ~~Chairman~~680,378 688,970 578,624 Cost of ~~the~~revenues(1) ~~Board~~440,660 ~~Chief~~456,697 ~~Executive~~581,583 ~~Officer~~566,877 479,275 ------------------------------------------------------------------------------------------------------------------------ Gross profit 93,804 93,223 98,795 122,093 99,349 Selling, general and ~~President~~administrative ~~Allan~~expenses(2) F.87,558 ~~Knoll~~91,321 58106,918 ~~Secretary~~97,431 ~~Christi~~81,682 J.Loss ~~Offutt~~on 32sale, ~~Chief~~restructuring charges and asset impairment -- -- 11,200 -- 2,200 ------------------------------------------------------------------------------------------------------------------------ Operating ~~Officer~~income ~~Steven~~(loss) B.6,246 ~~Dewald~~1,902 41(19,323) ~~Chief~~24,662 ~~Financial~~15,467 ~~Officer~~Gain ~~Kenneth~~on J.sale ~~Horner~~of dealerships 734 -- -- 786 -- Interest expense, Jrnet (1,883) (5,952) (11,961) (13,719) (12,427) ------------------------------------------------------------------------------------------------------------------------ Income (loss) before taxes 5,097 (4,050) (31,284) 11,729 3,040 Income tax provision (benefit) 2,090 (1,620) (12,733) 5,252 1,237 Minority interest -- -- 11 (60) 135 ------------------------------------------------------------------------------------------------------------------------ Net income (loss) $ 3,007 $ (2,430) $ (18,562) $ 6,537 $ 1,668 ------------------------------------------------------------------------------------------------------------------------ Net income (loss) per share - basic and diluted $ 0.23 38$ ~~Executive~~(0.18) ~~Vice~~$ ~~President~~(1.41) $ 0.50 $ 0.13 ------------------------------------------------------------------------------------------------------------------------ ~~Project~~CONSOLIDATED SELECTED OPERATING DATA Comparable store revenues increase (decrease) 2% (8)% (2)% (2)% 5% Stores open at beginning of year 47 53 56 64 50 Stores opened -- -- -- -- 6 Stores acquired -- -- -- 5 10 Stores consolidated/~~Process~~closed/sold ~~Management~~(2) ~~Thomas~~(6) K.(3) ~~Espel~~(13) 43(2) ~~Treasurer~~------------------------------------------------------------------------------------------------------------------------ Stores open at end of year 45 47 53 56 64 ------------------------------------------------------------------------------------------------------------------------ Net purchases (sales) of rental equipment $ 906 $ (654) $ 2,118 $ 485 $ 19,769 Net purchases of property and ~~Assistant~~equipment ~~Secretary~~3,283 888 2,357 3,409 5,132 Treasury stock purchases 1,806 426 -- -- -- Depreciation and amortization 4,541 6,003 7,465 12,950 10,506 As of January 31, ------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED BALANCE SHEET DATA Working capital $ 44,526 $ 48,904 $ 49,842 $ 64,225 $ 36,739 Inventories 125,048 128,504 169,090 217,556 208,368 Total assets 202,666 216,594 305,988 361,997 379,220 Floor plan/borrowing base payables(3) 76,752 97,416 149,191 190,242 191,030 Total debt 8,488 4,969 20,417 26,604 55,533 Stockholders' equity 89,058 87,857 90,713 109,275 102,738

(1) Fiscal 1999 included a $15 million inventory charge. (2) In fiscal 2003, with the adoption of Statement of Financial Accounting Standards No. 142, the Company ceased amortization of goodwill. See Note 2, "Significant Accounting Policies", to the consolidated financial statements for effects on comparability. (3) Includes interest-bearing and noninterest-bearing liabilities incurred in connection with inventory financing. 20 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE BUSINESS The Company specializes in the distribution, sale, service, rental and finance of equipment and trucks to the agricultural, construction, manufacturing, transportation and warehousing industries, as well as to public service entities, government agencies and utilities. The Company's stores are located in Arizona, California, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Texas and Washington. The Company's largest supplier is Deere. The Company generates its revenues from sales of new and used equipment and trucks, sales of parts and service, rental of equipment, customer financing and related products and services. In addition to outright sales of new and used equipment, sales include equipment purchased under rent-to-purchase agreements. Generally under such agreements, the customer is given a period of several months to exercise the option to purchase the rented equipment and is allowed to apply a portion of the rental payments to the purchase price. This rent-to-purchase equipment is included in the Company's inventory until the option is exercised and the equipment is purchased. The Company's highest gross margins as a percentage of revenues have historically been generated from its parts and service revenues. One of the Company's operating strategies is to increase the demand for parts and service by establishing, and then increasing, the base of equipment and trucks held by its customers. Due to product warranty time frames and usage patterns by customers, there generally is a time lag between equipment and truck sales and the generation of significant parts and service revenues from such sales. As a result of this time lag, increases in parts and service revenues do not necessarily coincide with increases in equipment and truck sales. In addition, due to differences in gross margin percentages between equipment and truck sales and parts and service revenues, gross margin percentages may increase during periods of declining equipment and truck sales and decline when equipment and truck sales are strong. Deere, a leading manufacturer and supplier of construction and agricultural equipment, is the primary supplier of new products sold by the Company. Sales of new Deere products accounted for approximately 48% of the Company's sales in fiscal 2003 with no other supplier accounting for more than 10%. The Company's stores also offer complementary products from other suppliers, used products, new and used parts, product servicing, product rental, loans, leases and other related products and services. The Company generally experiences lower revenue levels during its first and fourth quarters primarily due to the crop-growing season, winter weather conditions in the midwest and a general slowdown in construction activity at the end of the calendar year. See "Seasonality" below. Price increases by suppliers of the Company's products have not historically had a significant impact on the Company's results of operations. See "Effects of Inflation" below. The Company requires cash primarily for financing its inventories of equipment, trucks and replacement parts, rental equipment, receivables and capital expenditures, including acquisitions. Historically, the Company has met these liquidity requirements primarily through cash flow generated from operating activities, floor plan financing and borrowings under credit agreements. See "Liquidity and Capital Resources" below. 21 The Company was incorporated in April 1968 and re-incorporated in Delaware in January 1997. The Company's executive offices are located at 2829 South University Drive, Fargo, North Dakota 58103. The Company's phone number is (701) 297-4288. References to the Company in this Form 10-K include its subsidiaries. DEERE DEALERSHIP AGREEMENTS The Company operates its Deere construction and agricultural stores pursuant to its agreements with Deere, including Deere's customary construction or agricultural dealership agreements for each of the Company's construction areas of responsibility and agricultural store locations. These agreements impose a number of restrictions and obligations on the Company with respect to its operations, including a prohibition on carrying construction products which are competitive with Deere products, and an obligation to maintain suitable facilities. In addition, the Company must provide competent management, actively promote the sale of Deere equipment in the Company's designated areas of responsibility, fulfill the warranty obligations of Deere, provide service and maintain sufficient parts inventory to service the needs of its customers. The Company must also maintain inventory in proportion to the sales potential in each of the Company's designated areas of responsibility, maintain adequate working capital and maintain stores only in authorized locations. Under an agreement with Deere, the Company cannot engage in discussions to acquire other Deere dealerships without Deere's prior written consent, which Deere may withhold in its sole discretion. There can be no assurance that any such consent will be given by Deere. In addition, Deere has the right to have input into the selection of the Company's management personnel, including managers of the Company's Deere equipment stores, and to have input with respect to the selection of nominees to the Company's Board of Directors and the removal of directors. The prior consent of Deere is required for the opening of any Deere equipment store within the Company's designated areas of responsibility and for the acquisition of any other Deere dealership. With respect to the Company, the Company's Deere construction equipment dealerships (construction operations) and the Company's agricultural equipment dealerships (agricultural operations), a minimum equity-to-asset ratio of 25% must be maintained. As of January 31, 2003, the equity-to-asset ratio for the Company, construction operations and agricultural operations were 44%, 42%, and 38%, respectively. The Company is prohibited from paying any dividends and may not effect any stock repurchase, repay or discharge its indebtedness for any subordinate loans, make any other distributions to owners, make acquisitions or initiate new business without complying with certain financial ratios related to minimum equity-to-assets levels and tangible net worth ratios before and after such actions. In the event of the death of Mr. Offutt, the Company's Chairman and CEO, Deere has the right to terminate the Company's dealer appointments upon the occurrence of a "change of control." The Company's Deere dealer appointments are not exclusive. Deere could appoint other dealers in close proximity to the Company's existing stores. Deere can reduce the areas of responsibility assigned to the Company's construction equipment dealerships upon 120 days prior written notice. In addition, the dealer agreements can be amended at any time without the Company's consent, so long as the same amendment is made to the dealer agreements of all other Deere dealers. Deere also has the right to sell directly to federal, state or local governments, as well as national accounts. To the extent Deere appoints other dealers in the Company's markets, reduces the areas of responsibility relating to the Company's construction equipment stores, or amends the dealer agreements or directly sells substantial amounts of equipment to government entities and national accounts, the Company's results of operations and financial condition could be adversely affected. 22 DEERE INDEMNIFICATION AGREEMENT Some time after the Company's initial public offering in January 1997, Deere advised the Company that it was requiring Deere dealerships to sign an indemnification agreement before "going public". Deere also informed the Company that it would not be willing to consider possible future acquisitions of Deere dealerships by the Company unless and until the Company signed such an agreement. After prolonged discussions and negotiations, the Company signed an indemnification agreement in March 2000. In general, this agreement provides that the Company will indemnify Deere (and its directors, officers, employees and agents) from and against lawsuits and other proceedings commenced by shareholders of the Company and by governmental agencies arising from (a) the registration, listing, offer, sale, distribution or resale of any security of the Company, (b) an untrue statement or omission, whether actual or alleged, in connection with any security of the Company, or (c) an allegation that Deere is a "controlling person" of the Company within the meaning of federal securities laws. The Company will pay, or reimburse Deere for, any judgments, penalties, expenses and other losses resulting from any such lawsuit or other proceeding. The Company has no obligation to indemnify Deere with respect to any judgment rendered against Deere as a result of Deere's own intentional or reckless misconduct or as a result of an untrue written statement of fact signed by an officer of Deere. NEW ACCOUNTING PRONOUNCEMENTS On February 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). This statement addresses accounting and financial reporting for goodwill and intangible assets. Under the new statement, goodwill and intangible assets with indefinite lives are no longer amortized, but are subject to impairment testing on at least an annual basis. Other than goodwill, the Company does not have any intangible assets with indefinite lives or other intangible assets. The effect of discontinuing goodwill amortization during fiscal 2003 was to increase net income by approximately $612,000, or $0.05 per share. Effective February 1, 2002, the Company also adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This standard broadens the presentation of discontinued operations to include more disposal transactions, thus the recognition of discontinued operations is expected to become more common under this standard. This statement retains the requirements of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, to recognize impairments on property, plant and equipment, but removes goodwill from its scope. The adoption of SFAS No. 144 had no impact on the Company's consolidated financial statements. The Company's plan of disposition of certain of its truck operations occurred prior to the implementation requirement of SFAS No. 144. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, Accounting for Asset Retirement Obligations, requiring the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of the provisions of this statement will not have a material effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability 23 Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company believes the adoption of the provisions of this statement will not have a material effect on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Based Compensation - Transition and Disclosure - as Amendment to FAS 123. SFAS No. 148 provides two additional transition methods for entities that adopt the preferable fair value based method of accounting for stock based compensation. In addition, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the preferable, fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. The amendments to SFAS No. 123, which provides for additional transition methods, are effective for periods beginning after December 15, 2002, although earlier application is permitted. Certain disclosure amendments are required for financial statements for fiscal years ending after December 15, 2002, and have been reflected in these consolidated financial statements. The remaining amendments to the disclosure requirements are required for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. The Company adopted the disclosure provisions of this statement which had no impact on the Company's financial statements. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a grantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 will be effective for any guarantees that are issued or modified after December 31, 2002. The Company is reviewing the requirements of this interpretation and expects the recognition of guarantees will not have a material effect on the Company's financial statements. The Company has adopted the disclosure provisions of this statement. In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The transitional disclosure provisions of FIN 46 are effective for all financial statements issued after January 31, 2003. The Company is reviewing the requirements of this interpretation and expects that it will have no impact on the Company's financial statements. CRITICAL ACCOUNTING POLICIES The Company's discussion and analysis of its financial condition and results of operations are based on the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. There can be no assurance that actual results will not differ from those estimates. The Company believes the following accounting policies affect 24 its more significant judgments and estimates used in the preparation of its consolidated financial statements. RECEIVABLES. Receivables are valued net of an allowance for doubtful accounts to arrive at a net realizable amount. The Company estimates its allowance for doubtful accounts considering a number of factors, including: (1) historical experience, (2) aging of the accounts receivable and (3) specific information obtained by the Company on the condition and the current creditworthiness of its customers. If the financial conditions of the Company's customers were to deteriorate and affect the ability of its customers to make payments on their accounts, the Company may be required to increase its allowance by recording additional bad debt expense. Likewise, should the financial condition of these customers improve and result in payments or settlements of previously reserved amounts, the Company may be required to record a reduction in bad debt expense to reverse the recorded allowance. INVENTORIES. All inventories are valued at the lower of cost or market. The specific identification method is used to determine cost for new and used equipment and trucks. Cost is determined using the first-in, first-out method for parts inventory. The Company utilizes recent sales information, third party valuation guides and recent auction results as well as judgements of various inventory managers within the Company to determine the net realizable value of inventory. An allowance is provided when it is anticipated that cost will exceed net realizable value. LONG-LIVED ASSETS. The Company's long-lived assets are stated at cost and depreciated over estimated useful lives. The Company periodically reviews its long-lived assets for impairment and assesses whether significant events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable. An impairment loss is recognized when the carrying amount of an asset exceeds the anticipated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. The amount of the impairment loss to be recorded, if any, is calculated by the excess of the asset's carrying value over its fair value. GOODWILL. Goodwill is the excess of cost of an acquired entity over the amounts assigned to assets acquired and liabilities assumed in a purchase of a business combination. Prior to February 1, 2002, goodwill was amortized on a straight-line basis over 30 years. Effective February 1, 2002, the Company ceased amortization of goodwill balances. See discussion under "Recent Accounting Pronouncements." Goodwill is tested for impairment on an annual basis or at the time of a triggering event in accordance with the provisions of SFAS No. 142. Fair values are estimated based on the Company's best estimate of the expected present value of future cash flows compared with the corresponding carrying value of the reporting unit, including goodwill. Currently, the Company has identified three reporting units under the criteria set forth by SFAS No. 142. On February 1, 2002, goodwill was tested for impairment in this manner, and the estimated fair value of the reporting units exceeded their carrying amounts, indicating no impairment of goodwill. The Company performs its annual goodwill impairment testing during its first quarter. DEFERRED TAX ASSETS AND LIABILITIES. Deferred tax assets and liabilities are recognized for the future consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to reverse. The realization of the Company's deferred tax assets is dependent upon the ability to generate sufficient future taxable income which is believed to be more likely than not. The Company anticipates future taxable income sufficient to realize the recorded deferred tax assets. Future taxable income is 25 based on the Company's forecasts of operating results, and there can be no assurance that such results will be achieved. REVENUE RECOGNITION. Revenue on equipment, truck and parts sales is recognized upon delivery of product to customers. Rental and service revenue is recognized at the time such services are provided. In addition to outright sales of new and used equipment, certain rentals include rent-to-purchase option agreements. Under such agreements, customers are given a period of several months to exercise the option to purchase the rented equipment and may be allowed to apply a portion of the rental payments to the purchase price. This rent-to-purchase equipment is included in the Company's inventory until the option is exercised and the equipment is purchased. Rental revenue is recognized during the rental period of rent-to-purchase transactions and equipment sales revenue is recognized when the purchase option is exercised. GENERAL During fiscal 2003, the Company was affected by various economic conditions in all operating segments. New farm legislation along with generally favorable growing conditions in the Company's agricultural store regions, resulted in increased farmer confidence and increased revenues in this operating segment. The Company expects the general agricultural economic climate to remain stable in fiscal 2004. Construction operations were affected by a general slowdown in equipment purchasing by construction equipment contractors in the Company's geographic areas of responsibility, especially in the Company's southern regions. These conditions provided for increased competitive pressures and a decline in unit market potential in the Company's operating regions. The Company expects these competitive pressures to continue into fiscal 2004. The Company's truck revenues continued to decline reflecting the sale of the majority of the Company's truck operations at various times during the past two years. Remaining truck store revenues increased 8.1 percent during fiscal 2003. The Company continued its previously announced stock repurchase program and expanded the program, approving the repurchase of an additional five percent of the outstanding shares of Class A Common Stock bringing the total authorized to 15% of the outstanding shares of Class A Common Stock. At January 31, 2003, the Company had repurchased 551,200 shares, or 9.6%, of the outstanding shares of Class A Common Stock at a total cost of $2,232,000. On December 16, 2002, after receiving a letter from Ronald D. Offutt, the Chairman of the Board of Directors, Chief Executive Officer and majority stockholder of the Company, expressing an interest in acquiring all of the shares of the Class A Common Stock of the Company that Mr. Offutt does not currently own or control, the Company ceased its repurchase program pending the outcome of this action. During the third quarter of fiscal 2003, the Company sold the assets of its Riverside, California truck business realizing a gain on sale of $734,000. The sale of the Riverside, California truck business completed the execution of its plan established during the fourth quarter of fiscal 2001 to restructure management and to divest the majority of its heavy-duty truck business, retaining only the stores that are showing significant short-term earnings potential and have generally been profitable through the years. These actions allowed the Company to increase its focus on its traditional core business lines of construction and agricultural equipment. In fiscal 2002, the Company purchased the remaining 8% minority interest in Salinas Equipment Distributors, Inc. As part of the Company's plan to divest itself of the majority of its heavy-duty truck business, the Company completed transactions selling its truck center business located in Dallas, Fort Worth, and Waco, Texas. The Company closed its Material Handling locations in Grand Island and 26 Lincoln, Nebraska, and North Sioux City, South Dakota. These territories are being serviced from the remaining locations in Eagan, Minnesota and Omaha, Nebraska. The Company recognized charges to operations of $11.2 million in the fourth quarter of fiscal 2001. The charges were primarily comprised of a loss on the sale of the Company's Roseville, Minnesota truck business, asset impairments of long-lived assets, such as property and equipment, leasehold improvements and goodwill related to the Company's truck division. The charge also included approximately $700,000 and $300,000 of severance costs and lease and other obligations. There are no remaining accruals relating to severance, lease or other obligations as of the January 31, 2003. Also in fiscal 2001, the Company purchased the remaining 15% minority interest in Hall GMC, Inc. and Hall Truck Center, Inc., as well as approximately 3% of the minority interest in Salinas Equipment Distributors, Inc. The Barnesville, Minnesota agricultural retail store was consolidated with the Fargo, North Dakota agricultural operations. 27 RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data: FOR FISCAL YEARS ENDED JANUARY 31, 2003 2002 2001 ------------------------------------------------------------------------ REVENUE DATA (IN MILLIONS): Total revenues $ 534.5 $ 549.9 $ 680.4 Construction 52.6% 53.6% 46.5% Agricultural 35.5% 30.7% 25.1% Truck 11.9% 15.3% 27.5% Financial * -- 0.4% 0.9% Construction revenues $ 281.0 $ 294.9 $ 316.6 Equipment sales 68.7% 68.8% 69.9% Parts and service 31.3% 31.2% 30.1% Agricultural revenues $ 189.8 $ 168.4 $ 170.9 Equipment sales 74.8% 71.8% 74.0% Parts and service 25.2% 28.2% 26.0% Truck revenues $ 63.7 $ 84.3 $ 187.1 Truck sales 72.6% 72.1% 77.9% Parts and service 27.4% 27.9% 22.1% STATEMENT OF OPERATIONS DATA (AS A PERCENTAGE OF REVENUES): Revenues Equipment and truck sales 71.3% 70.4% 73.4% Parts and service 28.7 29.6 26.6 ------------------------------------------------------------------------ Total revenues 100.0% 100.0% 100.0% ------------------------------------------------------------------------ Gross profit 17.6% 17.0% 14.5% Selling, general and administrative expenses 16.4 16.6 15.7 Loss on sale, restructuring charges and asset impairment -- -- 1.6 ------------------------------------------------------------------------ Operating income (loss) 1.2 0.4 (2.8) Gain on sale of dealerships 0.1 -- -- Interest expense, net 0.3 1.1 1.8 Provision for (benefit from) taxes 0.4 (0.3) (1.9) ------------------------------------------------------------------------ Net income (loss) 0.6% (0.4)% (2.7)% ------------------------------------------------------------------------ * Due to the current size and function of financial services activities in fiscal 2003, the revenues from financial services operations are included in the operating segment that generated these revenues. 28 FISCAL YEAR ENDED JANUARY 31, 2003 COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2002 NET INCOME (LOSS) The Company reported net income of $3.0 million, or $0.23 per share, for fiscal 2003 compared to a net loss of $2.4 million, or $(0.18) per share, for fiscal 2002. REVENUES Total revenues of $534.5 million during fiscal 2003 were $15.4 million, or 2.8%, lower than revenues of the previous fiscal year. Construction revenues, which represent the largest segment of the Company, were $281.0 million for fiscal 2003, a $13.9 million, or 4.7%, decrease compared to the prior year. This decline was due to the current soft demand for construction equipment, especially in the Company's southern regions. Agricultural revenues of $189.8 million for fiscal 2003 were $21.4 million, or 12.7%, higher than fiscal 2002. The Company's agricultural dealerships are located in areas which experienced favorable crop growing conditions, thus creating farmer optimism supporting higher sales. Truck revenues of $63.7 million were down $20.6 million, or 24.4%, compared to last fiscal year. The decrease in truck revenues reflects the sale of the majority of the Company's truck operations at various times during the past two years. Remaining truck store revenues increased $3.0 million, or 8.1%. Financial services revenues were $2.3 million for fiscal 2002. Due to the current size and function of financial services activities, current and future revenues will be included in the operating segment that generated the financial services revenues. Equipment and truck sales were $381.2 million during fiscal 2003, a decrease of $5.7 million, or 1.5%, from fiscal 2002. Agricultural equipment sales increased $21.0 million, or 17.4%, to $141.9 million. Offsetting the agricultural sales increases were construction equipment sales which decreased $9.8 million, or 4.8%, to $193.1 million and truck sales which decreased $14.6 million, or 24.0%, to $46.2 million. Parts and service revenues were $153.3 million in fiscal 2003, representing a decrease of $9.7 million, or 6.0%, from the prior fiscal year. Parts and service revenues from truck operations decreased approximately $6.0 million, or 25.5%, to $17.5 million. The decrease in truck parts and service revenues was attributable to the sale of truck dealerships. Construction parts and service revenues decreased approximately $4.1 million, or 4.5%, to $87.9 million. Agricultural parts and service revenues increased approximately $400,000, or 0.8%, as sales increased to $47.9 million. GROSS PROFIT Gross profit of $93.8 million for fiscal year 2003 increased $600,000 from last fiscal year. Total gross profit as a percentage of total revenues for fiscal 2003 and 2002 was 17.6% and 17.0%, respectively. Although equipment and truck sales dollars decreased during fiscal 2003 compared to fiscal 2002, gross margin dollars for equipment and trucks for fiscal 2003 increased approximately $3.1 million. Approximately $400,000 of the increase was attributable to the discounting and settlement of a manufacturer-sponsored obligation that originated in fiscal 1999 as part of the Company's acquisition of the Riverside truck dealership. Parts and service gross margins were approximately $57.1 million, or 37.3% of revenues, and $59.6 million, or 36.6% of revenues, for fiscal 2003 and 2002, respectively. 29 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses of $87.6 million for fiscal year 2003 decreased $3.7 million from last fiscal year. Total SG&A expenses as a percentage of total revenues for fiscal 2003 and 2002 were 16.4% and 16.6%, respectively. Approximately $1.0 million of the decrease occurred as a result of the discontinuance of amortization of goodwill in fiscal 2003. The remaining reduction of SG&A costs is largely attributable to the restructuring accomplished in the second half of fiscal 2002, the sale of the majority of the Company's truck operations at various times during the past two years and continuing cost controls. SG&A expenses are affected by the contribution of revenues by business segment and by the mix of revenues within each business segment. As a percentage of revenues, SG&A expenses are generally higher for construction operations than for agricultural and truck operations, and lower for equipment and truck sales than for parts and service revenues. The truck dealership downsizing as previously discussed along with streamlining the management structure and tight expense controls throughout the Company, were the primary contributing factors to the decrease in fiscal 2003 SG&A expenses compared to fiscal 2002. INTEREST EXPENSE Interest expense for fiscal 2003 was $2.3 million, a decrease of $4.3 million, or 65.2%, from fiscal 2002. Lower levels of inventory and reductions in interest rates were the contributing factors to the decrease in interest expense. INTEREST INCOME Interest income decreased approximately $300,000, or 42.9%, from fiscal 2003 to fiscal 2002. Interest income is primarily comprised of finance charges from trade receivables. GAIN ON SALE OF DEALERSHIPS During the third quarter of fiscal 2003, the Company sold the assets of its Riverside, California truck business realizing a gain on sale of $734,000. INCOME TAXES The estimated provision for income taxes as a percentage of pretax income was 41.0% for fiscal 2003, compared to the estimated benefit from income taxes as a percentage of pretax loss of 40.0% for fiscal 2002. FISCAL YEAR ENDED JANUARY 31, 2002 COMPARED TO FISCAL YEAR ENDED JANUARY 31, 2001 NET LOSS The Company reported a net loss of $2.4 million, or $(0.18) per share for fiscal 2002 compared to a net loss of $18.6 million, or $(1.41) per share for fiscal 2001. 30 REVENUES Total revenues of $549.9 million during fiscal 2002 were $130.5 million, or 19.2%, lower than revenues of the previous fiscal year. Construction revenues, which represent the largest segment of the Company, were $294.9 million during the year. A general slowdown in equipment purchasing by construction contractors, especially in the Company's southern regions, resulted in a $21.7 million, or 6.9%, decrease in revenue in the segment compared to the prior year. Agricultural revenues of $168.4 million in fiscal 2002 were $2.5 million, or 1.5%, lower than in fiscal 2001. The challenging but relatively stable economic conditions in the farm economy caused the slight revenue decrease. Truck revenues of $84.3 million were down $102.8 million, or 54.9%, compared to the previous year. The sale of the Roseville, Minnesota truck dealership in January 2001 and the Texas truck dealerships in May 2001 accounted for $82.4 million of the decrease. The remaining decline was attributable to the depressed market demand for trucks. Financial services revenues decreased approximately $3.5 million from fiscal 2001 to fiscal 2002. Lower loan and lease originations due to lower construction and truck revenues contributed to the decrease, as well as competition from low rate financing programs offered by manufacturers. Equipment and truck sales were $386.9 million in fiscal 2002, a decrease of $112.3 million, or 22.5%, from fiscal 2001. The sale of truck dealerships caused $65.0 million of the change and depressed demand for trucks resulted in an additional $19.9 million in sales reductions. Construction equipment sales decreased $18.4 million, or 8.3% to $202.9 million and agricultural equipment sales decreased $5.5 million, or 4.4%, to $120.9 million due to the reasons stated previously. Parts and service revenues were $163.0 million in fiscal 2002, representing a decrease of $18.2 million, or 10.0%, from the prior year. Parts and service revenues from truck operations decreased approximately $17.9 million, or 43.2%, to $23.5 million. The decrease in truck parts and service revenues was primarily due to the truck dealership sales. Construction parts and service revenues decreased approximately $3.3 million, or 3.5%, to $92.0 million. Agricultural parts and service revenues increased approximately $3.0 million, or 6.7%, as sales increased from $44.5 million to $47.5 million. GROSS PROFIT Gross profit for fiscal 2002 was approximately $93.2 million, or 17.0% of total revenues, compared to $98.8 million, or 14.5% of total revenues in fiscal 2001, a decrease of $5.6 million, or 5.7%. The Company experienced an increase in gross profit as a percentage of total revenues due to increased parts and service revenues as a percentage of the Company's total revenues. The Company's gross margins are significantly higher from its parts and service revenues than from equipment and truck sales. The Company's divestiture of significant truck dealerships also contributed to the increase in gross profit as a percentage of revenues. Revenues from construction and agricultural operations provide the Company with higher gross margins than do truck operations. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES SG&A expenses decreased $15.6 million, from $106.9 million for fiscal 2001 to $91.3 million for fiscal 2002. Total SG&A expenses as a percentage of total revenues for fiscal 2002 and 2001 were 16.6% and 15.7%, respectively. SG&A expenses are affected by the contribution of revenues by business segment and by the mix of revenues within each business segment. As a percentage of revenues, SG&A expenses are generally higher for construction operations than for agricultural and truck operations, and lower for equipment and truck sales than for parts and service revenues. A primary contributing factor to the decrease in SG&A expenses was the sale of truck dealerships. The Company's efforts to streamline 31 the management structure also contributed to a reduction in the SG&A expenses. However, the Company was experiencing revenue reductions that were out-pacing SG&A expense reduction efforts, thus SG&A expenses as a percentage of revenues increased slightly. INTEREST EXPENSE Interest expense decreased approximately $6.0 million, or 47.6%, from $12.6 million for fiscal 2001 to $6.6 million for fiscal 2002. Interest expense as a percentage of total revenues decreased from 1.9% for fiscal 2001 to 1.2% for fiscal 2002. Lower levels of interest-bearing floor plan payables and reductions in interest rates as well as the sale of truck dealerships were the contributing factors to the decrease in interest expense. INTEREST INCOME Interest income increased approximately $100,000, or 16.7%, from fiscal 2001 to fiscal 2002. Interest income is primarily comprised of finance charges from trade receivables. INCOME TAXES The estimated benefit from income taxes as a percentage of pretax loss was 40.0% and 40.7% for fiscal 2002 and 2001, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company requires cash primarily for financing its inventories of equipment, trucks and replacement parts, rental equipment, receivables and capital expenditures, including acquisitions and openings of additional retail locations. Historically, the Company has met these liquidity requirements primarily through cash flow generated from operating activities, floor plan financing, and borrowings under credit agreements with Deere, Deere Credit, Ag Capital, CDF, GMAC, Volvo Commercial Finance LLC The Americas ("Volvo Finance"), CitiCapital and commercial banks. Deere and Deere Credit provide the primary source of financing for equipment inventories, particularly for equipment supplied by Deere. The Deere and Deere Credit financings are provided through two vehicles, the dealer statement and a borrowing base revolving credit facility. The dealer statement provides extended terms and varying interest-free periods, depending on the type of equipment, to enable dealers to carry representative inventories of equipment and to encourage the purchase of goods by dealers in advance of seasonal retail demand. Down payments are not required and interest might not be charged for a substantial part of the period for which inventories are financed. Often, purchase discounts are available in lieu of interest-free periods. Variable market rates of interest based on the prime rate are charged on balances outstanding after any interest-free periods, which in the past have generally been four to twelve months for agricultural equipment and four months for construction equipment. These interest-free periods may be changed at Deere and Deere Credit's discretion and may be longer depending on special financing programs offered from time to time. Deere and Deere Credit also provide dealer statement financing to dealers on used equipment accepted in trade and approved equipment from other suppliers. The Deere Credit borrowing base revolving credit facility provides financing for eligible equipment inventories (generally equipment inventories not financed through the dealer statement) and receivables. The Deere and Deere Credit financing sources have a combined maximum outstanding 32 allowed of $125.0 million. The maximum outstanding allowed is reduced to $105.0 million beginning May 1, 2003. The total amount outstanding to Deere and Deere Credit was $42.3 million at January 31, 2003. The Company also has a borrowing base credit facility with CitiCapital to provide up to $30.0 million in financing for equipment inventories, with variable rates of interest based on LIBOR. The total amount outstanding at January 31, 2003 was $29.0 million. GMAC and Volvo Finance provide truck floor plan financing with variable market rates of interest based on the prime rate or LIBOR rate. None of the financing sources for trucks have a set credit limit. On January 31, 2003, the Company had unused credit commitments subject to borrowing base requirements related to inventory and receivable financing and operating lease financing of dedicated rental equipment of $92.3 million. The Company had outstanding floor plan/borrowing base payables of approximately $76.8 million, of which $44.1 million was interest-bearing as of January 31, 2003. The collateral of equipment and truck inventories along with eligible receivables would support $30.4 million of additional borrowing at January 31, 2003. During fiscal 2003, 2002 and 2001, the average interest rate under interest-bearing floor plan/borrowing base financing was approximately 5.15%, 7.13% and 8.82%, respectively. Currently, the Company has an unsecured bank line of credit totaling $1,585,000 with a maturity date of July 1, 2003 and with a variable interest rate based on the prime rate (4.25% at January 31, 2003). The Company had approximately $20,000 of unused availability relating to this line of credit at January 31, 2003. The average interest rates on the Company's lines of credit during fiscal 2003, 2002 and 2001 were 5.06%, 7.04% and 9.03%, respectively. The Company believes it has sufficient credit availability from its existing credit facilities and manufacturers to finance its current and future operations. Various credit facilities are reviewed and renewed annually. As the credit facilities approach maturity, the Company believes it will be able to renew or extend these facilities, or replace these facilities with other facilities. The Company believes cash from operations, available cash and borrowing capacity will be sufficient to fund its planned internal capital expenditures and other cash needs for fiscal 2004. The Company's financing agreements contain various covenants which, among other matters, require the Company to maintain minimum financial ratios, including earnings before interest and income taxes, as defined, and a minimum level of tangible equity. The Company was in compliance with all covenants as of January 31, 2003. 33 The Company has various commitments relating to its operations. The following is a summary of these commitments as of January 31, 2003. Contractual Obligations and Commercial Commitments --------------------------------------------------

~~FISCAL~~Within ~~YEARS~~Year ~~ENDED~~5 ~~JANUARY~~(Dollars ~~31, ------------------------------------------------------------------------------------------------------------------------------ [~~in ~~thousands,~~Thousands) ~~except~~1 ~~store~~year ~~and~~Year ~~per~~2 ~~share~~Year ~~data]~~3 ~~2002~~Year ~~2001~~4 ~~2000~~or ~~1999~~after ~~1998~~Total ~~1997~~ ---------------------------------------------------------------------------------------------------------------~~---------------~~ ~~INCOME~~Inventory ~~STATEMENT~~floor ~~DATA~~plan/ ~~Revenues:~~borrowing ~~Equipment~~base ~~and~~payables ~~truck sales~~ $ ~~378~~76,~~182~~752 $ ~~484,727~~-- $ ~~476,773~~-- $ ~~404,093 $ 301,684 $ 224,094 Parts and service 163,032 181,173 173,336 143,335 113,268 75,820 Rental 6,442 8,706 32,178 26,208 14,451 2,499 Financial services 2,264 5,772 6,683 4,988~~ -- --$ --~~----------------------------------------------------------------------------------------------------------------------------~~ ~~Total~~$ ~~revenues 549~~76,~~920~~752 ~~680,378~~Note ~~688,970~~payable/operating ~~578,624~~line ~~429,403 302,413 Cost of revenues (~~1~~) 456~~,~~697~~565 ~~581,583 566,877 479,275 340,987 245,287~~ -- --~~--------------------------------------------------------------------------------------------------------------------------~~ ~~Gross profit 93,223 98,795 122,093 99,349 88,416 57,126 Selling, general and administrative expenses 91,321 106,918 97,431 81,682 60,382 41,275 Loss on sale, restructuring charges and asset impairment~~ -- ~~11,200~~ -- 21,~~200~~565 Long--term --debt ~~------------------------------------------------------------------------------------------------------------------------------ Operating income (loss)~~ 1,~~902~~783 ~~(19~~1,~~323)~~881 242,~~662~~243 ~~15,467~~259 ~~28,034~~757 156,~~851~~923 ~~Gain~~Operating onleases ~~sale~~and ofother ~~RDO~~7,397 ~~Rental Co. -- -- 786 -- -- -- Interest expense~~6,053 ~~net (~~5,~~952)~~848 ~~(11~~4,~~961)~~118 ~~(13~~11,~~719)~~613 ~~(12~~35,~~427)~~029 ~~(5,538) (5,046)~~ ---------------------------------------------------------------------------------------------------------------~~---------------~~ ~~Income~~Total (loss) before taxes (4,050) (31,284) 11,729 3,040 22,496 10,805 Income tax provision (benefit) (2) (1,620) (12,733) 5,252 1,237 9,156 4,322 Minority interest -- 11 (60) 135 89 -- ============================================================================================================================== Net income (loss) $ (287,~~430)~~497 $ ~~(18~~7,~~562)~~934 $ 68,~~537~~091 $ 14,~~668~~377 $ 1312,~~251~~370 $ 6120,~~483~~269 ============================================================================================================================== Net income (loss) per share - basic and diluted $ (0.18) $ (1.41) $ 0.50 $ 0.13 $ 1.00 $ 0.77 ============================================================================================================================== SELECTED OPERATING DATA Comparable store revenues increase (decrease) (8)% (2)% (2)% 5% 11% 26% Stores open at beginning of year 53 56 64 50 32 26 Stores opened -- -- -- 6 3 1 Stores acquired -- -- 5 10 16 5 Stores consolidated/closed/sold (6) (3) (13) (2) (1) -- ------------------------------------------------------------------------------------------------------------------------------ Stores open at end of year 47 53 56 64 50 32 ------------------------------------------------------------------------------------------------------------------------------ Net purchases (sales) of rental equipment $ (654) $ 2,118 $ 485 $ 19,769 $ 14,185 $ 1,519 Net purchases of property and equipment 888 2,357 3,409 5,132 3,766 2,137 Depreciation and amortization 6,003 7,465 12,950 10,506 5,308 2,606 As of January 31, ------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA Working capital $ 48,904 $ 49,842 $ 64,225 $ 36,739 $ 69,265 $ 72,744 Inventories 128,504 169,090 217,556 208,368 220,841 130,955 Total assets 216,594 305,988 361,997 379,220 319,432 181,551 Floor plan/borrowing base payables (3) 97,416 149,191 190,242 191,030 163,988 64,331 Total debt 4,969 20,417 26,604 55,533 31,353 14,409 Stockholders' equity 87,857 90,713 109,275 102,738 101,070 87,795

The Company's long-term debt is primarily related to a note payable collateralized by certain property and equipment and to the financing of dedicated rental assets and one dealership location facility. Operating lease and other commitments are primarily related to operating leases for dealership locations of $27.5 million, minimum repurchase guarantees of equipment of $5.7 million, and operating leases for dedicated rental assets of $1.2 million and vehicles of $0.6 million. In addition to the above commitments, certain credit companies provide direct customer financing (collateralized by customer owned equipment) and credit accounts with recourse to the Company totaling $16.6 million and $1.3 million as of January 31, 2003, respectively. These commitments represent only a small portion of the total related account balances (generally 5%); thus only accruals and payments for probable losses are recognized until the recourse (guarantee) expires. Credit risk represents the accounting loss that would be recognized at the reporting date if the counter-parties failed to perform completely as contracted. The credit risk amounts are equal to the recourse (guaranteed) portion of the contractual amounts. These contracts related to customer financing have various maturity dates over the next one to five years. Operating activities, including changes in inventories and related floor plan payables, provided net cash of $20.4 million, $5.8 million and $10.6 million for fiscal 2003, 2002 and 2001, respectively. Net income plus depreciation and amortization along with reduced levels of trade receivables and inventories, partially offset by reduced levels of floor plan payables, were the primary contributing factors to cash provided by operating activities for fiscal 2003. Reduced levels of trade receivables and inventories, partially offset by reduced levels of floor plan payables, were the primary contributing factors to cash provided by operating activities for fiscal 2002. The cash generated by operating activities for fiscal 2001 primarily resulted from depreciation and amortization and reduced inventory levels and trade receivables, partially offset by reduced levels of payables, including floor plan payables. Cash used for investing activities in fiscal 2003 was $1.7 million primarily related to purchases of rental equipment and purchases of property and equipment, partially offset by the proceeds from the sale of the Riverside, California truck dealership. Cash provided by investing activities was $2.0 million for fiscal 2002, which was primarily related to proceeds from the sale of the Texas truck dealerships. Cash used for investing activities in fiscal 2001 was $3.2 million, primarily related to purchases of agricultural rental equipment, purchases of property and equipment, the purchase of the remaining 15% minority interest in Hall GMC, Inc. and Hall Truck Center Inc. and the purchase of approximately 3% of the minority interest in Salinas Equipment Distributors, Inc. 34 Cash used for financing activities amounted to $18.0 million, $14.6 million and $3.9 million for fiscal 2003, 2002 and 2001, respectively. Payments on short-term notes payable and revolving credit facilities, payments on long-term debt and repurchase of the Company's Common Stock, partially offset by proceeds from the issuance of long-term debt, were the primary uses of cash in fiscal 2003. The primary contributing factors for the use of cash in fiscal 2002 were payments of long-term debt and the Company's operating lines. Cash used for financing activities in fiscal 2001 was primarily attributable to payment of long-term debt and net payments of bank lines and short-term notes payable. During fiscal 2003, the Company continued its previously announced stock repurchase program and expanded the program, approving the repurchase of an additional five percent of the outstanding shares of Class A Common Stock bringing the total authorized to 15% of the outstanding shares of Class A Common Stock. At January 31, 2003, the Company had repurchased 551,200 shares, or 9.6%, of the outstanding shares of Class A Common Stock at a total cost of $2,232,000. On December 16, 2002, after receiving a letter from Ronald D. Offutt, the Chairman of the Board of Directors, Chief Executive Officer and majority stockholder of the Company, expressing an interest in acquiring all of the shares of the Class A Common Stock of the Company that Mr. Offutt does not currently own or control, the Company ceased its repurchase program pending the outcome of this action. EFFECTS OF INFLATION Inflation has not had a material impact upon operating results and the Company does not expect it to have such an impact in the future. To date, in those instances in which the Company has experienced cost increases, it has been able to increase selling prices to offset such increases. There can be no assurance, however, that the Company's business will not be affected by inflation or that it can continue to increase its selling prices to offset increased costs and remain competitive. CYCLICALITY Sales of equipment and trucks, particularly new units, historically have been cyclical, fluctuating with general economic cycles. During economic downturns, equipment and truck retailers tend to experience similar periods of decline and recession as the general economy. The impact of an economic downturn on retailers is generally less than the impact on manufacturers due to the sale of parts and service by retailers to maintain used equipment and trucks. The Company believes that its businesses are influenced by worldwide and local economic conditions (see "Safe Harbor Statement" below) and that its geographic and business diversification will generally reduce the overall impact of economic cycles on the Company's operations. SEASONALITY The Company's agricultural operations, particularly in the Midwest, generally experience a higher volume of equipment sales in the second and third fiscal quarters due to the crop-growing season. Typically, farmers purchase equipment prior to planting or harvesting crops. Winter weather conditions in the Midwest limit equipment purchases during the Company's first and fourth fiscal quarters. This seasonal effect can be diminished during periods of significant and sustained weakness in the agricultural economy during which farmers generally purchase less equipment. The Company's construction operations generally experience a higher volume of equipment sales in the second and third fiscal quarters due to favorable weather patterns, particularly in the Midwest. The general slowdown in construction activity at the end of the calendar year influences the fourth fiscal 35 quarter. Further, winter weather conditions in parts of the Southwest and South Central also limit construction activity to some degree, typically resulting in lower sales and rentals of construction equipment. If the Company acquires businesses in geographic areas other than where it currently has operations, or disposes of certain businesses, it may be affected more by the above mentioned or other seasonal and equipment buying trends. SAFE HARBOR STATEMENT This statement is made under the Private Securities Litigation Reform Act of 1995. The future results of the Company, including results related to forward-looking statements in this Report, involve a number of risks and uncertainties. Important factors that will affect future results of the Company, including factors that could cause actual results to differ materially from those indicated by forward-looking statements, include, but may not be limited to, those set forth under the caption "Certain Important Factors" in Item 1 of this Form 10-K and in other filings with the Securities and Exchange Commission. The important factors discussed in this Form 10-K include: o Dependence on Deere o Deere termination rights o Effects of downturn in general economic conditions, cyclicality, seasonality and weather o Competition o Available financing for customers o Substantial inventory financing requirements and lending industry changes o Dependence on key personnel o Growth by acquisition and store openings In general, the factors that will affect the Company, which are subject to change, include: general economic conditions worldwide and locally; global acts of terrorism; interest rates; housing starts; fuel prices; the factors that affect the construction contractors' confidence and financial health including construction demand, the amount of government sponsored projects and weather; the many interrelated factors that affect farmers' confidence, including farm cash income, farmer debt levels, credit availability, worldwide demand for agricultural products, world grain stocks, commodity prices, weather, animal and plant diseases, crop pests, harvest yields, real estate values and government farm programs; legislation, primarily legislation relating to agriculture, the environment, commerce, transportation and government spending on infrastructure; climatic phenomena such as flooding, droughts, La Nina and El Nino; pricing, product initiatives and other actions of competitors in the various industries in which the Company competes, including manufacturers and retailers; the levels of new and used inventories in these industries; the Company's relationships with its suppliers; production difficulties, including capacity and supply constraints experienced by the Company's suppliers; practices by the Company's suppliers; changes in governmental regulations; labor shortages; employee relations; currency exchange rates; availability, sufficiency and cost of insurance; financing arrangements relating to the Company's financial services operations, including credit availability and customer credit risks; dependence upon the Company's suppliers; termination rights and other provisions which the Company's suppliers have under dealer and other agreements; risks associated with growth, expansion and acquisitions; the positions of the Company's suppliers and other manufacturers with respect to publicly-traded dealers, dealer consolidation and specific acquisition opportunities; the Company's acquisition strategies and the integration and successful operation of acquired businesses; capital needs and capital market conditions; operating and 36 financial systems to manage operations; dependence upon key personnel; accounting standards; technological difficulties, especially involving the Company's suppliers and other third parties which could cause the Company to be unable to process customer orders, deliver products or services, or perform other essential functions; developments with respect to Mr. Offutt's offer to acquire outstanding publicly traded Class A common shares and other risks and uncertainties. The Company's forward-looking statements are based upon assumptions relating to these factors. These assumptions are sometimes based upon estimates, data, communications and other information from suppliers, government agencies and other sources, which are often revised. The Company makes no commitment to revise forward-looking statements, or to disclose subsequent facts, events or circumstances that may bear upon forward-looking statements. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is exposed to market risk from changes in interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices such as interest rates. For fixed rate debt, interest rate changes affect the fair value of financial instruments but do not impact earnings or cash flows. Conversely for floating rate debt, interest rate changes generally do not affect the fair market value but do impact future earnings and cash flows, assuming other factors are held constant. During fiscal 2003, the Company has renegotiated and/or signed several new credit facilities. Many of these credit agreements are floating rate facilities now containing minimum rates of interest to be charged. The Company has also entered into fixed rate financing for certain rental equipment. Based upon balances and interest rates as of January 31, 2003, a one percentage point fluctuation in interest rates would result in a net change to unrealized market value of the Company's fixed rate debt by approximately $62,000. Holding other variables constant, a one percentage point increase in interest rates for the next twelve month period would decrease pre-tax earnings and cash flow by approximately $280,000. Conversely, a one percentage point decrease in interest rates for the next twelve month period would result in an increase to pre-tax earnings and cash flow of approximately $112,000. At January 31, 2003, the Company had variable rate floor plan payables, notes payable and long-term debt of $47.4 million and fixed rate notes payable and long-term debt of $5.2 million. The Company's policy is not to enter into derivatives or other financial instruments for trading or speculative purposes. 37 ITEM 8A. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Operations 39 Consolidated Balance Sheets 40 Consolidated Statements of Stockholders' Equity 41 Consolidated Statements of Cash Flows 42 Notes to Consolidated Financial Statements 43 Report of Independent Accountants 63 38 RDO EQUIPMENT CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

FOR ~~FISCAL~~THE YEARS ENDED JANUARY 31, ----------------------------------------------------------------------------------------------------------- [in thousands, except per share amounts] 2003 2002 2001 ~~2000~~ ----------------------------------------------------------------------------------------------------------- ~~REVENUE~~REVENUES ~~DATA~~Equipment ~~(IN~~and ~~MILLIONS):~~truck ~~Total~~sales ~~revenues~~ $ ~~549.9~~381,205 $ ~~680.4~~386,888 $ ~~689.0~~499,205 ~~Construction~~Parts ~~53.6%~~and ~~46.5%~~service ~~48.9%~~153,259 ~~Agricultural~~163,032 ~~30.7%~~181,173 ~~25.1% 20.2% Truck 15.3% 27.5% 25.9% Rental~~ -- --------------------------------------------------------------------------------------------------------- ~~4.0%~~Total ~~Financial 0.4% 0.9% 1.0% Construction~~ revenues $534,464 ~~294.9~~549,920 $680,378 ~~316.6~~COST $OF ~~337.0~~REVENUES Equipment ~~sales~~and ~~68.1%~~truck ~~68.8%~~344,512 ~~70.8%~~353,298 464,454 Parts and service ~~31.2%~~96,148 ~~30.1%~~103,399 ~~28.1%~~117,129 ~~Rental~~----------------------------------------------------------------------------------------------------------- ~~0.7%~~Total ~~1.1%~~cost ~~1.1%~~of ~~Agricultural~~ revenues $440,660 ~~168.4~~456,697 $581,583 ~~170.9~~----------------------------------------------------------------------------------------------------------- $GROSS ~~139.2~~PROFIT ~~Equipment~~93,804 ~~sales~~93,223 ~~69.2%~~98,795 ~~71.0%~~SELLING, ~~66.3%~~GENERAL ~~Parts~~AND ~~and~~ADMINISTRATIVE ~~service~~EXPENSES ~~28.2%~~87,558 ~~26.0%~~91,321 ~~30.3%~~106,918 ~~Rental~~LOSS ~~2.6%~~ON ~~3.0%~~SALE, ~~3.4%~~RESTRUCTURING ~~Truck~~CHARGES ~~revenues~~AND $ASSET ~~84.~~IMPAIRMENT (Note 3) $-- ~~187.1~~-- $11,200 ~~178.8~~----------------------------------------------------------------------------------------------------------- ~~Truck~~Operating ~~sales~~income ~~72.1%~~(loss) ~~77.9%~~6,246 ~~80.~~1%,902 ~~Parts~~(19,323) ~~and~~INTEREST ~~service~~EXPENSE ~~27.9%~~2,331 ~~22.1%~~6,649 ~~19.9%~~12,578 ~~Rental~~INTEREST ~~revenues~~INCOME $448 --697 $617 --GAIN $ON ~~27.3~~SALE ~~Equipment~~OF ~~sales~~DEALERSHIPS 734 -- -- ~~10.0% Parts and service~~ -- -- ~~3.6% Rental~~ -- ----------------------------------------------------------------------------------------------------- ~~86.4%~~Income ~~STATEMENT OF OPERATIONS DATA~~ (~~AS A PERCENTAGE OF REVENUES~~loss): ~~Revenues~~before ~~Equipment~~income taxes and ~~truck~~minority ~~sales~~interest ~~68.8%~~5,097 ~~71.2%~~(4,050) ~~69.2%~~(31,284) ~~Parts~~INCOME ~~and~~TAX ~~service~~PROVISION ~~29.6~~(BENEFIT) ~~26.6 25.1 Rental 1.~~2,090 (1.3,620) ~~4.7~~(12,733) ~~Financial services 0.4 0.9 1.0~~ ----------------------------------------------------------------------------------------------------------- ~~Total~~Income ~~revenues~~(loss) ~~100.0%~~before ~~100.0%~~minority ~~100.0%~~interest 3,007 (2,430) (18,551) MINORITY INTEREST -- -- 11 ----------------------------------------------------------------------------------------------------------- ~~Gross~~NET ~~profit~~INCOME ~~17.0%~~(LOSS) ~~14.5%~~$ ~~17.7% Selling~~3,007 ~~general~~$ ~~and~~(2,430) ~~administrative~~$ ~~expenses 16.6 15.7 14.1 Loss on sale~~(18,562) ~~restructuring charges and asset impairment~~ -- ~~1.6~~ -- ------------------------------------------------------------------------------------------------------- ~~Operating~~Basic and diluted net income (loss) per share $ 0.423 $ (20.818) ~~3.6~~$ ~~Gain on sale of RDO Rental Co~~(1.41) -- --------------------------------------------------------------------------------------------------------- ~~0.1~~Weighted ~~Interest~~average ~~expense,~~shares ~~net~~outstanding ~~1.1~~- ~~1.8~~basic ~~2.0~~12,750 ~~Provision~~13,160 ~~for~~13,182 ~~(benefit~~Weighted ~~from)~~average ~~taxes~~shares ~~(0.3)~~outstanding ~~(1.9)~~- ~~0.8~~diluted 12,802 13,160 13,182 ------------------------------------------------------------------------------------------- ~~Net income (loss) (0.4)% (2.7)% 0.9% ==========================================================================================~~----------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 39 RDO EQUIPMENT CO. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

~~FOR~~AS ~~THE~~OF ~~YEARS ENDED~~ JANUARY 31, ----------------------------------------------------------------------------------------~~----------~~ [in thousands~~, except per share amounts~~] 2003 2002 ~~2001 2000~~ ----------------------------------------------------------------------------------------~~----------~~ ~~REVENUES~~ASSETS ~~Equipment~~CURRENT ASSETS: Cash and ~~truck~~cash ~~sales~~equivalents $ ~~378~~1,~~182~~497 $ ~~484,727~~852 $Accounts ~~476~~receivable,~~773~~ ~~Parts~~less ~~and~~allowance ~~service~~for ~~163~~doubtful accounts of $2,~~032~~664 ~~181~~and $2,~~173~~666 ~~173~~23,~~336~~738 ~~Rental~~26,726 6Income tax receivable 800 4,~~442~~550 8Receivables from affiliates 83 38 Inventories 125,~~706~~048 32128,~~178~~504 ~~Financial~~Prepaid ~~services~~expenses 21,~~264~~828 51,~~772~~417 ~~6,683~~Assets held for sale -- 8,862 Deferred income tax asset -- 5,310 ----------------------------------------------------------------------------------------~~------~~ Total ~~revenues~~current ~~549~~assets 152,~~920~~994 ~~680~~176,~~378~~259 ~~688~~PROPERTY AND EQUIPMENT,~~970~~ ~~COST~~NET OF16,820 ~~REVENUES~~13,192 ~~456~~OTHER ASSETS: Goodwill 24,~~697~~322 ~~581~~24,~~583~~322 ~~566~~Deferred income tax asset 5,~~877~~620 504 Deposits and other 2,910 2,317 ----------------------------------------------------------------------------------------~~----------~~ ~~GROSS~~Total ~~PROFIT~~assets ~~93,223~~$ 98202,~~795~~666 ~~122,093~~$ ~~SELLING~~216,594 ~~GENERAL AND ADMINISTRATIVE EXPENSES 91,321 106,918 97,431 LOSS ON SALE, RESTRUCTURING CHARGES AND ASSET IMPAIRMENT (Note 3)~~ -- ~~11,200~~ -- ------------------------------------------------------------------------------------~~--------------~~ ~~Operating~~LIABILITIES ~~income~~AND ~~(loss)~~STOCKHOLDERS' 1EQUITY CURRENT LIABILITIES: Floor plan/borrowing base payables $ 76,~~902~~752 ~~(19~~$ 97,~~323)~~416 24Notes payable 1,~~662~~565 ~~INTEREST~~975 ~~EXPENSE~~Current (6maturities of long-term debt 1,~~649)~~783 ~~(12~~2,~~578)~~612 ~~(14~~Accounts payable 4,~~536)~~625 ~~INTEREST~~2,042 ~~INCOME~~Accrued ~~697~~liabilities ~~617~~16,174 ~~817~~12,656 ~~GAIN~~Liabilities ONassociated ~~SALE~~with OFassets ~~RDO~~held ~~RENTAL~~for COsale -- --6,356 ~~786~~Customer advance deposits 5,389 5,298 Deferred tax liability 2,180 -- ----------------------------------------------------------------------------------------~~--------~~ ~~Income~~Total ~~(loss)~~current ~~before~~liabilities ~~income taxes and minority interest (4~~108,~~050)~~468 ~~(31~~127,~~284)~~355 11LONG-TERM DEBT,~~729~~ ~~INCOME~~net ~~TAX~~of ~~PROVISION~~current ~~(BENEFIT)~~maturities (15,~~620)~~140 ~~(12~~1,~~733)~~382 ~~5,252~~ ----------------------------------------------------------------------------------------~~----------~~ ~~Income~~Total ~~(loss)~~liabilities ~~before minority interest (2~~113,~~430)~~608 ~~(18~~128,~~551)~~737 ~~6,477 MINORITY INTEREST~~ -- ~~11 (60)~~ --------------------------------------------------------------------------------------~~------------~~ ~~NET~~COMMITMENTS ~~INCOME~~AND CONTINGENCIES (~~LOSS~~Note 11) $STOCKHOLDERS' EQUITY (~~2,430~~Note 10): $Preferred ~~(18~~stock,~~562)~~ par value $.01 6per share; 500,~~537~~000 ~~==================================================================================================~~shares ~~Basic~~authorized; no shares issued in fiscal 2003 and ~~diluted~~2002 ~~net~~-- ~~income~~-- ~~(loss)~~Common stocks- Class A, par value $.01 per share; $20,000,000 ~~(0.18)~~shares $authorized; ~~(1.41)~~5,731,008 $issued 0in fiscal 2003 and 2002 57 57 Class B, par value $.5001 ~~==================================================================================================~~per ~~Weighted~~share; ~~average~~7,500,000 shares ~~outstanding~~authorized; 7,450,492 issued in fiscal 2003 and 2002 75 75 Additional paid-in-capital ~~basic~~84,471 1384,~~160~~471 13Retained earnings 6,~~182~~687 133,~~182~~680 ~~Weighted~~Treasury ~~average~~stock, at cost (551,200 and 148,000 Class A shares ~~outstanding~~in fiscal 2003 and 2002, respectively) (2,232) (426) ---------------------------------------------------------------------------------------- ~~diluted~~Total 13stockholders' equity 89,~~160~~058 1387,~~182~~857 13---------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 202,~~184~~666 ~~==================================================================================================~~$ 216,594 ----------------------------------------------------------------------------------------

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 40 RDO EQUIPMENT CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

ASFOR OFTHE YEARS ENDED JANUARY 31, 2003, 2002 AND 2001 ---------------------------------------------------------------------------------------------------------------- ~~[in thousands] 2002 2001~~ -------------- COMMON STOCK ---------------------- CLASS A CLASS B TOTAL ADDITIONAL TREASURY STOCK SHARES SHARES COMMON PAID-IN RETAINED ---------------------~~------------------------------------------------------~~ ~~ASSETS~~[in ~~CURRENT ASSETS: Cash and cash equivalents $ 852 $ 7~~thousands,~~635~~ ~~Accounts~~except ~~receivable~~share ~~(less~~amounts] ~~allowance~~ISSUED ~~for~~ISSUED ~~doubtful~~STOCK ~~accounts~~CAPITAL ofEARNINGS ~~$2,666~~SHARES ~~and~~AMOUNT ~~$2,476)~~TOTAL 26,726 41,612 Income tax receivable 4,550 8,143 Receivables from affiliates 38 114 Inventories 128,504 169,090 Prepaid expenses 1,417 1,499 Assets held for sale 8,862 22,987 Deferred income tax asset 5,310 7,000 ------------------------------------------------------------------------------------------------------------------------------ ~~Total current assets 176~~BALANCE,~~259~~ ~~258,080~~JANUARY ~~PROPERTY AND EQUIPMENT~~31, ~~NET~~2000 135,~~192~~731,008 187,~~716~~450,492 ~~OTHER~~132 ~~ASSETS: Goodwill and other~~84,471 ~~net of accumulated amortization of $4~~24,~~725~~672 ~~and~~-- ~~$3,686~~-- 25109,~~126~~275 ~~25,619~~Net ~~Deferred~~loss ~~income~~-- ~~tax~~-- ~~asset~~-- ~~504~~-- 2(18,~~400~~562) ~~Deposits~~-- ~~1,513~~-- 1(18,~~173~~562) ------------------------------------------------------------------------------------------------------------------------------ ~~Total~~BALANCE, ~~assets~~JANUARY ~~$ 216~~31,~~594~~ ~~$305,988~~2001 ================================================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floor plan/borrowing base payables $ 975,~~416 $149~~731,~~191~~008 ~~Notes payable 975 10~~7,~~923~~450,492 ~~Current~~132 ~~maturities of long-term debt 2~~84,~~612~~471 26,~~876~~110 ~~Accounts~~-- ~~payable~~-- 290,~~042~~713 ~~4,764~~Purchase ~~Accrued~~of ~~liabilities~~Class ~~12,656~~A ~~18,233~~common ~~Liabilities~~stock ~~associated~~-- ~~with~~-- ~~assets~~-- ~~held~~-- ~~for~~-- ~~sale 6~~148,~~356~~000 ~~17,615~~(426) ~~Customer~~(426) ~~advance~~Net ~~deposits~~loss ~~5,298~~-- ~~3,905~~-- ~~Dividends~~-- ~~payable~~-- (~~Note 10~~2,430) -- ~~731~~-- (2,430) ------------------------------------------------------------------------------------------------------------------------------ ~~Total~~BALANCE, ~~current~~JANUARY ~~liabilities~~31, ~~127~~2002 5,~~355~~731,008 ~~208~~7,~~238~~450,492 ~~LONG-TERM~~132 ~~DEBT~~84,471 ~~net~~3,680 148,000 (426) 87,857 Purchase of ~~current~~Class ~~maturities~~A ~~1,382~~common ~~6,618~~stock -- -- -- -- -- 403,200 (1,806) (1,806) Net income -- -- -- -- 3,007 -- -- 3,007 ------------------------------------------------------------------------------------------ ~~Total liabilities 128,737 214,856~~ ------------------------------------~~----------------------------------------------------------------------------~~ ~~COMMITMENTS~~BALANCE, ~~AND~~JANUARY ~~CONTINGENCIES~~31, ~~(Notes~~2003 85,731,008 ~~and~~7,450,492 ~~11)~~$132 ~~MINORITY INTEREST -- 419 STOCKHOLDERS' EQUITY (Note 10): Preferred stock -- -- Common stocks- Class A 57 57 Class B 75 75 Additional paid-in-capital~~ $84,471 ~~84,471~~$ ~~Retained earnings 3,680~~ 6,~~110~~687 ~~Treasury stock~~551,200 ~~at cost~~ $(~~426~~2,232) --$ 89,058 ---------------------------------------------------------------------------------------------------------------- ~~Total stockholders' equity 87,857 90,713~~ ---------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 216,594 $305,988 ================================================================================================================

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 41 RDO EQUIPMENT CO. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JANUARY 31, ~~2002, 2001 AND 2000~~ -------------------------------------------------------------------------------------------------------------- [in thousands] 2003 2002 2001 -------------------- ~~COMMON STOCK~~ ------------------------------------------------------------------------------------------ ~~CLASS~~OPERATING AACTIVITIES ~~CLASS~~Net Bincome ~~TOTAL~~(loss) ~~ADDITIONAL~~$ ~~TREASURY~~3,007 ~~STOCK~~$ ~~[in~~(2,430) ~~thousands~~$(18,562) ~~SHARES~~Adjustments ~~SHARES~~to ~~COMMON~~reconcile ~~PAID-IN~~net ~~RETAINED~~income (loss) to net cash provided by operating activities: Depreciation and amortization 4,541 6,003 7,465 Deferred taxes 2,374 3,586 (5,950) Minority interest -- -- 11 Gain on sale of dealerships (734) -- -- Loss on sale, restructuring charges and asset impairment -- --~~------~~ ~~except~~11,200 ~~share~~Change ~~amounts]~~in ~~ISSUED~~operating ~~ISSUED~~assets ~~STOCK~~and ~~CAPITAL~~liabilities: ~~EARNINGS~~Accounts ~~SHARES~~receivable ~~AMOUNT~~8,480 ~~TOTAL~~20,685 5,790 Inventories 10,276 45,247 20,756 Prepaid expenses (408) 122 (984) Deposits (98) (333) (236) Floor plan/borrowing base payables (9,171) (58,414) (6,301) Accounts payable and accrued liabilities 2,025 (8,785) (5,002) Customer advance deposits 91 92 2,382 -------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 20,383 5,773 10,569 -------------------------------------------------------------------------------------------------------------- ~~BALANCE,~~INVESTING ~~JANUARY~~ACTIVITIES ~~31,~~Net ~~1999~~sales ~~5,731,008~~(purchases) 7of rental equipment (906) 654 (2,~~450,492~~118) $Net ~~132~~purchases $of 84property and equipment (3,~~471~~283) $(888) 18(2,~~135~~357) --Net $assets of acquisitions -- $(822) ~~102~~(1,~~738~~495) ~~Net~~Proceeds ~~income~~on sale of dealership 2,847 3,248 2,687 Other, net (394) (143) 42 -- -- -- -- ~~6,537~~ -- -- ~~6,537~~ -------------------------------------------------------------------------------------------------- Net cash (used for) provided by investing activities (1,736) 2,049 (3,241) -------------------------------------------------------------------------------------------------------------- ~~BALANCE,~~FINANCING ~~JANUARY~~ACTIVITIES 31Proceeds from issuance of long-term debt 5,301 ~~2000~~-- 89 Payments on long-term debt (5,~~731~~937) (3,~~008~~500) 7(2,~~450,492~~582) ~~132~~Purchase ~~84,471~~of 24common stock (1,~~672~~806) --(426) -- ~~109,275~~Payment ~~Net~~of ~~loss~~dividends -- --(731) -- Net payments of short--term notes payable and revolving credit facilities (1815,~~562~~560) --(9,948) -- (181,~~562~~407) -------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (18,002) (14,605) (3,900) -------------------- ~~BALANCE, JANUARY 31, 2001 5,731,008 7,450,492 132 84,471 6,110~~ -- -- ~~90,713 Purchase of Class A common stock~~ -- -- -- -- -- ~~148,000 (426) (426) Net loss~~ -- -- -- -- ~~(2,430)~~ -- -- ~~(2,430)~~ ---------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 645 (6,783) 3,428 CASH AND CASH EQUIVALENTS, beginning of year 852 7,635 4,207 -------------------------------------------------------------------------------------------------------------- ~~BALANCE,~~CASH ~~JANUARY~~AND ~~31,~~CASH ~~2002 5~~EQUIVALENTS,~~731,008~~ ~~7,450,492~~end $of ~~132~~year $ 841,~~471~~497 $ ~~3,680~~852 ~~148,000~~ $ ~~(426) $ 87~~7,~~857~~635 ==============================================================================================================~~====================~~

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. NATURE OF BUSINESS: PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the results of RDO Equipment Co., a C corporation and its wholly-owned subsidiaries, RDO Construction Equipment Co., RDO Agriculture Equipment Co., RDO Truck Center Co., RDO Financial Services Co., RDO Material Handling Co., Hall GMC, Inc., Hall Truck Center, Inc. and Salinas Equipment Distributors, Inc. Herein referred to as "Company". All significant inter-company accounts and transactions have been eliminated in consolidation. BUSINESS As a specialty retailer, the Company distributes, sells, services, rents and finances equipment and trucks to the agricultural, construction, manufacturing, transportation and warehousing industries, as well as to public service entities, government agencies and utilities. Accordingly, the Company's results of operations can be significantly impacted by the general economic health of these industries. The Company's stores are located in Arizona, California, Minnesota, Montana, Nebraska, North Dakota, South Dakota, Texas and Washington. The Company's major supplier of new equipment and parts for sale is Deere & Company ("Deere"). Revenues from new Deere equipment and parts accounted for 48%, 45% and 36% of total revenues for fiscal years 2003, 2002 and 2001, respectively with no other suppliers' products accounting for more than 10%. As discussed in Note 12, the Company has significant transactions with related parties, primarily related to financing arrangements. DEERE DEALERSHIP AGREEMENTS The Company has agreements with Deere, which authorize the Company to act as an authorized dealer of Deere construction and agricultural equipment. The dealer agreements continue until terminated by Deere or the Company in accordance with the specified provisions. The Company is required to meet certain performance criteria and equity ratios, maintain suitable facilities, actively promote the sale of Deere equipment, fulfill warranty obligations and maintain stores only in the authorized locations. Ronald D. Offutt, the Company's Chairman and CEO, is also required to maintain certain voting control and ownership interests. The agreements also contain certain provisions that must be complied with in order to retain the Company's dealership agreements in the event of the death of Ronald D. Offutt and a subsequent change in control, as defined. The Company was in compliance with the terms of the Deere agreements at January 31, 2003. Deere is obligated to make floor plan and other financing programs available to the Company that it offers to other dealers, provide promotional and marketing materials, and authorize the Company to use Deere trademarks and trade names. 43 RECENT DEVELOPMENTS (UNAUDITED) On March 6, 2003, the Company received an updated letter from Mr. Offutt, the Company's Chairman, Chief Executive Officer and President, proposing to acquire at a purchase price of $6.01 per share all of the outstanding shares of the Company's Class A Common Stock that Mr. Offutt does not currently own or control ("Tender Offer"). On March 7, 2003, the Special Committee announced that it had received an opinion, with customary assumptions and qualifications, from its financial advisor, Houlihan Lokey Howard & Zukin, that Mr. Offutt's proposal to acquire the outstanding Class A shares that he does not own or control for cash consideration of $6.01 per share is fair, from a financial point of view, to the Company's stockholders holding those other shares. Based upon this opinion and the Special Committee's deliberations prior to March 7, 2003, the Committee also announced that if Mr. Offutt formally commenced a tender offer as proposed, the Special Committee intended to recommend that stockholders tender their shares, assuming no material changes have occurred prior to the formal commencement of Mr. Offutt's tender offer that would alter the views of the Committee or its financial advisors. On March 6, 2003, Mr. Offutt reiterated that until RDO Tender Co. formally commences a tender offer to the Company's stockholders, he reserves the right, in his sole and absolute discretion, not to proceed with the offer for any reason. Mr. Offutt beneficially owns 8,125,884 Class A shares (assuming conversion of his 7,450,492 Class B shares into an equal number of Class A shares), or approximately 63.5% of the outstanding shares of RDO Equipment. On April 8, 2003, the Company announced that Mr. Offutt, indicated to the Company that he plans to cause RDO Tender Co., an acquisition entity Mr. Offutt intends to form, to commence the proposed tender offer by filing tender offer materials with the Securities and Exchange Commission and mailing such materials to the Company's stockholders on or about April 28, 2003. 2. SIGNIFICANT ACCOUNTING POLICIES: USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. The actual results could differ from those estimates. CASH AND CASH EQUIVALENTS The Company considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. CONCENTRATION OF CREDIT RISK Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments in financial institutions in excess of federally insured limits and accounts receivable. Temporary cash investments are held with financial institutions, which the Company believes subject it to minimal risk. The Company monitors its customers' financial condition to minimize its 44 risks associated with accounts receivable, but does not require collateral on all receivables from its customers. INVENTORIES All inventories are valued at the lower of cost or market. The specific identification method is used to determine cost for new and used equipment and trucks. The first-in, first-out method is used to determine cost for parts inventory. Inventories consisted of the following as of January 31: (IN THOUSANDS) 2003 2002 -------------------------------------------------------------------------------- New equipment and trucks $ 73,908 $ 80,013 Used equipment and trucks 30,683 27,070 Parts and other 20,457 21,421 -------------------------------------------------------------------------------- Total $ 125,048 $ 128,504 ================================================================================ PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Maintenance and repairs are charged to expense as incurred. Improvements which extend the useful life of the related item are capitalized and depreciated. Depreciation is provided for over the estimated useful lives of the individual assets using straight-line methods. Depreciation expense was $4.5 million, $5.0 million and $6.0 million for the fiscal years ended January 31, 2003, 2002 and 2001, respectively. The Company follows the guidelines of Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, in determining whether an impairment of property and equipment or other long-lived assets has occurred. Specifically, the Company's policy is to evaluate, at each balance sheet date, whether events and circumstances have taken place to indicate the remaining book value of the assets may not be recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset is compared to the asset's carrying value to determine if a write-down to recoverable value is necessary. Property and equipment consisted of the following as of January 31: (IN THOUSANDS) 2003 2002 LIVES -------------------------------------------------------------------------------- Land $ 1,604 $ 479 -- Buildings and improvements 6,994 6,987 5-31.5 Equipment, furniture and fixtures 21,230 20,640 3-7 Rental equipment 7,830 2,903 3-7 Construction in progress 456 126 -- -------------------------------------------------------------------------------- Total 38,114 31,135 Accumulated depreciation (21,294) (17,943) -------------------------------------------------------------------------------- Property and equipment, net $ 16,820 $ 13,192 ================================================================================ 45 INCOME TAXES Deferred income taxes are computed using the asset and liability method, such that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between financial reporting amounts and the tax bases of existing assets and liabilities based on currently enacted tax laws and tax rates in effect for the periods in which the differences are expected to reverse. Income tax expense is the tax payable for the period plus the change during the period in deferred income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. MANUFACTURER INCENTIVES AND DISCOUNTS The Company is the recipient of incentives and discounts from manufacturers. These incentives are variable, the receipt of which are based, among other things, upon the number of new units purchased and end-user transaction pricing. All such incentive payments are treated as a reduction of cost of goods sold when earned. STOCK-BASED COMPENSATION The Company accounts for stock-based compensation using the intrinsic value method. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Had the Company used the fair value method of accounting to measure compensation expense for its stock option plan and charged compensation expense against income over the vesting periods, the Company's pro forma net income (loss) and pro forma net income (loss) per common share would have been as follows at January 31:

~~FOR~~(IN ~~THE~~THOUSANDS, ~~YEARS~~EXCEPT ~~ENDED~~PER ~~JANUARY~~SHARE ~~31,~~DATA) ~~---------------------------------------------------------------------------------------------------------------~~2003 ~~[in thousands]~~ 2002 2001 ~~2000~~ -----------------------------------------------------------------------------------------------------~~----------~~ ~~OPERATING ACTIVITIES~~ Net income (loss), as reported $ 3,007 $ (2,430) $(18,562) ~~$ 6,537 Adjustments to reconcile net income (loss) to net cash provided by operating activities~~Less: ~~Depreciation~~Total ~~and amortization 6,003 7,465 12,950 Deferred taxes 3,586 (5,950) (2,980) Minority interest~~ stock--based 11employee ~~(60)~~compensation ~~Gain~~expense onunder ~~sale~~fair ~~of RDO Rental Co.~~ value--based ~~-- (786) Loss on sale~~method, ~~restructuring~~net ~~charges~~of ~~and~~tax ~~asset impairment -- 11,200 -- Change in operating assets and liabilities: Accounts receivable 20,685 5,790~~ (~~972~~364) ~~Inventories 45,247 20,756 8,098 Prepaid expenses 122~~ (~~984) 524 Deposits (333) (236) 57 Floor plan/borrowing base payables (58,~~414) (~~6,301~~521) ~~(11,987) Accounts payable and accrued liabilities (8,785) (5,002) 8,093 Customer advance deposits 92 2,382 702~~ -----------------------------------------------------------------------------------------------------~~----------~~ ~~Net~~Pro ~~cash~~forma ~~provided~~net byincome ~~operating activities 5,773 10,569 20,176 --------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Net sales~~ (~~purchases~~loss) of$ ~~rental equipment 654 (~~2,~~118)~~643 ~~(485)~~$ ~~Net purchases of property and equipment~~ (~~888) (~~2,~~357~~844) $(319,~~409~~083) ~~Net~~===================================================================================================== ~~assets~~Basic ~~of acquisitions (822) (1,495) (4,404) Proceeds on sale of dealership 3,248 2,687 -- Retained investment~~ and ~~service~~diluted ~~fee on securitized receivables -- -- 3,813 Other,~~ net ~~(143)~~income 42 (~~389~~loss) ~~---------------------------------------------------------------------------------------------------------------~~per ~~Net~~share: ~~cash~~As ~~provided~~reported by$ ~~(used~~0.23 ~~for)~~$ ~~investing activities 2,049~~ (~~3,241~~0.18) ~~(4,874)~~$ --------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Proceeds from issuance of long-term debt -- 89 7,322 Payments on long-term debt (~~3,500~~1.41) ~~(2,582)~~===================================================================================================== ~~(15,403)~~Pro ~~Purchase~~forma ofnet ~~common~~income ~~stock~~ (~~426~~loss) --per --share ~~Payment~~$ of0.21 ~~dividends~~$ (~~731~~0.22) --$ ~~-- Net payments of bank lines and short-term notes payable~~ (~~9,948) (~~1~~,407~~.45) (3,065) --------------------------------------------------------------------------------------------------------------- Net cash used for financing activities (14,605) (3,900) (11,146) --------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,783) 3,428 4,156 CASH AND CASH EQUIVALENTS, beginning of year 7,635 4,207 51 --------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, end of year $ 852 $ 7,635 $ 4,207 =====================================================================================================~~==========~~

Note 8 to the financial statements contains the significant assumptions used in determining the underlying fair value of options. REVENUE RECOGNITION Revenue on equipment, truck and parts sales is recognized upon delivery of product to customers. Rental and service revenue is recognized at the time such services are provided. In addition to outright sales of new and used equipment, certain rentals include rent-to-purchase option agreements. Under such agreements, customers are given a period of several months to exercise the option to purchase the rented equipment and may be allowed to apply a portion of the rental payments to the purchase price. This rent-to-purchase equipment is included in the Company's inventory until the option is exercised and the 46 equipment is purchased. Rental revenue is recognized during the rental period of rent-to-purchase transactions and equipment sales revenue is recognized when the purchase option is exercised. FAIR VALUE OF FINANCIAL INSTRUMENTS Unless otherwise disclosed, the carrying amounts of financial instruments, including cash and cash equivalents, receivables, accounts payable, floor plan payables, notes payable and long-term debt approximate fair value because of relatively short terms or variable rates on these instruments. NEW ACCOUNTING PRONOUNCEMENTS On February 1, 2002, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets ("SFAS No. 142"). This statement addresses accounting and financial reporting for goodwill and intangible assets. Under the new statement, goodwill and intangible assets with indefinite lives are no longer amortized, but are subject to impairment testing on at least an annual basis. Other than goodwill, the Company does not have any intangible assets with indefinite lives or other intangible assets. The Company completed the process of testing goodwill for impairment in accordance with the provisions of SFAS No. 142. An independent valuation was performed utilizing, among other things, the Company's best estimate of expected future cash flows. No amounts were impaired at the time of implementation, February 1, 2002. The effect of discontinuance of goodwill amortization during fiscal 2003 was to increase net income by approximately $612,000 or $0.05 per share. Prior to February 1, 2002, goodwill was amortized on a straight-line basis over 30 years. The following pro forma information reflects the Company's results of operations as they would have appeared had the Company not recorded goodwill amortization and its related tax effects during fiscal 2002 and 2001 (dollars in thousands, except per share amounts): 2003 2002 2001 --------- --------- ---------- Reported net income (loss) $ 3,007 $ (2,430) $ (18,562) Add back goodwill amortization, net of tax -- 623 888 --------- --------- ---------- Pro forma net income (loss) $ 3,007 $ (1,807) $ (17,674) ========= ========= ========== Reported basic and diluted earnings (loss) per share $ 0.23 $ (0.18) $ (1.41) Add back goodwill amortization, net of tax -- 0.05 0.07 --------- --------- ---------- Pro forma basic and diluted earnings (loss) per share $ 0.23 $ (0.13) $ (1.34) ========= ========= ========== The Company evaluates the carrying value of goodwill on an annual basis and when events occur or circumstances change which may reduce the fair value of the reporting unit to which the goodwill is assigned below its carrying amount. Such circumstances could include, but are not limited to, (1) a significant adverse change in business climate or in legislation, (2) unanticipated competition, or (3) a loss of key manufacturing relationships. 47 When evaluating whether goodwill is impaired, the Company compares the fair value of the reporting unit to which the goodwill is assigned to its carrying amount, including goodwill. The Company considers its three business segments (Note 14) to be reporting units when it tests for goodwill impairment based on how it manages its business and because the operating segment level is where the Company believes goodwill naturally resides. If the carrying amount of a reporting unit exceeds its fair value, then the amount of the impairment loss must be measured. The impairment loss would be calculated by comparing the implied fair value of reporting unit goodwill with its carrying amount. In calculating the implied fair value of goodwill, the fair value of the reporting unit is allocated to all of the other assets and liabilities of that unit based on their fair values. The excess of the fair value of a reporting unit over the amount assigned to its other assets and liabilities is the implied fair value of goodwill. An impairment loss would be recognized when the carrying amount of goodwill exceeds its implied fair value. The Company performs its annual goodwill impairment testing during its first quarter. Effective February 1, 2002, the Company also adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. This standard broadens the presentation of discontinued operations to include more disposal transactions, thus the recognition of discontinued operations is expected to become more common under this standard. This statement retains the requirements of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, to recognize impairments on property, plant and equipment, but removes goodwill from its scope. The adoption of SFAS No. 144 had no impact on the Company's consolidated financial statements. The Company's plan of disposition of certain of its truck operations occurred prior to the implementation requirement of SFAS No. 144. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 143, Accounting for Asset Retirement Obligations, requiring the recognition of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the carrying amount of the related long-lived asset is correspondingly increased. Over time, the liability is accreted to its present value and the related capitalized charge is depreciated over the useful life of the asset. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company believes the adoption of the provisions of this statement will not have a material effect on the Company's financial statements. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. The Company is reviewing the requirements of this standard and expects this to have no impact on the Company's financial statements. In December 2002, the FASB issued SFAS No. 148, Accounting for Stock Based compensation - Transition and Disclosure - as Amendment to FAS 123. SFAS No. 148 provides two additional transition methods for entities that adopt the preferable fair value based method of accounting for stock based compensation. In addition, the statement requires disclosure of comparable information for all companies regardless of whether, when, or how an entity adopts the preferable, fair value based method of accounting. These disclosures are now required for interim periods in addition to the traditional annual disclosure. The amendments to SFAS No. 123, which provides for additional transition methods, are effective for periods beginning after December 15, 2002, although earlier application is permitted. Certain disclosure amendments are required for financial statements for fiscal years ending after December 15, 2002, and have been reflected in these consolidated financial statements. The remaining amendments to the disclosure requirements are required for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. 48 The Company adopted the disclosure provisions of this statement which had no impact on the Company's financial statements. In November 2002, the FASB issued FASB Interpretation ("FIN") No. 45, Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others ("FIN 45"). FIN 45 requires that upon issuance of a guarantee, a grantor must recognize a liability for the fair value of an obligation assumed under a guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The recognition provisions of FIN 45 will be effective for any guarantees that are issued or modified after December 31, 2002. The Company is reviewing the requirements of this interpretation and expects the recognition of guarantees will not have a material effect on the Company's financial statements. The Company has adopted the disclosure provisions of this statement. In January 2003, the FASB issued FIN 46, Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, to entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The transitional disclosure provisions of FIN 46 are effective for all financial statements issued after January 31, 2003. The Company is reviewing the requirements of this interpretation and expects that it will have no impact on the Company's financial statements. 3. LOSS ON SALE, RESTRUCTURING CHARGES AND ASSET IMPAIRMENT: During the fourth quarter of fiscal 2001, the Company approved a comprehensive plan to restructure management and to divest itself of the majority of its heavy-duty truck business. The Company recognized charges to operations of $11.2 million in the fourth quarter of fiscal 2001. The charges were primarily comprised of a loss on the sale of the Company's Roseville, Minnesota truck business, asset impairments of long-lived assets, such as property and equipment, leasehold improvements, and goodwill related to the Company's truck division. The charge also included approximately $700,000 and $300,000 of severance costs and lease and other obligations, respectively. Severance cost paid totaled approximately $200,000 and $500,000 in fiscal 2003 and 2002, respectively, and costs related to lease and other obligations paid totaled approximately $100,000 and $200,000 in fiscal 2003 and 2002, respectively. There are no remaining accruals relating to severance, lease or other obligations as of the January 31, 2003. The assets associated with the truck business planned for sale were classified as assets held for sale on the balance sheet totaling approximately $8.9 million as of the end of fiscal 2002. Liabilities associated with assets held for sale totaled approximately $6.4 million as of the end of fiscal 2002 and were primarily comprised of truck floor plan financing, trade payables and other current liabilities. Operating losses from the truck dealership sold and the truck businesses planned for sale totaled approximately $45,000, $230,000 and $13.3 million during fiscal 2003, 2002 and 2001, respectively, and are included in the Company's truck segment (Note 14). The Company completed the execution of the above-described restructuring plan by completing the sale of its Riverside, California truck business during fiscal 2003 and the Dallas and Fort Worth, Texas truck 49 business during fiscal 2002. The financial effects of the sale of the Riverside, California truck business resulted in a gain of $734,000 in fiscal 2003 while the sale of the Dallas and Fort Worth, truck business did not result in any gain or loss in fiscal 2002. 4. BUSINESS COMBINATIONS: The Company's acquisitions have been accounted for using the purchase method of accounting and, accordingly, the assets acquired and liabilities assumed have been recorded at their estimated fair values as of the dates of acquisition. The excess purchase price over the fair value of the assets acquired and liabilities assumed has been recorded as goodwill which, prior to adoption of SFAS No. 142 on February 1, 2002, was amortized over 30 years. During the first quarter of fiscal 2002, the Company purchased the remaining 8% minority interest in Salinas Equipment Distributors, Inc. Approximately 3% of the minority interest was purchased during the fourth quarter of fiscal 2001. The net purchase price totaled approximately $800,000 and $300,000, respectively. During the first quarter of fiscal 2001, the Company purchased the remaining 15% minority interest in Hall GMC, Inc. and Hall Truck Center, Inc. for a total purchase price of approximately $1.2 million. Pro forma operating results for the periods prior to these acquisitions were not significant. 50 5. FLOOR PLAN/BORROWING BASE PAYABLES: Floor plan/borrowing base payables are financing arrangements for inventory and receivables. The terms of certain floor plan arrangements may include a one- to twelve-month interest-free term followed by a term during which interest is charged. The interest-free periods may be longer depending on special financing programs that may be offered from time to time, and occasionally, additional discounts are available in lieu of interest-free periods. Payoff of the floor plan payables generally occurs at the earlier of sale of the inventory or in accordance with the terms of the financing arrangements. All amounts owed to Deere & Company are guaranteed by Ronald D. Offutt and are collateralized by inventory. Floor plan/borrowing base payables consisted of the following as of January 31:

(IN THOUSANDS) 2003 2002 ~~2001~~------------------------------------------------------------------------------------------------------ ~~=======================================================================================================~~ NONINTEREST-BEARING: Deere & Company $ 3132,~~259~~487 $ 3631,~~167~~259 ~~Deere~~Other ~~Credit~~151 ~~Services, Inc.~~ -- ~~1,515~~ ------------------------------------------------------------------------------------------------------- 32,638 31,259 ~~37,682~~ ------------------------------------------------------------------------------------------------------- INTEREST-BEARING: ~~Deere~~CitiCapital ~~Credit~~Commercial ~~Services~~Corporation, ~~Inc.,~~ revolving borrowing base facility, interest at 54.0075% at January 31, ~~2002~~2003, based on prime 4029,000 ~~73,900~~-- Deere ~~Credit~~& ~~Services~~Company, ~~Inc., inventory notes,~~ due as inventory is sold, ~~Interest at various rates,~~ 4.7525% to 84.575% at January 31, ~~2002~~2003 ~~452~~based ~~283~~on prime 4,914 12,124 Deere &Credit ~~Company~~Services, ~~due~~Inc., asrevolving ~~inventory~~borrowing isbase ~~sold~~facility, ~~4.75%~~interest toat 54.75% at January 31, ~~2002~~2003, based on prime 124,~~124~~850 840,~~205~~000 AgGeneral ~~Capital~~Motors ~~Company~~Acceptance ~~(affiliate)~~Corporation, 63.6375% to 4.25% at January 31, ~~2002~~2003, based on ~~LIBOR~~prime 104,~~000~~094 242,~~000~~824 ~~Volvo~~GE Commercial Distribution Finance ~~LLC~~Corporation, ~~The~~interest ~~Americas,~~at 45.795% at January 31, ~~2002,~~2003 ~~based~~654 on-- ~~LIBOR~~Volvo ~~(included~~Commercial inFinance ~~liabilities~~LLC ~~associated~~The ~~with assets held for sale) 4~~Americas,~~657~~ ~~13,611 General Motors Acceptance Corporation,~~ 4.2526% at January 31, ~~2002~~2003, based on ~~prime~~LIBOR ~~2,824~~602 4,~~068~~657 ~~CitiCapital~~Ag ~~Commercial~~Capital ~~Corporation~~Company (affiliate), ~~4.75%~~paid atoff ~~January~~during 31the year -- 10,000 ~~2002~~Other, ~~based~~paid onoff ~~prime~~during ~~657~~the ~~291~~year ~~Other~~-- ~~100~~1,209 ~~762~~ Amount included in liabilities associated with assets held for sale -- (4,657) ~~(13,611)~~ ------------------------------------------------------------------------------------------------------- 44,114 66,157 ~~111,509~~------------------------------------------------------------------------------------------------------ ~~=======================================================================================================~~ Total $ 9776,~~416~~752 $ ~~149~~97,~~191~~416 =======================================================================================================

The Deere and Deere Credit financing sources have a combined maximum outstanding allowed of $125.0 million. On January 31, 2003, the above noted $42.3 million outstanding to Deere and Deere Credit on the facility and operating lease commitments and other items of $2.8 million consumed a portion of the commitment leaving $79.9 million unused. The CitiCapital borrowing base credit facility provides up to $30.0 million in financing and had an outstanding balance of $29.0 million at January 31, 2003, leaving $1.0 million unused. The collateral of equipment inventories along with eligible receivables would support $30.4 million of additional borrowings at January 31, 2003 under the Deere and Deere Credit and CitiCapital agreements. The Deere and Deere Credit and CitiCapital facilities, which are reviewed and renewed annually, expire on October 31, 2004 and September 30, 2003, respectively. The Company also had an additional $11.4 million of unused credit commitments from other sources as of January 31, 2003. 51 The Company has certain floor plan/borrowing base financing agreements containing various restrictive covenants, which, among other restrictions, require the Company to maintain minimum financial ratios, including earnings before interest and income taxes, as defined, and a minimum level of tangible equity. The Company was in compliance with all floor plan covenants at January 31, 2003. 6. NOTES PAYABLE AND LONG-TERM DEBT: NOTES PAYABLE Currently, the Company has an unsecured bank line of credit totaling $1,585,000 with a maturity date of July 1, 2003 and with a variable interest rate based on the prime rate (4.25% at January 31, 2003). The balances outstanding under this bank line of credit totaled $1,565,000 and $975,000 as of January 31, 2003 and 2002, respectively. The Company had approximately $20,000 of unused availability relating to this line of credit at January 31, 2003. This bank line of credit totaled $1,900,000 at January 31, 2002 with unused availability of $925,000. During fiscal year 2002, the Company had an additional operating line of credit with a variable interest rate based on LIBOR. The highest balances outstanding under these lines were $1.9 million and $15.1 million for fiscal years ended January 31, 2003 and 2002, respectively. The weighted average interest rates on these lines during such periods were 5.06% and 7.04%, respectively. LONG-TERM DEBT Long-term debt consisted of the following as of January 31:

(IN THOUSANDS) 2003 2002 ~~2001~~ --------------------------------------------------------------------------------------------------------- CIT, due February 1, 2006, 5.25% at January 31, 2003 based on prime, collateralized by certain property and equipment of the Company $ 3,501 $ -- Ag Capital Company (affiliate), ~~due~~paid inoff ~~various~~during ~~amounts~~the ~~through~~year ~~February~~-- ~~2006~~3,203 ~~interest~~GE ~~(variable~~Commercial ~~6.33%~~Distribution toFinance 6Corporation, due January 15, 2005, 5.775%), ~~collateralized~~at byJanuary ~~stock~~31, of2003 abased ~~subsidiary~~on ~~and~~prime, collateralized by certain ~~fixed~~rental ~~assets~~equipment of the Company ~~$ 3~~1,~~203~~676 $-- ~~6,323~~First ~~Volvo~~State ~~Trucks~~Bank of North ~~America~~Dakota, ~~Inc.,~~ due ~~September~~May ~~2004~~15, 42017, 7.750% at January 31, ~~2002~~2003, ~~based~~collateralized onby ~~prime,~~underlying ~~unsecured~~asset ~~640~~of ~~2,640~~mortgage 779 -- Volvo Trucks North America, Inc., paid off during the year -- ~~114~~640 Other 967 151 ~~417~~ --------------------------------------------------------------------------------------------------------- Total 6,923 3,994 ~~9,494~~ Less current maturities of long-term debt (21,~~612~~783) (2,~~876~~612) --------------------------------------------------------------------------------------------------------- Total long-term debt, net of current maturities $ 15,~~382~~140 $ 61,~~618~~382 =========================================================================================================

Future long-term debt maturities as of January 31, 2003 are as follows: (IN THOUSANDS) ------------------------------------------------------------------------ 2004 $ 1,783 2005 1,881 2006 2,243 2007 259 2008 168 Thereafter 589 ------------------------------------------------------------------------ Total $ 6,923 ======================================================================== 52 The Company has notes payable and long-term debt agreements containing various restrictive covenants, which, among other matters, require the Company to maintain minimum financial ratios including earnings before interest and income taxes, as defined, and a minimum level of tangible equity. The Company was in compliance with all notes payable and long-term debt covenants at January 31, 2003. 7. EARNINGS PER SHARE: Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the year. Diluted net income (loss) per share is computed by dividing net income (loss) by the sum of the weighted average number of common shares outstanding plus all additional common shares that would have been outstanding if potentially dilutive common shares related to stock options had been issued. The following table reconciles the number of shares utilized in the net income (loss) per common share calculations:

(IN THOUSANDS, EXCEPT FOR PER SHARE DATA) 2003 2002 2001 ~~2000~~ -------------------------------------------------------------------------------------------------------~~------------~~ Net income (loss) available to common shareholders $ 3,007 $ (2,430) $ (18,562) ~~$ 6,537~~ =======================================================================================================~~============~~ Weighted average number of common shares outstanding - basic 1312,~~160~~750 13,~~182~~160 13,182 Dilutive effect of option plan 52 -- -- 2 -------------------------------------------------------------------------------------------------------~~------------~~ Common and potential common shares outstanding - diluted 12,802 13,160 13,182 ~~13,184~~ =======================================================================================================~~============~~ Basic and diluted net income (loss) per share $ 0.23 $ (0.18) $ (1.41) ~~$ 0.50~~ =======================================================================================================~~============~~

Options to purchase 897,399 shares of Common Stock were outstanding as of January 31, 2003. Outstanding options of 682,050 were not included in the computations of diluted earnings per share for the fiscal year ended January 31, 2003, because the exercise prices were greater than the average market price of the common shares for the period. 8. EMPLOYEE BENEFIT PLANS: 401(k) EMPLOYEE SAVINGS PLAN The Company's employees participate in a 401(k) employee savings plan, which covers substantially all employees. The Company matches a portion of employee contributions. Company contributions were $563,000, $684,000 and $750,000 for the fiscal years ended January 31, 2003, 2002 and 2001, respectively. STOCK-BASED COMPENSATION PLAN The Company's 1996 Stock Incentive Plan ("the Plan") provides incentives to key employees, directors, advisors and consultants of the Company. The Plan, which is administered by the Compensation Committee of the Board of Directors ("the Committee"), provides for an authorization of shares of Class A Common Stock for issuance thereunder limited to 10% of the total number of shares of Common Stock issued and outstanding. Under the Plan, the Company may grant eligible recipients incentive stock options, nonqualified stock options, restricted stock, stock appreciation rights, stock awards, or any combination thereof. The Committee establishes the exercise price, vesting schedule and expiration date of any stock options granted under the Plan. Historically, the exercise price has been equal to the market price for all stock options granted under the Plan on the date of grant. Stock options outstanding at January 31, 2003 vest immediately or according to an up to a five year schedule and expire five to ten years after the date of grant. 53 Information regarding the Plan as of January 31 is as follows:

2003 2002 2001 ~~2000~~ --------------------------------------------------------------------------------------------------------------~~-----~~ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE --------------------------------------------------------------------------------------------------------------~~-----~~ Outstanding, beginning of year 727,099 $ 8.20 586,974 $ 9.88 829,250 $ 10.35 ~~696~~Granted 211,~~525~~000 ~~$ 11~~5.7433 ~~Granted~~ 228,849 3.23 121,834 5.33 ~~220~~Canceled (40,~~000~~700) 59.9534 ~~Canceled~~ (88,724) 6.46 (364,110) 9.44 ~~(87,275) 10.3~~ Exercised -- -- -- -- -- -- --------------------------------------------------------------------------------------------------------------~~-----~~ Outstanding, end of year 897,399 $ 7.47 727,099 $ 8.20 586,974 $ 9.88 ~~829,250 $ 10.35~~ ==============================================================================================================~~=====~~ Exercisable, end of year 864,599 $ 7.47 639,309 $ 7.87 359,094 $ 10.19 ~~406,010 $ 9.68~~ ==============================================================================================================~~=====~~ Weighted average fair value of options granted $ 12.2209 $ 21.2722 $ 2.8127 ==============================================================================================================~~=====~~

Options outstanding at January 31, 2003 have exercise prices ranging from $3.00 to $15.50 and a weighted average remaining contractual life of 6.77 years. In determining the pro forma compensation cost of the options granted during fiscal 2003, 2002 and 2001, as specified by SFAS 123, in Note 2 to the financial statements, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model. The weighted average assumptions used in these calculations are summarized below: 2003 2002 2001 -------------------------------------------------------------------------------- Risk free interest rate 3.61% 4.42% 6.30% Expected life 3.00 years 3.00 years 3.28 years Expected volatility 53.34% 49.40% 55.70% ================================================================================ 9. INCOME TAXES: The components of the income tax provision (benefit) are summarized as follows as of January 31: (IN THOUSANDS) 2003 2002 2001 ------------------------------------------------------------------------------- Current: Federal $ (284) $ (5,206) $ (6,783) State -- -- -- Deferred income tax provision (benefit) 2,374 3,586 (5,950) ------------------------------------------------------------------------------- Income tax provision (benefit) $ 2,090 $ (1,620) $ (12,733) =============================================================================== In Fiscal 2003, the difference between the federal statutory rate of 35% the income tax provision represents the impact of state income taxes, net of the federal benefit of 5% and other items of representing 1%. The primary difference between the federal statutory rate of 35% for the fiscal years ended January 31, 2002 and 2001, and the income tax provision (benefit) represents the impact of state income taxes, net of the federal benefit. 54 The net current deferred tax asset (liability) and the net long-term deferred tax asset consisted of the following temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities at January 31: (IN THOUSANDS) 2003 2002 ----------------------------------------------------------------------------- Accruals and other reserves $ 2,190 $ 2,310 Inventory (4,970) 2,140 Compensation accruals 600 860 ----------------------------------------------------------------------------- Net current deferred tax asset (liability) $ (2,180) $ 5,310 ----------------------------------------------------------------------------- Property and equipment (560) (220) Goodwill (1,540) (550) Net operating loss carryforwards 7,570 1,170 Other 150 104 ----------------------------------------------------------------------------- Net long-term deferred tax asset 5,620 504 ----------------------------------------------------------------------------- Total $ 3,440 $ 5,814 ============================================================================= The Company has a federal net operating loss carry-forward of approximately $16.0 million, which expires in fiscal 2018. The Company also has state net operating loss carry-forwards of approximately $43.0 million, which expire in fiscal years 2016 through 2018. 10. CAPITAL STOCK AND DIVIDENDS PAYABLE: CAPITAL STOCK The authorized capital stock of the Company consists of 20,000,000 shares of Class A Common Stock, 7,500,000 shares of Class B Common Stock and 500,000 shares of preferred stock, each with a par value of $0.01 per share. The economic rights of each class of Common Stock are the same, but the voting rights differ. Each share of Class A Common Stock is entitled to one vote per share and each share of Class B Common Stock is entitled to four votes per share. In addition, the shares of Class B Common Stock contain restrictions as to transferability and are convertible into shares of Class A Common Stock on a one-for-one basis. TREASURY STOCK During the third quarter of fiscal 2002, the Company's Board of Directors approved a stock repurchase program that will allow the Company to repurchase up to ten percent of the Company's outstanding Class A Common Stock from time to time in both the open market and in privately negotiated transactions. During the third quarter of fiscal 2003, the Company's Board of Directors approved to expand the repurchase program up an additional five percent of the Company's outstanding Class A Common Stock. The Company's repurchases of shares of Class A Common Stock are recorded at cost and is presented as a separate reduction of stockholders' equity. The Company has repurchased 551,200 shares of the Class A Common Stock as of January 31, 2003. On December 16, 2002, after receiving a letter from Ronald D. Offutt, the Chairman of the Board of Directors, Chief Executive Officer and majority stockholder of the Company, expressing an interest in acquiring all of the shares of the Class A Common Stock of the Company that Mr. Offutt does not currently own or control, the Company ceased its repurchase program pending the outcome of this action. 55 DIVIDEND PAYMENT Prior to the Company's initial public offering in January 1997, an S corporation distribution was made in connection with the termination of the Company's S corporation tax status. A portion of this distribution was retained by the Company for any potential tax liabilities related to the previously filed federal and state S corporation tax returns. During the second quarter of fiscal 2002, the balance of $731,000 was paid to individuals who were the Company's shareholders at the time the Company's S corporation status was terminated. 11. COMMITMENTS AND CONTINGENCIES: OPERATING LEASES The Company leases retail space, vehicles and rental equipment under various non-cancelable operating leases. The leases have varying terms and expire at various dates through 2012. Generally, the leases require the Company to pay taxes, insurance and maintenance costs. Lease expense was $7.9 million, $9.7 million and $10.9 million for fiscal 2003, 2002 and 2001, respectively. Future minimum lease payments, by year, required under leases with initial or remaining terms of one year or more consist of the following: (IN THOUSANDS) Affiliates Other Total ------------------------------------------------------------------- 2004 $ 2,814 $ 3,103 $ 5,917 2005 2,511 1,901 4,412 2006 2,490 1,606 4,096 2007 2,438 1,141 3,579 2008 2,108 670 2,778 Thereafter 7,645 941 8,586 ------------------------------------------------------------------- Total $ 20,006 $ 9,362 $ 29,368 =================================================================== GUARANTEES Certain credit companies provide direct customer financing (collateralized by customer owned equipment) and credit accounts with recourse to the Company. The Company would be required to perform under the recourse agreements if the Company's customers fail to perform completely as contracted. These contracts related to customer financing have various maturity dates over the next one to five years. The contingent liability relating to affiliate contracts is capped at 10% of the amount of the aggregate outstanding contracts. Certain construction contracts with Deere Credit are full recourse while agricultural contracts are limited to a cash deposit amounting to 3% of the aggregate outstanding contracts. The Company also factors certain accounts receivable to Deere Credit with recourse, which therefore may be charged back to the Company. The contingent liability relating to CitiCapital is limited to 5% of the originated loans for any given year. These commitments represent only a small portion of the total related account balances; thus only accruals and payments for probable losses are recognized until the recourse (guarantee) expires. The financial risk amount is equal to the recourse (guaranteed) portion of the contractual amounts. 56 As of January 31, 2003, the contingent liability and required deposits for the above guarantees are as follows: FINANCE GUARANTEED DEPOSITS (IN THOUSANDS) AMOUNTS RECEIVABLE ---------------------------------------------------------------------- Deere Credit Services, Inc. $ 3,114 $ 1,670 CitiCapital Commercial Corporation 13,166 --- ACL Company, LLC (affiliate) 44 --- Ag Capital Company (affiliate) 2 --- Other 261 --- ---------------------------------------------------------------------- Total $ 16,587 $ 1,670 ====================================================================== MINIMUM REPURCHASE GUARANTEES The Company has entered into sales agreements with certain customers, which are subject to repurchase agreements. Pursuant to these agreements, the Company, at the discretion of the customer, may be required to repurchase equipment at specified future dates at specified repurchase prices. With respect to these agreements, the Company believes the estimated future retail values of the equipment equals or exceeds the guaranteed repurchase prices. The Company accounts for transactions which have a guaranteed repurchase feature as leases. The Company's existing repurchase agreements as of January 31, 2003 expire as follows: (IN THOUSANDS) ---------------------------------------------------------- 2004 $ 1,480 2005 1,641 2006 1,752 2007 539 2008 249 ---------------------------------------------------------- Total $ 5,661 ========================================================== LITIGATION On March 31, 2003, one of the Company's stockholders filed a complaint in the Delaware Court of Chancery purporting to commence a class action lawsuit on behalf of the Company's public stockholders against the Company, Mr. Offutt and each of the individual directors of the Company. In general, the complaint alleges, among other things: (1) breaches of fiduciary duty by each of the Company, Mr. Offutt and the members of the Company's Board of Directors in connection with Mr. Offutt's contemplated Tender Offer; (2) inadequate disclosure to minority stockholders of RDOE; and (3) that the consideration offered is inadequate. Among other remedies, the complaint seeks to enjoin the Tender Offer (and the follow-up merger) or, alternatively, damages in an unspecified amount and rescission in the event the Tender Offer (and the follow-up merger) occur. The Company and Mr. Offutt believe the complaint is without merit and intend to vigorously defend against these claims and after consultation with counsel, that it is remote that resolution of such claims will have a material adverse effect on the results of operations and cash flows of the Company. 57 In the normal course of business, the Company is subject to various claims, legal actions, contract negotiations and disputes. Although the ultimate outcome of such claims cannot be ascertained at this time, it is the opinion of management, after consultation with counsel, that it is remote that resolution of such claims will have a material adverse effect on the results of operations and cash flows of the Company. DEERE INDEMNIFICATION AGREEMENT Some time after the Company's initial public offering in January 1997, Deere advised the Company that it was requiring Deere dealerships to sign an indemnification agreement before "going public". Deere also informed the Company that it would not be willing to consider possible future acquisitions of Deere dealerships by the Company unless and until the Company signed such an agreement. After prolonged discussions and negotiations, the Company signed an indemnification agreement in March 2000. In general, this agreement provides that the Company will indemnify Deere (and its directors, officers, employees and agents) from and against lawsuits and other proceedings commenced by shareholders of the Company and by governmental agencies arising from (a) the registration, listing, offer, sale, distribution or resale of any security of the Company, (b) an untrue statement or omission, whether actual or alleged, in connection with any security of the Company, or (c) an allegation that Deere is a "controlling person" of the Company within the meaning of federal securities laws. The Company will pay, or reimburse Deere for, any judgments, penalties, expenses and other losses resulting from any such lawsuit or other proceeding. The Company has no obligation to indemnify Deere with respect to any judgment rendered against Deere as a result of Deere's own intentional or reckless misconduct or as a result of an untrue written statement of fact signed by an officer of Deere. 58 12. RELATED-PARTY TRANSACTIONS: The Company's significant related party transactions are with entities that are related as a result of mutual controlling ownership interest by Ronald D. Offutt, the Company's Chairman and CEO. A summary of these transactions in addition to other related party transactions disclosed elsewhere in the notes herein is as follows: a. Ag Capital and ACL Company, LLC in past years have provided financing to customers purchasing equipment, parts and repair service from the Company. The Company is contingently liable to these related parties on a portion of this customer financing as summarized in Note 11. b. In addition, the Company had floor plan payables, notes payable and long-term debt owed to Ag Capital to finance inventory, various receivables and property and equipment as summarized in Notes 5 and 6. Interest expense paid to related parties totaled $243,000, $2.5 million and $3.2 million in fiscal 2003, 2002 and 2001, respectively. During fiscal 2003, these facilities were paid in full. The Company currently has no lending relationship with Ag Capital. c. The Company had sales to related parties totaling $2.3 million, $2.2 million and $2.7 in fiscal 2003, 2002 and 2001, respectively. The Company also leases certain retail space, real estate for a potential dealership site and vehicles from related parties. Total lease expense under these arrangements totaled $3.6 million, $3.6 million and $4.7 million in fiscal 2003, 2002 and 2001, respectively. In November 2002, the real estate for a potential dealership site that was being leased was purchased for the original cost of $1.1 million pursuant to the Company's original commitment. d. The Company paid a distribution to Ronald D. Offutt of $711,000 in fiscal 2002 relating to the Company's final S corporation distribution (See Note 10). 13. SUPPLEMENTAL CASH FLOW DISCLOSURES: Supplemental cash flow disclosures for the Company as of January 31 are as follows:

(IN THOUSANDS~~, EXCEPT PER SHARE DATA~~) 2003 2002 2001 ~~2000~~ --------------------------------------------------------------------------------------------------------~~----------~~ ~~Net~~Cash ~~income~~payments ~~(loss):~~for Asinterest ~~reported~~ $ (23,~~430)~~205 $ ~~(18~~6,~~562)~~383 $ 63,~~537~~230 ========================================================================================================~~==========~~ ~~Pro~~Cash ~~forma~~payments for income taxes $ ~~(2,844)~~838 $ ~~(19,083)~~159 $ 54,~~680~~663 ========================================================================================================~~==========~~ ~~Basic~~Supplemental ~~and~~disclosures ~~diluted~~of ~~net~~non-cash ~~income~~investing ~~(loss)~~and ~~per~~financing ~~share~~activities: AsIncrease ~~reported~~in $assets ~~(0.18)~~and $related ~~(1.41)~~long-term $debt ~~0.50~~due ~~==================================================================================================================~~to ~~Pro~~refinancing ~~forma~~of operating lease $ ~~(0.22)~~3,565 $ ~~(1.45)~~-- $ ~~0.43~~-- Decrease in assets related to sale of dealership through issuance of a receivable 454 -- -- Decrease in assets related to sale of dealership assets through issuance of a receivable and purchaser's assumption of debt -- -- 10,818 ========================================================================================================~~==========~~

59 14. SEGMENT INFORMATION: Effective February 1, 2002, the Company's operations are classified into three business segments, based upon the way the Company manages its business: construction, agricultural and truck. In past reporting, the corporate business segment was designated as financial services and corporate. The Company has not restated the prior years' segment information as it is impractical to due so. Due to the current size and function of financial services activities, current and future segment reporting will include financial services information in the operating segment that generated the financial services revenues and expense. Construction operations include the sale, service and rental of construction and material handling equipment to customers primarily in the construction, manufacturing, warehousing and utility industries and to units of government. Agricultural operations include the sale, service and rental of agricultural equipment primarily to customers in the agricultural industry. Truck operations include the sale and service of heavy, medium, and light-duty trucks to customers primarily in the transportation and construction industries, to units of government and retail customers. The Company's performance measurement for its operating segments is income before income taxes. In addition, all corporate expenses are allocated on a reasonable basis to the Company's operating segments. Identifiable assets are those used exclusively in the operations of each business segment or which are allocated when used jointly. Corporate assets are principally comprised of cash, income tax receivables, certain property and equipment, and deferred income taxes. 60 The following table shows the Company's business segments and related financial information for fiscal years 2003, 2002 and 2001:

~~2002~~(IN ~~2001~~THOUSANDS) ~~2000~~CONSTRUCTION AGRICULTURAL TRUCK CORPORATE(1) TOTAL --------------------------------------------------------------------------------------------------------- 2003: --------------------------------------------------------------------------------------------------------- ~~Risk~~Revenues ~~free~~from ~~interest~~external ~~rate~~customers $ 280,976 $ 189,765 $ 63,723 $ -- $ 534,464 Interest expense 1,638 655 38 -- 2,331 Interest income 38 369 41 -- 448 Depreciation and amortization 2,918 1,386 237 -- 4~~.42%~~,541 ~~6.30%~~Income ~~6.24%~~(loss) ~~Expected~~before ~~life~~income ~~3.00~~taxes ~~years~~(1,251) ~~3.28~~4,536 ~~years~~1,812 -- 5,097 Identifiable assets 112,531 63,604 15,728 10,803 202,666 Goodwill 10,256 9,494 4~~.60~~,572 ~~years~~-- ~~Expected~~24,322 ~~volatility~~Capital ~~49.40%~~expenditures, ~~55.70%~~net ~~46.29%~~2,649 (11) 105 1,446 4,189 =========================================================================================================~~==========~~

(1) For fiscal 2003, had the Company reported Financial Services and Corporate consistently with fiscal 2002 and 2001, the comparable numbers for fiscal 2003 would have been (in thousands): Revenues from external customers $2,549; Depreciation and amortization $606; Income before income taxes $1,038; Identifiable assets $21,731; Capital expenditures, net $1,476.

FINANCIAL SERVICES AND (IN THOUSANDS) ~~2002~~CONSTRUCTION ~~2001~~AGRICULTURAL ~~2000~~TRUCK CORPORATE TOTAL --------------------------------------------------------------------------------------------------------- 2002: --------------------------------------------------------------------------------------------------------- ~~Current:~~Revenues ~~Federal~~from external customers $ (5294,~~206)~~863 $ (6168,~~783)~~462 $ 784,~~080~~331 ~~State~~$ 2,264 $ 549,920 Interest expense 4,390 1,309 950 -- 6,649 Interest income 76 546 75 -- 1697 Depreciation and amortization 2,~~152~~286 ~~Deferred~~2,452 ~~income~~355 ~~tax~~910 ~~provision~~6,003 Income (~~benefit~~loss) ~~3,586~~before income taxes (56,~~950~~422) 1,612 (249) 809 (4,~~980~~050) Identifiable assets 110,786 59,314 21,690 24,804 216,594 Goodwill 10,256 9,494 4,572 -- 24,322 Capital expenditures, net 208 (323) 23 326 234 ========================================================================================================= 2001: --------------------------------------------------------------------------------------------------------- Revenues from external customers $ 316,577 $ 170,891 $ 187,138 $ 5,772 $ 680,378 Interest expense 6,506 2,059 4,013 -- 12,578 Interest income 2 562 53 --~~----~~ ~~Income~~617 ~~tax~~Depreciation ~~provision~~and amortization 2,530 2,697 1,205 1,033 7,465 Income (~~benefit~~loss) $before income taxes and minority interest (9,575) 1,~~620~~385 (24,486) $1,392 (1231,~~733~~284) $Identifiable 5assets 153,~~252~~512 69,131 42,746 40,599 305,988 Goodwill 10,702 9,502 4,754 -- 24,958 Capital expenditures, net 786 1,856 268 1,565 4,475 =========================================================================================================~~==========~~

61 15. UNAUDITED QUARTERLY FINANCIAL DATA:

(IN THOUSANDS, EXCEPT PER SHARE DATA) ~~2002~~FIRST ~~2001~~SECOND THIRD FOURTH TOTAL YEAR --------------------------------------------------------------------------------------------------------------------- ~~Accruals~~FISCAL ~~and~~2003: ~~other reserves $ 2,310 $ 3,430 Inventory 2,140 2,530 Compensation accruals 860 1,040~~ --------------------------------------------------------------------------------------------------------------------- ~~Net~~Total ~~current~~revenues ~~deferred~~$ ~~tax~~148,250 ~~asset~~$ 144,647 $ 5139,~~310~~172 $ 7102,~~000~~395 ~~-------------------------------------------------------------------------------------------------------------------~~$ ~~Property~~534,464 ~~and~~Gross ~~equipment~~profit 24,269 25,123 25,596 18,816 93,804 Net income (~~220~~loss) (1,~~130)~~034 ~~Goodwill~~1,333 1,522 (~~550~~882) 13,~~360~~007 ~~Credits~~Net ~~and~~income ~~net~~(loss) ~~operating~~per ~~loss~~share ~~carryforwards~~- ~~1,170~~basic ~~2,050~~and ~~Other~~diluted ~~104~~0.08 ~~120~~0.10 0.12 (0.07) 0.23 ===================================================================================================================== ------------------------------------------------------------------------------------------------------------------- ~~Net long~~-~~term~~- ~~deferred~~FISCAL ~~tax~~2002: ~~asset (liability) 504 2,400~~ --------------------------------------------------------------------------------------------------------------------- Total revenues $ 5154,~~814~~683 $ 9149,~~400~~015 $ 135,544 $ 110,678 $ 549,920 Gross profit 25,363 25,302 24,349 18,209 93,223 Net income (loss) (356) 478 3 (2,555) (2,430) Net income (loss) per share -~~------------------------------------------------------------------------------------------------------------------~~ basic and diluted (0.03) 0.04 0.00 (0.19) (0.18) =====================================================================================================================

See Note 3 for details of gain on sale of dealerships in the third quarter of fiscal 2003. 62 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders RDO Equipment Co.: In our opinion, the accompanying consolidated balance sheet as of January 31, 2003, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended present fairly, in all material respects, the financial position of RDO Equipment Co. and its subsidiaries as of January 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. The financial statements of the Company as of January 31, 2002 and for each of the two years in the period ended January 31, 2002, prior to the revision discussed in "New Accounting Pronouncements" in Note 2, were audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on those financial statements in their report dated March 8, 2002. As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for goodwill effective February 1, 2002. As discussed above, the financial statements of RDO Equipment Co. as of January 31, 2002, and for each of the two years in the period ended January 31, 2002, were audited by other independent accountants who have ceased operations. As described in "New Accounting Pronouncements" in Note 2, those financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets", which was adopted by the Company as of February 1, 2002. We audited the transitional disclosures for 2002 and 2001 included in "New Accounting Pronouncements" in Note 2. In our opinion, the transitional disclosures for 2002 and 2001 in Note 2 are appropriate and have been appropriately applied. However, we were not engaged to audit, review or apply any procedures to the 2002 or 2001 financial statements of the Company other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2002 or 2001 financial statements taken as a whole. /S/ PRICEWATERHOUSECOOPERS LLP Minneapolis Minnesota March 14, 2003, except for the seventh paragraph of Note 11 for which the date is March 31, 2003 63 The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP. As discussed in "New Accounting Pronouncements" in Note 2 to the accompanying consolidated financial statements, the Company has adopted SFAS No. 142. As discussed in "New Accounting Pronouncements" in Note 2, the Company has presented the transitional disclosures for 2002 and 2001 required by SFAS No. 142. The Arthur Andersen LLP report below does not extend to this change to the 2002 and 2001 consolidated financial statements. The transitional disclosures for the 2002 and 2001 consolidated financial statements were reported on by PricewaterhouseCoopers LLP as stated in their report appearing herein. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To RDO Equipment Co.: We have audited the accompanying consolidated balance sheets of RDO Equipment Co. (a Delaware corporation) and Subsidiaries as of January 31, 2002 and 2001*, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2002*. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RDO Equipment Co. and Subsidiaries as of January 31, 2002 and 2001*, and the results of their operations and their cash flows for each of the three years in the period ended January 31, 2002* in conformity with accounting principles generally accepted in the United States. Arthur Andersen LLP /S/ Arthur Andersen LLP Minneapolis, Minnesota, March 8, 2002 * The fiscal 2001 consolidated balance sheet and the fiscal 2000 consolidated statements of operations, stockholders equity and cash flows are not required to be presented in this Form 10-K. 64 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. On May 17, 2002, the Board of Directors of the Company, at the recommendation of its audit committee, dismissed Arthur Andersen LLP ("Andersen") as the Company's independent public accountants and engaged PricewaterhouseCoopers LLP to serve as the Company's independent accountants for fiscal year 2003. Andersen's reports on the Company's consolidated financial statements for each of the years ended January 31, 2002 and 2001 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. INFORMATION ABOUT DIRECTORS The following table sets forth certain information as of March 31, 2003, which has been furnished to the Company by the persons who currently serve as directors and will serve until the Company's next annual stockholders meeting.

~~(IN~~DIRECTOR ~~THOUSANDS)~~DIRECTORS ~~2002~~AGE ~~2001~~PRINCIPAL ~~2000~~OCCUPATION SINCE --------- --- -------------------- -----~~------------------------------------------------------------------------------~~ ~~Cash~~Ronald ~~payments~~D. ~~for~~Offutt ~~interest~~60 $Chairman ~~6,383~~and $Chief ~~13,230~~Executive $Officer ~~13,744~~of ~~===================================================================================================================~~the ~~Cash~~Company ~~payments~~1968 ~~for~~and ~~income~~R.D. ~~taxes~~Offutt $Company ~~159~~Allan $F. ~~4,663 $~~ Knoll(1)(2~~,444~~) ~~===================================================================================================================~~59 ~~Supplemental~~Chief ~~disclosures~~Financial ofOfficer ~~non-cash investing~~ and ~~financing~~Secretary ~~activities:~~of ~~Increase~~R.D. inOffutt ~~assets~~1974 ~~related~~Company toPaul ~~acquisitions~~T. ~~through~~Horn ~~issuance~~60 ~~and~~Retired ~~assumption~~Member, Board of ~~debt~~Directors --of --R.D. $Offutt ~~20,843~~1986 ~~Decrease~~Company inBradford ~~assets~~M. ~~related~~Freeman(1) to61 ~~sale~~Partner of ~~RDO~~Freeman ~~Rental~~Spogli & Co. ~~stock~~1997 --Ray --A. $Goldberg(2) ~~39,217~~76 ~~Increase~~George inM. ~~long-term~~Moffett ~~debt~~Professor ~~related~~of toAgriculture ~~refinancing~~and of1997 ~~short-term~~Business, ~~debt~~Emeritus, --at --the $Harvard ~~5,000~~Graduate ~~Sale~~School of ~~rental~~Business ~~assets~~Administration ~~for~~Norman ~~purchaser's~~M. ~~assumption~~Jones(2) 72 Member, Board of ~~debt~~Directors --of --LB $Community ~~2,526~~Bank ~~Decrease~~& inTrust ~~assets~~1997 ~~related~~James toD. ~~sale~~Watkins(1) 55 Owner and President of ~~dealership~~J.D. ~~assets~~Watkins ~~through~~Enterprises, ~~issuance~~Inc. of1997 aEdward ~~receivable~~T. ~~and~~Schafer(2) ~~purchaser's~~56 ~~assumption~~Chief Executive Officer of ~~debt~~Extend $America --2001 $Christi ~~10,818~~J. --Offutt ~~===================================================================================================================~~33 Chief Operating Officer of the Company 2002

------------------------ (1) Member of the Compensation Committee (2) Member of the Audit Committee 65 OTHER INFORMATION ABOUT DIRECTORS RONALD D. OFFUTT is the Company's founder, President, Chairman, Chief Executive Officer and principal stockholder. He has served as Chairman and Chief Executive Officer since the Company's formation in 1968. He has served as the Company's President since December 2000 and he served as a member of the Company's Office of the Chairman from December 1998 to December 2000. Mr. Offutt also serves as Chief Executive Officer and Chairman of the Board of R.D. Offutt Company ("Offutt Co.") and other entities he owns, controls or manages (collectively, "Offutt Entities") which are engaged in a variety of businesses such as farming, food processing, auto dealerships and agricultural financing activities, some of which transact business with the Company. See Item 13 "Certain Relationships and Related Transactions" of this Form 10-K. Mr. Offutt spent approximately one-half of his time on the business of the Company during fiscal 2003. He is former Chairman of the Board of Regents of Concordia College of Moorhead and is a graduate of Concordia College of Moorhead with a degree in Economics. Mr. Offutt is the father of Christi J. Offutt, Chief Operating Officer. ALLAN F. KNOLL has served as Secretary and a director of the Company since 1974. Mr. Knoll also served as a member of the Company's Office of the Chairman from December 1998 to December 2000. He served as Chief Financial Officer of the Company from 1974 through January 1999. Mr. Knoll also serves as Chief Financial Officer and Secretary of Offutt Co., and serves as a director and officer and is a beneficial stockholder of many of the Offutt Entities. Mr. Knoll spent approximately twenty percent of his time on the business of the Company during fiscal 2003. Mr. Knoll is a graduate of Moorhead State University with degrees in Business Administration and Accounting. PAUL T. HORN has served as a director of the Company since 1986. Mr. Horn served as a member of the Company's Office of the Chairman from December 1998 to December 2000, and as President of the Company from August 1996 to December 2000. Mr. Horn also served as Chief Operating Officer of the Company from 1986 through 1999. Mr. Horn served as a director and officer and was a beneficial stockholder of many of the Offutt Entities until his retirement in December 2002. Mr. Horn currently serves as Vice Chairman of the board of directors of Northern Grain Company, a regional grain elevator. Mr. Horn is a graduate of Michigan State University with degrees in Business Administration and Agronomy. BRADFORD M. FREEMAN has been a director of the Company since January 1997. Mr. Freeman is a founding partner of Freeman Spogli & Co., a private equity investment firm with offices in Los Angeles and New York. Since its founding in 1983, Freeman Spogli & Co. has organized the acquisitions of 34 companies with aggregate transaction values in excess of $12 billion. Mr. Freeman is a director of Edison International/Southern California Edison. Mr. Freeman serves on the board of trustees of Stanford University, St. Johns Hospital and the Smithsonian Museum. Mr. Freeman is a graduate of Stanford University and Harvard Business School. RAY A. GOLDBERG has been a director of the Company since January 1997. Mr. Goldberg has been a professor at the Harvard Graduate School of Business Administration since 1955 and became emeritus in July 1997. He also serves as a faculty member of the Agribusiness Senior Management Seminar. Mr. Goldberg serves on the board of directors of the following companies: Smithfield Foods, Inc., the largest vertically integrated producer and marketer of fresh pork and processed meats in the United States; Daymon Associates, a private label food leader that also provides coordination between food manufacturers and retailers; and Veritec Inc., a technology company that monitors quality control for food and pharmaceutical products. 66 NORMAN M. JONES has been a director of the Company since January 1997. In December 1996, Mr. Jones organized Metro Bancorp, Inc., a regional banking firm located in Minneapolis, Minnesota, and served as its Chairman until its acquisition by AAL Bank & Trust ("AAL") in March 1999 at which time he became a member of the board of directors of AAL. From 1995 to July 1997, Mr. Jones was the Chairman of First Bank Savings, fsb, the thrift subsidiary of U.S. Bancorp (formerly First Bank System, Inc.). Prior to 1995, Mr. Jones was the Chairman and Chief Executive Officer of Metropolitan Financial Corporation, a regional thrift holding company, where he was employed from 1952 through 1995 when U.S. Bancorp acquired it. Mr. Jones is a board member and Chairman of Luther Seminary Foundation and an advisory board member for Slumberland, Inc., a retail furniture chain. Mr. Jones attended Concordia College of Moorhead. Mr. Jones is the brother-in-law to fellow Board member Mr. Schafer. JAMES D. WATKINS has been a director of the Company since January 1997. Mr. Watkins launched POPZ(R)popcorn in June of 1999 under the Soller group of companies which he owns and operates. Mr. Watkins founded J.D. Watkins Enterprises, Inc. (an investment company involved in domestic and international companies, acquisitions and investments) in June 1993 and continues to serve as its President. Mr. Watkins founded Golden Valley Microwave Foods, Inc. (a company specializing in food products designed for use in microwave ovens) in 1978 and continuously served as its Chairman and Chief Executive Officer until it was acquired by ConAgra, Inc. (a diversified international food company) in July 1991. Mr. Watkins served in ConAgra's Office of the President as President and Chief Operating Officer of ConAgra Diversified Products Companies until July 1997. Mr. Watkins currently serves as a Trustee of Ronald McDonald House Charities. Mr. Watkins is a graduate of the University of Minnesota with a degree in Economics and Fine Arts. EDWARD T. SCHAFER has been a director since August 2001. Mr. Schafer is currently the Chief Executive Officer of Extend America, a telecommunications company. Mr. Schafer is the former governor of the State of North Dakota serving from 1992 to 2000. Mr. Schafer has a bachelor's degree from the University of North Dakota and a master's degree in Business Administration from the University of Denver. Mr. Schafer is the brother-in-law to fellow Board member Mr. Jones. CHRISTI J. OFFUTT has served as Chief Operating Officer of the Company since January 2001. She previously served as Senior Vice President - Midwest Agriculture from June 1999 to January 2001 and as Vice President - Strategic Planning from December 1998 until June 1999, and as Legal Counsel of Offutt Co. from January 1997 until December 1998. Ms. Offutt is a graduate of University of Puget Sound with degrees in politics and government and in business administration, and received her law degree in May 1996 from Boston University. She is the daughter of Ronald D. Offutt, Chairman and Chief Executive Officer. The Company's audit committee consists of Messrs. Knoll, Jones, Goldberg and Schafer. Mr. Knoll is the audit committee financial expert, but is not independent under Section 303.01(B)(3) of the New York Stock Exchange's Listed Company Manual. Information regarding executive officers is presented in Part I of this Form 10-K as Item 4A. SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Exchange Act requires the Company's directors and executive officers and all persons who beneficially own more than 10% of the outstanding shares of the Company's Class A 67 Common Stock to file with the SEC initial reports of ownership and reports of changes in ownership of the Company's Class A Common Stock. Executive officers, directors and greater than 10% beneficial owners are also required to furnish the Company with copies of all Section 16(a) reports they file. The Company believes that all directors, executive officers and beneficial owners of more than 10% of the Company's Class A Common Stock have filed with the SEC on a timely basis all reports required to be filed under Section 16 of the Exchange Act. CODE OF ETHICS The Company currently has not adopted a code of ethics that applies to the Company's principal executive officer, principal financial officer and principal accounting officer. The Company along with legal counsel is currently in the process of developing a code of ethics for the above mentioned officers of the Company. Once the code of ethics is finalized and adopted by the Company, the Company will, as required, file a copy as an exhibit to its next annual report and post the text of the code of ethics on its internet website and disclose in its next annual report the address of the internet website containing the Company's code of ethics. 68 ITEM 11. EXECUTIVE COMPENSATION. EXECUTIVE COMPENSATION AND OTHER BENEFITS SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION The following table sets forth the cash and non-cash compensation for each of the last three fiscal years awarded to or earned by the Chief Executive Officer and by each of the four most highly paid executive officers of the Company for fiscal 2003. SUMMARY COMPENSATION TABLE

~~FINANCIAL~~LONG-TERM ~~SERVICES~~COMPENSATION ~~AND~~ANNUAL ~~(IN~~COMPENSATION ~~THOUSANDS)~~NUMBER ~~CONSTRUCTION~~OF ~~AGRICULTURAL~~SHARES ~~TRUCK~~NAME ~~RENTAL~~AND ~~CORPORATE~~PRINCIPAL ~~TOTAL~~POSITION(S) FISCAL ---------------------~~----------------------------------------------------------------------------------------------~~ ~~2002:~~UNDERLYING ALL OTHER DURING FISCAL 2003 YEAR SALARY CASH BONUS OPTIONS(1) COMPENSATION ------------------ ---- ------ ---------- ---------- ------------~~-------------------------------------------------------~~ ~~Revenues~~Ronald ~~from~~D. ~~external~~Offutt ~~customers~~2003 ~~$ 294,863 $ 168,462 $ 84,331 $~~ -- ~~$ 2,264 $ 549,920 Interest income 76 546 75~~ -- ~~-- 697 Interest expense 4~~30,~~390~~000 ~~1,309 950~~ -- ~~-- 6~~PRESIDENT,~~649~~CHAIRMAN ~~Depreciation~~AND ~~and~~2002 ~~amortization 2,286 2,452 355~~ -- ~~910 6,003 Income (loss) before income taxes and minority interest (6,422) 1,612 (49)~~ -- ~~809 (4,050) Identifiable assets 110,786 59,314 21,690~~ -- ~~24,804 216,594 Capital expenditures, net 208 (323) 23~~ -- ~~326~~CHIEF ~~234~~EXECUTIVE ~~===================================================================================================================~~OFFICER 2001: -- -- -- --~~-----------------------------------------------------------------------------------------------------------~~ ~~Revenues~~Christi ~~from~~J. ~~external~~Offutt ~~customers~~2003 $ ~~316~~171,~~577~~600 $ ~~170~~84,~~891~~000 ~~$ 187~~35,~~138~~000 $ -- $CHIEF ~~5,772~~OPERATING $OFFICER ~~680~~2002 $163,~~378~~523 ~~Interest income 2 562 53~~ -- ~~-- 617 Interest expense 6~~33,~~506~~333 ~~2,059 4,013~~ -- --2001 12$119,~~578~~677 ~~Depreciation and amortization 2~~$30,~~530~~000 27,~~697~~000 ~~1,205~~ -- ~~1,033~~Steven ~~7,465~~B. ~~Income~~Dewald ~~(loss)~~2003 ~~before income taxes and minority interest (9~~$156,~~575)~~022 1$66,~~385~~000 ~~(24~~30,~~486)~~000 -- ~~1,392~~CHIEF ~~(31,284)~~FINANCIAL ~~Identifiable~~OFFICER ~~assets~~2002 ~~153~~$143,~~512~~331 ~~69,131 42,746~~ -- 4025,~~599~~000 ~~305,988 Capital expenditures, net 786 1,856 268~~ -- ~~1,565~~2001 4$139,~~475~~797 ~~=================================================================================================================== 2000:~~ -- -- --~~-------------------------------------------------------------------------------------------------------------~~ ~~Revenues~~Thomas ~~from~~K. Espel(12) ~~(1)~~2003 ~~external customers~~ $ ~~336~~40,~~964~~000 $-- ~~139,160~~-- $-- ~~178,774~~TREASURER $AND ~~27,389~~2002 $ 6134,~~683~~335 $-- ~~688~~33,~~970~~333 ~~Interest income 53 570 167 27~~ -- ~~817~~ASSISTANT ~~Interest~~SECRETARY ~~expense~~2001 6$199,~~594~~615 ~~3,152~~-- ~~2,416~~-- ~~2,374~~ -- ~~14,536~~Kenneth ~~Depreciation~~J. ~~and amortization 2~~Horner,~~509~~ Jr.(3~~,235~~) ~~909~~2003 5$156,~~079~~024 ~~1,218~~-- 1220,~~950~~000 ~~Income~~-- ~~(loss)~~FORMER ~~before~~EXECUTIVE ~~income~~VICE ~~taxes~~PRESIDENT ~~and~~- ~~minority~~2002 ~~interest 9~~$164,~~687~~100 ~~1,032~~-- ~~(223) (1~~33,~~185)~~333 ~~2,418~~-- ~~11,729~~PROJECT/PROCESS ~~Identifiable~~MANAGEMENT ~~assets~~2001 ~~153~~$187,~~790~~693 ~~76,524 89,363~~ -- 427,~~320~~000 ~~361,997 Capital expenditures, net (383) (341) 918 2,231 1,469 3,894~~--

--------------------------------- (1) All options were granted under the Incentive Plan. (2) Mr. Espel is currently the Treasurer and Assistant Secretary of the Company and also served as Chief Financial Officer until July 2001. (3) Mr. Horner served as Executive Vice President - Project/Process Management during fiscal 2003 and left the Company in February 2003. 69 OPTIONS GRANTED The following table provides information regarding the persons named in the foregoing Summary Compensation Table who received an option grant during fiscal 2003: OPTION GRANTS IN LAST FISCAL YEAR

~~(IN~~POTENTIAL ~~THOUSANDS,~~REALIZABLE ~~EXCEPT~~VALUE ~~PER~~AT ~~SHARE~~NUMBER ~~DATA)~~OF ~~FIRST~~PERCENT ~~SECOND~~OF ~~THIRD~~ASSUMED ~~FOURTH~~ANNUAL RATES OF SHARES TOTAL ~~YEAR~~OPTIONS EXERCISE STOCK PRICE APPRECIATION UNDERLYING GRANTED TO OR BASE FOR OPTION TERM(1) OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ------------------~~-------------------------------------------------------------------------------------------------~~ NAME GRANTED FISCAL ~~2002:~~2003 SHARE DATE 5% 10% ---- ------- ----------- ----- ---- -- ---~~-------------------------------------------------------------------------------~~ ~~Total~~Ronald ~~revenues~~D. $Offutt ~~154~~30,~~683~~000(2) ~~$149,015~~14.3% $~~135,544~~5.35 6/3/07 $~~110~~44,~~678~~343 $~~549~~97,~~920~~987 ~~Gross~~Christi ~~profit~~J. ~~25,363~~Offutt 2530,~~302 24,349 18,209 93,223 Net income~~ 000(~~loss~~2) ~~(356)~~14.3% ~~478~~$5.35 6/3/07 (2$44,~~555)~~343 (2$97,~~430)~~987 ~~Net income~~ 5,000(~~loss~~2) ~~per~~2.4% ~~share~~$5.35 -6/3/12 ~~basic~~$16,823 ~~and~~$42,633 ~~diluted~~Steven (0B.~~03)~~ ~~0.04~~Dewald ~~0.00~~ 25,000(~~0.19~~2) (011.~~18)~~8% =================================================================================================================== ------------------------------------------------------------------------------------------------------------------- FISCAL 2001: ------------------------------------------------------------------------------------------------------------------- Total revenues $5.35 ~~185,935~~6/3/07 $~~183~~36,~~452~~953 $~~176~~81,~~424~~656 ~~$134~~5,~~567~~000(2) 2.4% $~~680,378~~5.35 ~~Gross~~6/3/12 ~~profit 28~~$16,~~968~~823 27$42,~~955~~633 ~~24,060~~Kenneth ~~17,812~~J. ~~98,795~~Horner ~~Net income~~ 15,000(~~loss~~2) ~~871 (~~7.1~~,297)~~% ~~(4,171)~~$5.35 ~~(13~~6/3/07 $22,~~965)~~172 ~~(18~~$48,~~562)~~993 ~~Net income~~ 5,000(~~loss~~2) ~~per share - basic and diluted 0~~2.074% (0$5.~~10)~~35 ~~(0.32)~~6/3/12 ~~(1.06)~~$16,823 ~~(1.41) ===================================================================================================================~~$42,633

(1) The five and ten percent rates of appreciation are set by the rules of the Securities and Exchange Commission and are not intended to forecast possible future appreciation, if any, of the price of Common Stock. (2) This option was granted under the Incentive Plan on June 4, 2002 at the then fair market value of Common Stock. It became exercisable in full at the date of grant. 70 OPTION EXERCISES AND OPTION VALUES The following table provides information regarding option exercises and the value of unexercised options held by the persons named in the foregoing Summary Compensation Table: AGGREGATED OPTION EXERCISES IN FISCAL 2003 AND OPTION VALUES AT THE END OF FISCAL 2003

~~ADDITIONS~~VALUE ~~BALANCE~~OF ATUNEXERCISED ~~CHARGED~~SHARES TONUMBER ~~BALANCE~~OF ATUNEXERCISED ~~BEGINNING~~OPTIONS ~~COSTS~~IN-THE-MONEY ~~END~~OPTIONS OFACQUIRED OFAT ~~PERIOD~~JANUARY ~~AND~~31, ~~EXPENSES~~2003 ~~DEDUCTIONS~~AT ~~PERIOD~~JANUARY 31, 2003(1) ON VALUE ---------------------------- ---------------------------- NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE ---- -------- -------- ----------- ------------- ----------- ~~January~~------------- ~~31,~~Ronald ~~2002:~~D. ~~Accounts~~Offutt ~~Receivable:~~0 ~~Allowance~~0 ~~for doubtful accounts $2~~160,~~475,860~~000 ~~$3,515,683~~-- ~~$3,325,986~~-- ~~$2,665,557 Accrued Liabilities: Restructuring reserve $ 985,232~~ -- $Christi ~~749,577~~J. $Offutt ~~235,655~~0 ~~January~~0 3173,133 ~~2001: Accounts Receivable: Allowance for doubtful accounts $1~~4,~~873,695~~700 $157,~~973,128~~333 ~~$1,370,963~~-- ~~$2,475,860~~Steven ~~Accrued~~B. ~~Liabilities:~~Dewald ~~Restructuring~~0 ~~reserve~~0 75,000 -- $ ~~985~~47,~~232~~250 -- $Thomas ~~985,232~~K. ~~January~~Espel ~~31,~~0 ~~2000:~~0 ~~Accounts~~59,333 ~~Receivable: Allowance for doubtful accounts $1~~6,~~616,102~~500 $157,~~123,099~~333 $-- ~~865,506~~Kenneth $1J. Horner,~~873,695~~ ~~Accrued~~Jr. ~~Liabilities:~~0 ~~Restructuring~~0 ~~Reserve~~58,133 ~~$ 285~~4,~~000~~700 -- $ ~~285~~57,~~000~~333 -- ~~============================================================================================================~~

(1) Value based on the difference between the fair market value of one share of Class A Common Stock at January 31, 2003 ($5.02) and the exercise price of the options ranging from $3.00 to $15.50 per share. Options are in-the-money if the market price of the shares exceeds the option exercise price. CONFIDENTIALITY AGREEMENTS Option grants to officers of the Company are conditioned upon the recipient having signed an agreement regarding confidential information. These agreements generally prohibit disclosure of confidential information to anyone outside the Company both during and after employment. In addition, option grants to executive officers of the Company are conditioned upon the recipient having signed an agreement regarding non-competition and inventions. These agreements generally restrict the employee from competing with the Company for a period of time after termination of employment with the Company, and provides any inventions or other works of authorship relating to or resulting from the employee's work for the Company will be the exclusive property of the Company. COMPENSATION OF DIRECTORS Directors who are not employees or officers of the Company receive $1,000 per month and $500 for each Board and committee meeting attended. Directors who are employees or officers of the Company do not receive additional compensation for service as a director. In addition, all directors are entitled to be reimbursed for certain expenses in connection with attendance of Board and committee meetings. The Incentive Plan provides that a non-employee who becomes a director of the Company will receive an option to purchase 10,000 shares of Class A Common Stock, with such vesting periods as the Board or the Compensation Committee may determine. Directors are eligible to receive options in addition to these initial grants. On June 4, 2002, each non-employee director of the Company received an option grant of 2,000 shares at an exercise price of $5.35 that vested immediately on the date of grant. 71 On December 16, 2002, after receiving a letter from Ronald D. Offutt, the Chairman of the Board of Directors, Chief Executive Officer and majority stockholder of the Company, expressing an interest in acquiring all of the shares of the Class A Common Stock of the Company that Mr. Offutt does not currently own or control, the Company's Board of Directors appointed a Special Committee to evaluate the fairness of the offer and make a recommendation with respect to the offer. Each member of the Special Committee is entitled to payment by the Company of a meeting fee of $1,000 (except for the chair of the Special Committee, Norman M. Jones, who will receive a meeting fee of $2,000). In addition, the Company has agreed to reimburse the Special Committee for all out-of-pocket expenses incurred in connection with service on the Special Committee. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During fiscal 2003, no member of the Compensation Committee (i) was an officer, former officer or employee of the Company, except Mr. Knoll, or (ii) had any business relationship or conducted any transactions with the Company, other than the relationships disclosed under Item 13 "Certain Relationships and Related Transactions" in this Form 10-K involving Mr. Knoll. During fiscal 2003, no officer of the Company served as (i) a member of the compensation committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose officers served on the Board, other than Messrs. Offutt and Knoll with respect to the Offutt Entities, Mr. Espel with respect to Ag Capital, and Ms. Offutt with respect to PROffutt Limited Partnership (an Offutt Entity), or (ii) a director of another entity, one of whose officers served on the Board, other than Messrs. Offutt and Knoll with respect to the Offutt Entities and Mr. Espel with respect to Ag Capital. 72 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board (the "Compensation Committee") is authorized to recommend compensation for the Company's directors and corporate officers, review compensation for the Company's operating officers, review the Company's retirement, health and welfare plans that cover substantially all employees (including the management of such plans), and administer the Incentive Plan (including determining the participants in the Incentive Plan and the amount, timing and other terms and conditions of awards under the Incentive Plan). During fiscal 2003, the Compensation Committee was comprised of Bradford M. Freeman, Allan F. Knoll and James D. Watkins. The Compensation Committee has furnished this report on executive compensation for fiscal 2003. COMPENSATION PHILOSOPHY AND OBJECTIVES The Company has developed a compensation policy that is designed to attract and retain executive officers responsible for the success of the Company and to motivate these persons to enhance long-term stockholder value. The executive compensation program presently consists primarily of annual base salary, short-term incentives in the form of annual cash bonuses, and long-term incentives in the form of stock options. BASE SALARY Base salaries for executive officers of the Company are determined annually. This assessment involves a number of criteria and information including individual performance, cost of living and total compensation being paid for comparable positions at companies with which the Company competes for executive and management talent (e.g., specialty retailers such as equipment and truck dealership and rental companies). Principles of internal equity are also considered by evaluating salaries of comparable levels of responsibility within the Company. CASH BONUS All executive officers are eligible to receive annual cash bonuses. The amount and performance criteria are determined annually and are based, in part, on an assessment of total compensation being paid for comparable positions at companies with which the Company competes for executive and management talent. Cash bonuses for executive corporate officers are based on individual performance and the Company's overall performance. Cash bonuses for executive operating officers are determined based on achievement of a variety of performance factors and criteria, including targeted return on assets, earnings per share growth, efficiency of asset management, profitability, sales growth, productivity and product support. Bonuses accrue monthly based on performance targets and are paid at the end of the fiscal year. STOCK OPTION PROGRAM The Company adopted the Incentive Plan in connection with becoming a public company as a mechanism to advance the best interests of the Company and its stockholders by attracting, retaining and motivating employees, directors, advisors and consultants of the Company. The Incentive Plan provides for the grant of stock options (which may be non-qualified stock options or incentive stock options for tax purposes), stock appreciation rights issued independent of or in tandem with such options ("SARs"), restricted stock awards and performance stock awards, thereby increasing the personal stake of Incentive 73 Plan participants in the continued success and growth of the Company. Equity participation in the Company, particularly through the grant of stock options, is anticipated to continue as an important part of future executive and management compensation. CEO COMPENSATION Mr. Offutt serves as the Company's Chief Executive Officer since the Office of the Chairman was dissolved in December 2000. Mr. Offutt did not receive a salary in fiscal 2003. In addition, Mr. Offutt was not compensated for the personal guarantee he provided to Deere. The Compensation Committee believes that Mr. Offutt was fully motivated to enhance long-term stockholder value as a result of his beneficial ownership of the Common Stock of the Company (see "Beneficial Ownership of Management"). SECTION 162(m) The Omnibus Reconciliation Act of 1993 added Section 162(m) to the Internal Revenue Code of 1986, as amended (the "Code"), limiting corporate deductions to $1,000,000 for certain compensation paid to the chief executive officer and each of the four other most highly compensated executives of publicly held companies. The Compensation Committee does not anticipate the Company will pay "compensation" within the meaning of Section 162(m) to such executive officers in excess of $1,000,000 in the foreseeable future. Therefore, the Compensation Committee and the Company do not have a policy at this time regarding qualifying compensation paid to its executive officers for deductibility under Section 162(m), but the Compensation Committee will formulate a policy on behalf of the Company if compensation levels approach $1,000,000 The following members of the Compensation Committee are giving this report: Bradford M. Freeman Allan F. Knoll James D. Watkins 74 COMPARATIVE PERFORMANCE GRAPH The following performance graph compares the performance of the Company's Common Stock to the Standard & Poor's 500 Stock Index and the Standard & Poor's Construction & Farm Machinery Index. Previously, the Company's Common Stock was compared to Standard & Poor's Diversified Machinery Group Index. In 2001, Standard and Poor deleted the Diversified Machinery Group Index under the restructuring and transition to the Global Industry Classification Standard "GICS". This graph assumes that $100 was invested in the Company's Common Stock and in each of the two indices at January 31, 1998 and that subsequent dividends were reinvested in connection with those indices. [PLOT POINTS CHART]

~~ITEM NO. ITEM METHOD OF FILING~~ -------- ---- ------------------------------------------------------------------------------------------------- 3.1/98 ~~Certificate~~1/99 of1/00 ~~Incorporation~~1/01 ~~Incorporated by reference to Exhibit 3.~~1/02 ~~to the Company's Registration Statement on Form S-~~1/03 ~~(File No. 333~~-~~13267). 3.2 Bylaws Incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S~~-~~1 (File No. 333~~-~~13267). 4.1 Specimen Form of the Company's Class A Incorporated by reference to Exhibit 4.2 to the Common Stock Certificate Company's Registration Statement on Form S~~-~~1 (File No. 333~~-~~13267). 4.2 Specimen Form of the Company's Class B Incorporated by reference to Exhibit 4.3 to the Common Stock Certificate Company's Registration Statement on Form S~~-1------------------------------------------------------------------------------------------------------- ~~(File~~RDO No100.00 ~~333-13267)~~45.95 1032.109 ~~Agreement between Ronald D~~21.62 ~~Offutt, RDO Incorporated by reference to Exhibit 10~~19.135 ~~to the Equipment Co~~27.,14 ~~John Deere Company and John Company's Registration Statement on Form S~~-~~1 Deere Construction Equipment Company (File No. 333~~-~~13267).~~----------------------------------------------------------------------------------------------------------- ~~10.2~~S ~~Agreement~~& ~~between~~P ~~RDO~~Machinery ~~Equipment Co~~100.,00 ~~John Incorporated by reference to Exhibit 10~~77.1588 ~~to Deere Company and John Deere Construction the Company's Registration Statement on Form S-1 Equipment Company (File No~~90.60 ~~333-13267)~~94.36 10109.339 ~~Form of Deere Agricultural Dealer Agreement Incorporated by reference to Exhibit 10~~99.273 ~~to the Package Company's Registration Statement on Form S~~-~~1 (File No. 333~~-~~13267). 10.4 Dealer Agreement dated December 28, 2000 Incorporated by reference to Exhibit 10.1 to the between John Deere Construction Equipment Company's Form 8~~-K---------------------------------------------------------------------------------------------------------- ~~dated~~S ~~December~~& ~~29,~~P ~~2001.~~500 ~~Company and RDO Construction Equipment Co~~100.00 ~~(File No~~132.49 ~~1-12641) 10~~146.520 ~~Form of Deere Construction Equipment Dealer Incorporated by reference to Exhibit 10~~144.1788 ~~to Agreement for Special Products the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2000~~121.49 ~~(File No~~93.52 1-~~12641) 10.6 Deere Agricultural Dealer Finance Agreement Incorporated by reference to Exhibit 10.6 to the Company's Registration Statement on Form S~~-~~1 (File No. 333~~-~~13267). 10.7 Deere Construction Dealer Finance Agreement Incorporated by reference to Exhibit 10.7 to the Company's Registration Statement on Form S~~-~~1 (File No. 333~~-~~13267).~~--------------------------------------------------------------------------------------------------------

75 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. PRINCIPAL STOCKHOLDERS The following table sets forth information with respect to each stockholder who the Company believes to be a beneficial owner of more than five percent of either class of outstanding Common Stock. Percentages are calculated based upon shares outstanding as of March 31, 2003:

~~ITEM~~NUMBER ~~NO.~~OF ~~ITEM~~PERCENT ~~METHOD~~NUMBER OF ~~FILING~~PERCENT NAME AND ADDRESS CLASS A SHARES OF CLASS CLASS B SHARES OF CLASS ---------------- -------------- -------- -------------- ~~10.8 Indemnification Agreement between RDO Incorporated by reference to Exhibit 10.16 to Equipment Co. and Deere & Company the Company's Annual Report on Form 10~~-K------- ~~for~~Rutabaga ~~the~~Capital ~~fiscal year ended January 31, 2000.~~ Management(~~File No.~~ 1~~-12641~~) 545,100 10.95% ~~Release~~-- ~~and~~-- ~~Covenant~~64 ~~Not~~Broad toStreet ~~Sue~~Boston, ~~dated~~Massachusetts ~~December~~02109 ~~Incorporated~~Dimensional byFund ~~reference~~Advisors ~~to Exhibit 10~~Inc.(2) ~~to 28~~370,550 ~~2000 by RDO Equipment Co~~6.,5% ~~RDO~~-- ~~the Company's Form 8~~-K- ~~dated~~1299 ~~December~~Ocean ~~29,~~Avenue ~~2001.~~Santa ~~Construction Equipment Co.~~Monica, ~~and~~California ~~Ronald~~90401 ~~D. (File No. 1-12641) Offutt and accepted by John Deere Construction Equipment Company 10.10 Settlement Agreement and Mutual Release Incorporated by reference to Exhibit 10.10 to between and among~~ Ronald D. Offutt~~, RDO the Company's Annual Report on Form 10-K for Equipment Co., its affiliates and the fiscal year ended January 31, 2001.~~ (~~File~~3) ~~subsidiaries~~675,392 ~~John Deere Construction No~~12.7% ~~1-12641) Equipment Company~~7, ~~its affiliates and subsidiaries and Nortrax~~450,492 ~~Inc~~100.,0% ~~its~~2829 ~~affiliates~~South ~~and~~University ~~subsidiaries~~Drive ~~10.11 Settlement Agreement and Mutual Release Incorporated by reference to Exhibit 10.11 to between and among RDO Equipment Co.~~Fargo, ~~its~~North ~~the~~Dakota ~~Company's~~58103 ~~Annual~~Allan ~~Report on Form 10-K for affiliates and subsidiaries, including RDO the fiscal year ended January 31, 2001~~F. Knoll(~~File Agriculture Equipment Co. and Salinas No. 1-12641~~4) ~~Equipment Distributors~~674,670 ~~Inc. and John Deere Company - a Division of Deere & Company 10.~~12 ~~Corporate Service Agreement between RDO Incorporated by reference to Exhibit 10~~.107% ~~to Equipment Co. and R.D. Offutt Company, dated the Company's Registration Statement on Form as of November 1, 1996 S~~-~~1 (File No. 333~~-~~13267).~~ ~~10.13 RDO Equipment Co. 1996 Stock Incentive Plan * Incorporated by reference to Exhibit 10.8 to the Company's Annual Report on Form 10~~-K- ~~for~~2829 ~~the~~South ~~fiscal~~University ~~year~~Drive ~~ended January 31~~Fargo, ~~1997.~~North ~~(File~~Dakota ~~No.~~58103 ~~1-12641)~~Paul 10T.14 ~~Form of Agreement re: Incentive Stock Option* Incorporated by reference to Exhibit 10.~~Horn(4) ~~to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31~~453,080 ~~2001~~8.7% ~~(File No. 1~~-~~12641) 10.15 Form of Agreement re: Non~~-~~Statutory~~ ~~Stock Incorporated by reference to Exhibit 10.5 to Option* the Company's Quarterly Report on Form 10~~-Q- ~~for~~2829 ~~the~~South ~~fiscal~~University ~~quarter~~Drive ~~ended July 31~~Fargo, ~~2001.~~North ~~(File~~Dakota ~~No. 1-12641)~~58103

---------------------- (1) Based solely upon information contained in Schedule 13G of Rutabaga Capital Management ("Rutabaga") dated February 19, 2003. According to this filing with the Securities and Exchange Commission ("SEC"), Rutabaga is a registered investment advisor and has sole voting power over 285,900 shares and shared voting power over 259,200 shares and has sole dispositive power over all of these shares. (2) Based solely upon information contained in Schedule 13G of Dimensional Fund Advisors Inc. ("DFA") dated February 3, 2003. According to this filing with the SEC, DFA is a registered investment advisor, and these shares are owned by registered investment companies to which DFA furnishes investment advice and by other investment vehicles for which DFA serves as investment manager. This filing also indicates that DFA has sole voting power and sole dispositive power over these shares. (3) Mr. Offutt is the Company's founder and principal stockholder. See "Information about Directors" above and "Beneficial Ownership of Management" below for more information about Mr. Offutt and his beneficial ownership of Common Stock. (4) See "Information about Directors" above and "Beneficial Ownership of Management" below for more information about Mr. Knoll, who is a director and officer of the Company and Mr. Horn, who is a director of the Company, and their respective beneficial ownership of Class A Common Stock. 76 BENEFICIAL OWNERSHIP OF MANAGEMENT The following table sets forth information regarding the beneficial ownership of Common Stock of the Company as of March 31, 2003, unless otherwise noted, for (a) each director and officer named in the Summary Compensation Table (set forth below) except for Kenneth J. Horner who is no longer an officer as of March 31, 2003, and (b) all officers and directors of the Company as a group. The address for all officers and directors of the Company is 2829 South University Drive, Fargo, North Dakota 58103.

~~ITEM~~NUMBER ~~NO.~~OF ~~ITEM~~SHARES ~~METHOD~~PERCENT OF ~~FILING~~TOTAL -------- ---- ---------------- ~~10.16~~CLASS ~~Form~~A ofAND ~~Agreement~~PERCENT ~~re:~~OF ~~Confidentiality,~~TOTAL ~~Incorporated~~NAME byOF ~~reference~~STOCKHOLDER toCLASS ~~Exhibit 10.15 to Assignment of Inventions and Non-Competition* the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 1997.~~ A(~~File No.~~ 1~~-12641~~) ~~10.17~~CLASS ~~Form~~B ofCLASS ~~Agreement~~B ~~re:~~SHARES ~~Confidential~~VOTING ~~Information~~POWER(2) ~~Incorporated~~------------------- by---------- ~~reference~~------- to-------------- ~~Exhibit 10.6 to and Inventions* the Company's Quarterly Report on Form 10~~-Q-------------- ~~for~~Ronald ~~the~~D. ~~fiscal~~Offutt ~~quarter ended July 31~~675, ~~2001.~~ 392(~~File No. 1-12641~~3) ~~10.18 Form of Indemnification Agreement* Incorporated by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1~~ (~~File~~4) ~~No.~~7,450,492 ~~333-13267)~~63.5% 1086.197% ~~RDO~~Allan ~~Equipment Co~~F. ~~Credit~~Knoll ~~Agreement with Ag Incorporated by reference to Exhibit 10.2 to Capital Company the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31~~674, ~~2000.~~ 670(~~File~~5) ~~No. 1~~-~~12641)~~- 105.203% ~~Credit Agreement Modification to RDO Equipment Filed herewith Co~~1.9% ~~Credit~~Paul ~~Agreement with Ag Capital Company 10~~T.21 ~~RDO~~Horn ~~Construction~~453,080(6) ~~Equipment~~-- Co3.6% ~~and RDO Incorporated by reference to Exhibit 10.~~1.3% toBradford ~~Agriculture Equipment Co~~M. ~~amended~~Freeman ~~and~~79,000 ~~restated the Company's Quarterly Report on Form 10~~-Q- ~~for~~* ~~loan~~* ~~agreement~~Ray ~~with John Deere Construction the fiscal quarter ended July 31, 2000~~A. ~~(File~~Goldberg ~~Equipment Company~~30,500 ~~Deere Credit, Inc., and No. 1~~-~~12641)~~- ~~John~~* ~~Deere~~* ~~Company~~Norman 10M.22 ~~RDO~~Jones ~~Construction~~107,615 ~~Equipment~~-- ~~Co.~~* ~~and~~* ~~RDO~~James ~~Incorporated by reference to Exhibit 10~~D.2 toWatkins ~~Agriculture~~64,000 ~~Equipment Co. amended and restated the Company's Quarterly Report on Form 10~~-Q- ~~for~~* ~~security~~* ~~agreement~~Edward ~~with John Deere the fiscal quarter ended July 31, 2000~~T. ~~(File~~Schafer ~~Construction Equipment Company~~12,000 ~~Deere Credit, No. 1~~-~~12641)~~- ~~Inc.,~~* ~~and~~* ~~John~~Christi ~~Deere Company 10~~J.23 ~~RDO~~Offutt ~~Construction~~86,033 ~~Equipment~~-- ~~Co.~~* ~~and~~* ~~RDO~~Steven ~~Incorporated by reference to Exhibit 10~~B.3 toDewald ~~Agriculture~~95,000 ~~Equipment Co. guaranty with John the Company's Quarterly Report on Form 10~~-Q- ~~for~~* ~~Deere~~* ~~Construction~~Thomas ~~Equipment Company, Deere the fiscal quarter ended July 31, 2000~~K. ~~(File~~Espel ~~Credit~~76,906 ~~Inc., and John Deere Company No. 1~~-~~12641)~~- ~~10.24~~* ~~RDO~~* ~~Agriculture~~All ~~Equipment~~officers ~~Co.~~ and ~~RDO~~directors ~~Incorporated~~as bya ~~reference~~group to(11 ~~Exhibit~~persons) ~~10.~~1 ~~to Construction Equipment Co. Addendum to Amended the Company's Quarterly Report on Form 10-Q for and Restated Loan Agreement with John Deere the fiscal quarter ended October 31~~, ~~2000. Construction Equipment Company~~400,896(3)(4) ~~Deere Credit~~7,450,492 ~~(File No~~67. 1~~-12641)~~% ~~Inc~~87.~~, and John Deere Company~~8%

* Less than one percent. (1) Includes 160,000, 32,500, 32,500, 29,000, 29,000, 29,000, 29,000, 12,000, 74,533, 75,000, 59,333, and 561,866 shares subject to options which are held by Offutt, Knoll, Horn, Freeman, Goldberg, Jones, Watkins, Schafer, Offutt, Dewald, Espel and all officers and directors as a group, respectively, which were exercisable on or within 60 days after March 31, 2003. (2) In calculating the percentage of total voting power, the voting power of shares of Class A Common Stock (one vote per share) and Class B Common Stock (four votes per share) is aggregated. (3) Excludes 7,450,492 shares of Class A Common Stock into which Mr. Offutt's 7,450,492 shares of Class B Common Stock are convertible on a one-for-one basis. (4) Excludes 12,903 shares of Class A Common Stock owned by Mr. Offutt's spouse as to which shares he disclaims any beneficial ownership. (5) Includes 608,595 shares of Class A Common Stock that Mr. Knoll has the right to acquire from Mr. Offutt pursuant to an option agreement. Excludes 100 shares of Class A Common Stock owned by Mr. Knoll's spouse as to which shares he disclaims any beneficial ownership. (6) Includes 344,705 shares of Class A Common Stock that Mr. Horn has the right to acquire from Mr. Offutt pursuant to an option agreement. 77 SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table summarizes outstanding options under the Company's 1996 Stock Incentive Plan as of January 31, 2003. Options granted in the future under the plan are within the discretion of our Compensation Committee and therefore cannot be ascertained at this time.

~~ITEM~~NUMBER ~~NO. ITEM METHOD~~ OF ~~FILING~~SECURITIES ~~--------~~REMAINING ~~----~~AVAILABLE ~~----------------~~FOR ~~10.25~~NUMBER ~~Second~~OF ~~Addendum~~SECURITIES toTO ~~Amended~~BE ~~and~~WEIGHTED-AVERAGE ~~Restated~~FUTURE ~~Loan~~ISSUANCE ~~Incorporated~~UNDER byEQUITY ~~reference~~ISSUED toUPON ~~Exhibit~~EXERCISE ~~10.3~~OF toEXERCISE ~~Agreement~~PRICE ~~between~~OF ~~John~~COMPENSATION ~~Deere~~PLANS ~~Construction~~OUTSTANDING ~~and~~OPTIONS, ~~the~~OUTSTANDING ~~Company's~~OPTIONS, ~~Quarterly Report on Form 10-Q for Forestry Equipment Company~~ (~~f/k/a~~EXCLUDING ~~John~~SECURITIES ~~Deere~~PLAN ~~the~~CATEGORY ~~fiscal~~WARRANTS ~~quarter~~AND ~~ended~~RIGHTS ~~July~~WARRANTS ~~31,~~AND ~~2001.~~RIGHTS ~~(File~~REFLECTED ~~Construction~~IN ~~Equipment~~COLUMN ~~Company~~(A),) ~~Deere~~------------- ~~Credit,~~------------------- ~~No.~~------------------- 1-~~12641)~~----------------------- ~~Inc.,~~Equity ~~and~~compensation ~~John~~plans ~~Deere~~approved ~~Company,~~by Asecurity ~~Division~~holders ~~of Deere & Company and RDO Agriculture Equipment Co.~~897,399 ~~RDO Equipment Co~~$7.,47 ~~RDO Financial Services Co.~~365,631 ~~RDO~~Equity ~~Material~~compensation ~~Handling~~plans ~~Co.,~~not ~~RDO~~approved ~~Truck Center Co., RDO Construction Equipment Co. 10.26 Third Addendum to Amended and Restated Loan Incorporated~~ by ~~reference~~security toholders ~~Exhibit~~-- ~~10.1 to Agreement between John Deere Construction and the Company's Quarterly Report on Form 10~~-Q- ~~for Forestry Equipment Company (f/k/a John Deere the fiscal quarter ended October 31, 2001. Construction Equipment Company), Deere Credit, (File No. 1~~-~~12641)~~- ~~Inc.,~~Total ~~and John Deere Company~~897,399 ~~A Division of Deere & Company and RDO Agriculture Equipment Co~~$7.,47 ~~RDO Equipment Co.~~365, RDO Financial Services Co., RDO Material Handling Co., RDO Truck Center Co., RDO Construction Equipment Co. 21.1 Subsidiaries Filed herewith. 23.1 Consent of Independent Public Accountants Filed herewith. 99.1 Letter to Securities and Exchange Commission Filed here with. Regarding Arthur Andersen LLP Representations631

The Company's only equity compensation plan is the 1996 Stock Incentive Plan. We do not have any other equity compensation plans. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Company historically has engaged, and expects to engage in the future, in business transactions with various Offutt Entities, including Ag Capital, ACL Company, LLC ("ACL") and Farmers Equipment Rental, Inc. ("FER"), financing institutions which are controlled by Mr. Offutt and provide working capital and floor plan financing to the Company and/or financing to the Company's customers. Messrs. Offutt and Knoll each serve as officers or directors and have ownership interests in various of the Offutt Entities, including all of the Offutt Entities which have engaged in and will continue to engage in transactions with the Company, as described below. All transactions between the Company and any of the Offutt Entities or any of the Company's officers, directors, principal stockholders and their affiliates are approved both by a majority of all members of the Board and by a majority of the independent and disinterested outside directors, and are on terms believed to be no less favorable to the Company than could be obtained from unaffiliated third parties. The Company had sales to various Offutt Entities of equipment, trucks and related parts and service totaling $2.3 million in fiscal 2003. At times during fiscal 2003, the Company leased its executive offices and 21 of its store locations and real estate for a potential dealership site from an Offutt Entity, and leased some of its service vehicles from ACL. Total rent expense for these leases was $3.6 million in fiscal 2003. These leases have terms expiring at various times from 2003 to 2012. In November 2002, the 78 real estate for a potential dealership site that was being leased from an Offutt Entity was purchased for the original cost of $1.1 million pursuant to the Company's original commitment. The Company receives corporate support services from various Offutt Entities, including office space for its executive offices, use of conference and meeting facilities, use of an aircraft for Company business, administration of the Company's tax exempt voluntary employee benefit trust, real estate management services, and clerical and legal services. Total charges for such services were $790,000 in fiscal 2003. All such services are provided to the Company pursuant to a corporate services agreement, which is terminable by the Company in whole or in part on 30 days' notice, on the same cost basis as in prior years (based on pro rata usage of services or at a fixed charge). Ag Capital, ACL and FER in past years have provided financing to the Company's customers. The total amount of such customer financing outstanding as of the end of fiscal 2003 was $460,000. To facilitate sales to certain customers, the Company guarantees a portion of the outstanding balances of certain customer notes and lease contracts financed by third parties, including customer financing provided by Ag Capital, ACL and FER. The amount guaranteed by the Company to Ag Capital, ACL and FER for customer financing was $46,000 as of January 31, 2003. In the past, the Company financed certain of its working capital needs, primarily inventory financing for non-Deere equipment, receivables, property and equipment and acquisitions, through Ag Capital. These financing arrangements were paid off during fiscal 2003. Interest rates for these financing arrangements were based on LIBOR and the prime rate. Total interest paid by the Company to Ag Capital was $243,000 in fiscal 2003. The Company currently has no lending relationship with Ag Capital. Under an agreement with Deere, Mr. Offutt personally guarantees all Company obligations to Deere. Mr. Offutt has the right to terminate his personal guaranty at any time, which would require the Company to obtain a letter of credit in an amount meeting Deere's then current guidelines from a bank acceptable to Deere. As of January 31, 2003, the required amount of the letter of credit to replace Mr. Offutt's personal guaranty was approximately $14.9 million. The Company estimates that it would cost approximately $299,000 per year to replace Mr. Offutt's personal guarantee with a letter of credit. ITEM 14. CONTROLS AND PROCEDURES The Company's disclosure controls and procedures are designed to ensure that information required to be disclosed in reports that the Company files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Company's Chief Executive Officer and the Chief Financial Officer have reviewed the effectiveness of the Company's "disclosure controls and procedures" (as defined in the Securities Exchange Act of 1934 Rules 13a-14(c) and 15-d-14(c)) within the last ninety days and have concluded that the disclosure controls and procedures are effective. There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the last day they were evaluated by the Company's Chief Executive Officer and Chief Financial Officer. 79 PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a)(1) FINANCIAL STATEMENTS. --------------------- o Consolidated Balance Sheets as of January 31, 2003 and 2002 o Consolidated Statements of Operations for the years ended January 31, 2003, 2002 and 2001 o Consolidated Statements of Stockholders' Equity for the years ended January 31, 2003, 2002 and 2001 o Consolidated Statements of Cash Flows for the years ended January 31, 2003, 2002 and 2001 o Notes to Consolidated Financial Statements o Reports of Independent Accountants (a)(2) FINANCIAL STATEMENT SCHEDULES. ------------------------------ Schedule II, Valuation and Qualifying Accounts for the year ended January 31, 2003 is included in this Form 10-K at page 84, including Reports of Independent Accountants at page 85. All other financial statement schedules are omitted because of the absence of the conditions under which they are required or because the information required is included in the consolidated financial statements or notes thereto. (a)(3) EXHIBITS. --------- The exhibits to this Form 10-K are listed in the Exhibit Index on pages 87 through 91 below. Copies of these exhibits are available upon request to RDO Equipment Co., Stockholder Relations, P. O. Box 7160, Fargo, North Dakota 58106-7160 or to invest@rdoequipment.com. (b) REPORTS ON FORM 8-K. -------------------- The Company filed a Current Report on Form 8-K dated December 17, 2002 under Item 5 regarding the letter received from Ronald D. Offutt expressing an interest in acquiring all of the shares of the Class A Common Stock of the Company that Mr. Offutt does not currently own or control. (c) See Exhibit Index on pages 87 through 91 below for a list of each management contract or compensatory plan or arrangement required to be filed as an exhibit to the Annual Report on Form 10-K pursuant to Item 15(c). 80 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 22, 2003 RDO EQUIPMENT CO. By: /s/ Ronald D. Offutt ------------------------------------ Ronald D. Offutt Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on April 22, 2003 by the following persons on behalf of the registrant and in the capacities indicated. Signature Title --------- ----- /s/ Ronald D. Offutt Chairman of the Board, Chief Executive Officer, ---------------------------- President and Director (principal executive Ronald D. Offutt officer) /s/ Christi J. Offutt Chief Operating Officer and Director ---------------------------- Christi J. Offutt /s/ Steven B. Dewald Chief Financial Officer ---------------------------- (principal financial officer) Steven B. Dewald /s/ David M. Horner Director of Accounting and Reporting ---------------------------- (principal accounting officer) David M. Horner /s/ Allan F. Knoll Secretary and Director ---------------------------- Allan F. Knoll /s/ Paul T. Horn Director ---------------------------- Paul T. Horn /s/ Bradford M. Freeman Director ---------------------------- Bradford M. Freeman /s/ Ray A. Goldberg Director ----------------------------- Ray A. Goldberg /s/ Norman M. Jones Director ---------------------------- Norman M. Jones /s/ James D. Watkins Director ---------------------------- James D. Watkins /s/ Edward T. Schafer Director ---------------------------- Edward T. Schafer 81 CERTIFICATIONS I, Ronald D. Offutt, certify that: 1. I have reviewed this annual report on Form 10-K of RDO Equipment Co.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 22, 2003 /s/ Ronald D. Offutt ----------------------------- Ronald D. Offutt Chief Executive Officer (principal executive officer) 82 CERTIFICATIONS I, Steven B. Dewald, certify that: 1. I have reviewed this annual report on Form 10-K of RDO Equipment Co.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: April 22, 2002 /s/ Steven B. Dewald ----------------------------- Steven B. Dewald Chief Financial Officer (principal financial officer) 83 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED JANUARY 31, 2003, 2002, AND 2001

84 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors and Stockholders, of RDO Equipment Co. Our audit of the consolidated financial statements referred to in our report dated March 14, 2003, except for the seventh paragraph of Note 11 for which the date is March 31, 2003, appearing in the 2003 Annual Report on Form 10-K also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In our opinion, the financial statement schedule for the year ended January 31, 2003 presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. The financial statement schedule of RDO Equipment Co. for the years ended January 31, 2002 and 2001, was audited by other independent accountants who have ceased operations. Those independent accountants expressed an unqualified opinion on that financial statement schedule in their report dated March 8, 2002. /S/ PRICEWATERHOUSECOOPERS LLP Minneapolis, Minnesota March 14, 2003 85 The following report is a copy of a report previously issued by Arthur Andersen LLP and has not been reissued by Arthur Andersen LLP. This report originally applied to supplemental Schedule II - Valuation and Qualifying Accounts for the years ended January 31, 2002, 2001 and 2000. The financial statement schedule information for the year ended January 31, 2000, is not included in this Form 10-K. REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To RDO Equipment Co.: We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of RDO Equipment Co. and Subsidiaries included in this Form 10-K and have issued our report thereon dated March 8, 2002. Our audit was made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The schedule of valuation and qualifying accounts appearing elsewhere in this Form 10-K is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. Arthur Andersen LLP Minneapolis, Minnesota, March 8, 2002 86 EXHIBIT INDEX FOR FISCAL YEAR ENDED JANUARY 31, 2003

------------------------- * Management contract or compensatory plan or arrangement filed as an exhibit pursuant to Item 15(c) of Form 10-K. 91

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