-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BC3Hme4AT6mG0c1s4hR8oP7rZwWl6N73JXoicYLr7fW2KLdW61rX+kFJga/E0Brr YTZp79Z47oJtCRGR/nQtlg== 0000912057-00-011645.txt : 20000316 0000912057-00-011645.hdr.sgml : 20000316 ACCESSION NUMBER: 0000912057-00-011645 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000131 FILED AS OF DATE: 20000315 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTERN POWER & EQUIPMENT CORP CENTRAL INDEX KEY: 0000939729 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-CONSTRUCTION & MINING (NO PETRO) MACHINERY & EQUIP [5082] IRS NUMBER: 911688446 STATE OF INCORPORATION: DE FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-26230 FILM NUMBER: 570098 BUSINESS ADDRESS: STREET 1: 4601 N E 77TH AVE STREET 2: STE 200 CITY: VANCOUVER STATE: WA ZIP: 98662 BUSINESS PHONE: 2062532346 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended January 31, 2000 Commission File Number 0-26230 WESTERN POWER & EQUIPMENT CORP. ------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 91-1688446 -------- ---------- (State or other jurisdiction of (I.R.S. Employer I.D. incorporation or organization) number) 4601 NE 77TH AVENUE, SUITE 200, VANCOUVER, WA 98662 - --------------------------------------------- ----- (Address of principal executive offices) (Zip Code) Registrant's telephone no.: 360-253-2346 ------------ 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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Title of Class Number of shares Common Stock Outstanding (par value $.001 per share) 3,303,162 WESTERN POWER & EQUIPMENT CORP. INDEX
PART I. FINANCIAL INFORMATION Page Number Item 1. Financial Statements Consolidated Balance Sheet January 31, 2000 (Unaudited) and July 31, 1999...................... 1 Consolidated Statement of Operations Three months ended January 31, 2000 (Unaudited) and January 31, 1999 (Unaudited).................................... 2 Consolidated Statement of Operations Six months ended January 31, 2000 (Unaudited) and January 31, 1999 (Unaudited).................................... 3 Consolidated Statement of Cash Flows Six months ended January 31, 2000 (Unaudited) and January 31, 1999 (Unaudited).................................... 4 Notes to Consolidated Financial Statements............................ 5 Item 2. Management's Discussion and Analysis of Financial Condition and Operating Results..................... 6 - 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings............................................. N/A Item 2. Changes in Securities......................................... N/A Item 3. Defaults Upon Senior Securities............................... 9 Item 4. Submission of Matters to a Vote of Security Holders....................................................... 10 Item 5. Other Information............................................. N/A Item 6. Exhibits and Reports on Form 8-K.............................. 10
ITEM 1. WESTERN POWER & EQUIPMENT CORP. CONSOLIDATED BALANCE SHEET (Dollars in thousands)
January 31, July 31, 2000 1999 ----------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents ..................... $ 1,032 $ 2,629 Accounts receivable, less allowance for doubtful accounts of $883 and $724 .......... 12,180 15,500 Inventories ................................... 59,513 67,068 Prepaid expenses .............................. 265 233 Income taxes receivable ....................... 638 354 Deferred income taxes ......................... 1,410 1,410 --------- --------- Total current assets ...................... 75,038 87,194 Property, plant and equipment, net ............ 9,487 9,818 Rental equipment fleet, net ................... 30,526 31,366 Leased equipment fleet, net ................... 5,082 5,264 Intangibles and other assets, net ............. 2,902 2,952 --------- --------- Total fixed assets ........................ 47,997 49,400 Total assets .............................. $ 123,035 $ 136,594 ========= ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Borrowings under floor plan financing ......... $ 8,848 $ 17,128 Short-term borrowings ......................... 73,841 70,883 Accounts payable .............................. 5,966 12,702 Accrued payroll and vacation .................. 558 825 Other accrued liabilities ..................... 883 1,756 Deferred income taxes ......................... 7 -0- Capital lease obligation ...................... 9 17 --------- --------- Total current liabilities ..................... 90,112 103,311 Deferred income taxes ............................. 838 837 Capital lease obligation .......................... 4,776 4,755 Long-term borrowings .............................. 38 48 Deferred gain ..................................... -0- 140 Deferred lease income ............................. 6,108 6,181 --------- --------- Total long-term liabilities ................. 11,760 11,961 Total liabilities ......................... 101,872 115,272 Stockholders' equity: Preferred stock-10,000,000 shares authorized; none issued and outstanding ................. -- -- Common stock-$.001 par value; 20,000,000 shares authorized; 3,303,162 issued and outstanding 4 4 Additional paid-in capital .................... 16,072 16,072 Retained earnings ............................. 6,578 6,737 Less common stock in treasury, at cost (230,300 shares) ............................ (1,491) (1,491) --------- --------- Total stockholders' equity ................ 21,163 21,322 Total liabilities and stockholders' equity .................................. $ 123,035 $ 136,594 ========= =========
See accompanying notes to financial statements. -1- WESTERN POWER & EQUIPMENT CORP. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (Dollars in thousands, except per share amounts)
Three Months Ended January 31, 2000 1999 -------- -------- Net revenue ..................................... $ 33,988 $ 41,279 Cost of goods sold .............................. 30,123 36,787 -------- -------- Gross profit .................................... 3,865 4,492 Selling, general and administrative expenses .... 3,245 3,193 Other income (expense): Interest expense ............................ (1,253) (957) Other income ................................ 224 296 -------- -------- Income (loss) before taxes ...................... (409) 638 Income tax provision (benefit) .................. (125) 307 -------- -------- Net income (loss) ............................... $ (284) $ 331 ======== ======== Basic earnings (loss) per common share .......... $ (0.09) $ 0.10 ======== ======== Average outstanding common shares for basic earnings (loss) per share ............... 3,303 3,303 ======== ======== Average outstanding common shares and equivalents for diluted earnings (loss) per share .......... 3,303 3,303 ======== ======== Diluted earnings (loss) per share ............... $ (0.09) $ 0.10 ======== ========
See accompanying notes to financial statements. -2- WESTERN POWER & EQUIPMENT CORP. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) (Dollars in thousands, except per share amounts)
Six Months Ended January 31, 2000 1999 -------- -------- Net sales ....................................... $ 76,052 $ 81,644 Cost of goods sold .............................. 67,267 74,677 -------- -------- Gross profit .................................... 8,785 6,967 Selling, general and administrative expenses .... 6,704 6,319 Other income (expense): Interest expense ............................ (2,745) (2,725) Other income ................................ 442 546 -------- -------- Income (loss) before taxes ...................... (222) (1,531) Income tax provision (benefit) .................. (63) (574) -------- -------- Net income (loss) ............................... $ (159) $ (957) ======== ======== Basic earnings (loss) per common share .......... $ (0.05) $ (0.29) ======== ======== Average outstanding common shares for basic earnings (loss) per share ............... 3,303 3,303 ======== ======== Average outstanding common shares and equivalents for diluted earnings (loss) per share .......... 3,303 3,303 ======== ======== Diluted earnings (loss) per share ............... $ (0.05) $ (0.29) ======== ========
See accompanying notes to financial statements. -3- WESTERN POWER & EQUIPMENT CORP. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in thousands)
Six Months Ended January 31, 2000 1999 -------- -------- Cash flows from operating activities: Net (loss) income ............................... $ (159) $ (957) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation ................................ 5,193 2,380 Amortization ................................ 50 144 Changes in assets and liabilities: Accounts receivable ..................... 3,320 7,674 Inventories ............................. 4,494 9,776 Leased equipment, net ................... 182 (2,625) Inventory floor-plan financing .......... (8,280) 542 Short-term financing .................... 2,958 (12,317) Prepaid expenses ........................ (32) (28) Accounts payable ........................ (6,736) (4,678) Accrued payroll and vacation ............ (267) (114) Other accrued liabilities ............... (873) (80) Deferred lease income ................... (213) 2,846 Income taxes receivable/payable ......... (277) (931) -------- -------- Net cash provided by (used in) operating activities .......................... (640) 1,632 -------- -------- Cash flow from investing activities: Purchase of fixed assets ........................ (384) (1,484) Purchase of rental equipment, net ............... (576) (354) Covenant not to compete ......................... -0- (21) -------- -------- Net cash used in investing activities ........... (960) (1,859) -------- -------- Cash flows from financing activities: Principal payments on capital leases ............ 13 (33) Long-term borrowings ............................ (10) 2 -------- -------- Net cash provided by (used in) financing activities ......................... 3 (31) -------- -------- Decrease in cash and cash equivalents ............... (1,597) (258) Cash and cash equivalents at beginning of period ............................................. 2,629 2,555 -------- -------- Cash and cash equivalents at end of period .......... $ 1,032 $ 2,297 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest ........................................ $ 2,669 $ 2,725 Income taxes .................................... 190 365
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: none See accompanying notes to financial statements. -4- Western Power & Equipment Corp. Notes to Consolidated Financial Statements (Dollars in thousands) 1. BASIS OF PRESENTATION The financial information included in this report has been prepared in conformity with the accounting principles and practices reflected in the financial statements for the preceding year included in the annual report on Form 10-K for the year ended July 31, 1999 filed with the Securities and Exchange Commission. All adjustments are of a normal recurring nature and are, in the opinion of management, necessary for a fair statement of the results for the interim periods. This report should be read in conjunction with the Company's financial statements included in the annual report on Form 10-K for the year ended July 31, 1999 filed with the Securities and Exchange Commission. 2. INVENTORIES Inventories consist of the following:
January 31, July 31, 2000 1999 ------- ------- Equipment: New equipment $41,565 $49,325 Used equipment 7,384 7,642 Parts 10,564 10,101 ------- ------- $59,513 $67,068 ======= =======
3. FIXED ASSETS Fixed Assets consist of the following:
January 31, July 31, 2000 1999 ---------- -------- Operating property, plant & equipment: Land $ 420 $ 420 Buildings 5,130 5,126 Machinery & equipment 4,032 3,869 Office furniture & fixtures 2,301 2,291 Computer hardware & software 1,393 1,299 Vehicles 1,886 1,841 Leasehold improvements 419 360 ---------- -------- $ 15,581 $ 15,206 Less accumulated depreciation (6,094) (5,388) ---------- -------- Property, plant, and equipment (net) $ 9,485 $ 9,818 ========== ======== Rental equipment fleet $ 36,821 $ 36,395 Less accumulated depreciation (6,295) (5,029) ---------- -------- Rental equipment (net) $ 30,526 $ 31,366 ========== ======== Leased equipment fleet (net) $ 5,082 $ 5,264 ========== ========
-5- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES The following discussion and analysis should be read in conjunction with the Financial Statements and Notes thereto appearing elsewhere in this Form 10-Q. Information included herein relating to projected growth and future results and events constitutes forward-looking statements. Actual results in future periods may differ materially from the forward-looking statements because of a number of risks and uncertainties, including but not limited to fluctuations in the construction, agricultural and industrial sectors and general economic cycles; the success of the Company's entry into new markets through store openings or acquisitions; the success of the Company's expansion of its equipment rental business; rental industry conditions and competitors; competitive pricing; the Company's relationship with Case and other suppliers; relations with the Company's employees; the Company's ability to manage its operating costs and to integrate acquired businesses in an effective manner; the continued availability of financing; governmental regulations and environmental matters; risks associated with regional, and national and world economies. Any forward-looking statements should be considered in light of these factors. RESULTS OF OPERATIONS THE THREE AND SIX MONTHS ENDED JANUARY 31, 2000 COMPARED TO THE THREE AND SIX MONTHS ENDED JANUARY 31, 1999. Revenues for the three-month period ended January 31, 2000 decreased 18% to $34 million compared with $41.3 million for the three-month period ended January 31, 1999. Revenues were down from the prior year's second quarter in all departments except rentals which have been positively affected by the increase in rental equipment fleet and utilization. Equipment sales were negatively affected by continued competitive pressures, a slower northwest economy, and the first quarter consolidation of four stores. Revenues for the six-month period ended January 31, 2000 decreased $5,592,000 or approximately 7% over the six-month period ended January 31, 1999. The decrease was due primarily to the consolidation of four stores in the past six months. For the six-month period ended January 31, 2000, revenue in all departments except rentals were down from the same period in the prior year. The Company's gross profit margin of 11.4% for the three-month period ended January 31, 2000 was up from the prior year comparative period margin of 10.9%. The increase in gross profit margins was the result of higher utilization of discount programs in new equipment. For the six-month period ended January 31, 2000, the Company's gross margin was 11.6%, up from the 8.5% gross margin for the six-month period ended January 31, 1999. For the three-month period ended January 31, 2000, selling, general, and administrative ("SG&A") expenses, as a percentage of revenue, were 9.5%, up from 7.7% for the prior year's quarter. SG&A expenses for the six-month period ended January 31, 2000 were 8.8% of revenue compared to 7.7% of revenue for the prior year six-month period. The increase in SG&A expenses as a percent of revenue is due in large part to the effect of slightly higher incremental dollar expenses over significantly lower sales volumes. Executive management is working to reduce SG&A expenses as a percentage of sales for the balance of the fiscal year. -6- Interest expense for the three months ended January 31, 2000 of $1,253,000 was up from the $957,000 in the prior year comparative period. This increase is the result of a higher average borrowing rate on the Deutsche Financial Services facility and increased levels of borrowing during the period. Interest expense for the six-month period ended January 31, 2000 was $2,745,000 compared to $2,725,000 for the six-month period ended January 31, 1999, due to the factors just mentioned. The effective tax rate for the six months ended January 31, 2000 was approximately 28.4%, which is lower than the 37.5% effective tax rate for the prior year comparative period, due to the effect of Delaware franchise taxes reducing the tax benefits of pre-tax losses. The Company anticipates the effective tax rate to be at or near the current statutory rates for the foreseeable future. The Company had a net loss for the quarter ended January 31, 2000 of $284,000 or $.09 per (basic and diluted) share compared with net income of $331,000 or $0.10 per (basic and diluted) share for the prior year's second quarter. For the six-month period ended January 31, 2000, the Company reported a loss of $0.05 per share (basic and diluted) compared with net loss of $0.29 per (basic and diluted) share for the six-month period ended January 31, 1999. The loss in the first half of fiscal 1999 included the effect of a used equipment reserve taken in the first fiscal quarter of that year. LIQUIDITY AND CAPITAL RESOURCES The Company's primary needs for liquidity and capital resources are related to its inventory for sale and its rental and lease equipment fleets and store operations. The Company's primary source of internal liquidity has been its operations. As more fully described below, the Company's primary sources of external liquidity are equipment inventory floor plan financing arrangements provided to the Company by the manufacturers of the products the Company sells, and Deutsche Financial Services ("DFS") and, with respect to prior acquisitions, secured loans from Case. Under inventory floor planning arrangements the manufacturers of products sold by the Company provide interest free credit terms on new equipment purchases for periods ranging from one to twelve months, after which interest commences to accrue monthly at rates ranging from zero percent to two percent over the prime rate of interest. Principal payments are typically made under these agreements at scheduled intervals and/or as the equipment is rented, with the balance due at the earlier of a specified date or sale of the equipment. At January 31, 2000, the Company was indebted under manufacturer provided floor planning arrangements in the aggregate amount of $8,848,000. The Company maintains a $75 million inventory flooring and operating line of credit through Deutsche Financial Services ("DFS"). The DFS credit facility is a three-year, floating rate facility based on prime with rates between 0.50% under prime to 1.00% over prime depending on the amount of total borrowing under the facility. Amounts are advanced against the Company's assets, including accounts receivable, parts, new equipment, rental fleet, and used equipment. The Company expects to use this borrowing facility to lower flooring related interest expense by using advances under such line to finance inventory purchases in lieu of financing provided by suppliers, to take advantage of cash purchase discounts from its suppliers, to provide operating capital for further growth, and to refinance some its acquisition related debt at a lower interest rate. As of January 31, 2000, approximately $73,821,000 was outstanding under the DFS credit facility. At January 31, 2000, the Company was in technical default of the minimum tangible net worth covenant in -7- the Deutsche Financial Services Loan Agreement. The Company requested but did not obtain a waiver for the period through January 31, 2000. Although DFS has not called the debt due to such default, there is no guarantee that DFS will not call this debt at any time after January 31, 2000. During the quarter ended January 31, 2000, cash and cash equivalents decreased by $1,597,000. The Company had negative cash flow from operating activities during the second quarter reflecting a decrease in short-term floor-plan financings and accounts payable. Purchases of fixed assets during the period were related mainly to the purchase of new equipment for the rental fleet. The Company's cash and cash equivalents of $1,032,000 as of January 31, 2000 and available credit facilities are considered sufficient to support current or higher levels of operations for at least the next twelve months. INVENTORY; EFFECTS OF INFLATION AND INTEREST RATES; GENERAL ECONOMIC CONDITIONS Controlling inventory is a key ingredient to the success of an equipment distributor because the equipment is characterized by long order cycles, high ticket prices, and the related exposure to "flooring" interest. The Company's interest expense may increase if inventory is too high or interest rates rise. The Company manages its inventory through company-wide information and inventory sharing systems wherein all locations have access to the Company's entire inventory. In addition, the Company closely monitors inventory turnover by product categories and places equipment orders based upon targeted turn ratios. All of the products and services provided by the Company are either capital equipment or included in capital equipment, which are used in the construction, industrial, and agricultural sectors. Accordingly, the Company's sales are affected by inflation or increased interest rates which tend to hold down new construction, and consequently adversely affect demand for the construction, industrial equipment sold and rented by the Company. In addition, although agricultural equipment sales are less than 5% of the Company's total revenues, factors adversely affecting the farming and commodity markets also can adversely affect the Company's agricultural equipment related business. The Company's business can also be affected by general economic conditions in its geographic markets as well as general national and global economic conditions that affect the construction, industrial, and agricultural sectors. An erosion in North American and/or other countries' economies could adversely affect the Company's business. Market specific factors could also adversely affect one or more of the Company's target markets and/or products. -8- ITEM 3. DEFAULTS UPON SENIOR SECURITIES At January 31, 2000, the Company was in technical default of the minimum tangible net worth covenant in the Deutsche Financial Services ("DFS") Loan Agreement. As of January 31, 2000, the outstanding balance owed to DFS was approximately $73,821,000. The Company requested but did not receive a waiver of the default for the period through January 31, 2000. Although DFS has not called the debt due to such default, there is no guarantee that DFS will not call this debt at any time after January 31, 2000. See Item 1, "Liquidity and Capital Resources." -9- PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On February 2, 2000, the Company held its 1999 Annual meeting of Stockholders (the "Annual Meeting"). Prior to the meeting, incumbent directors Harold Chapman and Merrill McPeak resigned from the Board of Directors and withdrew their names as director nominees. The two remaining directors holding office prior to the date of the Annual Meeting, Messrs. C. Dean McLain and Robert M. Rubin, were nominated for election at the Annual Meeting, and both of such persons were reelected at the Annual Meeting for another term as director. Dr. Seymour Kessler and Mr. Allen Perres were also nominated for election at the Annual Meeting, and both of such persons were elected at the Annual Meeting for a term as director. The votes recorded for election of each nominee for director were the following:
NAME FOR AGAINST ABSTENTION ---- --------- ------- ---------- C. Dean McLain 3,169,733 -0- 24,602 Robert M. Rubin 3,169,733 -0- 24,602 Seymour Kessler 2,000,000 -0- -0- Allen Perres 2,000,000 -0- -0-
Votes were also cast, and proposals approved, at the Annual Meeting for ratification of the reappointment of PricewaterhouseCoopers, LLP as the Company's independent auditors for the 2000 fiscal year (3,192,795 votes in favor, 1,040 votes against, and 500 abstentions). ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K A. EXHIBITS. NONE B. REPORTS ON FORM 8-K. NONE -10- SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WESTERN POWER & EQUIPMENT CORP. March 15, 2000 By: /s/ Mark J. Wright ---------------------- Mark J. Wright Vice President of Finance and Chief Financial Officer -11- EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS FOUND ON PAGES 1 THROUGH 3 OF THE COMPANY'S FORM 10-Q FOR THE QUARTER AND YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS JUL-31-2000 JAN-31-2000 1,032 0 13,063 883 59,513 75,038 57,484 12,389 123,035 90,112 11,760 0 0 4 21,159 123,035 76,052 76,052 67,267 67,267 6,704 0 2,303 (222) (63) (159) 0 0 0 (159) (0.05) (0.05)
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