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 April 30, 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
April 30, 2000 (Unaudited) and July 31, 1999....................... 1
Consolidated Statement of Operations
Three months ended April 30, 2000 (Unaudited)
and April 30, 1999 (Unaudited)..................................... 2
Consolidated Statement of Operations
Nine months ended April 30, 2000 (Unaudited)
and April 30, 1999 (Unaudited).................................... 3
Consolidated Statement of Cash Flows
Nine months ended April 30, 2000 (Unaudited)
and April 30, 1999 (Unaudited).................................... 4
Notes to Consolidated Financial Statements.......................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Operating Results.................... 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings............................................ N/A
Item 2. Changes in Securities........................................ N/A
Item 3. Defaults Upon Senior Securities.............................. 10
Item 4. Submission of Matters to a Vote of Security
Holders...................................................... N/A
Item 5. Other Information............................................ 11
Item 6. Exhibits and Reports on Form 8-K............................. 13
ITEM 1.
WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
April 30, July 31,
2000 1999
--------- --------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 848 $ 2,629
Accounts receivable, less allowance for
doubtful accounts of $675 and $724............................... 13,599 15,500
Inventories........................................................ 60,482 67,068
Prepaid expenses................................................... 221 233
Income taxes receivable............................................ 1,248 354
Deferred income taxes.............................................. 1,410 1,410
-------- --------
Total current assets........................................... 77,808 87,194
Property, plant and equipment, net................................. 9,401 9,818
Rental equipment fleet, net........................................ 30,282 31,366
Leased equipment fleet, net........................................ 5,029 5,264
Intangibles and other assets, net.................................. 2,871 2,952
-------- --------
Total fixed assets............................................. 47,583 49,400
Total assets................................................... $125,391 $136,594
======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under floor plan financing.............................. $ 11,169 $ 17,128
Short-term borrowings.............................................. 70,318 70,883
Accounts payable................................................... 9,699 12,702
Accrued payroll and vacation....................................... 695 825
Other accrued liabilities.......................................... 1,578 1,756
Deferred income taxes.............................................. 7 0
Capital lease obligation........................................... 0 17
-------- --------
Total current liabilities.......................................... 93,466 103,311
Deferred income taxes.................................................. 837 837
Capital lease obligation............................................... 4,793 4,755
Long-term borrowings................................................... 34 48
Deferred gain.......................................................... 0 140
Deferred lease income.................................................. 6,045 6,181
-------- --------
Total long-term liabilities...................................... 11,709 11,961
Total liabilities.............................................. 105,175 115,272
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.................................................. 5,631 6,737
Less common stock in treasury, at cost
(230,300 shares)................................................. (1,491) (1,491)
-------- --------
Total stockholders' equity..................................... 20,216 21,322
Total liabilities and stockholders'
equity....................................................... $125,391 $136,594
======== ========
See accompanying notes to financial statements.
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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended
April 30,
2000 1999
-------- --------
Net revenue............................................................ $ 35,340 $ 40,371
Cost of goods sold..................................................... 32,104 36,277
-------- --------
Gross profit........................................................... 3,236 4,094
Selling, general and administrative expenses........................... 3,220 3,061
Other income (expense):
Interest expense................................................... (1,641) (1,213)
Other income....................................................... 82 113
-------- --------
Income (loss) before taxes............................................. (1,543) (67)
Income tax provision (benefit)......................................... (596) (5)
-------- --------
Net income (loss)...................................................... $ (947) $ (62)
======== =========
Basic earnings (loss) per common share................................. $ (0.29) $ (0.02)
======== =========
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...................................... $ (0.29) $ (0.02)
======== =========
See accompanying notes to financial statements.
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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(In thousands, except per share amounts)
Nine Months Ended
April 30,
2000 1999
-------- --------
Net revenue............................................................ $111,392 $122,015
Cost of goods sold..................................................... 99,371 110,954
-------- --------
Gross profit........................................................... 12,021 11,061
Selling, general and administrative expenses........................... 9,924 9,380
Other income (expense):
Interest expense................................................... (4,386) (3,938)
Other income....................................................... 524 659
-------- --------
Income (loss) before taxes............................................. (1,765) (1,598)
Income tax provision (benefit)......................................... (659) (579)
-------- --------
Net income (loss)...................................................... $ (1,106) $(1,019)
======== ========
Basic earnings (loss) per common share................................. $ (0.33) $ (0.31)
======== =======
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...................................... $ (0.33) $ (0.31)
======== =======
See accompanying notes to financial statements.
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WESTERN POWER & EQUIPMENT CORP.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine Months Ended
April 30,
2000 1999
------- -------
Cash flows from operating activities:
Net loss........................................................... $(1,106) $(1,019)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation................................................... 8,370 7,610
Amortization................................................... 81 185
Gain on sales of fixed assets.................................. (44) (287)
Changes in assets and liabilities:
Accounts receivable........................................ 1,901 7,773
Inventories................................................ 2,441 10,746
Prepaid expenses........................................... 12 (88)
Accounts payable........................................... (3,003) (6,266)
Accrued payroll and vacation............................... (130) (88)
Other accrued liabilities.................................. (178) (338)
Deferred lease income...................................... (136) 2,774
Deferred income taxes...................................... 7 0
Income taxes receivable/payable............................ (894) (887)
Deferred gain.............................................. (140) 144
-------- -------
Net cash provided by operating activities......................... 7,181 20,259
-------- -------
Cash flow from investing activities:
Purchase of fixed assets........................................... (798) (2,887)
Purchase of rental equipment....................................... (2,002) (10,694)
Proceeds on sale of fixed assets................................... 120 2,212
Leased equipment................................................... 235 (2,562)
Covenant not to compete............................................ 0 (21)
-------- -------
Net cash used in investing activities ............................. (2,445) (13,952)
-------- -------
Cash flows from financing activities:
Inventory floor-plan financing..................................... (5,959) 6,296
Short-term financing............................................... (565) (11,530)
Principal payments on capital leases............................... 21 (43)
Long-term borrowings............................................... (14) (1,137)
-------- -------
Net cash used in financing activities.............................. (6,517) (6,414)
-------- -------
Decrease in cash and cash equivalents.................................. (1,781) (107)
Cash and cash equivalents at beginning of
period............................................................... 2,629 2,555
------- -------
Cash and cash equivalents at end of period............................. $ 848 $ 2,448
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................................... $ 4,356 $ 4,057
Income taxes....................................................... 204 372
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:
April 30, July 31,
2000 1999
---------- ---------
Equipment:
New equipment $ 43,537 $ 49,325
Used equipment 7,167 7,642
Parts 9,778 10,101
-------- --------
$ 60,482 $ 67,068
======== ========
3. FIXED ASSETS
Fixed Assets consist of the following:
April 30, July 31,
2000 1999
--------- --------
Operating property, plant & equipment:
Land $ 700 $ 420
Buildings 5,132 5,126
Machinery & equipment 3,933 3,869
Office furniture & fixtures 2,309 2,291
Computer hardware & software 1,403 1,299
Vehicles 1,812 1,841
Leasehold improvements 455 360
------- -------
$15,744 $15,206
Less accumulated depreciation (6,343) (5,388)
------- -------
Property, plant, and equipment (net) $ 9,401 $ 9,818
======= =======
Rental equipment fleet $36,724 $36,395
Less accumulated depreciation (6,442) (5,029)
------- -------
Rental equipment (net) $30,282 $31,366
======= =======
Leased equipment fleet (net) $ 5,029 $ 5,264
======= =======
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4. SEGMENT INFORMATION.
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information," which requires the reporting of
certain financial information by business segment. For the purpose of
providing segment information, management believes that all of the
Company's operations consist of one segment. However, the Company
evaluates performance based on revenue and gross margin of three
distinct business components. Revenue and gross margin by component are
summarized as follows:
Business Component Three Months Ended Nine Months Ended
Net Revenues April 30, April 30,
2000 1999 2000 1999
--------------------------- -------- -------- -------- --------
Equipment Sales $ 21,989 $ 23,539 $ 65,755 $ 72,171
Equipment Rental 4,538 6,938 18,153 20,298
Product Support 8,813 9,894 27,484 29,546
------- ------- ------- -------
Totals 35,340 40,371 111,392 122,015
Business Component Three Months Ended Nine Months Ended
Gross Margins April 30, April 30,
2000 1999 2000 1999
--------------------------- -------- -------- -------- --------
Equipment Sales $ 789 $ 1,109 $ 2,683 $ 1,859
Equipment Rental 543 939 4,301 3,978
Product Support 1,904 2,046 5,037 5,224
------- ------- ------- -------
Totals 3,236 4,094 12,021 11,061
5. IMPAIRMENT OF ASSETS.
In the first quarter of fiscal 1999, the Company recognized a
non-recurring charge of approximately $1,100 for used equipment
reserves. The Company's used equipment was determined to have a fair
market value (as determined by equipment auction prices) lower than its
book value at that time. Long lives assets are reviewed periodically to
determine if the fair value is less than the carrying value.
- 6 -
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 cost reduction efforts through store closures and
otherwise; 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, national, and world economies. Any forward-looking
statements should be considered in light of these factors.
RESULTS OF OPERATIONS
THE THREE AND NINE MONTHS ENDED APRIL 30, 2000 COMPARED TO THE THREE AND NINE
MONTHS ENDED APRIL 30, 1999.
Revenues for the three-month period ended April 30, 2000 decreased 13% to $35.3
million compared with $40.4 million for the three-month period ended April 30,
1999. Revenues were down from the prior year's third 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 construction economy, and
the closure of four stores over the past year.
Revenues for the nine-month period ended April 30, 2000 decreased $10,625,000 or
approximately 8.7% from the nine-month period ended April 30, 1999. The decrease
was due primarily to the closure of four stores in the past twelve months. For
the nine-month period ended April 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 9.2% for the three-month period ended April
30, 2000 was down from the prior year comparative period margin of 10.1%. The
decrease in gross profit margins was the result of continued pressure to
decrease inventory levels in a slow market. For the nine-month period ended
April 30, 2000, the Company's gross margin was 10.8%, up from the 9.1% gross
margin for the nine-month period ended April 30, 1999. The fiscal 1999
year-to-date gross margin was negatively affected by a non-recurring charge for
used equipment in the first fiscal quarter of that year.
For the three-month period ended April 30, 2000, selling, general, and
administrative ("SG&A") expenses, as a percentage of revenue, were 9.1%, up from
7.6% for the prior year's quarter. SG&A expenses for the nine-month period ended
April 30, 2000 were 8.9% of revenue compared to 7.7% of revenue for the prior
year nine-month period. The increase in SG&A expenses as a percent of revenue is
due in large part to the effect of expenses of consolidating/closing store
locations divided by 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.
- 7 -
Interest expense for the three months ended April 30, 2000 of $1.6 million was
up from the $1.2 million in the prior year comparative period. This increase is
the result of a higher average borrowing rate on the Deutsche Financial Services
(DFS) facility (described below under Liquidity and Capital Resources) and
increased levels of borrowing during the period. Interest expense for the
nine-month period ended April 30, 2000 was $4.4 million compared to $3.9 million
for the nine-month period ended April 30, 1999, due to the factors just
mentioned.
The effective tax rate for the nine months ended April 30, 2000 was
approximately 37.3%, which is higher than the 36.3% 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 April 30, 2000 of $0.95 million
or $.29 per (basic and diluted) share compared with net loss of $0.06 million or
$0.02 per (basic and diluted) share for the prior year's third quarter. For the
nine-month period ended April 30, 2000, the Company reported a loss of $0.33 per
share (basic and diluted) compared with net loss of $0.31 per (basic and
diluted) share for the nine-month period ended April 30, 1999. The loss in
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 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 April 30, 2000,
the Company was indebted under manufacturer provided floor planning arrangements
in the aggregate amount of $11.1 million.
The Company maintains a $75 million inventory flooring and operating line of
credit through 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 April 30, 2000,
approximately $70.3 million was outstanding under the DFS
- 8 -
credit facility. At April 30, 2000, the Company was in technical default of
the tangible net worth and interest coverage ratio financial covenants in the
Deutsche Financial Services Loan Agreement. The Company did not obtain a
waiver for the period through April 30, 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 April 30, 2000. In addition, by its terms, the DFS
credit facility expires on June 30, 2000. The Company is currently in
negotiations with DFS regarding the default and renewal/extension of the
credit facility. Although the Company currently has no contingency plan in
the event that DFS calls the debt due to the default or does not renew the
credit facility, the Company would seek replacement credit facilities,
although the availability, terms, and conditions of any such facility cannot
be determined at this time. In the event that adequate replacement credit
facilities could not be obtained, DFS could exercise any of its rights under
the Loan Agreement including, but not limited to, foreclosing its security
interest in the Company's assets.
During the quarter ended April 30, 2000, cash and cash equivalents decreased
by $0.2 million. The Company had positive cash flow from operating activities
during the third quarter and for the nine-month year-to-date period
reflecting a decrease in inventories and accounts receivable. 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 $0.8 million as of April 30, 2000
along with its cash flow and available credit facilities (assuming the DFS
facility is renewed on terms acceptable to the Company) are considered
sufficient to support current 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.
- 9 -
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At April 30, 2000, the Company was in technical default of the Deutsche
Financial Services ("DFS") Loan Agreement. As of April 30, 2000, the
outstanding balance owed to DFS was approximately $70.3 million. The Company
did not receive a waiver of the default for the period through April 30,
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 April 30, 2000.
For a further explanation of the default and the potential effects thereof,
see Item 1, "Liquidity and Capital Resources."
- 10 -
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
A. On April 18, 2000, the Company announced that it had
entered into a letter of intent to merge with e-Mobile,
Inc., a Delaware corporation, and sell Western's
existing business to Western management. If the transaction
is consummated, shares of the Company's common stock would
be converted into shares of the surviving corporation in
the merger, subject to any applicable dissenters' rights.
Closing of the transaction is conditioned on approval
of the transaction by shareholders of Western Power &
Equipment and certain other regulatory approvals. Completion
of the transaction is also subject to the satisfaction of a
number of contractual conditions, including but not limited
to the Company repurchasing or retiring outstanding
options. The Company is continuing to negotiate the terms
of a definitive agreement and proceeding to satisfy
conditions of the merger agreement. There is no assurance
that the transaction will be consummated.
B. In May 2000, the Company sold its business in Moses Lake,
Washington to another equipment dealer and no longer has a
physical presence in that area. In connection with such
sale, Case Corporation has assigned it dealer contract for
that area to the purchasing dealer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibit 27 Financial Data Schedule
B. REPORTS ON FORM 8-K. NONE
- 11 -
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.
June 14, 2000
By: /s/ Mark J. Wright
-----------------------------
Mark J. Wright
Vice President of Finance and
Chief Financial Officer
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