<PAGE>
FORM 10-QA
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended January 31, 1996
Commission File Number 0-19404
AMERICAN UNITED GLOBAL, INC.
----------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 95-4359228
-------- ----------
(State or other jurisdiction of (I.R.S. Employer I.D. Number)
incorporation or organization)
25 Highland Blvd., Dix Hills, NY 11746
-------------------------------- -----
(Address of principal executive offices) Zip Code
Registrant's telephone no.: 516-254-2134
------------
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
requirement 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 $.01 per share) 5,689,479
<PAGE>
AMERICAN UNITED GLOBAL, INC.
INDEX
PART I. FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Balance Sheets
January 31, 1996 (Unaudited) and July 31, 1995. . . . . . . 1
Consolidated Statements of Income
Three months ended January 31, 1996
and January 31, 1995 (Unaudited). . . . . . . . . . . . . . 2
Consolidated Statements of Income
Six months ended January 31, 1996
and January 31, 1995 (Unaudited). . . . . . . . . . . . . . 3
Consolidated Statement of Shareholders'
Equity (Unaudited). . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows
Six months ended January 31, 1996
and January 31, 1995 (Unaudited). . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . . 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . 10-14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . N/A
Item 2. Changes In Securities . . . . . . . . . . . . . . . . . N/A
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . N/A
Item 4. Submission Of Matters To A Vote Of Security
Holders . . . . . . . . . . . . . . . . . . . . . . . . N/A
Item 5. Other Information . . . . . . . . . . . . . . . . . . . N/A
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . 15
<PAGE>
AMERICAN UNITED GLOBAL, INC.
ITEM 1. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 31, July 31,
1996 1995
----------- --------
[Unaudited]
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $18,984,000 $ 4,144,000
Marketable securities 3,994,000 -
Trade accounts receivable (less allowance
for doubtful accounts of $452,000 and
$370,000 respectively) 4,792,000 6,008,000
Other receivables - 1,102,000
Inventories 50,202,000 46,413,000
Prepaid expenses 69,000 22,000
----------- -----------
TOTAL CURRENT ASSETS 78,041,000 57,689,000
----------- -----------
Note receivable (Note 5) 3,037,000 -
Property and equipment, net 5,853,000 7,062,000
Intangibles and other assets (net of
accumulated amortization of $854,000
and $823,000 respectively) 2,080,000 2,526,000
Assets held for sale - 9,552,000
----------- -----------
TOTAL ASSETS $89,011,000 $76,829,000
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Borrowings under floor financing lines $41,572,000 $37,072,000
Short-term borrowings 506,000 6,023,000
Accounts Payable 1,375,000 2,171,000
Accrued liabilities 1,490,000 1,505,000
Income taxes payable 5,346,000 896,000
----------- -----------
TOTAL CURRENT LIABILITIES 50,289,000 47,667,000
----------- -----------
Long term borrowings 939,000 -
Other non-current liabilities - 352,000
Minority Interest 8,922,000 8,556,000
----------- -----------
TOTAL LIABILITIES 60,150,000 56,575,000
----------- -----------
Commitments and contingencies (Note 4)
Shareholders' equity:
Preferred stock:
Class A - 12.5% cumulative, $1.00 per share
liquidation value, $.01 par value, 1,200,000
shares authorized; none issued and outstanding - -
Class B - $.01 par value; 1,500,000 shares
authorized; none issued and outstanding - -
Common stock-$.01 par value; 20,000,000 shares
authorized; 5,689,749 and 5,654,479
issued and outstanding, respectively 57,000 57,000
Additional contributed capital 15,995,000 15,889,000
Note receivable from shareholder ( 150,000) ( 184,000)
Retained earnings 12,959,000 4,492,000
----------- -----------
TOTAL SHAREHOLDERS' EQUITY 28,861,000 20,254,000
----------- -----------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $89,011,000 $76,829,000
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
January 31,
1996 1995
---- ----
Net Sales $25,772,000 $20,315,000
Cost of goods sold 23,044,000 18,186,000
----------- -----------
GROSS PROFIT 2,728,000 2,129,000
Selling, general and administrative expenses 1,803,000 1,380,000
----------- -----------
OPERATING INCOME 925,000 749,000
Other Income (Expense)
Interest income 77,000 5,000
Interest expense (net) ( 501,000) ( 261,000)
----------- -----------
Income from continuing operations before income
taxes and minority interest 501,000 493,000
Provision for income taxes 183,000 212,000
Minority interest in earnings of consolidated
subsidiary 140,000 -
----------- -----------
Income from continuing operations 178,000 281,000
Discontinued Operations - Gain on Sale of wholly
owned subsidiaries (less applicable income taxes
of $5,158,000) (Note 5) 7,738,000 -
Discontinued Operations - Loss from operations of
subsidiaries sold (less applicable income taxes
of ($146,000) and ($188,000) respectively) ( 175,000) ( 246,000)
----------- -----------
Net income $ 7,741,000 $ 35,000
----------- -----------
----------- -----------
Earnings per common and common equivalent share:
Continuing operations $ .03 $ .05
Discontinued operations ( .03) ( .04)
Gain on sale of wholly owned subsidiaries 1.36 -
----- -----
Net income $1.36 $ .01
----- -----
----- -----
Weighted average number of shares 5,690,000 5,654,000
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Six Months Ended
January 31,
1996 1995
---- ----
Net Sales $48,925,000 $39,125,000
Cost of goods sold 43,493,000 34,605,000
----------- -----------
GROSS PROFIT 5,432,000 4,520,000
Selling, general and administrative expenses 3,522,000 2,746,000
----------- -----------
OPERATING INCOME 1,910,000 1,774,000
Other Income (Expense)
Other income (expense) 175,000 18,000
Interest expense (net) ( 741,000)( 533,000)
----------- -----------
Income from continuing operations before income
taxes and minority interest 1,344,000 1,259,000
Provision for income taxes 503,000 503,000
Minority interest in earnings of consolidated
subsidiary 366,000 -
----------- -----------
Income from continuing operations 475,000 756,000
Discontinued Operation - Gain on Sale of wholly
owned subsidiaries (less applicable income
taxes of $5,158,000) (Note 5) 7,738,000 -
Discontinued Operations - Income from operations
of subsidiaries sold (less applicable income
taxes of $169,000 and $91,000 respectively 254,000 134,000
----------- -----------
Net income $ 8,467,000 $ 890,000
----------- -----------
----------- -----------
Earnings per common and common equivalent share:
Continuing operations $ .08 $ .14
Discontinued operations .05 .02
Gain on sale of wholly owned subsidiaries 1.36 -
----- -----
Net income $1.49 $ .16
----- -----
----- -----
Weighted average number of shares 5,688,749 5,654,000
See accompanying notes to consolidated financial statements.
- 3 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Not
Common Stock Additional Receivable Total Total
Number of Contributed from Retained Shareholders'
Shares Amount Capital Shareholder Earnings Equity
------ ------ ------- ----------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1995 5,655,000 $57,000 $15,889,000 ($184,000) $4,492,000 $20,254,000
Net income - - - - 8,467,000 8,467,000
Issuance of common shares
as compensation 6,000 - 15,000 - - 15,000
Satisfaction of note receivable
from shareholder - - - 34,000 - 34,000
Warrants exercised 28,000 - 90,000 - - 90,000
Options exercised 1,000 - 1,000 - - 1,000
--------- ------- ----------- --------- ----------- -----------
Balance at January 31, 1996 5,690,000 $57,000 $15,995,000 ($150,000) $12,959,000 $28,861,000
--------- ------- ----------- --------- ----------- -----------
--------- ------- ----------- --------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH
(UNAUDITED)
Six Months Ended
January 31,
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,467,000 $ 890,000
Adjustment to reconcile net income
to net cash provided by operating
activities:
Discontinued operations ( 7,992,000) -
Depreciation and amortization 405,000 715,000
Loss on sale of fixed assets ( 1,000) 113,000
Stock in lieu of compensation 15,000 32,000
Income applicable to minority interest 366,000 -
Change in assets and liabilities, net of
effects of acquisition & dispositions:
Accounts receivable 2,318,000 460,000
Inventories ( 3,790,000) 10,155,000
Inventory floor plan financing 3,583,000 (10,212,000)
Prepaid expenses and other assets ( 60,000) 904,000
Accounts payable ( 1,257,000) ( 1,242,000)
Other accrued liabilities 43,000 475,000
Income taxes payable ( 324,000) ( 72,000)
Other assets 5,000
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,778,000 2,218,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ( 316,000) ( 1,539,000)
Purchase of distribution outlets - ( 640,000)
Proceeds from sale of fixed assets 2,078,000
Proceeds from sale of wholly owned subsidiaries 19,493,000 -
Purchase of marketable securities ( 3,994,000) -
----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES 17,261,000 ( 2,179,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease ( 34,000) ( 26,000)
Short term borrowings ( 4,599,000) ( 406,000)
Note receivable from shareholder - 50,000
Exercise of stock warrants and options 90,000 -
----------- -----------
NET CASH (USED) BY FINANCING ACTIVITIES ( 4,543,000) ( 382,000)
----------- -----------
Net increase (decrease) in cash and cash equivalents 14,496,000 ( 343,000)
Cash and cash equivalents at beginning of period 4,488,000 831,000
----------- -----------
Cash and cash equivalents at end of period $18,984,000 $ 488,000
----------- -----------
----------- -----------
See accompanying notes to consolidated financial statements.
- 5 -
<PAGE>
AMERICAN UNITED GLOBAL, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial information included in this report has been prepared
in conformity with the accounting principles and practices reflected in the
consolidated financial statements included in the annual report filed with the
Commission for the preceding fiscal year. All adjustments are of a normal
recurring nature and are, in the opinion of management, necessary for a fair
statement of the consolidated results for the interim periods. This report
should be read in conjunction with the Company's 1995 Annual Report.
Certain reclassifications have been made in the accompanying fiscal 1995
consolidated financial statements to conform with financial statement
presentation for fiscal 1996. Such reclassifications had no effect on the
Company's results of operations or retained earnings.
NOTE 2 - STATEMENT OF CASH FLOWS
Supplemental disclosure of cash paid during the periods:
Six Months Ended
January 31,
1996 1995
---- ----
Interest $ 997,000 $968,000
Income taxes $1,327,000 $853,000
Supplemental disclosure of non-cash investing and financing activities:
1. A capital lease obligation of $926,000 was incurred in December 1995
when the Company consummated a sale leaseback transaction of the
Auburn facility.
2. A note receivable of $3,037,000 arose due to the Hutchinson
Transaction.
NOTE 3 - INVENTORIES
Inventories consist of the following: January 31, July 31,
1996 1995
----------- --------
Raw materials $ - $ 1,179,000
Work-in-process - 2,736,000
Finished goods - 3,379,000
----------- -----------
- 7,294,000
LESS: Allowance for obsolete and
excess inventory ( - ) ( 888,000)
----------- -----------
- 6,406,000
Equipment: New equipment 39,203,000 36,461,000
Used equipment 5,738,000 4,662,000
Parts 5,261,000 5,290,000
----------- -----------
$50,202,000 $52,819,000
----------- -----------
----------- -----------
- 6 -
<PAGE>
NOTE 4 - CONTINGENCIES
Except for ordinary, routine proceedings incidental to its business, there are
no pending legal proceedings to which the Company or any of its property is
subject. In the opinion of management, the outcome of these legal proceedings
will not have a material adverse effect on the financial condition or results of
operations and cash flows of the Company and its subsidiaries.
Western is subject to periodic audits of its sales and income tax returns in the
normal course of business. An audit of Western's sales tax returns for the
state of Washington is currently being conducted by the Washington State
Department of Revenue. The Company believes that it is unlikely that the
outcome of this audit will have an adverse material effect on the Company's
financial position or results of operations.
NOTE 5 - DISPOSITION OF ASSETS
Pursuant to the terms of an Asset Purchase Agreement, dated as of November 22,
1995 (the "Sale Agreement"), by and among Hutchinson Corporation, a Delaware
Corporation ("Hutchinson"), as Buyer, and the Company and each of its AUG-
California, Inc., American United Products, Inc. ("National O-Ring") and
American United Seal, Inc. ("Stillman Seal") subsidiaries, on January 19, 1996
all of the assets of the National O-Ring and Stillman Seal businesses (the
"Manufacturing Business") were sold to, and substantially all of the liabilities
associated with operation of the Manufacturing Business were assumed by,
subsidiaries of Hutchinson newly-formed for the purpose of acquiring the
Manufacturing Business (the "Hutchinson Transaction"). Hutchinson produces a
variety of rubber related products for three market sectors: automotive,
consumer and industrial use.
The Purchase Price for the Manufacturing Business was $24,500,000, $20,825,000
of which was paid in cash and the aggregate $3,675,000 balance was paid by
delivery of two 24-month non-interest bearing promissory notes (the "Notes")
made by the Hutchinson subsidiaries that purchased the Manufacturing Business.
The Notes, which have been discounted for financial statement presentation by
$638,000, are guaranteed by Total America, Inc., the parent corporation whose
securities are listed on the New York Stock Exchange.
At the closing of the Hutchinson Transaction, (the "Closing"), the Company,
Hutchinson (as guarantor) and Robert Rubin, who is the Chairman and a director
of the Company, entered into a five-year Non-Competition Agreement in favor of
Hutchinson and its affiliates, pursuant to which Mr. Rubin and the Company
agreed not to compete with the businesses acquired in the Hutchinson
Transaction. Under the terms of the Non-Competition Agreement, Mr. Rubin will
receive payments aggregating $200,000 over a seven year period. In addition, at
the Closing Hutchinson engaged Mr. Rubin as a consultant to provide advisory
services relating to the acquired Manufacturing Business over a seven year
period, for which services Mr. Rubin will receive payments aggregating
$1,000,000.
On January 19, 1996, as a result of the Hutchinson Transaction, Mr. John Shahid,
the former President, Chief Executive Officer and director of the Company and
the Company entered into a Termination Agreement whereby Mr. Shahid resigned as
an officer and director of the Company and each of its subsidiaries in
consideration for the payment of an aggregate of $815,833.33, representing
salary payments under his Employment Agreement through December 31, 1998, as
well as a bonus payment for fiscal year 1996 in the amount of $90,000. The
Termination Agreement also provides that the Company shall retain Mr. Shahid as
a consultant for a period of three (3) years, commencing April 1, 1996, for
which consulting services he will be paid quarterly an aggregate of $200,000.
- 7 -
<PAGE>
NOTE 5 - DISPOSITION OF ASSETS (CONTINUED)
Details of this transaction are as follows:
Sale price $23,862,000
Basis of assets sold 9,634,000
Expenses of sale 1,332,000
-----------
Gain on sale before
income taxes 12,896,000
Income tax provision 5,158,000
-----------
Gain on sale of wholly
owned subsidiaries $ 7,738,000
-----------
-----------
The continuing operation of the Company now consists of the Company's 56.6%
interest in Western Power and Equipment Corp., a publicly traded Delaware
Corporation engaged in the construction equipment distribution business,
principally as a Case Corporation dealer ("WPE").
NOTE 6 - SUBSEQUENT EVENTS
On February 9, 1996, the Company loaned an aggregate of $450,000 to Diplomat
Corporation ("Diplomat") in connection with Diplomat's acquisition of
BioBottoms, Inc. Diplomat is a public company of which Robert Rubin serves as a
director. Before the BioBottoms transaction, Mr. Rubin held approximately 22%
of Diplomat's outstanding capital stock. Such loan (i) bears interest at the
prime rate of CoreStates Bank, N.A. plus 2% and is payable monthly, (ii) is
subordinated to a $2,000,000 revolving credit loan agreement between Diplomat
and Congress Financial Corporation, (iii) is payable in full on or before May 4,
1996 and (iv) is secured by a second priority lien in all of the assets of
Diplomat and its wholly-owned subsidiary, BioBottoms, Inc.
In connection with the above transaction, Mr. Rubin personally made a secured
loan to Diplomat in the aggregate principal amount of $2,353,100 which matures
in February 1999, and committed to make available a stand-by loan of up to
$300,000 aggregate principal. In consideration for making his loan to Diplomat
and committing to make this stand-by commitment, Mr. Rubin received that number
of shares of Diplomat Convertible Preferred Stock which are convertible into
1,000,000 shares of Diplomat Common Stock. His holdings of Diplomat Preferred
Stock make Mr. Rubin the beneficial owner of approximately 46% of Diplomat
Common Stock.
On March 8, 1996, the Company purchased 25,000 Series A Convertible Preferred
Shares of Chatfield Dean, Inc. for $250,000. Chatfield Dean, Inc. is a broker
dealer and a NASD member firm. If converted, the Company would hold 1.4% of
Chatfield Dean, Inc.'s total outstanding Common Stock.
On October 10, 1995, using proceeds from the WPE's initial public offering,
Western retired the $2,175,000 real estate note given to Case for the purchase
of the Sparks, Nevada real estate in September 1994. Western is in the process
of consummating a transaction with an institutional lender to provide Western
with a conventional mortgage on the property in the amount of $1,330,000 to be
secured by the Sparks, Nevada real estate. Such transaction is expected to
close in the Company's third quarter.
- 8 -
<PAGE>
NOTE 6 - SUBSEQUENT EVENTS (CONTINUED)
On October 19, 1995, Western entered into a purchase and sale agreement with an
unrelated party for the Auburn, Washington facility subject to the execution of
a lease. Under the term of this agreement, which closed on December 1, 1995,
Western sold the property and is leasing it back from the purchaser for 20 years
at an initial annual rental of $204,000. Under the lease, such annual rental
increases to $228,000 after five years and is subject to fair market adjustments
at the end of ten years. The lease is a net lease with payment of insurance,
property taxes and maintenance costs paid by Western. In accordance with
Statement of Financial Accounting Standards No. 13 (SFAS 13), the building
portion of the lease is being accounted for as a capital lease while the land
portion of the lease qualifies for treatment as an operating lease. The sale
leaseback of the Auburn facility did not result in any material gain or loss to
Western.
Effective February 17, 1996, Western acquired substantially all of the operating
assets used by Case Corporation ("Case") in connection with its business of
servicing and distributing Case construction equipment at a facility located in
Sacramento, California (the "Sacramento Operation"). The acquisition was
consummated for approximately $630,000 in cash, $1,589,900 in installment notes
payable to Case and the assumption of $3,965,000 in inventory floor plan debt
with Case and its affiliates. The acquisition is being accounted for as a
purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company and Western, and Robert M. Rubin, the
Chairman and a director of the Company and Western. Simultaneous with its
acquisition of the Sacramento Operation real property and improvements, MRR
leased such real property and improvements to Western under the terms of a 20
year Commercial Lease Agreement dated as of March 1, 1996 with Western paying an
initial annual rental of $168,000. Under the lease, such annual rental
increases to $192,000 after five years and is subject to fair market adjustments
at the end of ten years. In addition to base rent, Western is responsible for
the payment of all related taxes and other assessments, utilities, insurance and
repairs (both structural and regular maintenance) with respect to the leased
real property during the term of the lease. In accordance with SFAS 13, the
building portion of the lease is being accounted for as a capital lease while
the land portion of the lease qualifies for treatment as an operating lease.
NOTE 7 - SUBSIDIARY PREFERRED STOCK
The Company's subsidiary has been authorized to issue 10,000,000 shares of
"blank check" preferred stock, with respect to which all the conditions and
privileges thereof can be determined solely by action of such subsidiary's
Board of Directors without further action of its stockholders. As at
January 31, 1996 none were issued and outstanding.
NOTE 8 - ADVERTISING EXPENSE
The Company and its subsidiary expense all advertising costs as incurred.
- 9 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-Q.
On January 19, 1996 the Company sold all the assets of its manufacturing
operations (See Note 5 of the Notes to Consolidated Financial Statements for
detailed information.) leaving the Company with ownership of 56.6% of the stock
of Western Power and Equipment Corp. ("WPE"), a public Delaware company that
sells and services construction equipment and related parts principally
manufactured by Case Corporation ("Case"). The operations of the Company now
consist of the Company's 56.6% interest in WPE.
On June 14, 1995, WPE completed an initial public offering of 1,495,000 shares
of common stock. After the offering the Company's interest in Western, through
its ownership interest in WPE, was reduced to 56.6%.
Effective November 1, 1992, the Company through its formerly wholly-owned
subsidiary Western Power and Equipment Corp., an Oregon corporation ("Western"),
completed the acquisition from Case of seven stores located in Washington and
Oregon which sell and service equipment used in the construction industry.
Subsequent to 1992 Western opened three additional outlets in Washington and
Oregon. Effective September 10, 1994, Western also purchased from Case
Corporation two additional retail construction equipment distribution outlets
located in Sparks, Nevada and Fremont, California. On December 11, 1994,
Western relocated its Fremont outlet to neighboring Hayward, California. As
part of its agreement with Case, Western was required to open two additional
distribution outlets in northern California. In March and August 1995 Western
opened retail stores in Santa Rosa and Salinas, California, respectively. In
February 1996, the Company announced the opening of a distribution outlet in
Elko, Nevada. Also in February 1996, Western completed the acquisition of the
Sacramento, California outlet from Case as further described in Note 6 to the
Consolidated Financial Statements. The opening of a Stockton, California outlet
is expected to be completed in March 1996, bringing the total number of
distribution outlets owned and operated by Western to 17.
In 1995, the Company incorporated WPE as a wholly-owned holding company to own
100% of the outstanding shares of Western.
RESULTS OF OPERATIONS
THE THREE MONTHS AND SIX MONTHS ENDED JANUARY 31, 1996 COMPARED TO THE THREE
MONTHS AND SIX MONTHS ENDED JANUARY 31, 1995.
Revenues for the three month period ended January 31, 1996 increased $5,457,000
or 27% over the three month period ended January 31, 1995. The increase in
revenues was primarily attributable to increased sales of new units ($4,821,000)
and rental revenues ($839,000) while sales of used units declined slightly
($323,000) during the quarter. Parts and service revenues experienced only
modest gains ($40,000 and $79,000, respectively) as the months of December and
- 10 -
<PAGE>
January proved to be slow for the product support side of the business. It
appears that while the poor weather in the Northwest during the second quarter
may have increased demand for equipment, it also slowed down existing
construction jobs which had a negative impact on parts and service revenues.
The Company has invested significant resources in expanding its fleet of rental
equipment in the belief that the increased rental of equipment will continue in
the future.
With more equipment to rent, the Company experienced a 72% increase in rental
revenues in the current year second quarter versus the same period last year.
With the focus on the sale and rental of new equipment, sales of used equipment
were virtually flat. Although the used equipment market continues to be strong
in the WPE market area, used equipment typically becomes even more in demand
during an economic downturn as customers seek to reduce their capital outlays
while still needing equipment to perform on their contracts.
Revenues for the six month period ended January 31, 1996 increased by $9,800,000
or 25% over the revenues for the six month period ended January 31, 1995,
reflecting strong demand for new equipment and rentals as noted above, as well
as the full impact on revenues of the California and Nevada locations which were
purchased or opened in the first and second quarters of fiscal 1995.
The Company's gross profit margin of approximately 10.6% for the three month
period ended January 31, 1996 was comparable to the prior year comparative
margin of 10.5%. For the six month period ended January 31, 1996 the Company's
gross profit margin was 11.1% which is down slightly from the prior year's gross
profit margin of 11.6% for the same period. While sales were up across all
departments for the first six months of fiscal 1996, lower margin new and used
equipment sales have increased at a higher rate than the higher margin parts and
service departments, bringing the consolidated margin percentage down.
Selling, general and administrative ("SG&A") expenses were $1,803,000 (7.0% of
sales) and $3,522,000 (7.2% of sales) for the three and six month periods ended
January 31, 1996, respectively, compared to $1,380,000 (6.8% of sales) and
$2,746,000 (7.0% of sales) for the comparative prior year periods. The
significant growth in operations during the past 12 months has had an impact on
SG&A expenses such that the Company has not yet fully realized the potential
benefits of its streamlined organizational structure. While many of the
administrative and moving costs incurred in connection with the acquisition and
opening of these outlets are one-time charges which will not be incurred in
future periods, management is also taking steps to decrease SG&A expenses as a
percentage of sales to below 7.0% over time.
Interest expense of $501,000 and $741,000 for the three and six month periods
ended January 31, 1996, respectively, was up $240,000 and $208,000 from the
prior year comparative periods, respectively. Interest expense is tied directly
to the Company's equipment inventory levels which have increased as the Company
has acquired and opened additional distribution outlets. Inventory levels at
January 31, 1995 were artificially low as Case struggled to meet delivery on
their new backhoe model. In addition, the Company has made a substantial
investment in expanding its rental fleet of equipment. At January 31, 1996 a
total of
- 11 -
<PAGE>
$5,660,000 in equipment was dedicated to rental compared to only $2,825,000 at
January 31, 1995. Since the related note balance becomes interest bearing when
a unit is placed in the dedicated rental fleet, the increase in rental equipment
has had and will continue to have a significant impact on interest expense.
In the last quarter of 1995, Case introduced its Focus 2000 program which,
effective January 1, 1996, shortened the interest free floor plan finance period
on Case's smaller units, and replaced factory incentive programs with a dealer
administered plan. In order to "lock in" factory incentives, which the Company
believes are more generous than the initial Focus 2000 program, the Company took
delivery of extra units in calendar 1995. Many of these units were not eligible
for interest free floor plan finance and interest expense was impacted
accordingly. This expense should be offset by higher gross margins on these
units as they are sold in future periods (because Western will retain the 1995
factory incentives on those units).
LIQUIDITY AND CAPITAL RESOURCES
As a result of the Hutchinson Transaction the Company significantly increased
its liquidity and capital resources. The Company intends to acquire additional
businesses in the future with the proceeds of the Hutchinson Transaction. At
this time, the Company has no specific business or businesses which it intends,
or is obligated, to purchase.
Western's primary source of internal liquidity has been its profitable
operations since its inception in November 1992. As more fully described below,
Western's primary sources of external liquidity were contributions to Western by
the Company, and equipment inventory floor plan financing arrangements provided
to Western by Case Credit Corporation, Seattle-First National Bank ("SeaFirst
Bank"), Associates Commercial Corporation ("Associates") and Orix Commercial
Credit ("Orix"). In addition, in fiscal 1995, WPE, the immediate parent of
Western, completed an initial public offering of 1,495,000 shares of common
stock at $6.50 per share, generating net proceeds of $7,801,000. The net
proceeds of the offering have been utilized to repay amounts due to the Company
and to Case, the acquisition and opening of additional outlets, as well as to
reduce floor plan debt.
Under its inventory floor plan finance arrangements Case provides Western with
interest free credit terms on new equipment purchases for four to six months,
with the exception of the Model 1818 skid steer loader for which the interest
free credit terms are three months and the Model 90B Series special application
excavator for which the interest free credit terms are eight months, after which
interest commences to accrue monthly at the rate per annum equal to 2% over the
prime rate of interest. At January 31, 1996, Western was indebted to Case in
the aggregate amount of approximately $35,590,000 under such inventory floor
plan finance arrangements.
In order to take advantage of a 4% cash discount offered by Case under its new
Focus 2000 program, to provide financing beyond the term of applicable Case
floor plan financing or as alternatives to Case floor plan financing
arrangements for inventory purchased other than from Case, Western has entered
into separate secured floor planning lines of credit with SeaFirst, Associates
and Orix.
- 12 -
<PAGE>
The Associates line of credit was entered into in August 1993, and allows
Western to borrow up to $2,250,000 to finance the purchase of new equipment, to
finance up to $2,000,000 of installment sales of equipment to customers approved
by Associates (without recourse to Western), and to finance up to $1,000,000 of
installments sales of equipment to other customers (with recourse to Western in
the event of default). There are no material obligations outstanding under the
recourse line of credit. On January 31, 1996, approximately $242,000 was
outstanding under these lines, the principal of which bears interest at 2% over
the prime rate announced by the U.S. National Bank of Oregon.
The SeaFirst line of credit was entered into in June 1994 and provides a
$7,500,000 line of credit which can be used to finance new and used equipment or
equipment to be held for rental purposes. On January 31, 1996, approximately
$4,283,000 was outstanding under such line of credit, the principal of which
bears interest at .25% over Seattle-First National Bank's prime rate and is
subject to annual review and renewal on May 1, 1996.
Western also buys a portion of its equipment from Hamm Compactors ("Hamm") under
a floor plan financing agreement with Orix. The Orix floor plan agreement calls
for repayment of principal and interest over periods ranging from thirty to
forty-eight months, with a balloon payment for the remaining outstanding
balance. At January 31, 1996, the aggregate indebtedness owed to Orix was
$1,129,000. The Orix notes bear interest at the highest prevailing prime rates
of certain major United States banks, plus 2% per annum.
Amounts owing under these floor plan financing agreements are secured by
inventory purchases financed by these lenders, as well as all proceeds from
their sale or rental, including accounts receivable thereto.
On October 19, 1995, Western entered into a purchase and sale agreement with an
unrelated party for the Auburn, Washington facility subject to the execution of
a lease. Under the terms of this agreement, which closed on December 1, 1995,
Western sold the property and is leasing it back from the purchaser. In
accordance with Statement of Financial Accounting Standards No. 13 (SFAS 13),
the building portion of the lease is being accounted for as a capital lease
while the land portion of the lease qualifies for treatment as an operating
lease. See Note 6 to the accompanying consolidated financial statements for
more information.
Effective February 17, 1996, Western acquired substantially all of the operating
assets used by Case Corporation ("Case") in connection with its business of
servicing and distributing Case construction equipment at a facility located in
Sacramento, California (the "Sacramento Operation"). The acquisition was
consummated for approximately $630,000 in cash, $1,589,900 in installment notes
payable to Case and the assumption of $3,965,000 in inventory floor plan debt
with Case and its affiliates. The acquisition is being accounted for as a
purchase.
The real property and improvements used in connection with the Sacramento
Operation, and upon which the Sacramento Operation is located, were sold by Case
for $1,500,000 to the McLain-Rubin Realty Company, LLC ("MRR"), a Delaware
limited liability company the owners of which are Messrs. C. Dean McLain, the
President and a director of the Company and Western, and Robert M. Rubin, the
- 13 -
<PAGE>
Chairman and a director of the Company and Western. Simultaneous with its
acquisition of the Sacramento Operation real property and improvements, MRR
leased such real property and improvements to Western under the terms of a 20
year Commercial Lease Agreement dated as of March 1, 1996. In accordance with
SFAS 13, the building portion of the lease is being accounted for as a capital
lease while the land portion of the lease qualifies for treatment as an
operating lease. See Note 6 to the accompanying consolidated financial
statements for more information.
On October 10, 1995, using proceeds from WPE's initial public offering, Western
retired the $2,175,000 real estate note given to Case for the purchase of the
Sparks, Nevada real estate in September 1994. Western is in the process of
consummating a transaction with an institutional lender to provide Western with
a conventional mortgage on the property in the amount of $1,330,000 to be
secured by the Sparks, Nevada real estate. Such transaction is expected to
close in WPE's third quarter.
During the six months ended January 31, 1996, cash and cash equivalents
increased by $14,496,000 primarily due to the Hutchinson Transaction. The
Company had positive cash flow from operations during the period as a decrease
in accounts receivable was sufficient to more than offset declines in accounts
payable and accruals. The proceeds from the Auburn facility sale leaseback
transaction were sufficient to retire the related note payable to Case.
Purchases of fixed assets during the period were related mainly to the opening
of new distribution outlets. The Company's cash and cash equivalents of
$18,984,000 as of January 31, 1996 and available credit facilities are
considered sufficient to support current or higher levels of operations for at
least the next twelve months for WPE's operations. The Company also intends to
acquire additional businesses with the proceeds of the Hutchinson Transaction.
As of the date of the original 10-Q (March 14, 1996) there were no acquisitions
pending.
- 14 -
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
- ------------
10.1 Asset Purchase Agreement, dated as of February 19, 1996, among Western
Power & Equipment Corp., an Oregon Corporation ("Western"), Case
Corporation ("Case") and McLain-Rubin Realty Company, LLC ("MRR"). (1)
10.2 Used Equipment Note from Western to Case. (1)
10.3 Parts Note from Western to Case. (1)
10.4 Accounts Receivable Note from Western to Case. (1)
10.5 $150,000 Goodwill Note from Western to Case. (1)
10.6 $1,500,000 Real Estate Note from MRR to Case. (1)
10.7 Deed to Secure Debt made by MRR in favor of Case, dated February 29,
1996. (1)
10.8 Security Agreement, dated February 29, 1996, made by Western in favor of
Case to secure payment for and collateralized by all assets acquired by
Western from Case (other than new equipment). (1)
10.9 Guarantee of C. Dean McLain in favor of Case, dated February 29, 1996.
(1)
10.10 Commercial Lease, dated as of March 1, 1996, by and between Western and
McLain-Rubin Realty Company, L.L.C. for Sacramento, California facility,
including First Amendment to Commercial Lease, dated as of March 1, 1996.
(1)
- ---------------
1. Incorporated by reference, filed as an exhibit to the Current Report on
Form 8-K filed by the Company's subsidiary, Western Power & Equipment
Corp., on March 14, 1996.
(b) REPORTS ON FORM 8-K
- -----------------------
None
- 15 -
<PAGE>
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.
AMERICAN UNITED GLOBAL, INC.
May 20, 1996
By:
------------------------------
Robert M. Rubin
Chairman and
Acting Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 18984000
<SECURITIES> 3994000
<RECEIVABLES> 5244000
<ALLOWANCES> 452000
<INVENTORY> 50202000
<CURRENT-ASSETS> 78041000
<PP&E> 7480000
<DEPRECIATION> 1627000
<TOTAL-ASSETS> 89011000
<CURRENT-LIABILITIES> 50289000
<BONDS> 0
0
0
<COMMON> 57000
<OTHER-SE> 28804000
<TOTAL-LIABILITY-AND-EQUITY> 84011000
<SALES> 48925000
<TOTAL-REVENUES> 49100000
<CGS> 43493000
<TOTAL-COSTS> 43493000
<OTHER-EXPENSES> 3888000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 741000
<INCOME-PRETAX> 1344000
<INCOME-TAX> 503000
<INCOME-CONTINUING> 475000
<DISCONTINUED> 7992000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8467000
<EPS-PRIMARY> 1.49
<EPS-DILUTED> 0
</TABLE>
