FILED: JUNE 30, 1997
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
Commission file number: 0-19381
WESTWOOD CORPORATION
(Exact name of Registrant as specified in its charter)
Nevada 87-0430944
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
12437 East 60th Street, Tulsa, Oklahoma 74146
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 918/252-1774
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.003
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
<PAGE>
The approximate aggregate market value of the Registrant's common
stock (based upon the June 26, 1997, closing sale price of the
common stock as reported by NASDAQ) held by non-affiliates was
approximately $10,109,512.
The number of outstanding shares of the Registrant's common stock
as of June 27, 1997, was 6,264,933 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference
from the definitive Proxy Statement relating to the Registrant's
Annual Meeting of Stockholders for fiscal 1997, which definitive
Proxy Statement will be filed within 120 days of the end of the
Registrant's fiscal year.
This filing consists of 47 pages.
Exhibit List found on Pages 16-17.
<PAGE>
TABLE OF CONTENTS
Page
Item Number and Caption Number
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PART I
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1. Business 1
2. Properties 9
3. Legal Proceedings 9
4. Submission of Matters to a Vote
of Security Holders 10
PART II
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5. Market for Registrant's Common Equity and
Related Stockholder Matters 10
6. Selected Financial Data 11
7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
8. Financial Statements and Supplementary Data 15
9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 15
PART III
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10. Directors and Executive Officers of
the Registrant 15
11. Executive Compensation 15
12. Security Ownership of Certain
Beneficial Owners and Management 15
13. Certain Relationships and Related
Transactions 16
PART IV
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14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K 16
(i)
<PAGE>
PART I
ITEM 1. BUSINESS
General
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Westwood Corporation (the "Company"), a Nevada corporation formed
in 1986, is engaged in the design, manufacture, and sale of
electrical generation and distribution equipment and automated
control equipment and products, including marine switchboards and
panelboards, safety cable sealing and transit systems, electrical
generation equipment, automated power control systems, and
related electrical hardware. The Company's business is conducted
through its wholly-owned subsidiaries, NMP Corp. ("NMP"), an
Oklahoma corporation, acquired in March of 1988, in connection
with the purchase of the Nelson Marine Products division of
General Signal Corporation; Roflan Associates, Inc. ("Roflan"),
and its wholly-owned subsidiary, Peter Gray Corporation ("PGC"),
both Massachusetts corporations acquired in 1996; Rox Corp., an
Oklahoma corporation formed in March, 1997 to manage the Safety
Sealing and Transit Systems Business line of products; TANO Corp.
("TANO"), a Louisiana corporation formed in May of 1997 to
acquire the Marine automated control division of TANO Automation,
Inc.; and MC II Electrical Company ("MC II"), a Texas corporation
formed in 1989, acquired in May of 1997.
Products and Markets
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Engineered Products - Electrical Switchgear
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The Company's marine engineered products line includes marine
switchboards designed for the distribution of electrical power,
interior communication, weapon systems, electrical plant control
and power and lighting control on naval combat vessels. In
addition to the actual manufacture of the switchboard and related
products, the Company also supplies electrical and electronic
components, panelboards, spare repair parts, support computer
software, engineering and field services. The Company's primary
customers for switchboard products are the major shipbuilders
that serve as prime defense contractors to the U.S. Government.
Equipment is also sold to Allied Foreign Governments with State
Department approval, under the War Munitions Act.
<PAGE>
The Company's marketing efforts are carried out by employees with
extensive experience in technical disciplines as well as in the
military/government contracting process. These individuals
concentrate their efforts on maintaining active contact with the
Company's shipbuilder customers and industry organizations and
keeping abreast of developments in shipbuilding programs. The
Company's marketing staff has a long-term professional
relationship with shipyard and Defense Department personnel and
are familiar with the operating and procurement procedures of
these organizations. The marketing of the Company's products and
services requires an in-depth knowledge of the near and long-term
plans and equipment requirements of these customers.
Demonstrated technical capabilities are of primary importance to
successful contract awards.
The majority of the Company's marine contracts are the result of
negotiated Request for Quotations ("RFQ"). RFQs involve a
contracting process whereby the shipyard requires detailed
management and technical proposals as well as detailed pricing
data and, thereafter, negotiates a firm fixed price contract with
the selected bidder. These contracts generally constitute a
development contract for equipment design with an ensuing
manufacturing contract for the delivery of power and/or
switchboard equipment. A substantial portion of the Company's
marine business involves contracts for design and ensuing
manufacturing while the remainder of the Company's marine
contracts are usually manufacturing or service related only and
involve no associated design work.
Engineered Products - Automation and Control Systems
- ----------------------------------------------------
On May 13, 1997, the Company announced the acquisition of the
former Marine division of TANO Automation, Inc. through its
wholly-owned subsidiary, TANO Corp. ("TANO"). TANO, located in
New Orleans, Louisiana, designs, manufactures, installs and
services high-quality, automation and control systems for major
military and commercial ships. TANO is a leading and long-
standing provider of automated machinery plant control systems
for the U.S. Coast Guard, the U.S. Navy and the Military Sealift
Command ("MSC").
TANO is the leading supplier of machinery plan automation and
control systems for the U.S. Coast Guard, having been awarded an
estimated 97% of its systems automation contracts for which the
Company bid in the last 25 years. TANO's projected bookings and
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billings have been substantially increased by contract to
provide, on an exclusive basis, automation and control systems
for a fleet of new USCG WL and WLB buoy Tenders. These two new
ship programs are expected to result in 30 ships being built; at
present, fifteen ships have been ordered, with additional ships
budgeted and funded by Congress.
TANO's product lines are divided into two segments: Systems, and
Parts and Service. Systems consists of the design and
manufacture of automation and control systems for new ships, as
well as complex retrofits for existing ships. Parts and Services
refers to TANO's aftermarket business whereby TANO provides parts
and maintenance to a large, worldwide installed base of TANO
systems.
A typical TANO system consists of a ship control console located
on the bridge, a central console located in the ship's engine
room, and a number of remote terminal units (RTUs), distributed
throughout the ship, which gather data from the ship's machinery
and execute commands communicated by the consoles. TANO's
Systems fall into two broad categories: Propulsion Control
Systems and Machinery Monitoring and Control Systems.
Propulsion Control Systems monitor and control the different
propulsion functions of a ship including: the ship's engine
speed, clutches, convertible propeller pitch, z-drive, thrusters,
and reduction gears. Machinery Monitoring and Control Systems
automatically control and monitor a wide variety of functions
including the hydraulic systems, cargo monitoring, ballast
distribution, electric power management and water and waste water
management. Alarm functions are linked with the monitoring
systems to provide audible or visual alarms to alert the ship's
operator or crew to problems detected by the monitoring systems.
TANO provides spare parts and service on all current and former
systems previously provided by TANO typically for over 20 years.
Spare parts and service orders from TANO's installed base of
approximately 600 ships provides a stable and ongoing source of
revenue that typically offers much higher gross profit margins,
due to its captive nature, than initial system orders.
Management believes a significant growth opportunity exists in
this segment since the current level of business has been
attained with minimal sales effort.
TANO's offices and operations occupy 10,000 square feet of leased
space in an office park located in New Orleans. In addition, a
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small office is leased in Singapore to support TANO's field
service commitments in the Pacific Rim. At the time of the
acquisition, TANO had approximately 35 employees.
Safety Sealing and Transit Systems - "RoxSystem"
- ------------------------------------------------
Pursuant to an agreement with Roxtec AG, a Swedish corporation,
the Company manufactures and distributes safety cable sealing and
transit systems through Rox Corp., its wholly-owned subsidiary,
formed in March 1997. The RoxSystem is primarily designed to
protect electrical and transmission cables from damage caused by
fire, smoke, gas and water.
RoxSystem, the trade name used for the Company's safety cable
sealing and transit system product line, and the Company's
electrical hardware line discussed below, are marketed to the
major ship construction yards as well as the numerous repair
yards located throughout the country. Because of the necessity
for local stocks, both distribution outlets and manufacturer
representatives are used in presenting the product. Rox Corp.
has distribution agreements with twenty independent
representative companies with territories covering thirty-five
states. Rox Corp. has three sales offices staffed by salaried
sales personnel in Tulsa, Oklahoma, Dallas, Texas, and Raleigh,
North Carolina. Rox Corp. anticipates opening five new satellite
sales offices during the 1998 fiscal year.
Rox Corp. currently concentrates on sales markets in the marine,
petrochemical, construction and telecommunication industries,
with particular emphasis in the wireless telecommunications
market.
Marine Electrical Hardware
- --------------------------
The Company also manufactures and distributes marine electrical
hardware utilized on military and commercial vessels including
switches, lights, and relays contained in specially manufactured
brass housings, and fiber optic lighting systems. The Company
commenced activities in the marine electrical hardware business
in early 1993 as a result of the acquisition of the former Nova
Division of Williams & Watts, Inc., and U.S. Pioneer, Inc.
On May 1, 1996, the Company acquired 100% of the outstanding
shares of common stock of Roflan, and through Roflan's ownership
interest, 100% of the outstanding common stock of its wholly-
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owned subsidiary, PGC, a Massachusetts corporation. Roflan
manufactures and markets a diversified line of marine electrical
hardware products, primarily for the U. S. Navy. PGC is a
commercial cold forger and serves primarily commercial markets.
The Company maintains Roflan and PGC as stand alone subsidiaries
within the Company consolidated group.
Mobile Power Systems
- --------------------
On May 28, 1997, the Company acquired 100% of the outstanding
common stock of MC II Electric Company ("MC II") of Dallas,
Texas. MC II is in the business of design, manufacture and sales
of a broad family of diesel, gas, natural gas and turbine
electrical generator sets for both military and commercial
applications. MC II remains a wholly-owned subsidiary of
Westwood and employs approximately 60 employees.
Major contracts included within backlog at MC II include
development of the next generation of 30-60 KW TQG generator sets
for the U.S. Army, and contractor on the MEP-012A generator set
for the U.S. Air Force. Including sales potential of existing
development contracts, order backlog at MC II as of May 30 was
approximately $60 million, including several contracts which
extend into the year 2001.
MC II is also an important supplier of generator replacement
spare parts, and is one of just a few manufacturers capable of
supporting all the generator sets utilized by the Department of
Defense.
MC II's manufacturing facilities in Dallas, Texas, perform most
aspects of the generator manufacturing process, including CNC
sheetmetal fabrication, CNC machining, welding, structural
fabrication, specialty treating and coating of parts, wire
generator and wire harness assembly. MC II has also designed and
assembles computer software and touch panel control screens for
monitoring and controlling all generator mechanical and
operations functions.
Competition
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The Company faces competition in all aspects of its business.
The Company's products are generally of a highly technical nature
and involve the use of techniques and materials similar to those
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used by its competitors. The principal competitive factors with
respect to the Company's products are technological innovation,
product quality, price, adherence to delivery schedules and
product reliability. A significant portion of the Company's
sales are made under government subcontracts awarded on the basis
of competitive bidding. In addition to price, the factors
involved in the award of such contracts include the quality of
the proposal and reputation of the bidder. Also, demand for many
of the products sold by the Company is dependent on the level and
nature of the nation's defense expenditures.
The Company has two primary competitors in the U.S. Navy
combatant marine power and switchboard equipment market. These
competitors are SPD Technologies, Inc. ("SPD"), and Metric
Systems. Competition with the Company's electrical hardware
products line comes from a number of companies participating in
small niches within the overall market. In regard to its safety
sealing and cable transit systems, the Company's primary
competition comes from products manufactured by O-Z Gedney.
Major and Foreign Customers
- ---------------------------
Sales under subcontracts with general contractor shipbuilders for
the United States Government accounted for approximately
$22,552,000 or 68% of the Company's sales in fiscal year ended
March 31, 1997 and $23,447,000 or 80% of the Company's sales in
fiscal year ended March 31, 1996. Sales to foreign customers
totaled $493,000 in fiscal year ended March 31, 1997 and
$1,739,000 in fiscal year ended March 31, 1996. For a further
discussion of sales to major customers and concentration of
credit risk, refer to Note 10 of the Consolidated Financial
Statements.
Backlog
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The backlog of sales revenue at fiscal year-end March 31, 1997,
1996, and 1995 was as follows:
1997 1996 1995
$12,200,000 $24,698,000 $32,032,000
6
<PAGE>
Of the existing backlog, the amount of sales revenue expected to
be generated within the next fiscal year follows:
1998 1997 1996
$11,000,000 $21,000,000 $26,000,000
The TANO and MC II acquisitions completed in May, 1997 added
approximately $65,000,000 to backlog, and includes the sales
potential of existing development contracts. Approximately
$15,000,000 of the backlog of TANO and MC II is expected to be
realized as sales revenue in the fiscal year ending March 31,
1998.
The backlog figures include only the sales value of the equipment
or products for which the Company has received firm orders. Due
to the process by which appropriations and contracts are approved
for defense projects, it is common for the Company to experience
delays in the receipt of anticipated orders, which can affect the
size of the backlog when compared to other periods. A major
portion of the backlog at March 31, 1997 was represented by
subcontracts with general contractor shipbuilders on United
States Government contracts. Because many of the Company's
defense-related subcontracts are awarded on a fixed-rate price
basis, cost overruns could affect the Company's future
profitability. Contracts with or for the United States
Government may be terminated by the Government at will. The
Company has not experienced any significant problems with
contract cancellations, but there can be no assurance that
contract cancellations will not occur in the future.
The balance of the Company's backlog consists of smaller
contracts, marine electrical hardware, Roxtec products, and
miscellaneous components designed and manufactured by the
Company. These components are used mainly as spare parts and
include relays, sensing devices, and a wide assortment of power
and lighting panels.
Employees
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As of March 31, 1997, the Company had 179 employees, none of whom
are represented by unions. Management considers its relations
with its employees to be satisfactory. Through the Company's
acquisition of TANO Corp. and MC II Electrical Company, occurring
on May 13, 1997, and May 28, 1997, respectively, 95 additional
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<PAGE>
employees have joined the Company's labor force. As of the date
of this report, the Company employs 274 total persons, none of
whom are represented by unions.
Patents and Trademarks
- ----------------------
The Company believes that its business is not materially
dependent upon the protection afforded by patents, but primarily
upon the experience and continued creative skills of its
personnel. Because of rapidly changing technology and the need
for confidentiality, the Company does not seek to obtain patents
in this area.
In connection with the fire control and safety sealing products,
the Company will rely on international patents held by Roxtec, as
well as the RoxSystem trade name, which the Company believes
adequately protects the design and manufacture of the metal
frames and internal components utilized in the RoxSystem.
Materials and Supplies
- ----------------------
The Company's operations require a wide variety of electrical and
mechanical components and raw materials. Except in regard to
sole-source air circuit breakers which the Company is required to
purchase from SPD, most items are available from several
commercial sources.
Environmental Protection
- ------------------------
The marine switchboard business requires metal plating of certain
of the components utilized by the Company which is performed by
the Company at its manufacturing facility in Tulsa, Oklahoma,
through the use of a modern automated plating machine. The
plating equipment utilized by the Company is designed to meet all
federal, state and local requirements for the utilization of this
equipment and for the discharge of treated rinse water into the
City of Tulsa waste water system. As required by the City of
Tulsa, the plating equipment utilized by the Company continually
monitors the level and chemical substance contained in the
discharges as part of the plating process. Fumes and vapors
created as a part of the plating process are controlled through
the use of environmental scrubbers installed by the manufacturer
of the plating equipment. The Company believes that it is
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<PAGE>
currently in compliance with all federal, state and local
provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment.
During the due diligence phase of the Company's acquisition of
Roflan and PGC in April, 1996 it was learned that PGC had, along
with several thousand other companies, been listed as a
potentially responsible party in two EPA Superfund sites located
in New England as a result of acquiring manufacturing assets from
a New England corporation which had utilized the services of a
licensed commercial disposal company from 1954 to 1960. PGC has
disclaimed any liability. Based on review by environmental
counsel, the Company believes that its exposure, even if
ultimately determined as a potentially responsible party, which
it has denied, is de minimis with settlement values ranging from
$2,500 to $5,000.
The Company believes that each of its subsidiaries have been and
are currently in compliance with all federal, state, and local
provisions regulating the discharge of materials into the
environment, or otherwise relating to the protection of the
environment.
ITEM 2. PROPERTIES
The Company leases all of its manufacturing, engineering,
warehousing and office facilities comprising a total of
approximately 279,000 square feet. The Company, and its
subsidiaries, lease office and manufacturing facilities as
follows: NMP and Rox Corp., Tulsa, Oklahoma, 125,000 square feet;
Roflan and PGC, Andover, Massachusetts, 74,000 square feet; TANO,
New Orleans, Louisiana, 10,000 square feet; and, MC II, Dallas,
Texas, 70,000 square feet. These leases are from one to five
years with renewal options. The Company owns all of its
manufacturing, assembly and testing equipment.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings which
management believes is likely to result in a material liability,
and to the best of its knowledge no such action is contemplated,
or has been threatened against the Company.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the Company's stockholders for a
vote during the fourth quarter of its fiscal year ending
March 31, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ Small-Cap
Market under the symbol WNMP. On March 31, 1997 there were 129
shareholders of record, and approximately 700 beneficial owners
of the Company's common stock. The range of sales prices for the
Company's common stock for the last two years, as reported by the
National Association of Securities Dealers, Inc., and cash
dividends declared were as follows:
<TABLE>
<CAPTION>
Quarter Ended High Bid Low Bid Cash Dividends
------------- -------- ------- --------------
<S> <C> <C> <C>
Mar. 31, 1997 $1-3/4 $1-3/16 $ .01
Dec. 31. 1996 2-3/8 1-9/16 .01
Sept. 30, 1996 2-5/16 1-7/8 .01
June 30, 1996 2-3/16 1-5/8 .01
Mar. 31, 1996 3-1/8 1-1/2 .01
Dec. 31, 1995 3-3/8 2-1/4 .01
Sept. 30, 1995 2-3/4 1-13/16 .01
June 30, 1995 2-1/2 1-3/4 .01
</TABLE>
The Company expects to continue its policy of paying regular cash
dividends, although there is no assurance as to further dividends
because they depend on future earnings, capital requirements, and
financial condition.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in
conjunction with the financial statements and related notes
thereto for the periods indicated, which are included in this
report:
<TABLE>
<CAPTION>
Fiscal Years Ended March 31
1997 1996 1995 1994 1993
-------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Sales $33,408 $29,480 $31,928 $31,419 $22,554
Net Income 1,631 1,237 1,625 2,126 1,690
Total Assets 16,156 15,724 18,492 16,138 14,750
Long-Term Debt 600 67 21 662 872
Per Common Share*:
Net Income .27 .20 .26 .35 .28
Cash Dividends .04 .03 .03 .03 .01
<FN>
*Per share amounts have been adjusted to reflect 10% stock
dividends declared in October, 1993, November, 1994, October,
1995 and November, 1996.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
The following management comments regarding the Company's
financial condition and results of operations should be read in
conjunction with the Selected Financial Data and the Consolidated
Financial Statements included elsewhere. The analysis includes
NMP Corp., Roflan and PGC, Westwood Corporation's wholly-owned
subsidiaries, but does not include consolidated financial
information on TANO Corp. and MC II since they were acquired
after the close of the fiscal year.
Results of Operations
- ---------------------
Twelve Months Ended March 31, 1997 and 1996
- -------------------------------------------
Net income for the fiscal year ended March 31, 1997 was
$1,631,000, a 31.9% increase compared to $1,237,000 for the
previous year. Earnings per share were $.27 compared to $.20 for
the previous year. Consolidated sales for the fiscal year ended
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March 31, 1997 were $33,408,000, a 13.3% increase compared to
$29,480,000 for the prior year. Gross profit, as a percentage of
sales, improved to 23.9% compared to 18.9% for the prior year.
Increased sales of Roxtec products, as well as cost reductions in
certain switchgear products were the major factors in the gross
profit improvement. Operating income increased to 34.9% over the
previous year to $2,718,000. Interest expense increased 47.5% to
$87,000 as a result of increased borrowing in connection with the
Roflan acquisition.
The TANO and MC II acquisitions, closed on May 13, 1997 and
May 28, 1997, respectively, are expected to be accretive to
earnings in the fiscal year ending March 31, 1998, with most of
the impact occurring in the third and fourth quarters. The
winding down of the DDG-51 contract, along with substantial
acquisition and relocation costs, is expected to have a negative
impact on earnings in the first and second quarters of fiscal
1998.
Following are product line highlights for fiscal 1997:
Marine Hardware
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Marine Hardware Products led Westwood's increase in sales with a
gain if 191% to $10,014,000 in fiscal 1997 compared to $3,445,000
for the previous year. The acquisition of Andover,
Massachusetts-based Roflan & Associates, Inc., and its wholly-
owned subsidiary Peter Gray Corporation accounted for the
majority of the sales increase. The marine hardware product line
had a backlog of approximately $5,222,000 at March 31, 1997.
Safety Sealing and Transit Systems
- ----------------------------------
Sales of Roxtec products grew 136% to $3,934,000 in fiscal 1997,
compared to $1,667,000 for the prior year. The growth in Roxtec
sales was a result of increased penetration into the
telecommunications industry in fiscal 1997, as well as continued
growth in a broad market including cruise ships, oil tankers and
offshore drilling rigs. Backlog is not significant for Roxtec
products since incoming orders are shipped on a daily basis.
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Engineered Products
- -------------------
Sales of Engineered Products declined 20% to $19,460,000 in
fiscal 1997, compared to $24,368,000 for the prior year.
Engineered Products consist of marine switchgear, software,
electronic components and lighting systems. Increased production
on the LHD-7 program was more than offset by decreased production
on the DDG-51 program. The Company has previously announced that
work on the DDG-51 program will be essentially complete by the
end of the first quarter ending June 30, 1997. Revenues
attributable to the DDG-51 program were $8,136,000 in fiscal 1997
and $14,169,000 in fiscal 1996.
As previously announced, the Company has acquired TANO Corp. of
New Orleans, Louisiana, a supplier of marine system control
software products to the U.S. Navy and commercial markets. The
TANO acquisition added approximately $5,607,000 to the backlog of
Engineered Products, and is anticipated to add over $7,000,000 in
annualized sales. The total backlog of Engineered Products on
March 31, 1997, including TANO, was approximately $12,523,000.
Mobile Electric Power Systems
- -----------------------------
The Company has previously announced the acquisition of Dallas,
Texas-based MC II Electric Company. MC II designs, manufactures
and sells a broad family of diesel, gas and turbine generator
sets for both military and commercial applications. MC II has
contracts which include work on the MEP-012A generator sets for
the U.S. Air Force, and the development of the next generation of
30-60 KW TQG generator sets for the U.S. Army. Including sales
potential of existing development contracts, the order backlog
was approximately $60,000,000, including several contracts which
extend into the year 2001.
Twelve Months Ended March 31, 1996 and 1995
- -------------------------------------------
Net income for the fiscal year ended March 31, 1996 was
$1,237,000, a 23.9% decrease from the previous year. Earnings
per share were $.20 compared to $.26 for the previous year.
Sales for the fiscal year ended March 31, 1996 were $29,480,000,
a 7.7% decrease from the prior year. Major long-term switchgear
contracts accounted for all of the decrease, as combined sales of
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other products increased slightly over the previous year. The
decrease in sales revenues for major switchgear contracts was due
to a lower backlog and reduced production hours as a result of
cutbacks, elimination of second shifts and reductions in
overtime.
Operating expenses increased 11.8%, while marketing and selling
expenses increased 26.2% over the previous years. A substantial
portion of this increase included market development expenses
relating to RoxSytem as well as various new products, including
multiple shipbuilding projects for Pacific Rim Countries, and
ongoing activities in Korea and Taiwan. Additional factors
contributing to the increase in expenses included development
costs concerning introduction of an imported marine marble
product, which has been abandoned and preparation costs relating
to the DDG-51 bid proposal.
Interest expense decreased 68.8% to $59,000 while interest income
increased to $58,000 as a result of lower borrowing due to
improved cash flow.
Liquidity and Capital Resources
- -------------------------------
Operating activities for the fiscal year ended March 31, 1997
resulted in net cash provided of $2,315,000. During this period,
cash was provided by net income of $1,631,000, with other major
cash adjustments and sources being depreciation and amortization
of $754,000, reductions in accounts receivable of $754,000, costs
and estimated earnings in excess of billings on uncompleted
contracts of $2,657,000, inventories of $327,000, long-term
retainage of $322,000, and increased income taxes of $260,000.
Major uses of cash were reductions in deferred income taxes of
$346,000, accounts payable of $1,817,000, accrued liabilities of
$830,000 and billings in excess of costs and estimated earnings
on uncompleted contracts of $1,306,000.
Lower production activity and progress billings on major
switchgear contracts due to the lower backlog were the
significant factors in the large reductions in costs and
estimated earnings in excess of billings and billings in excess
of costs and estimated earnings on uncompleted contracts.
For investing activities, the acquisition of Roflan for $815,000
was the most significant use of cash during the period.
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The Company currently has a bank revolving facility based upon a
borrowing base of qualifying accounts receivable and inventory.
This agreement expires July 31, 1997. The Company utilized this
facility, as well as a short-term note that matures on August 27,
1997, to fund the recent acquisition of TANO and MC II. It is
the Company's intention to renew the bank agreement along similar
lines of a revolving credit facility based on working capital
needs, as well as a long-term note.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item begins at page F-1,
attached.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on any matter of accounting
principles or practices, financial statement disclosure, or
auditing scope or procedure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission
in connection with the Company's 1997 Annual Meeting of
Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission
in connection with the Company's 1997 Annual Meeting of
Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference to the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission
in connection with the Company's 1997 Annual Meeting of
Stockholders.
15
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to the Company's definitive Proxy
Statement to be filed with the Securities and Exchange Commission
in connection with the Company's 1997 Annual Meeting of
Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a)
1. Financial Statements - The Financial Statement Index is
found on page F-1, attached.
2. Financial Statement Schedules - The Financial Statement
Schedule Index is found on page F-1, attached.
3. List of Exhibits.*
2.1 Exchange Agreement between Westwood Corporation and NMP
Corp. dated March 29, 1988
2.2 Asset Purchase Agreement between NMP Corp. and General
Signal
3.1 Articles of Incorporation of Westwood Corporation
3.2 Bylaws of Westwood Corporation
3.3 Restated and Amended Articles of Incorporation of Westwood
Corporation
4.1 Specimen Stock Certificate
4.2 Subordinated NMP Corp. Note
10.1 Employment Agreement, as amended, of Ernest H. McKee
10.2 Employment Agreement, as amended, of Paul R. Carolus
10.3 Credit Agreement Fourth National Bank of Tulsa
16
<PAGE>
10.4 Bath Iron Works Corporation, contract for constructing
DDG-51 Class Guided Missile Destroyer Program
10.5 China Shipbuilding Corporation, contract for construction
of PFG-2 Guided Missile Frigate
10.6 Exclusive Manufacturing and Territory Sales Agreement,
dated January 22, 1992, between NMP Corp., and Roxtec AB
10.7 1992 Employees' Stock Option Plan of Westwood Corporation
10.8 1992 Directors' Stock Option Plan of Westwood Corporation
10.9 1992 Directors' Stock Option Plan as amended October 28,
1993
10.10 1992 Directors' Stock Option Plan as amended September 3,
1996
10.11 Roflan Stock Purchase Agreement (Reported on Form 8-K,
filed May 14, 1996)
10.12 TANO Corp. Asset Purchase Agreement (Reported on Form 8-K,
filed June 5, 1997)
10.13 MC II Stock Purchase Agreement (Reported on Form 8-K,
filed June 12, 1997)
22.1 Articles of Incorporation of NMP Corp.
22.2 Bylaws of NMP Corp.
27. Financial Data Schedule
* Exhibits filed with prior reports by the Company.
(b) Reports on Form 8-K
No filings on Form 8-K were made during the last quarter of
the fiscal year ending March 31, 1997.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Company has duly caused this
Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
WESTWOOD CORPORATION
By: /S/ Ernest H. McKee By: /s/ Richard E. Minshall
--------------------------- -----------------------------
Ernest H. McKee Richard E. Minshall
President and Director Director
By: /s/ Paul R. Carolus By: /s/ Anthony Pantaleoni
--------------------------- -----------------------------
Paul R. Carolus Anthony Pantaleoni
Secretary/Treasurer and Director
Director
DATE: June 27, 1997
18
<PAGE>
WESTWOOD CORPORATION
10-K
Years ended March 31, 1997, 1996 and 1995
with Report of Independent Auditors
<PAGE>
Westwood Corporation
Index to Consolidated Financial Statements and Schedules
Page
----
Covered by Report of Independent Auditors
Report of Independent Auditors F-2
Consolidated Balance Sheets as of March 31,
1997 and 1996 F-3
Consolidated Statements of Income for the
Years ended March 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Stockholders' Equity
for the Years ended March 31, 1997, 1996 and
1995 F-6
Consolidated Statements of Cash Flows for the
Years ended March 31, 1997, 1996 and 1995 F-7
Notes to Consolidated Financial Statements for the
Years ended March 31, 1997, 1996 and 1995 F-9
Schedules for the Years ended
March 31, 1997, 1996 and 1995:
I - Condensed Financial Information of Registrant F-24
II - Valuation and Qualifying Accounts F-26
Not Covered by Report of Independent Auditors:
Selected Quarterly Financial Information (unaudited) F-23
All other schedules have been omitted since the required
information is not present or not present in amounts sufficient
to require submission of the schedule, or because the
information required is included in the respective financial
statements or notes thereto.
F-1
<PAGE>
Report of Independent Auditors
The Board of Directors
Westwood Corporation
We have audited the accompanying consolidated balance sheets of
Westwood Corporation as of March 31, 1997 and 1996, and the
related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended
March 31, 1997. Our audits also included the financial statement
schedules listed in the index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of Westwood Corporation at March 31, 1997 and
1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended March 31,
1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
/s/Ernst & Young LLP
(Original Manually Signed)
Tulsa, Oklahoma
May 16, 1997, except for
Note 13, as to which the
date is May 28, 1997
F-2
<PAGE>
<TABLE>
Westwood Corporation
Consolidated Balance Sheets
<CAPTION>
March 31
1997 1996
-----------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,165 $ 598
Accounts receivable (including retainage
receivable of $767,000 in 1997 and
$1,425,000 in 1996), net of allowance for
doubtful accounts of $44,000 in 1997 and
$25,000 in 1995 (Note 4) 4,485 3,973
Note receivable - officer (Note 8) 51 100
Costs and estimated earnings in excess of
billings on uncompleted contracts (Note 3) 332 2,989
Inventories (Note 4):
Raw materials and purchased parts 4,605 3,887
Work-in-process 1,210 906
------- -------
5,815 4,793
Prepaid expenses 220 73
Current deferred income taxes (Note 5) 553 -
------- -------
Total current assets 12,621 12,526
Plant and equipment, at cost:
Leasehold improvements 768 269
Machinery and equipment 3,733 2,698
Patterns and tools 383 227
Other - 335
------- -------
4,884 3,529
Accumulated depreciation (2,588) (2,057)
------- -------
2,296 1,472
Other assets:
Drawings (net of accumulated amortization of
$207,000 in 1997 and $179,000 in 1996) 19 41
Long-term accounts receivable, retainage 980 1,302
Deferred charges (net of accumulated
amortization of $572,000 in
1997 and $365,000 in 1996) 240 383
------- -------
1,239 1,726
------- -------
Total assets $16,156 $15,724
======= =======
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
March 31
1997 1996
-----------------
(In Thousands)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 886 $ 1,744
Income taxes payable 612 352
Accrued liabilities 671 868
Accrued rent (Note 7) 81 -
Billings in excess of costs and estimated
earnings on uncompleted contracts (Note 3) 1,087 2,393
Current deferred income taxes (Note 5) - 10
Current portion of long-term debt (Note 4):
Note payable 47 -
Payable to bank - 19
Acquisition debt - 21
------- -------
47 40
------- -------
Total current liabilities 3,384 5,407
Accrued Rent (Note 7) 325 -
Long-term debt (Note 4):
Payable to bank - 67
Note payable 600 -
------- -------
600 67
Deferred income taxes (Note 5) 372 177
Stockholders' equity:
Preferred stock, 5,000,000 shares authorized,
$.001 par value, no shares issued and
outstanding - -
Common stock, 20,000,000 shares authorized,
$.003 par value, 6,139,933 and 5,581,682
shares issued and outstanding at March 31,
1997 and 1996, respectively (Note 12) 18 17
Capital in excess of par value 4,627 3,511
Retained earnings 6,830 6,545
------- -------
Total stockholders' equity 11,475 10,073
------- -------
Total liabilities and stockholders' equity $16,156 $15,724
======= =======
<FN>
See accompanying notes.
</TABLE>
F-4
<PAGE>
<TABLE>
Westwood Corporation
Consolidated Statements of Income
<CAPTION>
Year ended March 31
1997 1996 1995
------------------------
(In Thousands, except
earnings per share)
<S> <C> <C> <C>
Sales $33,408 $29,480 $31,928
Cost of sales 25,410 23,897 25,930
Gross profit 7,998 5,583 5,998
Operating expenses:
Marketing and selling expenses 1,710 1,426 1,130
General and administrative expenses 3,570 2,142 2,061
------------------------
5,280 3,568 3,191
------------------------
Operating income 2,718 2,015 2,807
Other income (expense):
Interest expense (87) (59) (189)
Interest income and other 33 58 4
------------------------
(54) (1) (185)
------------------------
Income before income taxes 2,664 2,014 2,622
Provision for income taxes (Note 5) 1,033 777 997
------------------------
Net income $1,631 $1,237 $1,625
========================
Earnings per share (Note 12) $ .27 $ .20 $ .26
<FN>
See accompanying notes.
</TABLE>
F-5
<PAGE>
<TABLE>
Westwood Corporation
Consolidated Statements of Stockholders'
Equity
<CAPTION>
Capital
in Excess
Preferred Common of Retained
Stock Stock Par Value Earnings Total
-------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1994 $ - $14 $1,207 $6,387 $ 7,608
Net income - - - 1,625 1,625
Cash dividends paid
($.03 per share) - - - (189) (189)
Stock dividend (Note 12) - 1 1,037 (1,038) -
-----------------------------------------------------
Balance at March 31, 1995 - 15 2,244 6,785 9,044
Net income - - - 1,237 1,237
Cash dividends paid
($.03 per share) - - - (208) (208)
Stock dividend (Note 12) - 2 1,267 (1,269) -
-----------------------------------------------------
Balance at March 31, 1996 - 17 3,511 6,545 10,073
Net income - - - 1,631 1,631
Cash dividends paid
($.04 per share) - - - (229) (229)
Stock dividend (Note 12) - 1 1,116 (1,117) -
-----------------------------------------------------
Balance at March 31, 1997 $ - $18 $4,627 $6,830 $11,475
=====================================================
<FN>
See accompanying notes.
</TABLE>
F-6
<PAGE>
<TABLE>
Westwood Corporation
Consolidated Statements of Cash Flows
<CAPTION>
Year ended March 31
1997 1996 1995
--------------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,631 $ 1,237 $ 1,625
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation and amortization 754 521 507
Loss on asset disposals - 2 3
Deferred income taxes (346) (106) 232
Cash flows impacted by changes in:
Accounts receivable 754 3,199 56
Costs and estimated earnings
in excess of billings on
uncompleted contracts 2,657 (399) (903)
Inventories 327 740 (1,823)
Prepaid expenses (91) (5) (20)
Long-term accounts receivable,
retainage 322 (71) (139)
Accounts payable (1,817) (701) (640)
Accrued liabilities and rent (830) (70) 212
Billings in excess of costs and
estimated earnings on
uncompleted contracts (1,306) (1,146) 1,567
Income taxes payable 260 287 (280)
--------------------------
Net cash provided by operating
activities 2,315 3,488 397
INVESTING ACTIVITIES
Purchases of plant and equipment (110) (257) (279)
Proceeds from sales of plant and
equipment 12 - -
Purchase of certain assets
(Notes 2 and 6) (69) (325) -
Acquisition of company, less
cash acquired (Note 2) (815) - -
Collections on officer loan 49 70 73
Other (33) (212) (57)
--------------------------
Net cash used in investing activities (966) (724) (263)
</TABLE>
F-7
<PAGE>
<TABLE>
Westwood Corporation
Consolidated Statements of Cash Flows (continued)
<CAPTION>
Year ended March 31
1997 1996 1995
--------------------------
(In Thousands)
<S> <C> <C> <C>
FINANCING ACTIVITIES
Principal payments on debt $(5,103) $(5,566) $(14,781)
Borrowings on debt 4,657 3,505 14,675
Dividends paid (229) (208) (189)
-----------------------------
Net cash used in financing
activities (782) (2,269) (295)
-----------------------------
Net increase (decrease) in cash 567 495 (161)
Cash and cash equivalents at
beginning of year 598 103 264
-----------------------------
Cash and cash equivalents
at end of year $ 1,165 $ 598 $ 103
============================
<FN>
See accompanying notes.
</TABLE>
F-8
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements
March 31, 1997, 1996 and 1995
1. SIGNIFICANT ACCOUNTING POLICIES
BUSINESS ACTIVITY
Westwood Corporation ("Company"), a holding company, owns 100% of
the outstanding shares of NMP Corp. ("NMP") and, beginning May 1,
1996, Roflan and Associates, Inc. ("Roflan") and through Roflan's
ownership interest, 100% of the outstanding common stock of its
wholly owned subsidiary, Peter Gray Corporation ("Peter Gray").
NMP is engaged primarily in the business of designing and
manufacturing electrical distribution and signal switching
equipment in accordance with specifications of the U.S. Navy for
use on combat ships. NMP's contracts, primarily with major
shipyards, are on a firm price basis and generally are not
subject to renegotiation. Roflan and NMP manufacture and market
a diversified line of marine hardware products, primarily for the
U.S. Navy. Peter Gray is a commercial cold forger, serving
mostly commercial markets.
ESTIMATES AND ASSUMPTIONS
The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from those
estimates.
CONSOLIDATION POLICY
The consolidated financial statements include the account
balances of the Company and its wholly owned subsidiaries. All
intercompany balances have been eliminated.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid mutual funds
invested in United States Government securities with maturities
of three months or less when acquired.
F-9
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
CONTRACTS
The Company recognizes revenues and costs for major long-term
contracts on the percentage-of-completion method, measured by the
percentage of total labor costs incurred to date to estimated
total labor costs for each contract. Estimated losses on
contracts are provided for in full when they become apparent.
The excess of any accumulated costs and estimated earnings over
billings is presented as a current asset in the accompanying
balance sheet. When billings exceed costs incurred and estimated
earnings, the excess of such billings is presented as a current
liability. On all other contracts, revenues are recognized when
units are shipped.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined principally on the average cost method.
DEPRECIATION
Plant and equipment are depreciated using the straight-line
method over their estimated useful lives. Depreciation expense
of $520,000, $364,000 and $380,000 is included in the 1997, 1996
and 1995 statements of income, respectively, based on the
utilization of the particular assets.
Major replacements and betterments are capitalized while minor
replacements, maintenance and repairs which do not extend useful
lives are expensed.
AMORTIZATION OF DEFERRED CHARGES AND DRAWINGS
Deferred charges represent amounts related primarily to certain
costs of obtaining and developing new product lines. Deferred
charges are being amortized by the straight-line method over
their estimated useful lives.
Drawings are being amortized by the straight-line method over a
ten-year period.
F-10
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
The Company includes the operations of its subsidiaries in its
consolidated federal income tax return. Deferred income taxes
are computed using the liability method and are provided on all
temporary differences between the financial basis and the tax
basis of the Company's assets and liabilities.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of
common shares outstanding and common stock equivalents resulting
from stock options. Stock options were not dilutive in 1997,
1996 or 1995.
LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of," effective for
fiscal years beginning after December 15, 1995. SFAS No. 121,
was adopted in the first quarter of fiscal 1997. The impact of
the adoption did not have a material effect on the Company's
consolidated financial position or results of operations.
2. ACQUISITION
On March 11, 1996, NMP acquired certain assets of a product line
from Tabet Manufacturing Co., Inc. for $325,000 in cash. The
transaction was accounted for as a purchase. A summary of the
assets acquired in the transaction is as follows (in thousands):
Inventory $ 58
Equipment 267
---------
$325
=========
F-11
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
2. ACQUISITION (continued)
The results of operations for this purchase have been included
from the date of the acquisition. Results of operations of the
product line prior to purchase by NMP were not significant when
compared to the operations of NMP.
On May 1, 1996, the Company acquired 100% of the issued and
outstanding common stock of Roflan and through Roflan's ownership
interest, 100% of the outstanding common stock of its wholly
owned subsidiary, Peter Gray, for $990,000 in cash. The
transaction was accounted for as a purchase. The results of
operations have been included from the date of acquisition. The
net purchase price was subsequently reduced during 1997 by 50% of
the federal tax refund of $260,000 received as a result of filing
Roflan and Peter Gray's consolidated federal tax return for the
period from October 1, 1995 through April 30, 1996 as per the
purchase agreement. The acquired net assets have been recorded
based upon an allocation of the purchase price with substantially
all of the purchase price in excess of Roflan and Peter Gray's
historical carrying value being allocated to property and
equipment. The transaction was financed by a draw on NMP's
revolving credit facility. A waiver from the bank was obtained
prior to the acquisition allowing NMP to advance $2 million to
the Company for the purchase of Roflan and Peter Gray and for the
payment of certain of their liabilities.
The pro forma unaudited consolidated results of operations for
the twelve months ended March 31, 1997 and 1996, assuming
consummation of the purchase as of the beginning of the periods
are as follows (in thousands except per share information):
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
Sales $33,976 $37,274
Net income 1,608 1,289
Earnings per share (Note 12) .26 .21
</TABLE>
F-12
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
3. UNCOMPLETED CONTRACTS
At March 31, costs incurred on uncompleted contracts, estimated
earnings and related contract billings to date are as follows:
<TABLE>
<CAPTION>
1997 1996
----------------
(In Thousands)
<S> <C> <C>
Costs incurred on uncompleted
contracts $54,867 $46,357
Estimated earnings 17,106 13,259
-----------------
71,973 59,616
Less contract billings to date 72,728 59,020
----------------
$ (755) $ 596
================
Included in the accompanying
balance sheets under the
following captions:
Costs and estimated earnings
in excess of billings on
uncompleted contracts $ 332 $ 2,989
Billings in excess of
costs and estimated earnings
on uncompleted contracts 1,087 2,393
----------------
$ (755) $ 596
================
</TABLE>
Accounts receivable include approximately $340,000 and $329,000
of progress billings at March 31, 1997 and 1996, respectively.
F-13
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT
Long-term debt at March 31 consists of the following:
<TABLE>
<CAPTION>
1997 1996
----------------
(In Thousands)
<S> <C> <C>
Peter Gray note payable $647 $ -
NMP term note due bank - 86
Acquisition debt unsecured and
noninterest bearing - 21
----------------
647 107
Less current maturities 47 40
----------------
$600 $ 67
</TABLE>
Annual maturities on long-term debt are: 1998 - $28,000; 1999 -
$55,000; 2000 - $70,000; 2001 - $91,000; and 2002 - $403,000.
At March 31, 1997, NMP has a $3,000,000 revolving credit facility
which expires on July 31, 1997 which is based on a borrowing base
of qualifying accounts receivable and inventory. At March 31,
1997, letters of credit amounting to $50,000 reduced the
available borrowings on the line to $2,950,000. Borrowings under
the facility bear interest at prime plus 1/4% (8.75% at March 31,
1997) and are secured by accounts receivable and inventories.
The credit agreement contains covenants relating to the
maintenance of a current ratio, debt to net worth ratio, net
worth and working capital, and, in addition to various other
provisions, restricts the payment of dividends by NMP to the
Company to 50% of NMP's net income for the preceding fiscal year.
Interest is paid monthly on any outstanding revolving credit
notes, while mandatory prepayments of principal may be due
depending upon the borrowing base of qualifying accounts
receivable and inventories. No mandatory prepayments were
required during 1997, 1996 or 1995.
In connection with the acquisition of Peter Gray, the Company
assumed a secured note payable due on November 1, 2001. The note
is payable in monthly principal and interest installments of
$8,000 through September 1999 followed by 24 monthly payments of
$11,000, with a final payment of $335,000 due on November 1,
2001. Interest is computed at 8% per annum. The note is secured
by the accounts receivable and leasehold improvements of Peter
Gray.
F-14
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (continued)
The revolving credit loan borrowings averaged $306,000, $111,000
and $1,480,000 per day during 1997, 1996 and 1995, respectively,
with the highest month-end balance being $2,000,000, $1,500,000
and $2,335,000, respectively. The weighted average interest rate
was 8.6%, 9.0% and 8.8% during 1997, 1996 and 1995, respectively.
Any outstanding borrowings under the NMP revolving credit
facility are guaranteed by the Company.
In May 1995, NMP entered into a term note with a bank payable in
monthly installments of $2,100, including principal and interest
prime plus 1/4%). The balance of the note was paid in full in
March 1997.
The acquisition debt was payable to the former owner of U.S.
Pioneer, Inc. (acquired in 1993) who became an employee of NMP.
The debt was payable in annual installments of $21,000. Final
payment of the debt was made in January 1997.
5. INCOME TAXES
The components of the provisions for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal $1,158 $ 750 $ 707
State 221 133 58
----------------------
1,379 883 765
Deferred:
Federal (310) (95) 208
State (36) (11) 24
----------------------
(346) (106) 232
----------------------
$1,033 $ 777 $997
======================
</TABLE>
F-15
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (continued)
The difference between the expected tax rate and the effective
tax rate is primarily due to state income taxes as shown below:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------
(In Thousands)
<S> <C> <C> <C>
Expected provision for federal
income taxes at the statutory
rate $ 906 $685 $892
State income taxes - net of
federal benefit 114 76 56
Other 13 16 49
---------------------
Provision for income taxes $1,033 $777 $997
=====================
</TABLE>
Significant components of the Company's deferred tax liabilities
and assets as of March 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-----------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities:
Long-term contracts $131 $358
Tax over book depreciation
and amortization 428 177
----------------
Total deferred tax liabilities 559 535
Deferred tax assets:
Overhead allocations to inventory 90 73
Inventory reserves 346 197
Warranty reserve 57 57
Accrued rent 154 -
Other - net 93 21
---------------
Total deferred tax assets 740 348
---------------
Net deferred tax asset (liability) $181 $(187)
===============
</TABLE>
F-16
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
6. COMMITMENTS
NMP has employment contracts through March 31, 1999 with its
principal officers. These contracts provide for base salaries
with an aggregate total annual salary commitment of $240,000.
Bonus provisions are subject to the discretion of the Board of
Directors of NMP.
On December 19, 1996, the Company entered into an agreement to
acquire the marine fluorescent lighting product line of Aqua
Signal USA for $350,000. The acquisition consists of $60,000 in
tooling and equipment and $290,000 in inventory. The agreement
is structured so that the Company will receive and inspect the
items prior to payment for the items. At March 31, 1997, the
Company has received and paid cash for approximately $17,000 of
inventory and $52,000 in tooling. The remaining commitment will
be paid in cash as items are received and accepted within the
next fiscal year.
7. LEASES
The Company leases all of its premises and various equipment
under noncancellable operating lease agreements. The future
minimum lease payments for all leases are as follows:
1998 $ 515,000
1999 315,000
2000 293,000
2001 293,000
2002 195,000
----------
$1,611,000
==========
In fiscal 1992, Peter Gray entered into a 10-year operating lease
which provided for free rent during the first two years of the
agreement. Additionally, the lease agreement contains escalation
clauses which increased the lease payments after the fifth year
of the agreement. Under generally accepted accounting
principles, rent expense should be recognized on a straight-line
basis on lease agreements like Peter Gray's. Of the above
commitments, $406,000 has been recorded as accrued rent in order
to recognize rent expense associated with the Peter Gray lease on
a straight-line basis.
F-17
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
7. LEASES (continued)
Rent expense incurred under operating lease agreements was
$496,000, $438,000 and $479,000 for 1997, 1996 and 1995,
respectively.
8. NOTE RECEIVABLE - OFFICER
The note receivable from Ernest McKee, President of the Company,
includes principal and accrued interest at prime plus 1/4%. The
note was due on March 31, 1997 but was extended to March 31, 1998
with the final payment plus interest due at maturity. The note
is secured by 333,334 shares of the Company's common stock.
9. EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) plan into which participating
employees can defer up to 17% of their annual compensation up to
a specified limit. The Company matches 100% of each
participating employee's deferrals, not to exceed 3% of each
participating employee's annual compensation. The Company
contributions to the Plan for 1997, 1996 and 1995 were $122,000,
$120,000 and $109,000, respectively. The Company does not
provide any post-retirement benefits other than the 401(k) plan.
10. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
The Company's operations are conducted within one business
segment and its customers are primarily companies engaged in the
defense contractor industry located throughout the United States
who have contracted for naval shipbuilding and related
modification programs with the United States Government. During
1997, the Company had sales of 10% or more of total sales to two
general contractors accounting for approximately $11,488,000 and
$7,244,000 of revenues, respectively. The same two general
contractors accounted for approximately $11,550,000 and
$7,833,000 of revenues in 1996 and approximately $12,880,000 and
$7,573,000 of revenues in 1995.
At March 31, 1997, approximately $1,909,000 (43%) of accounts
receivable, including current retainage, are due from the above
companies. The Company generally does not require collateral
from its customers as progress billings are rendered to customers
as the work is performed, which results in substantial receipt of
F-18
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
10. MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (continued)
amounts due prior to the time the products are shipped. Credit
losses relating to customers in the defense contractor industry
have not been significant.
The Company has been dependent upon long-term switchgear
contracts relating to major new shipbuilding programs for the
bulk of its sales revenue. In recent years, one program has been
a significant contributor to revenues, and this contract is
scheduled for completion in 1998. The Company was not awarded a
new contract related to this shipbuilding program in 1996. The
loss of this contract will have a significant impact on the
Company's future sales and earnings. The Company expects to
become less dependent upon major long-term contracts as a result
of increased sales of other products and acquisitions of other
product lines and/or businesses.
11. STATEMENT OF CASH FLOWS
Cash payments for interest were $87,000, $78,000 and $171,000 and
income taxes were $1,120,000, $596,000 and $1,045,000 for 1997,
1996 and 1995, respectively.
12. COMMON STOCK
The financial statements, including the earnings per share
calculation, include the impact of three 10% stock dividends
(with fractional shares rounded to the next highest share)
approved by the Board of Directors of the Company on November 7,
1996, October 19, 1995, and November 17, 1994, respectively.
These stock dividends resulted in an increase in the number of
shares of common stock issued and outstanding by 558,251, 507,519
and 461,328 shares in 1997, 1996 and 1995, respectively.
Earnings and dividends paid per share have been retroactively
restated for the years ended March 31, 1996 and 1995 to reflect
the impacts of these stock dividends.
The Company has two stock option plans covering directors and
employees, respectively. The plans initially permitted the
granting of five-year options for up to 292,000 shares and
439,000 shares of the Company's common stock at fair market value
for directors and employees, respectively. In September 1996,
the Board of Directors authorized, and the shareholders approved
F-19
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
12. COMMON STOCK (continued)
on November 7, 1996, the extension of the directors' options
to ten years. Vesting of the 292,000 directors' options occurred
six months after the grant date. For the employee's plan,
vesting occurs as follows:
10% after 1 year
15% after 2 years
25% after 3 years
25% after 4 years
25% after 5 years
On September 3, 1996, the Board of Directors of the Company
authorized, and the shareholders approved on November 7, 1996,
the issuance of new director options for 220,000 shares of the
Company's common stock with vesting occurring on these options at
a 20% annual rate beginning September 3, 1997. The contractual
life of the vested options extends 10 years beyond the annual
vesting date.
The Company has elected to follow Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees"
(APB 25), and related interpretations in accounting for its
employee stock options because the alternative fair value
accounting provided under FASB Statement 123, "Accounting for
Stock-Based Compensation," requires the use of option valuation
models that were not developed for use in valuing stock options.
Under APB 25, because the exercise price of the Company's
director and employee stock options equal the market price of the
underlying stock on the date of the grant, no compensation
expense is recognized. The effect of applying the fair value
method of Statement 123 to the Company's option plans would
result in net income and net income per share that are not
materially different from the amounts reported in the Company's
consolidated financial statements.
F-20
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
12. COMMON STOCK (continued)
Further information concerning the options is as follows:
<TABLE>
<CAPTION>
Stock Options
Outstanding Stock Options Vested
------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Options Price Options Price
------------------- ------------------
<S> <C> <C> <C> <C>
At April 1, 1994 175,700 $2.27 117,000 $2.09
Granted 191,600 $1.74
-------
At March 31, 1995 367,300 $1.99 175,700 $2.27
Granted 58,600 $1.59
-------
At March 31, 1996 425,900 $1.94 234,200 $2.10
GRANTED 220,000 $1.93
-------
AT MARCH 31, 1997 645,900 $1.94 312,800 $1.98
=======
</TABLE>
No options were exercised, cancelled, or forfeited during the
three-year period ending March 31, 1997. The number of options
authorized and granted and the price per option have been
adjusted to reflect the impact of the 10% stock dividends
discussed above. The exercise price for options outstanding as
of March 31, 1997 ranged from $1.59 to $2.63. The weighted
average remaining contractual life of those options is 7.9 years.
13. SUBSEQUENT EVENT
On May 13, 1997, the Company purchased the assets and liabilities
of TANO Automation, Inc.'s Marine Automation Control Division
("Marine Division") for a total purchase price of $2,500,000.
The Marine Division designs, manufactures, sells and services
electrical automation and control systems for both military and
F-21
<PAGE>
Westwood Corporation
Notes to Consolidated Financial Statements (continued)
13. SUBSEQUENT EVENT (continued)
commercial ships and machinery plant automation and control
systems. The transaction involved the payment of $2,000,000 in
cash plus the signing of a 60-day noninterest bearing note of
$500,000. The transaction is subject to certain purchase price
adjustments which could potentially reduce the final purchase
price. A $1,800,000 draw on NMP's revolving credit facility plus
$654,000 in existing cash was advanced to the Company for the
purchase of the Marine Division and for the payment of certain of
the liabilities assumed.
On May 28, 1997, the Company purchased 100% of the issued and
outstanding common stock of MC II Electric Company, Inc.
("MC II") for $2,000,000 in cash plus 125,000 shares of the
Company's common stock. MC II designs, manufactures, sells,
supports and rents diesel, gas, natural gas and turbine generator
sets for both military and commercial applications. The
transaction involved the payment of $500,000 on May 28 plus three
noninterest-bearing annual installments of $500,000 each through
May 28, 2000. The transaction was accounted for as a purchase
and was funded by a $2,700,000 draw on NMP's amended revolving
credit facility. On May 27, 1997, NMP amended its revolving
credit facility to include a $2,000,000 term note bearing
interest at prime plus 1/2% due August 27, 1997 and to reduce the
maximum revolver portion of the credit facility to $2,500,000.
The $2,700,000 was advanced to the Company for the purchase of
MC II and for the payment of certain of the liabilities assumed.
F-22
<PAGE>
Westwood Corporation
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Earnings Per
Gross Net Average Share of
Sales Profit Income Common Stock*
----------------------------------------------------
(In Thousands, except earnings per share)
<S> <C> <C> <C> <C>
1997:
First $7,789 $1,681 $347 $.06
Second 8,288 1,938 437 .07
Third 8,911 2,097 464 .08
Fourth 8,420 2,282 383 .06
1996:
First $9,448 $1,595 $492 $.08
Second 6,773 1,215 306 .05
Third 5,985 1,163 192 .03
Fourth 7,274 1,610 247 .04
1995:
First $7,095 $1,323 $333 $.05
Second 7,930 1,591 450 .07
Third 7,920 1,387 462 .07
Fourth 8,983 1,697 380 .06
<FN>
*Restated to reflect the impact of the 1997, 1996 and 1995, 10%
stock dividends.
</TABLE>
F-23
<PAGE>
<TABLE>
Westwood Corporation
Schedule I - Condensed Financial Information of Registrant
Condensed Balance Sheets
<CAPTION>
March 31
1997 1996
-----------------
(In Thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2 $ 5
Receivable from subsidiaries 140 -
Prepaid expenses - 1
-----------------
Total current assets 142 6
Notes receivable from subsidiaries 951 -
Investment in subsidiaries 12,486 10,194
-----------------
Total assets $13,579 $10,200
=================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Due to subsidiary $ - $ 97
Accrued liabilities 160 30
-----------------
Total current liabilities 160 127
Note payable to subsidiary 1,944 -
Stockholders' equity:
Common stock 18 17
Capital in excess of par value 4,627 3,511
Retained earnings 6,830 6,545
-----------------
Total stockholders' equity 11,475 10,073
-----------------
Total liabilities and stockholders' equity $13,579 $10,200
=================
</TABLE>
F-24
<PAGE>
<TABLE>
Westwood Corporation
Schedule I - Condensed Financial Information of Registrant
Condensed Statements of Income
<CAPTION>
March 31
1997 1996 1995
-----------------------
(In Thousands)
<S> <C> <C> <C>
Home office charge $ 156 $ 156 $ 156
Equity in earnings of subsidiaries 1,659 1,195 1,593
General and administrative expense (184) (114) (124)
-----------------------
Net income $1,631 $1,237 $1,625
=======================
</TABLE>
<TABLE>
Condensed Statements of Cash Flows
<CAPTION>
March 31
1997 1996 1995
-----------------------
(In Thousands)
<S> <C> <C> <C>
Cash flows provided by operating
activities $ (136) $ 71 $ 7
Cash flow from investing activities:
Purchase of company, less cash acquired (815) - -
Cash flows from financing activities:
Borrowings from subsidiaries 1,944 - -
Payments to subsidiaries (996) (72) (5)
Dividends received from subsidiaries 229 208 189
Dividends paid (229) (208) (189)
-----------------------
Net increase (decrease) in cash (3) (1) 2
Cash at beginning of period 5 6 4
-----------------------
Cash at end of period $ 2 $ 5 $ 6
=======================
</TABLE>
Notes to Condensed Financial Information
A - BASIS OF PRESENTATION - In the parent-company-only
financial statements, the Company's investment in subsidiaries is
stated at cost plus equity in undistributed earnings of
subsidiaries since date of acquisitions. The Company's share of
net income of its unconsolidated subsidiaries is included in
consolidated income using the equity method. Parent-company-only
financial statements should be read in conjunction with the
Company's consolidated financial statements.
F-25
<PAGE>
<TABLE>
Westwood Corporation
Schedule II - Valuation and Qualifying Accounts
<CAPTION>
Amounts Amounts
Balance at Assumed Charged Balance at
Beginning in (Credited) End of
Description of Period Acquisition to Expenses Deductions Period
- ------------------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Year ended March 31, 1997:
Allowance for doubtful
accounts $ 25 19 $ - $ - $ 44
Reserves for inventory 520 40 290 - 850
Year ended March 31, 1996:
Allowance for doubtful
accounts 25 - - - 25
Reserves for inventory 495 - 25 - 520
Year ended March 31, 1995:
Allowance for doubtful
accounts 25 - - - 25
Reserves for inventory 335 - 160 - 495
</TABLE>
F-26
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, AND THE RELATED CONSOLIDATED STATEMENTS OF INCOME
AND STOCKHOLDERS' EQUITY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,165
<SECURITIES> 0
<RECEIVABLES> 4,536
<ALLOWANCES> 44
<INVENTORY> 5,815
<CURRENT-ASSETS> 12,621
<PP&E> 4,884
<DEPRECIATION> 2,588
<TOTAL-ASSETS> 16,156
<CURRENT-LIABILITIES> 3,384
<BONDS> 600
0
0
<COMMON> 18
<OTHER-SE> 11,457
<TOTAL-LIABILITY-AND-EQUITY> 16,156
<SALES> 33,408
<TOTAL-REVENUES> 33,408
<CGS> 25,410
<TOTAL-COSTS> 30,690
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 2,664
<INCOME-TAX> 1,033
<INCOME-CONTINUING> 1,631
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,631
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
