UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended June 30, 1997
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from ___________ to ____________
Commission File Number: 0-19381
WESTWOOD CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 87-0430944
- ------------------------- -------------------
(State or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
5314 South Yale, Suite 1100, Tulsa, Oklahoma 74135
- -------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918)524-0002
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities and Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Outstanding at August 14, 1997
- ----------------------------- ------------------------------
Common Stock, $.003 par value 6,264,933
<PAGE>
INDEX
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Page No.
--------
Part I Financial Information:
Consolidated Balance Sheets as of
June 30, 1997 and March 31, 1997 1
Consolidated Statements of Income for the
First Quarter ended June 30, 1997 and 1996 3
Consolidated Statements of Cash Flows for the
nine months ended June 30, 1997, and 1996 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II Other Information:
Item 1. Legal Proceedings (None)
Item 2. Changes in Securities (None)
Item 3. Defaults Upon Senior Securities (None)
Item 4. Submission of Matters to a Vote of
Security Holders (None)
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 9
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30 March 31
1997 1997
------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 287 $ 1,165
Accounts receivable (including retainage
receivable of $625,000 at June 30, 1997,
and $767,000 at March 31, 1997) net of
allowance for doubtful accounts 4,656 4,485
Income Tax Receivable 228 -
Note receivable - Officer 52 51
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,366 332
Inventories:
Raw materials and purchased parts 5,261 4,605
Work-in-process 3,439 1,210
------ ------
8,700 5,815
Prepaid expenses 208 220
Current deferred income taxes 335 553
------ ------
Total current assets 15,832 12,621
Plant and equipment, at cost:
Leasehold improvements 1,630 768
Machinery and equipment 4,884 3,733
Patterns and tools 359 383
------ ------
6,873 4,884
Accumulated depreciation (3,156) (2,588)
------ ------
3,717 2,296
Other assets:
Drawings (net) 14 19
Long-term accounts receivable, retainage 973 980
Deferred charges & other 440 240
Goodwill (net) 3,281 -
------ ------
4,708 1,239
------ ------
Total assets $24,257 $16,156
====== ======
<FN>
See accompanying notes.
</TABLE>
1
<PAGE>
<TABLE>
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
June 30 March 31
1997 1997
------------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,451 $ 886
Income taxes payable - 612
Accrued liabilities 1,387 671
Accrued rent 81 81
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,633 1,087
Current portion of long-term debt:
Payable to bank 2,700 -
Note payable 47 47
------ ------
2,747 47
------ ------
Total current liabilities 8,299 3,384
Accrued rent 283 325
Long-term debt:
Payable to bank 2,000 -
Note payable 588 600
Installments payable 1,263 -
------ ------
3,851 600
------ ------
Deferred income taxes 363 372
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,
6,264,933 and 6,139,933 shares
issued and outstanding at June 30, 1997,
and March 31, 1997, respectively 19 18
Capital in excess of par value 4,806 4,627
Retained earnings 6,636 6,830
------ ------
Total stockholders' equity 11,461 11,475
------ ------
Total liabilities and stockholders' equity $24,257 $16,156
====== ======
<FN>
See accompanying notes.
</TABLE>
2
<PAGE>
<TABLE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
<CAPTION>
First Quarter Ended
June 30
1997 1996
-------------------
(Unaudited)
<S> <C> <C>
Sales $6,574 $7,789
Cost of sales 5,393 6,108
----- -----
Gross profit 1,181 1,681
Operating expenses:
Selling, general & administrative 1,140 1,097
Special charge (See Note D) 210 -
----- -----
1,350 1,097
Operating income (loss) (169) 584
Other income (expense):
Interest expense (66) (31)
Other income 20 6
----- -----
(46) (25)
----- -----
Income (loss) before taxes (215) 559
Provision (benefit) for income taxes (82) 212
----- -----
Net income (loss) $ (133) $ 347
===== =====
Earnings (loss) per share (Note B) $(.021) $ .056
Cash dividends per share $ .010 $ .009
<FN>
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Three Months Ended
June 30
1997 1996
------------------
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (133) $ 347
Adjustments to reconcile net income
(loss) to cash used in operations:
Depreciation and amortization 184 144
Amortization of Goodwill 19 -
Deferred income taxes 209 (10)
Cash flows impacted by changes in:
Accounts receivable 1,351 (2,661)
Costs and estimated earnings in excess
of billings on uncompleted contracts (773) 588
Inventories (652) (1,604)
Prepaid expenses 24 (233)
Long-term accounts receivable, retainage 7 240
Deferred charges (172) (56)
Accounts payable 586 66
Accrued liabilities (196) (33)
Billings in excess of costs and estimated
earnings on uncompleted contracts 340 1,319
Income taxes payable/receivable (783) (73)
Other (102) (2)
------ ------
Net cash used in operating activities (91) (1,968)
INVESTING ACTIVITIES
Purchase of plant and equipment (44) (86)
Acquisition of Roflan - (990)
Acquisition of TANO (2,000) -
Acquisition of MCII (500) -
------ ------
Net cash used in investing activities (2,544) (1,076)
FINANCING ACTIVITIES
Principal payments on debt (2,882) (1,002)
Borrowings on debt 4,700 3,025
Assumed debt to insurance company - 647
Dividends paid (61) (56)
------ ------
Net cash provided by financing activities 1,757 2,614
------ ------
Net decrease in cash (878) (430)
Cash at beginning of period 1,165 598
------ ------
Cash at end of period $ 87 $ 168
===== ======
<FN>
See accompanying notes.
</TABLE>
4
<PAGE>
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated financial statements
include Westwood wholly-owned subsidiaries NMP Corp., Roflan
Associates, Inc. (and its wholly-owned subsidiary Peter Gray
Corporation), Rox Corp, TANO Corp., and MCII Electric Company,
Inc. (See Note C). These statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. Management believes all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the
fiscal first quarter ended June 30, 1997 may not necessarily be
indicative of the results that may be expected for the year
ended March 31, 1998. For further information, refer to the
consolidated financial statements and footnotes included in
Westwood Corporation's annual report on Form 10-K for the year
ended March 31, 1997, and Forms 8-K dated May 13, 1997 and
May 28, 1997.
Note B - Common Stock
- ---------------------
The financial statements, including earnings and dividend per
share calculations, reflect the impact of 10% stock dividends
approved by the Board of Directors on November 7, 1996, as well
as the issuance of 125,000 shares in connection with the
acquisition of MCII Electric Company, Inc. on May 28, 1997.
As of June 30, 1997, stock options issued under directors and
employees plans were for 645,900 shares, and no options have
been exercised or canceled.
Note C - Acquisitions
- ---------------------
On May 13, 1997, the Company purchased the assets and liabilities
of TANO Automation, Inc.'s Marine Automation Control Division
("TANO") for a total purchase price of $2,500,000. TANO designs,
manufactures, sells and services electrical automation and
control systems for both military and 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
5
<PAGE>
cash was advanced to the Company for the purchase of TANO and for
the payment of certain of the liabilities assumed. The
transaction was accounted for as a purchase and the purchase
price and related direct expenses associated with the acquisition
were allocated on a preliminary basis to the fair value of the
assets purchased and liabilities assumed. These costs exceeded
the fair value of the net assets acquired by $1,500,000, and are
being amortized over a fifteen-year period. The results
of operations have been included from the date of acquisition.
On May 28, 1997, the Company purchased 100% of the issued and
outstanding common stock of MCII Electric Company, Inc. ("MCII")
for $2,000,000 in cash plus 125,000 shares of the Company's
common stock. MCII designs and manufactures mobile generator
sets for both military and commercial applications. The
transaction involved the payment of $500,000 on May 28, 1997
plus three noninterest-bearing annual installments of $500,000
each through May 28, 2000. The transaction was funded by a
$2,700,000 draw on NMP's amended revolving credit facility to
purchase MCII and pay certain of the liabilities assumed. In
accordance with purchase accounting, the purchase price and
related direct expenses associated with the acquisition were
allocated on a preliminary basis to the fair value of the assets
purchased and liabilities assumed. These costs exceeded the
fair value of the net assets acquired by $1,800,000 and are
being amortized over a fifteen-year period. The results of
operations have been included from the date of acquisition.
Note D - Special Charge
- -----------------------
During the first quarter ended June 30, 1997, the Company
implemented plans to reorganize and relocate certain
manufacturing and engineering operations in Tulsa, as well as
relocate Roflan's manufacturing operations from Massachusetts to
Tulsa. A special charge of $210,000 was recorded for the direct
costs relating to this relocation.
6
<PAGE>
WESTWOOD CORPORATION
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
June 30, 1997
GENERAL
Results of Operations
- ---------------------
The first quarter ended June 30, 1997 saw a number of major
changes for Westwood Corporation. The Company completed the
acquisitions of TANO and MCII, and completed a major relocation
of certain manufacturing operations. These changes were in line
with the Company's plans to diversify and improve long-term
profitability. The Company had been dependent upon long-term
switchgear contracts relating to major new shipbuilding programs
for the bulk of its sales revenues, and the recent acquisitions
are major steps in a redirection into potential growth areas.
The Company anticipates that the full positive effects of the
recent acquisitions, as well as cost savings from the recent
manufacturing relocations, will begin to be realized in the
third and fourth quarters of fiscal 1998.
First Quarter Ended June 30, 1997 and 1996
- ------------------------------------------
Consolidated sales for the fiscal first quarter ended June 30,
1997 were $6,574,000, a 15.6% reduction compared to the same
quarter last year. Operations for the quarter lost $169,000,
compared to an operating income of $584,000 for the same period
last year. For the quarter, the Company incurred a net loss of
$133,000, compared to earning net income of $347,000 for the
same quarter last year.
Lower sales revenues were primarily a result of the winding down
of the major DDG-51 contract, as well as the negative impact on
production and shipments as the result of the relocation of
certain manufacturing operations. This relocation had a
significant impact on marine hardware production in May and
June, and the Company recorded a special charge of $210,000 for
costs associated with the relocation. Also contributing to
lower operating income during the quarter were lower sales
volume and increased scrap costs at the Peter Gray Corporation.
Of the two acquisitions completed during the quarter, TANO had a
positive impact on operations. MCII had a negative impact
on operations during the quarter due to the development and
7
<PAGE>
production stages of its major contracts, as well as the
requirement for major contract reviews and systems improvements
throughout MCII's operations.
Liquidity and Capital Resources
- -------------------------------
Operating activities for the fiscal first quarter ended June 30,
1997 resulted in net cash used of $91,000. During this period,
cash was used in a net loss of $133,000, with other major cash
adjustments and sources being depreciation and amortization of
$184,000, reduction in accounts receivable of $1,351,000,
increases in accounts payable of $586,000, and increases in
billings in excess of costs and estimated earnings of $340,000.
Major uses of cash were increases in costs and estimated
earnings in excess of billings of $773,000, increases in
inventories of $652,000, increases in deferred charges of
$172,000, reductions in accrued liabilities of $196,000, and
change in income taxes payable/receivable of $783,000. Lower
sales volume was the primary factor in the above changes, except
for the changes in deferred charges and accrued liabilities.
The acquisitions of TANO and MCII were the significant investing
activities during the quarter. To facilitate these acquisitions,
the Company utilized available cash funds of $654.000, and
borrowed a total of $4,500,000, of which $2,500,000 was under an
amended revolving credit agreement, and $2,000,000 under a short-
term loan. Subsequently, through June 30, 1997, the Company
borrowed an additional $200,000 under the revolving credit
agreement.
As a result of these acquisitions and related debt, the
Company's debt to equity ratio changed from .4:1 at March 31,
1997 to 1.1:1 at June 30, 1997.
A new banking agreement now in process of completion provides
for a $4,000,000 revolving line of credit and a $2,500,000
5-year term loan, which will include the retirement of the
$635,000 term loan of the Peter Gray Company. This agreement is
expected to be finalized by the end of August. The Company
believes that this increased borrowing capacity, along with
operating cash flows, will be adequate for future operations.
The discussions in this section contain forward looking
statements that involve a number of risks and uncertainties.
Among factors that would cause actual results to differ
materially are the following: business conditions in the
military and commercial industries served by the Company,
conditions in the general economy; changes in customer order
patterns including timing of delivery; risk of non-payment
customer receivables; competitive factors; and other risk
factors listed from time to time in the Company's reports with
the Securities and Exchange Commission.
8
<PAGE>
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Regular Quarterly Dividend
- --------------------------
The regular quarterly dividend of $.01 per common share has been
declared to stockholders of record on September 1, 1997, and
payable on September 22, 1997.
ITEM 6. REPORTS ON FORM 8-K
On June 5, 1997, the Company filed a Form 8-K to disclose the
acquisition of the Marine Automation Control Division of TANO
Automation, Inc., a Louisiana corporation, by the Company's
newly formed wholly-owned Louisiana subsidiary. The June 5,
1997 Form 8-K also included the TANO Agreement of Purchase and
Sale of Assets as Exhibit 10.11.
On June 12, 1997, the Company filed a Form 8-K to disclose the
acquisition of 100% of the issued and outstanding shares of
common stock of MCII Electric Company, Inc., a Texas corporation.
The June 12, 1997 Form 8-K included the MCII Electric Company,
Inc.'s Stock Purchase Agreement as Exhibit 10.12.
The June 12, 1997 Form 8-K, the Company also disclosed the
appointment of John H. Williams, of Tulsa, Oklahoma, to the
Company's Board of Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
DATE: August 14, 1997 WESTWOOD CORPORATION
By: /s/ Ernest H. McKee
----------------------------
Ernest H. McKee, Director
President and
Chief Executive Officer
By: /s/ Paul R. Carolus
----------------------------
Paul R. Carolus, Director
Secretary/Treasurer and
Chief Financial Officer
9
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE BALANCE SHEETS AND STATEMENT OF INCOME, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 287
<SECURITIES> 0
<RECEIVABLES> 4,656
<ALLOWANCES> 0
<INVENTORY> 8,700
<CURRENT-ASSETS> 15,832
<PP&E> 6,873
<DEPRECIATION> 3,156
<TOTAL-ASSETS> 24,257
<CURRENT-LIABILITIES> 8,299
<BONDS> 0
0
0
<COMMON> 19
<OTHER-SE> 11,442
<TOTAL-LIABILITY-AND-EQUITY> 24,257
<SALES> 6,574
<TOTAL-REVENUES> 6,574
<CGS> 5,393
<TOTAL-COSTS> 6,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> (215)
<INCOME-TAX> (82)
<INCOME-CONTINUING> (133)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (133)
<EPS-PRIMARY> (.021)
<EPS-DILUTED> 0
</TABLE>
