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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, 1998
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or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
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Commission File Number: 0-19381
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WESTWOOD CORPORATION
(Exact name of registrant as specified in its charter)
Nevada 87-0430944
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
5314 South Yale Street, Tulsa, Oklahoma 74135
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 524-0002
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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, 1998
- ------------------------------ ------------------------------
Common Stock, $.003 par value 6,891,647
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INDEX
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Page No.
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Part I Financial Information:
Consolidated Balance Sheets as of
June 30, 1998 and March 31, 1998 1
Consolidated Statement of Income for the
First Quarter ended June 30, 1998 and 1997 3
Consolidated Statement of Cash Flows for the
Three Months ended June 30, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II Other Information:
Item 1. Legal Proceedings
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 (None) 9
Signatures 9
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WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30 March 31
1998 1998
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(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 245 $ 574
Accounts receivable (including retainage
receivable of $61,000 at June 30, 1998
and $58,000 at March 31, 1998), net of
allowance for doubtful accounts 2,835 4,390
Note receivable - Officer 56 55
Income tax receivable 477 502
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,188 2,854
Inventories:
Raw materials and purchased parts 3,570 3,849
Work-in-process 2,209 1,786
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5,779 5,635
Prepaid expenses 164 130
Current deferred income taxes 373 354
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Total current assets 13,117 14,494
Plant and equipment, at cost:
Leasehold improvements 815 820
Machinery and equipment 4,448 4,341
Patterns and tools 430 430
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5,693 5,591
Accumulated depreciation ( 3,082) (2,858)
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2,611 2,733
Goodwill (net) 6,607 6,725
Long-term accounts receivable, retainage 734 816
Deferred charges & other 57 63
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Total Assets $ 23,126 $24,831
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See accompanying notes
1
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WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
JUNE 30 March 31
1998 1998
-----------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,345 $ 3,971
Accrued liabilities 1,328 1,518
Accrued rent 81 81
Billings in excess of costs and estimated
earnings on uncompleted contracts 759 855
Current portion of long-term debt:
Payable to bank 4,900 4,500
Note payable 51 51
Acquisition debt 387 387
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5,338 4,938
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Total current liabilities 9,851 11,363
Accrued rent 188 215
Long-term debt:
Payable to bank 1,625 1,750
Note payable 506 526
Acquisition debt 876 876
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3,007 3,152
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Deferred income taxes 18 18
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, 6,891,647 and 6,891,647
shares issued and outstanding at June 30,
1998 and March 31, 1998, respectively 21 21
Capital in excess of par value 5,978 5,978
Retained earnings 4,063 4,084
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Total stockholders' equity 10,062 10,083
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Total liabilities and stockholders' equity $23,126 $24,831
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See accompanying notes.
2
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WESTWOOD CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(In Thousands)
FIRST QUARTER ENDED
JUNE 30
1998 1997
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(Unaudited)
Sales $7,499 $6,574
Cost of sales 6,052 5,393
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Gross profit 1,447 1,181
Operating expenses:
Selling, general & administrative 1,214 1,140
Special charge - 210
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1,214 1,350
Operating income (loss) 233 (169)
Other income (expense):
Interest expense (164) (66)
Other income (expense) 4 20
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(160) (46)
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Income (loss) before taxes 73 (215)
Provision (benefit) for income taxes 25 (82)
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Net income (loss) $ 48 $ (133)
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Basic, and diluted, earnings
(loss) per share $ .007 $ (.019)
Cash dividends per share $ .010 $ .009
See accompanying notes
3
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WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
June 30
1998 1997
-------------------
(Unaudited)
OPERATING ACTIVITIES
Net income (loss) $ 48 $ (133)
Adjustments to reconcile net income (loss)
to cash used in operations:
Depreciation and amortization 224 184
Amortization of goodwill 118 19
Deferred income taxes (19) 209
Cash flows impacted by changes in:
Accounts receivable 1,555 1,351
Costs and estimated earnings in excess
of billings on uncompleted contracts (334) (773)
Inventories (144) (652)
Prepaid expenses (34) 24
Long-term accounts receivable, retainage 82 7
Deferred charges 6 (172)
Accounts payable (1,626) 586
Accrued liabilities and rent (217) (196)
Billings in excess of costs and estimated
earnings on uncompleted contracts (96) 340
Income taxes payable/receivable 25 (783)
Other (1) (102)
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Net cash used in operating activities (413) (91)
INVESTING ACTIVITIES
Purchase of plant and equipment (102) (44)
Acquisition of TANO - (2,000)
Acquisition of MCII - (500)
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Net cash used in investing activities (102) (2,544)
FINANCING ACTIVITIES
Principal payments on debt (145) (2,882)
Borrowings on debt 400 4,700
Dividends paid (69) (61)
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Net cash provided by financing activities 186 1,757
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Net decrease in cash (329) (878)
Cash at beginning of period 574 1,165
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Cash at end of period $ 245 $ 287
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See accompanying notes.
4
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WESTWOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
Note 1 - Basis of Presentation
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The accompanying unaudited consolidated financial statements include Westwood
wholly-owned subsidiaries NMP Corp., Roflan Associates, Inc. (and its wholly-
owned subsidiary Peter Gray Corporation), TANO Corp., and MCII Electric Company,
Inc. Operations of TANO Corp and MCII Electric are included beginning June
1997, and operations of RoxCorp are included through September 1997, when this
company was sold. 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, 1998 may not necessarily be
indicative of the results that may be expected for the year ended March 31,
1999. 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, 1998.
Note 2 - Common Stock
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The financial statements, including earnings per share calculation, reflect 10%
stock dividend declared in November 1997.
5
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WESTWOOD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
June 30, 1998
GENERAL
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Results of Operations - First Quarter Ended June 30, 1998 and 1997
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For the first quarter ended June 30, 1998, the Company had net income of $48,000
compared to a net loss of $133,000 for the same quarter of the previous year.
Net income per share was $.007 compared to a net loss of $.019 per share for the
prior year.
Consolidated sales for the first quarter ended June 30, 1998 increased 14.1% to
$7,499,000 compared to $6,574,000 for the previous year. A major factor in this
increase was higher sales revenues from shipments of mobile power systems by
MCII. However, lower sales of marine electrical switchgear products by NMP
Corp. partially offset the increase. Also, last year's first quarter operations
included RoxCorp. sales.
Gross profit, as a percentage of sales, increased to 19.3% compared to 18.0% for
the prior year. Higher margins at MCII were a significant factor in this
improvement.
Operating income for the quarter was $233,000 compared to an operating loss of
$169,000 last year, which included a special charge of $210,000 to reorganize
and relocate certain manufacturing and engineering operations in Tulsa, as well
as relocate Roflan's manufacturing operations from Massachusetts to Tulsa.
Interest expense increased 148.5% over last year, primarily due to the higher
level of debt as a result of recent acquisitions.
A breakdown of sales by the Company's major product groups follows:
Mobile power system sales for the first quarter were $3,191,000, compared to
$111,000 for last year reflecting the May 28, 1997 acquisition of MCII. The
sales increase was mainly a result of shipments under the Air Force MEP-12
contract.
Sales of marine electrical hardware products for the quarter were $2,183,000, a
27.7% increase over the same period last year. Higher shipments of symbol items
and titanium products contributed substantially to the increase in sales.
Engineered automation and control system sales were $1,323,000, a 10.3% increase
over the amount included in last year's first quarter, when TANO was acquired in
May, 1997.
6
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Marine electrical switchgear sales revenue for the first quarter decreased 64.4%
to $802,000, compared to $2,252,000 for the same period last year, and reflects
the completion of the DDG-51 contract and resulting lower backlog for this
product group.
Liquidity and Capital Resources
- -------------------------------
Operating activities for the three months ended June 30, 1998 resulted in net
cash used of $413,000. During this period, net income provided cash of $48,000,
with major operating adjustments and sources being depreciation of $224,000,
amortization of goodwill of $118,000 and decreases in accounts receivable of
$1,555,000. Major uses of cash in operating activities were increases in costs
and estimated earnings in excess of billings of $334,000, and increases in
inventories of $144,000, reductions in accounts payable of $1,626,000, accrued
liabilities of $217,000, and billings in excess of costs and estimated earnings
on uncompleted contracts of $96,000.
A major factor in the substantial decrease in accounts receivable was the
collection of large progress billings at MCII and corresponding payments of
accounts payable which also reflect a significant decrease.
On July 10, 1998 the credit agreement with NationsBank was amended to provide a
$600,000 increase to the $400,000 term loan that was executed on February 23,
1998. The amended $1,000,000 term loan facility matures September 5, 1998,
along with the Company's $4,000,000 one year revolving line of credit. The
Company has begun initial discussions with the bank to review the existing
credit line.
The Company is currently in discussion with the U.S. Government regarding
contractual payment terms related to shipments in connection with the major TQG
reengineering contract at MCII. Until this situation is resolved, future
funding requirements may increase.
Year 2000 Compliance
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The Company has initiated a company-wide project to address the year 2000
compliance issue for all technology hardware and software, either purchased or
produced, external interfaces with customers and suppliers, operations process
control, accounting and information systems, and facility items. The assessment
phase of this project as it relates to traditional information technology areas
should be substantially complete by the end of September, 1998. Necessary
conversion and replacement activities will begin when needs are determined.
The Company expects to utilize both internal and external resources to complete
this process. Costs incurred for new software and hardware purchases will be
capitalized and other costs will be expensed as incurred.
While the total cost of this project is still being evaluated, the Company
estimates that external costs, excluding previously planned system replacements,
necessary to complete the project within the
7
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schedule described will total approximately $250,000. The Company will update
this estimate as additional information becomes available. The costs of the
project and the completion dates are based on management's best estimates, which
were derived utilizing numerous assumptions of future events, including the
continued availability of certain resources, third party year 2000 compliance
modification plans and other factors. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from these
estimates.
Forward Looking Information
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Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although the Company believes such forward-
looking statements are based on reasonable assumptions, no assurance can be
given that every objective will be reached. Such statements are made in
reliance on the safe harbor protections provided under the Private Securities
Litigation Reform Act of 1995.
As required by such Act, the Company hereby identifies the following important
factors that could cause actual results to differ materially from any results
projected, forecasted, estimated or budgeted by the Company in forward-looking
statements: (i) risks and uncertainties impacting the Company as a whole relate
to changes in general economic conditions in the United States; the availability
and cost of capital; changes in laws and regulations to which the Company is
subject, including tax, environmental and employment laws and regulations; the
cost and effects of legal and administrative claims and proceedings against the
Company or it subsidiaries or which may be brought against the Company or its
subsidiaries; conditions of the capital markets utilized by the Company to
access capital to finance operations; and, to the extent the Company increases
its investments and activities abroad, such investments and activities will be
subject to foreign economies, laws, and regulations; and (ii) for the Company's
defense related business, business conditions in the military and commercial
industries served by the Company; Federal Government defense budgeting process;
compliance with Government contract and inspection programs; and other risk
factors listed from time to time in the Company's reports with the Securities
and Exchange Commission.
8
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
A quarterly dividend of $.01 per common share was declared to stockholders of
record on June 1, 1998, and paid on June 22, 1998. Because the Company reported
a loss from operations as of the end of its March 31, 1998 fiscal year end, the
Company was required to obtain a waiver from its lender to pay the June
quarterly dividend. While the Company believes that it can continue to obtain
waivers for the payment of subsequent quarterly dividends, as discussed in its
Form 10-K for the fiscal year ended March 31, 1998, no assurance to that effect
can be made. In addition, no assurance can be given that the Company's current
dividend policy will not be changed in the future based on factors of capital
needs, financing and lending activities and requirements, and other matters.
ITEM 6. REPORTS ON FORM 8-K
There were no filings of Reports on Form 8-K for the period covered by this Form
10-Q.
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, 1998 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>
<PAGE>
<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> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 245
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<RECEIVABLES> 2,891
<ALLOWANCES> 65
<INVENTORY> 5,779
<CURRENT-ASSETS> 13,117
<PP&E> 5,693
<DEPRECIATION> 3,082
<TOTAL-ASSETS> 23,126
<CURRENT-LIABILITIES> 9,851
<BONDS> 3,007
0
0
<COMMON> 21
<OTHER-SE> 10,062
<TOTAL-LIABILITY-AND-EQUITY> 23,126
<SALES> 7,499
<TOTAL-REVENUES> 7,499
<CGS> 6,052
<TOTAL-COSTS> 7,266
<OTHER-EXPENSES> (160)
<LOSS-PROVISION> 0
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