<PAGE>
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 December 31, 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
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
5314 South Yale Street, 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 February 11, 1999
- ----------------------------- --------------------------------
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
December 31, 1998 and March 31, 1998 1
Consolidated Statements of Operations for
the Third Quarter and Nine Months ended
December 31, 1998 and 1997 3
Consolidated Statement of Cash Flows
for the Nine Months ended December 31,
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 (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 (None)
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31 March 31
1998 1998
----------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 402 $ 574
Accounts receivable (including retainage
receivable of $44,376 at December 31,
1998, and $58,000 at March 31, 1998), net
of allowance for doubtful accounts 4,332 4,390
Note receivable - Officer - 55
Income tax receivable 383 502
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,277 2,854
Inventories:
Raw materials and purchased parts 3,798 3,849
Work-in-process 1,721 1,786
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5,519 5,635
Prepaid expenses 143 130
Current deferred income taxes 343 354
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Total current assets 12,399 14,494
Plant and equipment, at cost:
Leasehold improvements 815 820
Machinery and equipment 4,660 4,341
Patterns and tools 430 430
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5,905 5,591
Accumulated depreciation ( 3,500) (2,858)
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2,405 2,733
Goodwill (net) 6,369 6,725
Long-term accounts receivable, retainage 666 816
Deferred charges & other 26 63
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Total Assets $21,865 $24,831
======== =======
See accompanying notes.
1
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WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31 March 31
1998 1998
----------------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,639 $ 3,971
Accrued liabilities 959 1,518
Accrued rent 81 81
Billings in excess of costs and estimated
earnings on uncompleted contracts 493 855
Current portion of long-term debt:
Payable to bank 4,488 4,500
Note payable 51 51
Acquisition debt 825 387
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5,364 4,938
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Total current liabilities 9,536 11,363
Accrued rent 154 215
Long-term debt:
Payable to bank 2,000 1,750
Note payable 524 526
Acquisition debt 438 876
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2,962 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 shares issued
and outstanding at December 31, 1998
and March 31, 1998, respectively 21 21
Capital in excess of par value 5,978 5,978
Retained earnings 3,196 4,084
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Total stockholders' equity 9,195 10,083
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Total liabilities and stockholders' equity $21,865 $24,831
======= =======
See accompanying notes.
2
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WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
Third Quarter Ended Nine Months Ended
December 31 December 31
1998 1997 1998 1997
------------------- -----------------
(Unaudited) (Unaudited)
Sales $7,572 $7,737 $23,795 $22,231
Cost of sales 6,681 6,077 20,944 17,615
------ ------ ------- -------
Gross profit 891 1,660 2,851 4,616
Operating expenses:
Selling, general & admin. 1,300 1,642 3,752 4,766
Special charge - - - 210
------ ------ ------- -------
1,300 1,642 3,752 4,976
------ ------ ------- -------
Operating income (loss) (409) 18 (901) (360)
Other income (expense):
Interest expense (111) (116) (445) (318)
Other income (expense) 4 (14) 100 1
Gain on sale of subsidiary - - - 797
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(107) (130) (345) 480
------ ------ ------- -------
Income (loss) before taxes (516) (112) (1,246) 120
Provision for income taxes (178) (42) (428) 46
------ ------ ------- -------
Net income (loss) $ (338) $ (70) $ (818) $ 74
====== ====== ======= =======
Basic, and diluted, earnings
(loss) per share $(.049) $(.010) $ (.119) $ .011
Cash dividends per share $ - $ .009 $ .010 $ .027
See accompanying notes.
3
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WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
December 31
1998 1997
-----------------
(Unaudited)
Operating activities
Net income (loss) $ (818) $ 74
Adjustments to reconcile net income (loss)
to cash provided (used) in operations:
Depreciation and amortization 642 684
Amortization of goodwill 356 247
Deferred income taxes 11 -
Cash flows impacted by changes in:
Accounts receivable 58 1,397
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,577 (986)
Inventories 116 (3,591)
Prepaid expenses (13) (24)
Long-term accounts receivable, retainage 150 30
Deferred charges 37 142
Accounts payable (1,332) 1,613
Accrued liabilities and rent (559) (428)
Billings in excess of costs and estimated
earnings on uncompleted contracts (362) (1,078)
Income taxes payable/receivable 119 (471)
Other 55 (495)
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Net cash provided (used) in operating activities 37 (2,886)
Investing activities
Purchase of plant and equipment (314) (236)
Acquisition of TANO - (2,000)
Acquisition of MCII - (500)
Sale of RoxCorp - 2,547
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Net cash used in investing activities (314) (189)
Financing activities
Principal payments on debt (1,076) (5,065)
Borrowings on debt 1,250 7,650
Dividends paid (69) (187)
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Net cash provided by financing activities 105 2,398
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Net decrease in cash (172) (677)
Cash at beginning of period 574 1,165
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Cash at end of period $ 402 $ 488
======= =======
See accompanying notes.
4
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WESTWOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
Note 1 - 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), 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 third quarter ended December 31, 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
- ---------------------
The financial statements, including earnings per share calculation, reflect a
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
DECEMBER 31, 1998
GENERAL
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Results of Operations - Third Quarter Ended December 31, 1998 and 1997
- ----------------------------------------------------------------------
For the third quarter ended December 31, 1998, the Company had a net loss of
$338,000 compared to a net loss of $70,000 for the same quarter last year. Net
loss per share was $.049 for 1998 compared to a net loss per share of $.010 for
the same period last year.
Sales for the third quarter ended December 31, 1998 were $7,572,000, compared to
$7,737,000 for the same period last year. Though sales decreased only 2.1%,
gross profit decreased 46.3% compared to the same quarter last year primarily as
a result of increased completion costs for certain MCII contracts and lower
contribution from marine electrical hardware products.
Operating expenses decreased 20.8% for 1998 compared to the same period last
year, which included nonrecurring expenses related to MCII operations.
A breakdown of sales by the Company's major product groups follows:
Mobile power systems sales for the third quarter of 1998 were $2,915,000, an
increase of 87.6% over last year. The sales increase was mainly a result of
shipments under the Air Force MEP-12 contract.
Sales of marine electrical hardware products for 1998 were $1,669,000, a 41.2%
decrease compared to last year. Lower shipments of symbol items and titanium
products accounted for most of the comparative decrease in sales.
Sales revenues of electrical switchgear for 1998 were $1,283,000, a 19.7%
increase over the same quarter last year, and primarily a result of increased
shipments of panelboards and electronics products.
Sales revenues for engineered automation and control systems for 1998 were
$1,705,000, a 24.9% decrease compared to the same quarter last year.
Nine Months Ended December 31, 1998 and 1997
- --------------------------------------------
For the nine months ended December 31, 1998, the Company had a net loss of
$818,000, compared to net income of $74,000 for the same period last year, which
included a pretax gain of $797,000 from the sale of a subsidiary. Net loss per
share was $.119 for 1998 compared to net earnings of $.011 per share for the
prior year.
6
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Sales for the nine months ended December 31, 1998 were $23,795,000, a 7.0%
increase compared to the previous year. Sales of mobile power systems accounted
for all of the increase for the period, while sales revenues from marine
hardware and electrical switchgear products, as well as engineered automation
and control systems, were lower than the same period last year. Also, the
previous year included RoxCorp sales.
Gross profit for 1998, as a percentage of sales, decreased to 12.0% compared to
20.8% for the same period last year. A major factor in this decrease was the
significant completion costs incurred in the second quarter to meet the critical
delivery date of the preproduction phase of the MCII TQG development contract.
Also in comparison with last year, that period's gross profit included RoxCorp
which had high-gross margins.
The Company incurred an operating loss of $901,000 for the nine months ended
December 31, 1998 compared to an operating loss of $360,000 for the same period
last year. Operating expenses for the current period decreased 24.6% compared
to last year which included RoxCorp operations.
Liquidity and Capital Resources
- -------------------------------
Operating activities for the nine months ended December 31, 1998 resulted in net
cash provided of $37,000. During this period, the net loss used cash of
$818,000, with major operating adjustments and sources being depreciation of
$642,000 and amortization of goodwill of $356,000. Additional sources of cash
were decreases in accounts receivable of $58,000, costs and estimated earnings
in excess of billings of $1,577,000, inventories of $116,000, long-term accounts
receivable, retainage of $150,000, and income taxes payable/receivable of
$119,000. Major uses of cash in operating activities were decreases in accounts
payable of $1,332,000, accrued liabilities of $559,000, and billings in excess
of costs and estimated earnings on uncompleted contracts of $362,000.
A major factor in the substantial decrease in both costs and estimated earnings
in excess of billings, and billings in excess of costs and estimated earnings on
uncompleted contracts was the completion of the first article test units under
the TQG development contract, which provided cash to pay down accounts payable
and accrued liabilities.
On December 30, 1998, the Company renewed and restructured its NationsBank
credit facility. The revolving credit line, which matures June 5, 1999, was
increased $500,000 to $4,500,000 and is based upon acceptable receivables and
inventories. The Company has a term note of $2,500,000 with monthly payments
of principal and interest, and a balloon payment of all remaining unpaid
principal and interest due November 5, 2000. At December 31, 1998, the Company
had $500,000 available under its revolving line of credit.
The Company anticipates receipt of the production order phase of the TQG
contract following product testing currently being conducted. The production
and inventory buildup connected with this contract will require a substantial
increase in short-term working capital requirements. The Company is currently
in discussions with its lender concerning potential funding and expects that
bank financing will be available.
7
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On January 29, 1999 the Company's subsidiary Peter Gray Corporation completed an
agreement to terminate its existing real property lease and the secured note
payable due November 1, 2001, to its landlord in exchange for a cash payment of
$167,500 by Peter Gray and provision to vacate the premises in 90 days. As a
result of this transaction, the Company will record a reduction in long-term
debt of approximately $570,000, accrued rent of $235,000, and a write off of
leasehold improvements of $370,000. The Company is currently in discussions
concerning the potential sale of the remaining operating assets of Peter Gray.
Year 2000 Compliance
- --------------------
As a result of both internal and external review processes, the Company has
implemented new accounting, engineering, and information system software which
has been represented by the manufacturers to be Year 2000 compliant. The
Company has also acquired hardware items including additional workstations and
periphery equipment to facilitate the implementation of the new software
processing systems. The new information software system has been installed and
the Company is completing employee training as of this date. Implementation of
the system is expected to be complete by April 30, 1999. The Company's new
software processing system has thus far been installed at the Company, and its
subsidiaries, NMP Corp. and MC II in Dallas. TANO Corp. utilizes its own
information, accounting and processing software which is already believed to be
Year 2000 compliant.
The Company and its subsidiaries have conducted Year 2000 Compliance surveys and
inquiries with substantially all of their vendors, suppliers, and professional
and service organizations, consisting of approximately 1500 entities. The
Company has received a return rate of approximately 95% of NMP's vendor survey
letters and 85% of MC II's vendor survey letters. Approximately 90% of the
surveys indicate general Y2K compliance. Those survey letters indicating a lack
of current Y2K compliance have provided the Company with a time line in which
these entities believe they will be Y2K compliant. The Company is following up
with vendors and suppliers that have not yet returned Y2K compliant surveys and
does not believe that any such entities provide services or supplies which are
critical to the Company's production, manufacturing, and distribution functions.
To date, the Company has incurred software implementation costs of approximately
$120,000. Costs of labor, and personnel time for purposes of the Year 2000
Compliance reviews, training, and implementation have not been determined as of
this date. However, the Company believes that its original estimates contained
in prior reports of approximately $250,000 will not be exceeded. The Company
will update this estimate as additional information becomes available. The cost
of the Company's Year 2000 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.
The Company is endeavoring to achieve Year 2000 Readiness by the end of June,
1999 so that cooperative validation testing can be conducted with selected
vendors, suppliers, and customers. The Company is relying, in part, on survey
representation of approximately 1500 business
8
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organizations as well as defense related customers to whom the Company sells its
products. The Company does not have control over these third parties and, as a
result, cannot currently estimate to what extent future operating results may be
adversely affected by the failure of these third parties to successfully address
their Year 2000 issues.
Statements included in this Form 10-Q constitute "year 2000 readiness
disclosures" subject to the Year 2000 Information and Readiness Disclosure Act
of 1998.
Forward Looking Information
- ---------------------------
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.
PART II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) The following document is filed as an exhibit to this Form 10-Q:
Exhibit 27 - Financial Data Schedule.
(b) No reports on Form 8-K were filed during the period.
9
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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: February 12, 1999 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
10
<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>
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<PERIOD-END> DEC-31-1998
<CASH> 402
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<RECEIVABLES> 4,332
<ALLOWANCES> 44
<INVENTORY> 5,519
<CURRENT-ASSETS> 12,399
<PP&E> 5,905
<DEPRECIATION> 3,500
<TOTAL-ASSETS> 21,865
<CURRENT-LIABILITIES> 9,536
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0
0
<COMMON> 21
<OTHER-SE> 9,174
<TOTAL-LIABILITY-AND-EQUITY> 21,865
<SALES> 23,795
<TOTAL-REVENUES> 23,795
<CGS> 20,944
<TOTAL-COSTS> 24,696
<OTHER-EXPENSES> (345)
<LOSS-PROVISION> 0
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<INCOME-PRETAX> (1,246)
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<NET-INCOME> (818)
<EPS-PRIMARY> (.12)
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