<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 September 30, 2000 .
---------------------------------------
or
( ) TRANSITION 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 jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
12402 East 60th Street, Tulsa, Oklahoma 74146
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (918) 250-4411
----------------------------
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 November 14, 2000
----------------------------- --------------------------------
Common Stock, $.003 par value 6,891,647
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I Financial Information:
Consolidated Balance Sheets as of
September 30, 2000, and March 31, 2000 1
Consolidated Statements of Operations
for the second quarter and six months
ended September 30, 2000 and 1999 3
Consolidated Statement of Cash Flows
for the six months ended September 30,
2000 and 1999 4
Notes to Consolidated Financial Statements 5
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
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 13
Signatures 13
</TABLE>
(i)
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30 March 31
2000 2000
------------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 26 $ 293
Accounts receivable (including retainage
receivable of $277 at September 30, 2000
and $69 at March 31, 2000), net
of allowance for doubtful accounts 3,594 2,522
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,161 2,156
Inventories, primarily raw materials
and purchased parts 5,773 3,470
Prepaid expenses 155 67
Note Receivable 250 227
------- -------
Total current assets 10,959 8,735
Plant and equipment, at cost:
Leasehold improvements 364 251
Machinery and equipment 4,691 4,557
Patterns and tools 109 100
------- -------
5,164 4,908
Accumulated depreciation (3,353) (3,069)
------- -------
1,811 1,839
Goodwill (net) 4,541 4,735
Note Receivable 205 441
Loan origination costs (net) 51 57
Long-term accounts receivable, retainage 204 270
------- -------
Total Assets $17,771 $16,077
======= =======
See accompanying notes.
1
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30 March 31
2000 2000
--------------------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 4,561 $ 4,301
Accrued liabilities 839 1,371
Billings in excess of costs and estimated
earnings on uncompleted contracts 2,735 1,201
Current portion of long-term debt 2,495 1,158
------- -------
Total current liabilities 10,630 8,031
Long-term debt 2,419 2,686
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 September 30, 2000 and
March 31, 2000, respectively 21 21
Capital in excess of par value 5,978 5,978
Accumulated deficit (1,182) (544)
Treasury Stock, 127,000 shares at cost (95) (95)
------- -------
Total stockholders' equity 4,722 5,360
------- -------
Total liabilities and stockholders' equity $17,771 $16,077
======= =======
See accompanying notes.
2
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
<TABLE>
<CAPTION>
Second Quarter Ended Six Months Ended
September 30 September 30
2000 1999 2000 1999
----------------------- ---------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Sales $ 5,476 $ 4,246 $ 11,600 $ 8,940
Cost of sales 4,978 3,639 10,068 7,304
---------- --------- --------- --------
Gross profit 498 607 1,532 1,636
Operating expenses:
Selling, general & admin. 1,008 1,231 2,014 2,491
---------- --------- --------- --------
Operating loss (510) (624) (482) (855)
Other income (expense):
Interest expense (119) (130) (221) (245)
Other income (expense) (20) 24 65 47
Gain on sale of assets - 15 - 309
---------- --------- --------- --------
(139) (91) (156) 111
---------- --------- --------- --------
Loss before taxes (649) (715) (638) (744)
Benefit for income taxes - 211 - 211
---------- --------- --------- --------
Net Loss $ (649) $ (504) $ (638) $ (533)
========== ========= ========= ========
Basic, and diluted,
loss per share $ (.094) $ (.073) $ (.094) $ (.077)
Weighted average common shares
used in computing earnings per
share: 6,891,647 6,891,647 6,891,647 6,891,647
Cash dividends per share $ - $ - $ - $ -
</TABLE>
See accompanying notes.
3
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Six Months Ended
September 30
2000 1999
--------------------
(Unaudited)
<S> <C> <C>
Operating activities
Net loss $ (638) $ (533)
Adjustments to reconcile net income loss
to cash provided (used) in operations:
Depreciation and amortization of loan
origination costs 290 272
Amortization of goodwill 194 237
Non-cash interest income (37) -
Gain on sale of assets - (309)
Cash flows impacted by changes in:
Accounts receivable (1,072) 723
Costs and estimated earnings in excess
of billings on uncompleted contracts 995 (306)
Inventories (2,303) 236
Prepaid expenses (88) (23)
Long-term accounts receivable, retainage 66 161
Deferred charges - (1)
Accounts payable 260 (923)
Accrued liabilities (532) (173)
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,534 722
Income taxes payable/receivable - 578
------- -------
Net cash provided (used) in operating activities (1,331) 661
Investing activities
Purchase of plant and equipment (256) (209)
Receipt of payment on note receivable 250 -
Proceeds from sales of assets - 1,849
------- -------
Net cash provided (used) in investing activities (6) 1,640
Financing activities
Principal payments on debt (5,265) (6,559)
Borrowings on debt 6,335 4,000
Net cash (used) provided by financing activities 1,070 (2,559)
------- -------
Net decrease in cash (267) (258)
Cash at beginning of period 293 1,283
------- -------
Cash at end of period $ 26 $ 1,025
======= =======
</TABLE>
See accompanying notes.
4
<PAGE>
WESTWOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
Note 1 - Basis of Presentation
------------------------------
The accompanying unaudited consolidated financial statements include Westwood
wholly-owned subsidiaries NMP Corp., TANO Corp., and MCII Electric Company.
Consolidated operations for Westwood include Peter Gray Corporation only through
April, 1999, when its operations ceased, and NMP Corp. marine hardware products
only through July, 1999, when these hardware-related assets were 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 second
quarter and six months ended September 30, 2000, may not necessarily be
indicative of the results that may be expected for the year ended March 31,
2001. 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, 2000, and the first quarter fiscal 2001 report on Form
10-Q.
Note 2 - Sale of Businesses
---------------------------
In the third quarter of fiscal 1999, the Company decided to cease the operations
of Peter Gray and completed the sale of certain assets in the first quarter of
fiscal year 2000 for $696,000. Peter Gray's assets were classified as assets
held for sale at March 31, 1999, and the gain on disposal of these assets was
$294,000 in fiscal year 2000.
In July, 1999, the Company sold certain marine hardware-related assets of NMP
for a total sales price of $2,000,000. Of the total sales price, $1,250,000 was
received at closing. The remaining balance of $750,000 is to be received in
three annual installments of $250,000 each beginning September 1, 2000, and is
represented by a non-interest note receivable. The note has been discounted at
the borrowing rate of the Company and at September 30, 2000 is reflected as a
$250,000 short-term note receivable and a $250,000 long-term note receivable at
the discounted net present value.
5
<PAGE>
Note 3 - Long-Term Debt
-----------------------
The Company entered into a new credit facility in August 1999, which revolving
credit facility was renewed in August of 2000 with the same lender. In August
1999, the Company entered into a new five year $2,000,000 term note with
principal and interest installments due monthly. The five year term note
continues to be paid monthly and matures on August 13, 2004.
In December 1999, the Company completed a $1,000,000 convertible subordinated
debenture offering. The private placement was purchased by a small group of
outside investors as well as officers and directors of the Company. The
debentures bear interest of 10% per annum and mature on December 22, 2004. The
debentures are convertible into common stock at one share for each $1.00 of
debentures exercised. In connection with the issuance of the debentures, the
Company issued warrants to purchase up to 500,000 shares of common stock of the
Company at $1.00 per share. The warrants are exercisable within five years from
the date of issuance. The amount of warrants exercisable is dependent upon the
market price of the stock. As of September 30, 2000, none of the warrants were
exercisable.
In connection with the December 1999 settlement of contingencies related to the
acquisition of MCII Electric Company in May 1997, the Company settled the 1997
$1,500,000 non-interest bearing note payable to the seller of MCII Electric
Company with a $100,000 payment in cash and a new non-interest bearing note in
the amount of $300,000 payable in eight quarterly installments of $37,500 each,
beginning April 2000. The Company has recorded the new note at a discount rate
of 8.25%, which was consistent with the rate obtainable from its lender. The
balance of the note at the discounted value at September 30, 2000 is $176,000,
of which $139,000 is short-term and $37,000 is long-term.
At September 30, 2000 there was no remaining borrowing available on the
revolving credit facility. On October 25, 2000 the revolving credit facility was
increased to $2,800,000. The new agreement matures on March 25, 2001. Borrowing
on the credit facility at November 13, 2000 was $2,550,000.
The Company believes that improving profits in the third and fourth quarters of
the current fiscal year will enable it to be in compliance with all debt
covenants at March 31, 2001, and will produce cash flows sufficient to reduce
the reliance on the available borrowing.
6
<PAGE>
Note 4 - Income Taxes
---------------------
The Company generated a net operating loss carryforward in the first six months
of fiscal 2000 and 2001, whereby no deferred tax asset was established. The
Company filed an amended tax return for the fiscal year ended March 31, 1999,
which resulted in a refund of $211,000 and was recorded as a tax benefit for the
quarter ended September 30, 1999.
Note 5 - Comprehensive Income
-----------------------------
For the second quarter and six month periods ended September 30, 2000 and 1999,
respectively, comprehensive loss and net loss are the same.
7
<PAGE>
Note 6 - Segment Information
----------------------------
(In Thousands)
Revenues
-----------------
Three Months Ended Inter- Net Income Total
Sept. 30, 2000 External Segment Total (Loss) Assets
-------------- -------- ------- ----- ---------- ------
Marine Switchgear $ 3,483 $ 573 $ 4,056 $ 23 $17,798
Mobile Power Systems 864 - 864 (661) 5,111
Engineered Automation
and Control 1,129 398 1,527 29 4,764
Other - - - (43) 11,781
Eliminations - (971) (971) 3 (21,683)
------- ----- ------- ------- -------
Total $ 5,476 $ - $ 5,476 $ (649) $17,771
======= ===== ======= ======= =======
Three Months Ended
Sept. 30, 1999
--------------
Marine Switchgear $ 985 $ 174 $ 1,159 $ (71) $13,139
Mobile Power Systems 1,229 - 1,229 (792) 7,535
Engineered Automation
and Control 2,032 63 2,095 279 4,499
Other - - - (223) 15,689
Eliminations - (237) (237) 303 (24,606)
------- ----- ------- ------- -------
Total $ 4,246 $ - $ 4,246 $ (504) $16,256
======= ===== ======= ======= =======
Revenues
-----------------
Six Months Ended Inter- Net Income Total
Sept. 30, 2000 External Segment Total (Loss) Assets
-------------- -------- ------- ----- ---------- ------
Marine Switchgear $ 5,712 $1,107 $ 6,819 $ 159 $ 17,798
Mobile Power Systems 3,106 - 3,106 (648) 5,111
Engineered Automation
and Control 2,782 537 3,319 139 4,764
Other - - - (44) 11,781
Eliminations - (1,644) (1,644) (244) (21,683)
------- ------- -------- ------- --------
Total $11,600 $ - $ 11,600 $ (638) $ 17,771
======= ====== ======== ======= ========
Six Months Ended
Sept. 30, 1999
--------------
Marine Switchgear $ 3,585 $ 175 $ 3,760 $ 218 $ 13,139
Mobile Power Systems 1,710 - 1,710 (1,236) 7,535
Engineered Automation
and Control 3,645 117 3,762 502 4,499
Other - - - (228) 15,689
Eliminations - (292) (292) (211) (24,606)
------- ------ -------- ------- --------
Total $ 8,940 $ - $ 8,940 $ (533) $ 16,256
======= ====== ======== ======= ========
8
<PAGE>
WESTWOOD CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
September 30, 2000
GENERAL
-------
Results of Operations - Second Quarter Ended September 30, 2000 and 1999
------------------------------------------------------------------------
For the second quarter ended September 30, 2000, the Company had a net loss of
$649,000 compared to a net loss of $504,000 for the same quarter last year. The
net loss per share was $.094 compared to a net loss of $.073 for the prior year.
Consolidated sales for the second quarter were $5,476,000, an increase of
$1,230,000, or 29%, over sales of $4,246,000 for the previous year. The
increased sales are a result of Marine Switchgear revenues on the DDG51
destroyer program.
Gross profit, as a percentage of sales, was 9.1% for the current quarter
compared to 14.3% for the same period last year. The lower gross margin
percentage is primarily a result of the Marine Switchgear and Engineered
Automation and Control Divisions experiencing non-recurring engineering costs on
new contracts for the U.S. Navy and ongoing start up costs in the Mobile Power
Systems Division required to reach full production capacity on the tactical
quiet generator (TQG) sets.
The Company incurred an operating loss of $510,000 in the current quarter
compared to a loss of $624,000 for the same period last year. Operating expenses
decreased $223,000, or 18.1%, compared to the same period last year. The lower
operating expenses were due primarily to a reduction in administrative
personnel. Interest expense was $119,000 versus $130,000 for the second quarter
last year.
A breakdown of sales by Company segments follows:
. Marine switchgear sales by NMP Corp. increased to $4,056,000 for the second
quarter compared to $1,159,000 for the same period last year, an increase
of 250%. The increase in sales is a result of initial production on the
DDG51 Arleigh Burke-class destroyer.
. Mobile power system revenues by MCII Electric Company were $864,000 for the
quarter compared to $1,229,000 for last year. The production on the
Government contract for TQG's slipped behind schedule due to parts
shortages and training of new personnel taking longer than anticipated. The
Company believes that these issues will be resolved in the third quarter of
the current fiscal
9
<PAGE>
year. As a result of the low sales volume and gross margin percentage for
the TQG production units, this segment reported a net loss of $661,000 for
the quarter, which compares to a net loss of $792,000 for the same period
last year.
. Engineered automation and control system sales by TANO Corp. were
$1,527,000, a decrease of $ 568,000, or 27% from last years $2,095,000. The
reduction in sales over last year was primarily due to engineering design
delays on the Multi Function Monitor (MFM3) contract.
Six Months Ended September 30, 2000 and 1999
--------------------------------------------
For the six months ended September 30, 2000, the Company incurred a net loss of
$638,000 compared to a net loss of $533,000 for the same period last year. Net
loss per share was $.094 compared to a net loss of $.077 per share for the prior
year.
Sales for the six months ended September 30, 2000, were $11,600,000 compared to
$8,940,000 for the previous year, an increase of $2,660,000, or 29.8%. The
increase in sales over prior year is primarily a result of the Marine Switchgear
Division producing $2,127,000 in revenues from the recently awarded DDG51
destroyer programs and the Mobile Power Systems Division revenues increasing
$1,396,000 due to shipments of TQG units to the U.S. Government beginning in
September 2000. These increases were offset by a decrease in revenues of
$863,000 at the Engineered Automation and Control Division due to engineering
delays on the MFM 3 contract.
For the six months ended September 30, 2000, gross profit, as a percentage of
sales, decreased to 13.2% compared to 18.3% for the same period last year.
Current year's gross profit margins were impacted by non-recurring engineering
costs in the Marine Switchgear and Engineered Automation and Control Divisions
and ongoing start up costs in the Mobile Power Systems Division.
The Company incurred an operating loss of $482,000 for the six months ended
September 30, 2000, compared to an operating loss of $855,000 for the same
period last year. The increased sales volume, combined with a reduction in
operating expenses of $477,000, or 19.1%, resulted in the improvement at the
operating level. The reduction in operating expenses was primarily due to a
reduction in administrative personnel.
Liquidity and Capital Resources
-------------------------------
Operating activities for the six months ended September 30, 2000, resulted in
net cash usage of $1,331,000. During this period, major items providing cash
were depreciation and amortization of $484,000, reductions in costs and
estimated earnings in excess of billings on uncompleted contracts of $995,000,
along with an increase in billings
10
<PAGE>
in excess of costs and estimated earnings on uncompleted contracts of
$1,534,000, and increased accounts payable of $260,000. Major uses of operating
cash flows during the period were the $638,000 net loss, increases in
inventories and accounts receivable, in the amounts of $2,303,000 and
$1,072,000, respectively, and a decrease in accrued liabilities of $532,000.
Purchases of additional equipment resulted in cash usage of $256,000, which was
offset by the receipt of the first $250,000 installment on the note receivable
from the purchaser of the marine hardware business sold in July 1999.
Financing activities for the six months ending September 30, 2000, provided
$1,070,000 cash due to an additional net borrowing on the revolving credit
facility of $1,337,000, offset by $267,000 of payments on notes payable to a
bank and seller of MCII Electric Company.
At September 30, 2000 the Company had borrowed the maximum available under its
revolving credit facility. On October 25, 2000 the revolving credit facility
was increased to $2,800,000, with a maturity date of March 25, 2001. The
borrowing on this facility at November 13, 2000 was $2,550,000.
The Company believes that improving profits in the third and fourth quarters of
the current fiscal year will enable it to be in compliance with all debt
covenants at March 31, 2001, and will produce cash flows sufficient to reduce
the reliance on the revolving credit facility.
Outlook for Fiscal Year 2001 and Beyond
---------------------------------------
On August 29, 2000, the Company's wholly-owned subsidiary, MCII Electric
Company, received first article approval to proceed with production on the
Department of the Army contract requiring tactical quiet generators. This marked
the end of a three-year development program that required the development of a
computer-driven digital control system that will be the operating format for a
fully-functional OSHA-approved diesel system. There are currently in excess of
2000 units on order and it is anticipated that more than 3000 will be purchased
against this contract providing revenues of up to $70 million.
The Company also received orders for equipment on four additional DDG51-class
destroyers and one LPD17 amphibious assault ship, totaling approximately $19
million. With these orders, the Company now has orders for equipment for six
DDG-class destroyers and four LPD-class amphibious assault ships in various
phases of production. The total number of destroyer equipment packages to be
built is now expected to be 15 to 18 dependent on future shipbuilding
Congressional budgets. There will be a total of 12 ships in the LPD class for
which the
11
<PAGE>
Company will supply equipment. Revenues for these programs will continue through
2005.
The combination of the above long-term contracts will afford the Company a
strong base from which to build and strategically position itself given the
near-term requirements for the new millennium DD21-class destroyer and the
CVN77/CVX aircraft carriers.
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 related
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 its 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.
12
<PAGE>
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 have been filed during the quarter for which
this report is filed.
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: November 16, 2000 WESTWOOD CORPORATION
By: /s/ Ernest H. McKee
-------------------------
President and
Chief Executive Officer
By: /s/ John P. Gigas
-------------------------
Secretary/Treasurer and
Chief Financial Officer
13
