<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 June 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 August 11, 2000
---------------------------- ------------------------------
Common Stock, $.003 par value 6,891,647
<PAGE>
INDEX
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<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 2000
and March 31, 2000 1
Consolidated Statements of Operations
for the three months ended June 30, 2000 and 1999 3
Consolidated Statement of Cash Flows
for the Three Months ended June 30, 2000 and 1999 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 7
Item 3. Quantitative and Qualitative Disclosures about Market
Risk. 10
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. 10
Item 6. Exhibits and Reports on Form 8-K. 11
Signatures 12
</TABLE>
(i)
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
--------------------
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30 March 31
2000 2000
-------------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 49 $ 293
Accounts receivable (including retainage
receivable of $141 at June 30, 2000
and $69 at March 31, 2000), net
of allowance for doubtful accounts 4,164 2,522
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,178 2,156
Inventories, primarily raw materials
and purchased parts 6,459 3,470
Prepaid expenses 78 67
Note Receivable 250 227
------- -------
Total current assets 12,178 8,735
Plant and equipment, at cost:
Leasehold improvements 344 251
Machinery and equipment 4,584 4,557
Patterns and tools 100 100
------- -------
5,028 4,908
Accumulated depreciation (3,198) (3,069)
------- -------
1,830 1,839
Goodwill (net) 4,638 4,735
Note receivable 437 441
Loan origination costs (net) 54 57
Long-term accounts receivable, retainage 202 270
------- -------
Total Assets $19,339 $16,077
======= =======
See accompanying notes.
1
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands)
June 30 March 31
2000 2000
------------------
(Unaudited)
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 5,557 $ 4,301
Accrued liabilities 1,440 1,371
Accrued Income Taxes 4 -
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,911 1,201
Current portion of long-term debt 2,467 1,158
------- -------
Total current liabilities 11,379 8,031
Long-term debt 2,592 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 June 30, 2000, and
March 31, 2000, respectively 21 21
Capital in excess of par value 5,978 5,978
Accumulated deficit (536) (544)
Treasury stock, 127,000 shares at cost (95) (95)
------- -------
Total stockholders' equity 5,368 5,360
------- -------
Total liabilities and stockholders' equity $19,339 $16,077
======= =======
See accompanying notes.
2
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except Share Data)
Three Months Ended
June 30
2000 1999
----------------------
(Unaudited)
Sales $ 6,124 $ 4,694
Cost of sales 5,089 3,665
---------- ----------
Gross profit 1,035 1,029
Operating expenses:
Selling, general & administrative 1,006 1,260
---------- ----------
Operating income (loss) 29 (231)
Other income:
Interest expense (102) (115)
Other income (expense) 85 23
Gain on sale of assets - 294
---------- ----------
(17) 202
---------- ----------
Income (loss) before taxes 12 (29)
Provision for income taxes 4 -
---------- ----------
Net income (loss) $ 8 $ (29)
========== ==========
Basic, and diluted, earnings
(loss) per share $ .001 $ (.004)
Weighted average common shares used
in computing earnings per share 6,764,647 6,891,647
Cash dividends per share $ - $ -
See accompanying notes.
3
<PAGE>
WESTWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
June 30
2000 1999
------------------
Operating activities (Unaudited)
Net income (loss) $ 8 $ (29)
Adjustments to reconcile net income (loss)
to cash provided (used) in operations:
Depreciation and amortization 132 138
Amortization of goodwill 97 118
Non-cash interest income (19) -
Gain on sale of assets - (294)
Cash flows impacted by changes in:
Accounts receivable (1,642) 970
Costs and estimated earnings in excess
of billings on uncompleted contracts 978 (17)
Inventories (2,989) (190)
Prepaid expenses (11) (3)
Long-term accounts receivable, retainage 68 88
Accounts payable 1,256 (519)
Accrued liabilities 69 27
Accrued Income Taxes 4 -
Billings in excess of costs and estimated
earnings on uncompleted contracts 710 60
------- -------
Net cash provided (used) in operating activities (1,339) 349
Investing activities
Purchase of plant and equipment (120) (49)
Proceeds from sales of plant and equipment - 696
------- -------
Net cash provided (used) in investing activities (120) 647
Financing activities
Principal payments on debt (122) (1,394)
Borrowings on debt 1,337 -
------- -------
Net cash (used) provided by financing activities 1,215 (1,394)
------- -------
Net decrease in cash (244) (398)
Cash at beginning of period 293 1,283
------- -------
Cash at end of period $ 49 $ 885
======= =======
See accompanying notes.
4
<PAGE>
WESTWOOD CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
Note 1 - Basis of Presentation
------------------------------
The accompanying unaudited consolidated financial statements include Westwood's
wholly owned subsidiaries NMP Corp. ("NMP"), TANO Corp. ("TANO"), and MCII
Electric Company, Inc. ("MCII"). 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 quarter ended June 30, 2000, may not necessarily be
indicative of the results that may be expected for the fiscal year ending 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.
Note 2 - Sale of Businesses
---------------------------
In the third quarter of 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 by March 31, 2000. The remaining balance of $750,000 is to be received
in three annual installments of $250,000 beginning September 1, 2000, and is
represented by a non-interest bearing note receivable.
Note 3 - Long-Term Debt
-----------------------
The Company entered into a new credit facility in August 1999, which included a
$2,000,000 revolving credit line and $2,000,000 five-year term note. 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.
5
<PAGE>
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 June 30, 2000, none of the warrants were exercisable. In connection
with the December 1999 settlement of contingencies related to the acquisition of
MCII in 1997, the Company replaced the 1997 non-interest bearing note with a new
$300,000 non-interest bearing note and $100,000 cash payable to the former owner
of MCII. The new note requires eight quarterly installments, beginning April
2000, of $37,500. The Company recorded the new note at a discount rate of 8.25%,
which was consistent with the rate obtainable from the lender of the new
revolving credit facility in December 1999.
Note 4 - Comprehensive Income
-----------------------------
For the three-month periods ended June 30, 2000 and 1999, comprehensive income
(loss) and net income (loss) are the same.
Note 5 - Segment Information
----------------------------
Revenues
-------------------
Net
Three Mos. Ended Inter- Income Total
June 30, 2000 External Segment Total (Loss) Assets
------------- -------- ------- ----- ------ ------
Marine Electrical
Switchgear $ 2,229 $ 534 $2,763 $ 137 $ 17,340
Mobile Power Systems 2,242 - 2,242 (239) 6,938
Marine Automation
& Control 1,653 139 1,792 111 5,238
Other - - - (1) 11,998
Eliminations - (673) (673) - (22,175)
------- ------- ------ ------ --------
Total $ 6,124 $ - $6,124 $ 8 $ 19,339
======= ======= ====== ====== ========
Three Mos. Ended
June 30, 1999
-------------
Marine Electrical
Switchgear $ 2,600 $ 91 $2,691 $ 179 $ 13,692
Mobile Power Systems 481 - 481 (444) 7,830
Marine Automation
& Control 1,613 54 1,667 139 4,141
Other - - - (29) 15,986
Eliminations - (145) (145) 126 (23,821)
------- ------- ------ ------ --------
Total $ 4,694 $ - $4,694 $ (29) $ 17,828
======= ======= ====== ====== ========
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
-----------------------------------------------------------
And Results of Operations.
-------------------------
Results of Operations - First Quarter Ended June 30, 2000 and 1999
------------------------------------------------------------------
For the first quarter ended June 30, 2000, the Company had a net profit of
$8,000 as compared to a net loss of $29,000 for the same quarter of the previous
year. The net profit per share was $.001 as compared to a net loss per share of
$.004 for the same quarter of last year.
Consolidated sales for the first quarter increased 30.5%, to $6,124,000, as
compared to $4,694,000 for the first quarter of last year.
A breakdown of sales by the Company's major product groups is as follows:
. Mobile power system sales by MCII for the first quarter of fiscal year 2001
were $2,242,000, as compared to $481,000 for the same period last year.
Primarily, the additional revenue for the period-to-period comparison was
due to the sale of tactical quiet generator sets to a prime contractor to
the U.S. government. Spare parts business for MCII was substantial for the
period as compared to last year.
. Revenues for the first quarter of last year included Peter Gray Corp.,
which was sold in April 1999, and revenues of $1,769,000 from the marine
hardware products line, which was sold in July 1999.
. Marine automation and control system sales for TANO for the first quarter
of fiscal year 2001 totaled $1,613,000, as compared to $1,653,000 for the
first quarter of last year, a 3% reduction for the year-to-year period
comparison.
. Marine electrical switchgear sales by NMP for the first quarter of fiscal
year 2001 totaled $2,229,000, as compared to $777,000 for the first quarter
of last year. The substantial increase in revenues reflected work presently
on-going for the two new major contracts for the U.S. Navy's DDG 51 class
and LPD17/18 as previously reported to shareholders.
Gross profit as a percentage of sales was 16.9% for the first quarter of fiscal
year 2001, compared to 21.9% for the same period last year. The decrease in the
gross margin percentage is primarily due to the Marine Electrical Switchgear
Division experiencing non-recurring engineering costs on two new major contracts
for the U.S. Navy.
7
<PAGE>
Traditionally, margins are lower on the lead ships, which have the non-recurring
engineering, then improve on subsequent shipsets.
Operating expenses for the quarter-to-quarter comparison decreased from
$1,260,000 in 1999 to $1,006,800 for the first quarter of fiscal year 2001. This
reduction of approximately 20% in operating expenses resulted in an operating
profit for the first quarter of fiscal year 2001 of $29,000, as compared to last
year's first quarter operating loss of $231,000. The decrease in operating
expenses is due to further efforts to reduce costs including merging the mobile
power systems and marine electrical switchgear operations into one location in
March 2000.
Interest expense for the first quarter of fiscal year 2001 was $102,000, as
compared to $115,000 for the first quarter of last year. In light of
substantially higher interest rates in the first quarter of fiscal year 2001, as
compared to last year, the interest expense for the current year, although
slightly reduced from the prior year's first quarter, was down primarily due to
lower borrowings in the first quarter of fiscal year 2001 as compared to last
year.
Liquidity and Capital Resources
-------------------------------
Operating activities for the first quarter of fiscal year 2001 resulted in net
cash consumed from operations of $1,339,000. During this period, the increase in
accounts receivable and inventory consumed $4,631,000, which was offset by funds
provided by increase in trade accounts payable of $1,256,000. Changes in costs
and estimated earnings in excess of billings, and billings in excess of costs
and estimated earnings accounted for funds provided by operations of $1,688,000.
The balance of the net funds consumed from operations was offset by depreciation
and amortization of $229,000 for the first quarter of fiscal year 2001.
The Company is in the process of renewing its Revolving Credit Facility, which
has been extended to September 13, 2000. The balance of the revolving credit
facility at June 30, 2000, is $2,000,000. The Company expects to renew the
facility for another 12 months based upon current negotiations with the bank.
Throughout the first quarter of fiscal year 2001, the Company was allowed, under
contract agreement, to invoice the U.S. Army for receipt of major materials
received under the mobile power systems contract (Tactical Quiet Generator). At
the end of the first quarter of fiscal year 2001, the billings and subsequent
collections under this provision totaled approximately $3,600,000.
8
<PAGE>
Outlook for Fiscal Year 2001 and Beyond
---------------------------------------
The Company continues to rely upon major capital projects for the majority of
revenues. The DDG51 Arleigh Burke-class destroyer is the single most important
shipbuilding project within the U.S. Navy and represents expected revenues of $7
million to $10 million per year to the Company for the next four years. Recent
events have increased the revenues on LPD17 from $2.3 million to approximately
$4.5 million per shipset. At an average of 1-1/2 ships per year, this program is
expected to provide revenues of $5.6 million to $7 million per year through the
completion of the twelve-ship program, which is expected to extend through 2005.
The above, in association with continued research and development on the DD21
new millennium destroyer and the upgrades expected on the CG47 Ticonderoga-class
cruisers and the earlier Arleigh destroyers, offers a significant base on which
to build during the early years of the twenty-first century.
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 U.S.; 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; the federal government's 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.
9
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
----------------------------------------------------------
The Company is exposed to the impact of interest rate fluctuations as a result
of current borrowings under a line of credit and a term loan that bear interest
at prime plus .25% to .75% based on the debt service coverage ratio of the
Company each quarter. The Company has no exposure with foreign currency
contracts.
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
-----------------------------------------
Not applicable.
Item 3. Defaults Upon Senior Securities.
-------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Not applicable.
Item 5. Other Information.
-----------------
Westwood Corporation 2000 Directors' Stock Option Plan
------------------------------------------------------
On June 7, 2000, the Company's Board of Directors adopted the Westwood
Corporation 2000 Directors' Stock Option Plan (the "2000 Plan") subject to
approval by the stockholders of the Company at the Annual Meeting of
Stockholders to be scheduled for the fall of 2000.
A summary of the 2000 Plan is as follows, and such summary is qualified in its
entirety by reference to the full text of the 2000 Plan, which is attached to
this Form 10-Q as Exhibit 10.15:
. Administration. The Board of Directors will administer the 2000 Plan. A
total of 500,000 shares of the Company's common stock have been reserved
for issuance under the 2000 Plan. All members of the Board of Directors are
eligible to receive grants of options under the 2000 Plan.
. Option Terms. Options granted under the 2000 Plan will be evidenced by a
written stock option agreement, dated as of the
10
<PAGE>
date of grant and executed by the Company and the optionee, setting forth
the terms and conditions of the option as may be determined by the Board of
Directors to be consistent with the 2000 Plan. The option exercise price
under the 2000 Plan shall not be less than the NASDAQ Bulletin Board quoted
closing market price on the date of grant. Options shall be exercisable for
a period of ten years from the date of grant, or the expiration of ninety
days from the date on which the optionee ceases to be a director of the
Company. Upon exercise, payment of the option price shall be made in cash,
or by certified check, cashier's check or personal check.
. Amendment and Termination. The Board of Directors may terminate the 2000
Plan at any time. The Board of Directors has the authority to amend or
modify the 2000 Plan in such manner as it deems advisable. The 2000 Plan
provides for appropriate adjustment, as determined by the Board of
Directors, in the number and kind of shares subject to unexercised options,
in the event of any change in the outstanding common stock of the Company,
by reason of a stock split, stock dividend, combination or reclassification
of shares, recapitalization, merger or similar event.
On June 7, 2000, each of the Company's five Directors received the grant of an
option to purchase 50,000 shares of the Company's common stock under the 2000
Plan (the "2000 Options"), subject to approval by the stockholders of the
Company. The option price of each share of common stock under the 2000 Options
is $1.00 per share, which is greater than the NASDAQ Bulletin Board quoted
closing market price on June 7, 2000 ($.75 per share). The 2000 Options will
vest at the rate of 20% per year (10,000 shares), on each December 7, 2000
through 2004. The 2000 Options, with respect to each 20% increment, shall be
exercisable for a period of ten years from the vesting date of such 20%
increment. Subject to approval of the 2000 Options by the Company's
stockholders, 250,000 shares will remain available for issuance under the 2000
Plan.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits:
The following documents are included as exhibits to this Form 10-Q:
10.15 2000 Directors' Stock Option Plan
Exhibit 27 Financial Data Schedule
11
<PAGE>
(b) Reports on Form 8-K:
There were no current reports filed on Form 8-K during the three months ended
June 30, 2000.
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 11, 2000 WESTWOOD CORPORATION
By: /s/ Ernest H. McKee
---------------------------
Ernest H. McKee, Director,
President and
Chief Executive Officer
By: /s/ John P. Gigas
---------------------------
John P. Gigas
Secretary/Treasurer and
Chief Financial Officer
12
<PAGE>
EXHIBIT INDEX
The following documents are included as exhibits to this Form 10-Q:
Exhibit No. Description
----------- ------------------------------------------------------
10.15 Westwood Corporation 2000 Directors' Stock Option Plan
27 Financial Data Schedule
