-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UbuXeKEv6IyqTwCAUa3p0+f67J6aX1DX/PHEF+9+TtrKQP6TJUxmEyUS4cY2ZD+K KRnivCEgqAwsWFEKCnkmNQ== 0000930661-98-002440.txt : 19981123 0000930661-98-002440.hdr.sgml : 19981123 ACCESSION NUMBER: 0000930661-98-002440 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTWOOD CORP/NV/ CENTRAL INDEX KEY: 0000876884 STANDARD INDUSTRIAL CLASSIFICATION: 3613 IRS NUMBER: 870430944 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-19381 FILM NUMBER: 98752778 BUSINESS ADDRESS: STREET 1: 5314 SOUTH YALE AVENUE STREET 2: SUITE 1100 CITY: TULSA STATE: OK ZIP: 74135 BUSINESS PHONE: 9185240002 MAIL ADDRESS: STREET 1: PO BOX 35493 CITY: TULSA STATE: OK ZIP: 74153 10-Q 1 FORM 10-Q 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, 1998 ---------------------------------------------- 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 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 November 12, 1998 - - ----------------------------- ------------------------------------ Common Stock, $.003 par value 6,891,647 INDEX ----- Page No. ------- Part I Financial Information: Consolidated Balance Sheets as of September 30, 1998 and March 31, 1998 1 Consolidated Statements of Income for the Second Quarter and Six Months ended September 30, 1998 and 1997 3 Consolidated Statements of Cash Flows for the Six Months ended September 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 (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 10 Signatures 11 WESTWOOD CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands)
SEPTEMBER 30 March 31 1998 1998 ------------- --------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 651 $ 574 Accounts receivable (including retainage receivable of $44,376 at September 30, 1998,and $58,000 at March 31, 1998), net of allowance for doubtful accounts 3,667 4,390 Note receivable - Officer 57 55 Income tax receivable 161 502 Costs and estimated earnings in excess of billings on uncompleted contracts 1,269 2,854 Inventories: Raw materials and purchased parts 3,712 3,849 Work-in-process 2,222 1,786 -------- ------- 5,934 5,635 Prepaid expenses 164 130 Current deferred income taxes 343 354 -------- ------- Total current assets 12,246 14,494 Plant and equipment, at cost: Leasehold improvements 815 820 Machinery and equipment 4,560 4,341 Patterns and tools 430 430 -------- ------- 5,805 5,591 Accumulated depreciation ( 3,294) (2,858) -------- ------- 2,511 2,733 Goodwill (net) 6,488 6,725 Long-term accounts receivable, retainage 668 816 Deferred charges & other 43 63 -------- ------- Total Assets $21,956 $24,831 ======== =======
See accompanying notes 1 WESTWOOD CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands)
SEPTEMBER 30 March 31 1998 1998 ------------- -------- (UNAUDITED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,952 $ 3,971 Accrued liabilities 1,497 1,518 Accrued rent 81 81 Billings in excess of costs and estimated earnings on uncompleted contracts 413 855 Current portion of long-term debt: Payable to bank 5,000 4,500 Note payable 51 51 Acquisition debt 387 387 ------- ------- 5,438 4,938 ------- ------- Total current liabilities 9,381 11,363 Accrued rent 161 215 Long-term debt: Payable to bank 1,500 1,750 Note payable 486 526 Acquisition debt 876 876 ------- ------- 2,862 3,152 ------- ------- 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 September 30, 1998 and March 31, 1998, respectively 21 21 Capital in excess of par value 5,978 5,978 Retained earnings 3,535 4,084 ------- ------- Total stockholders' equity 9,534 10,083 ------- ------- Total liabilities and stockholders' equity $21,956 $24,831 ======= =======
See accompanying notes 2 WESTWOOD CORPORATION CONSOLIDATED STATEMENTS OF INCOME (In Thousands)
SECOND QUARTER ENDED SIX MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 1998 1997 1998 1997 --------------------- ----------------- (Unaudited) (Unaudited) Sales $8,724 $7,920 $16,223 $14,494 Cost of sales 8,211 6,145 14,623 11,538 ------ ------ ------- ------- Gross profit 513 1,775 1,960 2,956 Operating expenses: Selling, general & admin. 1,238 1,984 2,452 3,124 Special charge - - - 210 ------ ------ ------- ------- 1,238 1,984 2,452 3,334 ------ ------ ------- ------- Operating loss (725) (209) (492) (378) Other income (expense): Interest expense (170) (187) (334) (253) Other income 92 46 96 66 Gain on sale of subsidiary - 797 - 797 ------ ------ ------- ------- (78) 656 (238) 610 ------ ------ ------- ------- Income (loss) before taxes (803) 447 (730) 232 Provision for income taxes (275) 170 (250) 88 ------ ------ ------- ------- Net income (loss) $ (528) $ 277 $ (480) $ 144 ====== ====== ======= ======= Basic, and diluted, earnings (loss) per share $(.077) $ .040 $ (.070) $ .021 Cash dividends per share $ - $ .010 $ .010 $ .020
See accompanying notes 3 WESTWOOD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Six Months Ended September 30 1998 1997 -------------------------- OPERATING ACTIVITIES (Unaudited) Net income (loss) $ (480) $ 144 Adjustments to reconcile net income (loss) to cash provided by (used in) operations: Depreciation and amortization 436 279 Amortization of goodwill 237 141 Deferred income taxes 11 - Cash flows impacted by changes in: Accounts receivable 723 1,061 Costs and estimated earnings in excess of billings on uncompleted contracts 1,585 (844) Inventories (299) (1,808) Prepaid expenses (34) (74) Long-term accounts receivable, retainage 148 (85) Deferred charges 20 148 Accounts payable (2,019) 890 Accrued liabilities and rent (75) (522) Billings in excess of costs and estimated earnings on uncompleted contracts (442) 408 Income taxes payable/receivable 341 (585) Other (2) (177) ------- ------- Net cash provided by (used in) operating activities 150 (1,024) INVESTING ACTIVITIES Purchase of plant and equipment (214) (206) Acquisition of TANO - (2,000) Acquisition of MCII - (500) ------- ------- Net cash used in investing activities (214) (2,706) FINANCING ACTIVITIES Principal payments on debt (540) (2,905) Borrowings on debt 750 5,900 Dividends paid (69) (124) ------- ------- Net cash provided by financing activities 141 2,871 ------- ------- Net increase (decrease) in cash 77 (859) Cash at beginning of period 574 1,165 ------- ------- Cash at end of period $ 651 $ 306 ======= =======
See accompanying notes 4 WESTWOOD CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 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 second quarter ended September 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 - - --------------------- The financial statements, including earnings per share calculation, reflect a 10% stock dividend declared in November 1997. 5 WESTWOOD CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 1998 GENERAL - - ------- Results of Operations - Second Quarter Ended September 30, 1998 and 1997 - - ------------------------------------------------------------------------ For the second quarter ended September 30, 1998, the Company had a net loss of $528,000 compared to net income of $277,000 for the same quarter last year, which included a pretax gain of $797,000 from the sale of a subsidiary. Net loss per share was $.077 compared to net earnings of $.040 per share for the prior year. Consolidated sales for the second quarter ended September 30, 1998 increased 10.2% to $8,724,000 compared to $7,920,000 for the previous year. A major factor in this increase was substantially higher sales revenues from shipments of mobile power systems by MCII. Offsetting this increase, however, were lower sales of marine electrical hardware products, marine electrical switchgear, and engineered automation and control systems. Gross profit, as a percentage of sales, decreased to 5.9% compared to 22.4% for the prior year. During the second quarter the Company incurred significant completion costs to meet the critical delivery date of the first article test units of the pre-production phase in the TQG development contract. The Company recorded contract revenues of $1,598,000 on delivery of the test units. However, as a result of the additional costs incurred in meeting the delivery dates the Company recorded additional contract losses of $478,000. Also, in comparison with the same quarter last year, that period's gross profit included Rox Corp. sales which had high gross margins. For the second quarter, the Company incurred an operating loss of $725,000 compared to an operating loss of $209,000 for the same quarter last year. Operating expenses decreased by 37.6% compared to last year, which included RoxCorp. operations. A breakdown of sales by the Company's major product groups follows: Mobile power systems sales for the second quarter were $4,840,000, compared to $207,000 for last year. The sales increase was mainly a result of shipments under the Air Force MEP-12 contract, as well as shipment of the TQG first article test units. Sales of marine electrical hardware products for the second quarter were $1,864,000, a 32.1% decrease compared to the same quarter last year. Lower shipments of symbol items and titanium products accounted for most of the comparative decrease in sales. 6 Engineered automation and control system sales were $985,000, a 50.4% decrease compared to $1,986,000 for last year's second quarter. Marine electrical switchgear sales revenue for the second quarter decreased 39.3% to $1,035,000, compared to $1,705,000 for the same quarter last year, and reflects the lower backlog for this product group. Six Months Ended September 30, 1998 and 1997 - - -------------------------------------------- For the six months ended September 30, 1998, the Company had a net loss of $480,000 compared to net income of $144,000 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 $.070 compared to net earnings of $.021 per share for the prior year. Sales for the six months ended September 30, 1997 were $16,223,000, a 11.9% increase compared to the previous year. Sales of mobile power systems by MCII accounted for all of the increase for the period, while sales of marine electrical hardware and switchgear, as well as engineered automation and control systems, were lower than the same period last year. Gross profit, as a percentage of sales, decreased to 12.1% compared to 20.4% for last year. As discussed in the second quarter, the most significant event impacting the lower gross profit for the period was the loss recorded in the second quarter in connection with the additional costs incurred to meet critical delivery dates of the TQG first article test units. Also in comparison with last year, that period's gross profit included RoxCorp sales which had high gross margins. The Company incurred an operating loss of $492,000 for the six months ended September 30, 1998 compared to an operating loss of $378,000 for the same six month period last year. Operating expenses for the current period decreased 26.5% compared to last year, which included a $210,000 special charge and RoxCorp. expenses. Liquidity and Capital Resources - - ------------------------------- Operating activities for the six months ended September 30, 1998 resulted in net cash provided of $150,000. During this period, the net loss used cash of $480,000, with major operating adjustments and sources being depreciation of $436,000 and amortization of goodwill of $237,000. Additional sources of cash were decreases in accounts receivable of $723,000, costs and estimated earnings in excess of billings of $1,585,000, and decreases in long-term accounts receivable, retainage of $148,000 and income taxes receivable of $341,000. Major uses of cash in operating activities were increases in inventories of $299,000, decreases in accounts payable of $2,019,000, and decreases in billings in excess of costs and estimated earnings on uncompleted contracts of $442,000. 7 A major factor in the substantial decrease in costs and estimated earnings in excess of billings 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. The Company is currently in discussions with NationsBank concerning modification and renewal of the credit facility maturing November 5, 1998 and the Company anticipates renewal of this facility along similar lines. The Company is also reviewing with the Bank potential increases in financing requirements connected with the initial production buildup of the TQG Contract expected early in fiscal 2000. At September 30, 1998, the Company was not in compliance with covenants of the loan agreement concerning net worth and cash flow, and the Company has received waivers of these covenant violations. 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 manufacturer 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 involved in 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. The results of the surveys are being reviewed by Company personnel and an analysis of the data received by the Company is expected to be complete by December 31, 1998. To date, the Company has incurred software implementation costs of approximately $110,000. 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. 8 Once this analysis is complete, the Company will endeavor to implement a plan for identifying and minimizing the risk that systems and processes critical to the Company's operations will be vulnerable to failures or disruptions due to a lack of Year 2000 compliance within the Company, within a vendor, supplier, or customer of the Company, or within some third party unrelated to the Company or any of its suppliers, vendors, or customers. Due to the unprecedented nature of the Year 2000 problem, and due to the potential for unforseen consequences from and manifestations of the Year 2000 problem, it may not be possible for the Company to identify or minimize all such risks and the Company may be adversely affected by disruptions caused directly or indirectly by the Year 2000 problem. However, as the risks to the Company's critical systems and processes are identified, the Company will design and implement such contingency plans as the Company deems appropriate to reasonably minimize the foreseeable disruption to such systems and processes. 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. 9 PART II - Other Information ITEM 5. OTHER INFORMATION On October 28, 1998 TANO Corp., a wholly owned subsidiary of the Company, filed an Administrative Claim (the "Claim") with the Navy Surface Warfare Center in Philadelphia (the "Navy"). The Claim asserts that the Navy has infringed TANO's United States Patent entitled "Computer Monitoring and Testing of Automatic Control System" (the "Patent") by utilizing the Patent's technology on several surface fleet shipbuilding programs without consent or payment to TANO. The immediate purpose of the Claim is to require the Navy's Engineering and Legal divisions to determine the existence and extent of infringement. The Navy is expected to report its findings after the first of the year. The Claim is not at this time before any court or administrative tribunal which could award damages. The Navy, by regulation, is required to take all necessary steps to investigate, and to settle administratively, deny, or otherwise dispose of such claim prior to suit against the United States for Patent infringement. The claim can be considered to be a prelude to patent litigation depending on the outcome of the Navy's review. Because TANO does not know the full extent of the Navy's usage of the Patent's technology, it is impossible to predict any outcome at this date. TANO will continue to diligently pursue its administrative and legal remedies. In the event that TANO's Administrative Claim is not resolved within the Navy, more formal claims against the United States may be required at the Federal Court of Claims. The ultimate resolution of such claims are lengthy to conclude. 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) A Form 8-K was filed on August 28, 1998 to report that the Company's quarterly dividend payments of $.01 per share were suspended by the Company's Board of Directors to provide additional operating capital for MCII and for enhancement of MCII's production facilities. 10 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, 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 11 EX-27 2 FINANCIAL DATA SCHEDULE
5 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. 6-MOS MAR-31-1998 SEP-30-1998 651 0 3,711 44 5,934 12,246 5,805 3,294 21,956 9,381 0 0 0 21 9,513 21,956 16,223 16,223 14,623 17,075 (238) 0 (334) (730) (250) (480) 0 0 0 (480) (.070) (.070)
-----END PRIVACY-ENHANCED MESSAGE-----