-----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, SDEvsbbpz+kBzPaCqZvBHwX61VIHCq5b4eN4dE3FnJkNYj8kGkM9NP5lYvfCup+8 tu3iapDFXOi0U625rxQd1w== 0000930661-01-502373.txt : 20020410 0000930661-01-502373.hdr.sgml : 20020410 ACCESSION NUMBER: 0000930661-01-502373 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTWOOD CORP/NV/ CENTRAL INDEX KEY: 0000876884 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 870430944 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-19381 FILM NUMBER: 1786546 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 d10q.txt 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, 2001. ------------------ 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 7, 2001 - ----------------------------------- ----------------------------------- Common Stock, $.003 par value 6,891,647 INDEX
Page No. -------- Part I Financial Information: Item 1. Financial Statements: Consolidated Balance Sheets as of September 30, 2001, and March 31, 2001 1 Consolidated Statements of Operations for the second quarter and six months ended September 30, 2001 and 2000 3 Consolidated Statement of Cash Flows for the six months ended September 30, 2001 and 2000 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 Part II Other Information: Item 1. Legal Proceedings (None) 16 Item 2. Changes in Securities and Use of Proceeds (None) 16 Item 3. Defaults Upon Senior Securities (None) 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Item 5. Other Information (None) 16 Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
(i) PART I. FINANCIAL INFORMATION Item 1. Financial Statements -------------------- WESTWOOD CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
September 30 March 31 2001 2001 -------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 314 $ 545 Accounts receivable (including retainage receivable of $759 at September 30, 2001 and $733 at March 31, 2001), net of allowance for doubtful accounts 6,879 6,987 Costs and estimated earnings in excess of billings on uncompleted contracts 982 1,153 Inventories, primarily raw materials and purchased parts 8,300 5,831 Prepaid expenses 260 92 Note Receivable 229 250 ------- ------- Total current assets 16,964 14,858 Plant and equipment, at cost: Leasehold improvements 383 382 Machinery and equipment 4,812 4,717 Patterns and tools 184 109 ------- ------- 5,379 5,208 Accumulated depreciation (3,867) (3,647) ------- ------- 1,512 1,561 Goodwill (net) 4,152 4,346 Note Receivable - 213 Loan origination costs (net) 40 45 Long-term accounts receivable, retainage 249 210 ------- ------- Total Assets $22,917 $21,233 ======= =======
See accompanying notes. 1 WESTWOOD CORPORATION CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
September 30 March 31 2001 2001 ---------------------------- (Unaudited) Liabilities and stockholders' equity Current liabilities: Accounts payable $ 5,935 $ 5,073 Accrued liabilities 822 858 Billings in excess of costs and estimated earnings on uncompleted contracts 5,281 4,459 Current portion of long-term debt due to related parties 715 715 Current portion of long-term debt 3,469 3,476 ------- ------- Total current liabilities 16,222 14,581 Long-term debt due to related parties 850 850 Long-term debt 1,105 1,285 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, 2001 and March 31, 2001 21 21 Capital in excess of par value 5,978 5,978 Accumulated deficit (1,164) (1,387) Treasury Stock, 127,000 shares at cost (95) (95) ------- ------- Total stockholders' equity 4,740 4,517 ------- ------- Total liabilities and stockholders' equity $22,917 $21,233 ======= =======
See accompanying notes. 2 WESTWOOD CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands, Except Share Data)
Second Quarter Ended Six Months Ended September 30 September 30 2001 2000 2001 2000 -------------------- ------------------ (Unaudited) (Unaudited) Sales $12,683 $5,476 $23,929 $11,600 Cost of sales 11,270 4,978 21,148 10,608 ------- ------ ------- ------- Gross profit 1,413 498 2,781 1,532 Operating expenses: Selling, general & admin. 1,080 1,008 2,284 2,014 ------- ------ ------- ------- Operating income (loss) 333 (510) 497 (482) Other income (expense): Interest expense (130) (119) (275) (221) Other income (expense) 37 (20) 96 65 ------- ------ ------- ------- (93) (139) (179) (156) ------- ------ ------- ------- Income (loss) before taxes 240 (649) 318 (638) Provision for income taxes 22 - 95 - ------- ------ ------- ------- Net Income (Loss) $ 218 $ (649) $ 223 $ (638) ======= ====== ======= ======= Basic earnings (loss) per share $ .03 $ (.10) $ .03 $ (.09) Diluted earnings (loss) per share $ .03 $ (.10) $ .03 $ (.09)
See accompanying notes. 3 WESTWOOD CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Six Months Ended 2001 2000 ----------------------------- (Unaudited) Operating activities Net income (loss) $ 223 $ (638) Adjustments to reconcile net income loss to cash provided (used) in operations: Depreciation and amortization of loan origination costs 328 290 Amortization of goodwill 194 194 Non-cash interest income (16) (37) Gain on sale of assets (9) - Cash flows impacted by changes in: Accounts receivable 108 (1,072) Costs and estimated earnings in excess of billings on uncompleted contracts 171 995 Inventories (2,469) (2,303) Prepaid expenses (168) (88) Long-term accounts receivable, retainage (39) 66 Accounts payable 862 260 Accrued liabilities (36) (532) Billings in excess of costs and estimated earnings on uncompleted contracts 822 1,534 ------- ------- Net cash used in operating activities (29) (1,331) Investing activities Purchase of plant and equipment (301) (256) Receipt of payment on note receivable 250 250 Proceeds from sale of assets 56 - ------- ------- Net cash provided (used) in investing activities 5 (6) Financing activities Principal payments on debt (207) (5,265) Borrowings on debt - 6,335 ------- ------- Net cash (used) provided by financing activities (207) 1,070 ------- ------- Net decrease in cash (231) (267) Cash at beginning of period 545 293 ------- ------- Cash at end of period $ 314 $ 26 ======= =======
See accompanying notes. 4 WESTWOOD CORPORATION NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2001 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 accounting principles generally accepted in the United States 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 notes required by accounting principles generally accepted in the United States 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, 2001, may not necessarily be indicative of the results that may be expected for the year ended March 31, 2002. For further information, refer to the consolidated financial statements and notes included in Westwood Corporation's annual report on Form 10-K for the year ended March 31, 2001, and the first quarter fiscal 2002 report on Form 10-Q for the three months ended June 30, 2001. Note 2 - Inventories - -------------------- Inventories consists of the following:
September 30, March 31, 2001 2001 ------------------------------------------- (In Thousands) Work in process, primarily related to unit-of-delivery contracts in process $ 7,872 $ 9,117 Less contract billings to date (2,454) (6,426) ------------------------------------------- 5,418 2,691 Raw materials and purchased parts 2,882 3,140 ------------------------------------------- $ 8,300 $ 5,831 ===========================================
5 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 a $2,000,000 five-year term note, which is payable monthly and matures in August 2004. In October 2000, the revolving credit line was increased to $2,800,000. As additional security for the $800,000 increase in the revolving credit line in October 2000, the Company's President provided a personal guarantee and pledged 750,000 shares of the Company's common stock owned by him. The personal guarantee and pledge of common stock are limited to the repayment of the additional $800,000 of the revolving credit line. At September 30, 2001 there was no remaining borrowing available from the revolving credit line. On October 15, 2001, the Company renewed its revolving credit facility until December 15, 2001 in anticipation of increasing and extending the revolving credit facility on December 15, 2001 following the current lender's due diligence procedures. The Company is also having ongoing discussions with other lenders to increase and extend, prior to the December 15, 2001 maturity date, the current revolving credit facility. In October 2001 the Company obtained $300,000 in additional revolving credit financing using a foreign irrevocable letter of credit on an outstanding purchase order as collateral. The note will be repaid at the expiration of the letter of credit in January 2002. In November 2001, the Company obtained a commitment from its bank for up to $1,000,000 in additional short-term revolving credit lines based upon other foreign irrevocable letters of credit on outstanding purchase orders, which will expire between January 2002 and June 2002. Proceeds from these financings will be used to fund production on these foreign orders prior to shipment. 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, 2001, the warrants were exercisable. In February 2001, the Company completed an $880,000 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 12% per annum, which is payable each June 30 and December 31, and mature on February 13, 2002. 6 The debentures are convertible into common stock at one share for each $1.00 of debentures converted. In connection with the issuance of the debentures, the Company issued warrants to purchase up to 340,000 shares of common stock of the Company at $1.00 per share. The warrants are exercisable within five years from the date of issuance. 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 note requires eight quarterly installments of $37,500, ending January 1, 2002. 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 revolving credit facility in December 1999. Note 4 - Income Taxes - --------------------- The Company settled an Internal Revenue Service audit in the first quarter of fiscal 2002. As part of the settlement, the Company paid $48,000. The remaining provision for income taxes for the six months ended September 30, 2001 is due primarily to state income taxes as the Company utilized a portion of its federal net operating loss carryforward, which has a 100% valuation allowance against it. The Company generated a net operating loss carryforward in the first six months of fiscal 2001, whereby no deferred tax asset was established. Note 5 - Comprehensive Income - ----------------------------- For the second quarter and six month periods ended September 30, 2001 and 2000, respectively, comprehensive income (loss) and net income (loss) are the same. 7 Note 6 - Earnings Per Share - --------------------------- The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except per share data):
Second Second Six Six Quarter Quarter Months Months Ended Ended Ended Ended September September September September 30, 2001 30, 2000 30, 2001 30, 2000 ----------------------------------------------------------------- Numerator: - ---------- Net income (loss) and numerator $ 218 $ (649) $ 223 $ (638) for basic earnings (loss) per share Effect of dilutive securities: 10% and 12% convertible debentures 51 - - - ----------------------------------------------------------- Numerator for diluted earnings (loss) per share after assumed conversions $ 269 $ (649) $ 223 $ (638) Denominator: - ------------ Denominator for basic earnings (loss) per share - weighted-average shares 6,765 6,765 6,765 6,765 Effect of dilutive securities: Directors' stock options 5 - - - 10% and 12% convertible debentures 1,880 - - - ----------------------------------------------------------- Dilutive potential common shares 1,885 - - - ----------------------------------------------------------- Denominator for diluted earnings (loss) per share - adjusted weighted-average shares and assumed conversions 8,650 6,765 6,765 6,765 Basic earnings (loss) per share $ .03 $ (.10) $ .03 $ (.09) Diluted earnings (loss) per share $ .03 $ (.10) $ .03 $ (.09)
8 Note 7 - Segment Information - ---------------------------- (In Thousands)
Revenues --------------------------- Income (Loss) Three Months Ended Inter- Before Income Total Sept. 30, 2001 External Segment Total Taxes Assets - -------------- --------- --------- ---------------------------- Marine Switchgear $ 4,275 $1,627 $ 5,902 $ 139 $21,043 Mobile Power Systems 6,900 - 6,900 (34) 7,025 Marine Automation and Control 1,508 537 2,045 267 4,711 Other - - - 240 10,389 Eliminations - (2,164) (2,164) (372) (20,251) ------- ------ -------- -------- -------- Total $12,683 $ - $ 12,683 $ 240 $ 22,917 ======= ====== ======== ======== ======== Three Months Ended Sept. 30, 2000 - -------------- Marine Switchgear $ 3,483 $ 573 $ 4,056 23 $ 17,798 Mobile Power Systems 864 - 864 (661) 5,111 Marine Automation and Control 1,129 398 1,527 29 4,764 Other - - - (649) 11,781 Eliminations - (971) (971) 609 (21,683) ------- ----- ------ ----- -------- Total $ 5,476 $ - $5,476 $(649) $ 17,771 ======= ===== ====== ===== ======== Six Months Ended Sept. 30, 2001 - -------------- Marine Switchgear $ 8,121 $2,818 $10,939 $ 451 $21,043 Mobile Power Systems 12,755 - 12,755 (298) 7,025 Marine Automation and Control 3,053 1,276 4,329 543 4,711 Other - - - 318 10,389 Eliminations - (4,094) (4,094) (696) (20,251) ------- ------- ------- ------- ------- Total $23,929 $ - $23,929 $ 318 $22,917 ======= ======= ======= ======= ======= Six Months Ended Sept. 30, 2000 - -------------- Marine Switchgear $ 5,712 $1,107 $ 6,819 $ 159 $17,798 Mobile Power Systems 3,106 - 3,106 (648) 5,111 Marine Automation and Control 2,782 537 3,319 139 4,764 Other - - - (638) 11,781 Eliminations - (1,644) (1,644) 350 (21,683) ------- ----- ------- ------- ------- Total $11,600 $ - $11,600 $ (638) $17,771 ======= ====== ======= ======= =======
9 Note 8 - New Accounting Standard - -------------------------------- In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." This standard requires that goodwill and certain other intangible assets no longer be amortized, but be evaluated on at least an annual basis for impairment based on the fair value of the reporting segment in which the goodwill and other intangible assets are associated. The standard also requires additional disclosures about goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 is not required to be adopted by the Company until the first quarter of fiscal year 2003. The Company has not determined the impact of adopting this standard on its financial position or results of operations. Item 2. Management's Discussion and Analysis of Financial Condition And Results ----------------------------------------------------------------------- of Operations ------------- Results of Operations - Second Quarter Ended September 30, 2001 and 2000 - ------------------------------------------------------------------------ For the second quarter ended September 30, 2001, the Company had a net profit of $218,000 compared to a net loss of $649,000 for the same quarter of the previous year. The net income per share was $.03 compared to a net loss per share of $.09 for the same quarter of the previous year. Consolidated sales for the second quarter increased 132%, to $12,683,000, as compared to $5,476,000 for the same quarter of the previous year. A breakdown of sales by the Company's major product groups is as follows: . Mobile power system sales by MCII for the second quarter of fiscal year 2002 were $6,900,000, as compared to $864,000 for the same period of the previous year. Primarily, the 699% increase in revenue was due to increased sales to the U.S. government. . Marine automation and control system sales for TANO for the second quarter of fiscal year 2002 totaled $1,508,000, as compared to $1,129,000 for the second quarter of the previous year. The 33.6% increase in sales is due to increases in spare parts sales and field service revenues as a result of higher demand. 10 . Marine electrical switchgear sales by NMP for the second quarter of fiscal year 2002 totaled $4,275,000, as compared to $3,483,000 for the second quarter of the previous year. The 22.7% increase in sales is primarily the result of increased production on two major contracts for the U.S. Navy. Higher panelboard and spare parts sales of $191,000 also contributed to the increase. Gross profit, as a percentage of sales, was 11.1% for the second quarter of fiscal year 2002, compared to 9.1% for the same period in the previous year. The higher gross margin percentage is primarily a result of improved production efficiencies at MCII. These efficiencies were offset somewhat by production delays due to unavailability of additional working capital as a result of a tightening credit market and final customer-testing procedures on certain other long-term contracts. Efforts are ongoing to obtain additional working capital during the third and fourth quarters of fiscal 2002. Operating expenses for the quarter-to-quarter comparison increased from $1,008,000 in fiscal year 2001 to $1,080,000 for the second quarter of fiscal year 2002. This increase of 7.1% in operating expenses is primarily due to an increase in salaries. Interest expense for the second quarter of fiscal year 2002 was $130,000 compared to $119,000 for the same period in the previous year. The 9.2% increase is due to $1,225,000 in additional borrowings in the first quarter of fiscal year 2002 compared to the same period in the previous year, offset by a decrease in the weighted average interest rate by 157 basis points when comparing quarter to quarter. The effective income tax rate for the second quarter of fiscal year 2002 is 9.2%. This provision is due to state income taxes associated with TANO's operations. No other income taxes were accrued in the second quarters of fiscal year 2002 or 2001 due to the utilization and increase, respectively, of 100% valuation allowanced net operating loss carryforwards and the breakeven operating results of TANO in the second quarter of fiscal year 2001. Six Months Ended September 30, 2001 and 2000 - -------------------------------------------- For the six months ended September 30, 2001, the Company earned a net profit of $223,000 compared to a net loss of $638,000 for the same period of the previous year. Net income per share was $.03 compared to a net loss of $.09 per share for the same period of the prior year. Consolidated sales for the six months ended September 30, 2001, were $23,929,000 compared to $11,600,000 for the same period of the previous year, an increase of $12,329,000, or 106%. 11 A breakdown of sales by the Company's major product groups is as follows: . Mobile power systems sales by MCII for the six months ended September 30, 2001 were $12,755,000, as compared to $3,106,000 for the same period in the previous year. The 311% increase in sales over the same period in the prior year is due primarily to increased sales under a long-term contract to the U.S. government. Sales under a certain long-term contract with the U.S. government did not start until September 2000. This increase in sales was offset by a $1,107,000 one-time sale to a prime contractor in the same period of the previous year as well as a decrease of $832,000 in spare parts sales when comparing the six months ended September 30, 2001 to the same period in the previous year. . Marine automation and control system sales by TANO for the six months ended September 30, 2001 were $3,053,000, as compared to $2,782,000 for the same period in the previous year. The 9.7% increase in sales was due to increases in spare parts sales and field service revenues as a result of higher demand. . Marine electrical switchgear sales by NMP for the six months ended September 30, 2001 were $8,121,000, as compared to $5,712,000 for the same period in the previous year. The 42.2% increase in sales was due to increased production on two major contracts for the U.S. Navy. For the six months ended September 30, 2001, gross profit, as a percentage of sales, decreased to 11.6% compared to 13.2% for the same period last year. Consolidated gross profit margins decreased due to a change in product mix as MCII sales represent 53% of consolidated sales for the six months ended September 30, 2001 compared to 27% for the same period of the previous year. MCII margins are 2.7% for the six months ended September 30, 2001. While production efficiencies have been realized during the six months ended September 30, 2001 at MCII, production delays at MCII and NMP continue due to unavailability of additional working capital as a result of a tightening credit market and final customer-testing procedures on certain long-term contracts. Efforts are ongoing to obtain additional working capital during the third and fourth quarters of fiscal 2002. Operating expenses for the six months ended September 30, 2001 were $2,283,000 compared to $2,014,000, a 13.4% increase. The $269,000 increase is due to the accrual of $94,000 in severance in the six months ended September 30, 2001 in conjunction with the resignation of the Company's previous chief financial officer on April 2, 2001; an increase in salaries of $161,000 in the period-to- period comparison; and significant labor costs incurred in the six months ended 12 September 30, 2001 in competitively bidding two long-term MCII contracts of which one, a six-year contract, was awarded in September 2001. Interest expense for the six months ended September 30, 2001 was $275,000, compared to $221,000 for the same period in the prior year. The 24.4% increase is due to $1,225,000 in additional borrowings in the six months ended September 30, 2001 as compared to the same period in the previous year, partially offset by lower interest rates. The effective income tax rate for the six months ended September 30, 2001 was 29.9%. This provision is due to state income taxes associated with TANO's operations. The Company also settled an Internal Revenue Service audit in the first quarter of fiscal 2002. As part of the settlement, the Company paid $48,000. No other income taxes were accrued in the six months ended September 30, 2001 or 2000 due to the utilization and increase, respectively, of 100% valuation allowanced net operating loss carryforwards and the breakeven operating results of TANO in the six months ended September 30, 2000. Liquidity and Capital Resources - ------------------------------- Operating activities for the six months ended September 30, 2001 resulted in net cash used of $29,000. Cash from net income of $223,000, depreciation and goodwill amortization of $522,000, accounts receivable collections of $108,000, and progress billings exceeding costs and estimated earnings on uncompleted contracts by $993,000 were used to purchase prepaid expenses of $168,000 and inventories of $1,607,000. The timing of purchases of inventories also contributed to an $862,000 increase in accounts payable and inventories. Progress billings exceeding costs and estimated earnings was due to continued progress in meeting milestones on long-term contracts, which were set to fund production against the contracts. Inventory was purchased for the production against the long-term contracts. Operating activities for the six months ended September 30, 2000 resulted in net cash use 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 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. The reason for the increases and decreases was due to production and sales beginning on long-term contracts at NMP and MCII in the first half of fiscal 2001. 13 Investing activities for the six months ended September 30, 2001 and 2000 consisted of equipment purchases of $301,000 and $256,000, respectively. These purchases were made to improve the production efficiencies on long-term contracts. The cash used for the equipment purchases was offset by the receipt of the first and second $250,000 annual installments on the note receivable from the purchaser of the marine hardware business sold in July 1999 as well as the sale of equipment no longer required for production under the Company's current long-term contracts. Financing activities for the six months ended September 30, 2001 used $207,000 of cash due to payments on notes payable to a bank and seller of MCII. Financing activities for the six months ended 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. The balance of the Company's $2,800,000 revolving credit facility at September 30, 2001, is $2,800,000. At September 30, 2001 there was no remaining borrowing available from the revolving credit facility. On October 15, 2001, the Company renewed its revolving credit facility until December 15, 2001 in anticipation of increasing and extending the revolving credit facility on December 15, 2001 following the current lender's due diligence procedures. The Company is also having ongoing discussions with other lenders to increase and extend, prior to the December 15, 2001 maturity date, the current revolving credit facility. In October 2001 the Company obtained $300,000 in additional revolving credit financing using a foreign irrevocable letter of credit on an outstanding purchase order as collateral. The note will be repaid at the expiration of the letter of credit in January 2002. In November 2001, the Company obtained a commitment from its bank for up to $1,000,000 in additional short-term revolving credit lines based upon other foreign irrevocable letters of credit on outstanding purchase orders, which will expire between January 2002 and June 2002. Proceeds from these financings will be used to fund production on these foreign orders prior to shipment. 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 14 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. 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 1.5% and .5%, respectively. The Company has no exposure with foreign currency contracts. 15 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. --------------------------------------------------- The annual meeting of the shareholders of the Company was held on September 27, 2001. By the vote of a majority of the shareholders entitled to vote at the meeting, directors were elected as follows:
For Withheld --------- -------- Ernest H. McKee 5,502,397 33,369 Richard E. Minshall 5,426,460 109,306 Anthony Pantaleoni 5,502,397 33,369 John H. Williams 5,502,397 33,369 William J. Preston 5,502,397 33,369
Item 5. Other Information. ----------------- Not applicable. Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits: None. (b) Reports on Form 8-K: There were no current reports filed on Form 8-K during the six months ended September 30, 2001. On October 3, 2001, The Company filed a current report on Form 8-K to report the award of a new long-term contract at MCII and the exercise of options on an existing contract at NMP. 16 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 12, 2001 WESTWOOD CORPORATION By: /s/ Ernest H. McKee --------------------------- Ernest H. McKee, Director President and Chief Executive Officer By: /s/ David L. Shepherd --------------------------- Secretary/Treasurer and Chief Financial Officer 17 -----END PRIVACY-ENHANCED MESSAGE-----