-----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, IPz5Kqq6uVPNWCOcycCn8c1dUSz7Fs0E+oXQRlClbPa0Xoq8r3gnyAJdrW9LwIui 3G3kfSkik8+EiKCk/Oo4Qw== 0000950005-96-000194.txt : 19960425 0000950005-96-000194.hdr.sgml : 19960425 ACCESSION NUMBER: 0000950005-96-000194 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960329 FILED AS OF DATE: 19960424 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WATKINS JOHNSON CO CENTRAL INDEX KEY: 0000105006 STANDARD INDUSTRIAL CLASSIFICATION: SEARCH, DETECTION, NAVIGATION, GUIDANCE, AERONAUTICAL SYS [3812] IRS NUMBER: 941402710 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-05631 FILM NUMBER: 96550293 BUSINESS ADDRESS: STREET 1: 3333 HILLVIEW AVE CITY: PALO ALTO STATE: CA ZIP: 94304 BUSINESS PHONE: 4154934141 MAIL ADDRESS: STREET 1: 3333 HILLVIEW AVENUE CITY: PALO ALTO STATE: CA ZIP: 94304-1223 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ----------- [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 1996 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 1-5631 WATKINS-JOHNSON COMPANY ------------------------------------------------------ (Exact name of registrant as specified in its charter) CALIFORNIA 94-1402710 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 3333 Hillview Avenue, Palo Alto, California 94304-1223 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (415) 493-4141 ---------------------------------------------- (Registrant's telephone number, including area code) 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 Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . Common stock, no par value, outstanding as of March 29, 1996 8,197,000 shares - -------------------------------------------------------------------------------- Page 1 PART I--FINANCIAL INFORMATION Item 1. Financial Statements The interim financial statements are unaudited; however, the company believes that all adjustments necessary to a fair statement of results for such interim periods have been included and all such adjustments are of a normal recurring nature. The results for the three months ended March 29, 1996, are not necessarily indicative of the results for the full year 1996. Supplementary information to the financial statements: A dividend of twelve cents per share was declared and paid during the first quarter of 1996 and 1995. Net income per share is computed based on the weighted average number of common and common equivalent shares (dilutive stock options) outstanding during the period, see Exhibit 11. The consolidated financial statements required by Rule 10-01 of Regulation S-X are included in this report beginning on the next page. - -------------------------------------------------------------------------------- Page 2 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS* For the periods ended March 29, 1996 and March 31, 1995 Three Months Ended ------------------------------------------------------------------------------ (Dollars in thousands, except per share amounts) 1996 1995 ------------------------------------------------------------------------------ Sales $122,742 $ 92,983 ------------------------------------------------------------------------------ Costs and expenses: Cost of goods sold 76,832 53,106 Selling and administrative 22,501 19,923 Research and development 14,008 12,551 ------------------------------------------------------------------------------ 113,341 85,580 ------------------------------------------------------------------------------ Income from operations 9,401 7,403 Other income (expense) (77) 355 ------------------------------------------------------------------------------ Income before Federal and foreign income taxes 9,324 7,758 Federal and foreign income taxes (2,890) (2,405) ------------------------------------------------------------------------------ Net income $ 6,434 $ 5,353 =============================================================================== Fully diluted net income per share (difference between fully diluted and primary earnings per share is not material) $ .75 $ .63 Year-to-date average common and equivalent shares outstanding 8,583,000 8,541,000 *Unaudited - ------------------------------------------------------------------------------- Page 3 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of March 29, 1996 and December 31, 1995 ------------------------------------------------------------------------------ (Dollars in thousands) 1996* 1995 ------------------------------------------------------------------------------ ASSETS Current assets: Cash and equivalents $ 7,084 $ 34,556 Receivables 98,214 86,311 Inventories: Finished goods 4,379 3,623 Work in process 53,017 45,092 Raw materials and parts 37,614 31,120 Other 15,935 16,263 ------------------------------------------------------------------------------ Total current assets 216,243 216,965 ------------------------------------------------------------------------------ Property, plant, and equipment 204,525 185,379 Accumulated depreciation and amortization (122,826) (120,243) ------------------------------------------------------------------------------ Property, plant, and equipment--net 81,699 65,136 ------------------------------------------------------------------------------ Other assets 5,523 5,573 ------------------------------------------------------------------------------ $ 303,465 $287,674 ============================================================================== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Payables $ 26,638 $ 23,162 Accrued liabilities 50,198 51,590 ------------------------------------------------------------------------------ Total current liabilities 76,836 74,752 ------------------------------------------------------------------------------ Long-term obligations 29,092 21,669 ------------------------------------------------------------------------------ Shareowners' equity: Common stock 35,586 34,307 Retained earnings 161,951 156,946 ------------------------------------------------------------------------------ Total shareowners' equity 197,537 191,253 - ------------------------------------------------------------------------------- $ 303,465 $287,674 =============================================================================== *Unaudited - ------------------------------------------------------------------------------- Page 4 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS* For the periods ended March 29, 1996 and March 31, 1995 Three Months Ended - ------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 - ------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net income $ 6,434 $ 5,353 Reconciliation of net income to cash flows: Depreciation and amortization 3,338 2,448 Net changes in: Receivables (11,904) 3,243 Inventories (15,175) (5,927) Other assets 678 501 Accruals and payables (534) (1,323) - ------------------------------------------------------------------------------- Net cash provided (used) by operating activities (17,163) 4,295 - ------------------------------------------------------------------------------- INVESTING ACTIVITIES: Additions of property, plant, and equipment (19,908) (4,292) Other 29 1 ------------------------------------------------------------------------------ Net cash used in investing activities (19,879) (4,291) ------------------------------------------------------------------------------ FINANCING ACTIVITIES: Long-term borrowing 9,329 Net borrowings under line-of-credit 96 Proceeds from issuance of common stock 1,279 2,021 Dividends paid (978) (924) Other (156) 70 ------------------------------------------------------------------------------ Net cash provided by financing activities 9,570 1,167 ------------------------------------------------------------------------------ Net increase (decrease) in cash and equivalents (27,472) 1,171 Cash and equivalents at beginning of period 34,556 34,469 ------------------------------------------------------------------------------ Cash and equivalents at end of period $ 7,084 $ 35,640 ============================================================================== *Unaudited - ------------------------------------------------------------------------------- Page 5 PART I--FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition: The company's rapid growth continues to require cash to finance strong working capital needs and infrastructure expansion. During the first quarter, cash and equivalents decreased $27.5 million from $34.6 million to $7.1 million. Although first quarter net income was $6.4 million, net cash used by operations approached $17.2 million, reflecting the need to fund increases in working capital, particularly inventory and receivables. During the quarter, the company invested $19.9 million in new capital equipment in order to support the growing semiconductor equipment and wireless communications operations. Although the company is investigating certain permanent financing options, it is anticipating as much as a $30 million to $40 million draw down on its $100 million credit line in 1996. In addition, long-term financing up to about $30 million is being negotiated for the construction of a new $38-million facility in Kawasaki, Japan, for the Semiconductor Equipment Group. During the quarter, $9.3 million was funded thus far by the lender for the land purchase and commencement of construction. Such borrowing is denominated in Yen and is amortizable over 15 years, bearing interest a 2.5 percent. Current Operations and Business Outlook: First quarter shipments and backlog for semiconductor equipment reached an all-time high, with Semiconductor Equipment Group sales accounting for 68% of total company revenue. However, rapid expansion efforts by the Group contributed to a decrease in gross margins during the quarter. As discussed above, the Group began construction of a new 36,000 square-foot facility in Japan which will serve primarily as an applications laboratory for the cooperative development of new deposition processes with all Asia-Pacific customers. In California, the Semiconductor Equipment Group has begun to expand into the company's renovated San Jose plant by relocating its business-development and training operations into the site. In July 1995, the company introduced the WJ-2000 high density plasma reactor which is aimed at devices such as the 256 Megabit DRAM and 7th generation microprocessors expected to enter production in the 1998-1999 timeframe. We have had several successful sample runs for various customers. We are currently working with two beta-site partners and are on target to deliver two beta units in the third quarter. We anticipate deliveries of the WJ-2000 beginning in 1997. Despite current softening in semiconductor integrated circuit demand, there has been no announced pullback by industry analysts from their forecast of a roughly $350 billion integrated circuit market by the year 2000. However, looking forward, some customers are delaying delivery dates on new and existing orders, which may result in lower-than-anticipated orders and sales in the second half of the year. It is recognized that the semiconductor equipment business is cyclical and uncertainty increases significantly when projecting demand for semiconductor equipment products more than 6 months into the future. Market acceptance of wireless communications products, both at the subassembly and equipment levels, has been encouraging. Shipments for the recently announced $11 million Lucent Technologies order for converter subassemblies will proceed in 1996. Orders for telecommunications equipment, including low-cost, sensitive receivers for cellular telephone fraud detection and wideband transceivers for cellular base-station functions, exceeded the planned level for the first quarter of 1996. Looking forward, slowness by certain customers in obtaining base station site permits from various municipalities and moving existing users of frequency bands to other frequencies is causing them not to erect base stations as quickly as the earlier predictions. This has caused us to slow down production on these orders and to expedite deliveries on other orders as much as possible. As a result, we expect 1996 sales to be short of the near doubling anticipated upon entering the year. However, strong revenue growth and orders prospects for 1996 and 1997 still appear positive. The company's government electronics operations are achieving steady performance and are meeting expectations. Excluding $7 million of first quarter 1995 sales from certain government electronics product lines divested in the second quarter of 1995, sales remain relatively flat. We continue to focus on cost containment and expect government electronics sales to remain flat to slightly down for the remainder of the year. - -------------------------------------------------------------------------------- Page 6 First Quarter 1996 Compared to First Quarter 1995: Semiconductor Equipment Group sales increased 79%, while Wireless Communications and Government Electronics sales decreased 1% and 19%, respectively, resulting in an overall company increase of 32%. The $7 million decrease in Government Electronics sales was primarily due to the divestiture of certain product lines in the second quarter of 1995. Gross margins decreased from 42.9% to 37.4% due mostly to rapid expansion efforts in the Semiconductor Equipment Group and a shifting of warranty costs from selling and administrative expense to overhead. Prior to establishing direct sales and service offices and phasing out our distributor network, warranty costs were included in selling and administrative expenses where distributors were responsible for warranty service as part of their sales commission. Although selling and administrative expenses decreased as a percentage of sales, due in part to the warranty cost shift discussed above, expenses were up due to the increased volume and infrastructure development for higher 1996 sales efforts.. Research and development expenses remained within planned levels as the company continues its efforts in developing next generation products, particularly for the Semiconductor Equipment Group and Wireless Communications segment. Due to the above factors, first quarter 1996 net income increased 20% compared to the same period in 1995. Risks and Uncertainties That May Affect Future Results: Statements included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" which are not historical facts are forward looking statements that involve risks and uncertainties that may affect future results, including but not limited to: product demand and market acceptance risks, the effect of economical conditions, the impact of competitive products and pricing, product development, commercialization and technological difficulties, capacity and supply constraints or difficulties, business cycles, the results of financing efforts, actual purchases under agreements, the effect of the company's accounting policies, U.S. Government export policies, natural disasters and other risks detailed in the company's 1995 Form 10-K filed with the Securities and Exchange Commission. - -------------------------------------------------------------------------------- Page 7 PART II--OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders held April 13, 1996, shareowners voted on the following: Item 1: Election of Directors: Nominee For Withheld ------- --- -------- Dean A. Watkins 6,189,956 277,720 H. Richard Johnson 6,190,958 276,718 W. Keith Kennedy 6,327,376 140,300 John J. Hartmann 6,465,906 1,770 Raymond F. O'Brien 6,465,856 1,820 William R. Graham 6,465,426 2,250 Robert L. Prestel 6,466,174 1,502 Gary M. Cusumano 6,465,524 2,152 Item 2: Proposal to ratify the appointment of Deloitte & Touche as the independent auditors of the company for accounting year ending December 31, 1996. For 6,387,334 Against 7,621 ------------ ----------------- Abstain 75,452 Broker Non-Votes 12,600 ------- -------- Item 3: Proposal to restate and amend the 1989 Stock Option Plan for Nonemployee Directors to increase the number of shares reserved for issuance thereunder by 150,000 shares and other amendments as detailed in Appendix A to the company's definitive proxy statement dated March 8, 1996 filed with the commission pursuant to regulation 14A. For 4,463,339 Against 1,958,333 ------------ ------------------ Abstain 44,935 Broker Non-Votes 16,400 ------- -------- Item 6. Exhibits and Reports on Form 8-K a) A list of the exhibits required to be filed as part of this report is set forth in the Exhibit Index, which immediately precedes such exhibits. The exhibits are numbered according to Item 601 of Regulation S-K. b) No reports on Form 8-K were required to be filed during the quarter. - -------------------------------------------------------------------------------- Page 8 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WATKINS-JOHNSON COMPANY (Registrant) Date April 24, 1996 By: /s/ Scott G. Buchanan for W. Keith Kennedy, Jr. ---------------- ----------------------------------------------- W. Keith Kennedy, Jr. President and Chief Executive Officer Date April 24, 1996 By: /s/ Scott G. Buchanan ----------------- ----------------------------------------------- Scott G. Buchanan Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Page 9 EXHIBIT INDEX The Exhibits below are numbered according to Item 601 of Regulation S-K. Exhibit Number Exhibit ------- ------- 11 Statement re Computation of Per Share Earnings. 27 Financial Data Schedule - -------------------------------------------------------------------------------- Page 10 EX-11 2 COMPUTATION OF NET INCOME PER COMMON SHARE EXHIBIT 11 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE
For Three Months Ended ----------------------------------------- March 29, 1996 March 31, 1995 -------------- -------------- For primary net income per share: Weighted average shares outstanding 8,136,000 7,639,000 Equivalent shares--dilutive stock options--based on treasury stock method using average market price 447,000 807,000 -------- -------- Total 8,583,000 8,446,000 ========== ========== For fully diluted net income per share: Weighted average shares outstanding 8,136,000 7,639,000 Equivalent shares--dilutive stock options--based on treasury stock method using greater of closing market price or average price 447,000 902,000 -------- -------- Total 8,583,000 8,541,000 ========== ========== Net Income $6,434 $5,353 ====== ====== Primary net income per share $.75 $.63 ==== ==== Fully diluted net income per share $.75 $.63 ==== ==== This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11).
- -------------------------------------------------------------------------------- Page 11 EX-27 3 FINANCIAL DATA SCHEDULE
5 1000 3-mos Dec-31-1996 Jan-01-1996 Mar-29-1996 7,084 0 98,214 0 95,010 216,243 204,525 122,826 303,465 76,836 29,092 35,586 0 0 161,951 303,465 122,742 122,742 76,832 113,341 77 0 0 9,324 2,890 6,434 0 0 0 6,434 .75 .75
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