0000950005-95-000155.txt : 19950808 0000950005-95-000155.hdr.sgml : 19950808 ACCESSION NUMBER: 0000950005-95-000155 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950807 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: 95559369 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 UNITED STATES 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 June 30, 1995 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 (I.R.S. Employer Identification No.) of incorporation or organization) 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 June 30, 1995 8,029,000 shares Page 1 PART I--FINANCIAL INFORMATION Item 1. Financial Statements -------------------------------------- The interim financial statements are unaudited; however, Watkins-Johnson 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 six months ended June 30, 1995, are not necessarily indicative of the results for the full year 1995. Supplementary information to the financial statements: A dividend of twelve cents per share was declared and paid during the second quarter of 1995 and 1994. 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 June 30, 1995 and July 1, 1994
Three Months Ended Six Months Ended ---------------------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share 1995 1994 1995 1994 amounts) ---------------------------------------------------------------------------------------------------------------------- Sales $ 102,004 $ 87,365 $ 194,987 $ 167,891 ---------------------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of goods sold 60,355 49,780 113,461 100,830 Selling and administrative 18,898 19,708 38,821 34,954 Research and development 11,611 8,600 24,162 17,424 ---------------------------------------------------------------------------------------------------------------------- 90,864 78,088 176,444 153,208 ---------------------------------------------------------------------------------------------------------------------- Income from operations 11,140 9,277 18,543 14,683 Interest and other income (expense)--net 351 190 891 579 Interest expense (221) (306) (406) (603) ---------------------------------------------------------------------------------------------------------------------- Income from continuing operations before Federal and foreign income taxes 11,270 9,161 19,028 14,659 Federal and foreign income taxes (3,494) (2,924) (5,899) (4,680) ---------------------------------------------------------------------------------------------------------------------- Income from continuing operations 7,776 6,237 13,129 9,979 Loss from discontinued operations--net of taxes (303) (421) ---------------------------------------------------------------------------------------------------------------------- Net income $ 7,776 $ 5,934 $ 13,129 $ 9,558 ======================================================================================================================= Fully diluted net income per share (difference between fully diluted and primary earnings per share is not $ .88 $ .73 $ 1.51 $ 1.18 material) Average common and equivalent shares outstanding 8,822,000 8,124,000 8,687,000 8,124,000 *Unaudited
Page 3 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 30, 1995 and December 31, 1994
--------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995* 1994 --------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 41,272 $ 34,469 Receivables 85,158 80,427 Inventories: Raw materials and parts 15,538 12,293 Work in process 36,991 37,682 Finished goods 1,442 1,680 Other 13,271 12,921 --------------------------------------------------------------------------------------------------------------------- Total current assets 193,672 179,472 --------------------------------------------------------------------------------------------------------------------- Property, plant and equipment 165,832 160,683 Accumulated depreciation and amortization (113,036) (115,537) --------------------------------------------------------------------------------------------------------------------- Property, plant, and equipment--net 52,796 45,146 --------------------------------------------------------------------------------------------------------------------- Other assets 10,405 10,412 --------------------------------------------------------------------------------------------------------------------- $ 256,873 $ 235,030 ===================================================================================================================== LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Payables $ 14,405 $ 15,045 Accrued liabilities 50,848 47,776 --------------------------------------------------------------------------------------------------------------------- Total current liabilities 65,253 62,821 --------------------------------------------------------------------------------------------------------------------- Long-term obligations 22,278 22,583 --------------------------------------------------------------------------------------------------------------------- Shareowners' equity: Common stock 28,751 20,279 Retained earnings 140,591 129,347 --------------------------------------------------------------------------------------------------------------------- Total shareowners' equity 169,342 149,626 --------------------------------------------------------------------------------------------------------------------- $ 256,873 $ 235,030 ===================================================================================================================== *Unaudited
Page 4 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS* For the periods ended June 30, 1995 and July 1, 1994
Six Months Ended ------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) 1995 1994 ------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 13,129 $ 9,558 Reconciliation of net income to cash flows Depreciation and amortization 5,252 Receivables (4,731) 1,024 Inventories (2,316) (9,881) Other assets (343) 1,391 Accruals and payables 1,725 (2,429) ------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 12,716 4,311 ------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES: Additions of property, plant, and equipment (13,790) (5,278) Other 887 58 ------------------------------------------------------------------------------------------------------------------- Net cash (used) in investing activities (12,903) (5,220) ------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from issuance of stock 8,471 7,706 Repurchase of common stock 0 (13,805) Dividends paid (1,885) (1,756) Other 404 (581) ------------------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities 6,990 (8,436) ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents 6,803 (9,345) Cash and equivalents at beginning of period 34,469 45,040 ------------------------------------------------------------------------------------------------------------------- Cash and equivalents at end of period $ 41,272 $ 35,695 =================================================================================================================== *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 continues to be in excellent financial condition. During the first half of 1995, cash and equivalents increased $6.8 million from $34.5 to $41.3 million as cash provided by operations and stock issuances more than offset capital expenditures and dividends paid. For the balance of 1995, the company expects to generate sufficient cash to fund its operations and product development. Growth expectations beyond 1995 may require use of external financing in order to meet such growth opportunities. The company is currently negotiating to increase its lines of credit. CURRENT OPERATIONS: Semiconductor Equipment Group sales set a new record this quarter. Continued demand for semiconductor equipment reflects the higher semiconductor content in electronic products, along with the demand for more memory to support advanced microprocessors and multimedia products. During the quarter, semiconductor sales accounted for nearly 60% of total revenue. The Group introduced its latest product, the WJ-2000 high-density plasma reactor, at the SEMICON/West trade show in early July with resulting high customer interest. Prospects for the remainder of the year appear positive as analysts' industry growth projections remain strong. It must be recognized that the semiconductor equipment business is cyclical and can change rapidly. Uncertainty increases significantly when projecting demand for semiconductor equipment products more than six months into the future. During the second quarter, the Electronics Group divested certain product lines to better focus on its core defense business and position itself in the telecommunications market. The divested product lines accounted for approximately $7 million of sales each quarter in 1994. The company does not expect the divestitures to significantly impact its 1995 results of operations, financial position, and cash flow. The business picture for the Electronics Group is improving as customer demand has relatively stabilized for its missile guidance and intelligence receiver products, and the Group's telecommunication products are gaining acceptance in the growing wireless market. BACKLOG: The firm order backlog on June 30, 1995 was $205,323,000 compared to the $180,621,000 recorded on July 1, 1994. The portion of the current backlog shippable within twelve months is 87%, compared to 91% one year ago. SECOND QUARTER 1995 COMPARED TO SECOND QUARTER 1994: Semiconductor Equipment Group sales increased nearly 50% while Electronics Group sales were down 11%, resulting in an overall company increase of 17%. The decrease in Electronics Group sales was mostly due to the divested product lines described above. Gross margins remained above 40% but were down slightly due mostly to nonrecurring production costs associated with product enhancements in the Semiconductor Equipment Group. Although selling and administrative expenses decreased slightly, expenses are expected to be higher for the remainder of 1995 due to increasing direct sales activities by both Groups. The rate of research and development spending was slightly higher compared to the same period last year but has slowed from the level of the first quarter of 1995. Due to the combined effect of the above factors, net income for the second quarter of 1995 increased more than 30% over the same period in 1994. Page 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) ------------------------------------------------------------------------------ SECOND QUARTER YEAR-TO-DATE 1995 COMPARED TO SECOND QUARTER YEAR-TO-DATE 1994: Semiconductor Equipment Group sales increased 57% while Electronics Group sales were down 11%, resulting in an overall company increase of 16%. The favorable revenue shift towards more profitable semiconductor equipment products helped to increase the company's gross margin from 40% to 42%. Although selling and administrative expenses as a percentage of sales decreased slightly, expenses are expected to rise for the second half of 1995 as direct sales activities are expected to increase for both Groups. Research and development expenses increased from 10% to 12% of sales due to the company's substantial efforts in developing the next generation of products for both business segments. Research and development expenses are expected to be above plan for the year although the pace of spending will slow in the second half. Due to the combined effect of the above factors, net income for the first half of 1995 increased 37% over the same period in 1994. Page 7 PART II--OTHER INFORMATION 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 number 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: August 3, 1995 By: /s/ W. Keith Kennedy, Jr. ------------------------ ------------------------------------- W. Keith Kennedy, Jr. President and Chief Executive Officer Date: August 3, 1995 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
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON SHARE (Dollars in thousands, except per share amounts) The following table illustrates the potential dilution of outstanding stock options on net income per share computations: Three Months Ended Six Months Ended ---------------------------------------------------------------------------------------------------------------------------- June 30, 1995 July 1, 1994 June 30, 1995 July 1, 1994 ---------------------------------------------------------------------------------------------------------------------------- FOR PRIMARY NET INCOME PER SHARE: Weighted average shares outstanding 7,911,000 7,346,000 7,776,000 7,351,000 Equivalent shares--dilutive stock options--based on treasury stock method using average market price 788,000 689,000 788,000 676,000 ---------------------------------------------------------------------------------------------------------------------------- Total 8,699,000 8,035,000 8,564,000 8,027,000 ============================================================================================================================ FOR FULLY DILUTED NET INCOME PER SHARE: Weighted average shares outstanding 7,911,000 7,346,000 7,776,000 7,351,000 Equivalent shares--dilutive stock options--based on treasury stock method using greater of closing market price or average price 911,000 778,000 911,000 756,000 ---------------------------------------------------------------------------------------------------------------------------- Total 8,822,000 *8,124,000 8,687,000 *8,107,000 ============================================================================================================================ Net income $ 7,776 $ 5,934 $ 13,129 $ 9,558 ============================================================================================================================ Primary net income per share $ .89 $ .74 $ 1.53 $ 1.19 ============================================================================================================================ Fully diluted net income per share $ .88 $ .73 $ 1.51 $ 1.18 ============================================================================================================================ * Highest number of shares was reported on the Consolidated Statements of Operations and used to compute quarterly and year-to-date earnings per share (EPS) so that the sum of the quarters EPS equals year-to-date EPS. This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11).
Page 11 EX-27 3
5 1000 3-MOS DEC-31-1995 JUN-30-1995 41272 0 85158 0 53971 193672 165832 113036 256873 65253 22278 28751 0 0 140591 256873 102004 102004 60355 90864 (351) 0 221 11270 3494 7776 0 0 0 7776 .89 .88