-----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, SgOn1DCaJKYw2r+icD8P1DdnlKwe/tWBwObfLRtWNrrSQwXh7s52WZdYEcZjs3Ej hQFNZQ52sdY9/cH/NvEd9Q== 0000950005-97-000679.txt : 19970811 0000950005-97-000679.hdr.sgml : 19970811 ACCESSION NUMBER: 0000950005-97-000679 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970808 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WATKINS JOHNSON CO CENTRAL INDEX KEY: 0000105006 STANDARD INDUSTRIAL CLASSIFICATION: SPECIAL INDUSTRY MACHINERY, NEC [3559] 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: 97654240 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 27, 1997 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 Identification No.) 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 27, 1997 8,204,984 shares PART I--FINANCIAL INFORMATION Item 1. Financial Statements The interim financial statements are unaudited; however, Watkins-Johnson Company believes that all adjustments necessary for 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 27, 1997, are not necessarily indicative of the results for the full year 1997. Supplementary information to the financial statements: A dividend of twelve cents per share was declared and paid during the second quarter of 1997 and 1996. 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. Recently issued accounting standards: In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). The company is required to adopt SFAS 128 in the fourth quarter of 1997 and will restate at that time earnings per share (EPS) data for prior periods to conform with SFAS 128. Early application is not permitted. SFAS 128 replaces current EPS reporting requirements and requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. If SFAS 128 had been in effect during the current and prior year periods, basic EPS would have been $0.37 and $0.04 for the quarters ended June 27, 1997 and June 28, 1996, respectively, and basic EPS would have been $0.67 and $0.83 for the six months ended June 27, 1997 and June 28, 1996, respectively. Diluted EPS would not have been significantly different than fully diluted EPS currently reported for the periods. In June 1997, the Financial Accounting Standards Board adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which requires that an enterprise report, by major components and as a single total, the change in its net assets during the period from nonowner sources; and No. 131, "Disclosures about Segments of an Enterprise and Related Information", which establishes annual and interim reporting standards for an enterprise's business segments and related disclosures about its products, services, geographic areas, and major customers. Adoption of these statements will not impact the company's consolidated financial position, results of operations or cash flows, however, SFAS 131 may result in reclassification to the amounts previously reported in the company's segment information. Both statements are effective for 1998, however, early adoption is permitted. 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 27, 1997 and June 28, 1996
Three Months Ended Six Months Ended - ---------------------------------------------------------------------------------------------------------- (Dollars in thousands, except per share 1997 1996 1997 1996 amounts) - ---------------------------------------------------------------------------------------------------------- Sales $ 95,679 $ 126,447 $ 186,595 $ 249,189 - ---------------------------------------------------------------------------------------------------------- Costs and expenses: Cost of goods sold 62,911 84,959 123,622 161,791 Selling and administrative 17,638 23,392 33,334 45,893 Research and development 10,928 17,024 21,974 31,032 - ---------------------------------------------------------------------------------------------------------- 91,477 125,375 178,930 238,716 - ---------------------------------------------------------------------------------------------------------- Income from operations 4,202 1,072 7,665 10,473 Interest and other income (expense)--net 625 (169) 1,083 (16) Interest expense (361) (383) (690) (613) - ---------------------------------------------------------------------------------------------------------- Income from operations before Federal and foreign income taxes 4,466 520 8,058 9,844 Federal and foreign income taxes (1,384) (162) (2,498) (3,052) - ---------------------------------------------------------------------------------------------------------- Net income $ 3,082 $ 358 $ 5,560 $ 6,792 ========================================================================================================== Fully diluted net income per share (difference between fully diluted and primary earnings per share is not $ .36 $ .04 $ .65 $ .79 material) Average common and equivalent shares outstanding 8,546,000 8,577,000 8,567,000 8,593,000 *Unaudited
- -------------------------------------------------------------------------------- Page 3 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of June 27, 1997 and December 31, 1996 - -------------------------------------------------------------------------------- (Dollars in thousands) 1997* 1996 - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ 28,388 $ 15,702 Receivables 82,159 95,717 Inventories: Finished goods 3,419 4,005 Work in process 34,521 35,000 Raw materials and parts 32,415 30,153 Deferred income taxes 17,795 17,795 Other 4,419 5,471 - -------------------------------------------------------------------------------- Total current assets 203,116 203,843 - -------------------------------------------------------------------------------- Property, plant, and equipment 236,337 231,318 Accumulated depreciation and amortization (132,279) (127,748) - -------------------------------------------------------------------------------- Property, plant, and equipment--net 104,058 103,570 - -------------------------------------------------------------------------------- Other assets 2,900 6,960 - -------------------------------------------------------------------------------- $ 310,074 $ 314,373 ================================================================================ LIABILITIES AND SHAREOWNERS' EQUITY Current liabilities: Payables $ 18,531 $ 18,960 Accrued liabilities 58,671 61,901 - -------------------------------------------------------------------------------- Total current liabilities 77,202 80,861 - -------------------------------------------------------------------------------- Long-term obligations 38,178 38,801 - -------------------------------------------------------------------------------- Shareowners' equity: Common stock 39,197 38,998 Retained earnings 155,497 155,713 - -------------------------------------------------------------------------------- Total shareowners' equity 194,694 194,711 - -------------------------------------------------------------------------------- $ 310,074 $ 314,373 ================================================================================ *Unaudited - -------------------------------------------------------------------------------- Page 4 WATKINS-JOHNSON COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS* For the periods ended June 27, 1997 and June 28, 1996 Six Months Ended - -------------------------------------------------------------------------------- (Dollars in thousands) 1997 1996 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES: Net Income $ 5,560 $ 6,792 Reconciliation of net income to cash flows Depreciation and amortization 7,860 6,743 Net changes in: Receivables 15,878 (16,741) Inventories (1,062) (8,088) Other assets 411 908 Accruals and payables (6,407) 11,177 - -------------------------------------------------------------------------------- Net cash provided by operating activities 22,240 791 - -------------------------------------------------------------------------------- INVESTING ACTIVITIES: Additions of property, plant, and equipment (8,191) (32,511) Restricted plant construction funds 3,738 Other 303 143 - -------------------------------------------------------------------------------- Net cash (used) in investing activities (4,150) (32,368) - -------------------------------------------------------------------------------- FINANCING ACTIVITIES: Long-term debt borrowing 9,149 Line-of-credit borrowing 9,966 Long-term debt and line-of-credit repayments (756) Proceeds from issuance of stock 557 3,323 Repurchase of common stock (4,249) Dividends paid (1,994) (1,974) Other (76) (253) - -------------------------------------------------------------------------------- Net cash provided (used) by financing activities (6,518) 20,211 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Effect of exchange rate changes on cash 1,114 - -------------------------------------------------------------------------------- Net increase (decrease) in cash and equivalents 12,686 (11,366) Cash and equivalents at beginning of period 15,702 34,556 - -------------------------------------------------------------------------------- Cash and equivalents at end of period $ 28,388 $ 23,190 ================================================================================ *Unaudited - -------------------------------------------------------------------------------- Page 5 PART I--FINANCIAL INFORMATION Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition During the first half of 1997, cash and equivalents increased by $12.7 million from $15.7 million to $28.4 million. Although year-to-date 1997 net income was $5.6 million, net cash provided by operations was $22.2 million, reflecting the easing on working capital needs from the peak levels of last year. The company invested $8.2 million in new capital equipment during the first half of 1997, returning to a recent historical rate of acquisitions compared to last years elevated pace. The company reactivated its stock repurchase program during the first quarter and, year-to-date, has repurchased 193,000 shares of its common stock for $5.4 million. Also, the company paid approximately $2 million in dividends during the first half of 1997. We have continued our efforts to convert some of the company's appreciated assets into cash. The 14 acre vacant lot in San Jose, California, is currently in contract negotiation for its sale. We had earlier expected to report that the sale would have been completed by now. However, the fees that the City of San Jose will expect for traffic mitigation in developing the property are uncertain at this time and we are working through the issues with the buyer. We have also made an agreement to move forward with our leaseholder of the Palo Alto, California, facility to sell a portion of the appreciated lease on the land and vacant buildings for redevelopment, which will also yield some cash. The Palo Alto deal is expected to complete by the end of this year. Successful completion of all these deals, including the divestiture of our Palo Alto defense operations, is expected to further improve our balance sheet. Current Operations and Business Outlook Semiconductor Equipment Group Second quarter revenues were nearly $48 million, representing 50% of the company total. Operating profit for the Group is positive, showing the cost controls we have established are working well. Orders of $44 million continue to improve on a sequential quarter basis. Orders are 29% above those of first quarter's $34 million and the same as last year's $44 million. Looking forward, we see continued orders growth in the third quarter. The orders picture is consistent with the plans we have made for the Group size in 1997. With these order rates, the group is consistently below the long term goal of less than a 5 month backlog. Thus, we are able to service the order requirements of our customers more rapidly, and they are taking advantage of the shorter lead time. This quicker service is contributing to the lumpy orders patterning we are seeing. The company advanced forward on its WJ-2000 single-wafer high-density plasma cluster platform during the quarter. This system has progressed from development to manufacturing, while achieving highly competitive results in both film quality and throughput during marathon runs of its intermetal-dielectric deposition process. We recently turned-on the first manufacturing built system with performance equivalent to that of the engineering built system. We are working with several top-tier customers (both US and Asia) on the investigation of WJ HDP film qualities for aggressive structure characteristics, basically meeting or exceeding customer requirements for samples with less than 0.25 micron feature size and very high aspect ratios. So far all equipment is at our Scotts Valley laboratory, but we expect to have multiple customer placements in the second half of the year. - -------------------------------------------------------------------------------- Page 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) WJ's continuous-process atmospheric-pressure systems are being purchased for their ability to handle difficult new applications like shallow-trench isolation (STI). WJ has been qualified in production for STI at fabrication facilities in the U.S. and Asia. The company's WJ-1000 system has been qualified by a major customer for 0.18-micron geometries. Modification of the WJ-999 reactor for 300mm processing has made substantial progress along that product's roadmap. VLSI Research Inc. announced in May that Watkins-Johnson was selected for the third time as a 10 Best winner among suppliers of wafer-processing equipment. In discussing WJ's selection, VLSI identified five unique strengths: WJ's new-product "field readiness" process, its supplier management team, electronic call tracking for troubleshooting and case management, the company's customer support center and its newly opened Asia technology center. We believe the long range industry forecasts for the semiconductor industry continue to be bright, plus semiconductor integrated circuit demand is increasing in dollar terms over last year. Although factory utilization figures are improving, they oscillate a little as new FABs come on line. The semiconductor industry basically remains in an overcapacity situation, and we have clearly seen a leveling of the equipment spending by our customers. Wireless Communications Second quarter revenues were over $16 million, representing over 17% of the company total. Orders for the second quarter 1997 totaled approximately $14 million compared to $8 million for the same period last year. The business segment is entering the third quarter with a backlog totaling approximately $37 million. The company's versatile Base2(TM) cellular base station is performing well in operational field trials with a major wireless-telecommunications carrier. This advanced base station employs proprietary RF digital-signal-processing and software technology which ensures uncommon system flexibility and economical operation. WJ plans to move the Base2 into volume production in 1998. As we announced during the quarter, we received our first order for the Base2 base station system from Telos Engineering of Vancouver, BC for integration into its Sonata Wireless Communications system. The Sonata system is for deployment to an overseas, third-world, application. WJ's gallium arsenide-based, field-proven components and subassemblies continue to satisfy demanding transceiver functions in wireless communications networks worldwide. Development of new components for wireless applications has been maintained at a high level as we respond to very large long-term market opportunities presented to us by major wireless equipment manufacturers. These components are opening doors for us at several major base-station makers. Government Electronics Second quarter revenues were over $31 million compared to $27 million for the same period last year. Orders were strong for the second quarter of 1997, totaling $37 million compared to $25 million for the first quarter of 1997. Second quarter orders include $20.3 million in orders from Raytheon and Hughes for the Lot 11 AMRAAM modules. Backlog at the end of the second quarter totaled approximately $96 million. - -------------------------------------------------------------------------------- Page 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) In April, Watkins-Johnson offered for sale its Palo Alto, Calif.-based defense-electronics manufacturing operation. Over 40 organizations responded with requests for further information. To date, several of these organizations have visited and expressed interest in acquiring WJ's military components and subassemblies product line. We are moving on schedule and hope to close on a sale before the end of 1997. Management currently estimates that the business offered for sale generated approximately $47 million of sales for the first half of 1997 and produced pre-tax operating profit of more than $7 million. The operations offered for sale are business units of the company; consequently these estimates have been derived from the consolidated financial statements and accounting records of the company, and reflect significant assumptions and allocations. Moreover, the business units rely on the company and its other business units for administrative, management and other services. These estimates could differ from those that would have resulted had the business units operated autonomously or as an entity independent of the company. Second Quarter 1997 Compared to Second Quarter 1996 Wireless Communications and Government Electronics sales increased 59% and 16%, respectively, while Semiconductor Equipment Group sales decreased 46%, resulting in an overall company decrease of 24%. A primary improvement in Wireless Communications sales is in the shipping rate of the PCS converters sold to Lucent Technologies. Gross margins increased slightly from 33% to 34%. Selling and administrative expenses as a percentage of sales remained flat, but were down 25% from the same period last year due to the lower volume and cost cutting efforts. Research and development expenses decreased from 14% to 11% of sales, remaining below our budget. Research and development is budgeted at about 12-1/2% of planned sales for 1997 and expenses will pick up in the Wireless Communications sector with the Base2 prove-out expenses. With our business model of spending 15% of Semiconductor Equipment revenues and 10% of Wireless Communications revenues, this percentage will increase following the divestiture. Operating Income was $4.2 million, compared to the $1.1 million operating profit of the same period last year when, even though we were enjoying very healthy semiconductor equipment sales, we were taking action against the downturn in the semiconductor equipment market. Due to the above factors, first quarter 1997 net income increased to $3.1 million compared to $358 thousand reported for the same period in 1996. Second Quarter Year-to-Date 1997 Compared to Second Quarter Year-to-Date 1996 Wireless Communications and Government Electronics sales increased 62% and 11%, respectively, while Semiconductor Equipment Group sales decreased 47%, resulting in an overall company decrease of 25%. Gross margins decreased slightly from 35% to 34% due mostly to the lower volume in the Semiconductor Equipment Group. As semiconductor equipment sales drop as a percentage of the company total, gross margins shift toward the lower margin products of the government electronics activities. Selling and administrative expenses decreased 27%, due mostly to the decreased volume and cost cutting efforts, but remained flat as a percentage of sales. Research and development expenses decreased from 13% to 12% of sales, remaining within planned levels as the company continues its efforts in developing next generation products for the Semiconductor Equipment Group and Wireless Communications segment. Due to the above factors, net income decreased 18% compared to the same period in 1996. - -------------------------------------------------------------------------------- Page 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (continued) 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. Future results can differ materially. - -------------------------------------------------------------------------------- Page 9 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 10 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 8, 1997 By: /s/ W. Keith Kennedy, Jr. ------------------ --------------------------------------------- W. Keith Kennedy, Jr. President and Chief Executive Officer Date: August 8, 1997 By: /s/ Scott G. Buchanan ------------------ --------------------------------------------- Scott G. Buchanan Vice President and Chief Financial Officer - -------------------------------------------------------------------------------- Page 11 EXHIBIT INDEX The Exhibits below are numbered according to Item 601 of Regulation S-K. Exhibit Number Exhibit ------ ------- 10 Material Contracts: 10-a Second Amendment to Watkins-Johnson Company Credit Agreement covering the period of November 30, 1995 through December 8, 1998, ABN-AMRO BANK N.V. as Agent (original agreement filed as Exhibit 10-a to the 1996 Third Quarter Form 10-Q, Commission File No. 1-5631). 11 Statement re Computation of Per Share Earnings. 27 Financial Data Schedule - -------------------------------------------------------------------------------- Page 12 EX-10.A 2 EXHIBIT 10.A SECOND AMENDMENT TO CREDIT AGREEMENT This Second Amendment to Credit Agreement (this "Amendment") is made as of this 30th day of June, 1997, by and among Watkins-Johnson Company, a California corporation (the "Borrower"), the Banks (each a "Bank" and collectively, the "Banks") named in the Credit Agreement referred to below, ABN AMRO Bank N.V., as letter of credit issuing bank (in such capacity, the "Issuing Bank"), and ABN AMRO Bank N.V., as Agent, (in such capacity, the "Agent"). RECITALS A. The Borrower, the Banks, the Issuing Bank, and the Agent have executed that certain Credit Agreement dated as of November 30, 1995 as amended by that First Amendment to Credit Agreement dated as of March 7, 1997 (the "Credit Agreement"). B. The Borrower has requested that the Banks, the Issuing Bank, and the Agent enter into this Amendment in order to make certain changes in the Credit Agreement and to reflect certain changes to the syndicate of Banks. C. Upon the terms and conditions appearing herein, the Banks, the Issuing Bank and the Agent have agreed to enter into this Amendment. AGREEMENT 1. Amendments to Credit Agreement. 1.1 With effect as from the "Transfer Date" (defined as the first Business Day after the Amendment Effective Date, as defined in Section 2 below), Schedule 1 to the Credit Agreement is amended by replacing the existing Schedule 1 with the Schedule 1 attached hereto as Exhibit A. As of the Transfer Date, the Commitments of the Banks shall be deemed to be adjusted accordingly. If on the day preceding the Transfer Date the Effective Amount of Revolving Loans and L/C Obligations would exceed the Commitments as so adjusted, the Borrower shall upon the Transfer Date repay such excess together with interest accrued to the Transfer Date and any amounts required to be paid pursuant to Section 6.02 of the Credit Agreement. The reduction in the Commitments consequent upon this Amendment shall be permanent, and the Commitments may not be increased or otherwise reinstated. 1.2 As from Transfer Date, The First National Bank of Boston (now known as BankBoston) ("BankBoston") shall cease to be a Bank for the purposes of the Credit Agreement and this Amendment. On the Transfer Date, BankBoston shall be deemed to have sold and assigned, without recourse, an amount (the "Transfer Amount") of the total 1. aggregate Loans and L/C Obligations outstanding on such date equal to its Commitment Percentage (as of the day preceding the Transfer Date) thereof. On the Transfer Date, each of the Banks identified in the first column of Exhibit A (each a "Continuing Bank") shall be deemed to have purchased such amount of BankBoston's Loans and L/C Obligations as may be necessary so that the aggregate outstanding Loans and L/C Obligations are held by the Continuing Banks in proportion to their Commitment Percentages as set forth on Exhibit A. 1.3 Upon the Transfer Date, BankBoston shall be entitled to receive its share (determined in accordance with the Credit Agreement) of any accrued commitment and letter of credit fees for the period up to, but not including, the Transfer Date. 1.4 By their execution of this Amendment, each of the Banks, the Agent, the Issuing Bank and the Borrower (notwithstanding any restrictions or conditions contained in the Credit Agreement) consents to the transactions described in Sections 1.1, 1.2 and 1.3 above; and the Agent waives the administrative transfer charge, to the extent that it is payable with respect to such transactions, pursuant to Section 13.09(b)(ii) of the Credit Agreement. 1.5 Section 1.01 of the Credit Agreement is hereby amended by adding the following definitions in appropriate alphabetical order: "Agreement" means this Credit Agreement as it may be amended or supplemented from time to time. "Second Amendment Effective Date" means the Amendment Effective Date as defined in the Second Amendment to this Agreement. 1.6 Section 1.01 of the Credit Agreement is hereby amended by amending the definition of "Final Maturity Date" to read, in its entirety, as follows: "Final Maturity Date" means June 29, 1998. 1.7 Section 4.03(a) of the Credit Agreement is hereby amended to read, in its entirety, as follows: (a) Commitment Fee. The Borrower agrees to pay to the Agent for the account of each Bank a commitment fee on the average daily unused portion (taking into account outstanding Revolving Loans and outstanding L/C Obligations) of such Bank's Commitment as in effect from time to time from the Closing Date until the Final Maturity Date at the rate of: (i) for periods prior to the Second Amendment Effective Date, (A) 0.35% per annum, for any period when the Debt/EBITDA Ratio is greater than or equal to 2. 1.00 to 1.00 or (B) 0.25% per annum, for any period when the Debt/EBITDA Ratio is less than 1.00 to 1.00, and (ii) for periods on or after the Second Amendment Effective Date, 0.125% per annum in each case payable quarterly in arrears on the last Business Day of each calendar quarter in each year, commencing on the first such date after the Closing Date, and on the earlier of the date such Commitment is terminated hereunder or the Final Maturity Date. 2. Effectiveness of Amendments to Credit Agreement. Subject to the satisfaction of the conditions set forth below on or before July 10, 1997, the provisions of Section 1 shall become effective on the date (the "Amendment Effective Date") which is the later of (i) July 1, 1997 and (ii) the date on which the last of the conditions is satisfied. (a) The Agent shall have received from each of the Borrower, the Issuing Bank and the Banks a duly executed original of this Amendment; (b) The Borrower shall have paid any commitment and letter of credit fees accrued up to the Amendment Effective Date in the manner provided for in Section 5.01(a) of the Credit Agreement; (c) No Default or Event of Default shall have occurred and be continuing on the Amendment Effective Date or will be continuing after giving effect to the amendments to the Credit Agreement (and the Borrower shall have delivered to the Agent a certificate to that effect executed by a Responsible Officer of the Borrower); (d) Each of the representations and warranties set forth in Article 9.01 of the Credit Agreement shall be true and correct as of the Amendment Effective Date (and the Borrower shall have delivered to the Agent a certificate to that effect executed by a Responsible Officer of the Borrower); and (e) The Borrower shall have delivered to the Banks, at the Borrower's expense, an originally executed opinion of the Borrower's General Counsel dated the Amendment Effective Date concerning this Amendment in form and substance satisfactory to the Agent. If acceptable to the Agent, any of the above documents may be delivered to the Agent by facsimile with the original copy to follow by mail or courier. Upon the apparent satisfaction of the above conditions, the Agent will notify the Borrower and the Banks of such fact; provided, however that any failure by the Agent to provide such notice shall have no effect on the effectiveness of the amendments. 3. 3. Reservation of Rights. The Borrower acknowledges and agrees that neither the execution and delivery by the Banks of this Amendment shall be deemed to create a course of dealing or otherwise obligate the Agent or the Banks to forbear or to execute similar amendments or waivers under the same or similar circumstances in the future. 4. Miscellaneous. 4.1 Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and are hereby ratified and confirmed by the parties hereto, and all references to the Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment. 4.2 This Amendment shall be binding and inure to the benefit of the parties hereto and thereto and their respective successors and assigns. No third party beneficiaries are intended in connection with this Amendment. 4.3 This Amendment shall be governed by and construed in accordance with the law of the State of California. 4.4 This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one in the same agreement. Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party hereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Agent of a facsimile-transmitted document purportedly bearing the signature of a Bank or the Borrower shall bind such Bank or the Borrower, respectively, with the same force and effect as the delivery of a hard copy original. Any failure by the Agent to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile-transmitted executed original of such document of the party whose hard copy page was not received by the Agent. 4.5 This Amendment, reflects the entire agreement among the Borrower, the Banks and the Agent with respect to the matters set forth herein and therein and supersedes any prior agreements, commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. 4.6 If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively. 4.7 The Borrower covenants to pay to or reimburse the Agent, upon demand, for all costs and expenses reasonably incurred in connection with the preparation, negotiation, review, execution and delivery of this Amendment and the Disposal Documents. 4. 4.8 All capitalized terms used and not otherwise defined herein shall have the meanings given to such terms in the Credit Agreement. [rest of page left intentionally blank] 5. IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written. THE BORROWER WATKINS-JOHNSON COMPANY By /s/ W. Keith Kennedy ------------------------------------------ Title: President and CEO By /s/ Joan M. Varrone ------------------------------------------ Title: Treasurer THE AGENT ABN AMRO BANK N.V. By /s/ Robin S. Yim ------------------------------------------ Title: Group Vice President By /s/ Candace J. Hsu ------------------------------------------ Title: Corporate Banking Officer THE BANKS ABN AMRO BANK N.V., as Bank and Issuing Bank By /s/ Robin S. Yim ------------------------------------------ Title: Group Vice President By /s/ Candace J. Hsu ------------------------------------------ Title: Corporate Banking Officer 6. UNION BANK OF CALIFORNIA, N.A., successor in interest to Union Bank By /s/ Wade Schlueter ------------------------------------------ Title: Vice President BANK BOSTON, N.A. By /s/ Maia D. Heymann ------------------------------------------ Title: Vice President THE FIRST NATIONAL BANK OF MARYLAND By /s/ Andrew W. Fish ------------------------------------------ Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By /s/ Kevin M. McMahon ------------------------------------------ Title: Managing Director 7. EXHIBIT A TO SECOND AMENDMENT TO CREDIT AGREEMENT Schedule 1 to Credit Agreement (Commitment and Commitment Percentages)
Commitment Bank Commitment L/C Commitment Percentage - ---- ----------- -------------- ---------- ABN AMRO Bank N.V. $17,500,000 $ 7,000,000 35.0% Union Bank of California N.A. $12,500,000 $ 5,000,000 25.0% The First National Bank of Maryland $12,500,000 $ 5,000,000 25.0% Bank of America National Trust and Savings Association $ 7,500,000 $ 3,000,000 15.0% ----------- ----------- ----- TOTALS $50,000,000 $20,000,000 100.0%
EX-11 3 STATEMENT RE COMPUTATION OF PER SHARE EARNINGS Exhibit 11 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 27, 1997 June 28, 1996 June 27, 1997 June 28, 1996 - ------------------------------------------------------------------------------------------------------------ For primary net income per share: Weighted average shares outstanding 8,258,000 8,268,000 8,278,000 8,203,000 Equivalent shares--dilutive stock options--based on treasury stock method using average market price 249,000 309,000 219,000 390,000 - ------------------------------------------------------------------------------------------------------------ Total 8,507,000 8,577,000 8,497,000 8,593,000 ============================================================================================================ For fully diluted net income per share: Weighted average shares outstanding 8,258,000 8,268,000 8,278,000 8,203,000 Equivalent shares--dilutive stock options--based on treasury stock method using greater of closing market price or average price 288,000 309,000 289,000 390,000 - ------------------------------------------------------------------------------------------------------------ Total 8,546,000 8,577,000 8,567,000 8,593,000 ============================================================================================================ Net income $ 3,082 $ 358 $ 5,560 $ 6,792 ============================================================================================================ Primary net income per share $ .36 $ .04 $ .65 $ .79 ============================================================================================================ Fully diluted net income per share $ .36 $ .04 $ .65 $ .79 ============================================================================================================ This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11).
EX-27 4 FINANICAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1997 MAR-29-1997 JUN-27-1997 28,388 0 82,159 0 70,355 203,116 236,377 132,279 310,074 77,202 38,178 0 0 39,197 155,497 310,074 95,679 95,679 62,911 62,911 27,941 0 361 4,466 1,384 3,082 0 0 0 3,082 0.36 0.36
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