-----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, AJAWQe5NzBI4303BVnSLSNvVXGAQy6jud3CD75PtiFzuJaTF/6YMUfmY/f5oSMT9 oa2s5HXaZKMFuP6UyU5LSg== 0000898430-96-004362.txt : 19960917 0000898430-96-004362.hdr.sgml : 19960917 ACCESSION NUMBER: 0000898430-96-004362 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960916 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WHITTAKER CORP CENTRAL INDEX KEY: 0000106945 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FABRICATED METAL PRODUCTS [3490] IRS NUMBER: 954033076 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20609 FILM NUMBER: 96630500 BUSINESS ADDRESS: STREET 1: 10880 WILSHIRE BLVD STE 800 CITY: LOS ANGELES STATE: CA ZIP: 90024-4163 BUSINESS PHONE: 2134759411 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - --- SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 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 1-5407 WHITTAKER CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 95-4033076 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1955 NORTH SURVEYOR AVENUE, SIMI VALLEY, CALIFORNIA 93063 (Address of principal executive offices) (805) 526-5700 (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 (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. Yes X No --- --- The number of outstanding shares of the registrant's Common Stock, par value $.01 per share, was 11,029,155 as of August 31, 1996. PART I. FINANCIAL INFORMATION Item 1. Financial Statements WHITTAKER CORPORATION CONSOLIDATED STATEMENTS OF INCOME ($ in 000, except per share data) (Unaudited)
For the Three Months For the Nine Months Ended July 31, Ended July 31, -------------------- --------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Sales $62,162 $44,347 $154,187 $102,715 ------- ------- -------- -------- Costs and expenses Cost of sales 36,824 23,109 89,208 58,196 Engineering and development 6,879 3,332 13,856 4,441 Selling, general and administrative 24,025 12,920 51,040 26,543 Acquired in-process research and development - - 11,700 3,250 Restructuring costs 866 382 1,406 382 ------- ------- -------- -------- Operating profit (loss) (6,432) 4,604 (13,023) 9,903 Interest expense 3,374 1,741 7,060 4,155 Interest income (479) (149) (6,101) (479) Other expense 296 (18) 342 134 ------- ------- -------- -------- Income (loss) before provision for taxes (9,623) 3,030 (14,324) 6,093 Provision (benefit) for taxes (3,677) 1,277 (5,378) 2,465 ------- ------- -------- -------- Net income (loss) $(5,946) $ 1,753 $ (8,946) $ 3,628 ======= ======= ======== ======== Average common and common equivalent shares outstanding (000) 11,029 9,658 9,704 9,609 ======= ======= ======== ======== Earnings (loss) per share $ (0.54) $ 0.18 $ (0.92) $ 0.38 ======= ======= ======== ========
See Notes to Consolidated Financial Statements (2) WHITTAKER CORPORATION CONSOLIDATED BALANCE SHEETS ($ in 000)
July 31, October 31, 1996 1995 ---------- ----------- (Unaudited) ASSETS Current Assets: - -------------- Cash $ 9,497 $ 161 Receivables 74,966 64,708 Inventories 52,085 38,975 Other current assets 3,008 2,053 Income taxes recoverable 7,705 1,452 Deferred income taxes 17,908 15,151 -------- -------- Total Current Assets 165,169 122,500 Property and equipment, at cost 105,749 78,059 Less accumulated depreciation and amortization (59,020) (36,641) -------- -------- Net Property and Equipment 46,729 41,418 Other Assets - ------------ Goodwill, net of amortization 94,720 33,414 Other intangible assets, net of amortization 47,236 10,585 Notes and other noncurrent receivables 3,396 4,218 Other noncurrent assets 14,485 11,709 Net assets held for sale 30,369 27,115 -------- -------- Total Other Assets 190,206 87,041 -------- -------- Total Assets 402,104 250,959 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities - ------------------- Current maturities of long-term debt 149,591 6,048 Accounts payable 18,665 14,650 Accrued liabilities 38,202 29,530 -------- -------- Total Current Liabilities 206,458 50,228 Other Liabilities - ----------------- Long-term debt 15,587 70,694 Other noncurrent liabilities 11,368 11,340 Deferred income taxes 24,876 16,273 -------- -------- Total Other Liabilities 51,831 98,307 Stockholders' Equity - -------------------- Capital stock Preferred stock 1 1 Common stock 110 86 Additional paid-in capital 74,818 19,261 Retained earnings 68,886 83,076 -------- -------- Total Stockholders' Equity 143,815 102,424 -------- -------- Total Liabilities and Stockholders' Equity 402,104 250,959 ======== ========
See Notes to Consolidated Financial Statements (3) WHITTAKER CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS ($ in 000) (Unaudited)
For the Nine Months Ended July 31, 1996 1995 ---------- ---------- OPERATING ACTIVITIES Net income (loss) $ (8,946) $ 3,628 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 12,014 5,663 Net periodic pension income (154) (2,040) Acquired in-process research and development 11,700 3,250 Increase in income taxes recoverable (6,253) (1,554) Change in deferred taxes (4,831) 1,929 Changes in operating assets and liabilities: Decrease in receivables 8,830 13,938 Increase in inventories and other current assets (6,105) (3,966) Decrease in accounts payable and other liabilities (7,637) (6,019) -------- -------- Net cash provided (used) by operating activities (1,382) 14,829 -------- -------- INVESTING ACTIVITIES Purchase of property, plant and equipment (3,428) (3,644) Purchased businesses (69,578) (31,013) Net decrease in notes receivable 1,122 739 Increase in net assets held for sale (3,254) (1,068) Other items, net 1,119 (4,095) -------- -------- Net cash used by investing activities (74,019) (39,081) -------- -------- FINANCING ACTIVITIES New convertible subordinated debt - 15,000 Borrowing related to new credit agreement 88,250 67,950 Paydown related to previous credit agreement - (60,250) Reduction of other debt (207) (167) Deferred debt costs (3,448) (1,322) Other items, net 142 209 -------- -------- Net cash provided by financing activities 84,737 21,420 -------- -------- Net increase (decrease) in cash 9,336 (2,832) Cash at beginning of year 161 3,507 -------- -------- Cash at end of period $ 9,497 $ 675 ======== ======== Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 6,687 $ 3,763 ======== ======== Income taxes $ 214 $ 1,377 ======== ========
See Notes to Consolidated Financial Statements (4) WHITTAKER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying consolidated financial statements of Whittaker Corporation ("Whittaker" or the "Company") and its subsidiaries have been prepared in conformity with generally accepted accounting principles, consistent in all material respects with those applied in the Annual Report on Form 10-K for the year ended October 31, 1995. The interim financial information is unaudited, but reflects all adjustments which are of a normal recurring nature and, in the opinion of management, necessary to provide a fair statement of the results for the interim periods presented. The interim financial statements should be read in conjunction with the financial statements and related notes in the Company's Annual Report on Form 10-K for the year ended October 31, 1995. The results of operations for interim periods are not necessarily indicative of the results of operations for the full year. Primary earnings per share have been computed based on the weighted average number of common and common equivalent shares outstanding. Common stock equivalents include Series D Participating Convertible Preferred Stock and dilutive employee stock options calculated using the treasury stock method. Fully diluted earnings per share include the additional potential dilutive effects of employee stock options under the treasury stock method and additional shares issued assuming conversion of the convertible subordinated debt. Fully diluted earnings per share are not presented because the calculations result in dilution of less than 3%. Loss per share calculations exclude common stock equivalents, which would reduce the loss per share if included. Certain previously reported amounts have been reclassified to conform to the current period presentation. NOTE 2. ACQUISITIONS On April 10, 1996, the Company acquired all of the capital stock of Xyplex, Inc. ("Xyplex"), a wholly-owned subsidiary of Raytheon Company ("Raytheon"). Xyplex is a producer of high-speed internetworking equipment, terminal servers and shared media products for business local area networks. Xyplex also provides remote access products that interconnect with phone companies' wide area networks. The purchase price was $67.5 million in cash, subject to certain adjustments, and $50.0 million in the form of 1,974,333 newly issued shares of the Company's common stock. Other direct costs associated with the acquisition were approximately $1.4 million. The cash paid to Raytheon was obtained from an amendment to the Company's existing credit facility entered into on April 10, 1996. The Xyplex acquisition was accounted for as a purchase and the balance sheet of Xyplex was combined with the Company's balance sheet as of April 30, 1996. The valuation of assets acquired and liabilities assumed is preliminary and subject to further review and change as the Company's integration plans for Xyplex are finalized. The transaction resulted in the acquisition (5) WHITTAKER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2. ACQUISITIONS - (CONTINUED) of intangible assets valued at $37.2 million which will be amortized on a straight-line basis over periods ranging from five to fifteen years, goodwill of $61.7 million which will be amortized on a straight-line basis over twenty years, and accrued liabilities assumed of $16.6 million. Acquired in-process research and development valued at $11.7 million was expensed at the acquisition date. On April 24, 1995, the Company acquired all of the capital stock of Hughes LAN Systems, Inc., a subsidiary of Hughes Electronics Corporation. The subsidiary was renamed Whittaker Communications, Inc. ("WCI") and is a designer and manufacturer of high-speed switches and Asynchronous Transfer Mode ("ATM") compatible local area network communication hubs and network management software systems. WCI was acquired for a purchase price of $16.0 million in cash, subject to certain adjustments, and a $15.0 million 7% convertible subordinated note. The convertible note is due on May 1, 2005, and is convertible to the Company's common stock at a price of $24.25 per share. The acquisition agreement also provides for contingent deferred payments, not to exceed $25 million, over the years 1996 to 1999 based on future sales of WCI's hub products and derivatives. The WCI acquisition was accounted for as a purchase and the balance sheet of WCI was combined with the Company's balance sheet as of April 30, 1995. The transaction resulted in the acquisition of intangible assets valued at $8.9 million which are being amortized on a straight-line basis over periods ranging from five to fifteen years, goodwill of $14.2 million which is being amortized on a straight-line basis over twenty years, and liabilities assumed of $18.1 million. Acquired in-process research and development valued at $3.3 million was expensed at the acquisition date. The accompanying consolidated financial statements reflect the operating results of Xyplex and WCI since the effective dates of the acquisitions. The Company has not completed all appraisals and evaluations necessary to finalize Xyplex's purchase price allocations and accordingly, actual adjustments that reflect appraisals and other evaluations of the purchased assets and assumed liabilities may differ from the pro forma adjustments presented herein. Such evaluations may include restructuring or other integration actions involving Xyplex which may result in adjustments to the purchase price and charges to income. The unaudited pro forma results of operations which follow are presented for illustrative purposes only and are not necessarily indicative of the consolidated results of operations of the Company that would have been reported had the acquisitions occurred on the dates indicated, nor do they represent a forecast of the consolidated results of operations of the Company for any future period. The unaudited pro forma results of operations for the nine months ended July 31, 1996 and 1995, assuming the (6) WHITTAKER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 2. ACQUISITIONS - (CONTINUED) consummation of the acquisition and issuance of 7% debt and common stock at the beginning of each period, are summarized below (in thousands except per share amounts):
Proforma Proforma Nine Months Nine Months Ended July 31, Ended July 31, 1996 1995 -------------- -------------- (Unaudited) (Unaudited) Net sales $209,179 $203,704 Net loss (7,449) (8,561) Loss per share (0.64) (0.82)
NOTE 3. INVENTORIES Inventories consisted of the following ($ in thousands):
July 31, October 31, 1996 1995 -------- ----------- (Unaudited) Raw materials $22,766 $23,518 Work in process 16,675 11,500 Finished goods 11,656 3,332 Costs relating to long term contracts 1,608 1,744 Unliquidated progress billings (620) (1,119) ------- ------- $52,085 $38,975 ======= =======
NOTE 4. COMMITMENTS AND CONTINGENCIES In certain years, after evaluating the availability and cost of insurance, the Company did not purchase insurance for certain risks, including workers' compensation and product liability. Consequently, the Company is without insurance for various risks, including product liability for certain products manufactured in the past. The Company does, however, have product liability insurance for products it currently manufactures. The Company's insurance carriers have taken the position that in certain cases the Company is uninsured for environmental matters, a position that the Company disputes in certain instances. (7) WHITTAKER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 4. COMMITMENTS AND CONTINGENCIES - (CONTINUED) As a result primarily of the activities of its discontinued operations, the Company is a potentially responsible party in a number of actions filed under the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law enacted to address public health and environmental concerns arising with respect to the past treatment and disposal of hazardous substances. The Company is also a potentially responsible party in a number of other actions brought under state laws patterned after CERCLA. In nearly all of these matters, the Company contributed a small amount (generally less than 1%) of the total treated or disposed of waste. In addition to the CERCLA and similar actions described above, the Company also, from time to time, conducts or participates in remedial investigations and cleanup activities at facilities currently or formerly occupied by its operating units. There are also various other claims and suits pending against the Company. At July 31, 1996, the Company had provided for its aggregate liability related to various claims, including uninsured risks and potential claims in connection with the environmental matters noted above. The amounts provided on the Company's books for contingencies, including environmental matters, are recorded at gross amounts. Because of the uncertainty with respect to the amount of probable insurance recoveries, these potential insurance recoveries are not taken into account as a reduction of those amounts provided unless an insurance carrier has agreed to such coverage. The Company does not anticipate that these matters will have a material adverse effect on the Company's financial position, or on its ability to meet its working capital and capital expenditure needs. Although the Company has recorded estimated liabilities for contingent losses, including uninsured risks and claims in connection with environmental matters, in accordance with generally accepted accounting principles, the absence of or denial of various insurance coverages represents a potential exposure for the Company, and the net income of the Company in future periods could be adversely affected if uninsured losses in excess of amounts recorded were to be incurred. NOTE 5. LONG-TERM DEBT On April 10, 1996, the Company and its existing agent bank entered into an amendment to its credit agreement which, among other things, increased the amount of the credit facility to $170.0 million. The credit agreement was subsequently syndicated to include ten additional banks. The credit facility currently consists of an $85.0 million revolving credit facility that expires in April 2001 and an $83.0 million term loan payable in quarterly installments until 2001. Interest on loans outstanding under the credit agreement are based, at the Company's option, on LIBOR or the agent bank's prime rate. The annual interest rate based on LIBOR may range between LIBOR plus 1.0% and LIBOR plus 2.50%, and the annual interest rate based on the prime rate (8) WHITTAKER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5. LONG-TERM DEBT - (CONTINUED) may range between prime and prime plus 1.0%. The Company is obligated to pay letter of credit fees which may range between .625% per annum and 2.625% per annum on the aggregate amount of outstanding letters of credit, and commitment fees which may range between .25% per annum and .50% per annum on the unused amount of the revolving credit facility. Additional borrowings under the amended credit facility were used to fund the acquisition of Xyplex, and will be used going forward to fund working capital and other corporate requirements. The Company's obligations under the credit agreement are secured by a pledge of shares of stock of subsidiaries of the Company, accounts receivable, inventory, equipment, intellectual property, and other assets of the Company and its subsidiaries. The agreement includes financial covenants with respect to financial leverage, cash flow, and net worth. At July 31, 1996, the Company was not in compliance with one of its financial ratio covenants. On September 9, 1996, the Company obtained a waiver of the default up to, but not including the end of fiscal 1996. The Company and its bank lending group are currently discussing an amendment of such financial ratio covenants. However, there can be no assurance that an amendment will be obtained. In the event that an amendment is not obtained, the Company may need to undertake alternative measures which may include refinancing its credit facility, selling assets, or issuing debt or equity securities. Such alternative measures may be more expensive than the Company's current bank financing. If such alternative measures are not achieved, the bank lending group may elect to pursue its remedies, including accelerating the total bank indebtedness. At July 31, 1996, the Company's debt totaled $165.2 million, which consisted of $66.0 million of loans under a revolving bank credit facility, $83.0 million under a bank term loan, $15.0 million of convertible subordinated debt, and $1.2 million of other debt. In addition, there were $11.1 million of letters of credit outstanding under the revolving credit facility. Because the Company was not in compliance with one of its financial ratio covenants at July 31, 1996, bank debt in the amount of $139.5 million, which otherwise would have been classified as noncurrent, has been classified as current. NOTE 6. BUSINESS SEGMENTS The Company develops specialized aerospace and electronics technologies to create products and customer solutions for aircraft, defense, communications and industrial markets. The Company operates in two business segments: Aerospace, which designs, manufactures, and distributes a wide variety of fluid control devices and fire detection systems, as well as defense electronics products and systems, and Communications, which designs, develops, and markets a comprehensive line of networking products and services. Prior to April 30, 1995, the Company's communications operations were not material enough to comprise a separate business segment. (9) WHITTAKER CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 6. BUSINESS SEGMENTS - (CONTINUED) Operating profit (loss) is total revenue less operating expenses. General corporate expenses have not been allocated to the business segments and are shown as a separate expense element of operating profit (loss) to reconcile to consolidated operating profit (loss). Communications segment operating results in 1996 and 1995 reflect the write-offs of in-process research and development costs of $11.7 million and $3.3 million, respectively, which were recorded as expenses at the acquisition dates of Xyplex and WCI, as well as restructuring costs of $0.9 million which were incurred in the third quarter of 1996. Aerospace segment operating results for the nine month period ended July 31, 1996 reflect restructuring costs of $0.5 million incurred during the second quarter of 1996. Information about the Company's operations by business segment at July 31, 1996 and 1995 and for the periods then ended follows ($ in thousands):
UNAUDITED For the Three Months For the Nine Months Ended July 31, Ended July 31, 1996 1995 1996 1995 ---- ---- ---- ---- SALES: Aerospace $30,550 $31,141 $ 93,056 $ 89,509 Communications 31,612 13,206 61,131 13,206 ------- ------- -------- -------- $62,162 $44,347 $154,187 $102,715 ======= ======= ======== ======== OPERATING PROFIT (LOSS): Aerospace $ 4,885 $ 6,980 $ 17,139 $ 19,140 Communications (8,292) (488) (23,093) (3,738) Corporate and Other (3,025) (1,888) (7,069) (5,499) ------- ------- -------- -------- $(6,432) $ 4,604 $(13,023) $ 9,903 ======= ======= ======== ========
(10) ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS - --------------------- Comparison of Three Months Ended July 31, 1996 and 1995 - ------------------------------------------------------- Sales. The Company's third quarter 1996 sales of $62.2 million increased by $17.8 million (40.2%) over third quarter sales in the prior fiscal year. Sales generated by the Company's Communications segment increased by $18.4 million, primarily as a result of the acquisition of Xyplex, Inc. ("Xyplex") on April 10, 1996. Communications segment sales were lower than expected in the third quarter of 1996 as a result of delays in the release of certain new products. The Company currently intends to release certain upgraded products and product enhancements through its Communications segment during fiscal 1997. Delays in the introduction of new or enhanced products or failure to achieve significant customer acceptance for these new products may have an adverse effect on the Company's revenues and results of operations for this business segment in future periods. Although the Company does not currently anticipate any particular difficulties, there can be no assurance that the Company will not experience difficulties that could delay or prevent the successful development, introduction and marketing of new products and product enhancements or that its new products and product enhancements will adequately meet the requirements of the marketplace and achieve market acceptance. The Company's Aerospace segment sales for the third quarter of fiscal 1996 were down $0.6 million (1.9%) from the same period in 1995, due to decreased sales of defense electronics products, which was substantially offset by increased business in the commercial aircraft aftermarket and industrial product lines. The outlook for future sales in the Aerospace segment is impacted by the price and availability of crude oil, the strength of the economy, the degree of military conflict and the U.S. defense budget. Any negative effect on Aerospace segment sales related to these factors may be offset in the future by contracts for new, technologically advanced electronic defense systems, new commercial products and sales of aerospace and electronics products into industrial markets. New aircraft production appears to be on the rise and is expected to contribute to an improved business climate for commercial aircraft product lines. Gross Margin. The Company's gross margin for the third quarter of 1996 as a percentage of sales was 40.8%, compared with 47.9% for the third quarter of 1995. The third quarter 1996 gross margin consists of Communications segment gross margin of $14.5 million (45.8% of sales), and Aerospace segment gross margin of $10.8 million (35.5% of sales). Communications segment margin as a percentage of sales decreased from 47.2% in 1995 to 45.8% in 1996 because lower margin products (service and support related) comprised a higher proportion of total communications revenues due to delayed releases of new products in the third quarter of 1996. Aerospace segment gross margin as a percentage of sales decreased from 48.2% in 1995 to 35.5% in 1996. Although there were improvements in margins in the commercial aircraft and industrial product lines, they were offset by lower margins in defense electronics products (11) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) RESULTS OF OPERATIONS (CONTINUED) - --------------------------------- primarily due to adjustments of $1.0 million to asset carrying values. Aerospace segment gross margin for the third quarter of 1995 reflected a credit of approximately $1.5 million for income from the Company's defined benefit pension plan and a $0.8 million recovery related to the Company's insurance claim for damage from the 1994 Northridge, California earthquake. In prior quarters in 1995, the pension income was included in selling, general and administrative expense. Without these items, Aerospace segment gross margin would have been 40.6% of sales for the third quarter of 1995. Engineering and Development. Engineering and development expenses for the third quarter of 1996 increased by $3.5 million from the third quarter of 1995. The third quarter 1996 engineering and development expenses consist of Communications segment expenses of $6.5 million (20.4% of sales) and Aerospace segment expenses of $0.4 million (1.4% of sales). Communications segment engineering and development expenses increased by $4.1 million from 1995 to 1996 primarily due to the inclusion of Xyplex's engineering and development expenses since its acquisition on April 10, 1996. To maintain its competitive market position in the Communications segment, the Company expects to continue to invest a significant amount of its resources in the development of new Communications products and product enhancements. Aerospace segment engineering and development expenses decreased by $0.6 million from 1995 to 1996. Selling, General and Administrative. Selling, general and administrative expenses (SG&A) for the third quarter of 1996 increased by $11.1 million from the third quarter of 1995, from 29.1% of sales in 1995 to 38.6% of sales in 1996. Communications segment SG&A expenses increased by $11.3 million from third quarter 1995 to third quarter 1996 due primarily to the inclusion of Xyplex SG&A expenses since its acquisition on April 10, 1996 and due to delays in fully implementing certain streamlining and integration actions planned for this segment. Communications segment SG&A expenses for the third quarter of 1996 were $15.5 million (48.9% of sales), which included amortization expense of $2.6 million related to goodwill and intangible assets, compared with SG&A expenses of $4.2 million (31.8% of sales), which included amortization expense of $0.4 million related to goodwill and intangible assets, for the third quarter of 1995. Aerospace segment SG&A expenses increased to $5.5 million (18.2% of sales) for the third quarter of 1996 compared to $5.2 million (16.7% of sales) for the same period in 1995 because the defense electronics unit's expenses declined at a disproportionately lesser rate than the decline in sales for that unit. In the third quarter of 1995, Aerospace segment SG&A expenses reflected a credit of approximately $0.5 million for a recovery related to the Company's insurance claim for earthquake damage from the 1994 Northridge, California earthquake. The credit was offset by a reclassification from SG&A expense to cost of sales in (12) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) RESULTS OF OPERATIONS (CONTINUED) - --------------------------------- the third quarter of 1996 of $0.6 million for income from the Company's defined benefit pension plan. Restructuring Costs. During the third quarter of 1996, the Communications segment incurred costs of $0.9 million related to streamlining Xyplex and integrating with WCI. Additional costs will be incurred in the fourth quarter of 1996. As discussed further in the section on Operating Results below, the Aerospace segment is expected to incur restructuring expenses in the fourth quarter of fiscal 1996, and possibly in the first quarter of fiscal 1997 due to moves taken to further consolidate segment operations. Interest Expense. Interest expense increased to $3.4 million for the third quarter of 1996 from $1.7 million in the same period of 1995 primarily as a result of incremental debt related to the acquisition of Xyplex. Interest Income. During the third quarter of 1996, the Company recognized $0.3 million of interest income related to an income tax refund received for its 1988 tax year. Income Taxes. In the third quarter of fiscal 1996, the Company's effective tax rate was 38.2%, compared to an effective tax rate of 42.1% for the third quarter of fiscal 1995. The nondeductibility of goodwill (WCI in 1995) increases the effective tax rate for periods with taxable income by increasing the tax provision with respect to income before taxes. The nondeductibility of goodwill (WCI and Xyplex in 1996) in a period with taxable losses decreases the effective tax rate by decreasing the tax benefit with respect to losses. Operating Results. As described under Sales above, the Communications segment experienced lower revenues than expected during the third quarter of fiscal 1996. The Company began taking certain restructuring, streamlining, and integration actions in connection with the Xyplex acquisition during the third quarter of 1996 in order to improve the profitability of the Communications segment. However, implementation of these actions has not occurred as rapidly as previously expected. Implementation of these actions will continue in the fourth quarter. As a consequence of both of these factors -- lower than expected revenues and delayed implementation of restructuring and cost reduction activities -- the Communications segment is expected to experience additional operating losses during the balance of fiscal 1996 and may continue to experience such losses during the early months of fiscal 1997. On August 23, 1996, the Company announced that it would move its Aerospace segment's Safety Systems Division from Concord, California to Simi Valley, California to take advantage (13) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) RESULTS OF OPERATIONS (CONTINUED) - --------------------------------- of operating efficiencies and facilitate the sharing of technologies among Aerospace units as well as to reduce costs. Costs associated with this move are expected to be incurred in the fourth quarter of 1996 and the first quarter of 1997. Comparison of Nine Months Ended July 31, 1996 and 1995 - ------------------------------------------------------ Sales. The Company's sales for the nine months ended July 31, 1996 of $154.2 million increased by $51.5 million (50.1%) over sales in the same period of the prior fiscal year. The increase was due primarily to $47.9 million of sales generated by the Communications segment, which did not exist prior to April 30, 1995. Aerospace segment sales for the nine months ended July 31, 1996 increased by $3.5 million (4.0%) over sales in the same period of the prior fiscal year, due to increased sales in commercial aircraft aftermarket and industrial product lines. Gross margin. The Company's gross margin for the nine months ended July 31, 1996 as a percentage of sales was 42.1%, compared to 43.3% for the same period of the prior fiscal year. The gross margin for the nine months ended July 31, 1996 consists of Communications segment gross margin of $28.3 million (46.3% of sales), and Aerospace segment gross margin of $36.6 million (39.4% of sales). Communications segment margin as a percentage of sales decreased from 47.2% in 1995 to 46.3% in 1996 because lower margin products (service and support related) comprised a higher proportion of total Communications revenues due to delayed releases of new products during the nine months ended July 31, 1996. The decrease in Aerospace segment gross margin percentage from 1995 (42.8% of sales) to 1996 (39.4% of sales) is due to decreased margins on defense electronics products and the absence in 1996 of several items which contributed $4.4 million to gross margin in 1995, offset by increased margins and improved manufacturing yields on commercial aircraft aftermarket and industrial product lines. Aerospace segment gross margin for the nine months ended July 31, 1995 included a contract claim settlement of $1.1 million, a credit of approximately $1.5 million for income from the Company's defined benefit pension plan and a $1.8 million recovery related to the Company's insurance claim for damage from the 1994 Northridge, California earthquake. Without these items, Aerospace segment gross margin would have been 37.7% of sales during the first nine months of 1995. Approximately $0.6 million of pension income was reclassified from SG&A expense to cost of sales in the third quarter of 1995. Engineering and Development. Engineering and development expenses for the nine months ended July 31, 1996 increased by $9.4 million from the same period of the prior fiscal year. Engineering and development expenses for 1996 consist of Communications segment expenses of $11.9 million (19.5% of sales) and Aerospace segment expenses of $2.0 million (2.1% of (14) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) RESULTS OF OPERATIONS (CONTINUED) - --------------------------------- sales). Communications segment engineering and development expenses increased by $9.6 million from 1995 to 1996 due to the Xyplex acquisition in April 1996 and a full nine months of expense for WCI in 1996 compared with only three months of WCI expense in 1995. To maintain its competitive market position in the Communications segment, the Company expects to continue to invest a significant amount of its resources in the development of new Communications products and product enhancements. Aerospace segment engineering and development expenses decreased by $0.1 million from 1995 to 1996. Selling, General and Administrative. SG&A expenses for the nine months ended July 31, 1996 increased by $24.5 million from the same period of the prior fiscal year, from 25.8% of sales in 1995 to 33.1% of sales in 1996. Communications segment SG&A expenses for the nine months ended July 31, 1996 were $27.0 million (44.1% of sales), which included amortization expense of $4.2 million related to goodwill and intangible assets. Communications segment SG&A expenses for the nine months ended July 31, 1995 were $4.2 million (33.1% of sales), which included amortization expense of $0.4 million related to goodwill and intangible assets. Aerospace segment SG&A expenses were $16.5 million (17.8% of sales) for the nine months ended July 31, 1996 compared with $16.8 million (18.7% of sales) for the same period in 1995. In the nine months ended July 31, 1996, Aerospace segment SG&A expenses as a percentage of sales decreased due to streamlining actions in the defense electronics business unit and sales increases in commercial aircraft and industrial products which were more than proportional to expense increases. In the nine months ended July 31, 1995, Aerospace segment SG&A expenses reflected a credit of approximately $0.5 million for income from the Company's defined benefit pension plan and a $1.3 million recovery related to the Company's insurance claim for damage from the 1994 Northridge, California earthquake. Without these items, Aerospace segment SG&A expenses would have been 20.8% of sales during the first nine months of 1995. Approximately $0.6 million of pension income was reclassified from SG&A expense to cost of sales in the third quarter of 1995. Restructuring costs. During the nine months ended July 31, 1996, the Communications segment incurred costs of $0.9 million related to streamlining Xyplex and integrating with WCI. Additional costs will be incurred in the fourth quarter of 1996. The Aerospace segment incurred costs of $0.5 million during the nine months of 1996 related to the streamlining of the Company's defense electronics business unit. The Aerospace segment is expected to incur restructuring expenses in the fourth quarter of fiscal 1996, and in the first quarter of fiscal 1997 due to the move of its Safety Systems Division from Concord, California to Simi Valley, California to further consolidate segment operations. (15) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) RESULTS OF OPERATIONS (CONTINUED) - --------------------------------- Interest Expense. Interest expense increased to $7.1 million for the nine months ended July 31, 1996 from $4.2 million in 1995 primarily as a result of incremental debt related to the acquisition of WCI and Xyplex. Income Taxes. The Company's effective tax rate for the nine months ended July 31, 1996 was 37.5%, compared to an effective tax rate of 40.5% for the same period of the prior fiscal year. The nondeductibility of goodwill (WCI in 1995) increases the effective tax rate for periods with taxable income by increasing the tax provision with respect to income before taxes. The nondeductibility of goodwill (WCI and Xyplex in 1996) in a period with taxable losses decreases the effective tax rate by decreasing the tax benefit with respect to losses. ACQUISITION - ----------- On April 10, 1996, the Company acquired all of the capital stock of Xyplex, a wholly-owned subsidiary of Raytheon Company ("Raytheon"). Xyplex is a producer of high-speed internetworking equipment, terminal servers and shared media products for business local area networks. Xyplex also provides remote access products that interconnect with phone companies' wide area networks. The purchase price was $67.5 million in cash, subject to certain adjustments, and $50.0 million in the form of 1,974,333 newly issued shares of the Company's common stock. Other direct costs associated with the acquisition were approximately $1.4 million. The cash paid to Raytheon was obtained under an amendment to the Company's credit facility entered into on April 10, 1996. The acquisition was accounted for as a purchase and the balance sheet of Xyplex was combined with the Company's balance sheet as of April 30, 1996. The valuation of assets acquired and liabilities assumed is preliminary and subject to further review and change as the Company's integration plans for Xyplex are finalized. The transaction resulted in the acquisition of intangible assets valued at $37.2 million which will be amortized on a straight-line basis over periods ranging from five to fifteen years, goodwill of $61.7 million which will be amortized on a straight-line basis over twenty years, and accrued liabilities assumed of $16.6 million. Acquired in-process research and development valued at $11.7 million was expensed at the acquisition date. Sales of Xyplex products and services contributed substantial revenues to the Company beginning in the third quarter, as well as resulting in increased operating expenses. A significant portion of the increase in operating expenses for the nine months ended July 31, 1996 over the nine months ended July 31, 1995 was due to the acquisition of Xyplex and the 1995 acquisition of Hughes LAN Systems, Inc. (16) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- On April 10, 1996, in conjunction with the purchase of Xyplex, the Company borrowed an additional $76.5 million under its amended credit facility with its existing bank. The amended credit agreement consisted of an $85.0 million revolving credit facility with a five-year term and an $85.0 million term loan repayable in quarterly installments over five years. The cash payment to Xyplex on April 10, 1996 was $67.3 million. At July 31, 1996, the Company's debt totaled $165.2 million, which consisted of $66.0 million of loans under the revolving credit facility, $83.0 million under the term loan, $15.0 million of convertible subordinated debt, and $1.2 million of other debt. In addition, there were $11.1 million of letters of credit outstanding under the revolving credit facility. The Company was not in compliance with one of its financial ratio covenants at July 31, 1996. On September 9, 1996, the Company obtained a waiver of the default up to, but not including the end of fiscal 1996. Consequently, bank debt in the amount of $139.5 million, which otherwise would have been classified as noncurrent, has been classified as current. The Company and its bank lending group are currently discussing an amendment of such financial ratio covenants. However, there can be no assurance that an amendment will be obtained. In the event that an amendment is not obtained, the Company may need to undertake alternative measures which may include refinancing its credit facility, selling assets, or issuing debt or equity securities. Such alternative measures may be more expensive than the Company's current bank financing. If such alternative measures are not achieved, the bank lending group may elect to pursue its remedies, including accelerating the total bank indebtedness. If the amendment mentioned above is obtained, the Company believes that its existing cash and available credit will be adequate to meet future operating cash needs. It is anticipated that the Company will generate sufficient cash flow to service debt under an amended credit facility. The cash flow required to service the Company's debt will reduce its liquidity, which may in turn reduce its ability to fund internal growth, additional acquisitions, and capital improvements. Debt as a percent of total capitalization (stockholders' equity plus debt) was 53.5% at July 31, 1996, compared with 42.8% at October 31, 1995. The increase in debt was primarily due to the acquisition of Xyplex. The current ratio at July 31, 1996 was 0.80, compared with 2.44 at October 31, 1995, while working capital was ($41.3) million at July 31, 1996, compared with $72.3 million at October 31, 1995. The decreases in the current ratio and working capital were due to the classification of bank debt as current debt because of the Company's noncompliance with one of the financial ratio covenants in its bank credit agreement at July 31, 1996 and, to a lesser extent, the acquisition of Xyplex. Excluding the debt reclassification, the current ratio would have been 2.44 and working capital would have been $98.2 million at July 31, 1996. (17) MANAGEMENT'S DISCUSSION AND ANALYSIS (Continued) LIQUIDITY AND CAPITAL RESOURCES (CONTINUED) - ------------------------------------------- Cash flow used by operations in the first nine months of 1996 was ($1.4) million, compared to cash flow provided by operations of $14.8 million in the first nine months of 1995. The $16.2 million decrease from 1995 to 1996 was due primarily to a decrease in net income of ($12.6) million, higher collection of old receivables in 1995, and increases in income taxes recoverable and deferred income tax assets, offset in part by higher depreciation, amortization and in- process research and development charges. Capital expenditures during the first nine months of 1996 were $3.4 million, compared to $3.6 million for the same period in 1995. At July 31, 1996, there were approximately $0.9 million of approved capital expenditures outstanding for the replacement and upgrade of existing plant and equipment at the Company's various facilities. Funds for these and other capital expenditures are expected to be provided from operations. Capital expenditures are subject to limitations by covenants contained in the Company's credit agreement. It is anticipated that the amounts permitted by the covenants will be sufficient to allow the Company to continue to maintain and upgrade existing facilities. In April of 1996, the Company received a federal income tax refund related to 1987 and 1988 tax returns of $5.2 million and related interest income of $5.2 million. In July of 1996, the Company recognized a federal income tax refund for research and development tax credits related to its 1988 tax year of $0.5 million and related interest income of $0.3 million. The Company's program for divestiture of its discontinued operations was substantially complete by the end of fiscal 1992. A 996-acre parcel of land, which was formerly used by a discontinued technology unit, remains. The land is located in the city of Santa Clarita, California, approximately 35 miles from downtown Los Angeles. In September of 1995, the City granted entitlements necessary to develop this property as a mixed-use residential, commercial, and light industrial development. The initial term of the entitlements was ten years. In February of 1996, the City approved a development agreement which, among other things, extended the ten-year term of the entitlements to 20 years. The Company is evaluating the most advantageous means to realize the value of this asset. Cash expenditures related to this property were $3.2 million during the first nine months of fiscal 1996. (18) EXHIBITS TO PART I - ------------------ I(a) Calculation of Earnings (Loss) Per Share. (19) Exhibit I(a) WHITTAKER CORPORATION CALCULATION OF EARNINGS (LOSS) PER SHARE (In thousands, except per share data)
For the Nine Months Ended July 31, --------------------- 1996 1995 -------- -------- PRIMARY EARNINGS (LOSS) PER SHARE EARNINGS (LOSS) Net income(loss) $(8,946) $3,628 Deduct: Dividends on $5.00 Cumulative Convertible Preferred Stock - (5) ------- ------ Net income (loss) used in primary earnings per share calculations $(8,946) $3,623 ======= ====== AVERAGE COMMON AND COMMON EQUIVALENT SHARES Weighted average number of common shares outstanding 9,704 8,517 Common equivalent shares: Series D Participating Convertible Preferred Stock - 292 Stock options included under treasury stock method - 800 ------- ------ TOTAL 9,704 9,609 ======= ====== Primary Earnings (Loss) Per Share $ (0.92) $ 0.38 ======= ======
NOTE Common equivalent shares have been excluded from the 1996 calculations as they would have reduced the loss per share. Unaudited (20) Exhibit I(a) WHITTAKER CORPORATION CALCULATION OF EARNINGS (LOSS) PER SHARE (Continued) (In thousands, except per share data)
For the Nine Months Ended July 31, --------------------- 1996 1995 -------- -------- FULLY DILUTED EARNINGS (LOSS) PER SHARE EARNINGS (LOSS) Net income (loss) used in primary earnings per share calculation (above) $(8,946) $3,623 Adjustments: - - Net income (loss) used in fully diluted earnings per share calculations ------- ------ $(8,946) $3,623 ======= ====== AVERAGE SHARES USED TO CALCULATE FULLY DILUTED EARNINGS (LOSS) PER SHARE Average common and common equivalent shares (above) 9,704 9,609 Add: Additional stock options included under treasury stock method - 107 Additional shares assuming conversion of subordinated convertible debt - - ------- ------ TOTAL 9,704 9,716 ======= ====== Fully Diluted Earnings (Loss) Per Share $ (0.92) $ 0.37 ======= ======
NOTES Earnings per share have been computed based on the weighted average number of common and common equivalent shares outstanding during the periods, after deducting from net income the dividend requirements on the outstanding $5.00 Cumulative Convertible Preferred Stock. Common stock equivalents include Series D Participating Convertible Preferred Stock, and dilutive employee stock options calculated using the treasury stock method. Fully diluted earnings per share include the additional potential dilutive effect of employee stock options. Common equivalent shares have been excluded from 1996 calculations and additional shares assuming conversion of subordinated convertible debt have been excluded from 1996 and 1995 calculations as antidilutive. Unaudited (21) PART II. OTHER INFORMATION - --------------------------- ITEM 1. LEGAL PROCEEDINGS Environmental Matters - --------------------- As a result primarily of the activities of its discontinued operations, the Company is a potentially responsible party in a number of actions filed under the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"). CERCLA, also known as "Superfund," is the main Federal law enacted to address public health and environmental concerns arising with respect to the past treatment and disposal of hazardous substances. The Company is also a potentially responsible party in a number of other actions brought under state laws patterned after CERCLA. In nearly all of these matters, the Company contributed a small amount (generally less than 1%) of the total treated or disposed of waste. In addition to the CERCLA and similar actions described above, the Company also, from time to time, conducts or participates in remedial investigations and cleanup activities at facilities currently or formerly occupied by its operating units. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. * 10.1 First Amendment and Waiver, dated as of September 9, 1996 among Registrant, NationsBank of Texas, N.A., as Agent, and the financial institutions named therein as Lenders. 10.2 Amendment No.1 to Whittaker Corporation Partnership Plan, dated as of June 21, 1996. 11. Statements re computation of per share earnings for the nine months ended July 31, 1996 (Exhibit I(a) of Part I to this Form 10-Q). 22. See Part II, Item 4 of this Form 10-Q. 27. Financial Data Schedule. ____________ * Exhibits followed by a parenthetical reference are incorporated by reference to the documents described therein. (22) (b) Reports on Form 8-K. A report on Form 8-K/A was filed on June 25, 1996, by which the Company filed the financial statements required to be filed with respect to its acquisition of Xyplex, Inc. pursuant to Item 7(a)(4) of Form 8-K. A report on Form 8-K was filed on August 29, 1996. The form reports, in Item 5 thereof, the Company's earnings for its third fiscal quarter, ended July 31, 1996. (23) 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. WHITTAKER CORPORATION Date: September 13, 1996 By: /s/ Gerald E. Finnell ------------------------- Gerald E. Finnell, Vice President & Chief Financial Officer (24) EXHIBIT INDEX
SEQUENTIALLY EXHIBIT NO. * DESCRIPTION NUMBERED PAGE - ----------- ----------- ------------- 10.1 First Amendment and Waiver, dated as of September 9, 1996 among Registrant, NationsBank of Texas, N.A., as Agent, and the financial institutions named therein as Lenders. 10.2 Amendment No.1 to Whittaker Corporation Partnership Plan, dated as of June 21, 1996. 11. Statements re computation of per share earnings for the nine months ended July 31,1996 (Exhibit I(a) of Part I to this Form 10-Q). 22. See Part II, Item 4 of this Form 10-Q. 27. Financial Data Schedule.
________ * Exhibits followed by a parenthetical reference are incorporated by reference to the documents described therein. (25) EX-10.1 2 FIRST AMENDMENT & WAIVER DATED 09/09/96 EXHIBIT 10.1 FIRST AMENDMENT AND WAIVER DATED AS OF SEPTEMBER 9, 1996 This FIRST AMENDMENT AND WAIVER (this "Waiver") is among WHITTAKER CORPORATION, a Delaware corporation (the "Borrower"), the Financial Institutions party to the Credit Agreement referred to below (the "Lenders"), and NATIONSBANK OF TEXAS, N.A., as agent (the "Agent") for the Lenders thereunder. PRELIMINARY STATEMENTS: 1. The Borrower, the Lenders and the Agent have entered into an Amended and Restated Credit Agreement dated as of April 10, 1996 (the "Credit Agreement"; capitalized terms used and not otherwise defined herein have the meanings assigned to such terms in the Credit Agreement). 2. The Borrower has requested that the Lenders waive, during the period starting on and including July 28, 1996 to (but not including) November 3, 1996 (the "Waiver Period"), any Default arising as a result of non-compliance with Section 6.04(c) of the Credit Agreement. 3. The Required Lenders are, on the terms and conditions stated below, willing to grant the requests of the Borrower. NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: SECTION 1. AMENDMENT TO CREDIT AGREEMENT. Effective as of the date ----------------------------- hereof and subject to the satisfaction of the conditions precedent set forth in Section 3 hereof, the definition of the term "Applicable Margin" appearing in Section 1.01 of the Credit Agreement is hereby amended by deleting the percentage "2.250%" appearing opposite the Cash Flow Ratio of 4.00:1.00 or greater and replacing such percentage with "2.50%". SECTION 2. WAIVER. Effective as of the date hereof and subject to ------ the satisfaction of the conditions precedent set forth in Section 3 hereof, the Lenders hereby waive, during the Waiver Period only, any Default arising as a result of non-compliance with Section 6.04(c) of the Credit Agreement. SECTION 3. CONDITIONS TO EFFECTIVENESS. This Waiver shall become --------------------------- effective when (a) the Agent has executed this Amendment and has received counterparts of this Amendment executed by the Borrower and the Required Lenders and counterparts of the Consent appended hereto (the "Consent") executed by each of the Guarantors and Grantors (as defined in the Security Agreement) listed therein (such Guarantors and Grantors, together with the Borrower, each a "Loan Party" and, collectively, the "Loan Parties"), (b) the Borrower shall have paid to the Agent, in accordance with Section 2.09(a) of the Credit Agreement, for the account of each Lender, a fee equal to 0.15% of the sum of all outstanding Advances owed to such Lender, the Unused Revolving Commitment of such Lender and such Lender's Revolving Pro Rata Share of the aggregate outstanding Letter of Credit Obligations, and (c) the Agent shall have received favorable opinions of (i) Latham & Watkins, special counsel to the Borrower, as to the enforceability of this Waiver and the Loan Documents as modified hereby and as to such other matters as the Agent or the Required Lenders may reasonably request, and (ii) the Vice President-General Counsel of the Borrower, as to the due authorization, execution and delivery of this Waiver and as to such other matters as the Agent or the Required Lenders may reasonably request. SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower represents ------------------------------ and warrants as follows: (a) AUTHORITY. The Borrower and each other Loan Party has the --------- requisite corporate power and authority to execute and deliver this Waiver or the Consent, as applicable, and to perform its obligations hereunder and under the Loan Documents (as modified hereby) to which it is a party. The execution, delivery and performance by the Borrower of this Waiver and by each other Loan Party of the Consent, and the performance by each Loan Party of each Loan Document (as modified hereby) to which it is a part have been duly approved by all necessary corporate action of such Loan Party and no other corporate proceedings on the part of such Loan Party are necessary to consummate such transactions. (b) ENFORCEABILITY. This Waiver has been duly executed and -------------- delivered by the Borrower. The Consent has been duly executed and delivered by each Guarantor. This Waiver and each Loan Document (as modified hereby) is the legal, valid and binding obligation of each Loan Party party hereto or thereto, enforceable against such Loan Party in accordance with its terms, and is in full force and effect. (c) REPRESENTATIONS AND WARRANTIES. The representations and ------------------------------ warranties contained in each Loan Document (other than any such representations or warranties that, by their terms, are specifically made as of a date other than the date hereof) are correct on and as of the date hereof as though made on and as of the date hereof. (d) NO DEFAULT. After giving effect to this Waiver, no event has ---------- occurred and is continuing that constitutes a Default. SECTION 5. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS. (a) Upon --------------------------------------------- and after the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to "the Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as modified hereby. (b) Except as specifically modified above, the Credit Agreement and all other Loan Documents, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Without limiting the generality of the foregoing, the Collateral Documents and all of the Collateral described therein do and shall continue to secure the payment of all Secured Obligations under and as defined therein, in each case as amended hereby. 2 (c) The execution, delivery and effectiveness of this Waiver shall not, except as expressly provided herein, operate as a waiver of any right, power or remedy of any Lender or the Agent under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents. SECTION 6. EXECUTION IN COUNTERPARTS. This Waiver may be executed in ------------------------- any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page to this Waiver or the Consent by telefacsimile shall be effective as delivery of a manually executed counterpart of this Waiver or such Consent. SECTION 7. GOVERNING LAW. This Waiver shall be governed by, and ------------- construed in accordance with, the laws of the State of New York. [Signature Pages Follow] 3 IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be executed by their respective officers thereunto duly authorized, as of the date first above written. WHITTAKER CORPORATION, a Delaware corporation By: /s/ John K. Otto ---------------------------------- John K. Otto Treasurer NATIONSBANK OF TEXAS, N.A., as Agent By: /s/ Andrea C. Defterios ---------------------------------- Andrea C. Defterios Vice President S-1 Lenders: ------- NATIONSBANK OF TEXAS, N.A. By: /s/ Andrea C. Defterios ---------------------------------- Andrea C. Defterios Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION By: /s/ Lori Y. Kannegieter ---------------------------------- Title: Managing Director CIBC INC. By: /s/ Robert Wagner ---------------------------------- Title: Agent CITY NATIONAL BANK, N.A. By: /s/ R.A. (Sandy) McKerroll ---------------------------------- Title: Vice President COMERICA BANK-CALIFORNIA By: /s/ Scott T. Smith ---------------------------------- Title: Assistant Vice President IMPERIAL BANK By: /s/ John A. Farrace ---------------------------------- Title: Assistant Vice President S-2 KREDIETBANK N.V. By: /s/ Robert Snauffer ---------------------------------- Title: Vice President By: /s/ Tod R. Angus ---------------------------------- Title: Vice President SANWA BANK CALIFORNIA By: /s/ Joseph C. Arco ---------------------------------- Title: Vice President SUMITOMO BANK OF CALIFORNIA, N.A. By: /s/ Robert M. Iritan ---------------------------------- Title: Vice President TRANSAMERICA BUSINESS CREDIT CORPORATION By: /s/ Perry Vavoules ---------------------------------- Title: Senior Vice President UNION BANK OF CALIFORNIA, N.A. By: /s/ William Swiontek ---------------------------------- Title: Vice President S-3 CONSENT DATED AS OF SEPTEMBER 9, 1996 The undersigned, as Guarantors under the "Guaranty" and as Grantors under the "Security Agreement" (as such terms are defined in and under the Credit Agreement referred to in the foregoing Waiver), each hereby consents and agrees to the foregoing First Amendment and Waiver and hereby confirms and agrees that (i) the Guaranty, the Security Agreement and the Confirmation are, and shall continue to be, in full force and effect and are hereby ratified and confirmed in all respects except that, upon the effectiveness of, and on and after the date of, the said Waiver, each reference in the Guaranty, the Security Agreement and the Confirmation to the Credit Agreement, "thereunder", "thereof" or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement as amended by the said Waiver and (ii) the Security Agreement and the Confirmation and all of the Collateral described therein do, and shall continue to, secure the payment of all of the Secured Obligations as defined in the Security Agreement. BLUE BELL LEASE, INC., a California corporation, METROPOLITAN FINANCIAL SERVICES CORPORATION, a Colorado corporation, PARK CHEMICAL COMPANY, a Michigan corporation, WHITTAKER COMMUNICATIONS, INC., a California corporation,WHITTAKER CONTROLS, INC., a California corporation, WHITTAKER CORP., a Maine corporation, WHITTAKER ORDNANCE, INC., a Delaware corporation, WHITTAKER PORTA BELLA DEVELOPMENT, INC., a California corporation, WHITTAKER SERVICES CORPORATION, a California corporation, WHITTAKER TECHNICAL PRODUCTS, INC., a Colorado corporation, WHITTAKER DEVELOPMENT CO., a Delaware corporation and XYPLEX, INC., a Massachusetts corporation By: /s/ John K. Otto ------------------------------------------ John K. Otto Treasurer of each of the foregoing Loan Parties EX-10.2 3 AMENDMENT NO. 1 TO PARTNERSHIP PLAN DATED 06/21/96 EXHIBIT 10.2 WHITTAKER CORPORATION PARTNERSHIP PLAN Plan Amendment I WHEREAS, Whittaker Corporation (hereafter the "Employer"), a Delaware Corporation maintains the Whittaker Corporation Partnership Plan as Amended and Restated Effective November 1, 1994 (hereafter, the "Plan"); and WHEREAS, pursuant to Article IX, the Employer may amend the Plan from time to time; and WHEREAS, the Board of Directors (hereafter the "Board") wishes to clarify and more appropiately reflect certain administrative operations of the Plan; and WHEREAS, the Board wishes to provide immediate participation in the Plan upon the commencement of employment effective July 1, 1996; and WHEREAS, the Employer intends that amendments relating solely to the clarification of the Plan administration be deemed effective as of the Plan's Amended and Restated Date of November 1, 1994; and WHEREAS, the Employer intends that all other amendments representing changes to the terms of the Plan be deemed effective as noted herein. NOW THEREFORE, BE IT RESOLVED, that the Plan be amended effective as of the original Restated and Amended date of November 1, 1994 or such later date noted as follows: 1. Section 1.02(g)(iii) shall be amended in its entirety as follows: A Break in Employment shall not occur solely by reason of a Layoff from the Employer or an Affiliated Employer, but a Break in Employment shall occur on the earlier of (1) a refusal by the Employee to return to the employ of the Employer or Affiliated Employer, or (2) six (6) months following the commencement of such Layoff. 2. Effective July 1, 1996, Section 1.02(j)(iii) shall be amended in its entirety as follows: For all Plan Years beginning prior to January 1, 1996, any compensation paid or payable by reason of services performed prior to the date the Employee becomes a Participant. 3. Effective January 1, 1995, Section 1.02(kk) shall be amended in its entirety as follows: "Participating Employer" shall mean the Employer and each Affiliated Employer (on behalf of all Employees or a separate subdivision thereof) and any such other business entity (on behalf of all Employees or a separate subdivision thereof) which, by resolution of its board of directors and with the written aproval of the Employer, elects to participate in this Plan. 4. Effective July 1, 1996, Section 2.02 shall be amended in its entirety as follows: 2.02 Period Of Eligibility Service. Through June 30, 1996, a Period of Eligibility Service shall mean a period of ninety (90) Days of Service commencing on an Employee's date of employment. 5. Effective July 1, 1996, Section 3.01 shall be amended to add the following paragraph: Effective July 1, 1996, any Eligible Employee shall be eligible to participate in the Plan immediately upon commencement of employment. 6. Effective July 1, 1996, the first sentence of Section 4.01(a) shall be amended in its entirety as follows: For the Plan Year ending December 31, 1994, and for each Plan Year thereafter, the Employer (i) shall contribute a "Matching Contribution" in an amount equal to the below listed percentage of the Salary Deferral Contributions percentage elected pursuant to Section 4.03 by each Participant for each payroll period up to a maximum election of six percent (6%) per payroll period, and (ii) may, at the discretion of the Board of Directors, contribute a "Profit Sharing Contribution" that may be authorized by the Board of Directors, but not to exceed the dollar balance remaining after subtracting the sum of the total Salary Deferral Contributions and the Employer contributions made pursuant to subparagraph (i) above from fifteen percent (15%) of the aggregated annual Compensation (after any salary reductions for Salary Deferral Contributions) of all Participants for such Fiscal Year. 7. The fifth paragraph of Section 4.08 shall be amended in its entirety as follows: A Participant shall be permitted to change his election of an investment vehicle and/or the percentage to be allocated to each option out of future contributions by providing appropriate notice to the Committee in such form and at such times as the Committee may prescribe. Participants may change the options in which their prior contributions are invested not more often than determined by the Committee. If the Committee adopts an alternate valuation procedure, changes will be accommodated based on the shorter parameters of such system. 8. The second sentence of Section 5.01 shall be amended as follows: If any Eligible Employee ceases participation because of a one (1)-year Period of Separation and receives a distribution and again becomes a Participant, the Committee shall establish a new Employer Matching Account, Employer Profit Sharing Account, Salary Deferral Contributions Account, Permanent Account, and Rollover Account for that Participant. 9. Section 5.03(a) shall be amended as follows: The Employer's contribution for the period ending on such Valuation Date, if any, to the extent such contribution has been paid prior to such date; and 10. The fourth paragraph Section 5.03 shall be amended in its entirety as follows: Notwithstanding anything in the preceding paragraphs, if the Committee adopts an alternate valuation procedure, allocations will be accommodated based on the parameters of such system. 11. Effective January 1, 1995, Section 5.04 shall be amended in its entirety as follows: 5.04 Crediting of Salary Deferral Contributions. Salary Deferral Contributions and Qualified Nonelective Contributions made by the Employer on behalf of Participants shall be allocated to their Salary Deferral Contributions Accounts as of the date such contributions are segregated pursuant to Section 4.03(a) or as soon as administratively feasible thereafter. 12. Effective January 1, 1995, the second paragraph of Section 5.05 shall be amended as follows: As of the date of segregation of contributions pursuant to Section 4.03(a) (or as soon as administratively feasible thereafter), the Employer Matching Contribution, shall be allocated among and credited to the Employer Matching Accounts of the persons entitled to share in such amounts in accordance with the matching provision of Section 4.01(a). The Employer Profit Sharing Contribution pursuant to Section 4.01(a) for the Plan Year ending on such Date shall be allocated among the Participating Employers or groups of Participating Employers based on the annual operating profits of such Participating Employers or groups of Participating Employers and next credited to the Employer Profit Sharing Accounts of the persons entitled to share in such amounts (as provided in the preceding paragraph) in proportion to each Participant's respective amounts of Compensation for such Plan Year. 13. Effective January 1, 1996, the first sentence of the second paragraph of Section 6.05 shall be amended as follows: Provided, however, that if the Participant is reemployed prior to the date that he incurs a sixty (60)-month Period of Separation following a Break in Employment, any amounts so forfeited shall be reinstated (unadjusted by any gains or losses occurring after such forfeitures) to the Participant's Employer Profit Sharing Account within a reasonable time after repayment by the Participant of the amount of any distribution received from his Employer Profit Sharing Account pursuant to Sections 7.02 or 7.03. 14. The first paragraph of Section 6.10 shall be amended in its entirety as follows: 6.10 Loans to Participants. The Committee, in its sole discretion and upon written application of such Participant, may make a loan or loans to such Participant from a Participant's Salary Deferral Contributions Account, Employer Matching Account, Permanent Account, Rollover Account and Employer Profit Sharing Account in an amount aggregating under this Plan or any other Plan (Related Plan) maintained by the Employer not less than one thousand dollars ($1,000) nor in excess of the lesser of (1) fifty thousand dollars ($50,000) (reduced by the highest outstanding loan balance during the one (1)-year period ending on the day before the loan is made over the outstanding balance of loans from the Plan to the Participant on the date which such loan is made), or (2) fifty percent (50%) of the sum of the Participant's vested Salary Deferral Contributions Account, Employer Matching Account, Permanent Account, Rollover Account and Employer Profit Sharing Account, provided that such loans: 15. Effective July 1, 1996, the second sentence of Section 6.10(h) shall be amended as follows: Such procedures shall include the basis on which loans will be approved or denied; the limitations, if any, on the types and amounts of loans offered; the applicable loan fees (if any), and the events constituting a default and the steps that will be taken to preserve Plan assets in the event of such default. 16. Section 6.10(i) shall be amended in its entirety as follows: A Participant may upon written notice delivered to the Committee (on such form as the Committee may prescribe), request that a loan be made to the Participant in conformity with the dollar limits set forth above provided no loan request has been granted within the preceding twelve (12) calendar months. A Participant shall first borrow the available balance in his Salary Deferral Contributions Account, shall next borrow the available balance in his Employer Matching Account, shall next borrow from his Permanent Account, shall next borrow from his Rollover Account and finally shall borrow any available balance in his Employer Profit Sharing Account. The Committee may from time to time establish the order in which such Accounts and/or the investment funds within each applicable Participant Account will be utilized for purposes of fulfilling loan requests. A Participant may not have more than two loans outstanding at any time and may not request a new loan until the expiration of a thirty day period following the date a prior outstanding loan has been repaid in full. Each loan shall be made only from an Account or Accounts of the Participant requesting the loan and shall be treated as an investment of such Account or Accounts funding the loan. So long as a loan to a Participant under this Plan is outstanding, the Participant may not elect to withdraw any portion of his Account or Accounts prior to termination of employment under the provisions of Article VI. 17. Section 6.11(a) shall be amended in its entirety as follows: Amounts may be withdrawn at all times from a Participant's After-Tax Account while the Participant remains in the employ of the Employer provided no outstanding loan balance exists with respect to such Participant. If a Participant's After-Tax Account is exhausted, amounts may next be withdrawn from a Participant's Employer Matching Account, followed by the Participant's Permanent Account and finally the Participant's Rollover Account while the Participant remains in the employ of the Employer provided that (i) withdrawals are limited to contributions made to the stated Accounts at least twenty-four (24) full calendar months prior to the beginning of the Plan Year in which the withdrawal request is made, together with any earnings thereon and, (ii) no outstanding loan balance exists with respect to such Participant. In the case of a Participant whose Period of Service equals or exceeds five years, all amounts may be withdrawn from such Participant's Employer Matching Account, next from the Participant's Permanent Account, and finally from the Participant's Rollover Account while the Participant remains in the employ of the Employer regardless of the date of such contributions. No more than two (2) withdrawals in a Plan Year shall be permitted pursuant to this Section 6.11(a). The Committee may from time to time establish a minimum amount applicable to any withdrawal request made pursuant to this Section 6.11(a). 18. Effective January 1, 1996, the third sentence of Section 6.11(b) shall be amended as follows: The minimum amount that may be withdrawn at any one time is the lesser of three hundred dollars ($300.00) or the entire value of the Participant's Salary Deferral Contribution Account or such other amount as may be established from time to time by the Committee. 19. Effective July 1, 1996, the first sentence and introductory clause of the second sentence shall be amended as follows: The Board of Directors of Whittaker Corporation shall have the right to amend this Plan from time to time and to amend further or cancel any such amendment. Such amendments shall be stated in an instrument in writing executed by Whittaker Corporation, and this Plan shall be deemed to have been amended in the manner and at the time therein set forth, and all Employees, former Employees, Participants, former Participants, Beneficiaries, and the Employer shall be bound thereby; provided, however: 20. Effective January 1, 1995, Section 12.01 shall be amended in its entirety as follows: 12.01 Adoption by Affiliated Employers. With the consent of the Employer, any Affiliated Employer (on behalf of all Employees, or a separate subdivision thereof) may adopt this Plan and all of the provisions hereof, and participate herein and be known as a Participating Employer, by properly executing a document evidencing said intent and will of such Participating Employer. Executed this 21st day of June, 1996. WHITTAKER CORPORATION By: /s/ Thomas A. Brancati -------------------------------------- President and Chief Executive Officer By: /s/ J. C. Cannady -------------------------------------- Vice President EX-27 4 FINANCIAL DATA SCHEDULE
5 THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND INCOME STATEMENT AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS OCT-31-1996 JUL-31-1996 9,497 0 74,966 0 52,085 165,169 105,749 59,020 402,104 206,458 15,587 0 1 110 143,704 402,104 154,187 154,187 89,208 89,208 26,962 0 7,060 (14,324) (5,378) (8,946) 0 0 0 (8,946) (0.92) 0
-----END PRIVACY-ENHANCED MESSAGE-----