FORM 10-Q
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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 September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-5631
WATKINS-JOHNSON COMPANY
-----------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 Hillview Avenue, Palo Alto, California 94304-1223
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(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 September 30, 1994 7,491,278
shares
Page 1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The interim financial statements are unaudited; however, Watkins-Johnson
Company believes that all adjustments necessary to a fair statement of
results for such interim periods have been included and all such
adjustments are of a normal recurring nature. The results for the nine
months ended September 30, 1994, are not necessarily indicative of the
results for the full year 1994.
Supplementary information to the financial statements:
A dividend of twelve cents per share was declared and paid during
the third quarter of 1994 and 1993.
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. The difference between
fully diluted earnings per share and primary earnings per share is
not significant, see Exhibit 11.
The consolidated financial statements required by Rule 10-01 of
Regulation S-X are included in this report beginning on the next page.
Page 2
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended September 30, 1994 and October 1, 1993
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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(Dollars in thousands, except per share amounts) 1994 1993 1994 1993
- - - -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 84,287 $ 72,708 $ 253,185 $ 208,007
- - - -------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 49,519 47,246 151,311 137,148
Selling and administrative 18,302 14,278 53,909 42,325
Research and development 8,533 6,124 25,957 17,681
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76,354 67,648 231,177 197,154
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Income from operations 7,933 5,060 22,008 10,853
Interest and other income (expense) -net 280 343 863 997
Interest expense (291) (313) (894) (931)
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Income before Federal and foreign income taxes 7,922 5,090 21,977 10,919
Federal and foreign income taxes (2,536) (1,578) (7,033) (3,385)
- - - -------------------------------------------------------------------------------------------------
Net income $ 5,386 $ 3,512 $ 14,944 $ 7,534
=================================================================================================
Net income per share $ .61 $ .42 $ 1.79 $ .93
<FN>
(Average number of common and common equivalent shares outstanding: 1994 -
8,344,000 shares, 1993 - 8,129,000 shares. Differences between fully diluted and
primary earnings per share are considered immaterial, see Exhibit 11.)
*Unaudited
</FN>
</TABLE>
Page 3
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of September 30, 1994 and December 31, 1993
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(Dollars in thousands) 1994* 1993
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ASSETS
Current assets:
Cash and equivalents $ 34,436 $ 45,040
Receivables 79,423 73,971
Inventories:
Raw materials and parts 10,818 7,327
Work in process 35,897 28,014
Finished goods 1,752 1,805
Other 12,102 12,617
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Total current assets 174,428 168,774
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Property, plant and equipment 173,977 167,857
Accumulated depreciation and amortization (124,732) (121,028)
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Property, plant and equipment - net 49,245 46,829
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Other assets 4,781 5,025
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$ 228,454 $ 220,628
================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 13,724 $ 13,243
Accrued liabilities 49,158 47,034
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Total current liabilities 62,882 60,277
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Long-term obligations 23,996 26,463
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Shareowners' equity:
Common stock 17,336 9,106
Retained earning 124,240 124,782
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Total shareowners' equity 141,576 133,888
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$ 228,454 $ 220,628
================================================================================
* Unaudited
Page 4
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the Periods Ended September 30,1994 and October 1, 1993
Nine Months Ended
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(Dollars in thousands) 1994 1993
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OPERATING ACTIVITIES:
Net Income $ 14,944 $ 7,534
Reconciliation of net income to cash flows
Depreciation and amortization 6,824 7,756
Net changes in:
Receivables (5,452) (3,027)
Inventories (11,321) (1,692)
Other assets 695 (739)
Accruals and payables 530 6,293
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Net cash provided by operating activities 6,220 16,125
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INVESTING ACTIVITIES:
Additions of property, plant and equipment (9,238) (6,331)
Other 62 779
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Net cash used in investing activities (9,176) (5,552)
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FINANCING ACTIVITIES:
Proceeds from issuance of stock 9,202 1,008
Repurchase of common stock (13,805) (426)
Dividends paid (2,654) (2,719)
Other (391) (1,377)
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Net cash used in financing activities (7,648) (3,514)
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Net increase (decrease) in cash and equivalents (10,604) (7,059)
Cash and equivalents at beginning of period 45,040 49,081
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Cash and equivalents at end of period $ 34,436 $ 56,140
================================================================================
*Unaudited
Page 5
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION: The company continues to be in excellent
financial condition. Cash and equivalents decreased $10.6 million
from $45.0 to $34.4 million mostly due to cash used for stock
repurchases exceeding cash generated by stock issuances from stock
option exercises and increased working capital requirements. For the
fourth quarter of 1994, the company expects sufficient cash will be
generated internally to fund its operations. In addition the company
has the ability to augment its cash needs with readily available
external financing.
At the end of the third quarter the company had no material
commitments or planned investments which would require external
financing. Pending divestitures described below are not expected to
have any material adverse impact on the company's financial
condition and are anticipated to generate net positive cash flow.
CURRENT OPERATIONS: The excellent performance of the Semiconductor
Equipment Group strengthened further in the third quarter. The
group's total business in 1994 is expected to exceed 1993's level by
more than 60 percent. In contrast, the Electronics Group is facing
strong competition in a weak defense market. To offset that
weakness, the group is consolidating its Northern California
operations at the company's Palo Alto plant. In the commercial
arena, the Electronics Group won contracts for cellular base-station
transceivers and is pursuing a number of related equipment
opportunities. W-J is offering the San Jose plant for sale and plans
to divest its hydrogeology subsidiary--W-J Environmental, Inc.--to
focus its resources on business areas which hold the greatest
promise for the total company.
BACKLOG: The firm order backlog on September 30, 1994 was
$230,290,000, compared to the $228,917,000 recorded on October 1,
1993. The portion of the current backlog shippable within twelve
months is 87 percent, compared to 81 percent one year ago.
THIRD QUARTER 1994 COMPARED TO THIRD QUARTER 1993: Sales in the
semiconductor equipment segment increased 80% and more than offset
the decline in the electronics segment resulting in an overall
company increase of 16%. The favorable shift towards more profitable
semiconductor-equipment products helped to improve the company's
margin to above 40% despite consolidation charges incurred in the
Electronics Group. Selling and administrative expenses increased in
line with volume except for higher international sales commissions.
Research and development expenditures were expectedly higher than
last year due to efforts in the advancing high-density plasma
technology. The combination of the above factors resulted in the
increase in net income of more than 50%.
THIRD QUARTER YEAR-TO-DATE 1994 COMPARED TO THIRD QUARTER
YEAR-TO-DATE 1993: Sales recorded by the Semiconductor Equipment
Group more than doubled last year's amount and was the primary
reason the company's overall sales grew 22%. Margins pushed above
40% mostly due to the product mix favorably shifted towards higher
margin semiconductor-equipment sales. Selling and administration
expenses continued to grow faster than revenues because of high
commissions and high volume for the international sales of
semiconductor equipment. To improve customer service and control
international commission expenses in the future the company has
established foreign subsidiaries in Japan, Taiwan and Singapore in
addition to Korea, which was established last year. The offices will
operate in parallel with the current distributors for a transitional
period. The company allowed a higher rate for research and
development expenditures because of higher revenues from
semiconductor equipment group and the opportunity to meet certain
milestones for the high-density plasma initiative. The combined
effect of the above factors resulted in the company's net income to
increase 100% over the prior year's amount.
Page 6
<PAGE>
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 numbered according to
Item 601 of Regulation S-K.
b) No reports on Form 8-K were required to be filed during the
quarter.
Page 7
<PAGE>
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
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(Registrant)
Date: November 4, 1994 By: /s/ W. Keith Kennedy, Jr.
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W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date: November 4, 1994 By: /s/ Scott G. Buchanan
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Scott G. Buchanan
Vice President and Chief Financial Officer
Page 8
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
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11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule for the period ended September 30, 1994.
Page 9
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
The following table illustrates the potential dilution of outstanding stock
options on net income per share computations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
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Sept. 30, 1994 Oct. 1, 1993 Sept. 30, 1994 Oct. 1, 1993
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<S> <C> <C> <C> <C>
FOR PRIMARY NET INCOME PER SHARE:
Weighted average shares
outstanding 7,450,000 7,553,000 7,450,000 7,546,000
Equivalent shares -- dilutive stock
options -- based on treasury
stock metho using average
market price 710,000 527,000 710,000 310,000
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Total 8,160,000 8,080,000 8,160,000 7,856,000
=============================================================================================================
FOR FULLY DILUTED NET INCOME PER SHARE:
Weighted average shares
outstanding 7,450,000 7,553,000 7,450,000 7,546,000
Equivalent shares -- dilutive stock
options -- based on treasury
stock method using greater of
closing market price or average
price 894,000 623,000 894,000 583,000
- - - -------------------------------------------------------------------------------------------------------------
Total 8,344,000 8,176,000 8,344,000 8,129,000
=============================================================================================================
Net Income $ 5,386,000 $ 3,512,000 $14,944,000 $ 7,534,000
=============================================================================================================
Primary net income per share $ .66 $ .43 $ 1.83 $ .96
=============================================================================================================
Fully diluted net income per share $ .61* $ .42 $ 1.79 $ .93
=============================================================================================================
<FN>
* Reported $.61 instead of $.65 so cumulative earnings for all quarters
total year-to-date earnings of $1.79 per share.
This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
</FN>
</TABLE>
Page 10
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> QTR-3
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 34436
<SECURITIES> 0
<RECEIVABLES> 79423
<ALLOWANCES> 0
<INVENTORY> 48467
<CURRENT-ASSETS> 174428
<PP&E> 173977
<DEPRECIATION> 124732
<TOTAL-ASSETS> 228454
<CURRENT-LIABILITIES> 62882
<BONDS> 23996
<COMMON> 17336
0
0
<OTHER-SE> 124240
<TOTAL-LIABILITY-AND-EQUITY> 141576
<SALES> 84287
<TOTAL-REVENUES> 84287
<CGS> 49519
<TOTAL-COSTS> 49519
<OTHER-EXPENSES> 26555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 291
<INCOME-PRETAX> 7922
<INCOME-TAX> 2536
<INCOME-CONTINUING> 5386
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5386
<EPS-PRIMARY> 0
<EPS-DILUTED> 0.61
</TABLE>
