FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to ___________________
Commission file number 1-5631
WATKINS-JOHNSON COMPANY
______________________________________________________
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
______________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 Hillview Avenue, Palo Alto, California 94304-1223
______________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(415) 493-4141
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
___ ___
Common stock, no par value, outstanding as of July 1, 1994 7,426,428 shares
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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. The results for the six months
ended July 1, 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
second 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>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended July 1, 1994 and July 2, 1993
Three Months Ended Six Months Ended
_____________________________________________________________________________
(Dollars in thousands, except per share amounts)
1994 1993 1994 1993
_____________________________________________________________________________
Sales $87,840 $68,216 $168,898 $135,299
_____________________________________________________________________________
Costs and expenses:
Cost of goods sold 50,344 44,966 101,792 89,902
Selling and administrative 20,054 14,046 35,607 28,047
Research and development 8,600 5,516 17,424 11,557
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78,998 64,528 154,823 129,506
_____________________________________________________________________________
Income from operations 8,842 3,688 14,075 5,793
Interest and other income
(expense) -net 190 467 583 654
Interest expense (306) (312) (603) (618)
_____________________________________________________________________________
Income before Federal and
foreign income taxes 8,726 3,843 14,055 5,829
Federal and foreign income taxes (2,792) (1,191) (4,497) (1,807)
_____________________________________________________________________________
Net income $5,934 $2,652 $9,558 $4,022
=============================================================================
Net income per share $.73 $.33 $1.18 $.51
(Average number of common and common equivalent shares outstanding: 1994 -
8,124,000 shares, 1993 - 7,898,000 shares)
*Unaudited
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WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of July 1, 1994 and December 31, 1993
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(Thousands of dollars) 1994* 1993
_____________________________________________________________________________
ASSETS
Current assets:
Cash and equivalents $35,695 $45,040
Receivables 72,947 73,971
Inventories:
Raw materials and parts 10,688 7,327
Work in process 34,799 28,014
Finished goods 1,540 1,805
Other 11,401 12,617
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Total current assets 167,070 168,774
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Property, plant and equipment 170,173 167,857
Accumulated depreciation and amortization (122,729) (121,028)
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Property, plant and equipment - net 47,444 46,829
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Other assets 4,807 5,025
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$219,321 $220,628
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LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $13,784 $13,243
Accrued liabilities 45,038 47,034
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Total current liabilities 58,822 60,277
_____________________________________________________________________________
Long-term obligations 24,909 26,463
_____________________________________________________________________________
Shareowners' equity:
Common stock 15,840 9,106
Retained earning 119,750 124,782
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Total shareowners' equity 135,590 133,888
_____________________________________________________________________________
$219,321 $220,628
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* Unaudited
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the Periods Ended July 1,1994 and July 2, 1993
Six Months Ended
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(Dollars in thousands) 1994 1993
_____________________________________________________________________________
OPERATING ACTIVITIES:
Net Income $9,558 $4,022
Reconciliation of net income to cash flows
Depreciation and amortization 4,648 5,180
Net changes in:
Receivables 1,024 (6,510)
Inventories (9,881) (2,520)
Other assets 1,391 40
Accruals and payables (2,429) 4,748
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Net cash provided by operating activities 4,311 4,960
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INVESTING ACTIVITIES:
Additions of property, plant and equipment (5,278) (4,100)
Other 58 757
_____________________________________________________________________________
Net cash used in investing activities (5,220) (3,343)
_____________________________________________________________________________
FINANCING ACTIVITIES:
Proceeds from issuance of stock 7,706 7
Repurchase of common stock (13,805) (426)
Dividends paid (1,756) (1,809)
Other (581) (989)
_____________________________________________________________________________
Net cash used in financing activities (8,436) (3,217)
_____________________________________________________________________________
Net decrease in cash and equivalents (9,345) (1,600)
Cash and equivalents at beginning of period 45,040 49,081
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Cash and equivalents at end of period $35,695 $47,481
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*Unaudited
<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 $9.3 million from $45.0 to
$35.7 million mostly due to cash used for stock repurchases exceeded
cash generated by stock issuances from stock option exercises. For the
second half 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 first half the company had no
material commitments or planned investments which would require external
financing.
CURRENT OPERATIONS: Sales and profit for semiconductor-manufacturing
equipment continue to exceed planned levels. Long-term prospects appear
positive as industry analysts predict that the semiconductor-equipment
market will remain healthy. However, it must be recognized that the
semiconductor equipment business is cyclical and can change rapidly.
Uncertainty increases significantly when projecting demand for
semiconductor equipment products more than six months in the future.
The first-half Electronics Group sales are on plan, and profit is above
plan. Efforts to streamline the group's organization continue to
contribute to profits. In May, the group consolidated three divisions
into two. Operations of the Electronic Systems Division were merged into
the Microwave Products Division and the Electronic Equipment Division,
previously named the Communication Electronics Technology Division.
During the second quarter, the Electronics Group initiated negotiations
on a key order in a new business area-- cellular base-station equipment.
BACKLOG: The firm order backlog on July 1, 1994 was $181,527,000,
compared to the $188,851,000 recorded on July 2, 1993. The portion of
the current backlog shippable within twelve months is 91 percent,
compared to 91 percent one year ago.
SECOND QUARTER AND SECOND QUARTER YEAR-TO-DATE 1994 COMPARED TO SECOND
QUARTER AND SECOND QUARTER YEAR-TO-DATE 1993: Company sales increased
more than 25% and were virtually all attributable to the increased
volume in the semiconductor-equipment segment. Gross margins improved to
above 40% mostly due to the higher volume in the Semiconductor Equipment
Group and improved profitability in the Electronics Group. Selling and
administrative expenses were within planned levels as higher commissions
were paid on increased international sales volume. Research and
development expenses were higher as Semiconductor Equipment Group
incurred certain nonrecurring charges associated with the high-density
plasma initiative. R&D expenses are expected to be above plan for the
year although the pace of spending will slow in the second half.
Unfavorable foreign exchange rates were the primary reason for the
decrease in "Interest and other income (expense) - net". Estimated
effective tax rate increased slightly to 32% as a result of the 1993
Omnibus Budget Reconciliation Act. Due to the above combined factors,
net income for the second quarter and first half of 1994 more than
doubled the 1993 amounts. <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 number according to Item 601 of
Regulation S-K
b) No reports on Form 8-K were required to be filed during the quarter.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATKINS-JOHNSON COMPANY
__________________________
(Registrant)
Date: August 1, 1994 By: /s/ Richard G. Bell for
-------------------------- ----------------------------
W. Keith Kennedy, Jr.
President and Chief Executive
Officer
Date: July 29, 1994 By: /s/ Scott G. Buchanan
-------------------------- -----------------------------
Scott G. Buchanan
Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
------- -------
11 Statement re Computation of Per Share Earnings.
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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:
Three Months Ended Six Months Ended
____________________________________________________________________________________________________
July 1, 1994 July 2, 1993 July 1, 1994 July 2, 1993
____________________________________________________________________________________________________
<S> <C> <C> <C> <C>
FOR PRIMARY NET INCOME PER SHARE:
Weighted average shares
outstanding 7,345,965 7,531,442 7,350,806 7,543,217
Equivalent shares -- dilutive stock
options -- based on treasury
stock method using average
market price 688,971 261,860 675,883 198,211
____________________________________________________________________________________________________
Total 8,034,936 7,793,302 8,026,689 7,741,428
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FOR FULLY DILUTED NET INCOME PER SHARE:
Weighted average shares
outstanding 7,345,965 7,531,442 7,350,806 7,543,217
Equivalent shares -- dilutive stock
options -- based on treasury
stock method using greater of
closing market price or average
price 777,634 366,746 755,798 335,238
____________________________________________________________________________________________________
Total 8,123,599 7,898,188 8,106,604 7,878,455
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Net Income $5,934,000 $2,652,000 $9,558,000 $4,022,000
====================================================================================================
Primary net income per share $.74 $.34 $1.19 $.52
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Fully diluted net income per share $.73 $.33 $1.18 $.51
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This calculation is submitted in accordance with Regulation S-K, Item 601(b)(11).
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