FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-5631
WATKINS-JOHNSON COMPANY
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of 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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X . No .
--- ---
Common stock, no par value, outstanding as of June 30, 1995 8,029,000 shares
Page 1
<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 six months ended
June 30, 1995, are not necessarily indicative of the results
for the full year 1995.
Supplementary information to the financial statements:
A dividend of twelve cents per share was declared and
paid during the second quarter of 1995 and 1994.
Net income per share is computed based on the
weighted average number of common and common
equivalent shares (dilutive stock options)
outstanding during the period, see Exhibit 11.
The consolidated financial statements required by Rule 10-01
of Regulation S-X are included in this report beginning on the
next page.
Page 2
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended June 30, 1995 and July 1, 1994
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share 1995 1994 1995 1994
amounts)
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 102,004 $ 87,365 $ 194,987 $ 167,891
----------------------------------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 60,355 49,780 113,461 100,830
Selling and administrative 18,898 19,708 38,821 34,954
Research and development 11,611 8,600 24,162 17,424
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90,864 78,088 176,444 153,208
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Income from operations 11,140 9,277 18,543 14,683
Interest and other income (expense)--net 351 190 891 579
Interest expense (221) (306) (406) (603)
----------------------------------------------------------------------------------------------------------------------
Income from continuing operations before
Federal and foreign income taxes 11,270 9,161 19,028 14,659
Federal and foreign income taxes (3,494) (2,924) (5,899) (4,680)
----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 7,776 6,237 13,129 9,979
Loss from discontinued operations--net of
taxes (303) (421)
----------------------------------------------------------------------------------------------------------------------
Net income $ 7,776 $ 5,934 $ 13,129 $ 9,558
=======================================================================================================================
Fully diluted net income per share
(difference between fully diluted and
primary earnings per share is not $ .88 $ .73 $ 1.51 $ 1.18
material)
Average common and equivalent shares
outstanding 8,822,000 8,124,000 8,687,000 8,124,000
<FN>
*Unaudited
</FN>
</TABLE>
Page 3
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 1995 and December 31, 1994
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995* 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 41,272 $ 34,469
Receivables 85,158 80,427
Inventories:
Raw materials and parts 15,538 12,293
Work in process 36,991 37,682
Finished goods 1,442 1,680
Other 13,271 12,921
---------------------------------------------------------------------------------------------------------------------
Total current assets 193,672 179,472
---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 165,832 160,683
Accumulated depreciation and amortization (113,036) (115,537)
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Property, plant, and equipment--net 52,796 45,146
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Other assets 10,405 10,412
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$ 256,873 $ 235,030
=====================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 14,405 $ 15,045
Accrued liabilities 50,848 47,776
---------------------------------------------------------------------------------------------------------------------
Total current liabilities 65,253 62,821
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Long-term obligations 22,278 22,583
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Shareowners' equity:
Common stock 28,751 20,279
Retained earnings 140,591 129,347
---------------------------------------------------------------------------------------------------------------------
Total shareowners' equity 169,342 149,626
---------------------------------------------------------------------------------------------------------------------
$ 256,873 $ 235,030
=====================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
Page 4
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended June 30, 1995 and July 1, 1994
<CAPTION>
Six Months Ended
-------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1995 1994
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 13,129 $ 9,558
Reconciliation of net income to cash flows
Depreciation and amortization 5,252
Receivables (4,731) 1,024
Inventories (2,316) (9,881)
Other assets (343) 1,391
Accruals and payables 1,725 (2,429)
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Net cash provided by operating activities 12,716 4,311
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INVESTING ACTIVITIES:
Additions of property, plant, and equipment (13,790) (5,278)
Other 887 58
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Net cash (used) in investing activities (12,903) (5,220)
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FINANCING ACTIVITIES:
Proceeds from issuance of stock 8,471 7,706
Repurchase of common stock 0 (13,805)
Dividends paid (1,885) (1,756)
Other 404 (581)
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Net cash provided (used) by financing activities 6,990 (8,436)
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Net increase (decrease) in cash and equivalents 6,803 (9,345)
Cash and equivalents at beginning of period 34,469 45,040
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Cash and equivalents at end of period $ 41,272 $ 35,695
===================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
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. During the first half of 1995, cash and
equivalents increased $6.8 million from $34.5 to $41.3 million
as cash provided by operations and stock issuances more than
offset capital expenditures and dividends paid. For the
balance of 1995, the company expects to generate sufficient
cash to fund its operations and product development. Growth
expectations beyond 1995 may require use of external financing
in order to meet such growth opportunities. The company is
currently negotiating to increase its lines of credit.
CURRENT OPERATIONS: Semiconductor Equipment Group sales set a
new record this quarter. Continued demand for semiconductor
equipment reflects the higher semiconductor content in
electronic products, along with the demand for more memory to
support advanced microprocessors and multimedia products.
During the quarter, semiconductor sales accounted for nearly
60% of total revenue. The Group introduced its latest product,
the WJ-2000 high-density plasma reactor, at the SEMICON/West
trade show in early July with resulting high customer
interest. Prospects for the remainder of the year appear
positive as analysts' industry growth projections remain
strong. It must be recognized that the semiconductor equipment
business is cyclical and can change rapidly. Uncertainty
increases significantly when projecting demand for
semiconductor equipment products more than six months into the
future.
During the second quarter, the Electronics Group divested
certain product lines to better focus on its core defense
business and position itself in the telecommunications market.
The divested product lines accounted for approximately $7
million of sales each quarter in 1994. The company does not
expect the divestitures to significantly impact its 1995
results of operations, financial position, and cash flow. The
business picture for the Electronics Group is improving as
customer demand has relatively stabilized for its missile
guidance and intelligence receiver products, and the Group's
telecommunication products are gaining acceptance in the
growing wireless market.
BACKLOG: The firm order backlog on June 30, 1995 was
$205,323,000 compared to the $180,621,000 recorded on July 1,
1994. The portion of the current backlog shippable within
twelve months is 87%, compared to 91% one year ago.
SECOND QUARTER 1995 COMPARED TO SECOND QUARTER 1994:
Semiconductor Equipment Group sales increased nearly 50% while
Electronics Group sales were down 11%, resulting in an overall
company increase of 17%. The decrease in Electronics Group
sales was mostly due to the divested product lines described
above. Gross margins remained above 40% but were down slightly
due mostly to nonrecurring production costs associated with
product enhancements in the Semiconductor Equipment Group.
Although selling and administrative expenses decreased
slightly, expenses are expected to be higher for the remainder
of 1995 due to increasing direct sales activities by both
Groups. The rate of research and development spending was
slightly higher compared to the same period last year but has
slowed from the level of the first quarter of 1995. Due to the
combined effect of the above factors, net income for the
second quarter of 1995 increased more than 30% over the same
period in 1994.
Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
------------------------------------------------------------------------------
SECOND QUARTER YEAR-TO-DATE 1995 COMPARED TO SECOND QUARTER
YEAR-TO-DATE 1994: Semiconductor Equipment Group sales
increased 57% while Electronics Group sales were down 11%,
resulting in an overall company increase of 16%. The favorable
revenue shift towards more profitable semiconductor equipment
products helped to increase the company's gross margin from
40% to 42%. Although selling and administrative expenses as a
percentage of sales decreased slightly, expenses are expected
to rise for the second half of 1995 as direct sales activities
are expected to increase for both Groups. Research and
development expenses increased from 10% to 12% of sales due to
the company's substantial efforts in developing the next
generation of products for both business segments. Research
and development expenses are expected to be above plan for the
year although the pace of spending will slow in the second
half. Due to the combined effect of the above factors, net
income for the first half of 1995 increased 37% over the same
period in 1994.
Page 7
<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 8
<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 3, 1995 By: /s/ W. Keith Kennedy, Jr.
------------------------ -------------------------------------
W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date: August 3, 1995 By: /s/ Scott G. Buchanan
------------------------ -------------------------------------
Scott G. Buchanan
Vice President and Chief
Financial Officer
Page 9
<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.
27 Financial Data Schedule.
Page 10
<TABLE>
<CAPTION>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Dollars in thousands, except per share amounts)
The following table illustrates the potential dilution of outstanding stock
options on net income per share computations:
Three Months Ended Six Months Ended
----------------------------------------------------------------------------------------------------------------------------
June 30, 1995 July 1, 1994 June 30, 1995 July 1, 1994
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FOR PRIMARY NET INCOME PER SHARE:
Weighted average shares outstanding 7,911,000 7,346,000 7,776,000 7,351,000
Equivalent shares--dilutive stock
options--based on treasury stock
method using average market price 788,000 689,000 788,000 676,000
----------------------------------------------------------------------------------------------------------------------------
Total 8,699,000 8,035,000 8,564,000 8,027,000
============================================================================================================================
FOR FULLY DILUTED NET INCOME PER SHARE:
Weighted average shares outstanding 7,911,000 7,346,000 7,776,000 7,351,000
Equivalent shares--dilutive stock
options--based on treasury stock
method using greater of closing
market price or average price 911,000 778,000 911,000 756,000
----------------------------------------------------------------------------------------------------------------------------
Total 8,822,000 *8,124,000 8,687,000 *8,107,000
============================================================================================================================
Net income $ 7,776 $ 5,934 $ 13,129 $ 9,558
============================================================================================================================
Primary net income per share $ .89 $ .74 $ 1.53 $ 1.19
============================================================================================================================
Fully diluted net income per share $ .88 $ .73 $ 1.51 $ 1.18
============================================================================================================================
<FN>
* Highest number of shares was reported on the Consolidated Statements of
Operations and used to compute quarterly and year-to-date earnings per share
(EPS) so that the sum of the quarters EPS equals year-to-date EPS.
This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
</FN>
</TABLE>
Page 11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 41272
<SECURITIES> 0
<RECEIVABLES> 85158
<ALLOWANCES> 0
<INVENTORY> 53971
<CURRENT-ASSETS> 193672
<PP&E> 165832
<DEPRECIATION> 113036
<TOTAL-ASSETS> 256873
<CURRENT-LIABILITIES> 65253
<BONDS> 22278
<COMMON> 28751
0
0
<OTHER-SE> 140591
<TOTAL-LIABILITY-AND-EQUITY> 256873
<SALES> 102004
<TOTAL-REVENUES> 102004
<CGS> 60355
<TOTAL-COSTS> 90864
<OTHER-EXPENSES> (351)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 221
<INCOME-PRETAX> 11270
<INCOME-TAX> 3494
<INCOME-CONTINUING> 7776
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7776
<EPS-PRIMARY> .89
<EPS-DILUTED> .88
</TABLE>
