FORM 10-Q
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 March 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-5631
WATKINS-JOHNSON COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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 March 28, 1997 8,260,000 shares
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Page 1
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial statements are unaudited; however, the 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 three months
ended March 28, 1997, are not necessarily indicative of the results for
the full year 1997.
Supplementary information to the financial statements:
A dividend of twelve cents per share was declared and paid during
the first quarter of 1997 and 1996.
Net income per share is computed based on the weighted average
number of common and common equivalent shares (dilutive stock
options) outstanding during the period, see Exhibit 11.
Recently issued accounting standard:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per
Share" (SFAS 128). The company is required to adopt SFAS 128 in the
fourth quarter of 1997 and will restate at that time earnings per
share (EPS) data for prior periods to conform with SFAS 128. Early
application is not permitted.
SFAS 128 replaces current EPS reporting requirements and requires a
dual presentation of basic and diluted EPS. Basic EPS excludes
dilution and is computed by dividing net income by the weighted
average of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock.
If SFAS 128 had been in effect during the current and prior year
periods, basic EPS would have been $0.30 and $0.79 for the quarters
ended March 28, 1997 and March 29, 1996, respectively. Diluted EPS
would not have been significantly different than fully diluted EPS
currently reported for the periods.
The consolidated financial statements required by Rule 10-01 of
Regulation S-X are included in this report beginning on the next page.
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Page 2
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended March 28, 1997 and March 29, 1996
<CAPTION>
Three Months Ended
------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts) 1997 1996
------------------------------------------------------------------------------------------
<S> <C> <C>
Sales $90,916 $122,742
------------------------------------------------------------------------------------------
Costs and expenses:
Cost of goods sold 60,711 76,832
Selling and administrative 15,696 22,501
Research and development 11,046 14,008
------------------------------------------------------------------------------------------
87,453 113,341
------------------------------------------------------------------------------------------
Income from operations 3,463 9,401
Other income (expense) 129 (77)
------------------------------------------------------------------------------------------
Income before Federal and foreign income taxes 3,592 9,324
Federal and foreign income taxes (1,114) (2,890)
------------------------------------------------------------------------------------------
Net income $ 2,478 6,434
==========================================================================================
Fully diluted net income per share (difference between fully
diluted and primary earnings per share is not material) $ .29 $ .75
Year-to-date average common and equivalent shares
outstanding 8,487,000 8,583,000
<FN>
*Unaudited
</FN>
</TABLE>
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Page 3
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 28, 1997 and December 31, 1996
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(Dollars in thousands) 1997* 1996
-------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 19,996 $ 15,702
Receivables 91,930 95,717
Inventories:
Finished goods 3,728 4,005
Work in process 32,455 35,000
Raw materials and parts 30,737 30,153
Other 22,047 23,266
-------------------------------------------------------------------------------
Total current assets 200,893 203,843
-------------------------------------------------------------------------------
Property, plant, and equipment 233,124 231,318
Accumulated depreciation and amortization (130,938) (127,748)
-------------------------------------------------------------------------------
Property, plant, and equipment--net 102,186 103,570
-------------------------------------------------------------------------------
Other assets 3,035 6,960
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$306,114 $314,373
===============================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 18,284 $ 18,960
Accrued liabilities 57,743 61,901
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Total current liabilities 76,027 80,861
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Long-term obligations 35,932 38,801
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Shareowners' equity:
Common stock 38,718 38,998
Retained earnings 155,437 155,713
-------------------------------------------------------------------------------
Total shareowners' equity 194,155 194,711
-------------------------------------------------------------------------------
$306,114 $314,373
===============================================================================
*Unaudited
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Page 4
<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended March 28, 1997 and March 29, 1996
Three Months Ended
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(Dollars in thousands) 1997 1996
-------------------------------------------------------------------------------
OPERATING ACTIVITIES:
Net income $ 2,478 $ 6,434
Reconciliation of net income to cash flows:
Depreciation and amortization 3,640 3,338
Net changes in:
Receivables 3,284 (11,904)
Inventories 2,141 (15,175)
Other assets 2,012 678
Accruals and payables (7,991) (534)
-------------------------------------------------------------------------------
Net cash provided (used) by operating activities 5,564 (17,163)
-------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions of property, plant, and equipment (3,751) (19,908)
Restricted plant construction funds 3,738
Other 25 29
-------------------------------------------------------------------------------
Net cash provided (used) by investing activities 12 (19,879)
-------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Long-term borrowing 9,425
Net borrowings (repayments) under line-of-credit 559
Proceeds from issuance of common stock 121 1,279
Repurchase of common stock (2,009)
Dividends paid (1,000) (978)
Other (43) (156)
-------------------------------------------------------------------------------
Net cash provided (used) by financing activities (2,372) 9,570
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
Effect of exchange rate changes on cash 1,090
-------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 4,294 (27,472)
Cash and equivalents at beginning of period 15,702 34,556
-------------------------------------------------------------------------------
Cash and equivalents at end of period $19,996 $ 7,084
===============================================================================
*Unaudited
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Page 5
<PAGE>
PART I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
-------------------
During the first quarter of 1997, cash and equivalents increased $4.3
million from $15.7 million to $20 million. Although first quarter net
income was $2.5 million, net cash provided by operations was $5.6
million, reflecting the easing on working capital needs from the peak
levels of last year. During the quarter, the company invested $3.8
million in new capital equipment, returning to a recent historical rate
of acquisitions compared to last years elevated pace. The company
reactivated its stock repurchase program during the quarter, and
repurchased 78,000 shares of its common stock for $2 million.
We have continued our efforts to monetize some of the company's unused
assets. The 14 acre vacant lot in San Jose, California, has a cash
offer and the contract is in negotiation. We have also made an
agreement to move forward with our leaseholder of the Palo Alto,
California, facility to sell a portion of the appreciated lease on the
land and vacant buildings for redevelopment.
Current Operations and Business Outlook
---------------------------------------
Semiconductor Equipment Group
First quarter revenues were slightly over $44 million, representing 49%
of the company total. The cost controls we established last year were
effective this quarter with the operation earning a slightly positive
operating profit. Orders are continuing to show volatility. With the
semiconductor equipment industry operating below capacity, equipment
makers can ship on a shorter lead time. Given the customer uncertainty
about the overall capacity/demand status of the semiconductor industry,
they are taking advantage of being able to order and get delivery more
quickly. The quicker service is contributing to the uneven orders
pattern we are seeing. First quarter 1997 orders totaled $34 million
compared to the near record of $93 million for the same period last
year, and about 56% below last quarter's $78 million. First quarter
1997 orders are above the $25 million we booked in the 1996 third
quarter. Looking forward, we see the orders expectations firming with
slight growth for the second quarter and then increasing in the second
half of the year. The picture is consistent with the plans we have made
for the Group size.
Looking ahead for the rest of 1997, while it is clear that the
semiconductor equipment business will decline on a year over year
basis, 1997 revenues should be at a profitable level for each quarter.
Our Semiconductor Equipment Group is properly sized and we expect the
unit to operate profitably all year. We believe the long range industry
forecasts for the semiconductor industry remain bright, and current
semiconductor integrated circuit demand appears to be increasing in
dollar terms over last year. However, the industry is in an
overcapacity situation and customers are cautious about purchasing
capital equipment. Although, the trend is slowly up, we emphasize the
slowness of the market as reflected in our current quarter bookings.
Wireless Communications
First quarter revenues were over $14 million, representing nearly 16%
of the company total. Orders for the first quarter 1997 totaled
approximately $15 million compared to $12 million for the same period
last year. The business segment is entering the second quarter with a
backlog totaling approximately $40 million.
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Page 6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Last year, we experienced up and down requirements release action on
the CDMA and TDMA subassemblies we build, reaching a high rate of 1200
units a week in December 1996. Again, the customer has slowed us to a
much lower production rate which is expected to pick-up again by the
fourth quarter. We now are beginning to recognize cyclicality as a
pattern. Fortunately, the assemblies have been designed for outsourcing
the surface-mount assembly activities. We are arranging with large
surface mount board assemblers for the work, which they are able to
adjust to the fluctuating production schedules with reasonable ease. We
are working the final test activity to allow for this type of up and
down loading so that the entire variable cost of the units can go with
the requested delivery rate. We are also seeking additional customers
so that the line has more diversification.
We are maintaining high R&D investment in our Wireless Segment aimed at
capturing positions in major growth opportunities. Introduced in
February 1997 at the Cellular Telephone Industry Association (CTIA)
show in San Francisco, California, WJ's versatile cellular-band base
station, called Base2(TM), successfully completed laboratory trials
with two customers. Operational field trials are scheduled later this
year, and it is likely that production of the equipment will begin
before year-end. This base station, capable of dynamic channel
allocation, employs advanced RF digital-signal-processing and software
technology for high system flexibility and minimal size at low cost.
The system currently operates in the 800 MHz band using an AMPS, or
Advanced Mobile Phone Service, air interface. Before the end of the
field trials, we plan to introduce an IS-136 TDMA, or Time Division
Multiple Access, digital air interface upgrade. The system will then be
compatible with much of the cellular-band, dual-mode applications which
have been recently announced.
The company also continues to invest in the development of new
components and subassemblies for transceiver functions in
wireless-communications networks. Based upon WJ's proprietary
gallium-arsenide technology, these products are gaining acceptance with
major wireless original equipment manufacturers for future volume
wireless local loop applications. Future expectations for this market
are very large as third-world nations increasingly connect to the
global communication network.
Our outlook to meet the growth expectations in Wireless operations
depends on one of two things happening. The first is the potential for
orders build-up for the Base2(TM) equipment. Currently, it appears
likely that we will begin shipping in 1997. The second factor is the
timing of a production telecom subassembly order at the Palo Alto
facility. We have completed sizable pre-production orders for system
engineering tests. If we can accomplish either of these goals and
maintain the rate of the existing business, the wireless sales will
grow at the same rate as last year and the segment could break even for
the year.
Government Electronics
First quarter revenues were $32.4 million compared to $30.3 million for
the same period last year. Orders were strong for the first quarter of
1997, totaling $25 million compared to $17 million for the first
quarter last year, and 9% higher than the $23 million reported in the
fourth quarter of 1996. Backlog at the end of the first quarter totaled
approximately $90 million. Awards for communications intelligence
receivers this quarter were a little stronger than we had expected.
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Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Watkins-Johnson announced on April 7, 1997 that it is seeking a buyer
for its Palo Alto, Calif.-based operations which produce
defense-electronics components and subassemblies. This action is being
taken to focus the company's resources and energy more narrowly on its
business segments with the greatest growth potential: semiconductor
equipment and wireless-infrastructure products. WJ has already been
contacted by companies potentially interested in acquiring these
operations, and a sale is expected to be completed by year-end. We
believe that additional consolidation in the defense-electronics
business is required for future success. The Palo Alto operations have
completed a number of internal initiatives, such as ISO 9001
qualification and incorporating a relational data base MRP system,
which place them in ahead of their direct competition as they serve the
customer base.
These Tactical and Microwave Devices business units produce the
historical solid state microwave products which earlier formed the core
of WJ's business in defense electronics. The major customers for these
products are defense prime contractors. The products are primarily used
in electronic warfare and missile guidance applications. These products
produced revenues of between $85 million and $90 million in 1996 and
were profitable. Over 550 people are a part of the business units being
offered for sale. We are seeking a buyer, who believes as we do, that
the assets of businesses such as these are the employees.
We will operate the entire government segment as a continuing business
until the sale is completed. We continue to expect the government
market segment will have flat sales in 1997, but we expect their profit
margin to recover to that of 1995. The results of the first quarter
show that this goal is achievable.
First Quarter 1997 Compared to First Quarter 1996
-------------------------------------------------
Wireless Communications and Government Electronics sales increased 66%
and 7%, respectively, while Semiconductor Equipment Group sales
decreased 47%, resulting in an overall company decrease of 26%. Gross
margins decreased from 37% to 34% due mostly to the lower volume in the
Semiconductor Equipment Group. As semiconductor equipment sales drop as
a percentage of the company total, gross margins shift toward the lower
margin products of the government electronics activities. Selling and
administrative expenses decreased 30%, due mostly to the decreased
volume and cost cutting efforts, and was down slightly as a percentage
of sales. Research and development expenses remained within planned
levels as the company continues its efforts in developing next
generation products, particularly for the Semiconductor Equipment Group
and Wireless Communications segment. Due to the above factors, first
quarter 1997 net income decreased 61% compared to the same period in
1996.
Risks and Uncertainties That May Affect Future Results
------------------------------------------------------
Statements included in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are not historical
facts are forward looking statements that involve risks and
uncertainties that may affect future results, including but not limited
to: product demand and market acceptance risks, the effect of
economical conditions, the impact of competitive products and pricing,
product development, commercialization and technological difficulties,
capacity and supply constraints or difficulties, business cycles, the
results of financing efforts, actual purchases under agreements, the
effect of the company's accounting policies, U.S. Government export
policies, natural disasters and other risks. Future results can differ
materially.
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Page 8
<PAGE>
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held April 5, 1997, shareowners
voted on the following:
Item 1: Election of Directors:
Nominee For Withheld
Dean A. Watkins 7,263,447 76,570
H. Richard Johnson 7,262,547 77,470
W. Keith Kennedy 7,261,014 79,003
John J. Hartmann 7,254,471 85,546
Raymond F. O'Brien 7,258,166 81,851
William R. Graham 7,268,779 71,238
Robert L. Prestel 7,263,852 76,165
Gary M. Cusumano 7,265,773 74,244
Item 2: Proposal to ratify the appointment of Deloitte & Touche as the
independent auditors of the company for accounting year ending
December 31, 1997.
For 7,286,027 Against 27,539
---------------- ---------------
Abstain 26,451 Broker Non-Votes 0
------------ ------------
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.
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Page 9
<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 April 25, 1997 By: /s/ W. Keith Kennedy, Jr.
---------------------- ------------------------------------------
W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date April 25, 1997 By: /s/ Scott G. Buchanan
---------------------- -------------------------------------------
Scott G. Buchanan
Vice President and Chief Financial Officer
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Page 10
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
- ------- -------
10 Material Contract:
10-a First Amendment to Watkins-Johnson Company Credit Agreement covering
the period of November 30, 1995 through December 8, 1998, ABN-AMRO
BANK N.V. as Agent (original agreement filed as Exhibit 10-a to the
1996 Third Quarter Form 10-Q, Commission File No. 1-5631).
11 Statement re Computation of Per Share Earnings.
27 Financial Data Schedule.
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Page 11
EXHIBIT 10-a
FIRST AMENDMENT TO CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "Amendment") is made as of
this 7th day of March, 1997 (the "Effective Date"), by and among Watkins-Johnson
Company, a California corporation (the "Borrower"), the Banks (each a "Bank" and
collectively, the "Banks") named in the Credit Agreement referred to below, ABN
AMRO Bank N.V., as letter of credit issuing bank (in such capacity, the "Issuing
Bank"), and ABN AMRO Bank N.V., as Agent, (in such capacity, the "Agent").
RECITALS
A. The Borrower, the Banks, the Issuing Bank, and the Agent have executed
that certain Credit Agreement dated as of November 30, 1995 (the "Credit
Agreement").
B. The Borrower has requested that the Banks, the Issuing Bank, and the
Agent enter into this Amendment in order to allow the Borrower to take certain
writedowns of inventory while avoiding adverse consequences under the Credit
Agreement.
C. Upon the terms and conditions appearing herein, the Banks and the Agent
have agreed to enter into this Amendment.
AGREEMENT
1. Amendments to Credit Agreement.
1.1 Section 1.01 of the Credit Agreement is hereby amended by amending
the definition of "Consolidated EBITDA" to read in its entirety as follows:
"Consolidated EBITDA" means, for any period, Consolidated Net Income
plus Consolidated Interest Expense plus income tax expense plus
depreciation expense and amortization expense which were deducted in
determining Consolidated Net Income, of the Borrower and its
Subsidiaries on a consolidated basis, as determined in accordance with
GAAP; except that, solely for the purpose of calculating Consolidated
EBITDA for the Borrower's fiscal quarter ending December 31, 1996,
there shall be added back into Consolidated Net Income any non-cash
charges (not to exceed $9,500,000 on a pre-tax basis) relating to
writedowns of inventory taken in such fiscal quarter.
<PAGE>
1.2 Section 10.02(d) of the Credit Agreement is amended to read in
full as follows:
During any period of four consecutive fiscal quarters, the Borrower,
on a consolidated basis, shall not incur (a) more than two quarterly
net or operating losses or (b) net or operating losses in excess of
$10,000,000 in the aggregate for any one or two quarters. The
Borrower, on a consolidated basis, shall be profitable for any period
of four consecutive fiscal quarters. In calculating Consolidated Net
Income for the Borrower's fiscal quarter ending December 31, 1996 for
the purpose of determining the Borrower's profitability under the
immediately preceding sentence only, there shall be added back into
Consolidated Net Income any non-cash charges (not to exceed $6,460,000
on a post-tax basis) relating to writedowns of inventory taken in such
fiscal quarter; and
2. Effectiveness of Amendment.
This Amendment will become effective as of the Effective Date, subject to
the satisfaction of the following conditions on or before March 14, 1997.
(a) The Agent shall have received from each of the Borrower, the
Issuing Bank, and the Banks a duly executed original of this Amendment;
(b) No Default or Event of Default shall have occurred and be
continuing on the Effective Date (and the Borrower shall have delivered to the
Agent a certificate to that effect executed by a Responsible Officer of the
Borrower);
(c) The Agent shall have received a duly executed certificate of the
Secretary or Assistant Secretary of the Borrower, dated the Effective Date,
certifying the resolutions of the Board of Directors of the Borrower authorizing
the execution and delivery of this Amendment and the performance of the
Borrower's obligations under the Credit Agreement, as amended hereby;
(d) Each of the representations and warranties set forth in Article
9.01 of the Credit Agreement shall be true and correct as of the Effective Date
(and the Borrower shall have delivered to the Agent a certificate to that effect
executed by a Responsible Officer of the Borrower); and
(e) The Borrower shall have delivered to the Banks, at the Borrower's
expense, an originally executed opinion of the Borrower's General Counsel
concerning this Amendment in form and substance satisfactory to the Agent.
2
<PAGE>
If acceptable to the Agent, any of the above documents may be delivered to
the Agent by facsimile with the original copy to follow by mail or courier. Upon
the apparent satisfaction of the above conditions, the Agent will notify the
Borrower and the Banks of such fact; provided, however that any failure by the
Agent to provide such notice shall have no effect on the effectiveness of this
Amendment.
3. Reservation of Rights. The Borrower acknowledges and agrees that the
execution and delivery by the Banks of this Amendment shall not be deemed to
create a course of dealing or otherwise obligate the Agent or the Banks to
forbear or to execute similar amendments under the same or similar circumstances
in the future.
4. Miscellaneous.
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and are hereby ratified and confirmed by the parties hereto, and all references
to the Credit Agreement shall henceforth refer to the Credit Agreement as
amended by this Amendment.
(b) This Amendment shall be binding and inure to the benefit of the
parties hereto and thereto and their respective successors and assigns. No third
party beneficiaries are intended in connection with the Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts and
by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which taken together shall
constitute but one in the same agreement. Each of the parties hereto understands
and agrees that this document (and any other document required herein) may be
delivered by any party hereto either in the form of an executed original or an
executed original sent by facsimile transmission to be followed promptly by
mailing of a hard copy original, and that receipt by the Agent of a
facsimile-transmitted document purportedly bearing the signature of a Bank or
the Borrower shall bind such Bank or the Borrower, respectively, with the same
force and effect as the delivery of a hard copy original. Any failure by the
Agent to receive the hard copy executed original of such document shall not
diminish the binding effect of receipt of the facsimile-transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, reflects the entire agreement among the Borrower,
the Banks and the Agent with respect to the matter set forth herein and therein
and supersedes any prior agreements, commitments, drafts, communications,
discussions and understandings, oral or written, with respect thereto.
3
<PAGE>
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions o f this Amendment or the
Credit Agreement, respectively.
(g) The Borrower covenants to pay to or reimburse the Agent, upon
demand, for all costs and expenses reasonably incurred in connection with the
preparation, negotiation, execution and delivery of this Amendment.
(h) All capitalized terms used and not otherwise defined herein shall
have the meanings given to such terms in the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment,
as of the date first above written.
THE BORROWER
WATKINS-JOHNSON COMPANY
By /s/ W. Keith Kennedy
--------------------------------------
Title: President and CEO
By /s/ Scott G. Buchanan
--------------------------------------
Title: Vice President and CFO
THE AGENT
ABN AMRO BANK N.V.
By /s/ Robin S. Yim
--------------------------------------
Title: Group Vice President
By /s/ Robert N. Hartinger
--------------------------------------
Title: Senior Vice President
4
<PAGE>
THE BANKS
ABN AMRO BANK N.V., as Bank and Issuing
Bank
By /s/ Robin S. Yim
--------------------------------------
Title: Group Vice President
By /s/ Robert N. Hartinger
--------------------------------------
Title: Senior Vice President
UNION BANK OF CALIFORNIA, N.A.,
successor in interest to Union Bank
By /s/ Wade Schluetar
--------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Teresa J. Heller
--------------------------------------
Title: Director
THE FIRST NATIONAL BANK OF MARYLAND
By /s/ Andrew W. Fish
--------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By /s/ Steve L. Parry
--------------------------------------
Title: Vice President
5
Exhibit 11
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Dollars in thousands, except per share amounts)
For Three Months Ended
--------------------------------
March 28, 1997 March 29, 1996
-------------- --------------
For primary net income per share:
Weighted average shares
outstanding 8,298,000 8,136,000
Equivalent shares--dilutive
stock options--based on
treasury stock method using
average market price 189,000 447,000
-------- --------
Total 8,487,000 8,583,000
========== ==========
For fully diluted net income per share:
Weighted average shares
outstanding 8,298,000 8,136,000
Equivalent shares--dilutive
stock options--based on
treasury stock method using
greater of closing market
price or average price 189,000 447,000
-------- --------
Total 8,487,000 8,583,000
========== ==========
Net Income $2,478 $6,434
====== ======
Primary net income per share $.29 $.75
==== ====
Fully diluted net income per share $.29 $.75
==== ====
This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
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Page 12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-28-1997
<CASH> 19,996
<SECURITIES> 0
<RECEIVABLES> 91,930
<ALLOWANCES> 0
<INVENTORY> 66,920
<CURRENT-ASSETS> 200,893
<PP&E> 233,124
<DEPRECIATION> 130,938
<TOTAL-ASSETS> 306,114
<CURRENT-LIABILITIES> 76,027
<BONDS> 35,932
<COMMON> 38,718
0
0
<OTHER-SE> 155,437
<TOTAL-LIABILITY-AND-EQUITY> 306,114
<SALES> 90,916
<TOTAL-REVENUES> 90,916
<CGS> 60,711
<TOTAL-COSTS> 60,711
<OTHER-EXPENSES> 26,284
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> 3,592
<INCOME-TAX> 1,114
<INCOME-CONTINUING> 2,478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,478
<EPS-PRIMARY> .29
<EPS-DILUTED> .29
</TABLE>
