FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
ANNUAL REPORT
PURSUANT TO SECTION 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996:
A. Full title of Plan:
Watkins-Johnson
Employees' Investment Plan
B. Name of issuer of the securities held pursuant to the Plan and the address
of its principal executive office:
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Item 1. Changes in the Plan
Effective January 1, 1996, the Company eliminated the service requirement
for eligibility and offered loans against 401(k) funds. During April 1996, the
Company merged the Watkins-Johnson Company Employee Stock Ownership Plan (ESOP)
into the Watkins- Johnson Employees' Investment Plan and the Plan document was
amended and restated to combine the plans.
Item 2. Changes in investment policy
No material changes occurred during the 1996 year with respect to the
nature of securities or other investments in which funds held under the Plan
were invested.
Item 3. Contributions under the Plan
The Watkins-Johnson Company makes matching and ESOP contributions to the
Plan. The Company matched 100% of the first 2% of regular compensation
contributed by each participant and 50% of the next 2% of regular compensation
contributed, for a total maximum of 3% of regular compensation in 1996. The
Company made an ESOP contribution equal to 1% of participants' regular
compensation to eligible participants in 1996.
Page 1 of 22
<PAGE>
Item 4. Participating employees
The Plan had approximately 2,200 participating employees at December 31,
1996.
Item 5. Administration of the Plan
The Plan is administered by a committee comprising employees of the
Watkins-Johnson Company. No person receives compensation from the Plan in the
role of administrative committee member.
Name of Position held
committee member with issuer Address
- ---------------- ------------- -------
Scott Buchanan Chairman of Committee Stanford Research Park
VP & CFO 3333 Hillview Avenue
Palo Alto, CA 94304-1223
K.G. Marianelli Human Resources Stanford Research Park
Manager 3333 Hillview Avenue
Palo Alto, CA 94304-1223
S.B. Witmer Manager of Stanford Research Park
Corporate Communications 3333 Hillview Avenue
Palo Alto, CA 94304-1223
J.M. Varrone Treasurer Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
Item 6. Custodian of investments
The custodian of Plan assets is Fidelity Management Trust Company, 100
Magellan Way, Covington, KY 41015. The Plan did not pay Fidelity Management
Trust Company any compensation as custodian of investments as all administrative
fees are paid by the Company.
Item 7. Reports to participating employees
Participants receive quarterly reports from the Plan administrator
summarizing the transactions and market value changes.
Page 2 of 22
<PAGE>
Item 8. Financial statements and exhibits
(a) Financial statements - Audited financial statements of the
Watkins-Johnson Employees' Investment
Plan as of and for the years ended
December 31, 1996 and 1995.
(b) Exhibit 1 - Consent of Mohler, Nixon & Williams
Independent Accountants
Page 3 of 22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
administrator has duly caused this annual report to be signed by the undersigned
thereunto duly authorized.
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
Date By
------------------- --------------------------------
/S/ Scott Buchanan
Chairman of Committee
VP & CFO
Page 4 of 22
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
Page 5 of 22
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
Financial Statements and
Supplemental Schedules
Years ended December 31, 1996 and 1995
Table of Contents
Independent Accountants' Report .............................................7
Consent of Independent Accountants...........................................8
Financial Statements:
Statements of Net Assets Available for Plan Benefits ........................9
Statements of Changes in Net Assets Available for
Plan Benefits, With Fund Information .....................................10
Notes to Financial Statements...............................................11
Supplemental Schedules as of and for the year ended
December 31, 1996 ........................................................18
27a, Part I - Schedule of Assets Held for Investment Purposes
27b, Part III - Schedule of Loans or Fixed Income Obligations
27d, Part V - Schedule of Reportable Transactions
Page 6 of 22
<PAGE>
To the Participants and
Plan Administrator of the
Watkins-Johnson Employees' Investment Plan
INDEPENDENT ACCOUNTANTS' REPORT
We were engaged to audit the financial statements and supplemental
schedules of the Watkins-Johnson Employees' Investment Plan (the Plan) as of
December 31, 1996, and for the year then ended, as listed in the accompanying
table of contents. These financial statements are the responsibility of the
Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audit. Other auditors were engaged to audit
the financial statements and supplemental schedules of the Plan as of and for
the year ended December 31, 1995 and in their report dated May 24, 1996, they
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Plan's management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the net assets available for plan benefits of the Plan
as of December 31, 1996, and the changes in net assets available for plan
benefits for the year then ended in conformity with generally accepted
accounting principles.
Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information, as listed
in the accompanying table of contents, is presented for the purpose of
additional analysis and is not a required part of the basic financial statements
but is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. The fund information in the statement of changes in net
assets available for plan benefits is presented for purposes of additional
analysis rather than to present the changes in net assets available for plan
benefits for each fund. The supplemental information and fund information have
been subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 6, 1997
Page 7 of 22
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our name on our report, dated June 6, 1997, with
respect to the financial statements and schedules of the Watkins-Johnson
Employees' Investment Plan for the years ended December 31, 1996 and 1995,
included in the Annual Report on Form 11-K which is filed electronically with
the Securities and Exchange Commission.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 6, 1997
Page 8 of 22
<PAGE>
WATKINS-JOHNSON COMPANY
EMPLOYEES' INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31,
------------------------------
1996 1995
------------- --------------
Investments, at fair value $ 90,950,924 $ 79,214,003
Investments, at contract value 41,903,240 37,601,324
Cash and cash equivalents 541,976 305,418
------------- -------------
Assets held for investment purposes 133,396,140 117,120,745
Employer's contribution receivable 183,242 --
Accrued income receivable -- 18,948
------------- -------------
Total assets 133,579,382 117,139,693
Expenses payable -- (14,388)
Purchase of securities and interest -- (36,194)
------------- -------------
Net assets available for plan
benefits $ 133,579,382 $ 117,089,111
============= =============
See independent accountants' report and
accompanying notes to financial statements.
Page 9 of 22
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY
EMPLOYEES' INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS
For the years ended December 31, 1996 and 1995
----------------------------------------------
<CAPTION>
Participant Directed
------------------------------------------------------------------------------------
Fidelity
------------------------------------------------------------------------------------
Retirement
Government Fixed
Money Income Magellan OTC Balanced
Market Fund Fund Portfolio Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net assets available for plan
benefits at December 31, 1994 $ 2,965,683 $ 50,783,918 $ 22,486,966 $ 6,811,937 $ 17,212,821
------------ ------------ ------------ ------------ ------------
Employer's contribution 76,550 514,244 743,620 309,630 522,109
Participants' contributions/
rollovers 200,175 1,479,579 2,240,400 988,113 1,540,877
Withdrawals/distributions (413,815) (6,368,621) (3,254,828) (1,017,021) (2,248,929)
Dividends and interest 187,310 2,987,110 1,786,159 613,324 728,129
Net appreciation (depreciation)
in fair value of investments -- -- 6,437,175 2,099,375 1,614,572
Administrative fees (991) (18,645) (8,700) (3,042) (4,840)
Transfer in (out) 398,103 (6,068,388) 510,875 942,612 (2,756,544)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 447,332 (7,474,721) 8,454,701 3,932,991 (604,626)
------------ ------------ ------------ ------------ ------------
Net assests available for plan
benefits at December 31, 1995 3,413,015 43,309,197 30,941,667 10,744,928 16,608,195
------------ ------------ ------------ ------------ ------------
Employer's contribution 113,397 465,617 783,116 350,056 422,709
Participants' contributions/
rollovers 390,244 1,484,836 2,486,806 1,247,029 1,308,870
Withdrawals/distributions (313,685) (3,242,299) (3,185,012) (1,093,961) (1,278,917)
Dividends and interest 186,129 2,555,002 4,910,503 1,743,827 736,893
Net appreciation (depreciation)
in fair value of investments -- -- (1,556,128) 879,825 589,620
Net loan activities (84,641) (891,180) (644,611) (302,173) (330,796)
Administrative fees (13,091) (5,511) (7,043) (3,444) (4,892)
Transfer in from another plan -- -- -- -- --
Transfer in (out) 103,063 (611,463) (2,973,239) 930,953 (2,643,741)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 381,416 (244,998) (185,608) 3,752,112 (1,200,254)
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1996 $ 3,794,431 $ 43,064,199 $ 30,756,059 $ 14,497,040 $ 15,407,941
============ ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Participant Directed
-----------------------------------------------------------------------
Fidelity
---------------------------------------------------
Watkins-
Growth & Johnson
Income Intermediate Overseas Stock
Fund Fund Fund Fund
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net assets available for plan
benefits at December 31, 1994 -- -- -- $ 3,075,572
-----------
Employer's contribution $ 26,186 $ 5,822 $ 8,735 197,555
Participants' contributions/
rollovers 119,100 22,352 73,027 604,889
Withdrawals/distributions (302,810) (9,771) (27,599) (280,673)
Dividends and interest 132,600 29,008 18,501 92,512
Net appreciation (depreciation)
in fair value of investments 240,541 17,298 (4,481) 1,063,345
Administrative fees (791) (236) (181) (1,734)
Transfer in (out) 3,211,986 1,071,427 732,224 1,957,705
----------- ----------- ----------- -----------
Increase (decrease) in net assets 3,426,812 1,135,900 800,226 3,633,599
----------- ----------- ----------- -----------
Net assests available for plan
benefits at December 31, 1995 3,426,812 1,135,900 800,226 6,709,171
----------- ----------- ----------- -----------
Employer's contribution 201,169 47,143 56,347 291,715
Participants' contributions/
rollovers 721,171 142,897 210,432 827,000
Withdrawals/distributions (440,240) (80,232) (90,878) (295,051)
Dividends and interest 414,852 94,823 100,866 83,101
Net appreciation (depreciation)
in fair value of investments 838,636 (43,813) 69,769 (2,227,474)
Net loan activities (42,883) (18,188) (21,642) (117,525)
Administrative fees (1,946) (359) (335) (925)
Transfer in from another plan -- -- -- --
Transfer in (out) 4,028,461 31,299 631,325 503,342
----------- ----------- ----------- -----------
Increase (decrease) in net assets 5,719,220 173,570 955,884 (935,817)
----------- ----------- ----------- -----------
Net assets available for plan
benefits at December 31, 1996 $ 9,146,032 $ 1,309,470 $ 1,756,110 $ 5,773,354
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Non-
Participant
Directed Participant Contribution
ESOP Loans Receivable Total
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Net assets available for plan
benefits at December 31, 1994 -- -- -- $ 103,336,897
-------------
Employer's contribution -- -- -- 2,404,451
Participants' contributions/
rollovers -- -- -- 7,268,512
Withdrawals/distributions -- -- -- (13,924,067)
Dividends and interest -- -- -- 6,574,653
Net appreciation (depreciation)
in fair value of investments -- -- -- 11,467,825
Administrative fees -- -- -- (39,160)
Transfer in (out) -- -- -- --
-------------
Increase (decrease) in net assets -- -- -- 13,752,214
-------------
Net assests available for plan
benefits at December 31, 1995 -- -- -- 117,089,111
-------------
Employer's contribution $ 699,989 -- $ 183,242 3,614,500
Participants' contributions/
rollovers -- -- -- 8,819,285
Withdrawals/distributions (329,920) ($ 71,457) -- (10,421,652)
Dividends and interest 47,525 96,277 -- 10,969,798
Net appreciation (depreciation)
in fair value of investments (1,655,825) -- -- (3,105,390)
Net loan activities -- 2,453,639 -- --
Administrative fees (1,095) -- -- (38,641)
Transfer in from another plan 6,652,371 -- -- 6,652,371
Transfer in (out) -- -- -- --
------------- ------------- ------------- --------------
Increase (decrease) in net assets 5,413,045 2,478,459 183,242 16,490,271
------------- ------------- ------------- --------------
Net assets available for plan
benefits at December 31, 1996 $ 5,413,045 $ 2,478,459 $ 183,242 $ 133,579,382
============= ============= ============= =============
<FN>
See independent accountants' report and
accompanying notes to financial statements.
</FN>
</TABLE>
Page 10 of 22
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
Note 1 - The Plan and its significant accounting policies:
The following description of the Watkins-Johnson Employees' Investment
Plan (the Plan) provides only general information. Participants should refer to
the Plan document for a more complete description of the Plan's provisions.
The Plan is a defined contribution plan that was established in 1967 by
Watkins- Johnson Company (the Company) to provide benefits to eligible
employees. For 1996, the Plan covers all employees of the Company on U.S.
payroll and not otherwise covered by a collective bargaining agreement or an
independent contractor. During 1995, an employee was also required to have 90
days of service to be eligible to participate.
Effective January 1,1996, the Company eliminated the service
requirement for eligibility and offered loans against 401(k) funds. During April
1996, the Company merged the Watkins-Johnson Company Employee Stock Ownership
Plan (ESOP) into the Watkins- Johnson Employees' Investment Plan and the Plan
document was amended and restated to combine the plans.
Effective January 1, 1995, the Company terminated the profit sharing
portion of the Plan and restated the Plan as the Watkins-Johnson Employees'
Investment Plan. A provision for a Company match was added to the Plan to
replace the profit sharing portion.
The Plan administrator believes the Plan is currently designed and
being operated in compliance with the applicable requirements of the Internal
Revenue Code and the provisions of the Employee Retirement Income Security Act
of 1974 (ERISA).
Administration -
The Company has appointed an Administrative Committee (the Committee)
to control the operation and administration of the Plan. A third-party
administrator, appointed by the Committee, processes and maintains the records
of participant data. The Company has contracted with Wells Fargo Bank to act as
the trustee and Fidelity Management Trust Company (Fidelity) to act as the
custodian. Substantially all expenses incurred for administering the Plan are
paid by the Company except for certain trustee and loan fees which are paid by
the Plan.
Page 11 of 22
<PAGE>
Investments -
Investments of the Plan are held by Fidelity and invested based solely
upon instructions received from participants for participant directed accounts.
The ESOP portion of the plan is non-participant directed and is invested in the
Watkins-Johnson Stock Fund and cash.
The Plan's investments in mutual funds and Company stock, are valued at
fair value as of the last day of the Plan year, as measured by quoted market
prices. The Plan's investment in the Fixed Income Fund are recorded at contract
value (purchase price plus interest). Liquidation of Plan assets invested in
guaranteed investment contracts would result in a market value adjustment as
specified in the contract.
<TABLE>
The Fixed Income Fund principally consists of the following deposits
for unsecured contracts with a fixed interest rate:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Continental Assurance Company,
interest at 4.90%, matures in June 1997 $ 1,007,313 $ 960,881
Continental Assurance Company,
interest at 7.43%, matures in December 1999 2,919,034 2,720,767
New York Life Insurance Company,
interest at 7.00%, 50% matures in December 1998,
remainder matures in June 1999 8,250,284 7,710,425
People's Security Life Insurance Company,
interest at 5.04%, matures in March 2000 4,021,498 4,051,209
Provident Life an Accident Insurance Company,
interest at 5.10%, 50% matured in July 1996,
remainder matures in June 1997 1,145,177 2,178,916
Sun Life Insurance Company of America,
interest at 7.07%, matures in June 1998 2,609,551 2,437,238
Fidelity Managed Income Portfolio II 19,370,486 15,124,963
Transamerica Occidental Life Insurance Co.,
interest at 6.74%, 50% matured in December
1996, remainder matures in December 1997 2,579,897 2,416,925
----------- -----------
Total deposit contracts 41,903,240 37,601,324
Fidelity Fixed Income Fund 1,160,959 5,752,804
----------- -----------
Total Fixed Income Fund $43,064,199 $43,354,128
=========== ===========
</TABLE>
Page 12 of 22
<PAGE>
Statement of Position 94-4 -
The Company is required to adopt Statement of Position 94-4, "Reporting
of Investment Contracts Held by Health and Welfare Benefit Plans and Defined
Contribution Pension Plans" (SOP 94-4), for the Plan year beginning January 1,
1996. Under the new reporting requirements, investments with fully
benefit-responsive features must be reported at contract value. The adoption of
SOP 94-4 did not have a material financial impact on
the Plan.
Cash and cash equivalents -
All highly liquid investments purchased with an original maturity of
three months or less (generally money market funds) are considered to be cash
equivalents. These investments are usually held for a short period of time,
pending long-term investment.
Vesting -
Salary deferral, voluntary, rollover, and employer matching
contributions -
Participants are 100% vested in their accounts at all times.
Profit sharing contributions -
Participants are fully vested in their profit sharing contributions if
they were employed by the Company on January 1, 1995. Participants who
terminated prior to January 1, 1995 are subject to the vesting schedule as
defined in the Plan document.
ESOP contributions -
Participants are fully vested in their ESOP contributions if they were
employed by the Company on January 1, 1996. Participants who terminated prior to
January 1, 1996 are subject to the vesting schedule as defined in the Plan
document.
Income taxes -
The Plan has been amended since receiving its latest favorable
determination letter dated August 1995. However, the Plan administrator believes
the Plan continues to qualify under the applicable requirements of the Internal
Revenue Code and related state statutes, and is exempt from federal income and
state franchise taxes.
Reclassifications -
Certain reclassifications were made in the 1995 financial statements to
conform with the 1996 presentation.
Page 13 of 22
<PAGE>
Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those estimates.
Risks and uncertainties -
The Plan provides for various investment options in any combination of
stocks, bonds, fixed income securities, mutual funds, and other investment
securities. Investment securities are exposed to various risks, such as interest
rate, market and credit. Due to the level of risk associated with certain
investment securities, it is at least reasonably possible that changes in risks
in the near term would materially affect participants' account balances and the
amounts reported in the statement of net assets available for plan benefits and
the statement of changes in net assets available for plan benefits.
Financial instruments -
Certain Fidelity investment options may enter into certain forward
contracts to protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
futures date at a specified rate. Risks associated with such contracts include
the movement in the value of the foreign currency relative to the U.S. dollar
and the ability of the counterparty to perform. The market value of the contract
will fluctuate with changes in currency exchange rates.
Fidelity invests in futures contract solely for the purpose of hedging
its existing portfolio securities, or securities it intends to purchase, against
fluctuations in value caused by changes in prevailing market interest rates. The
use of futures transactions involves the risk of imperfect correlation in
movements in the price of futures contracts; interest rates and the underlying
hedged assets, and the possible inability of counterparties to meet the term of
their contracts. When the contract is closed, a realized gain or loss equal to
the difference between the value of the contract at the time it was opened and
the value at the time when it was closed is recorded.
Page 14 of 22
<PAGE>
Note 2 - Participation and benefits:
Employee contributions -
Participants may elect to have the Company contribute a percentage,
from 1% to 15%, of their pre-tax compensation up to the amount allowable under
current income tax regulations. Participants who elect to have the Company
contribute a portion of their compensation to the Plan agree to accept an
equivalent reduction in taxable compensation. Participants may also elect to
make after-tax contributions up to 10% of their regular compensation as defined
by the Plan. Contributions withheld are invested in accordance with the
participant's direction and are allocated to funds in whole percentage
increments.
Participants are also allowed to make rollover contributions of amounts
received from other qualified employer-sponsored retirement plans. Such
contributions are deposited in the appropriate investment funds in accordance
with the participant's direction and the Plan's provisions.
Employer contributions -
The Company is allowed to make matching contributions as defined in the
Plan and as approved by the Board of Directors. The Company matches 100% of the
first 2% of regular compensation contributed by each participant and 50% of the
next 2% of regular compensation contributed, for a total maximum of 3% of
regular compensation. The Plan also allows for an ESOP contribution which may be
paid in the form of cash or Company stock. In 1996, the Board of Directors
approved an ESOP contribution equal to 1% of participants' regular compensation.
Cash contributions were made to a holding account held by the trust on a
quarterly basis to purchase shares of Watkins-Johnson stock which were allocated
in February 1997 to eligible participants who were employed by the Company on
the last day of the Plan year.
Participant accounts -
Each participant's account is credited with the participant's
contribution, Plan earnings and an allocation of the Company's matching and ESOP
contributions, if any. Allocation of the Company's contributions are based on
participant contributions or regular compensation, as defined in the Plan.
Payment of benefits -
Upon termination, the participant or beneficiary will receive the
benefits in a lump-sum amount equal to the value of the participant's vested
interest in his or her account, or a series of payments comprising a complete
distribution of the participant's account within
Page 15 of 22
<PAGE>
one year. In addition, except for ESOP accounts, benefits may be paid in
installments, payable at least annually over a period certain not to exceed life
expectancy of the participant and his or her beneficiary.
Loans to participants -
The Plan allows participants to borrow not less than $1,000 and up to
the lesser of $50,000 or 50% of their allowable account balance which excludes
voluntary or ESOP money sources in participant accounts. The loans are secured
by the participant's vested balance. Such loans bear interest at prime plus 1%
and must be repaid to the Plan within a five year period, unless the loan is
used for the purchase of a primary residence in which case the maximum repayment
period is fifteen years. The specific terms and conditions of such loans are
established by the Committee.
Note 3 - Transfer of Plan assets:
As a result of the merger of the ESOP into the Plan, assets of
approximately $6,600,000 were transferred into the ESOP portion of the Plan
during April 1996.
Note 4 - Investments:
<TABLE>
The following table includes the fair or contract values of investments
and investment funds that represent 5% or more of the Plan's net assets at
December 31:
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Fidelity:
Retirement Government
Money Market Fund $ 3,798,210 $ 3,413,260
Fixed Income Fund 43,064,199 43,354,128
Magellan Fund 30,756,059 30,944,009
OTC Portfolio 14,497,040 10,745,759
Balanced Fund 15,407,941 16,609,403
Growth & Income 9,146,032 3,427,187
Intermediate Bond 1,309,470 1,136,000
Overseas Fund 1,756,110 800,312
Cash 541,976 305,418
Watkins-Johnson Stock Fund 10,640,644 6,385,269
Participant Loans 2,478,459
------------ ------------
Assets held for investment
purposes $133,396,140 $117,120,745
============ ============
</TABLE>
Page 16 of 22
<PAGE>
Note 5 - Party in interest transactions:
<TABLE>
ESOP contributions are invested in common stock of the Company. In
addition, as allowed in the Plan, participants may elect to invest a portion of
their accounts in the common stock of the Company. Aggregate investment in
Company common stock at December 31, 1996 and 1995 was as follows:
<CAPTION>
Date Number of shares Fair value Cost
---- ---------------- ---------- ----
<S> <C> <C> <C>
1996 434,312 $10,640,644 $10,554,346
1995 145,949 $6,385,269 $5,503,120
</TABLE>
Note 6 - Plan termination and/or modification:
The Company intends to continue the Plan indefinitely for the benefit
of its employees; however, it reserves the right to terminate and/or modify the
Plan at any time by resolution of its Board of Directors and subject to the
provisions of ERISA.
Note 7 - Subsequent events:
Subsequent to Plan year end, Freedom Funds, Fidelity S&P 500 Index
Funds, and Warburg Pincus Emerging Growth Fund were added as investment options
under the Plan and the Intermediate Bond Fund and Balanced Fund were replaced
with the U.S. Bond Index Fund and Founders Balanced Fund, respectively. In May
1997, the Board of Directors approved the appointment of Fidelity as trustee of
the Plan in place of Wells Fargo Bank to be effective August 1, 1997.
Page 17 of 22
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
SUPPLEMENTAL SCHEDULES
DECEMBER 31, 1996
Page 18 of 22
<PAGE>
EIN#: 94-1402710
PLAN#: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
<TABLE>
27a, Part I - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1996
<CAPTION>
(a) (b) (c) (d) (e)
Description of investment including
Identity of issue, borrower, lessor, maturity date, rate of interest, Current
or similar party collateral, par or maturity value Cost Value
- ----- --------------------------------------- ----------------------------------- ------------ ------------
<S> <C> <C> <C> <C>
Fidelity Mgmt Trust Company Ret. Gov't Money Market $ 3,798,210 $ 3,798,210
Fidelity Managed Income Port. II Fixed Income Fund 19,370,486 19,370,486
Continental Assurance Company Fixed Income Fund 3,926,347 3,926,347
New York Life Insurance Company Fixed Income Fund 8,250,284 8,250,284
Peoples Security Life Fixed Income Fund 4,021,498 4,021,498
Provident Life and Accident Insur. Co. Fixed Income Fund 1,145,177 1,145,177
Sun America Life Insurance Company Fixed Income Fund 2,609,551 2,609,551
Transamerica Accidental Life Insur. Co. Fixed Income Fund 2,579,897 2,579,897
Fidelity Management Trust Company Fixed Income Fund 1,160,959 1,160,959
Fidelity Management Trust Company Magellan 27,609,512 30,756,059
Fidelity Management Trust Company OTC Portfolio 12,591,611 14,497,040
Fidelity Management Trust Company Balanced Fund 14,109,418 15,407,941
Fidelity Management Trust Company Growth & Income 8,226,605 9,146,032
Fidelity Management Trust Company Intermediate Bond 1,327,517 1,309,470
Fidelity Management Trust Company Overseas Fund 1,711,464 1,756,110
Fidelity Management Trust Company Cash 541,976 541,976
Watkins-Johnson Company Common stock 10,554,346 10,640,644
* Participant loans Loan Fund (9.25%) 2,478,459
------------
Total $133,396,140
============
<FN>
* Parties-in-interest
</FN>
</TABLE>
Page 19 of 22
<PAGE>
EIN#: 94-1402710
PLAN#: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
<TABLE>
27b, Part III-SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
December 31, 1996
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Unpaid
Original balance
Identity and address loan at end
of obligor amount Principal Interest of year Description of loan Principal Interest
- ----- -------------------- -------- --------- -------- ---------- --------------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
* Jack Bradstock $10,000 $73 $9,927 Date of Loan: 7/12/96 $ 9,927
Interest Rate: 9.25%
Maturity: 8/3/01
* David Dominguez 3,000 3,000 Date of Loan: 9/3/96 3,000
Interest Rate: 9.25%
Maturity: 9/30/98
* Kurt Hansen 15,865 387 15,478 Date of Loan: 4/8/96 15,478
Interest Rate: 9.25%
Maturity: 4/30/01
* John Craig 2,500 56 2,444 Date of Loan: 4/17/96 2,444
Interest Rate: 9.25%
Maturity: 5/12/99
<FN>
* Parties-in-interest
</FN>
</TABLE>
Page 20 of 22
<PAGE>
EIN#: 94-1402710
PLAN#: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
<TABLE>
27d, PartV - SCHEDULE OF REPORTABLE TRANSACTIONS
December 31, 1996
<CAPTION>
(a) (b) (c) (d) (e) (f) (g) (h) (i)
Description of asset Expense Current value
(including interest rate incurred of asset on
and maturity in case Purchase Selling Lease with Cost of transaction Net gain
of a loan) price price rental transaction asset date or (loss)
- ----- ---------------------------- ---------- ---------- ------ ----------- ---------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fidelity Management Trust Company:
Ret Gov't Money Mkt 5,711,463 -- -- -- 5,711,463 5,711,463 $ --
Ret Gov't Money Mkt -- 5,330,291 -- -- 5,330,291 5,330,291 --
Commonwealth Life -- 291,400 -- -- 219,400 219,400 --
Comingled Pool 5,128,392 2,020,876 -- -- 7,149,268 7,149,268 --
Provident Life & Acc -- 1,116,743 -- -- 1,116,743 1,116,743 --
FMTC Inst. Money Mkt 10,549,845 15,230,198 -- -- 25,780,043 25,780,043 --
Watkins-Johnson Stock Fund 13,957,952 -- -- -- 13,957,952 13,957,952 --
Watkins-Johnson Stock Fund -- 8,434,996 -- -- 8,906,727 8,434,996 (471,731)
Magellan Fund 10,930,885 -- -- -- 10,930,885 10,930,885 --
Magellan Fund -- 9,562,707 -- -- 8,895,294 9,562,707 667,413
OTC Portfolio 7,527,908 -- -- -- 7,527,908 7,527,908 --
OTC Portfolio -- 4,656,452 -- -- 4,312,009 4,656,452 344,443
Balanced Fund 3,946,943 -- -- -- 3,946,943 3,946,943 --
Balanced Fund -- 5,738,024 -- -- 5,583,354 5,738,024 154,670
Growth & Income Fund 9,533,439 -- -- -- 9,533,439 9,533,439 --
Growth & Income Fund -- 4,653,230 -- -- 4,498,706 4,653,230 154,524
Intermediate Bond Fund 750,294 -- -- -- 750,294 750,294 --
Intermediate Bond Fund -- 533,011 -- -- 541,710 533,011 (8,699)
Overseas Fund 1,902,481 -- -- -- 1,902,481 1,902,481 --
Overseas Fund -- 1,016,453 -- -- 996,438 1,016,453 20,015
Watkins-Johnson Stock Fund 13,957,952 -- -- -- 13,957,952 13,957,952 --
Watkins-Johnson Stock Fund -- 8,434,996 -- -- 8,906,727 8,434,996 (471,731)
</TABLE>
Page 21 of 22
Exhibit 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement (Form
S-8) pertaining to the Watkins-Johnson Employees' Investment Plan of our report
dated June 6, 1997, with respect to the financial statements and schedules of
the Watkins-Johnson Employees' Investment Plan included in this Annual Report
(Form 11-K) for the year ended December 31, 1996.
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
June 6, 1997
Page 22 of 22
