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 27, 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
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3333 Hillview Avenue, Palo Alto, California 94304-1223
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(Address of principal executive offices) (Zip Code)
(415) 493-4141
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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 27, 1997 8,204,984 shares
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial statements are unaudited; however,
Watkins-Johnson Company believes that all adjustments
necessary for 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 27, 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 second 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 standards:
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 $0.37
and $0.04 for the quarters ended June 27, 1997 and
June 28, 1996, respectively, and basic EPS would have
been $0.67 and $0.83 for the six months ended June
27, 1997 and June 28, 1996, respectively. Diluted EPS
would not have been significantly different than
fully diluted EPS currently reported for the periods.
In June 1997, the Financial Accounting Standards
Board adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which requires that an enterprise report, by
major components and as a single total, the change in
its net assets during the period from nonowner
sources; and No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which
establishes annual and interim reporting standards
for an enterprise's business segments and related
disclosures about its products, services, geographic
areas, and major customers. Adoption of these
statements will not impact the company's consolidated
financial position, results of operations or cash
flows, however, SFAS 131 may result in
reclassification to the amounts previously reported
in the company's segment information. Both statements
are effective for 1998, however, early adoption is
permitted.
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>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended June 27, 1997 and June 28, 1996
<CAPTION>
Three Months Ended Six Months Ended
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(Dollars in thousands, except per share 1997 1996 1997 1996
amounts)
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<S> <C> <C> <C> <C>
Sales $ 95,679 $ 126,447 $ 186,595 $ 249,189
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Costs and expenses:
Cost of goods sold 62,911 84,959 123,622 161,791
Selling and administrative 17,638 23,392 33,334 45,893
Research and development 10,928 17,024 21,974 31,032
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91,477 125,375 178,930 238,716
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Income from operations 4,202 1,072 7,665 10,473
Interest and other income (expense)--net 625 (169) 1,083 (16)
Interest expense (361) (383) (690) (613)
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Income from operations before Federal and
foreign income taxes 4,466 520 8,058 9,844
Federal and foreign income taxes (1,384) (162) (2,498) (3,052)
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Net income $ 3,082 $ 358 $ 5,560 $ 6,792
==========================================================================================================
Fully diluted net income per share
(difference between fully diluted and
primary earnings per share is not $ .36 $ .04 $ .65 $ .79
material)
Average common and equivalent shares
outstanding 8,546,000 8,577,000 8,567,000 8,593,000
<FN>
*Unaudited
</FN>
</TABLE>
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<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 27, 1997 and December 31, 1996
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(Dollars in thousands) 1997* 1996
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ASSETS
Current assets:
Cash and equivalents $ 28,388 $ 15,702
Receivables 82,159 95,717
Inventories:
Finished goods 3,419 4,005
Work in process 34,521 35,000
Raw materials and parts 32,415 30,153
Deferred income taxes 17,795 17,795
Other 4,419 5,471
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Total current assets 203,116 203,843
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Property, plant, and equipment 236,337 231,318
Accumulated depreciation and amortization (132,279) (127,748)
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Property, plant, and equipment--net 104,058 103,570
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Other assets 2,900 6,960
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$ 310,074 $ 314,373
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LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 18,531 $ 18,960
Accrued liabilities 58,671 61,901
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Total current liabilities 77,202 80,861
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Long-term obligations 38,178 38,801
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Shareowners' equity:
Common stock 39,197 38,998
Retained earnings 155,497 155,713
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Total shareowners' equity 194,694 194,711
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$ 310,074 $ 314,373
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*Unaudited
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<PAGE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended June 27, 1997 and June 28, 1996
Six Months Ended
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(Dollars in thousands) 1997 1996
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OPERATING ACTIVITIES:
Net Income $ 5,560 $ 6,792
Reconciliation of net income to cash flows
Depreciation and amortization 7,860 6,743
Net changes in:
Receivables 15,878 (16,741)
Inventories (1,062) (8,088)
Other assets 411 908
Accruals and payables (6,407) 11,177
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Net cash provided by operating activities 22,240 791
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INVESTING ACTIVITIES:
Additions of property, plant, and equipment (8,191) (32,511)
Restricted plant construction funds 3,738
Other 303 143
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Net cash (used) in investing activities (4,150) (32,368)
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FINANCING ACTIVITIES:
Long-term debt borrowing 9,149
Line-of-credit borrowing 9,966
Long-term debt and line-of-credit repayments (756)
Proceeds from issuance of stock 557 3,323
Repurchase of common stock (4,249)
Dividends paid (1,994) (1,974)
Other (76) (253)
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Net cash provided (used) by financing activities (6,518) 20,211
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Effect of exchange rate changes on cash 1,114
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Net increase (decrease) in cash and equivalents 12,686 (11,366)
Cash and equivalents at beginning of period 15,702 34,556
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Cash and equivalents at end of period $ 28,388 $ 23,190
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*Unaudited
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<PAGE>
PART I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Financial Condition
During the first half of 1997, cash and equivalents increased
by $12.7 million from $15.7 million to $28.4 million. Although
year-to-date 1997 net income was $5.6 million, net cash
provided by operations was $22.2 million, reflecting the
easing on working capital needs from the peak levels of last
year.
The company invested $8.2 million in new capital equipment
during the first half of 1997, returning to a recent
historical rate of acquisitions compared to last years
elevated pace.
The company reactivated its stock repurchase program during
the first quarter and, year-to-date, has repurchased 193,000
shares of its common stock for $5.4 million. Also, the company
paid approximately $2 million in dividends during the first
half of 1997.
We have continued our efforts to convert some of the company's
appreciated assets into cash. The 14 acre vacant lot in San
Jose, California, is currently in contract negotiation for its
sale. We had earlier expected to report that the sale would
have been completed by now. However, the fees that the City of
San Jose will expect for traffic mitigation in developing the
property are uncertain at this time and we are working through
the issues with the buyer. 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,
which will also yield some cash. The Palo Alto deal is
expected to complete by the end of this year.
Successful completion of all these deals, including the
divestiture of our Palo Alto defense operations, is expected
to further improve our balance sheet.
Current Operations and Business Outlook
Semiconductor Equipment Group
Second quarter revenues were nearly $48 million, representing
50% of the company total. Operating profit for the Group is
positive, showing the cost controls we have established are
working well. Orders of $44 million continue to improve on a
sequential quarter basis. Orders are 29% above those of first
quarter's $34 million and the same as last year's $44 million.
Looking forward, we see continued orders growth in the third
quarter. The orders picture is consistent with the plans we
have made for the Group size in 1997. With these order rates,
the group is consistently below the long term goal of less
than a 5 month backlog. Thus, we are able to service the order
requirements of our customers more rapidly, and they are
taking advantage of the shorter lead time. This quicker
service is contributing to the lumpy orders patterning we are
seeing.
The company advanced forward on its WJ-2000 single-wafer
high-density plasma cluster platform during the quarter. This
system has progressed from development to manufacturing, while
achieving highly competitive results in both film quality and
throughput during marathon runs of its intermetal-dielectric
deposition process. We recently turned-on the first
manufacturing built system with performance equivalent to that
of the engineering built system. We are working with several
top-tier customers (both US and Asia) on the investigation of
WJ HDP film qualities for aggressive structure
characteristics, basically meeting or exceeding customer
requirements for samples with less than 0.25 micron feature
size and very high aspect ratios. So far all equipment is at
our Scotts Valley laboratory, but we expect to have multiple
customer placements in the second half of the year.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
WJ's continuous-process atmospheric-pressure systems are being
purchased for their ability to handle difficult new
applications like shallow-trench isolation (STI). WJ has been
qualified in production for STI at fabrication facilities in
the U.S. and Asia. The company's WJ-1000 system has been
qualified by a major customer for 0.18-micron geometries.
Modification of the WJ-999 reactor for 300mm processing has
made substantial progress along that product's roadmap.
VLSI Research Inc. announced in May that Watkins-Johnson was
selected for the third time as a 10 Best winner among
suppliers of wafer-processing equipment. In discussing WJ's
selection, VLSI identified five unique strengths: WJ's
new-product "field readiness" process, its supplier management
team, electronic call tracking for troubleshooting and case
management, the company's customer support center and its
newly opened Asia technology center.
We believe the long range industry forecasts for the
semiconductor industry continue to be bright, plus
semiconductor integrated circuit demand is increasing in
dollar terms over last year. Although factory utilization
figures are improving, they oscillate a little as new FABs
come on line. The semiconductor industry basically remains in
an overcapacity situation, and we have clearly seen a leveling
of the equipment spending by our customers.
Wireless Communications
Second quarter revenues were over $16 million, representing
over 17% of the company total. Orders for the second quarter
1997 totaled approximately $14 million compared to $8 million
for the same period last year. The business segment is
entering the third quarter with a backlog totaling
approximately $37 million.
The company's versatile Base2(TM) cellular base station is
performing well in operational field trials with a major
wireless-telecommunications carrier. This advanced base
station employs proprietary RF digital-signal-processing and
software technology which ensures uncommon system flexibility
and economical operation. WJ plans to move the Base2 into
volume production in 1998. As we announced during the quarter,
we received our first order for the Base2 base station system
from Telos Engineering of Vancouver, BC for integration into
its Sonata Wireless Communications system. The Sonata system
is for deployment to an overseas, third-world, application.
WJ's gallium arsenide-based, field-proven components and
subassemblies continue to satisfy demanding transceiver
functions in wireless communications networks worldwide.
Development of new components for wireless applications has
been maintained at a high level as we respond to very large
long-term market opportunities presented to us by major
wireless equipment manufacturers. These components are opening
doors for us at several major base-station makers.
Government Electronics
Second quarter revenues were over $31 million compared to $27
million for the same period last year. Orders were strong for
the second quarter of 1997, totaling $37 million compared to
$25 million for the first quarter of 1997. Second quarter
orders include $20.3 million in orders from Raytheon and
Hughes for the Lot 11 AMRAAM modules. Backlog at the end of
the second quarter totaled approximately $96 million.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
In April, Watkins-Johnson offered for sale its Palo Alto,
Calif.-based defense-electronics manufacturing operation. Over
40 organizations responded with requests for further
information. To date, several of these organizations have
visited and expressed interest in acquiring WJ's military
components and subassemblies product line. We are moving on
schedule and hope to close on a sale before the end of 1997.
Management currently estimates that the business offered for
sale generated approximately $47 million of sales for the
first half of 1997 and produced pre-tax operating profit of
more than $7 million. The operations offered for sale are
business units of the company; consequently these estimates
have been derived from the consolidated financial statements
and accounting records of the company, and reflect significant
assumptions and allocations. Moreover, the business units rely
on the company and its other business units for
administrative, management and other services. These estimates
could differ from those that would have resulted had the
business units operated autonomously or as an entity
independent of the company.
Second Quarter 1997 Compared to Second Quarter 1996
Wireless Communications and Government Electronics sales
increased 59% and 16%, respectively, while Semiconductor
Equipment Group sales decreased 46%, resulting in an overall
company decrease of 24%. A primary improvement in Wireless
Communications sales is in the shipping rate of the PCS
converters sold to Lucent Technologies. Gross margins
increased slightly from 33% to 34%. Selling and administrative
expenses as a percentage of sales remained flat, but were down
25% from the same period last year due to the lower volume and
cost cutting efforts. Research and development expenses
decreased from 14% to 11% of sales, remaining below our
budget. Research and development is budgeted at about 12-1/2%
of planned sales for 1997 and expenses will pick up in the
Wireless Communications sector with the Base2 prove-out
expenses. With our business model of spending 15% of
Semiconductor Equipment revenues and 10% of Wireless
Communications revenues, this percentage will increase
following the divestiture. Operating Income was $4.2 million,
compared to the $1.1 million operating profit of the same
period last year when, even though we were enjoying very
healthy semiconductor equipment sales, we were taking action
against the downturn in the semiconductor equipment market.
Due to the above factors, first quarter 1997 net income
increased to $3.1 million compared to $358 thousand reported
for the same period in 1996.
Second Quarter Year-to-Date 1997 Compared to Second Quarter
Year-to-Date 1996
Wireless Communications and Government Electronics sales
increased 62% and 11%, respectively, while Semiconductor
Equipment Group sales decreased 47%, resulting in an overall
company decrease of 25%. Gross margins decreased slightly from
35% 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 27%,
due mostly to the decreased volume and cost cutting efforts,
but remained flat as a percentage of sales. Research and
development expenses decreased from 13% to 12% of sales,
remaining within planned levels as the company continues its
efforts in developing next generation products for the
Semiconductor Equipment Group and Wireless Communications
segment. Due to the above factors, net income decreased 18%
compared to the same period in 1996.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
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>
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.
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Page 10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATKINS-JOHNSON COMPANY
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(Registrant)
Date: August 8, 1997 By: /s/ W. Keith Kennedy, Jr.
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W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date: August 8, 1997 By: /s/ Scott G. Buchanan
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Scott G. Buchanan
Vice President and Chief Financial Officer
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Page 11
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
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10 Material Contracts:
10-a Second 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 12
SECOND AMENDMENT TO CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Amendment") is made as of
this 30th day of June, 1997, 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 as amended by that
First Amendment to Credit Agreement dated as of March 7, 1997 (the "Credit
Agreement").
B. The Borrower has requested that the Banks, the Issuing Bank, and the
Agent enter into this Amendment in order to make certain changes in the Credit
Agreement and to reflect certain changes to the syndicate of Banks.
C. Upon the terms and conditions appearing herein, the Banks, the Issuing
Bank and the Agent have agreed to enter into this Amendment.
AGREEMENT
1. Amendments to Credit Agreement.
1.1 With effect as from the "Transfer Date" (defined as the first
Business Day after the Amendment Effective Date, as defined in Section 2 below),
Schedule 1 to the Credit Agreement is amended by replacing the existing Schedule
1 with the Schedule 1 attached hereto as Exhibit A. As of the Transfer Date, the
Commitments of the Banks shall be deemed to be adjusted accordingly. If on the
day preceding the Transfer Date the Effective Amount of Revolving Loans and L/C
Obligations would exceed the Commitments as so adjusted, the Borrower shall upon
the Transfer Date repay such excess together with interest accrued to the
Transfer Date and any amounts required to be paid pursuant to Section 6.02 of
the Credit Agreement. The reduction in the Commitments consequent upon this
Amendment shall be permanent, and the Commitments may not be increased or
otherwise reinstated.
1.2 As from Transfer Date, The First National Bank of Boston (now known
as BankBoston) ("BankBoston") shall cease to be a Bank for the purposes of the
Credit Agreement and this Amendment. On the Transfer Date, BankBoston shall be
deemed to have sold and assigned, without recourse, an amount (the "Transfer
Amount") of the total
1.
<PAGE>
aggregate Loans and L/C Obligations outstanding on such date equal to its
Commitment Percentage (as of the day preceding the Transfer Date) thereof. On
the Transfer Date, each of the Banks identified in the first column of Exhibit A
(each a "Continuing Bank") shall be deemed to have purchased such amount of
BankBoston's Loans and L/C Obligations as may be necessary so that the aggregate
outstanding Loans and L/C Obligations are held by the Continuing Banks in
proportion to their Commitment Percentages as set forth on Exhibit A.
1.3 Upon the Transfer Date, BankBoston shall be entitled to receive its
share (determined in accordance with the Credit Agreement) of any accrued
commitment and letter of credit fees for the period up to, but not including,
the Transfer Date.
1.4 By their execution of this Amendment, each of the Banks, the Agent,
the Issuing Bank and the Borrower (notwithstanding any restrictions or
conditions contained in the Credit Agreement) consents to the transactions
described in Sections 1.1, 1.2 and 1.3 above; and the Agent waives the
administrative transfer charge, to the extent that it is payable with respect to
such transactions, pursuant to Section 13.09(b)(ii) of the Credit Agreement.
1.5 Section 1.01 of the Credit Agreement is hereby amended by adding
the following definitions in appropriate alphabetical order:
"Agreement" means this Credit Agreement as it may be amended or
supplemented from time to time.
"Second Amendment Effective Date" means the Amendment Effective Date as
defined in the Second Amendment to this Agreement.
1.6 Section 1.01 of the Credit Agreement is hereby amended by amending
the definition of "Final Maturity Date" to read, in its entirety, as follows:
"Final Maturity Date" means June 29, 1998.
1.7 Section 4.03(a) of the Credit Agreement is hereby amended to read,
in its entirety, as follows:
(a) Commitment Fee. The Borrower agrees to pay to the Agent for the
account of each Bank a commitment fee on the average daily unused portion
(taking into account outstanding Revolving Loans and outstanding L/C
Obligations) of such Bank's Commitment as in effect from time to time from
the Closing Date until the Final Maturity Date at the rate of:
(i) for periods prior to the Second Amendment Effective Date, (A) 0.35%
per annum, for any period when the Debt/EBITDA Ratio is greater than or
equal to
2.
<PAGE>
1.00 to 1.00 or (B) 0.25% per annum, for any period when the
Debt/EBITDA Ratio is less than 1.00 to 1.00, and
(ii) for periods on or after the Second Amendment Effective Date,
0.125% per annum
in each case payable quarterly in arrears on the last Business Day of each
calendar quarter in each year, commencing on the first such date after the
Closing Date, and on the earlier of the date such Commitment is terminated
hereunder or the Final Maturity Date.
2. Effectiveness of Amendments to Credit Agreement. Subject to the
satisfaction of the conditions set forth below on or before July 10, 1997, the
provisions of Section 1 shall become effective on the date (the "Amendment
Effective Date") which is the later of (i) July 1, 1997 and (ii) the date on
which the last of the conditions is satisfied.
(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) The Borrower shall have paid any commitment and letter of credit
fees accrued up to the Amendment Effective Date in the manner provided for in
Section 5.01(a) of the Credit Agreement;
(c) No Default or Event of Default shall have occurred and be
continuing on the Amendment Effective Date or will be continuing after giving
effect to the amendments to the Credit Agreement (and the Borrower shall have
delivered to the Agent a certificate to that effect executed by a Responsible
Officer of the Borrower);
(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 Amendment
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 dated
the Amendment Effective Date concerning this Amendment in form and substance
satisfactory to the Agent.
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 the
amendments.
3.
<PAGE>
3. Reservation of Rights. The Borrower acknowledges and agrees that neither
the execution and delivery by the Banks of this Amendment shall be deemed to
create a course of dealing or otherwise obligate the Agent or the Banks to
forbear or to execute similar amendments or waivers under the same or similar
circumstances in the future.
4. Miscellaneous.
4.1 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.
4.2 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 this Amendment.
4.3 This Amendment shall be governed by and construed in accordance
with the law of the State of California.
4.4 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.
4.5 This Amendment, reflects the entire agreement among the Borrower,
the Banks and the Agent with respect to the matters set forth herein and therein
and supersedes any prior agreements, commitments, drafts, communications,
discussions and understandings, oral or written, with respect thereto.
4.6 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 of this Amendment or the
Credit Agreement, respectively.
4.7 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, review, execution and delivery of this Amendment and
the Disposal Documents.
4.
<PAGE>
4.8 All capitalized terms used and not otherwise defined herein shall
have the meanings given to such terms in the Credit Agreement.
[rest of page left intentionally blank]
5.
<PAGE>
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/ Joan M. Varrone
------------------------------------------
Title: Treasurer
THE AGENT
ABN AMRO BANK N.V.
By /s/ Robin S. Yim
------------------------------------------
Title: Group Vice President
By /s/ Candace J. Hsu
------------------------------------------
Title: Corporate Banking Officer
THE BANKS
ABN AMRO BANK N.V., as Bank and Issuing Bank
By /s/ Robin S. Yim
------------------------------------------
Title: Group Vice President
By /s/ Candace J. Hsu
------------------------------------------
Title: Corporate Banking Officer
6.
<PAGE>
UNION BANK OF CALIFORNIA, N.A., successor in
interest to Union Bank
By /s/ Wade Schlueter
------------------------------------------
Title: Vice President
BANK BOSTON, N.A.
By /s/ Maia D. Heymann
------------------------------------------
Title: Vice President
THE FIRST NATIONAL BANK OF MARYLAND
By /s/ Andrew W. Fish
------------------------------------------
Title: Vice President
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By /s/ Kevin M. McMahon
------------------------------------------
Title: Managing Director
7.
<PAGE>
<TABLE>
EXHIBIT A
TO SECOND AMENDMENT TO CREDIT AGREEMENT
Schedule 1 to Credit Agreement
(Commitment and Commitment Percentages)
<CAPTION>
Commitment
Bank Commitment L/C Commitment Percentage
- ---- ----------- -------------- ----------
<S> <C> <C> <C>
ABN AMRO Bank N.V. $17,500,000 $ 7,000,000 35.0%
Union Bank of California N.A. $12,500,000 $ 5,000,000 25.0%
The First National Bank of Maryland $12,500,000 $ 5,000,000 25.0%
Bank of America National Trust and Savings
Association $ 7,500,000 $ 3,000,000 15.0%
----------- ----------- -----
TOTALS $50,000,000 $20,000,000 100.0%
</TABLE>
Exhibit 11
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
COMPUTATION OF NET INCOME PER COMMON SHARE
(Dollars in thousands, except per share amounts)
<TABLE>
The following table illustrates the potential dilution of outstanding stock
options on net income per share computations:
<CAPTION>
Three Months Ended Six Months Ended
- ------------------------------------------------------------------------------------------------------------
June 27, 1997 June 28, 1996 June 27, 1997 June 28, 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For primary net income per share:
Weighted average shares outstanding 8,258,000 8,268,000 8,278,000 8,203,000
Equivalent shares--dilutive stock
options--based on treasury stock
method using average market price 249,000 309,000 219,000 390,000
- ------------------------------------------------------------------------------------------------------------
Total 8,507,000 8,577,000 8,497,000 8,593,000
============================================================================================================
For fully diluted net income per share:
Weighted average shares outstanding 8,258,000 8,268,000 8,278,000 8,203,000
Equivalent shares--dilutive stock
options--based on treasury stock
method using greater of closing
market price or average price 288,000 309,000 289,000 390,000
- ------------------------------------------------------------------------------------------------------------
Total 8,546,000 8,577,000 8,567,000 8,593,000
============================================================================================================
Net income $ 3,082 $ 358 $ 5,560 $ 6,792
============================================================================================================
Primary net income per share $ .36 $ .04 $ .65 $ .79
============================================================================================================
Fully diluted net income per share $ .36 $ .04 $ .65 $ .79
============================================================================================================
<FN>
This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> MAR-29-1997
<PERIOD-END> JUN-27-1997
<CASH> 28,388
<SECURITIES> 0
<RECEIVABLES> 82,159
<ALLOWANCES> 0
<INVENTORY> 70,355
<CURRENT-ASSETS> 203,116
<PP&E> 236,377
<DEPRECIATION> 132,279
<TOTAL-ASSETS> 310,074
<CURRENT-LIABILITIES> 77,202
<BONDS> 38,178
0
0
<COMMON> 39,197
<OTHER-SE> 155,497
<TOTAL-LIABILITY-AND-EQUITY> 310,074
<SALES> 95,679
<TOTAL-REVENUES> 95,679
<CGS> 62,911
<TOTAL-COSTS> 62,911
<OTHER-EXPENSES> 27,941
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361
<INCOME-PRETAX> 4,466
<INCOME-TAX> 1,384
<INCOME-CONTINUING> 3,082
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,082
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.36
</TABLE>
