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
(X) Annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 1997
Commission file number 001-05631
A. Full title of the plan and the address of the plan, if different from that
of the issuer named below:
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:
Watkins-Johnson Company
Stanford Research Park
3333 Hillview Avenue
Palo Alto, CA 94304-1223
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
administrator has duly caused this annual report to be signed on its behalf by
the undersigned hereunto duly authorized.
WATKINS-JOHNSON EMPLOYEES'
INVESTMENT PLAN
May 8, 1998 By /s/ Scott Buchanan
-----------------------------
Scott Buchanan
Chairman of Committee
VP & CFO
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
--------------------------
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
Financial Statements and
Supplemental Schedules
Years ended December 31, 1997 and 1996
--------------------------------------
Table of Contents
Independent Accountants' Report ............................................ 1-2
Financial Statements:
Statements of Net Assets Available for Plan Benefits ......................... 3
Statements of Changes in Net Assets Available for Plan Benefits,
With Fund Information ...................................................... 4
Notes to Financial Statements................................................. 5
Form 5500 Supplemental Schedules as of and for the year ended
December 31, 1997 ......................................................... 13
27a, Part I - Schedule of Assets Held for Investment Purposes
27d, Part V - Schedule of Reportable Transactions
<PAGE>
To the Participants and
Plan Administrator of the
Watkins-Johnson
Employees' Investment Plan
INDEPENDENT ACCOUNTANTS' REPORT
We have audited the financial statements and supplemental schedules of
the Watkins-Johnson Employees' Investment Plan (the Plan) as of December 31,
1997 and 1996, and for the years 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 audits.
We conducted our audits 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 audits provide 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, 1997 and 1996, and the changes in net assets
available for plan benefits for the years then ended in conformity with
generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements taken as a whole. The supplemental schedules are
presented for the purpose of additional analysis and are not a required part of
the basic financial statements but are 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. These supplemental
schedules are the responsibility of the Plan's management. The fund information
in the statement of changes in net assets available for
1
<PAGE>
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 schedules and fund information have been subjected to the auditing
procedures applied in the audits 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
May 8, 1998
2
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31,
---------------------------
1997 1996
------------ ------------
Investments, at fair value $106,995,683 $ 90,950,924
Investments, at contract value 40,664,264 41,903,240
Cash and cash equivalents 522,495 541,976
------------ ------------
Assets held for investment purposes 148,182,442 133,396,140
Employer's contribution receivable 187,672 183,242
------------ ------------
Net assets available for plan benefits $148,370,114 $133,579,382
============ ============
See independent accountants' report and
accompanying notes to financial statements.
3
<PAGE>
<TABLE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR PLAN BENEFITS, WITH FUND INFORMATION
For the years ended December 31, 1997 and 1996
Participant Directed
- ------------------------------------------------------------------------------------------------------------------------------------
Fidelity Trust Company
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Retirement
Government Fixed Growth &
Money Income Magellan OTC Balanced Income
Market Fund Fund Portfolio Fund Fund
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net assets available for plan
benefits at December 31, 1995 $ 3,413,015 $ 43,309,197 $ 30,941,667 $ 10,744,928 $ 16,608,195 $ 3,426,812
------------ ------------ ------------ ------------ ------------ ------------
Employer's contribution 113,397 465,617 783,116 350,056 422,709 201,169
Participants' contributions/rollovers 390,244 1,484,836 2,486,806 1,247,029 1,308,870 721,171
Withdrawals/distributions (313,685) (3,242,299) (3,185,012) (1,093,961) (1,278,917) (440,240)
Dividends and interest 186,129 2,555,002 4,910,503 1,743,827 736,893 414,852
Net appreciation (depreciation) in
fair value of investments (1,556,128) 879,825 589,620 838,636
Net loan activities (84,641) (891,180) (644,611) (302,173) (330,796) (42,883)
Administrative fees (13,091) (5,511) (7,043) (3,444) (4,892) (1,946)
Transfer in from another plan
Transfers in (out) 103,063 (611,463) (2,973,239) 930,953 (2,643,741) 4,028,461
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 381,416 (244,998) (185,608) 3,752,112 (1,200,254) 5,719,220
------------ ------------ ------------ ------------ ------------ ------------
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 9,146,032
------------ ------------ ------------ ------------ ------------ ------------
Employer's contribution 211,040 396,258 584,851 309,162 162,492 299,395
Participants' contributions/rollovers 608,709 1,165,558 1,758,532 987,672 473,637 1,379,431
Withdrawals/distributions (605,022) (4,937,181) (3,277,107) (1,859,466) (633,403) (1,714,630)
Dividends and interest 226,431 2,556,632 2,294,728 1,060,125 324,770 630,662
Net appreciation (depreciation) in
fair value of investments 5,443,251 330,051 1,689,322 2,409,144
Net loan activities (10,184) (120,856) (129,761) (17,053) (12,534) (21,854)
Administrative fees (25,803) (6,093) (1,143) (1,284) (704) (1,748)
Transfer out to another plan
Transfers in (out) 115,957 (191,251) (2,473,544) (732,981) (17,411,521) 1,834,937
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 521,128 (1,136,933) 4,199,807 76,226 (15,407,941) 4,815,337
------------ ------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1997 $ 4,315,559 $ 41,927,266 $ 34,955,866 $ 14,573,266 $ -- $ 13,961,369
============ ============ ============ ============ ============ ============
Warburg
Picus Spartan
Founders Emerging U.S. Equity
Intermediate Overseas Balanced Growth Freedom Index
Bond Fund Fund Fund Fund Funds Fund
------------ ------------ ------------ ------------ ------------ -------------
Net assets available for plan
benefits at December 31, 1995 $ 1,135,900 $ 800,226
------------ ------------
Employer's contribution 47,143 56,347
Participants' contributions/
rollovers 142,897 210,432
Withdrawals/distributions (80,232) (90,878)
Dividends and interest 94,823 100,866
Net appreciation (depreciation) in
fair value of investments (43,813) 69,769
Net loan activities (18,188) (21,642)
Administrative fees (359) (335)
Transfer in from another plan
Transfers in (out) 31,299 631,325
------------ ------------
Increase (decrease) in net assets 173,570 955,884
------------ ------------
Net assets available for plan
benefits at December 31, 1996 1,309,470 1,756,110
------------ ------------
Employer's contribution 18,691 67,098 $ 164,768 $ 7,185 $ 6,541 $ 25,341
Participants' contributions/rollovers 69,731 255,984 494,488 37,196 36,051 237,595
Withdrawals/distributions (94,387) (200,786) (719,538) (23,180) (174,070)
Dividends and interest 42,140 123,157 1,407,553 35,188 14,210 16,883
Net appreciation (depreciation) in
fair value of investments 3,485 64,134 (526,891) (10,661) (4,805) 58,785
Net loan activities (4,940) (13,023) (14,279) 256 356 (4,013)
Administrative fees (8) (37) (234) (9) (16)
Transfer out to another plan
Transfers in (out) (1,344,182) 320,819 16,537,451 544,847 391,132 1,595,674
------------ ------------ ------------ ------------ ------------ -------------
Increase (decrease) in net assets (1,309,470) 617,346 17,343,318 590,822 443,485 1,756,179
------------ ------------ ------------ ------------ ------------ -------------
Net assets available for plan
benefits at December 31, 1997 $ -- $ 2,373,456 $ 17,343,318 $ 590,822 $ 443,485 $ 1,756,179
============ ============ ============ ============ ============ =============
Fidelity Watkins-
U.S. Bond Johnson Non-Participant
Index Stock Directed Participant Contribution
Fund Fund ESOP Loans Receivable Total
------------- ------------- ------------- ------------- ------------- --------------
Net assets available for plan
benefits at December 31, 1995 $ 6,709,171 $ 117,089,111
------------- --------------
Employer's contribution 291,715 $ 699,989 $ 183,242 3,614,500
Participants' contributions/
rollovers 827,000 8,819,285
Withdrawals/distributions (295,051) (329,920) $ (71,457) (10,421,652)
Dividends and interest 83,101 47,525 96,277 10,969,798
Net appreciation (depreciation)
in fair value of investments (2,227,474) (1,655,825) (3,105,390)
Net loan activities (117,525) 2,453,639 --
Administrative fees (925) (1,095) (38,641)
Transfer in from another plan 6,652,371 6,652,371
Transfers in (out) 503,342 --
------------- ------------- ------------- ------------- --------------
Increase (decrease) in net
assets (935,817) 5,413,045 2,478,459 183,242 16,490,271
------------- ------------- ------------- ------------- --------------
Net assets available for plan
benefits at December 31, 1996 5,773,354 5,413,045 2,478,459 183,242 133,579,382
------------- ------------- ------------- ------------- --------------
Employer's contribution $ 20,693 246,769 828,387 4,430 3,353,101
Participants' contributions/rollovers 80,098 731,849 8,316,531
Withdrawals/distributions (63,197) (286,284) (617,750) (348,404) (15,554,405)
Dividends and interest 72,830 62,772 51,516 214,266 9,133,863
Net appreciation (depreciation)
in fair value of investments 46,215 771,135 273,489 10,546,654
Net loan activities (3,060) (44,985) 395,930 --
Administrative fees (28) (509) (17,328) (54,944)
Transfer out to another plan (950,068) (950,068)
Transfers in (out) 2,218,438 (1,405,776) --
------------- ------------- ------------- ------------- ------------- --------------
Increase (decrease) in net assets 2,371,989 74,971 518,314 (688,276) 4,430 14,790,732
------------- ------------- ------------- ------------- ------------- --------------
Net assets available for plan
benefits at December 31, 1997 $ 2,371,989 $ 5,848,325 $ 5,931,359 $ 1,790,183 $ 187,672 $ 148,370,114
============= ============= ============= ============= ============= ==============
<FN>
See independent accountants' report and
accompanying notes to financial statements
</FN>
</TABLE>
4
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
--------------------------
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.
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.
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.
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 manage the operation and administration of the Plan. A third-party
administrator processes and maintains the records of participant data. Effective
August 1, 1997, the Company contracted with Fidelity Management Trust Company
(Fidelity) to act as the trustee. Prior to August 1, 1997, Wells Fargo Bank was
the trustee and Fidelity acted 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.
5
<PAGE>
Investments -
Investments of the Plan are trusteed 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 consists
of investments in the Watkins-Johnson Stock Fund and cash.
During 1997, Freedom Funds, Fidelity Spartan U.S. Equity Index Fund,
and Warburg Picus Emerging Growth Fund were added as investment options under
the Plan and the Intermediate Bond Fund and Balanced Fund were replaced with the
Fidelity U.S. Bond Index Fund and Founders Balanced Fund, respectively.
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 is 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.
The Fixed Income Fund principally consists of the following deposits
for unsecured contracts with a fixed interest rate:
1997 1996
----------- -----------
Continental Assurance Company,
interest at 4.83%, matures in December 1998 $ 1,055,978 $ 1,007,313
Continental Assurance Company,
interest at 7.28%, matures in December 1999 3,131,590 2,919,034
New York Life Insurance Company, interest
at 7.00%, 50% matures in December
1998, remainder matures
in June 1999 8,827,665 8,250,284
People's Security Life Insurance Company,
interest at 5.04%, matures in March 2000 1,598,962 4,021,498
Provident Life an Accident Insurance Company,
interest at 5.10%, 50% matured in July 1996,
remainder matured in June 1997 1,145,177
Sun Life Insurance Company of America,
interest at 7.07%, matures in June 1998 2,794,046 2,609,551
Fidelity Managed Income Portfolio II 20,502,241 19,370,486
6
<PAGE>
1997 1996
----------- -----------
Transamerica Occidental Life Insurance Co.,
interest at 6.74%, 50% matured in December
1996, remainder matures in June 1998 2,753,782 2,579,897
----------- -----------
Total deposit contracts 40,664,264 41,903,240
Fidelity Fixed Income Fund 1,263,002 1,160,959
----------- -----------
Total Fixed Income Fund $41,927,266 $43,064,199
=========== ===========
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 Company intends that the
Plan continue 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.
7
<PAGE>
Fund groupings -
Funds have been grouped by common fund description for financial
reporting purposes. Fund groups which do not represent 5% or more of the Plan's
net assets at year end have been classified as "Freedom Funds" for financial
reporting purposes.
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 fluctuations and credit risks. 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 contracts 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 terms 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 it was closed is recorded.
8
<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 maximum contribution of 3% of
regular compensation. The Plan also allows for an ESOP contribution that may be
paid in the form of cash or Company stock. In 1997 and 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 Company stock
which were allocated in the following year to eligible participants who were
employed by the Company on the last day of the Plan year.
9
<PAGE>
Participant accounts -
Each participant's account is credited with the participant's
contribution, Plan earnings or losses 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 one year. In addition, except
for ESOP accounts, benefits may be paid in installments, payable at least
annually, over a period not to exceed the 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 that 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.
10
<PAGE>
Note 4 - Investments:
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:
1997 1996
------------ ------------
Fidelity:
Retirement Government
Money Market Fund $ 4,315,563 $ 3,798,210
Fixed Income Fund 41,927,266 43,064,199
Magellan Fund 34,955,866 30,756,059
OTC Portfolio 14,573,266 14,497,040
Balanced Fund -- 15,407,941
Growth & Income Fund 13,961,369 9,146,032
Intermediate Bond Fund -- 1,309,470
Overseas Fund 2,373,456 1,756,110
Founders Balanced Fund 17,343,318 --
Warburg Pincus Emerging Growth Fund 590,822 --
Freedom Funds 443,485 --
Spartan U.S. Equity Index Fund 1,756,835 --
Fidelity U.S. Bond Index Fund 2,371,989 --
Cash and cash equivalents 522,495 541,976
Watkins-Johnson Stock Fund 11,256,529 10,640,644
Participant Loans 1,790,183 2,478,459
------------ ------------
Assets held for investment
purposes $148,182,442 $133,396,140
============ ============
The ending balances reported in the statement of changes in net assets
available for plan benefits as of December 31, 1997 and 1996 may differ from
those reported above due to the allocation of cash and cash equivalents to the
Watkins-Johnson Stock Fund for participant directed and non-participant directed
accounts.
11
<PAGE>
Note 5 - Party in interest transactions:
ESOP contributions are invested in the common stock of the Company. In
addition, as allowed in the Plan, participants may elect to invest a portion of
their account in the common stock of the Company. Aggregate investment in
Company common stock at December 31, 1997 and 1996 was as follows:
Date Number of shares Fair value Cost
---- ---------------- ----------- -----------
1997 645,780 $11,256,529 $10,820,963
1996 434,312 $10,640,644 $10,554,346
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:
In 1997, a division of the Company, Stellex Microwave Systems
(Stellex), was sold. In conjunction with the sale, participant accounts for
Stellex employees were transferred from the Plan to the Stellex Microwave
Systems Employees' Investment Plan in February 1998. Participant loans of
approximately $950,000 were transferred in December 1997.
12
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
SUPPLEMENTAL SCHEDULES
DECEMBER 31, 1997
-----------------
13
<PAGE>
<TABLE>
E.I.N.: 94-1402710
Plan #: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
ITEM 27a, PART 1 - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
December 31, 1997
-----------------
( a ) ( b ) ( c ) ( d ) ( e )
<CAPTION>
Description of
investment including
maturity date, rate of
Identity of issue, borrower, interest, collateral, Current
lessor, or similar party par or maturity value Cost Value
- ----- ---------------------------------- ---------------------------- ---------- ----------
<S> <C> <C> <C> <C>
Fidelity Management Trust Company Ret. Gov't Money Market 4,315,563 4,315,563
Fidelity Managed Income Port. II Fixed Income Fund 20,502,241 20,502,241
Continental Assurance Company Fixed Income Fund 4,187,568 4,187,568
Peoples Security Life Fixed Income Fund 1,598,962 1,598,962
New York Life Insurance Company Fixed Income Fund 8,827,665 8,827,665
Sun Life Insurance Co. of America Fixed Income Fund 2,794,046 2,794,046
Transamerica Accidental Life Insur Fixed Income Fund 2,753,782 2,753,782
Fidelity Management Trust Company Fixed Income Fund 1,263,002 1,263,002
Fidelity Management Trust Company Founders Blanced 17,893,380 17,343,318
Fidelity Management Trust Company Warburg Pincus Emerging Growth 606,400 590,822
Fidelity Management Trust Company Magellan 27,757,388 34,955,866
Fidelity Management Trust Company Growth & Income 11,429,322 13,961,369
Fidelity Management Trust Company OTC Portfolio 12,949,912 14,573,266
Fidelity Management Trust Company Overseas Fund 2,328,018 2,373,456
Fidelity Management Trust Company Freedom Income Fund 29,246 29,029
Fidelity Management Trust Company Freedom 2000 Fund 269,654 263,527
Fidelity Management Trust Company Freedom 2010 Fund 45,522 44,734
Fidelity Management Trust Company Freedom 2020 Fund 36,055 35,455
Fidelity Management Trust Company Freedom 2030 Fund 71,808 70,740
Fidelity Management Trust Company Spartan U.S. Equity Index 1,711,703 1,756,835
Fidelity Management Trust Company Fidelity U.S. Bond Index 2,328,469 2,371,989
Fidelity Management Trust Company Cash 522,495 522,495
* Watkins-Johnson Company Common stock 10,820,963 11,256,529
* Participant loans Loan Fund (9.25% - 9.50%) 1,790,183
-----------
148,182,442
===========
* Parties-in-interest
</TABLE>
<PAGE>
<TABLE>
E.I.N.: 94-1402710
Plan #: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
ITEM 27d, PART v - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------
( a ) ( b ) ( c ) ( d ) ( e ) ( f ) ( g )
Expense
<CAPTION>
Description of asset incurred
(including interest rate and Purchase Selling Lease with Cost of
maturity in case of a loan) Price Price rental transaction asset
- ------ ----------------------------------- ------------- -------------- ------ ----------- ------------
Fidelity Management Trust Company:
<S> <C> <C> <C>
Ret. Gov't Money Mkt 8,408,199 8,408,199
Ret. Gov't Money Mkt 7,887,071 7,887,071
Comingled Pool 8,944,100 8,944,100
Comingled Pool 8,947,100 8,947,100
FMTC Inst. Money Mkt 19,744,630 19,744,630
FMTC Inst. Money Mkt 19,724,924 19,724,924
Founders Balanced 20,109,193 20,109,193
Founders Balanced 2,238,984 2,215,814
Magellan Fund 9,184,130 9,184,130
Magellan Fund 10,427,574 9,036,253
Growth & Income Fund 12,545,771 12,545,771
Growth & Income Fund 10,139,578 9,343,054
OTC Portfolio 7,970,553 7,970,553
OTC Portfolio 8,224,378 7,612,253
Balanced Fund 1,676,518 1,676,518
Balanced Fund 18,773,782 15,785,937
Watkins-Johnson Stock Fund 18,982,498 18,982,498
Watkins-Johnson Stock Fund 19,430,670 18,193,385
</TABLE>
( a ) ( h ) ( I )
Current value
of asset on
transaction Net gain
date or (loss)
- ------ -------------- ------------
8,408,199 -
7,887,071 -
8,944,100 -
8,947,100 -
19,744,630 -
19,724,924 -
20,109,193 -
2,238,984 23,170
9,184,130 -
10,427,574 1,391,321
12,545,771 -
10,139,578 796,524
7,970,553 -
8,224,378 612,125
1,676,518 -
18,773,782 2,987,845
18,982,498 -
19,430,670 1,237,285
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our name on our report, dated May 8, 1998, with respect
to the financial statements and schedules of the Watkins-Johnson Employees'
Investment Plan for the years ended December 31, 1997 and 1996, 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
May 8, 1998
