FORM 10-Q
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 25, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 1-5631
WATKINS-JOHNSON COMPANY
(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3333 Hillview Avenue, Palo Alto, California 94304-1223
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(Address of principal executive offices) (Zip Code)
(650) 493-4141
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes _X_ No ___
Common stock, no par value, outstanding as of June 25, 1999 6,569,000 shares
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*Caution Regarding Forward-looking Statements
All statements in this quarterly report, other than statements of historical
facts, are forward-looking statements. By way of example only, those include
statements about the company's strategies, objectives, plans, expectations and
anticipated results, and expectations for the economy generally or for the
company's specific industries. The words "expect", "anticipate", "looking
forward" and other similar expressions used in this quarterly report are
intended to identify forward-looking statements that involve risks and
uncertainties that may cause actual results and expectations to differ
materially from those expressed. Such risks and uncertainties include, but are
not limited to: product demand and market acceptance risks, the effect of
economic conditions, the impact of competitive products and pricing, product
development, commercialization and technological difficulties, capacity and
supply constraints or difficulties, business cycles, dependence on single large
customers, the results of financing efforts, the results of the company's
decision to pursue the sale of the company in its entirety or in separate
transactions, actual purchases under agreements, the effect of the company's
accounting policies, U.S. Government export policies, governmental budgeting and
spending cycles, results of restructuring efforts, geographic market
concentrations, natural disasters and other risks, and risks associated with
year 2000 compliance by the company and third parties. Investors and prospective
investors are cautioned not to place undue reliance on these forward-looking
statements. The company undertakes no obligation to announce any revisions to
its forward-looking statements to reflect events or circumstances as they
actually develop or occur in the future.
The company is continuing its efforts to divest the remaining assets and
operating units in accordance with the Board's strategic directive announced on
March 1, 1999. However, there can be no assurance that the company will be able
to complete its strategy for the sale of the remainder of the company in parts
or in its entirety.
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
The interim financial statements are unaudited; however, the company
believes that all adjustments necessary to present 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 25, 1999, are not necessarily indicative of the
results for the full year 1999.
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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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended June 25, 1999 and June 26, 1998
<CAPTION>
Three Months Ended Six Months Ended
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(Dollars in thousands, except per share amounts) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Sales $ 34,857 $ 26,835 $ 69,520 $ 56,841
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Costs and expenses:
Cost of goods sold 20,580 16,652 43,647 34,891
Selling and administrative 4,911 5,344 9,573 11,091
Research and development 5,572 5,828 10,087 11,303
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31,063 27,824 63,307 57,285
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Income (loss) from operations 3,794 (989) 6,213 (444)
Interest and other income (expense)--net 810 1,971 1,815 3,898
Interest expense (126) (148) (246) (297)
Gain on real property 14,783
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Income from continuing operations before income
taxes 4,478 834 7,782 17,940
Income tax expense 1,446 271 2,520 5,831
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Income from continuing operations 3,032 563 5,262 12,109
Discontinued operations:
Income (loss), net of taxes 3,188 (6,770) 3,811 (8,615)
Gain on disposition, net of taxes 7,318 7,318
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Net income (loss) $ 13,538 $ (6,207) $ 16,391 $ 3,494
===================================================================================================================================
Basic per share amounts:
Income from continuing operations $ 0.46 $ 0.07 $ 0.80 $ 1.46
Discontinued operations:
Income (loss), net of taxes 0.49 (0.82) 0.58 (1.04)
Gain on disposition, net of taxes 1.11 1.12
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Net income (loss) $ 2.06 $ (0.75) $ 2.50 $ 0.42
===================================================================================================================================
Basic average common shares 6,566,000 8,257,000 6,562,000 8,259,000
Diluted per share amounts:
Income from continuing operations $ 0.45 $ 0.07 $ 0.79 $ 1.43
Discontinued operations:
Income (loss), net of taxes 0.48 (0.80) 0.57 (1.02)
Gain on disposition, net of taxes 1.10 1.10
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Net income (loss) $ 2.03 $ (0.73) $ 2.46 $ 0.41
===================================================================================================================================
Diluted average common shares 6,676,000 8,438,000 6,661,000 8,448,000
<FN>
*Unaudited
</FN>
</TABLE>
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME*
For the periods ended June 25, 1999 and June 26, 1998
<CAPTION>
Three Months Ended Six Months Ended
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(Dollars in thousands) 1999 1998 1999 1998
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<S> <C> <C> <C> <C>
Net income (loss) $13,538 $(6,207) $16,391 $ 3,494
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Other comprehensive income (expense), net of tax:
Foreign currency translation adjustments 66 (242) 172 (258)
Net unrealized holding gains (losses) on
securities, net of reclassification
adjustment of $0 (207) 27 (303) (59)
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Other comprehensive income (expense) (141) (215) (131) (317)
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Comprehensive income (loss) $13,397 $(6,422) $16,260 $ 3,177
===================================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS*
As of June 25, 1999 and December 31, 1998
<CAPTION>
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(Dollars in thousands) 1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 6,023 $ 19,271
Short-term investments 54,086 45,353
Receivables 17,907 19,588
Inventories:
Finished goods 1,621 875
Work in process 2,101 3,167
Raw materials and parts 5,530 5,664
Deferred income taxes 30,144 32,288
Other 14,932 17,449
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Total current assets 132,344 143,655
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Property, plant, and equipment 66,331 68,420
Accumulated depreciation and amortization (41,834) (44,829)
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Property, plant, and equipment--net 24,497 23,591
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Net assets of discontinued operations 45,306 22,438
Other assets 10,692 10,716
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$ 212,839 $ 200,400
====================================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 9,017 $ 9,685
Accrued liabilities 48,690 50,405
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Total current liabilities 57,707 60,090
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Long-term obligations 8,386 8,611
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Shareowners' equity:
Common stock 34,816 34,454
Retained earnings 113,889 99,073
Accumulated other comprehensive income (loss) (1,959) (1,828)
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Total shareowners' equity 146,746 131,699
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$ 212,839 $ 200,400
====================================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended June 25, 1999 and June 26, 1998
<CAPTION>
Six Months Ended
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(Dollars in thousands) 1999 1998
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OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 16,391 $ 3,494
Reconciliation of net income to cash flows:
Depreciation and amortization 1,960 2,314
(Gain) loss on disposal of property, plant and
equipment 68 (14,587)
Deferred income taxes 2,363
Results of discontinued operations and gain on
disposal (11,129) 8,615
Net changes in:
Receivables 1,681 4,066
Inventories 454 (2,959)
Other assets 2,310 (223)
Accruals and payables 25 (16,645)
Advances on contracts 186 (404)
Provision for warranties and losses on
contracts (2,699) (439)
Environmental remediation (44) (82)
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Net cash provided (used) by continuing operating activities 11,566 (16,850)
Net cash provided (used) by discontinued operations (31,618) (16,019)
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Net cash provided (used) by operating activities (20,052) (32,869)
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INVESTING ACTIVITIES:
Additions of property, plant, and equipment (1,966) (2,268)
Proceeds from sale of short-term investments 23,587 6,005
Purchases of short-term investments (32,841) (85,243)
Proceeds from sale of discontinued operations 19,878
Proceeds on asset retirements and other (736) 16,200
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Net cash provided (used) by investing activities 7,922 (65,306)
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FINANCING ACTIVITIES:
Payments on long-term borrowing (77) (71)
Proceeds from issuance of common stock 363 992
Repurchase of common stock (1,408)
Dividends paid (1,576) (1,983)
Other 172 (258)
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Net cash used by financing activities (1,118) (2,728)
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Net decrease in cash and equivalents (13,248) (100,903)
Cash and equivalents at beginning of period 19,271 134,462
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Cash and equivalents at end of period $ 6,023 $ 33,559
============================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
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Item 1. Financial Statements (continued)
Supplementary information to the financial statements:
A dividend of twelve cents per share was declared and paid during the
second quarter of 1999 and 1998.
Per share amounts are computed based on the weighted average number of
basic and diluted (dilutive stock options) common and common equivalent
shares outstanding during the period. Per share amounts were computed
as follows (dollars in thousands):
<TABLE>
Earnings per share computation for continuing operations:
<CAPTION>
(Dollars in thousands, except per share amounts) Three Months Ended Six Months Ended
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June 25, 1999 June 26, 1998 June 25, 1999 June 26, 1998
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<S> <C> <C> <C> <C>
Denominator for basic per share:
Weighted average shares outstanding 6,566,000 8,257,000 6,562,000 8,259,000
====================================================================================================================================
Denominator for diluted per share:
Weighted average shares outstanding
6,566,000 8,257,000 6,562,000 8,259,000
Effect of dilutive stock options 110,000 181,000 99,000 189,000
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Diluted average common shares 6,676,000 8,438,000 6,661,000 8,448,000
====================================================================================================================================
Net income from continuing operations
(numerator) $ 3,032 $ 563 $ 5,262 $ 12,109
====================================================================================================================================
Basic net income per share
from continuing operations $ 0.46 $ 0.07 $ 0.80 $ 1.46
====================================================================================================================================
Diluted net income per share
from continuing operations $ 0.45 $ 0.07 $ 0.79 $ 1.43
====================================================================================================================================
</TABLE>
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Item 1. Financial Statements (continued)
The weighted average options outstanding to purchase 656,000 and
709,000 shares of common stock were not included in the computation of
diluted per share amounts for the three months ended June 25, 1999 and
June 26, 1998, respectively, because the weighted average exercise
prices were greater than the average market prices of the common
shares. Weighted average exercise prices of $35.36 in 1999 and $35.79
in 1998 exceeded the average market prices of $25.18 and $26.15,
respectively.
The weighted average options outstanding to purchase 841,000 and
666,000 shares of common stock were not included in the computation of
diluted per share amounts for the six months ended June 25, 1999 and
June 26, 1998, respectively, because the weighted average exercise
prices were greater than the average market prices of the common
shares. Weighted average exercise prices of $33.22 in 1999 and $36.42
in 1998 exceeded the average market prices of $24.45 and $26.23,
respectively.
Recently Issued Accounting Standard--In June 1998 and June 1999, the
FASB issued SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities" and SFAS 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133". These Statements require companies to record
derivatives on the balance sheet as assets or liabilities, measured at
fair value. Gains and losses resulting from changes in the fair market
values of those derivative instruments would be accounted for depending
on the use of the instrument and whether it qualifies for hedge
accounting. SFAS 133 will be effective for the company's year ending
December 31, 2001. The company enters into forward exchange contracts
to hedge sales transactions and firm commitments denominated in foreign
currencies. Management does not expect this Statement to have a
significant impact on the company's financial condition or results of
operations.
Business Segment Reporting - Prior to the sale of the semiconductor
equipment business, the company operated in two segments: Semiconductor
Equipment and Wireless Communications. The company now operates in only
the Wireless Communications segment, with Semiconductor Equipment
disclosed as discontinued operations in this report. For disclosure of
the Wireless Communications segment's revenues from external customers,
and profit or loss, as required in interim reporting under Financial
Accounting Standard Board No. 131, "Disclosures about Segments of an
Enterprise and Related Information", refer to the consolidated
financial statements included herein.
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PART I--FINANCIAL INFORMATION
Item 2 Management's Discussion and Analysis of Financial Conditions and
Results of Operations
The following discussions should be read in conjunction with the
company's consolidated financial statements and related disclosures
included elsewhere in this quarterly report. Except for historic actual
results reported, the following discussion may contain predictions,
estimates and other forward-looking statements that involve a number of
risks and uncertainties. See "Caution Regarding Forward-looking
Statements" included above for a discussion of certain factors that
could cause future actual results to differ from those described in the
following discussion.
Financial Condition and Liquidity
As of June 25, 1999, cash and equivalents and short-term investments
totaled $60.1 million, a decrease of $4.5 million from the year-end
balance of $64.6 million. The decrease resulted primarily from net cash
used by discontinued operations offset by proceeds received for the
sale of discontinued operations discussed below.
As of June 25, 1999, the company's principal source of liquidity
consisted of $6.0 million in cash and equivalents plus short-term
investments valued at $54.1 million. The company invests its excess
cash and equivalents in securities with maturity periods exceeding 90
days to take advantage of the higher yields. These short-term
investments, which consist primarily of high grade debt securities, are
subject to interest rate risk and rise and fall in value as market
interest rates change.
At the end of the quarter, there were no material commitments for
capital expenditures. Based on current plans and business conditions,
the company believes that its existing cash and equivalents, short-term
investments and cash generated from operations will satisfy anticipated
cash and working capital requirements for the next twelve months.
Divestiture Activities
On March 1, 1999, the company announced its intention to pursue the
sale of the company. After conducting a wide-ranging strategic review
with its investment advisors, CIBC Oppenheimer, a CIBC World Markets
Company, the company's Board concluded that selling the company in its
entirety or as separate businesses would create the most value for
shareholders.
On March 31, 1999, the company announced that it completed the sale of
its high-density-plasma chemical-vapor-deposition intellectual property
assets and associated hardware to Applied Materials, Inc. On July 6,
1999, the company completed the sale of the remainder of its
semiconductor equipment business to Silicon Valley Group, Inc. which
was detailed in the company's Form 8-K filed on July 21, 1999. These
transactions are included in the company's second-quarter financial
results as disposition of discontinued operations resulting in a net
gain of $7.3 million.
The company is continuing its efforts to divest its remaining assets
and operating units in accordance with the Board's strategic directive
announced on March 1, 1999. In conjunction with the sale of its
operations, the company is seeking separately to sell its real estate
interests in San Jose and Palo Alto, California. The San Jose property
includes an 188,000 square foot building and approximately 14 acres of
land. The company has long-term leasehold interests in the property at
Stanford Industrial Park, Palo Alto, California. The Palo Alto property
includes approximately 262,000 square feet of building space and 22
acres. Lease terms expire in 2029 and 2054. There can be no assurance
the company will be able to complete its strategy for the sale of the
remainder of the company in parts or in its entirety.
Current Operations and Business Outlook
With the sale of the semiconductor equipment business, the company is
engaged solely in the wireless communications business. Products from
the company's Wireless Products Group (WPG) include custom RF (radio
frequency) subassemblies for PCS, wireless local loop,
point-to-multipoint and optical fiber modulation applications.
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Additional WPG products are "over-the-air" repeaters for PCS
applications, and gallium arsenide (GaAs) semiconductor devices such as
MESFET transistors and microcircuits. The company's Telecommunications
Group (TG) specializes in developing high sensitivity, wideband radio
receiving apparatus used in communications surveillance by government
agencies. Looking forward, the company expects business growth to come
from its GaAs semiconductor devices, advanced RF technology
subassemblies and repeaters, and communications surveillance receiver
programs with strong follow-on potential.
During the quarter ended June 25, 1999, WPG received additional orders
for their PCS and OC-192 communications assemblies and orders for new
point-to-multipoint (PMP) assemblies. WPG also introduced two new GaAs
MESFET devices for general-purpose wireless applications, expanding
WJ's line of innovative GaAs-based products. TG announced two new
contracts this quarter totaling $8.2 million for electronic-receiving
equipment from Sanders, a Lockheed Martin Company.
For the continuing business, new orders for the second quarter of 1999
were $30.0 million, down 27% from a comparable $41.0 million of the
first quarter 1999 but up 114% from a comparable $14.0 million for the
second quarter 1998. Backlog on June 25, 1999 stood at $68.7 million
compared to the comparable June 26, 1998 backlog of $53.1 million.
Since the company's backlog can be canceled or rescheduled, backlog is
not necessarily a meaningful indicator for future revenue.
The wireless communications industry is subject to various regulatory
agencies of federal, foreign, state and local governments which can
affect market dynamics, causing unforeseen ebb and flow of orders and
delivery requirements. Domestic and international competition from a
number of wireless communication companies, some of whom are much
larger than Watkins-Johnson, is intense. The effect of these and other
factors could significantly affect the company's future operating
results.
Second Quarter and Year-to-Date of 1999 Compared with Second Quarter
and Year-to-Date of 1998
Sales for the continuing wireless communications business grew 30% for
the second quarter and 22% for the first half from last year. Gross
margins in the second quarter of 1999 improved to slightly above 40% of
sales mostly due to higher volume. Selling and administrative expenses
decreased notably from 1998 primarily due to restructuring and cost
reduction efforts initiated in the third quarter of 1998. Restructuring
in 1998 was necessary to discontinue a product line called Base2 as
reported in previous filings. All 1998 accrued restructuring charges
have been paid or settled at the end of the second quarter 1999. The
decrease in research and development expenses in 1999 can also be
attributable to the discontinuation of Base2. Funds available for
investment decreased substantially from 1998 mostly due to operating
losses and restructuring charges occurred in the second half of 1998.
This was the primarily reason "interest and other income" declined by
more than 50%. In the first half of 1998, income before taxes included
a nonrecurring gain on real property of $14.8 million. The company's
effective tax rate for continuing operations restated for all periods
was about 32.5%. This rate is expected to be effective for the
remainder of 1999. The company's semiconductor equipment business was
sold in two separate transactions as discussed above. The disposition
and financial results of the semiconductor equipment business were
reported as discontinued operations--net of tax.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Year 2000 Compatibility
The Year 2000 (Y2K) issue involves the ability of computer software to
properly utilize dates for years after the year 1999. Computers have
traditionally used the last two digits of the year for date
calculations and could interpret the year 2000 as the year 1900. The
critical areas being addressed by the company are its internal computer
systems, products made by the company and relationships with external
organizations. The company is addressing both information technology
("IT") and non-IT systems which typically include embedded technology
such as microcontrollers.
The company regularly updates its information systems capabilities, and
has evaluated significant computer software applications for
compatibility with the year 2000. Several years ago the company adopted
a strategic plan for its internal computer systems with the goal of
going to an off-the-shelf real time system. As a result, the company's
operations run all financial and manufacturing business applications on
an Oracle data base with the associated Oracle application modules.
Oracle's stated solution to Y2K is its version 10.7 of the application
software. As of June 1998, the company's operations are on Oracle
version 10.7. There are other software implementations that are minor
in nature that may take until mid 1999 to be completed. There are no
known non-IT issues that will adversely impact the company's
information systems capabilities. With the system changes implemented
to date and other planned changes, the company anticipates that its
internal computer software applications will be compatible with the
year 2000. In the event of any Y2K disruptions, the company will follow
the software vendors' contingency directives.
The Y2K issue (both IT and non-IT) for company products is being
addressed by the respective business units. The Y2K situation is an
issue for only some of the products in the Wireless Communications
segment. The current schedule is to identify all affected products and
develop solutions by third quarter 1999 to ensure timely communication
to the customers. The respective business units have also addressed
non-IT issues with respect to their manufacturing facilities and there
are no known non-IT issues that will adversely impact the company's
operations.
The company is dependent on numerous vendors and customers which may
incur disruptions as a result of year 2000 software issues.
Accordingly, no assurance can be given that the company's operations
will not be impacted by this industry-wide issue. The company is
addressing the Y2K issues with external organizations. This involves
customers, suppliers and service providers. Although the initial review
does not indicate any significant risk, this will be an ongoing effort.
The company is considering alternative vendors as a contingency plan.
With the actions that have been taken and the other planned activities,
the company is not anticipating any significant disruption of business.
However, no absolute assurances can be given. The most likely
disruption that could occur is where the company uses wire transfers to
move funds to vendors, some of which are located in foreign countries.
Since the status of all banking systems in the world cannot be
determined in advance, there may be minor disruption in the ability to
transfer funds in real time along the current routes. Contingency
plans, which include alternative banks and standby letters of credit,
are in place to address what is needed to minimize any business
interruption.
Expenditures specifically related to software modifications for year
2000 compatibility are not expected to have a material effect on the
company's operations or financial position. The cost to address and
remedy the company's Y2K issues were $0.1 million in 1997, $0.2 million
in 1998 and expected to be $0.2 million in 1999.
Page 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Single European Currency Conversion
The company has addressed the issues raised by the introduction of the
Single European Currency (Euro) initially implemented as of January 1,
1999, and through the transition period to January 1, 2002. The company
believes it has met the related legal requirements effective for
January 1, 1999, and it expects to be able to meet the legal
requirements through the transition period. The company does not expect
the cost of any system modifications to be material and does not
currently expect that introduction and use of the Euro will materially
affect its foreign exchange and hedging activities or will result in
any material increase in costs to the company. While the company will
continue to evaluate the impact over time of the introduction of the
Euro, based on currently available information management does not
believe that the introduction of the Euro will have a material adverse
impact on the company's financial condition or the overall trends in
its results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
The following discussion about the company's market risk disclosures
involves forward-looking statements. Actual results could differ
materially from those projected in the forward-looking statements. The
company is exposed to market risk related to changes in interest rates
and foreign currency exchange rates. The company does not use
derivative financial instruments for speculative or trading purposes.
Short-Term Investments--The company maintains a short-term investment
portfolio consisting mainly of debt securities with an average maturity
of less than two years. These available-for-sale securities are subject
to interest rate risk and rise or fall in value as market interest
rates change. The company has the ability to hold its fixed income
investments until maturity, and therefore the company would not expect
its operating results or cash flows to be affected to any significant
degree by the effect of a sudden change in market interest rates on its
investment portfolio.
The following table provides information about the company's cash and
equivalents and short-term investments. The table presents principal
cash flows and related weighted average interest rates by expected
maturity dates. The information constitutes a "forward-looking"
statement.
Expected Maturity
Amounts Weighted Average
Expected Maturity Dates (in thousands) Interest Rate
----------------------- -------------- -------------
Cash and equivalents:
1999 6,023 2.82%
Short-term investments:
1999 21,144 4.91%
2000 18,017 5.69%
2001 10,960 5.74%
2002 3,965 5.61%
Market value at
June 25, 1999 54,086
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<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risks (continued)
Foreign Exchange Risks--The company has limited involvement with
derivative financial instruments and does not use such instruments for
trading purposes. The derivative financial instruments are used to
manage foreign currency exchange risk. The company enters into foreign
exchange forward contracts to hedge certain balance sheet exposures
against future movements in foreign exchange rates. The company is
exposed to credit-related losses in the event of nonperformance by
counter-parties to these financial instruments, but does not expect any
counter-party to fail to meet its obligation. Gains and losses on the
forward contracts are largely offset by gains and losses on the
underlying exposure. Consequently, a sudden or significant change in
foreign exchange rates is not expected to have a material impact on
future net income or cash flows.
Additional information regarding market risks is disclosed in Item 7A
in the company's Form 10-K for the year ended December 31, 1998.
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<PAGE>
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the final session of the 1999 annual meeting of shareowners held
June 11, 1999, the shareowners voted as follows:
Proposal 2: Proposal to amend the company's Articles of Incorporation
and Bylaws to eliminate their super-majority shareowner
voting requirements. The amendments would decrease (from
four fifths of the voting power to a majority of the voting
power) the shareowner vote required to (i) amend the
company's Articles of Incorporation, (ii) amend the Bylaws,
and (iii) approve a merger or sale of the company.
For 5,323,663 Against 212,456
Abstain 49,073 Broker non-votes Not Available
Percentage of outstanding shares
voted in favor 81%
Proposal 3: Proposal to amend the company's Articles of Incorporation
and Bylaws to eliminate their super-majority director
voting requirements. The amendments will decrease (from 75%
of the directors to a majority of a quorum) the director
vote required to (i) amend the Bylaws and (ii) take certain
corporate actions.
For 4,769,866 Against 768,729
Abstain 46,598 Broker non-votes Not Available
Percentage of outstanding shares
voted in favor 73%
Proposal 2 was approved by the shareowners with the required 80%
majority (a Form 8-K was filed by the company dated June 21, 1999
including the full text of the amendment approved by the shareowners,
see Item 6(b)). Proposal 3 did not receive the required 80% for
approval.
Page 15
<PAGE>
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 the exhibits. The exhibits are numbered according to
Item 601 of Regulation S-K.
b) A Form 8-K was filed on June 21, 1999 reporting the approval
by the shareowners for the elimination of the super-majority
voting requirement. A Form 8-K filing was filed on July 21,
1999 reporting the completion of the divestiture of the
company's semiconductor equipment business on July 6, 1999.
Page 16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WATKINS-JOHNSON COMPANY
(Registrant)
Date August 9, 1999 By: /s/ W. Keith Kennedy, Jr.
-------------------------- -----------------------------------
W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date August 9, 1999 By: /s/ Scott G. Buchanan
-------------------------- -----------------------------------
Scott G. Buchanan
Executive Vice President, Chief Financial
Officer and Treasurer
Page 17
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
------ -------
27.1 Financial Data Schedule for the quarter ended
June 25, 1999.
27.2 Financial Data Schedule for the year ended
December 31, 1998.
27.3 Financial Data Schedule for the quarter ended
June 26, 1998.
27.4 Financial Data Schedule for the quarter ended
March 26, 1999.
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> MAR-27-1999
<PERIOD-END> JUN-25-1999
<CASH> 6,203
<SECURITIES> 54,086
<RECEIVABLES> 17,907
<ALLOWANCES> 0
<INVENTORY> 9,252
<CURRENT-ASSETS> 132,344
<PP&E> 66,331
<DEPRECIATION> 41,834
<TOTAL-ASSETS> 212,839
<CURRENT-LIABILITIES> 57,707
<BONDS> 8,386
0
0
<COMMON> 34,816
<OTHER-SE> 111,930
<TOTAL-LIABILITY-AND-EQUITY> 212,839
<SALES> 34,857
<TOTAL-REVENUES> 34,857
<CGS> 20,580
<TOTAL-COSTS> 20,580
<OTHER-EXPENSES> 9,673
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 126
<INCOME-PRETAX> 4,478
<INCOME-TAX> 1,446
<INCOME-CONTINUING> 3,032
<DISCONTINUED> 10,506
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,538
<EPS-BASIC> 2.06
<EPS-DILUTED> 2.03
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 19,271
<SECURITIES> 45,353
<RECEIVABLES> 19,588
<ALLOWANCES> 0
<INVENTORY> 9,706
<CURRENT-ASSETS> 143,655
<PP&E> 68,420
<DEPRECIATION> 44,829
<TOTAL-ASSETS> 200,400
<CURRENT-LIABILITIES> 60,090
<BONDS> 8,611
0
0
<COMMON> 34,454
<OTHER-SE> 97,245
<TOTAL-LIABILITY-AND-EQUITY> 200,400
<SALES> 115,219
<TOTAL-REVENUES> 115,219
<CGS> 81,320
<TOTAL-COSTS> 81,320
<OTHER-EXPENSES> 25,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 601
<INCOME-PRETAX> 7,526
<INCOME-TAX> 2,446
<INCOME-CONTINUING> 5,080
<DISCONTINUED> (54,478)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,398)
<EPS-BASIC> (6.38)
<EPS-DILUTED> (6.28)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> MAR-28-1998
<PERIOD-END> JUN-26-1998
<CASH> 33,559
<SECURITIES> 79,141
<RECEIVABLES> 18,729
<ALLOWANCES> 0
<INVENTORY> 15,450
<CURRENT-ASSETS> 252,813
<PP&E> 80,884
<DEPRECIATION> 50,387
<TOTAL-ASSETS> 284,408
<CURRENT-LIABILITIES> 52,253
<BONDS> 10,984
0
0
<COMMON> 41,371
<OTHER-SE> 179,800
<TOTAL-LIABILITY-AND-EQUITY> 284,408
<SALES> 26,835
<TOTAL-REVENUES> 26,835
<CGS> 16,652
<TOTAL-COSTS> 16,652
<OTHER-EXPENSES> 9,201
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> 834
<INCOME-TAX> 271
<INCOME-CONTINUING> 563
<DISCONTINUED> (6,770)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,207)
<EPS-BASIC> (.75)
<EPS-DILUTED> (.73)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-26-1999
<CASH> 24,293
<SECURITIES> 40,014
<RECEIVABLES> 19,980
<ALLOWANCES> 0
<INVENTORY> 9,444
<CURRENT-ASSETS> 157,065
<PP&E> 69,410
<DEPRECIATION> 45,082
<TOTAL-ASSETS> 192,095
<CURRENT-LIABILITIES> 49,627
<BONDS> 8,446
0
0
<COMMON> 34,702
<OTHER-SE> 99,320
<TOTAL-LIABILITY-AND-EQUITY> 192,095
<SALES> 34,663
<TOTAL-REVENUES> 34,663
<CGS> 23,067
<TOTAL-COSTS> 23,067
<OTHER-EXPENSES> 8,172
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120
<INCOME-PRETAX> 3,304
<INCOME-TAX> 1,074
<INCOME-CONTINUING> 2,230
<DISCONTINUED> 623
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,853
<EPS-BASIC> .44
<EPS-DILUTED> .43
</TABLE>
