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, 1998
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 21, 1999 By /s/Scott Buchanan
---------------------
Scott Buchanan
Chairman of Committee
VP & CFO
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use of our name on our report, dated May 21, 1999, with
respect to the financial statements and schedules of the Watkins-Johnson
Employees' Investment Plan for the years ended December 31, 1998 and 1997,
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 21, 1999
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
--------------------------
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
Financial Statements and
Supplemental Schedules
Years ended December 31, 1998 and 1997
--------------------------------------
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, 1998.......................................................... 12
27a, Part I - Schedule of Assets Held for Investment Purposes
27b, Part III - Schedule of Loans or Fixed Income Obligations
27d, Part V - Schedule of Reportable Transactions
<PAGE>
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,
1998 and 1997, and for the years then ended, as listed in the accompanying table
of contents. These financial statements and supplemental schedules 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, 1998 and 1997, 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
1
<PAGE>
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 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.
/s/ MOHLER, NIXON & WILLIAMS
MOHLER, NIXON & WILLIAMS
Accountancy Corporation
Campbell, California
May 21, 1999
2
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR PLAN BENEFITS
December 31,
---------------------------
1998 1997
------------ ------------
Investments, at fair value $ 98,054,317 $106,995,683
Investments, at contract value 30,728,596 40,664,264
Cash and cash equivalents 355,426 522,495
------------ ------------
Assets held for investment purposes 129,138,339 148,182,442
Employer's contribution receivable 83,612 187,672
------------ ------------
Net assets available for plan benefits $129,221,951 $148,370,114
============ ============
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, 1998 and 1997
----------------------------------------------
<CAPTION>
Participant Directed
-----------------------------------------------------------------------------
Fidelity Trust Company
-----------------------------------------------------------------------------
Retirement
Government
Money Fixed OTC
Market Income Magellan Portfolio Balanced
Fund Fund Fund Fund Fund
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
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
------------ ------------ ------------ ------------ ------------
Employer's contribution 211,040 396,258 584,851 309,162 162,492
Participants' contributions/rollovers 608,709 1,165,558 1,758,532 987,672 473,637
Withdrawals/distributions (605,022) (4,937,181) (3,277,107) (1,859,466) (633,403)
Dividends and interest 226,431 2,556,632 2,294,728 1,060,125 324,770
Net appreciation (depreciation) in
fair value of investments 5,443,251 330,051 1,689,322
Net loan activities (10,184) (120,856) (129,761) (17,053) (12,534)
Administrative fees (25,803) (6,093) (1,143) (1,284) (704)
Transfer out to another plan
Transfers in (out) 115,957 (191,251) (2,473,544) (732,981) (17,411,521)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 521,128 (1,136,933) 4,199,807 76,226 (15,407,941)
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1997 4,315,559 41,927,266 34,955,866 14,573,266 -
------------ ------------ ------------ ------------ ------------
Employer's contribution 172,197 218,194 391,870 185,054
Participants' contributions/rollovers 438,585 658,550 1,424,499 673,410
Withdrawals/distributions (1,239,200) (4,519,200) (3,493,380) (1,416,140)
Dividends and interest 204,396 1,993,260 1,569,208 704,009
Net appreciation (depreciation) in
fair value of investments 7,518,889 3,700,491
Net loan activities (9,030) (51,560) (91,840) (35,372)
Administrative fees (1,778) (6,002) (814) (994)
Transfer out to another plan (1,030,039) (8,901,197) (7,559,041) (3,041,569)
Transfers in (out) 1,506,469 962,571 (2,026,806) (2,200,833)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 41,600 (9,645,384) (2,267,415) (1,431,944)
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1998 $ 4,357,159 $ 32,281,882 $ 32,688,451 $ 13,141,322 $ -
============ ============ ============ ============ ============
Participant Directed
-----------------------------------------------------------------------------
Fidelity Trust Company
-----------------------------------------------------------------------------
Warburg
Pincus
Growth & Founders Emerging
Income Intermediate Overseas Balanced Growth
Fund Bond Fund Fund Fund Fund
------------ ----------- ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1996 $ 9,146,032 $ 1,309,470 $ 1,756,110
------------ ----------- ------------
Employer's contribution 299,395 18,691 67,098 $ 164,768 $ 7,185
Participants' contributions/rollovers 1,379,431 69,731 255,984 494,488 37,196
Withdrawals/distributions (1,714,630) (94,387) (200,786) (719,538) (23,180)
Dividends and interest 630,662 42,140 123,157 1,407,553 35,188
Net appreciation (depreciation) in
fair value of investments 2,409,144 3,485 64,134 (526,891) (10,661)
Net loan activities (21,854) (4,940) (13,023) (14,279) 256
Administrative fees (1,748) (8) (37) (234) (9)
Transfer out to another plan
Transfers in (out) 1,834,937 (1,344,182) 320,819 16,537,451 544,847
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets 4,815,337 (1,309,470) 617,346 17,343,318 590,822
------------ ----------- ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1997 13,961,369 - 2,373,456 17,343,318 590,822
------------ ----------- ------------ ------------ ------------
Employer's contribution 274,773 43,457 199,116 25,725
Participants' contributions/rollovers 1,090,399 179,397 617,799 133,330
Withdrawals/distributions (1,588,685) (159,948) (1,542,518) (105,395)
Dividends and interest 709,033 38,107 783,968
Net appreciation (depreciation) in
fair value of investments 2,489,479 230,225 1,222,055 26,085
Net loan activities (28,321) 1,825 52,041 (4,568)
Administrative fees (1,935) (8)
Transfer out to another plan (3,472,019) (252,433) (4,062,981) (111,975)
Transfers in (out) 44,226 (522,364) (1,348,075) 216,450
------------ ----------- ------------ ------------ ------------
Increase (decrease) in net assets (483,050) (441,734) (4,078,603) 179,652
------------ ----------- ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1998 $ 13,478,319 $ - $ 1,931,722 $ 13,264,715 $ 770,474
============ =========== ============ ============ ============
Participant Directed
-----------------------------------------------------------------------------
Fidelity Trust Company
-----------------------------------------------------------------------------
Spartan Fidelity Watkins-
U.S. Equity U.S. Bond Johnson Non-Participant
Freedom Index Index Stock Directed
Funds Fund Fund Fund ESOP
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1996 $ 5,773,354 $ 5,413,045
------------ ------------
Employer's contribution $ 6,541 $ 25,341 $ 20,693 246,769 828,387
Participants' contributions/rollovers 36,051 237,595 80,098 731,849
Withdrawals/distributions (174,070) (63,197) (286,284) (617,750)
Dividends and interest 14,210 16,883 72,830 62,772 51,516
Net appreciation (depreciation) in
fair value of investments (4,805) 58,785 46,215 771,135 273,489
Net loan activities 356 (4,013) (3,060) (44,985)
Administrative fees (16) (28) (509) (17,328)
Transfer out to another plan
Transfers in (out) 391,132 1,595,674 2,218,438 (1,405,776)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 443,485 1,756,179 2,371,989 74,971 518,314
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1997 443,485 1,756,179 2,371,989 5,848,325 5,931,359
------------ ------------ ------------ ------------ ------------
Employer's contribution 48,581 102,905 39,708 132,860 632,541
Participants' contributions/rollovers 321,620 564,856 221,659 354,744
Withdrawals/distributions (444,660) (712,566) (389,256) (314,554) (2,058,248)
Dividends and interest 88,598 74,899 142,199 78,917 87,089
Net appreciation (depreciation) in
fair value of investments 163,865 702,356 38,198 (605,617) (888,379)
Net loan activities 3,022 (34,751) (20,887) 3,486
Administrative fees (4) (46) (3) (3,256) (3,761)
Transfer out to another plan (279,934) (790,201) (280,746) (1,291,622)
Transfers in (out) 1,441,530 2,472,060 329,622 (874,850)
------------ ------------ ------------ ------------ ------------
Increase (decrease) in net assets 1,342,618 2,379,512 80,494 (2,519,892) (2,230,758)
------------ ------------ ------------ ------------ ------------
Net assets available for plan
benefits at December 31, 1998 $ 1,786,103 $ 4,135,691 $ 2,452,483 $ 3,328,433 $ 3,700,601
============ ============ ============ ============ ============
Participant Contribution
Loans Receivable Total
---------- ------- ------------
Net assets available for plan
benefits at December 31, 1996 $2,478,459 $183,242 $133,579,382
---------- ------- ------------
Employer's contribution 4,430 3,353,101
Participants' contributions/rollovers 8,316,531
Withdrawals/distributions (348,404) (15,554,405)
Dividends and interest 214,266 9,133,863
Net appreciation (depreciation) in
fair value of investments 10,546,654
Net loan activities 395,930 -
Administrative fees (54,944)
Transfer out to another plan (950,068) (950,068)
Transfers in (out) -
---------- ------- ------------
Increase (decrease) in net assets (688,276) 4,430 14,790,732
---------- ------- ------------
Net assets available for plan
benefits at December 31, 1997 1,790,183 187,672 148,370,114
---------- ------- ------------
Employer's contribution (104,060) 2,362,921
Participants' contributions/rollovers 6,678,848
Withdrawals/distributions (289,718) (18,273,468)
Dividends and interest 159,670 6,633,353
Net appreciation (depreciation) in
fair value of investments 14,597,647
Net loan activities 215,955 -
Administrative fees (18,601)
Transfer out to another plan (55,106) (31,128,863)
Transfers in (out) -
---------- ------- ------------
Increase (decrease) in net assets 30,801 (104,060) (19,148,163)
---------- ------- ------------
Net assets available for plan
benefits at December 31, 1998 $1,820,984 $83,612 $129,221,951
========== ======= ============
<FN>
See Independent accountants' report and
accompanying notes to financial statements.
4
</FN>
</TABLE>
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1997
--------------------------
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 except employees
covered by a collective bargaining agreement or an independent contractor.
In 1997, a division of the Company, Stellex Microwave Systems
(Stellex), was sold. In conjunction with the sale, participant accounts for
Stellex employees of approximately $31,129,000 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.
The Plan administrator believes the Plan is currently designed and
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.
Investments -
Investments of the Plan are held by Fidelity and invested based solely
upon instructions received from participants for participant directed accounts.
The Employee Stock Ownership Plan (ESOP) portion of the Plan is non-participant
directed and consists of investments in the Watkins-Johnson Stock Fund and cash.
5
<PAGE>
During 1997, Freedom Funds, Fidelity Spartan U.S. Equity Index Fund,
and Warburg Pincus Emerging Growth Fund were added as investment options under
the Plan and the Intermediate Bond Fund and Balanced Fund were replaced with the
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:
1998 1997
---- ----
Continental Assurance Company,
interest at 4.83%, matured in December 1998 $ -- $ 1,055,978
Continental Assurance Company,
interest at 7.28%, matures in December 1999 2,644,231 3,131,590
New York Life Insurance Company,
interest at 7.00%, 50% matured in December
1998, remainder matures
in June 1999 5,583,718 8,827,665
People's Security Life Insurance Company,
interest at 5.04%, matures in March 2000 1,232,124 1,598,962
Sun Life Insurance Company of America,
interest at 7.07%, matured in June 1998 -- 2,794,046
Fidelity Managed Income Portfolio II 21,268,523 20,502,241
Transamerica Occidental Life Insurance Co.,
interest at 6.74%, 50% matured in December
1996, remainder matured in June 1998 -- 2,753,782
----------- -----------
Total deposit contracts 30,728,596 40,664,264
Fidelity Fixed Income Fund 1,553,286 1,263,002
----------- -----------
Total Fixed Income Fund $32,281,882 $41,927,266
=========== ===========
6
<PAGE>
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.
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, and
changes therein, and disclosure of contingent assets and liabilities. Actual
results could differ from those estimates.
7
<PAGE>
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 counterparties 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.
Note 2 - Participation and benefits:
Employee contributions -
Effective July 1, 1998 participants may elect to have the Company
contribute a percentage, from 1% to 20% (up to 15% prior to July 1, 1998), 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.
8
<PAGE>
Participants are also allowed to make rollover contributions of amounts
received from other tax-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. The Plan also allows for an ESOP
contribution that may be paid in the form of cash or Company stock. In 1998 and
1997, 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.
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 is 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. Effective January 1, 1998, the Plan allows for automatic
lump-sum distribution of participant vested account balances that do not exceed
$5,000.
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.
9
<PAGE>
Note 3 - 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:
1998 1997
---- ----
Fidelity:
Retirement Government
Money Market Fund $ 4,358,340 $ 4,315,563
Fixed Income Fund 32,281,882 41,927,266
Magellan Fund 32,688,451 34,955,866
OTC Portfolio Fund 13,141,322 14,573,266
Growth & Income Fund 13,478,319 13,961,369
Overseas Fund 1,931,722 2,373,456
Founders Balanced Fund 13,264,715 17,343,318
Warburg Pincus Emerging Growth Fund 770,474 590,822
Freedom Funds 1,786,103 443,485
Spartan U.S. Equity Index Fund 4,140,611 1,756,835
Fidelity U.S. Bond Index Fund 2,452,483 2,371,989
Cash and cash equivalents 355,426 522,495
Watkins-Johnson Stock Fund and ESOP 6,667,507 11,256,529
Participant loans 1,820,984 1,790,183
------------ ------------
Assets held for investment
purposes $129,138,339 $148,182,442
============ ============
The ending balances reported in the statement of changes in net assets
available for plan benefits as of December 31, 1998 and 1997 may differ from
those reported above due to the allocation of cash and cash equivalents to the
Watkins-Johnson Stock Fund and ESOP for participant directed and non-participant
directed accounts.
Note 4 - 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, 1998 and 1997 was as follows:
Date Number of shares Fair value Cost
---- ---------------- ---------- ----
1998 327,241 $ 6,667,507 $ 8,758,961
1997 433,917 $11,256,529 $12,104,281
10
<PAGE>
Note 5 - 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 6 - Year 2000 compliance (unaudited):
The Plan, as with most users of computer software, may be required to
modify significant portions of its internally used software to enable it to
function properly in the year 2000. In addition, the Plan must also insure that
its service providers are in compliance with the year 2000 issue. Since the Plan
uses mainly third-party software and service providers, the Committee does not
anticipate a problem in resolving the year 2000 issue in a timely manner.
11
<PAGE>
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
SUPPLEMENTAL SCHEDULES
DECEMBER 31, 1998
-----------------
12
<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, 1998
-----------------
<CAPTION>
( a ) ( b ) ( c ) ( d ) ( e )
Description of investment including
Identity of issue, borrower, lessor, maturity date, rate of interest, Current
or similar party collateral, par or maturity value Cost Value
- ------- ----------------------------------- ----------------------------------- ----------- -----------
<S> <C> <C> <C> <C>
Fidelity Management Trust Company Ret. Gov't Money Market 4,358,340 4,358,340
Fidelity Managed Income Port. II Fixed Income Fund 21,268,523 21,268,523
Continental Assurance Company Fixed Income Fund 2,644,231 2,644,231
Monumental Life Insurance Company Fixed Income Fund 1,232,124 1,232,124
New York Life Insurance Company Fixed Income Fund 5,583,718 5,583,718
Fidelity Management Trust Company Fixed Income Fund 1,553,286 1,553,286
Fidelity Management Trust Company Founders Balanced 12,790,888 13,264,715
Fidelity Management Trust Company Warburg Pincus Emerging Growth 751,826 770,474
Fidelity Management Trust Company Magellan 21,561,282 32,688,451
Fidelity Management Trust Company Growth & Income 10,091,251 13,478,319
Fidelity Management Trust Company OTC Portfolio 9,136,022 13,141,322
Fidelity Management Trust Company Overseas Fund 1,728,979 1,931,722
Fidelity Management Trust Company Freedom Income Fund 300,724 309,589
Fidelity Management Trust Company Freedom 2000 Fund 393,854 414,125
Fidelity Management Trust Company Freedom 2010 Fund 253,497 269,076
Fidelity Management Trust Company Freedom 2020 Fund 357,951 383,127
Fidelity Management Trust Company Freedom 2030 Fund 381,605 410,186
Fidelity Management Trust Company Spartan U.S. Equity Index 3,529,969 4,140,611
Fidelity Management Trust Company Fidelity U.S. Bond Index 2,389,640 2,452,483
Fidelity Management Trust Company Cash 355,426 355,426
* Watkins-Johnson Company Common stock 7,543,783 6,667,507
* Participant loans Loan Fund (9.25% - 9.50%) 1,820,984
------------
129,138,339
============
<FN>
* Parties-in-interest
</FN>
</TABLE>
<PAGE>
<TABLE>
E.I.N.: 94-1402710
Plan #: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
ITEM 27b, PART III - SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
December 31, 1998
-----------------
<CAPTION>
Amount overdue
(a) (b) (c) (d) (e) (f) (g)
Unpaid
Original balance
Identity and address loan at end
of obligor amount of year Description of loan Principal Interest
- ------ -------------------- ---------- ---------- -------------------------- ---------- ----------
<S> <C> <C> <C> <C>
* Thomas J. Caro $3,000 $2,779 Date of Loan: 3/16/98 $2,779
Interest Rate: 9.5%
Maturity: 4/7/03
* Tien H Nguyen $5,000 $2,059 Date of Loan: 7/23/96 $2,059
Interest Rate: 9.25%
Maturity: 8/17/99
<FN>
* Parties-in-interest
</FN>
</TABLE>
<PAGE>
<TABLE>
E.I.N.: 94-1402710
Plan #: 001
WATKINS-JOHNSON
EMPLOYEES' INVESTMENT PLAN
ITEM 27d, PART V - SCHEDULE OF REPORTABLE TRANSACTIONS
DECEMBER 31, 1998
-----------------
<CAPTION>
( a ) ( b ) ( c ) ( d ) ( e ) ( f )
Expense
Description of asset incurred
(including interest rate and Purchase Selling Lease with
maturity in case of a loan) Price Price rental transaction
- ------- ----------------------------------- ------------- ------------ ---------- -------------
<S> <C> <C>
Fidelity Management Trust Company:
Ret. Gov't Money Mkt 5,269,480
Ret. Gov't Money Mkt 5,226,702
Comingled Pool 9,308,465
Comingled Pool 9,706,953
FMTC Inst. Money Mkt 24,856,578
FMTC Inst. Money Mkt 24,626,628
Founders Balanced 2,748,924
Founders Balanced 8,049,582
Magellan Fund 7,935,000
Magellan Fund 17,721,303
Growth & Income Fund 7,886,605
Growth & Income Fund 10,859,135
OTC Portfolio 4,891,913
OTC Portfolio 10,024,348
Spartan US Equity Index 5,827,113
Spartan US Equity Index 4,146,568
Watkins-Johnson Stock Fund 2,902,677
Watkins-Johnson Stock Fund 6,163,897
( g ) ( h ) ( I )
Current value
of asset on
Cost of transaction Net gain
asset date or (loss)
- ------------- ------------- -----------
5,269,480 5,269,480 -
5,226,702 5,226,702 -
9,308,465 9,308,465 -
9,706,953 9,706,953 -
24,856,578 24,856,578 -
24,626,628 24,626,628 -
2,748,924 2,748,924 -
7,851,416 8,049,582 198,166
7,935,000 7,935,000 -
14,131,106 17,721,303 3,590,197
7,886,605 7,886,605 -
9,224,677 10,859,135 1,634,458
4,891,913 4,891,913 -
8,705,803 10,024,348 1,318,545
5,827,113 5,827,113 -
4,008,846 4,146,568 137,722
2,902,677 2,902,677 -
6,346,926 6,163,897 (183,029)
</TABLE>
