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 March 26, 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
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(Exact name of registrant as specified in its charter)
CALIFORNIA 94-1402710
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(State or other jurisdiction of (I.R.S. Employer
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
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes _X_. No ___.
Common stock, no par value, outstanding as of March 26, 1999 6,563,000 shares
Page 1
<PAGE>
*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.
There can be no assurance that the pending sale of the Semiconductor
Equipment Group (SEG) to Silicon Valley Group (SVG) will be completed,
nor can there be any assurance that Watkins-Johnson will be successful
in implementing the strategy to pursue the sale of the company in its
entirety or in separate transactions (see Item 2 in Part I). Until the
company has had a chance to solicit and evaluate expressions of
interest, the company cannot determine whether full value can be
realized at this time either for the entire company or for its
component businesses.
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 three
months ended March 26, 1999, are not necessarily indicative of the
results for the year ending December 31, 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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WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS*
For the periods ended March 26, 1999 and March 27, 1998
Three Months Ended
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(Dollars in thousands, except per share amounts) 1999 1998
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Sales $ 65,181 $ 68,722
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Costs and expenses:
Cost of goods sold 42,298 42,546
Selling and administrative 10,247 15,821
Research and development 9,131 13,208
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61,676 71,575
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Income (loss) from operations 3,505 (2,853)
Other income (expense)-net 457 1,929
Gain on real property 14,783
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Income before federal, state and
foreign income taxes 3,962 13,859
Income tax expense (1,109) (4,158)
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Net income $ 2,853 $ 9,701
===============================================================================
Per share amounts:
Basic net income per share $ 0.44 $ 1.17
Basic average common shares 6,558,000 8,262,000
Diluted net income per share $ 0.43 $ 1.15
Diluted average common shares 6,645,000 8,416,000
*Unaudited
Page 3
<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME*
For the periods ended March 26, 1999 and March 27, 1998
<CAPTION>
Three Months Ended
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(Dollars in thousands) 1999 1998
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<S> <C> <C>
Net income $ 2,853 $ 9,701
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Other comprehensive income (expense), net of tax:
Foreign currency translation adjustments 106 (16)
Net unrealized holding gains (losses) on securities
arising during period net of reclassification
adjustment of $0 (96) (86)
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Other comprehensive income (expense) 10 (102)
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Comprehensive income $ 2,863 $ 9,599
====================================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
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<PAGE>
<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of March 26, 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 $ 15,395 $ 19,271
Short-term investments 40,014 45,353
Receivables 47,562 31,942
Inventories:
Finished goods 2,923 2,960
Work in process 8,917 11,954
Raw materials and parts 7,919 8,456
Deferred income taxes 31,557 32,288
Other 17,713 19,872
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Total current assets 172,000 172,096
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Property, plant, and equipment 140,849 140,224
Accumulated depreciation and amortization (79,157) (77,585)
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Property, plant, and equipment--net 61,692 62,639
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Other assets 10,714 10,743
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$ 244,406 $ 245,478
====================================================================================================================================
LIABILITIES AND SHAREOWNERS' EQUITY
Current liabilities:
Payables $ 16,200 $ 15,704
Accrued liabilities 62,283 65,374
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Total current liabilities 78,483 81,078
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Long-term obligations 31,901 32,701
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Shareowners' equity:
Common stock 34,702 34,454
Retained earnings 101,138 99,073
Accumulated other comprehensive income (loss) (1,818) (1,828)
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Total shareowners' equity 134,022 131,699
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$ 244,406 $ 245,478
====================================================================================================================================
<FN>
*Unaudited
</FN>
</TABLE>
Page 5
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<TABLE>
WATKINS-JOHNSON COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS*
For the periods ended March 26, 1999 and March 27, 1998
<CAPTION>
Three Months Ended
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(Dollars in thousands) 1999 1998
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 2,853 $ 9,701
Reconciliation of net income to cash flows:
Depreciation and amortization 2,425 3,683
Gain on disposal of property, plant and equipment (14,783)
Net changes in:
Receivables (15,731) (10,588)
Inventories 3,535 (1,993)
Other assets 2,941 137
Accruals and payables (2,674) (17,225)
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Net cash used by operating activities (6,651) (31,068)
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INVESTING ACTIVITIES:
Additions of property, plant, and equipment (1,870) (5,237)
Proceeds from sale of short-term investments 5,155
Purchases of short-term investments (34,695)
Proceeds on asset retirements and other 39 15,873
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Net cash provided (used) by investing activities 3,324 (24,059)
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FINANCING ACTIVITIES:
Payments on long-term borrowing (151) (140)
Net borrowings (repayments) under line-of-credit 478
Proceeds from issuance of common stock 248 901
Repurchase of common stock (1,408)
Dividends paid (787) (991)
Other (52) 16
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Net cash used by financing activities (742) (1,144)
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Effect of exchange rate changes on cash 193 (37)
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Net decrease in cash and equivalents (3,876) (56,308)
Cash and equivalents at beginning of period 19,271 134,462
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Cash and equivalents at end of period $ 15,395 $ 78,154
====================================================================================================================================
<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
first quarter of 1999 and 1998.
<TABLE>
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):
<CAPTION>
For Three Months Ended
------------------------------------
March 26, 1999 March 27, 1998
-------------- --------------
<S> <C> <C>
Net income (numerator) $ 2,853 $ 9,701
========== ==========
Basic per share amounts (denominator):
Weighted average shares outstanding 6,558,000 8,262,000
========== ==========
Diluted per share amounts (denominator):
Weighted average shares outstanding 6,558,000 8,262,000
Effect of dilutive stock options 87,000 154,000
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Diluted average common shares 6,645,000 8,416,000
========== ==========
Basic net income per share $ 0.44 $ 1.17
========== ==========
Diluted net income per share $ 0.43 $ 1.15
========== ==========
</TABLE>
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Item 1. Financial Statements (continued)
Weighted average options outstanding to purchase 838,000 and 621,000
shares of common stock were not included in the computation of diluted
per share amounts for the three months ended March 26, 1999 and March
27, 1998, respectively, because the weighted average exercise prices
were greater than the average market prices of the common shares.
Weighted average exercise prices of $33.40 in 1999 and $37.18 in 1998
exceeded the average market prices of $23.66 and $26.31, respectively.
This calculation is submitted in accordance with Regulation S-K, Item
601(b)(11).
<TABLE>
Sales to external customers and pre-tax profit (loss) by business
segment for the three months ended March 26, 1999 and March 27, 1998
are as follows:
<CAPTION>
Sales Pre-tax income
(in thousands) 1999 1998 1999 1998
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Wireless Communications $34,663 $30,006 $2,419 $ 545
Semiconductor Equipment 30,518 38,716 1,086 (3,398)
--------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 3,505 (2,853)
Other income (expense)-net 457 16,712
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Total $65,181 $68,722 $3,962 $13,859
==================================================================================================
</TABLE>
Recently Issued Accounting Standard--In June 1998, the Financial
Accounting Standards Board issued Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and
Hedging Activities." This Statement requires 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, 2000. 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.
Subsequent Events--On March 31, 1999, Watkins-Johnson Company announced
it completed the sale of its high-density plasma chemical vapor
deposition intellectual property assets plus associated inventory and
hardware to Applied Materials, Inc. This sale will result in a
second-quarter 1999 pre-tax gain of approximately $9 million.
On May 3, 1999, Watkins-Johnson Company announced that it has signed a
definitive agreement to sell its Semiconductor Equipment Group to
Silicon Valley Group for a total value, including retained receivables,
exceeding $50 million. This value includes approximately $20 million of
the company's long-term debt to be assumed by Silicon Valley Group.
Under its agreement with Silicon Valley Group, the company is selling
its semiconductor equipment business associated with the
atmospheric-pressure chemical-vapor-deposition products (APCVD) and
related real estate. The $20 million in debt secures the land, building
and equipment in Kawasaki, Japan. The sale is expected to be completed
by the end of June 1999 and is subject to satisfaction of customary
closing conditions, including compliance with Hart-Scott-Rodino. There
can be no assurance that the sale process will be successfully
completed.
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PART I--FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion 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 March 26, 1999, cash and equivalents and short-term investments
totaled $55.4 million, a decline of $9.2 million from the 1998 year-end
balance of $64.6 million. The decrease resulted primarily from the
company's working capital requirements, as reflected in the
consolidated statement of cash flows for the period ended March 26,
1999.
For the first quarter of 1998, cash and equivalents and short-term
investments decreased $21.8 million from $134.5 million as of December
31, 1997 to $112.7 million as of March 27, 1998. The decrease was
attributed primarily to working capital requirements and purchases of
capital equipment which was offset in part by proceeds from the sale of
real property.
As of March 26, 1999, the company's principal source of liquidity
consisted of $15.4 million in cash and equivalents plus short-term
investments valued at $40.0 million. The company invests its excess
cash and equivalents in securities with maturities 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 will rise and fall in value if market interest
rates change.
From time to time the company may enter into certain long-term
borrowing arrangements with financial lending institutions for capital
acquisitions of property, plant and equipment. As of March 26, 1999,
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 is expected to be sufficient to satisfy
anticipated cash 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 Corp., the company 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 (HDPCVD) intellectual
property assets plus associated inventory and hardware to Applied
Materials, Inc. This will result in a second-quarter 1999 pre-tax gain
of approximately $9 million.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
On May 3, 1999, Watkins-Johnson Company announced that it has signed a
definitive agreement to sell its Semiconductor Equipment Group to
Silicon Valley Group for a total value, including retained receivables,
exceeding $50 million. This value includes approximately $20 million of
the company's long-term debt to be assumed by Silicon Valley Group.
Under its agreement with Silicon Valley Group, the company is selling
its semiconductor equipment business associated with the
atmospheric-pressure chemical-vapor-deposition products (APCVD) and
related real estate. The $20 million in debt secures the land, building
and equipment in Kawasaki, Japan. The sale is expected to be completed
by the end of June 1999 and is subject to satisfaction of customary
closing conditions, including compliance with Hart-Scott-Rodino.
There can be no assurance that the sale of the Semiconductor Equipment
Group to SVG will be completed, nor can there be any assurance that
Watkins-Johnson will be able to complete its strategy for the sale of
the entire company.
Current Operations and Business Outlook
For the first quarter of 1999, the company reported sales of $65.2
million and net income of $2.9 million, or $0.43 diluted net income per
share. For the same period in 1998, sales were $68.7 million and net
income was $9.7 million, or $1.15 diluted net income per share.
Included in the 1998 results is a $15.0 million pre-tax gain on the
sale of undeveloped land. Firm backlog on March 26, 1999 stood at $98.3
million, compared to the 1998 first quarter ending backlog of $82.2
million. Since most of the company's backlog can be canceled or
rescheduled, backlog is not necessarily a meaningful indicator of
future revenue.
Operations and business outlook for each of the company's business
segments are discussed below.
Wireless Communications
Wireless Communications sales for the first quarter of 1999 totaled
$34.7 million, a 16% increase over the prior year's first quarter sales
of $30.0 million. The segment received first-quarter 1999 orders of
approximately $41.0 million compared to $35.0 million for the same
period last year. The business segment is entering the second quarter
of 1999 with a backlog totaling approximately $73.6 million compared to
$65.7 million on March 27, 1998.
For the first quarter of 1999, the business segment reported pre-tax
operating profit of approximately $2.4 million compared to $0.5 million
in the first quarter of 1998.
Looking forward, the segment intends to focus on the following
opportunities to continue its long-term growth: gallium-arsenide (GaAs)
semiconductor devices, repeaters, advanced RF technology subassemblies,
and communications surveillance receiver programs with strong follow-on
potential.
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 communications companies, some of which are much
larger than Watkins-Johnson, is intense. The effect of these and other
factors could significantly affect the company's future operating
results.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Semiconductor Equipment
Sales of semiconductor equipment for the first quarter of 1999 amounted
to $30.5 million, down 21% from the $38.7 million recorded for the same
period last year, but up 26% from 1998 fourth-quarter sales of $24.2
million. The segment received first-quarter 1999 orders of
approximately $43.0 million compared to $22.0 million for the same
period last year. First-quarter 1999 orders include multiple orders for
the newly introduced WJ-1500 system. This business segment is entering
the second quarter of 1999 with a backlog totaling approximately $24.7
million compared to $16.5 million on March 27, 1998.
For the first quarter of 1999, the business segment reported pre-tax
operating profit of approximately $1.1 million compared to a loss of
$3.4 million in the first quarter of 1998.
The Semiconductor Equipment segment's first quarter was their best in
two years. Bookings were also positive with a book-to-bill ratio of 1.4
to 1.
Looking forward, the company expects this segment to continue to
rebound. However, it is difficult to predict what the future might hold
in the semiconductor equipment business. Capital equipment decisions
are affected by a number of parameters and the company is watching its
customers' market dynamics closely.
The Semiconductor Equipment Group's business depends upon the planned
and actual capital expenditures of the semiconductor manufacturers, who
react to the current and anticipated market demand for integrated
circuits. In 1996 its history of cyclical variations returned with a
market downturn. That downturn was exacerbated in the fourth quarter of
1997 by financial-system collapses and currency devaluations in Asia,
the company's principal overseas market region for capital equipment.
The semiconductor equipment business can vary rapidly in response to
individual customer demand. Following placement of orders, customers
frequently seek either faster or delayed delivery, based on their
changing needs. Uncertainty increases significantly when projecting
product demand in the future. While the company cannot predict what
effect these various factors will have on operating results, these
factors along with other factors could significantly affect the
company's future operating results.
First Quarter of 1999 Compared to First Quarter of 1998
Wireless Communications sales increased 16% while Semiconductor
Equipment sales decreased 21%, resulting in an overall company decrease
of 5%. Gross margins decreased from 38% to 35%. Gross margins decreased
from the prior year first quarter mostly due to a shift in business
volume in both business segments and product mix.
Selling and administrative expenses decreased $5.6 million from 23% of
sales to 16% , due mostly to the third-quarter 1998 restructurings and
cost control efforts.
Research and development expenses were $9.1 million in the first
quarter of 1999, or 14% of sales, compared to $13.2 million, or 19% of
sales for the same period last year. The decrease in research and
development spending is due mostly to the third-quarter 1998
discontinuance of efforts on the HDPCVD initiative and the Base2(TM)
base station product.
The pre-tax operating income for the first quarter of 1999, before
other income, was $3.5 million compared with a loss of $2.9 million for
the first quarter of 1998. Interest and other income (net of other
expenses) decreased by $1.5 million due primarily to lower interest
income resulting from the decreased average cash balance and short-term
investments. In January 1998, the company concluded the sale of
undeveloped land adjacent to its San Jose, California facility,
resulting in a $15.0 million pre-tax gain reflected as "Gain on real
property" in the consolidated financial statements.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
For the first quarter of 1999, the effective tax rate for federal,
state and foreign income taxes was about 28% compared to 30% for the
same period last year. The tax rate in 1999 and 1998 is below the
statutory rate primarily due to benefits from federal and state
research tax credits and foreign export sales. Looking forward, the
company expects its effective tax rate to increase if the sale of the
Semiconductor Equipment segment is completed.
Net income was approximately $2.9 million in first quarter of 1999
compared to $9.7 million in first quarter of 1998, or $0.43 per diluted
share compared to $1.15 per diluted share, respectively. Diluted
average common shares were 6.6 million and 8.4 million at March 26,
1999 and March 27, 1998, respectively, and decreased mostly because of
the repurchase of company common shares.
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
domestic 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
domestic operations are on Oracle version 10.7. The company's
international operations run all business applications on SunSystems
software which is deemed Y2K compliant. 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 Semiconductor Equipment
segment has identified the issues, addressed the problems and developed
solutions. The solutions have been tested and found to work
satisfactorily. The Y2K issues do not affect the ability of the
products to process wafers, but involve maintaining temporary records
of wafer production history on systems produced prior to 1998. The Y2K
situation is an issue for only some of the products in the Wireless
Communications segment. The group is in the process of identifying
which products are affected. If a product is affected, the group will
seek to develop a solution and then communicate it to customers. The
current schedule is to identify all affected products and develop
solutions by mid 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.
Page 12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
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 and subsidiaries, 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.
Single European Currency Conversion
The company has established a team to address issues raised by the
introduction of the Single European Currency (Euro) for initial
implementation 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 results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
Disclosures about the company's market risk are included in Part II,
Item 7A of the company's annual report on Form 10-K for the year ended
December 31, 1998, filed March 12, 1999, Commission File No. 1-5631. In
the opinion of management, no material changes have occurred with
respect to the company's market risks since December 31, 1998.
Page 13
<PAGE>
PART II--OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of shareholders held April 29, 1999, shareowners
voted on the following:
Item 1: Election of Directors:
Nominee For Withheld
------- --- --------
Dean A. Watkins 5,799,421 147,453
H. Richard Johnson 5,787,709 159,165
W. Keith Kennedy 5,864,132 82,742
John J. Hartmann 5,799,661 147,213
Raymond F. O'Brien 5,855,289 91,585
William R. Graham 5,797,795 149,079
Robert L. Prestel 5,862,303 84,571
Gary M. Cusumano 5,854,955 91,919
Item 2: Proposal to amend the company's Articles of Incorporation and
Bylaws to eliminate their super-majority shareowner voting
requirements. The amendments will 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.
At the annual meeting of the shareowners on April 27, 1999, a
motion was made to keep the polls open until 11:00 a.m.,
pacific standard time, on May 24, 1999, at the company's
headquarters in Palo Alto, California. The vote on the motion
to keep the polls open was:
For 4,208,531 Against 0
------------- -------------
Abstain 0 Broker non-votes 0
------------- -------------
Percent of outstanding votes 64%
-------------
Item 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.
At the annual meeting of the shareowners on April 27, 1999, a
motion was made to keep the polls open until 11:00 a.m.,
pacific standard time, on May 24, 1999, at the company's
headquarters in Palo Alto, California. The vote on the motion
to keep the polls open was:
For 4,208,531 Against 0
------------- -------------
Abstain 0 Broker non-votes 0
------------- -------------
Percent of outstanding votes 64%
-------------
Page 14
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders (continued)
Item 4: Proposal to ratify the appointment of Deloitte & Touche as the
independent auditors of the company for accounting year ending
December 31, 1999.
For 5,900,118 Against 27,543
------------- -------------
Abstain 15,765 Broker non-votes 0
------------- -------------
Item 5. Other Information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a) A list of the exhibits required to be filed as part of this
report is set forth in the Exhibit Index, which immediately
precedes such exhibits. The exhibits are numbered according to
Item 601 of Regulation S-K.
b) No reports on Form 8-K were required to be filed during the
quarter.
Page 15
<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 May 7, 1999 By: /s/ W. Keith Kennedy, Jr.
-------------------------------- ---------------------------------
W. Keith Kennedy, Jr.
President and Chief Executive Officer
Date May 7, 1999 By: /s/ Scott G. Buchanan
-------------------------------- ---------------------------------
Scott G. Buchanan
Executive Vice President, Chief
Financial Officer and Treasurer
Page 16
<PAGE>
EXHIBIT INDEX
The Exhibits below are numbered according to Item 601 of Regulation S-K.
Exhibit
Number Exhibit
------ -------
27 Financial Data Schedule for the quarter
ended March 26, 1999.
Page 17
<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> 15,395
<SECURITIES> 40,014
<RECEIVABLES> 47,562
<ALLOWANCES> 0
<INVENTORY> 19,759
<CURRENT-ASSETS> 172,000
<PP&E> 140,849
<DEPRECIATION> 79,157
<TOTAL-ASSETS> 244,406
<CURRENT-LIABILITIES> 78,483
<BONDS> 31,901
0
0
<COMMON> 34,702
<OTHER-SE> 99,320
<TOTAL-LIABILITY-AND-EQUITY> 244,406
<SALES> 65,181
<TOTAL-REVENUES> 65,181
<CGS> 42,298
<TOTAL-COSTS> 42,298
<OTHER-EXPENSES> 18,658
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 263
<INCOME-PRETAX> 3,962
<INCOME-TAX> 1,109
<INCOME-CONTINUING> 2,853
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,853
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.43
</TABLE>
